UNITED STATES – DEFINITIVE ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS FROM CHINA
Document: Report of the Panel
Date: 22 October 2010
Document codes: WT/DS379/R
Complainant: China
Respondent: U.S.
Third parties: Argentina, Australia, Bahrain, Brazil, Canada, EU, India, Japan, Kuwait, the State of, Mexico, Norway, Saudi Arabia, Taiwan, Turkey
Dispute stage: Appellate Body
Agreements cited: Art. I, VI  GATT 1994Art. 1, 2, 10, 12, 13, 14, 19, 32  Subsidies and Countervailing Measures (SCM)Art. 1, 2, 6, 9, 18, Annex II  Anti-dumpingArt. 15  Protocol of Accession

UNITED STATES – DEFINITIVE ANTI-DUMPING AND
COUNTERVAILING DUTIES ON CERTAIN PRODUCTS
FROM CHINA

Report of the Panel

I. INTRODUCTION
A. COMPLAINT OF CHINA
1.1 On 19 September 2008, China requested consu ltations with the United States pursuant to
Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
("DSU"), Article XXIII:1 of the General Agreement on Ta riffs and Trade 1994 ("GATT 1994"),
Article 30 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement") and
Article 17 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994 ("AD Agreement"). The consultations concerned definitive anti-dumping and
countervailing duties imposed by the United States on imports of four products from China (circular
welded carbon quality steel pipe, pneumatic off-the-road tires, light–walled rectangular pipe and tube,
laminated woven sacks). 1 China and the United States held consultations on 14 November 2008.
These consultations failed to resolve the dispute.
1.2 On 9 December 2008, China requested the estab lishment of a panel pursuant to Articles 4.7
and 6 of the DSU, Article XXIII:2 of the GAT T 1994, Article 30 of the SCM Agreement, and
Article 17 of the AD Agreement.2
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.3 At its meeting on 20 January 2009, the Di spute Settlement Body ("DSB") established the
Panel pursuant to the request of China in documen t , in accordance with Article 6 of the
DSU.
1.4 The Panel's terms of reference are the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by China in document , the matte r referred to the DSB by China in that
document, and to make such finding s as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
1.5 On 23 February 2009, China requested the Dir ector-General to determine the composition of
the Panel, pursuant to paragraph 7 of Article 8 of the DSU.
1.6 On 4 March 2009, the Director-General composed the Panel as follows:
Chairperson: Mr. David Walker
Members: Mr. Thinus Jacobsz
Ms Andrea Marie Brown
1.7 Argentina, Australia, Bahrain, Braz il, Canada, the European Communities
3, India, Japan,
Kuwait, Mexico, Norway, Saudi Arabia, Chinese Taipei and Turkey reserved their rights to
participate in the Panel proceedings as third parties.4

1 WT/DS379/1, ("China request for consultations").
2 WT/DS379/2, ("China request for establishment of the Panel").
3 On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community ("Treaty of Lisbon") (done at Lisbon, 13 December 2007) entered into
force. On 29 November 2009, the WTO received a Verbal Note (WT/L/779) from the Council of the European
Union and the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon , as of
1 December 2009, the European Union replaces and succeeds the European Community.

1.8 The Panel met with the parties to the dis pute on 7-8 July 2009 and 11-12 November 2009,
and with the third parties on 7 July 2009.
1.9 The Panel submitted its interim report to the parties on 11 June 2010 and submitted its final
report to the parties on 23 July 2010.
C. A
DDITIONAL PROCEDURES FOR THE PROTECTION OF BUSINESS CONFIDENTIAL INFORMATION
1.10 On 26 March 2009, China requested the Pane l to adopt additional working procedures
concerning Business Confidential Information ("BCI"). To that effect, China submitted to the Panel a
set of proposed BCI procedures. The parties had the opportunity to present written and oral
comments regarding China's request. Following th e exchange of views between the parties, on
7 April 2009 the Panel adopted additional procedur es for the protection of BCI. These procedures are
set forth in Annex E.
II. FACTUAL ASPECTS
2.1 This dispute concerns the definitive anti-dum ping and countervailing duties imposed by the
United States as a result of four anti-dumping a nd four countervailing duty investigations conducted
by the United States Department of Commerce (" USDOC"), covering four products from China: (i)
Circular Welded Carbon Quality Steel Pipe ("CWP" ); (ii) Certain New Pneumatic Off-the-Road Tires
("OTR"); (iii) Light–Walled Rectangular Pipe and Tube ("LWR"); and (iv) Laminated Woven Sacks
("LWS").5 China claims that the final USDOC determina tions that led to the imposition of the duties,
the orders imposing the duties themselves, and cer tain aspects of the conduct of the underlying
investigations are inconsistent with the United States' obligations under th e covered Agreements.
China also challenges an alleged imposition by th e United States of "double remedies" resulting from
the application, in the four sets of investigations at issue, of anti-dumping duties calculated under the
US non-market economy ("NME") methodology 6 simultaneously with countervailing duties on the
same products. China also makes "as such" claims against the alle ged U.S. failure to provide the
USDOC with legal authority to avoid the imposition of double remedies in such circumstances.
A. INVESTIGATIONS COVERED BY THIS DISPUTE
1. Circular Welded Carbon Quality Steel Pipe
(a) Countervailing duty investigation
2.2 On 5 July 2007, the USDOC initiated a counter vailing duty investigation on imports of CWP
from China.7 The products covered by the investigati on were certain circular welded carbon quality
steel pipes as classified in tariff sub-headings 7306.30.10.00, 7306.30.50.25, 7306.30.50.32,
7306.30.50.40, 7306.30.50.55, 7306.30.50.85, 7306.30.50.90, 7306.50.10.00, 7306.50.50.50,
7306.50.50.70, 7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50 of the Harmonized
Tariff Schedule of the United States ("HTSUS"), and as described more specifically in the USDOC's

4 WT/DS379/3.
5 Hereinafter referred to as "the four sets of inves tigations at issue" or "the four sets of anti-dumping
and countervailing duty investigations".
6 Under Section 773(c) of the US Tariff Act of 1930 (19 U.S.C. 1677b(c)), normal value in anti-
dumping investigations involving products from NME countries is determined on the basis of values of factors
of production in countries that the USDOC has designated as market economies.
7 Notice of Initiation of Countervailing Duty Investigation: Circular Welded Carbon Quality Steel Pipe
from the People's Republic of China ("CWP Notice of Initiation"), Exhibit CHI-5, pp. 36668 and 36670.

countervailing duty order. 8 The exporters/producers concerned were Tianjin Shuangjie Steel Pipe
Group Co., Ltd. ("Shuangjie"), Weifang East Stee l Pipe Co., Ltd. ("East Pipe"), and Zhejiang
Kingland Pipeline and Technologies Co., Ltd. ("Kingland"). 9 The period of investigation for the
purpose of the subsidy determination was 1 January to 31 December 2006.10
2.3 During the course of the investigation, ther e were communications and exchanges between
the USDOC and the parties to the investigation, inter alia , questionnaires and responses including
supplemental requests for information pertaining to new subsidy allegations, arguments, and
comments.11 On 13 November 2007, the USDOC published in the Federal Register a notice of
preliminary affirmative counter vailing duty determination, pr eliminary affirmative critical
circumstances determination, and alignment of final countervailing duty determination with final anti-
dumping duty determination. 12 On 5 June 2008, the USDOC pub lished a final countervailing duty
determination.13 On 22 July 2008, the USDOC published an amended final determination and notice
of countervailing duty order, findi ng "net subsidy rates" ranging from 29.62 per cent to 616.83 per
cent, and indicating that it would direct U.S. Cust oms and Border Protection to require importers to
post cash deposits equal to these net subsidy rates.14
2.4 The USDOC determined, inter alia, that the government provision of hot-rolled steel ("HRS")
to certain producers through state-owned enterprises ("SOEs") constituted subsidies that were de facto
specific. In addition, the USDOC found that the provision of HRS through private trading companies
that had purchased HRS from state-owned producers and/or suppliers also constituted countervailable
subsidies. The USDOC resorted to adverse facts available to determine the amount of SOE-produced
HRS that investigated pipe producers had purch ased from trading company suppliers. The USDOC
determined that private prices in China could not be used as benchmarks to determine the existence
and amount of benefit conferred by such subsidies and as a result resorted to alternative benchmarks
in conducting its benefit determination.
2.5 Based on adverse facts available, the USDOC al so determined that China provided subsidies
in the form of preferential lending by state-owne d commercial banks ("SOCBs") to one investigated
producer, East Pipe, and that these subsidies were de jure specific. In determining the existence and
amount of the benefit from the loans, the USDOC cons idered that it would not be appropriate to use
the interest rate applicable to loans issued by Chinese banks as a benchmark and instead constructed a
proxy interest rate to determine the existence and amount of benefit conferred by the loans.15

8 Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Notice of Amended
Final Affirmative Countervailing Duty Determination and Notice of Countervailing Duty Order ("CWP
Countervailing Duty Order"), Exhibit CHI-8, p. 42546.
9 Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Preliminary
Affirmative Countervailing Duty Determination; Pr eliminary Affirmative Determination of Critical
Circumstances; and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty
Determination ("CWP Preliminary Countervailing Duty Determination"), Exhibit CHI-6, p. 63876.
10 Id., p. 63881.
11 See, e.g., Exhibit CHI-6, pp. 63876-63877; and Circular Welded Carbon Quality Steel Pipe from the
People's Republic of China: Final Affirmative Coun tervailing Duty Determination and Final Affirmative
Determination of Critical Circumstances ("CWP Final Countervailing Duty Determination"), Exhibit CHI-7,
pp. 31966-31967.
12 Exhibit CHI-6, p. 63876.
13 Exhibit CHI-7, p. 31969.
14 Exhibit CHI-8, p. 42547.
15 Issues and Decision Memorandum for the Fina l Determination in the Countervailing Duty
Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of China , ("CWP
Countervailing Duty I&D Memo"), Exhibit CHI-1, pp. 9-12, 14-15, 62-67 and 72-79.

(b) Anti-dumping investigation
2.6 In parallel to the countervailing duty investig ation on CWP from China, the USDOC initiated
an anti-dumping investigation with respect to the sa me product. The period of investigation for the
dumping determination was 1 October 2006 to 31 March 2007. The USDOC treated China as an
NME country for purposes of determining normal value and calculating the margins of dumping. On
5 June 2008, the USDOC published a final anti -dumping duty determination, finding dumping
margins ranging from 69.20 per cent to 85.55 per cent.
16 On 22 July 2008, the USDOC published an
anti-dumping duty order, indicating that it would di rect U.S. Customs and Border Protection to
require importers to post cash deposits equal to these dumping margins.17
2. Light–Walled Rectangular Pipe and Tube
(a) Countervailing duty investigation
2.7 On 24 July 2007, the USDOC initiated a counter vailing duty investigation on imports of
LWR from China. 18 The products covered by the investig ation were certain welded carbon-quality
light-walled steel pipe and tube, of rectangular (including square) cross section, having a wall
thickness of less than 4mm as classified in tariff sub-headings 7306.61.50.00 and 7306.61.70.60 of the
HTSUS, and as described more specifically in the USDOC's countervailing duty order. 19 T h e
exporters/producers concerned were Qingdao Xi angxing Steel Pipe Co., Ltd. ("Qingdao");
Zhangjiagang Zhongyuan Pipe–Making Co., Ltd. ("ZZPC"); and Lets Win. 20 The period of
investigation for purposes of the subsidy determination was 1 January to 31 December 2006.21
2.8 During the course of the investigation, ther e were communications and exchanges between
the USDOC and the parties to the investigation, inter alia, questionnaires and responses including
supplemental requests for information pertaining to new subsidy allegations, arguments, and
comments.22 On 30 November 2007, the USDOC published in the Federal Register a notice of
preliminary affirmative countervailing duty determin ation and alignment of final countervailing duty
determination with final anti-dumping duty determination.23 On 24 June 2008, the USDOC published
a final countervailing duty determination, finding "n et subsidy rates" ranging from 2.17 per cent to
200.58 per cent. 24 On 5 August 2008, the USDOC published a countervailing duty order, indicating

16 Issues and Decision Memorandum for the Final Determination of Sales at Less than Fair Value
("CWP Anti-Dumping Duty I&D Memo"), Exhibit CHI-9, pp . 10-14; Notice of Final Determination of Sales at
Less Than Fair Value and Affirmative Final Determination of Critical Circumstances: Circular Welded Carbon
Quality Steel Pipe from the People's Republic of China ("CWP Final Anti-Dumping Duty Determination"),
Exhibits CHI-10, pp. 31970-31973.
17 Notice of Antidumping Duty Order: Circular Welded Carbon Quality Steel Pipe from the People's
Republic of China ("CWP Anti-Dumping Duty Order"), Exhibit CHI-11, pp. 42548-42549.
18 Notice of Initiation of Countervailing Duty Investigation: Light–Walled Rectangular Pipe and Tube
from the People's Republic of China ("LWR Notice of Initiation"), Exhibit CHI-18, pp. 40281 and 40283.
19 Light–Walled Rectangular Pipe and Tube from the People's Republic of China: Notice of
Countervailing Duty Order ("LWR Countervailing Duty Order"), Exhibit CHI-21, pp. 45405-45406.
20 Light–Walled Rectangular Pipe and Tube from the People's Republic of China: Preliminary
Affirmative Countervailing Duty Determination and Ali gnment of Final Countervailing Duty Determination
with Final Antidumping Duty Determination ("LWR Preliminary Countervailing Duty Determination"), Exhibit
CHI-19, p. 67703.
21 Id., p. 67706.
22 See, e.g., Exhibit CHI-19, pp. 67703-67704; and Light–Walled Rectangular Pipe and Tube from the
People's Republic of China: Final Affirmative Countervailing Duty Investigation Determination ("LWR Final
Countervailing Duty Determination"), Exhibit CHI-20, p. 35643.
23 Exhibit CHI-19, p. 67703.
24 Exhibit CHI-20, p. 35642.

that it would direct U.S. Customs and Border Pr otection to require importe rs to post cash deposits
equal to these net subsidy rates.25
2.9 The USDOC determined, inter alia , that the government provision of HRS through SOEs
constituted financial contributions that conferred benefits, and that such subsidies were de facto
specific. The USDOC also determined that th e provision of SOE-produced HRS through private
trading companies constituted countervailable subsidi es. The USDOC resorted to facts available to
determine the amount of SOE-produced HRS that investigated producers purchased from trading
companies. The USDOC considered that private prices for HRS in China could not be used as
benchmarks to determine the existe nce and amount of benefit conferred and, as a result, resorted to
out-of-country benchmarks for the purposes of benefit determinations.26
(b) Anti-dumping investigation
2.10 In parallel to the countervailing duty investig ation on LWR from China, the USDOC initiated
an anti-dumping investigation with respect to the sa me product. The period of investigation for the
dumping determination was 1 October 2006 to 31 March 2007. The USDOC treated China as an
NME country for purposes of calculating the normal value and margins of dumping. On
24 June 2008, the USDOC published a final an ti-dumping duty determination, finding dumping
margins ranging from 249.12 per cent to 264.64 per cent.27 On 5 August 2008, the USDOC published
an anti-dumping duty order, indicating that it would direct U.S. Customs and Border Protection to
require importers to post cash deposits equal to these dumping margins.
28
3. Laminated Woven Sacks
(a) Countervailing duty investigation
2.11 On 25 July 2007, the USDOC initiated a countervailing duty investigation on imports of LWS
from China 29, as classified in tariff sub-headings 6305.33.0050, 6305.33.0080, 392 3.21.0080,
3923.21.0095, 3923.29.0000, 3917.39.0050, 3921.90.1100, 3921.90.1500, 5903.90.2500,
4601.99.0500, 4601.99.9000, and 4602.90.000 of the HTSUS, and as described more specifically in
the USDOC's countervailing duty order.
30 The exporters/producers concerned were Han Shing
Chemical Co., Ltd. ("Han Shing Chemical"); Ningbo Yong Feng Packaging Co., Ltd. ("Ningbo");
Shangdong Qilu Plastic Fabric Group, Ltd. ("Q ilu"); Shangdong Shouguang Jianyuan Chun Co., Ltd.

25 Exhibit CHI-21, p. 45406.
26 Issues and Decision Memorandum for the Fina l Determination in the Countervailing Duty
Investigation of Light–Walled Rectangular Pipe and Tube from the People's Republic of China ("LWR
Countervailing Duty I&D Memo"), Exhibit CHI-2, pp. 8-10 and 25-37; and Exhibit CHI-19, pp. 67707-67708.
27 Final Determination of Sales at Less Than Fair Value and Affirmative Determination of Critical
Circumstances, in Part: Light–Walled Rectangular Pipe and Tube from the People's Republic of China ("LWR
Final Anti-Dumping Determination"), Exhibit CHI-23, pp. 35652-35654.
28 Light–Walled Rectangular Pipe and Tube from Mexico, the People's Republic of China, and the
Republic of Korea: Antidumping Duty Orders; Light–Walled Rectangular Pipe and Tube from the Republic of
Korea: Notice of Amended Final Determination of Sales at Less Than Fair Value ("LWR Anti-Dumping Duty
Order"), Exhibit CHI-24, p. 45405-45406.
29 Laminated Woven Sacks from the People's Republic of China: Initiation of Countervailing Duty
Investigation ("LWS Notice of Initiation"), Exhibit CHI-33, pp. 40839-40840.
30 Laminated Woven Sacks from the People's Republic of China: Countervailing Duty Order ("LWS
Countervailing Duty Order"), Exhibit CHI-36, pp. 45955-45956.

("SSJ"); and Zibo Aifudi Plastic Packaging Company Limited ("Aifudi").
31 The investigation
concerned imports during the period from 1 January to 31 December 2006.32
2.12 During the course of the investigation, ther e were communications and exchanges between
the USDOC and the parties to the investigation, inter alia, questionnaires and responses including
supplemental requests for information pertaining to new subsidy allegations, arguments, and
comments.33 On 3 December 2007, the USDOC publishe d in the Federal Register a notice of
preliminary affirmative counter vailing duty determination, pr eliminary affirmative critical
circumstances determination, and alignment of final countervailing duty determination with final anti-
dumping duty determination. 34 On 24 June 2008, the USDOC pub lished a final countervailing duty
determination, finding "net subsidy rates" ranging from 29.54 per cent to 352.82 per cent. 35 O n
7 August 2008, the USDOC published a countervailing dut y order, indicating that it would direct U.S.
Customs and Border Protection to require importers to post cash deposits equal to these net subsidy
rates.36
2.13 The USDOC determined, inter alia , that the provision of biaxial-oriented polypropylene
("BOPP") by SOEs constituted a financial contribution which conferred a benefit and that this subsidy
was specific. The USDOC used an out-of-country benchmark to determine the existence and amount
of the subsidy benefits and relie d on adverse facts available to de termine the extent of government
ownership of BOPP producers in China. Also ba sed on adverse facts available, the USDOC found
that the provision of preferential loans by govern ment policy banks and SO CBs constituted subsidies
which were de jure specific. In determining the existence and amount of the benefit from the loans,
the USDOC considered that it would not be appropriate to use the interest ra te applicable to loans
issued by Chinese banks as a benchmark and instead constructed a proxy interest rate to determine the
existence and amount of benefit conferred by the loans. Finally, the USDOC also found that the
government provision of land-use rights was a c ountervailable subsidy, and used out-of-country
benchmarks to determine the existence and amount of the subsidy benefits.37
(b) Anti-dumping investigation
2.14 In parallel to the countervailing duty inves tigation on LWS from China, the USDOC initiated
an anti-dumping investigation with respect to the sa me product. The period of investigation for the
dumping determination was 1 October 2006 to 31 March 2007. The USDOC treated China as an
NME country for purposes of determining normal value and calculating the margins of dumping. On
24 June 2008, the USDOC published a final anti- dumping duty determination, finding dumping

31 Laminated Woven Sacks from the People's Re public of China: preliminary Affirmative
Countervailing Duty Determination; Preliminary Affirmative Determination of Critical Circumstances, In Part;
and Alignment of Final Countervailing Duty Determi nation With Final Antidumping Duty Determination
("LWS Preliminary Countervailing Duty Determination"), Exhibit CHI-34, pp. 67893-67894.
32 Id., p. 67899.
33 See, e.g., Exhibit CHI-34, pp. 67893-67894 and 67905; and Laminated Woven Sacks From the
People’s Republic of China: Final Affirmative Count ervailing Duty Determination and Final Affirmative
Determination, in Part, of Critical Circumstances ("LWS Final Countervailing Duty Determination"), Exhibit
CHI-35, pp. 35639-35640.
34 Exhibit CHI-34, p. 67893.
35 Exhibits CHI-35, pp. 35639 and 35641.
36 Exhibit CHI-36, pp. 45955-45956.
37 Issues and Decision Memorandum for the Final Affirmative Countervailing Duty Determination:
Laminated Woven Sacks from the People’s Republic of China ("LWS Countervailing Duty I&D Memo"),
Exhibit CHI-3, pp. 11-21, 49-70 and 82-83.

margins ranging from 64.28 per cent to 91.73 per cent. 38 On 7 August 2008, the USDOC published
an anti-dumping duty order indicating that it would direct U.S. Customs and Border Protection to
require importers to post cash deposits equal to these anti-dumping margins.
39
4. Certain New Pneumatic Off-the-Road Tires
(a) Countervailing duty investigation
2.15 On 7 August 2007, the USDOC initiated a count ervailing duty investigation on imports of
OTR from China.40 The products covered were certain new pneumatic off-the-road tires as classified
in tariff sub-headings 4011.20.10.25, 4011.20.10.35, 4011.20.50.30, 4011.20.50.50, 4011.61.00.00,
4011.62.00.00, 4011.63.00.00, 4011.69.00.00, 4011.92.00.00, 4011.93.40.00, 4011.93.80.00,
4011.94.40.00, and 4011.94.80.00 of the HTSUS, and as described more specifically in the USDOC's
countervailing duty order.
41 The exporters/producers concerned were Guizhou Tire Co., Ltd.
("GTC"); Hebei Starbright Tire Co., Ltd. ("Starbright"); and Tianjin United Tire & Rubber
International Co., Ltd. ("TUTRIC").
42 The period of investigation for purposes of the subsidy
determination covered 1 January to 31 December 2006.43
2.16 During the course of the investigation, ther e were communications and exchanges between
the USDOC and the parties to the investigation, inter alia, questionnaires and responses, including
supplemental requests for information pertaining to new subsidy allegations, arguments, and
comments.44 On 17 December 2007, the USDOC published in the Federal Register its preliminary
affirmative countervailing duty determination. 45 On 15 July 2008, the USDOC published a final
countervailing duty determination, finding "net subs idy rates" ranging from 2.45 per cent to 14.00 per
cent.46 On 4 September 2008, the USDOC published a countervailing duty order indicating that it
would direct U.S. Customs and Border Protection to require importers to pos t cash deposits equal to
these net subsidy rates.47
2.17 The USDOC determined, inter alia , that the government provision of preferential loans,
through government policy banks and SOCBs, constituted a subsidy which was de jure specific. With
respect to one investigated producer, the USDOC also found that the government provision of land-
use rights constituted a countervailable subsidy. With respect to both types of subsidies, the USDOC
used out-of-country benchmarks to determine the ex istence and amount of benefit conferred. The
USDOC further found that the government provisi on of natural and synthetic rubber through SOEs

38 Laminated Woven Sacks from the People's Republic of China: Final Determination of Sales at Less
Than Fair Value and Partial Affirmative Determination of Critical Circumstances ("LWS Final Anti-Dumping
Duty Determination"), Exhibit CHI-38, pp. 35646-35648.
39 Notice of Antidumping Duty Order: Laminated Wo ven Sacks from the People's Republic of China
("LWS Anti-Dumping Duty Order"), Exhibit CHI-39, pp. 45941-45943.
40 Certain New Pneumatic Off-the-Road Tires From the People's Republic of China: Initiation of
Countervailing Duty Investigation ("OTR Notice of Initiation"), Exhibit CHI-49, pp. 44122 and 44124.
41 Certain New Pneumatic Off-the-Road Tires From the People's Republic of China: Countervailing
Duty Order ("OTR Countervailing Duty Order"), Exhibit CHI-52, pp. 51627-51628.
42 Certain New Pneumatic Off-the-Road Tires From the People's Republic of China: Preliminary
Affirmative Countervailing Duty Determination ("OTR Preliminary Countervailing Duty Determination") ,
Exhibit CHI-50, p. 71361.
43 Id., p. 71363.
44 See, e.g., Exhibit CHI-50, pp. 71361 and 71363-71376; and Certain New Pneumatic Off-the-Road
Tires From the People's Republic of China: Final Affirmative Countervailing Duty Determination and Final
Negative Determination of Critical Circumstances ("OTR Final Countervailing Duty Determination"), Exhibits
CHI-51, p. 40481.
45 Exhibit CHI-50, pp. 71360, 71366-71370, 71372-71374 and 71376.
46 Exhibits CHI-51, pp. 40480 and 40483.
47 Exhibit CHI-52, p. 51629.

constituted a countervailable subsidy. The USDOC al so found that the provision of rubber through
private trading companies that had purchased rubber from state-owned producers constituted a
countervailable subsidy. To determine whether th e government provision of rubber, either through
SOEs or private trading companies, had conferre d a benefit on investigated producers, the USDOC
used import prices of rubber paid by investigated producers and, where available, private prices in
China as a benchmark.
48
(b) Anti-dumping investigation
2.18 In parallel to the countervailing duty investig ation on OTR from China, the USDOC initiated
an anti-dumping investigation on the same product. The period of investigation for the dumping
determination was 1 October 2006 to 31 March 2007. The USDOC treated China as an NME country
for purposes of determining normal value and calculati ng the margins of dumping. On 15 July 2008,
the USDOC published a final anti-dumping duty determination.
49 On 4 September 2008, the USDOC
published an amended final dete rmination and anti-dumping duty order, finding dumping margins
ranging from 5.25 per cent to 210.48 per cent, indicating that it would direct U.S. Customs and Border
Protection to require importers to post cash deposits equal to these dumping margins.
50
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. CHINA
3.1 China requests that the Panel make the following findings:51
(i) The USDOC's findings that the government of China provided a financial
contribution in the form of goods in the four countervailing duty
determinations were inc onsistent with Article 1.1 of the SCM Agreement
and, as a consequence, with Articles 10 and 32.1 of the SCM Agreement and
Article VI:3 of the GATT 1994;
(ii) The USDOC's findings that private trading companies provided a financial
contribution in the form of goods in the LWR, CWP, and OTR countervailing
duty determinations were inconsistent with Article 1.1 of the SCM
Agreement and, as a consequence, wi th Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994;
(iii) The USDOC's findings of benefit in the four countervailing duty
determinations in respect of the goods allegedly provided by the government
of China and private trading companies were inconsistent with Article 14 of
the SCM Agreement and, as a consequen ce, with Articles 10 and 32.1 of the
SCM Agreement and Article VI:3 of the GATT 1994;

48 Issues and Decision Memorandum for the Final Affirmative Countervailing Duty Determination:
Certain New Pneumatic Off-the-Ro ad Tires (OTR Tires) from the People's Republic of China ("OTR
Countervailing Duty I&D Memo"), Exhibit CHI-4, pp. 7-15, 25-26, 80-83, 93-112, 151-155 and 169-191.
49 Certain New Pneumatic Off–The-Road Tires from th e People's Republic of China: Final Affirmative
Determination of Sales at Less Than Fair Value and Partial Affirmative Determination of Critical
Circumstances ("OTR Final Anti-dumping Determination"), Exhibit CHI-54, pp. 40485-40491.
50 Certain New Pneumatic Off-the-Road Tires From the People's Republic of China: Notice of
Amended Final Affirmative Determination of Sales at Less Than Fair Value and Antidumping Duty Order
("OTR Anti-dumping Duty Order"), Exhibit CHI-55, pp. 51624 and 51626.

(iv) The USDOC's inclusion of only positiv e benefits in its calculations of
whether producers in the OTR countervailing duty investigation obtained
benefits from the alleged provision of goods, while excluding negative
benefits in those calculations, was inc onsistent with Articles 10, 14, 19.1,
19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994;
(v) The USDOC's findings of financial contribution and specificity in the OTR
countervailing duty determination in resp ect of the alleged "policy lending"
subsidy were inconsistent, respectively, with Article 1.1 and Article 2 of the
SCM Agreement and, as a consequen ce, with Articles 10 and 32.1 of the
SCM Agreement and Article VI:3 of the GATT 1994;
(vi) The USDOC's findings of benefit in the LWS, CWP, and OTR countervailing
duty determinations in respect of the alleged "policy lending" subsidy were
inconsistent with Article 14 of the SCM Agreement and, as a consequence,
with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the
GATT 1994;
(vii) The USDOC's findings of specificity and benefit in the LWS countervailing
duty determination in respect of the provision of land-use rights were
inconsistent, respectively, with Ar ticle 2 and Article 14 of the SCM
Agreement and, as a consequence, wi th Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994;
(viii) The USDOC's finding of benefit in the OTR countervailing duty
determination in respect of the provisi on of land-use rights was inconsistent
with Article 14 of the SCM Agreement and, as a consequence, with
Articles 10 and 32.1 of the SCM Agreem ent and Article VI:3 of the GATT
1994;
(ix) In connection with the four sets of anti-dumping and countervailing duty
determinations at issue, the USDOC's use of its NME methodology to
determine normal value in the anti-dum ping determinations , concurrently
with a determination of subsidiza tion and the imposition of countervailing
duties on the same products, was inconsis tent with Articles 10, 19.3, 19.4,
and 32.1 of the SCM Agreement and with Article VI of the GATT 1994;
(x) The United States' failure to provide sufficient legal authority for the USDOC
to avoid the imposition of double remedies for the same alleged acts of
subsidization when it imposes anti-dumpi ng duties determined pursuant to its
NME methodology simultaneously with the imposition of countervailing
duties on the same product means that US law is, in all such instances,
inconsistent "as such" with Articles 10, 19.3, 19.4, and 32.1 of the SCM
Agreement and with Article VI of the GATT 1994;
(xi) In each of the four sets of an ti-dumping and countervailing duty
determinations at issue, the USDOC's failure to extend to imports from China
the same unconditional entitlement to the avoidance of a double remedy for
the same alleged acts of subsidiza tion that it extends to like products
originating in the territory of other Members was inconsistent with Article I:1
of the GATT 1994;

(xii) The United States' failure to provide sufficient legal authority for the USDOC
to avoid the imposition of double remedies for the same alleged acts of
subsidization when it imposes anti-dumpi ng duties determined pursuant to its
NME methodology simultaneously with the imposition of countervailing
duties on the same product means that, in all such instances, the United States
will fail to extend to imports from Ch ina the same unconditional entitlement
to the avoidance of a double remedy that it extends to like products
originating in the territory of other Memb ers, in violation of Article I:1 of the
GATT 1994;
(xiii) The USDOC's failure in the four counte rvailing duty investigations to give
the Government of China and interested parties 30 days to respond to all
questionnaires used in the investigations was inconsistent with Article 12.1.1
of the SCM Agreement;
(xiv) The USDOC's failure in the LWR and CWP countervailing duty
investigations to notify respondent prod ucers of the information it required
and to provide them with an ample opportunity to present relevant evidence
prior to resorting to facts available was inconsistent w ith Article 12.1 and
Article 12.7 of the SCM Agreement.
52
3.2 In addition, China requests that the Panel rej ect the United States' requests for preliminary
rulings, referred to in the next paragraph.53
B. UNITED STATES
3.3 The United States requests that the Panel re ject China's claims in their entirety. 54 In addition,
the United States requests that the Panel make certa in preliminary rulings: the United States requests
that the Panel find that the measure identified in China's Request for the Establishment of a Panel as
part of China's "as such" claims with respect to "double remedies" (i.e., "the failure of the
United States to provide legal authority for the US Department of Commerce to avoid the imposition
of a double remedy when it imposes anti-dumping duties determined pursuant to the US NME
methodology simultaneously with the imposition of countervailing duties on the same product") as
well as China's "as such" claims on double remedies themselves fall outside the Panel's terms of
reference.55
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties, as set forth in the executive summaries of their submissions
provided to the Panel, are attached to this Repor t in Annexes A, C and D (see List of Annexes,
pages xi and xii).

52 In its second written submission, China withdrew the request for findings and recommendations it
made in its first written submission with respect to its claim against the USDOC's failure to invite China for
consultations prior to its initiation of investigations into new subsidy allegations, which China had alleged was
inconsistent with Article 13.1 of the SCM Agreement. China indicated that it withdrew its request in this
respect "[i]n light of the United States' confirmation that it considers Article 13.2 of the SCM Agreement to
impose an obligation to provide China with the opportunity to consult throughout a CVD investigation,
including with respect to new subsidy allegations." (China second written submission, footnote 260).
53 China response to the United States' request for preliminary rulings, para. 40.
54 United States first written submission, para. 495.
55 Id., para. 86.

V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, as set forth in the executive summaries of their
submissions provided to the Panel, are attached to this Report in Annex B (see List of Annexes,
pages xi and xii).56
VI. INTERIM REVIEW
6.1 On 11 June 2010, the Panel issued its Interim Report to the parties. On 25 June 2010, both
parties submitted requests for the review of preci se aspects of the Interim Report. On 2 July, the
parties submitted comments on one another's requests for review.
6.2 This Interim Review section summarizes the parties' requests for review and comments
thereon, as well as our responses. Because the footno te numbering (but not the paragraph numbering)
of our Report has changed due to changes made at th e interim review stage, for the sake of clarity the
footnote references in this section reflect the numbering in the Final Report.
A. REQUEST FOR REVIEW SUBMITTED BY CHINA
6.3 China requests that we refer in footnote 52 to paragraph 3.1 to the reason given by China
for withdrawing its request for findings and r ecommendations with respect to its claim under
Article 13.1 of the SCM Agreement. The United St ates does not object to this request. We have
modified footnote 52 as requested by China.
6.4 China proposes that we either entirely delete, or modify, paragraph 8.3 , arguing that this
paragraph does not accurately summarize its argum ent, which according to China is accurately
summarized in paragraphs 8.4-8.6. In particular , China submits that (as the Panel correctly notes
elsewhere) it did not argue that SOEs and SOCBs in general, or the particular ones involved in these
investigations, as a matter of law could never be considered public bodies, and must in all cases be
treated as private bodies under Article 1.1; but that instead it argued that the actions of state-owned
corporate entities are prima facie private, and thus presumptively not attributable to a Member under
Article 1.1 of the SCM Agreement absent either a finding of entrustment or direction, or a finding that
such entities were public bodies, as China believes that term should be interpreted in accordance with
the Vienna Convention on the Law of Treaties. Ch ina similarly suggests that we change the drafting
of the first sentence of paragraph 8.55 to indicate that a public body, although not identical to a
government, must nonetheless possess characteristics si milar to those of a "government" as identified
by the Appellate Body in Canada – Dairy, i.e., should be defined as "a n entity which exercise powers
[or authority] vested in it by a 'government' for the purpose of performing functions of a
'governmental' character". Finally, China suggests th at we make similar modi fications to the last
sentence of paragraph 8.64
. The United States objects to China's request to delete paragraph 8.3,
and suggests instead that we delete its third, four th and fifth sentences, as China does not appear to
object to the first two sentences. The United Stat es does not object to China's proposed modifications
of paragraphs 8.55 and 8.64. We have introduc ed drafting changes to paragraph 8.3 to more
accurately reflect China's argument as summarized in pa ragraphs 8.4-8.6, and ha ve added citations in
new footnote 67. We also have modified paragraphs 8.55 and 8.64 to reflect China's suggestions and
have added citations in new footnote 149. Furtherm ore, for the sake of internal consistency and to
more accurately reflect China's position, we have introduced corresponding changes to
paragraphs 8.63, 8.66, 8.69, 8.70, 8.73, and 8.82.

56 Argentina, Australia, Brazil, Canada, the European Communities, Japan, Mexico, Norway, Saudi
Arabia and Turkey provided written submissions and/or ma de oral statements at the Panel's meeting with the
third parties. Bahrain, Kuwait and Chinese Taipei did not provide written submissions or make oral
presentations.

6.5 China submits that paragraph 8.18
 does not accurately describe its position with respect to
the so-called "five-factor" test applied by the USDOC in certain prior countervailing duty
investigations, arguing that before the Panel it never endorsed the five-f actor test as a proper basis for
determining the existence of a public body under the SCM Agreement or criticized the USDOC for
failing to employ that test. China submits that it ma de clear in its submissions to the Panel that the
five-factor test was "exclusively a creature of U.S. law," whose "consistency vel non with Article 1.1
of the SCM Agreement, as interpreted in accordance with Article 31 of the Vienna Convention, is not
before the Panel in this case." China recalls its st atements to the Panel that while two of the five
factors were "highly germane" to the public body inquiry, the remainder of the factors were of "little
relevance," and adds that in this same paragraph the Panel correctly notes China's view that the five-
factor test is relevant for this proceeding only to establish that prior to the four countervailing duty
investigations at issue, the USDOC itself had r ecognized that determining whether a state-owned
entity qualified as a public entity was a multi-factor, fact-intensive inquiry under U.S. law. We note
that China requests no specific modifications to this pa ragraph, however. Related to the issue it raises
in regard to paragraph 8.18, China also objects to paragraph 8.125
. China argues that this paragraph
incorrectly suggests that China made "arguments" regarding the meaning of "public body" based on
the five-factor test, and incorrectly characterizes Ch ina's statement, that it took "no solace" from the
USDOC's statement that it would reconsider applicati on of the five-factor test in an eventual future
administrative review, as indicating that China consid ers application of that test to be mandatory.
Rather, China indicates, it made this statement in connection with its argument that the USDOC not
only had applied the wrong substantive rule with respect to the term "public body", but also had
improperly shifted the burden to China to disprove the USDOC's presumption based on a per se
majority ownership rule that all SOEs are public bodies. China considers that paragraph 8.125 not
only is an incorrect summary of China's position but also is wholly unnecessary to the Panel's
analysis, and should be deleted.
6.6 The United States disagrees with China's comments on paragraphs 8.18 and 8.125. Regarding
paragraph 8.18, the United States notes China's statements before the Panel that the USDOC
"abandoned" the five-factor test in favour of a "per se rule, and concerning the USDOC's commitment
to "reconsider the feasibility of applying the five-factor test during an administrative review," that "[a]
Member may not avoid responsibility for failing to honour its WTO obligations by promising to
consider complying with them in th e future." The United States asserts that despite China's effort to
"emphasize" that it was not asking the Panel to determ ine the consistency of the five-factor test with
Article 1.1 of the SCM Agreement, it was neverthe less critical of the USDOC's determination not to
employ the test in the investigations at issue in this dispute. The United States similarly considers that
paragraph 8.125 accurately describes China's argumen t before the Panel concerning the five-factor
test, this paragraph noting both China's affirma tive "disclaimer that it is not arguing about the
consistency of the five-factor test with Article 1.1 of the SCM Agreement" and the implication in
China's argument that the "USDOC was obligated to ha ve applied that test. . . ." The United States
recalls that China raised the five-factor test and appeared to consider that the test addresses what
China identified the "'key' question regarding whether an entity is a public body" ( i.e., whether it
exercises governmental authority). The United States therefore considers that it was prudent of the
Panel to address in this paragraph the legal question whether under the SCM Agreement it is
necessary to examine the five factors to establish that an entity is government-controlled.
6.7 We have made certain modifications to the pa ragraphs identified by China in response to
these comments. First, to more comprehensively re flect China's arguments regarding the five-factor
test, we have introduced new footnote 94 to paragra ph 8.18. In paragraph 8.125, we have modified
the drafting and have added a cross-reference in footnote 248 to more clearly distinguish between
China's arguments and the Panel's a ppreciation of those arguments. We also have clarified that we
examine the potential relevance of the five-factor test under Article 1.1 of the SCM Agreement for the
sake of the completeness of our analysis, notwithstanding China's disclaimer.

6.8 China objects to the wording in footnote 186 , which it requests that we modify to reflect
language in the Panel Report in US – Countervailing Duty Investigation on DRAMS that the USDOC
might have been able to treat wholly-government-owned entities as 'public bodies' rather than 'private'
bodies, depending on the circumstances. The Un ited States does not share China's concern, but
considers that if we amend the drafting of this footnote in response to China's request, we should more
closely track the language used by the Appellate Body in that dispute. We have modified footnote
186 to reflect the language used by the Appellate Body.
6.9 China requests that we add a statement to footnote 274 to indicate that China had referred to
evidence that borrowers in the OT R tire industry obtained loans fro m SOCBs at interest rates that
were not materially different from interest rat es on loans made by SOCBs to borrowers in other
industries. The United States does not object to th is request. We have am ended this footnote as
requested by China.
6.10 China requests that we modify paragraph 9.25 to clarify that China's position is that the
term "subsidy" in Article 2.1(a) of the SCM Agre ement means a "subsidy" as defined in Article 1 of
that Agreement. The United States does not object to this request. We have modified the drafting of
this paragraph to reflect China's comment.
6.11 China notes that, unlike in footnote 693, the Panel makes no reference in paragraphs 10.26
and 10.70 of the Report either to the United States' clar ification that the United States was not relying
on the Protocol of Accession in its arguments against China's claims under Article 14, or to the Panel's
reliance on that clarification to conclude that its analysis of those claims would not take the arguments
of the United States referring to the Protocol into account. The United States does not believe that
any modification to the Report as requested by Chin a's comments is necessary, and in particular
considers it unnecessary to duplicate, in the paragra phs identified by China, the Panel's summary in
paragraph 10.11 and in footnote 693 of the U.S. position with respect to China's Protocol of
Accession. In response to China's request we have added new footnote 464 to paragraph 10.12
indicating that while we include the United Stat es' arguments referencing China's Protocol of
Accession in our summary of arguments with respect to the interpretation of Article 14(d), we do not
take those arguments into account in our analysis of China's claims on benchmarks.
6.12 China requests that, for the sake of completeness, we add a statement to footnote 582 to
paragraph 10.88 of the Report noting China's reference before us to a statement concerning
government intervention in credit markets, containe d in an expert report that had been submitted
during the countervailing duty investigation. The Un ited States does not consider that an additional
specific reference to the Report would enhance the clarity or completeness of the citation in the
footnote, but provides no further basis for its objection. We have inserted into footnote 582 a
reference to the expert report.
6.13 China requests that the Panel delete the phrase "(a term for which China offers no
explanation)" in the second sentence of paragraph 10.121
. China submits that it provided, in
paragraph 235 of its first written submission a nd Exhibit CHI-107, a definition of the term
"commercial" from the New Shorter Oxford English Dictionary, and cited two other panel reports that
have considered the meaning of the term "commerc ial". China submits that its reference to the
"ordinary course of commerce" is consistent with these definitions. The United States objects to
China's request because in its view the explanation that China provides in support of its request serves
only to highlight that China failed to provide an y explanation for the term "ordinary course of
commerce," a term that China invented in an effort to persuade the Panel to give a particular meaning
to the term "commercial" in Article 14(b) of the SCM Agreement. We have not accepted China's
request to delete the phrase in question, and have added new footnote 620 regarding the sources cited
by China for the meaning of the term "commercial".

6.14 China requests that in paragraph 11.11
 and footnote 821 to paragraph 11.59 we reflect
that China's use of the term "basi c reasonableness test" with respect to Article 14 was a reference to
the Panel Report in EC – Countervailing Measures on DRAM Chips , as reflected in China's answer to
Panel question 7 following the second meeting. The United States does not object to including a
reference or a footnote in paragraph 11.11 indicating that China cited to the EC – DRAMs report, but
disagrees that such a note should be repeated in footnote 821, as that footnote reflects the Panel's
conclusion. The United States considers that the test that China sought to have the Panel establish in
the present dispute is not at all similar to that applied by the panel in EC – DRAMs. In response to
China's request, we have indicated in footnote 768 to paragraph 11.11 that China was referring to the
EC – DRAMs panel report. In addition, in footnote 821, we have introduced language further
explaining our conclusion contained in that footnote.
6.15 China requests that we delete the first sentence of paragraph 14.84
 on the grounds that
China has never stated that "the issue of double remedies in respect of domestic subsidies is an issue
which the covered agreements do not address." The Un ited States does not object to this request. As
requested by China, we have deleted this sentence.
B. REQUEST FOR REVIEW SUBMITTED BY THE UNITED STATES
6.16 The United States requests that we delete the second sentence of paragraph 8.104 of the
Interim Report, including the footnote thereto, as th at sentence is inaccurate. In particular, the
United States indicates that, contrary to the characterization in that sentence, in the LWR investigation
the USDOC did not rely on facts available to determ ine that certain SOEs were "public bodies". The
United States also requests us to delete the third sentence of paragraph 8.129 of the Interim Report
for the same reason, and that we identify Baosteel as a trading company rather than as a producer.
China does not object to these requests. We ha ve made the modifications requested by the
United States.
6.17 The United States requests that in paragraph 8.122, we refer to Bridgestone as "a domestic
interested party", rather than as "the applicant". China does not object to this request. We have made
the change requested by the United States.
6.18 The United States requests that in paragraph 9.14 we modify the drafting to indicate that the
USDOC found that the planning documents prohib ited policy lending to "restricted" projects and
"projects to be abolished". China raises no objection to this request. We have modified
paragraph 9.14 as requested by the United States.
6.19 The United States requests that we add to paragraph 9.101 references to two pieces of
evidence in addition to those already referred to as the basis for the USDOC's determination that
SOCBs followed government policies in making their lending decisions. The United States requests,
in particular, that we indicate that the USDOC also had before it a Chairperson's report on the
transitional review of China at the WTO, and inte rviews of independent fi nancial experts conducted
by the USDOC in 2007. China objects to this request. Concerning the Chairman's report on the
transitional review of China at the WTO, China submits that the modification requested by the
United States would be misleading as the statement in that report quoted by the United States in its
request for interim review in fact was a statemen t by the United States during the transitional review,
and was not, contrary to the United States' implication, a finding by the WTO Committee on
Subsidies and Countervailing Measures. China furthe r argues that, contrary to the language proposed
by the United States, the Committee did not make any "finding" that could have been "confirmed"
through USDOC interviews of "financial experts" . China further notes that the identities of these
"experts" were never disclosed, and that the only r ecord of their opinions are the summaries that the
USDOC itself prepared in ex parte meetings from which all interested parties were excluded. The
United States also requests that we clarify, in the f ourth sentence of this paragraph, that the

verification referred to was that in the CFS Paper investigation. China does not object to this request.
We have inserted the requested reference to the CFS Paper investigation, but have not made the other
changes requested by the United States. Concerning the report on the transitional review of China,
while this document apparently was at least partia lly on the record of the investigation, we find no
reference to it in the USDOC's determination. Concerning the USDOC's interviews of financial
experts, we see no need to add anything to our Report, given that footnote 394 already cites the
references to these interviews in the USDOC's determination.
6.20 The United States requests that we insert in paragraph 11.19 a summary of two points that it
raised in response to China's argument based on the term "good" in Article 14(d) of the SCM
Agreement, as in the Interim Report this paragraph reflected only one of the three points raised by the
United States. China raises no objection to this request. We have modified paragraph 11.19 as
requested by the United States.
6.21 The United States requests that we insert in footnotes 863 and 864 to paragraph 12.53
references to the exhibits containing information on GTC, as in the Interim Report these footnotes
only referred to exhibits pertaining to TUTRIC. China does not object to this request. We have
modified these footnotes to refer to the exhibits pertaining to GTC identified by the United States.
6.22 The United States requests that we make certain changes to paragraph 14.69 and footnote
965. The United States submits that this paragra ph and footnote could be misunderstood to suggest
that the NME methodology necessarily entails a comp arison with unsubsidized costs of production,
whereas there is nothing inherent in the use of an NME methodology that results in a comparison with
unsubsidized costs of production, and the costs of production in the surrogate economy may well be
subsidized themselves. The United States therefor e requests that the Panel revise its statement to
reflect the fact that the use of an NME methodology may result in the use of unsubsidized costs of
production. For similar reasons, the United States suggests that we revise the second sentence in
paragraph 14.72 so that it would read: "... the use of an NME methodology leads to an asymmetric
dumping margin comparison to the extent that an unsubsidized normal value is being compared to a
subsidized export price." (our emphasis) China obj ects to the changes proposed by the United States,
arguing that, as it explained in its first written su bmission, when using its NME methodology the
USDOC seeks to ensure that the surrogate values that it uses represent "market determined" values,
which by definition are unsubsidized values, and that the USDOC avoids the use of any surrogate
value that may itself be subsidized in the surr ogate economy. Referring to Exhibit CHI-123, China
also submits that the U.S. Congress has specifically directed the USDOC to "avoid using any prices
which it has reason to believe or suspect may be dum ped or subsidized"; China also notes that in
GPX, the CIT observed that the U.S. NME methodolog y compares the producer's export price to a
"presumptively subsidy-free constructed normal value. " We note, in response to the United States'
request, that paragraphs 14.69 and 14.72 form pa rt of the Panel's discussion of the effects, at the
conceptual level, of the use of NME methodologies. As indicated in these paragraphs, conceptually, a
market-economy surrogate value is a value that is market-determined, and therefore unsubsidized.
Thus, in our view, making the change requested by the United States would not add to the clarity of
the Panel's discussion of the effects of the use of NME methodologies. We have nonetheless added
the word "presumptively" in footnote 965 to reflect the fact that, in practice, surrogate values may not,
in all instances, be exempt from any subsidization. In response to the United States' request we also
have clarified the parties' arguments on the issue (by adding new footnote 936 and modifying
footnote 974) to more accurately reflect their respective positions on the issue.
6.23 The United States also suggests typographical and other technical corrections to
paragraph 9.24
, footnote 425 to paragraph 9.118 , paragraph 11.39 , footnote 998 to
paragraph 14.90, paragraph 14.138 , footnote 1109 to paragraph 15.9 , footnote 1125 to
paragraph 15.30 , and footnote 1146 to paragraph 15.48 . China does not object to these

suggestions. We have made the corrections suggested by the United States, as well as a number of
others in other paragraphs of the Report.
VII. INTRODUCTION TO FINDINGS BY THE PANEL
A. G
ENERAL PRINCIPLES REGARDING TREATY INTERPRETATION , THE APPLICABLE STANDARD OF
REVIEW, AND BURDEN OF PROOF
1. Rules of treaty interpretation
7.1 Article 3.2 of the DSU directs panels to appl y "customary rules of interpretation of public
international law" in the interpretation of the provi sions of the covered agreements. It is well settled
in WTO law that the principles codified in Articles 31-33 of the Vienna Convention on the Law of
Treaties ("Vienna Convention") are such customary rules. These provisions read as follows:
"Article 31: General rule of interpretation

1. A treaty shall be interpreted in goo d faith in accordance with the ordinary
meaning to be given to the terms of the trea ty in their context and in the light of its
object and purpose.

2. The context for the purpose of the inte rpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:

(a) any agreement relating to the tr eaty which was made between all the
parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection
with the conclusion of the treaty and accepted by the other parties as
an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which
establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of internati onal law applicable in the relations
between the parties.

4. A special meaning shall be given to a te rm if it is established that the parties
so intended.

Article 32: Supplementary means of interpretation

Recourse may be had to supplementary me ans of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine the
meaning when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is ma nifestly absurd or unreasonable.

Article 33: Interpretation of treaties authenticated in two or more languages

1. When a treaty has been authenticated in two or more languages, the text is
equally authoritative in each language, unless the treaty provides or the parties agree
that, in case of divergence, a particular text shall prevail.

2. A version of the treaty in a language other than one of those in which the text
was authenticated shall be considered an au thentic text only if the treaty so provides
or the parties so agree.

3. The terms of the treaty are presumed to have the same meaning in each
authentic text.

4. Except where a particular text prevails in accordance with paragraph 1, when
a comparison of the authentic texts discloses a difference of meaning which the
application of articles 31 and 32 does not remove, the meaning which best reconciles
the texts, having regard to the object and purpose of the treaty, shall be adopted".

2. Standard of review
7.2 Article 11 of the DSU sets out the standard of review applicable in WTO panel proceedings in
general. This provision imposes upon panels a comprehensive obligation to make an "objective
assessment of the matter", both factual and legal. Article 11 of the DSU provides, in relevant part:
"The function of panels is to assist th e DSB in discharging its responsibilities under
this Understanding and the covered agreements. Accord ingly, a panel should make
an objective assessment of the matter before it, including an objective assessment of
the facts of the case and the applicability of and conformity with the relevant covered
agreements, and make such other findi ngs as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered agreements".
7.3 It is well settled that in reviewing ( inter alia ) a countervailing duty determination, a panel
may not conduct a " de novo review" of the evidence or substitu te its judgement for that of the
competent authorities. A panel may not reject an agency's conclusions simply because the panel
would have arrived at a different outcome if it were making the determination itself.
57 A panel must
also limit its examination to the evidence that was before the agency during the course of the
investigation, and must take into account all such ev idence submitted by the parties to the dispute. At
the same time, a panel must not simply defer to th e conclusions of the investigating authority. A
panel's examination of those conclusions must be "in-depth" and "critical and searching".58
7.4 A panel reviewing an investigating authority' s determination should examine whether the
determination is "reasoned and ad equate", and more specifically, whether the investigating authority
provided a "reasoned and adequate" explanation as to : (i) how the evidence on the record supported
its factual findings; and (ii) how those factual findings supported the overall subsidy determination. 59
In US – Softwood Lumber VI (Article 21.5 – Canada), the Appellate Body provided more guidance on
how a panel should apply these principles in its evaluation of factual findings:
"A panel's examination of [an investigating authority's] conclusions must be critical
and searching, and be based on the information contained in the record and the

57 Appellate Body Report on US – Countervailing Duty Investigation on DRAMS, paras. 183 and 187.
58 Appellate Body Report on US – Softwood Lumber VI (Article 21.5 – Canada), para. 93.
59 Appellate Body Report on US – Countervailing Duty Investigation on DRAMS, para. 186.

explanations given by the authority in it s published report. A panel must examine
whether, in the light of the evidence on th e record, the conclusions reached by the
investigating authority are reasoned and ade quate. What is 'adequate' will inevitably
depend on the facts and circumstances of th e case and the particular claims made, but
several general lines of inquiry are likely to be relevant. The panel's scrutiny should
test whether the reasoning of the authority is coherent and internally consistent. The
panel must undertake an in-depth examin ation of whether the explanations given
disclose how the investigating authority treat ed the facts and evidence in the record
and whether there was positive evidence before it to support the inferences made and
conclusions reached by it. The panel must examine whether the explanations
provided demonstrate that the investigating authority took proper account of the
complexities of the data before it, and that it explained why it rejected or discounted
alternative explanations and interpretations of the record evidence. A panel must be
open to the possibility that the explanations given by the authority are not reasoned or
adequate in the light of other plausible a lternative explanations, and must take care
not to assume itself the role of initial trier of facts, nor to be passive by 'simply
accept[ing] the conclusions of the competent authorities'".
60
3. Burden of proof
7.5 The general principles regarding the allocati on of the burden of proof in WTO dispute
settlement require that a party claiming a violation of a provision of a WTO agreement by another
Member assert and prove its claim.
61 With respect to these general rules on allocation of the burden
of proof, the Appellate Body observed that:
"[...] in WTO dispute settlement, as in most legal systems and international tribunals,
the burden of proof rests on the party that asserts the affirmative of a claim or
defence. A complaining party will satisfy its burden when it establishes a prima facie
case by putting forward adequate legal argum ents and evidence. The nature and
scope of arguments and evidence required 'will necessarily vary from measure to
measure, provision to provision, and case to case'. When a claim is brought against a
WTO Member's legislation or regulation, a panel may, in some circumstances,
consider that the text of the relevant lega l instrument is sufficiently clear to establish
the scope and meaning of the law. However, in other cases, a panel may consider that
additional evidence is necessary to do so. Once the complaining party has established
a prima facie case, it is then for the responding party to rebut it".
62
7.6 China, as the complaining party in this dispute, must therefore make a prima facie case of
violation of the relevant provisions of the WTO ag reements it invokes, which the United States must
refute. A prima facie case is one which, in the absence of effective refutation by the other party,
requires a panel, as a matter of law, to rule in favour of the party presenting the prima facie case. We
also note, however, that it is generally for each party asserting a fact, whether complainant or
respondent, to provide proof thereof. In this resp ect, therefore, it is also for the United States to
provide evidence supporting the facts which it asserts.

60 Appellate Body Report on US – Softwood Lumber VI (Article 21.5 – Canada) , para. 93. (footnote
omitted, emphasis original).
61 Appellate Body Report on US – Wool Shirts and Blouses, p. 14, DSR 1997:I, at 323.
62 Appellate Body Report on Chile – Price Band System (Article 21.5 – Argentina) , para. 134.
(footnotes omitted)

B. CHINA'S PROTOCOL OF ACCESSION
7.7 In addition to the obligations contained in the covered agreements, which apply to all
Members, China has undertaken speci al obligations under its Protocol of Accession. Section 15 of
China's Protocol of Accession is of relevance to the issues before the Panel. It provides as follows:
"15. Price Comparability in Determining Subsidies and Dumping
 Article VI of the GATT 1994, the Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping
Agreement") and the SCM Agreement shall apply in proceedings involving imports
of Chinese origin into a WTO Member consistent with the following:
 (a) In determining price comparability under Article VI of the GATT
1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either
Chinese prices or costs for the industry under investigation or a methodology that is
not based on a strict comparison with domes tic prices or costs in China based on the
following rules:
(i) If the producers under investigation can clearly show that market
economy conditions prevail in the indu stry producing the like product with
regard to the manufacture, production and sale of that product, the importing
WTO Member shall use Chinese prices or costs for the industry under
investigation in determining price comparability;
(ii) The importing WTO Member may use a methodology that is not
based on a strict comparison with domest ic prices or costs in China if the
producers under investigation cannot clearly show that market economy
conditions prevail in the industry produ cing the like product with regard to
manufacture, production and sale of that product.
 (b) In proceedings under Parts II, III and V of the SCM Agreement,
when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d),
relevant provisions of the SCM Agreement shall apply; however, if there are special
difficulties in that application, the importing WTO Member may then use
methodologies for identifying and measuring the subsidy benefit which take into
account the possibility that prevailing terms and conditions in China may not always
be available as appropriate benchmarks. In applying such methodologies, where
practicable, the importing WTO Member should adjust such prevailing terms and
conditions before considering the use of terms and conditions prevailing outside
China.
 (c) The importing WTO Member shall notify methodologies used in
accordance with subparagraph (a) to th e Committee on Anti-Dumping Practices and
shall notify methodologies used in accord ance with subparagraph (b) to the
Committee on Subsidies and Countervailing Measures".
63

63 China's Protocol of Accession, annexed to Ministerial Decision on China's Accession, WT/L/432.

7.8 Also referred to by the parties and of potential relevance to this dispute are certain paragraphs
of the Report of the Working Party on the Accession of China (the "Working Party Report"), namely
paragraphs 150-151 and 171-173.
64
VIII. CHINA'S CLAIMS PERTAINING TO THE USDOC'S DETERMINATIONS THAT
CERTAIN SOES AND SOCBS WERE PUBLIC BODIES
A. CLAIMS OF CHINA
8.1 China claims, in respect of the provision of goods (inputs), that the USDOC's determinations
that certain SOEs were "public bodies" were in consistent with Article 1.1(a)(1) of the SCM
Agreement. Thus, China argues, the USDOC's findings in the four countervailing duty investigations
of financial contributions by a government in th e form of provision of goods to respondent producers
were inconsistent with Article 1.1 of the SC M Agreement. China further claims that, as a
consequence, the United States acted inconsistently with Articles 10 and 32.1 of the SCM Agreement
and Article VI:3 of the GATT 1994.65
8.2 China claims, in respect of the provision of lo ans, that the USDOC's determinations that
certain SOCBs were "public bodies" we re inconsistent with Article 1. 1(a)(1) of the SCM Agreement.
Thus, China argues, the USDOC's finding in the OT R countervailing duty inves tigation of financial
contribution by a government in the form of alleged "policy lending" was inconsistent with Article 1.1
of the SCM Agreement. China further claims that, as a consequence, the United States acted
inconsistently with Articles 10 and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.66
B. MAIN ARGUMENTS OF THE PARTIES
1. China
8.3 China challenges as invalid the USDOC's findings in the investigations at issue that SOEs
producing inputs, and SOCBs providing loans, we re "public bodies" within the meaning of
Article 1.1(a)(1) of the SCM Agreement. Therefore, China considers inconsistent with that Article
the USDOC's determinations that the provision of inputs and of loans by these entities constituted
financial contributions by public bodies. China argues that in the absence of evidence that these
entities were vested with and exercised government al authority, as a matter of law their actions
needed to be deemed those of private, not public, bodies. 67 Given this, only if the USDOC had found
that these entities were "entrusted or directed" in the sense of Article 1.1(a)(1)(iv) of the SCM
Agreement to provide the inputs or the loans could it have lawfully concluded that that the financial
contributions were made by the Government of Ch ina. China maintains that because the USDOC did
not examine whether there had been such entrustmen t or direction, its dete rminations of financial
contributions by the Government of China were inc onsistent with Article 1.1 of the SCM Agreement,
and as a consequence, with Articles 10 and 32.1 of the SCM Agreement, as well as with Article VI:3
of the GATT 1994.68
8.4 China argues that the Appellate Body recognized in US – Countervailing Duty Investigation
on DRAMS that under well-established principles of customary international law, the actions of state-

64 Report of the Working Party on the Accession of China, WT/ACC/CHN/49 and
WT/ACC/CHN/49/Corr.1 reproduced in WT/MIN(01)/3.
65 Paragraphs B.1(a)(i) and B.1(e)(i)- (iii) of the "as applied" claims in China request for establishment
of the Panel; China first written submission, para. 468 (a); second written submission, para. 315 (a).
66 Paragraphs B.1(c)(i) and B.1(e)(i)- (iii) of the "as applied" claims in China request for establishment
of the Panel, China first written submission, para. 468 (d); second written submission, para. 315 (e).
67 See, e.g., China first written submission, paras. 95-96 and 158-160.
68 China first written submission. paras. 34-40.

owned corporate entities are prima facie private, and thus presumptively not attributable to a Member
under Article 1.1 of the SCM Agreement.69 China argues that instead of focusing as it should have on
whether the SOEs and SOCBs were "private bodies" that had been "entrusted or directed" by the
Government of China or a public body to provid e inputs and loans, respectively, the USDOC relied
on a per se rule of majority government ownership in determining that these entities were "public
bodies".70 In China's view, this interpretation of th e term "public body" is impermissible under a
correct application of the principles of treaty interpretation. For China, while government ownership
is relevant to the question of control, and thus to the inquiry in Article 1.1(a)(1)(iv) as to whether a
private body has been directed to perform governmental functions, ownership has little relevance in
determining whether an entity is a public body.
71
8.5 Rather, China asserts, to be a "public body", an entity must be authorized by the law of the
state to exercise functions of a governmental or public character, and the act s in question must be
performed in the exercise of such authority. In this context Chin a, paraphrasing the Appellate Body
in Canada – Dairy , argues that a "public body" should be defined as "an entity which exercises
powers [or authority] vested in it by a 'governme nt' for the purpose of performing functions of a
'governmental' character". 72 According to China, what distinguishes the conduct of public bodies
from that of private bodies is not the degree of government ownership – the government may have
ownership interests in both – but the source a nd nature of the authority the entities possess and
exercise. China states therefore that in the investigations at issue in the present dispute, absent actual
evidence establishing that the state-owned entiti es were vested with authority to exercise
governmental authority in connection with the provision of the alleged financial contributions at issue,
as a matter of law those entities' actions must be deemed to be those of private entities.
73
8.6 China asserts that it is not arguing that government-owned entities can never be public bodies
within the meaning of Article 1.1(a)(1), but rather that their conduct should be deemed presumptively
private, and consistent with that presumption, th eir conduct ordinarily should be examined under the
entrustment or direction standard of Article 1.1(a )(1)(iv) of the SCM Agreemen t. If the evidence in a
particular case established that a government-owned entity was exercising delegated authority to
perform functions of a governmental character, then it would be appropriate to conclude that it was a
public body and that subparagraph (iv) was inapp licable. But absent such evidence, China argues,
subparagraph (iv) should apply and there is no legitimate justification in the text, context or object and
purpose of the SCM Agreement for the arbitrary test the United States has advanced that would make
such entities public bodies in all cases merely by virtue of their government ownership.74
8.7 China relies on various dictionary definitions of the term "public" to argue that the ordinary
meaning of the term "public body" requires the ess ential elements that such an entity acts for the
welfare and best interests of a nation or community as a whole, and does so under the authority, or
officially on behalf, of the nation or community as a whole.
75 China argues further that the phrase in
Article 1.1(a)(1), "a government or other public body" explicitly equates, and treats as "functional
equivalents", the terms "government" and "public body". 76 According to China, the Agreement
differentiates between this type of entity and "private bodies" in Article 1.1(a)(1)(iv), the actions of
which require "entrustment or direction" from a government to perform one of the functions

69 Id., para. 34, citing to Appellate Body Report on US – Countervailing Duty Investigation on DRAMS,
para. 112 and footnote 179.
70 See, e.g., China first written submission, paras. 34-36; second written submission, para. 23.
71 China first written submission, paras. 39-40 and 48.
72 Id., paras. 53-55, citing to Appellate Body Report on Canada – Dairy , para. 97; second written
submission, para. 4.
74 China oral statement at the second meeting of the Panel, paras. 30-31.
75 China first written submission, paras. 50-51; second written submission, para. 6.

enumerated in Article 1.1(a)(1)(i)-(iii) in order to be deemed financial contributions by a government.
For China, the fact that entrustment or direction of the actions of private bodies brings those actions
within the purview of "government financial c ontribution" demonstrates that in all cases, the sine qua
non of a "financial contribution" is the exercise of some element of governmental authority in
connection with performing functions of a governmental character.
77
8.8 China also considers that the definitions of the corresponding French and Spanish terms
"organisme public" and "organismo público" in Article 1.1 of the SCM Agreement support its
argument concerning the ordinary meaning of the te rm "public body". China argues that all three
terms are presumed to have the same meaning under Article 33(3) of the Vienna Convention, and that
the Panel must examine this meaning. According to China, the French term "public" and the Spanish
term "público" connote "governmental" , which is consistent with severa l dictionary definitions of the
English term "public". China also points to the OECD Economics Glossary which it argues equates
"organisme public" with the English term "government agency". 78 China further argues that in the
Agreement on Agriculture the Spanish term "organis mo público" is expressly equated to the English
term "government agency", and that the Appellate Body in Canada − Dairy established unequivocally
that the same Spanish and French terms at issue in Article 1.1 of the SCM Agreement have the same
meaning as the English term "government agency". 79 According to China, Article 33 of the Vienna
Convention requires the Panel to interpret the Englis h term "public body" consistently with the fact
that the French and Spanish versions of that term mean "government agency", and the only coherent
way to do so is to interpret the English terms "public body" and "government agency" as functional
equivalents, just as they are treated in the French and Spanish languages.80
8.9 China disagrees with the United States concerni ng the meaning of the conjunction "or" in
Article 1.1(a)(1) between the terms "government" and "public body". In China's view, this word does
not suggest that the two terms must have wholly di ssimilar and unrelated meanings, but only that the
terms are not identical. China argues that "or" frequently connects words or phrases that are similar or
functional equivalents, and cites the report of the US – Export Restraints panel's reference to the word
"or" between the phrases "a government makes paymen ts to a funding mechanism" and "entrusts or
directs a private body" in subparagraph (iv) of Article 1.1(a)(1) as meaning that the two phrases
captured equivalent government actions.81
8.10 China also disagrees with the United States c oncerning the significance of the adjective "any"
to modify "public body" in Article 1.1(a)(1) of the Agreement. According to China, the "any" only
indicates that all entities that qualify as public bodies – however that term is defined – are captured
within the scope of Article 1.1, but says nothing ab out the characteristics that define a public body,
and offers no support for the United States' per se majority government ownership test.82
8.11 China argues that its interpretation of the term "public body" also is supported contextually by
the General Agreement on Trade in Services (the "GA TS"). According to China, paragraph 5(c)(i) of
the Annex on Financial Services to the GATS (the "GATS Financial Services Annex") defines the
term "public entity" as an "entity owned or controll ed by a Member, that is principally engaged in
carrying out governmental functions or activities for governmental purposes [...]". For China, this

77 Id., paras. 56-58.
78 China second written submission, paras. 8-9; oral statement at the first meeting of the Panel,
paras. 23-24.
79 China second written submission, paras. 10-11, citing to Appellate Body Report on Canada – Dairy,
para. 97.
80 Id., paras. 8 and 13; oral statement at the second meeting of the Panel, paras. 4-10.
81 China response to Panel question 14 (first mee ting); oral statement at the second meeting of the
Panel, paras. 11-12, citing to Panel Report on US – Export Restraints, para. 8.32.
82 China oral statement at the second meeting of the Panel, para. 13.

definition reflects a similar view of the functiona l equivalence between "government" and "public
body" that, in China's view, exists in Article 1.1 of the SCM Agreement. In addition, China argues,
the GATS definition indicates that when an entity is "merely 'owned or controlled by a Member'", it
will qualify as a public entity only if it is "carryin g out governmental func tions or activities for
governmental purposes", that entities owned or controlled by governments may carry out both
governmental and commercial functions, and that they are deemed to be "public" only when
principally engaged in the former. According to China, Article I:3(a) of the GATS also provides
relevant context by defining "measures by Memb ers" to include measures by governmental actors
("central, regional or local governments or authoriti es") and non-governmental bodies "in the exercise
of powers delegated by central, regional or local governments or authorities". China argues that if the
actions of non-governmental bodies may be attributed to a Member for purposes of the GATS only
when they are exercising authority delegated to th em by the government, it is difficult to envision any
rational justification for applying any less demandi ng a standard for attributing the actions of a
"public body" to a Member under Article 1.1 of the Agreement.83
8.12 China refers to the International Law Commissi on's Draft Articles on Responsibility of States
for Internationally Wrongful Acts (the "Draft Ar ticles") as compelling its interpretation of the term
"public body" in Article 1.1 of the SCM Agreement. According to China, as a general matter prior
panels and the Appellate Body have considered the Draft Articles "relevant rules of international law
applicable in the relations between the parties" , in the sense of Article 31(3)(c) of the Vienna
Convention, for purposes of interpreting the covered agreements.84
8.13 In this regard, concerning the interpretation of Article 1.1 of the SCM Agreement, China
recalls that in US – Countervailing Duty Investigation on DRAMS the Appellate Body referred to the
Draft Articles in the section of its report entitled "The meaning of the terms 'entrusts' and 'directs'" in
Article 1.1(a)(1)(iv).85 In particular, China notes the Commentary to Article 8 of the Draft Articles, to
which the Appellate Body referred in a footnote in the US – Countervailing Duty Investigation on
DRAMS report. 86 According to China, this passage of the Commentary makes clear that state
ownership is not sufficient to attribute the conduct of a state-owned corporate entity to a state, and by
extension to a Member for purposes of Article 1.1 of the SCM Agreement, and that instead it supports
China's view of the term "public body". Furtherm ore, in China's view, the Appellate Body's citation
of this passage demonstrates that the Draft Articl es are "relevant rules of international law" for
purposes of interpreting the WTO Agreement, and thus must be relied upon in the present dispute in
determining whether the USDOC's determination that the SOEs and SOCBs were public bodies was
consistent with the SCM Agreement.87
8.14 China further argues that to th e extent that the panel in Korea – Commercial Vessels can be
read as endorsing a test for determining whether an entity is a public body solely by reference to
government ownership or control, its reasoning is no t persuasive and should not be followed. China
argues in this regard that among other errors, that panel failed to acknowledge the mandatory nature

83 China first written submission, paras. 62-67; response to Panel question 21 (first meeting).
84 See, e.g., China first written submission, para. 70; citing to Appellate Body Reports on Canada –
Panel Reports on Brazil – Retreaded Tyres , para. 7.305 and footnote 1480; Mexico – Taxes on Soft Drinks ,
para. 8.180; and Decision by the Arbitrator(s) on Brazil – Aircraft (Article 22.6 – Brazil) , para. 3.44; US – FSC
(Article 22.6 – US), paras. 5.26 and 5.58-5.61; and EC – Bananas III (US) (Article 22.6 – EC), para. 6.16.
85 China first written submission, para. 72, citing to Appellate Body Report on US – Countervailing
Duty Investigation on DRAMS, para. 112 and footnote 179.
86 Id. The cited passage from the Commentary reads: "Since corporate entities, although owned by and
in that sense subject to the control of the States, are considered to be separate, prima facie their conduct in
carrying out their activities is not attributable to the Stat e unless they are exercising elements of governmental
authority [within the meaning of Article 5 of the Draft Articles]". (Id.).
87 China first written submission, paras. 72-73.

of recourse to customary principles of interna tional law under Article 31(3)(c) of the Vienna
Convention, an oversight that in China's view cannot be reconciled with what it considers the
Appellate Body's express reliance on the Draft Articl es in interpreting Article 1.1(a)(1)(iv) of the
SCM Agreement. According to China, defining " public body" solely by reference to government
ownership or control cannot be reconciled with the Appe llate Body's recognition in US –
Countervailing Duty Investigation on DRAMS , consistent with customary international law, that the
conduct of a state-owned corporate entity presumptively is not attributable to a government unless
that entity is exercising governmental authority within the meaning of Article 5, or determined to be
under the direction or control of the State within the meaning of Article 8, of the Draft Articles.
88
8.15 Concerning the object and purpose of the SC M Agreement, China considers that the
United States' interpretation, if accepted, would ha ve far-reaching and troubling implications for the
proper application of the SCM Agreement. Here, Ch ina disagrees with the argument advanced by the
United States that a majority ownership rule is necessary to "prevent circumvention of the SCM
Agreement […] so that subsidizing governments cannot hide behind their ownership interests in
enterprises to avoid the reach of the SCM Agreement." China considers this to be a baseless concern,
because subparagraph (iv) of Article 1.1 is an acknowledged anti-circumvention provision that
squarely addresses it. 89 China also disagrees with what it view s as the United States' argument that
the entrustment or direction standard is too burdensome and might be evaded when government-
owned entities are involved. China is concerned that if the position of the United States is accepted,
subparagraph (iv) would become a dead letter for entities with majority government ownership – a
category of entities to which, in China's view, subpara graph (iv) was previously considered applicable
by both panels and WTO Members alike.
90
8.16 China considers that the interpretation advocated by the United States, which in its view is not
based on the actual treaty standards, would flout th e object and purpose of the SCM Agreement. In
particular, China argues, the SCM Agreement "refle cts a delicate balance between the Members that
sought to impose more disciplines on the use of su bsidies and those that sought to impose more
disciplines on the application of countervailing measur es". Both aspects of th is "balance" are evident
in Article 1.1, including the "discipline" imposed by the entrustment or direction standard. For China,
the possibility that it may not be easy, as a practical matter, to meet the standards of a covered
agreement has never dissuaded the Appellate Body from strictly enforcing those standards, and it
urges the Panel to be guided by the same approach here.91
8.17 Concerning the USDOC's findings of financial c ontribution in the form of provision of inputs
by SOEs, China argues that the determination that the SOEs were public bodies was flawed, such that
the financial contribution findings we re inconsistent with the SCM Ag reement. In particular, China
argues that for the USDOC to have validly concluded that the SOEs were public bodies, it would have
had to, but did not, examine whether they were auth orized by Chinese law to exercise functions of a
governmental character or public character normally exercised by State actors, "and" the acts alleged
to have constituted financial contri butions were performed in the exer cise of such authority. Rather,
China argues, the USDOC applied a per se rule of majority ownership to conclude that the SOEs were
public bodies.92 China makes the same argument in respect of the USDOC's findings that the SOCBs
were public bodies.93

89 China oral statement at the second meeting of the Panel, paras. 21-24.
90 Id., paras. 25-27.
91 Id., paras. 28-29.
92 China first written submission, paras. 86-87.
93 In its first written submission, China argues that the analytical framework applied by the USDOC to
determining whether the SOCBs were public bodies "bears some resemblance to a proper interpretation of

8.18 China criticizes the USDOC for not applying the five -factor test that it had applied in certain
prior cases 94: (i) government ownership; (ii) the government's presence on the entity's board of
directors; (iii) the government's control over th e entity's activities; (iv) the entity's pursuit of
governmental policies or interests; and (v) whether th e entity is created by stat ute. China argues that
in some prior cases where this test was applied, the USDOC had found that even 100 per cent
government-owned entities were not public bodies under U.S. law, and thus could not convey
financial contributions unless they were "entrusted or directed" to do so. 95 While China asserts that it
is not raising before the Panel th e consistency with Article 1.1 of the SCM Agreement of the five-
factor test96, China also takes issue with th e USDOC's statements in three of the investigations in the
present dispute that there was insuffi cient record evidence to apply th e five-factor test as, beyond the
levels of government ownership for some companies, the Government of China had not provided the
information needed to apply the test. China argues that this statement indicates that for the USDOC
any provision of goods by a state-owned entity may be presumed to be a financial contribution unless
there is evidence establishing that the entity is not a public body. 97 China states that the five-factor
test is relevant for this dispute to establish that prior to the investigations at issue, the USDOC had
recognized that determining whether a state-owned entity qualified as a public entity was a multi-
factor, fact-intensive inquiry even under U.S. law. 98 China considers that the USDOC improperly
shifted the burden to the Government of China to disprove the presumption that all SOEs are public
bodies, thereby abrogating its responsibilities as an inv estigating authority. In this context, China
cites a statement by the Appellate Body that "t he investigating authorit y has a duty to seek out
information on relevant factors and ev aluate their probative value in order to ensure that its
determination is based not on presumpti ons, but on a sufficient factual basis ".99 (emphasis added by
China)
2. United States
8.19 The United States rejects China's arguments. Concerning the ordinary meaning of "public
body", the United States submits that the definitions of the term "public" include: "belonging to,
affecting, or concerning the community or nation", and that dictionary definitions identified by China
include: "Relating or belonging to an entire communit y, state, or nation" and "of or relating to the
people as a whole; that belongs to, affects or concerns the community or the nation". The

Article 1.1(a)(1)", in that the USDO C appeared to recognize that in order for loans by SOCBs to constitute a
financial contribution by a public body there must be evidence that the banks were endowed with governmental
authority to provide preferential loans in furtherance of a public purpose, and that the countervailable loans were
made by the SOCBs in the exercise of this authority. (Id., paras. 186-187). In response to the United States'
arguments that the USDOC analysis was not based on the considerations referred to by China, but instead was
based on control by the government, with government ownership figuring prominently in regard to control,
China states that although the USDOC did not conclude that the SOCBs were public bodies by applying a rule
of majority ownership, this is the defence the United States advances to the Panel, which in China's view fails.
94 While China indicates that the five-factor test is "exclusively a creature of U.S. law" whose
consistency with the SCM Agreement is not before the Panel (China first written submission, footnote 69),
China also states that in the investigations at issue, the USDOC "abandoned" this test in favour of a " per se
majority ownership test" (Id., para. 91); China refers to the "fatal" problems with the USDOC's "excuse" and
"rationale" for not applying the test (Id., paras. 94-95); and China indicates that it "takes no solace" in the
USDOC's statement in some of the final determinations at issue that it would reconsider the feasibility of
applying the five-factor test during an administrative, should a countervailing duty order be imposed (Id., para.
100), arguing that a Member "may not avoid responsibility for failure to honour its WTO obligations by
promising to consider complying with them in the future" (Id., para. 101)..
96 Id., footnote 69.
97 Id., paras. 94-95.
98 Id., footnote 69.
99 Id., para. 98, citing to Appellate Body Report on US – Anti Dumping Measures on Oil Country
Tubular Goods, para. 201.

United States notes that one of the dictionaries relie d upon by China defines "public" as: "In general,
and in most of the senses, the opposite of private (adj .)", and that the word "private" means: "Of a
service, business, etc.: provided or owned by an in dividual rather than the State or a public body".
For the United States, this is an important poi nt because the bodies at issue in the dispute are
businesses. Accordingly, because the ordinary meaning of the term "public" is the opposite of
"private", the meaning of the term "public" would include "provided or owned by the State or a public
body rather than an individual".
100 According to the United States, therefore, however the term
"public" is examined, its ordinary meaning include s the notion of belonging to, or being owned by,
the state, and if an entity is owned by the state, the ordinary meaning of the term "public" indicates
that it can be a "public body" under the SCM Agreement.
101
8.20 In terms of context, the United States notes that the term "public body" in Article 1.1(a)(1) is
part of the disjunctive phrase "by a government or any public body [...]". By using two different
terms to refer to the type of entity that can pr ovide a financial contribution, the SCM Agreement
expresses distinct and different meanings for th e terms "government" and "public body". Treaty
interpretation should give meaning a nd effect to all terms of a treaty , and "a treaty interpreter is not
free to adopt a meaning that would reduce pa rts of a treaty to redundancy or inutility". 102 T h e
United States also argues that the word "any" before "public body" means, inter alia , "of whatever
kind" of the being or thing at issue, and that th rough the use of the term "any", the SCM Agreement
indicates that there might be different "kinds" of public bodies. For the United States, "any" also
indicates that the drafters of the SCM Agreement did not intend the term "public body" to have a
meaning that would relate back to the term "government".103
8.21 The United States also disagrees with China that the French and Spanish versions of the SCM
Agreement require reading the term "public body" as "government agency" (i.e., as the same as
"government"). The United States argues that the issu e in the present dispute is the interpretation of
the term "public body" or "organismo público" or "organisme public". The United States considers
that there is no discrepancy between these terms. Re garding China's argument that in Article 9.1 of
the Agreement on Agriculture the English term " government agency" is translated in the Spanish
version as "organismo público", the United States c onsiders that any discrepancy between the English
and Spanish versions exists in that Agreement, which is not before this Panel.104
8.22 The United States rejects China's argument that Article 1.1(a)(1) "explicitly equates" the
terms "government" and "public b ody" making them "functional equiva lents", and that therefore the
essence of a "public body" should be the same as th e essence of a "government", namely to perform
certain functions pursuant to government authority and power. In the view of the United States, if this
were the case, there would have been no need for the use of two different terms in Article 1.1(a)(1).
Pursuant to accepted rules of treaty interpretati on, the terms "public body" and "government" cannot
be equivalent. 105 The United States argues that the term "private body" in Article 1.1(a)(1)(iv) is
relevant context. In the view of the United States, given that the term "private body" is the opposite
of "public body", and the ordinary meaning of th e term "private" includes the notion of being owned
by individuals, not the state, the term "private" in the context of Article 1.1(a)(1) indicates that a
"public body" can be an entity owned by the state. For the United States, because "government" and

100 United States first written submission, paras. 95-96.
101 Id. para. 97; opening statement at the first meeting of the Panel, para. 22.
103 United States second written submission, paras. 20-21; opening statement at the second meeting of
the Panel, para. 4.
104 United States second written submission, para. 36; opening statement at the second meeting of the
Panel, paras. 11 and 14.
105 United States first written submission, para. 99; opening statement at the first meeting of the Panel,
para. 23.

"public body" are distinct, the fact that state-owned enterprises and state-owned commercial banks are
not the government does not bar them from being considered public bodies. The United States also
considers that the distinct terms "private body" a nd "public body", mean that a public body is not a
privately-owned entity, and can be an entity owned by the government. Taken together, this means
that a "public body" includes entities owned by the government, but not necessarily exercising
functions of a governmental character. The Un ited States argues that, not surprisingly this
interpretation is consistent with the ordinary meaning of the word "public".106
8.23 The United States finds further context in Chin a's Protocol of Accession, which "include[s]
the commitments referred to in paragraph 342 of the Working Party Report" as an "integral part of the
WTO Agreement". The United States cites language in the Report concerning the discussion of state-
owned enterprises in China (including banks) which in its view makes clear that China's state-owned
enterprises are government actors, or at least public bodies, within the meaning of the SCM
Agreement. The United States argues that at the very least this language demonstrates that China
accepts that actions by state-owned enterprises cons titute financial contributions by a government,
without the need for a finding of entrustment or dire ction, and that this is a recognition that Chinese
state-owned enterprises are "public bodies" within the meaning of Article 1.1(a)(1) of the SCM
Agreement.107
8.24 The United States disagrees with the contextual argument of China based on the term "public
entity" in the GATS Financial Services Annex. Th e United States argues that the GATS is a different
agreement with an entirely different field of applica tion, and that the term "public entity" used in the
GATS is different from the term "public body". The United States argues that the term "public entity"
in that context should not be considered to ha ve the same meaning as "public body" in the SCM
Agreement; and that the definition of "public entit y" is solely "for the purposes of" the GATS, and
thus was not intended to create implications for ot her Agreements. The United States also disagrees
with China that Article I:3 of the GATS is relevant context, as that provision contains neither the term
"public body" nor anything else that sheds light on the meaning of that term.108
8.25 The United States points to prior statements of the Appellate Body and panels that the object
and purpose of the SCM Agreement is to "strengt hen and improve GATT disciplines relating to the
use of both subsidies and countervailing measures, wh ile, recognizing at the same time, the right of
Members to impose such measures under certain conditions" and "to impose multilateral disciplines
on trade-distorting subsidization". 109 Accordingly, the United States argues, the Appellate Body and
panels have sought to ensure that the SCM Agreement not be interpreted rigidly or formalistically in a
manner that would undermine its disciplines on trade-di storting subsidization. Consistent with this
object and purpose, and the need to prevent circumve ntion of the SCM Agreement, in the view of the
United States the term "public body" should be in terpreted so that subsidizing governments cannot
hide behind their ownership interests in enterprises to avoid the reach of the SCM Agreement.110
8.26 The United States disagrees with China that the Draft Articles are relevant rules of
international law for purposes of interpreting the te rm "public bodies". The United States argues that
the Draft Articles are not an agreement relating to the SCM Agreement made in connection with the

106 United States first written submission, paras. 100-101.
107 See, e.g., United States first written submission, paras. 102-103; second written submission,
para. 39.
108 United States first written submission, paras. 104 and 106; response to Panel question 21 (first
109 See, e.g., United States first written submission, para. 107, citing to Appellate Body Report on US –
Softwood Lumber IV, para. 64 and Panel Report on Brazil – Aircraft, para. 7.80.
110 Id., para. 108, citing to Panel Reports on Canada – Autos, para. 142; Australia – Leather II ,
para. 9.56; and Appellate Body Report on US – Softwood Lumber IV , para. 95 (quoting Appellate Body Report
on US – Carbon Steel, paras. 73-74).

conclusion of the SCM Agreement, nor an instru ment made by any parties relating to the SCM
Agreement, in the sense of Article 31 of the Vienna Convention, nor one of the "covered agreements"
set forth in Appendix 1 to the DSU. They thus are not "context" as that term is used in the Vienna
Convention. Nor are the Draft Articles a sub sequent agreement or practice regarding the
interpretation or application of the SCM Agreemen t. A report of which the United Nations General
Assembly merely "took note" in 2001 cannot, in the vi ew of the United States, inform the meaning of
provisions of the WTO agreements that en tered into force almost six years earlier.
111 The
United States also disagrees that the Draft Articles ar e a "relevant rule of international law" that are
applicable in this case. The United States furthe r considers that China inappropriately lifts the
standards in the Draft Articles and reads them almost verbatim into the SCM Agreement. The
United States argues that by their own terms, the Draf t Articles are inapplicable to an interpretation of
Article 1.1(a)(1) of the SCM Agreement.112
8.27 In this regard, the United States submits that th e Draft Articles state that their purpose is not
to define the primary rules establishing obligations u nder international law, but rather to define when
a state (as opposed to some other entity) is responsib le for a breach of those primary rules. In the
context of countervailing duties under the SCM Agreement, according to the United States the
primary rule is contained in Article 10 of the SC M Agreement, and the question in the present dispute
is whether the United States breached this primary obligation, about which the Draft Articles have
nothing to say. 113 The United States also notes the lex specialis clause of the Draft Articles. In the
view of the United States, the SCM Agreement is a special rule of international law in the sense of
that provision, which governs when a financial cont ribution occurs, and defines the "State" in a way
that may produce different consequences from the Dr aft Articles, using the phrase "a government or
any public body within the territory of a Member [. . .]", the proper interpretation of which is based on
its ordinary meaning when read in its context and in light of the object and purpose of the SCM
Agreement. The United States argues that the standa rds in the Draft Articles thus have no relevance
or application to the special rule in Article 1.1(a)(1) of the SCM Agreement.114
8.28 The United States also disagrees that the Appellate Body in US – Countervailing Duty
Investigation on DRAMS endorsed the principles in the Draft Articles. Rather, in a footnote
constituting dicta, the Appellate Body noted the unremarkabl e proposition that the conduct of private
bodies is presumptively not attributable to the St ate and cited to the commentaries on the Draft
Articles. The question in US – Countervailing Duty Investigation on DRAMS , whether certain private
bodies were entrusted or directed by the government within the meaning of Article 1.1(a)(1)(iv) of the
SCM Agreement, such that their provision of loans and equity was attributable to the government, is
different from that in the present dispute, i.e. , whether certain entities constitute "public bodies"
within the meaning of Article 1.1(a)(1) of the SCM Agreement, a question to which the Appellate
Body did not speak in US – Countervailing Duty Investigation on DRAMS.115
8.29 The United States further disagrees that the A ppellate Body found the Draft Articles to be
relevant rules of international law. The United States submits that the Appellate Body's comment
only notes the existence of the Draft Articles, and appears in passing, making the reference to the
Draft Articles all the less compelling. By contr ast, in the view of the United States, China reads

111 United States first written submission, paras. 112-1 13; opening statement at the first meeting of the
Panel, para. 18.
113 United States first written submission, para. 115.
114 Id., paras. 116-117.
115 See, e.g., United States first written submission, para. 118; response to Panel question 16 (first

provisions of the Draft Articles into the SCM Agreem ent as integral parts of the text, although they
are not relevant to interpreting the term "public body".116
8.30 The United States agrees with the conclusion of the panel in Korea – Commercial Vessels that
"an entity will constitute a 'public body' if it is cont rolled by the government (or other public bodies)".
In the view of the United States, this reasoning is consistent with the ordinary meaning of the term
"public body" in its context and in light of the object and purpose of the SCM Agreement. 117 The
United States states that majority government owners hip can demonstrate control, in that government
ownership gives the government the ability to appoi nt managers and directors and thereby to oversee
operations. For the United States, it would be an u nusual situation where the owners of the entirety
of, or a majority share in, a company could not appoint the leadership (and thereby oversee
operations), or could not control the company. 118 The United States thus agrees with the Korea –
Commercial Vessels panel that in all cases, public body stat us "can be determined on the basis of
government (or other public body) control", and notes that in analyzing control, although the panel
cited evidence that the government appointed various entities' managers and directors, and that the
government approved and oversaw the entities' opera tions, it gave the most weight to government
ownership of the body. It called the fact that one bank was almost fully government-owned "highly
relevant and arguably determinative" in the question of government control.119
8.31 The United States submits that when concludi ng that a public body is one controlled by a
government or other public body, the panel rejected Korea's argument that an entity is not a "public
body" if it engages in market activities on commercial terms. The panel noted that this would mean
that the panel should apply the "benefit" test in a "public body" analysis, such that on one day a given
entity could provide financing on ma rket terms, and thus constitute a "private" entity, while the next
day it could make cash grants and then constitute a "public" body. For that panel, "the question of
whether an entity is a public body should not depe nd on an examination of whether that entity acts
pursuant to commercial principles". In the view of the United States, China repeats Korea's failed
argument when it argues that an entity is only a public body when it engages in government functions,
not commercial activities. 120 The United States also agrees with the Korea – Commercial Vessels
panel that pursuit of a public policy objective is not essential to a public body determination. The
United States asserts that China's proposed elements of (i) legal authority to exercise functions of a
governmental or public character, and (ii) actions perfo rmed in exercise of such authority, are similar
to those rejected in Korea – Commercial Vessels .121 In the view of the United States, a standard of
government ownership or control is consistent with the object and purpose of the SCM Agreement
because it will ensure that subsid izing governments cannot hide behind their ownership interests,
while at the same time not treating any entity wi th which a government has a merely tangential
relationship as a public body.122
8.32 The United States thus rejects China's argument th at ownership and control are irrelevant to a
"public body" analysis, and are only relevant to an "entrustment or direction" analysis pursuant to
Article 1.1(a)(1)(iv) of the SCM Agreement. The United States asserts that most of China's argument
on this point flows from its mistaken reliance upon the Draft Articles, in particular Article 5, which
China analogizes to the public body question, and Arti cle 8, which it analogizes to the entrustment or

116 United States first written submission, para. 119.
117 Id., para. 121, citing to Panel Report on Korea – Commercial Vessels, para. 7.50.
118 Id., paras. 121 and 125.
119 Id., paras. 124-125, citing to Panel Report on Korea – Commercial Vessels, paras. 7.50, 7.55, 7.172,
7.353 and 7.356.
120 Id., para. 122, citing to Panel Report on Korea – Commercial Vessels, paras. 7.44-45.
121 Id., para. 123, citing to Panel Report on Korea – Commercial Vessels, para. 7.55.
122 Id., para. 126.

direction question.
123 According to the United States, in US – Countervailing Duty Investigation on
DRAMS (which China cites in support of its argument concerning the Draft Articles), both the panel
and Appellate Body recognized a distinction betw een, on the one hand, entities which potentially
could be public bodies because they were owned or controlled by a government and, on the other
hand, entities which could not be public bodies beca use they were not owned or controlled by a
government. The Appellate Body noted that there were three classes of creditors in that case,
following from the USDOC's grouping of the creditors in the countervailing duty investigation: (A)
public bodies; (B) government-owned or controlle d creditors; and (C) creditors not owned or
controlled by the government. The United States not es that some creditors in Group B were 100 per
cent owned by the government, and recalls that the Appellate Body in this context cited the panel's
statement that "in its view, the USDOC might have been entitled to treat these 100 per cent-owned
firms as 'public bodies', but having refused to so classify them, the USDOC was required to establish
entrustment or direction with respect to such credito rs". In the view of the United States, while this
statement does not constitute a finding by the Appellate Body or the panel in that case, it suggests that
the distinction in that case was between creditors th at were owned or controlled by the government,
on the one hand, and creditors that were not owne d or controlled by the government, on the other
hand. Those in the first group could be public b odies and those in the second group were entrusted or
directed by the government or by public bodies.
124
8.33 The United States considers this distinction important because, in its view, China posits a
false dichotomy whereby ownership or control is relevant only to the question of entrustment or
direction, but not to the question of whether an entity is a public body. For the United States,
ownership and control, while perhaps relevant in an entrustment or direction analysis, are the central
factors in a public body analysis, as was recognized by the panel and the Appellate Body in US –
Countervailing Duty Investigation on DRAMS , and rightly adopted by the panel in Korea –
Commercial Vessels. Control, indicated by whole or majority ownership, can lead to a public body
analysis, while the giving of responsibility to, or exercising authority over, an entity that is not
necessarily government-owned or controlled will lead to an entrustment or direction analysis.125
8.34 The United States maintains that the USDOC's dete rminations in the investigations at issue
that certain state-owned enterprise producers of HRS, rubber, and petrochemicals were "public
bodies" are consistent with Article 1.1(a)(1) of th e SCM Agreement. According to the United States,
the USDOC applied a rule of majority ownership to determine whether an entity was a public body,
and found that if the government was the majority owner, then that producer was a public body.
Given that the "public body" findings are consiste nt with the SCM Agreement, the United States
argues that there was no need for the USDOC to determine whether the government entrusted or
directed the state-owned enterprises to provide goods for less than adequate remuneration.126
8.35 Concerning the provision of loans by SOCBs in the OTR investigation, and the USDOC's
determination that the SOCBs in question were public bodies, the United States rejects China's
characterization that this determination was based on (i) whether there was a policy in place to
provide preferential lending to the OTR industry, an d (ii) whether there was evidence that the SOCBs
provided preferential loans to the industry pursuant to this policy. Rather, the United States argues,
the USDOC relied upon "'all information on the record'" and its finding in the 2007 Coated Free
Sheet Paper countervailing duty investigation (the "CFS Paper investigation").127 In the CFS Paper
investigation, according to the United States, the USDOC found that the SOCBs were public bodies

123 United States first written submission, para. 131.
124 Id., para. 132, citing to Appellate Body Report on US – Countervailing Duty Investigation on
DRAMS, para. 131.
125 Id., para. 133.
126 Id., para. 135.
127 Id., paras. 164-166.

on the basis that they were controlled by the government, in which connection "[g]overnment
ownership of the banks, of course, figured prominen tly". Other factors included the legacy of state
control over the banks, the incomplete banking sector reforms in China, and government involvement
in bank decision-making. The United States ar gues that the USDOC's finding in the OTR
investigation thus was based on these same factors.128
8.36 The United States rejects China's assertion th at the USDOC should have applied a fact-
intensive inquiry to determine whether the i nput producers were empowered by Chinese law to
exercise governmental authority and in fact were exerci sing that authority, rather than applying a rule
of majority ownership. In the view of the United States, the USDOC's use of a five-factor approach in
prior cases is irrelevant in the present dispute, as the only question for the Panel is whether the
USDOC's determination in the challenged investiga tions that the Chinese state-owned enterprises are
"public bod[ies]" is consistent with the SCM Agreement.129
8.37 The United States nevertheless discusses the five-fa ctor test to clarify for the Panel some of
China's statements. In the count ervailing duty investigation of DRAMs from Korea , the USDOC
analyzed five factors to determine whether entiti es were public bodies. This approach was based
upon factors analyzed in a 1987 investigation of Fresh Cut Flowers from the Netherlands and a 1992
investigation of Pure Magnesium and Alloy Magnesium from Canada . The United States notes first
that these two investigations pre-dated by many years the adoption in the SCM Agreement of the
"public body" and "entrusts or directs" language, as well as the equivalent language in U.S. domestic
law.130 In the Flowers investigation, the relevant entity w as 50 per cent owned by the government,
and it therefore was necessary to examine other factors, because majority ownership by the
government was not present. The USDOC concl uded that the government provided subsidies
"through" this entity, but there is no way to tell whether this conclusion would be a "public body"
finding or an "entrustment or direction" finding under today's standards. In the Magnesium
investigation, the USDOC found that an entity w as a "government entity" (which is probably more
akin to today's "public body" term) based largely upon government ownership and control.
131
8.38 In answer to a question from the Panel, the United States indicates that the USDOC also had
applied the five-factor test in an investigation of Coated Paper from Korea , in an investigation and
review of DRAMs from Korea , in an investigation of Hot-Rolled Steel Flat Products from South
Africa, and in an initiation of an investigation of steel wire rod from various countries . The
United States indicated that in other cases, howev er, the USDOC had taken a different approach,
analyzing primarily ownership or control. Accordi ng to the United States, these past cases indicate
that the USDOC approaches public body issues on a case-by-case basis, with the five-factor test
usually arising where there is not clear evidence of government ownership or control. For the
United States, this makes sense as most of the five factors relate to ownership or control of an
entity.132
8.39 The United States thus considers that these past decisions do not indicate a USDOC
interpretation of the "public body" languag e in the SCM Agreement. Concerning the DRAMS from
Korea investigation, the United States recalls that th e USDOC analyzed five factors and, as China
notes, concluded that certain 100 per cent governme nt-owned banks in that case were not public
bodies. The United States submits that the critical factor explaining this determination that 100 per
cent government-owned banks were not necessarily pub lic bodies was that, as the USDOC stated in
that investigation, "temporary [government] ownership of the banks due to the financial crisis is not,

128 United States first written submission, paras. 166-167.
129 Id., para. 137.
130 Id., paras. 138-139.
131 Id., para. 140.
132 United States response to Panel question 22 (first meeting).

by itself, indicative that these banks are [government ] authorities". Accordingly, the United States
argues, the history of this issue makes clear th at the USDOC's analysis of more factors than
ownership was born out of a case (the Flowers from the Netherlands investigation) in which there was
a 50-50 ownership split between the government and a private entity. Then, in the DRAMS from
Korea investigation, an analysis of more than owne rship, and even of entrustment or direction for
some banks, was necessary due to the fact that th e Korean government had assumed many temporary
ownership stakes as a result of the Korean financial crisis.
133 The United States considers logical the
statement of the panel in US – Countervailing Duty Investigation on DRAMS that "[d]epending on the
circumstances, 100 percent government ownership mi ght well have justified the treatment of such
creditors as public bodies".134 The United States further notes that in a subsequent countervailing duty
administrative review of Hot-Rolled Carbon Steel Flat Products from India , the USDOC found that a
98 per cent government-owned mining company governed by the Ministry of Steel was a public body,
without reference to any more factors.
135
8.40 Thus, in the view of the United States, the USDOC did not abandon any five-factor analysis,
and no such analysis was either pertinent or n ecessary, in the cases in the present dispute.
Furthermore, any five-factor analysis or abandonment thereof is irrelevant to the question before the
Panel in the present dispute, that is, whether the US DOC's application of a rule of majority ownership
to Chinese state-owned companies is consistent wi th the SCM Agreement. In the view of the
United States, while the discussion concerning the investigation of DRAMS from Korea demonstrates
that there may be situations in which government ownership, even majority government ownership,
may not be determinative of the public body question, the present dispute is not such a case.136
8.41 Finally, concerning burden, the United States objects to China's argument that the USDOC
improperly placed the burden upon the Government of China to provide evidence pertaining to the
public body question. The United States argues that given China's recognition in the Working Party
Report that state-owned enterprises can be treat ed as public bodies, the USDOC's approach was
entirely reasonable, and that there was no evidence on the record to suggest that Chinese state-owned
enterprises should be treated any differently during the four countervailing duty investigations at issue
than what China committed to at the time of its accession to the WTO. For these reasons, the
United States asserts that the USDOC's findings that Chinese state-owned enterprises are "public
bodies" are not inconsistent with the SCM Agre ement, and that accordingly, the USDOC had no
obligation to consider whether these entities were entrusted or directed to provide financial
contributions.
137
C. MAIN ARGUMENTS OF THE THIRD PARTIES
1. Argentina
8.42 Argentina disagrees with China that "welfare" a nd "best interests" are more relevant factors
than government control to determine whether an en tity is a "public body" within the meaning of the
SCM Agreement. Argentina considers that the diffe rence between public and private in Article 1.1 of
the SCM Agreement has to do with the corporate form of control of entities and not with the ultimate
destination of the goods and services that these entities provide. In fact, Argentina argues, while there
are public entities producing private goods, there ar e private entities producing public goods. Thus,
Argentina agrees with the standard of government control enunciated by the Korea – Commercial

133 United States first written submission, paras. 141-142.
134 Id., para. 143, citing to Panel Report on US – Countervailing Duty Investigation on DRAMS ,
para. 7.8 and footnote 29.
135 Id., para.143.
136 Id., para. 144.
137 Id., paras. 145-146.

Vessels panel as the basis for determining whether an entity is a public body. In Argentina's view,
government ownership is sufficient to establish cont rol and to establish that an entity is a public body
within the meaning of the SCM Agreement.138
2. Australia
8.43 Australia believes that, consistent with the findings of the Appellate Body in US –
Countervailing Duty Investigation on DRAMS , it is important not to conflate the test for entrustment
or direction (which has to do with the nature of the action being undertaken) with the definition of a
public body (which has to do with the identity of the actor). In Australia's view, the government
control test enunciated in Korea – Commercial Vessels is correct, and government ownership is strong
evidence of government control, but not necessarily de terminative. Australia considers that the Draft
Articles do not address the definition of "public body" , and that therefore they offer no interpretative
assistance as to Article 1.1 of the Agreement. Sim ilarly, Australia considers that the definition of
"public entity" in paragraph 5(c) of the GATS Fi nancial Services Annex doe s not provide relevant
interpretative context since this definition is limited to the purpose of that agreement. In Australia's
view, an apparent interpretative recourse to "contex t" cannot be used to transform the scope of a
provision in a way that is not otherwise available from the text. Nor can interpretative context be used
to include an additional test of exercising governme nt authority that is not apparent from the text,
particularly when the inclusion of such a test would undermine the clear distinction between the
definition of public body and the test for entrustment or direction. Finally, Australia considers that
paragraph 172 of China's Working Party Report provides historical ev idence of the nature of Chinese
SOEs (including banks), rather than evidence of thei r current nature, but that such historical evidence
could be relevant for assessing whether an entity is a "public body" within the meaning of the SCM
Agreement.139
3. Brazil
8.44 Brazil considers that majority state shareholding does not suffice to char acterize an enterprise
totally or partially-owned by the State as a "public body". Rather, "public body" refers to an entity
closely assimilated to the government itself and, consistent with the approach adopted by the
Appellate Body in US – Countervailing Duty Investigation on DRAMS , the use of the term
"government" throughout the Agreement – to refer i ndistinctly to "a government or any public body"
– emphasizes the closeness of the nexus between bo th concepts. Brazil believes that an entity is
closely assimilated to the government if it performs functions and exercises attributions that are
typical of the government, and that this understanding is confirmed by the Draft Articles and by the
Appellate Body precedents. Relying on the Appellate Body's reasoning in US – Countervailing Duty
Investigation on DRAMS, Brazil considers that ownership is not determinative but that it may be one
relevant element in assessing both if an entity has the nature of a "public body" or if it is a "private
body" entrusted or directed by the government. Thus, for Brazil, investigating authorities must
establish whether the government entrusted or dir ected a company which, albeit owned or controlled
by the government, is prima facie a private entity; or if investigating authorities believe that such
company has the nature of a public body, they must establish that the company is closely assimilated
to the government itself. In Brazil's view, the anti-circumvention objective in the SCM Agreement
was meant to be achieved through the standard of "e ntrustment or direction" and not by a broad and
"fast track" interpretation of the term "public bo dy" which, Brazil adds, would rather allow the

138 Argentina third-party submission, paras. 39 and 47-48.
139 Australia third-party submission, paras. 9-13; third-party oral statement, paras. 10-14; third-party
response to Panel question 1(a).

circumvention of the steps provided for in Article 1.1(a) for the determination of a financial
contribution.
140
4. Canada
8.45 Canada believes that government control determ ines whether an entity is a "public body",
consistent with the findings of the Korea – Commercial Vessels panel which, according to Canada,
found that control was "evidenced primarily" by the fact that an entity was wholly government-
owned. Canada also notes that upon its accession to the WTO, China con ceded that its SOEs
constitute public bodies. Further, Canada argues that China's interpretation of the term "public body"
would render such term inutile, i.e., in the case of government provision of goods, SOEs would
putatively be "private bodies" except where they ar e exercising governmental authority attributed to
them by the law of the State to sell such goods. Thus, Canada argues, there would be no need for
SOEs to be defined as "public bodies" for their ac tions to be considered as a financial contribution
under Article 1.1 (a)(1)(iii). In ad dition, Canada argues that under China's interpretation of "public
body", sales made by Chinese SOEs would not be considered "financial contributions" under
Article 1.1(a)(1)(iii). Moreover, Canada agrees w ith the United States that the term "private"
excludes the notion of being owned by the State, and argues that sales made by Chinese SOEs also
could not be considered "financial contribution" under Article 1.1 (a)(1)(iv). As a result, Canada
submits that under China's interpretation, a gove rnment could do indirectly (through an entity it
controls) what it cannot do directly (i.e., to pr ovide goods without the application of the SCM
Agreement's disciplines). Thus, in Canada's view, Ch ina's interpretation is inconsistent with the main
object and purpose of the SCM Agreement.141
5. European Communities
8.46 The European Communities considers that the Panel should examine China's Working Party
Report in assessing whether the SOEs at issue are "pub lic bodies". Regarding Article 1.1 of the SCM
Agreement, the European Commun ities considers that the terms "government" and "public body"
should be understood as equivalents, since Article 1.1( a)(1) states that both are "referred to in this
Agreement as 'government'". The European Comm unities also considers that a high level of
government ownership is a very rele vant factor in determining whether an entity is a "public body" in
the sense of the Agreement, and notes that previous panels and the Appellate Body have considered
this factor (although among other factors) in determin ing whether an action by an entity is attributable
(directly or indirectly) to the government. The Eu ropean Communities does not consider that a test,
such as the "five-factor" test alleged by China, is required by the SCM Agreement.142
6. Japan
8.47 Japan considers that the Draft Articles are irrele vant to interpreting the term "public body", in
particular that they neither define nor use the term "public body" in any way. Japan points to the fact
that Members agreed to the defi nition of "public entity" in para graph 5(c) of the GATS Financial
Services Annex as suggesting that Members did not import this definition into the SCM Agreement
but rather left the term "public body" undefined. Japan also considers that no provision of the WTO
Agreements suggests that a "public body" under Ar ticle 1.1(a)(1) of the SCM Agreement would be
limited to entities that have been empowered by the "l aw of the State", and that the scope of this term
should be rather examined in accordance with the partic ular facts of any given case. Thus, Japan is of
the view that the consistency of the USDOC's fi ndings of public bodies should be examined based on

140 Brazil third-party submission, paras. 4-12; third-party oral statement, paras. 3-7.
141 Canada third-party submission, paras. 10-17; third-party response to Panel questions 1 and 2.
142 European Communities third-party submission, paras. 6-12; third-party response to Panel
question 1.

the totality of the facts underlying the investigati ons at issue. Japan agrees with China that
government ownership does not conclusively establish that an entity is a "public body".143
7. India
8.48 India considers that the ordinary meaning of the term "public body" does not warrant a
presumption that government control or ownership ar e sufficient to determine that a company is a
"public body". India is of the view that a high level of government ownership may be a pertinent
factor, but not determinant for determining whether an entity is a "public body", and that such an
interpretation is consistent with previous WTO cases where panels have looked at the level of
government ownership and at "other" re levant factors. India also cons iders that in order to consider
an entity closely assimilated to the government, such assimilation must go beyond mere ownership
and the entity must perform functions or attributions that are typical of the government. Finally, India
states that because government ownership is consider ed insufficient as to guar antee "entrustment" in
Article 1.1(a)(1)(iv), it is even more implausible to argue that ownership brings to the conclusion that
an entity is a "public body".144
8. Mexico
8.49 Mexico considers that China's interpretation of "public body" is erroneous. According to
Mexico, this interpretation is not only inconsiste nt with the Working Party Report but also would
exclude public enterprises that provide goods and ser vices as provided for in Article 1.1(a)(1)(iii) of
the Agreement. Mexico further notes that in US – Countervailing Duty Investigation on DRAMS the
Appellate Body did not address the definition of "p ublic body", nor did the Appellate Body determine
that the "public" characterization of an entity was dependant on the way in which such entity acts.
Mexico adds that whether an entity acts in accordance with market principles is relevant to the benefit
determination but that whether an entity is a "public body" must be determined on the basis the level
of government ownership. Mexico also considers th at the Draft Articles are irrelevant to interpreting
the term "public body" (i.e., the concept of "publi c entity" in the Draft Articles is limited to the
context of "wrongful acts", whereas subsidies under the WTO rules are not considered wrongful acts)
and that the fact that a term appears in several WTO Agreements does not imply that its meaning is
the same in all agreements (i.e., the ordinary meaning of a term s hould be determined in its context
and in light of the purpose of the Agreement in wh ich the term appears). According to Mexico, an
entity is a "public body" if it is controlled by the government and there is evidence that the
government, in fact, exercises such control. Mexico considers that this interpretation is consistent
with the ordinary meaning of this term, arguing th at according to the "Dictionario Esencial de la
Lengua Española", "public body" means any legal person that belongs to the State.
145
9. Norway
8.50 Norway considers that Article 1.1(a)(1)(iv) of the Agreement is relevant to interpreting the
term "public body" in the SCM Agreement. According to Norway, this provision makes clear that the
distinction between "public bodies" and "private bodies" rests on whether the body in question
performs governmental functions or not. That is, if the body does not perform governmental
functions, any financial contribution it provides is onl y attributable to the State if the government has
entrusted or directed it to provide such contribution. Although the panel reports on EC –
Countervailing Measures on DRAM Chips and Korea – Commercial Vessels are differently worded
(i.e., while the former considered 100 per cent owners hip as insufficient to establish "entrustment" or

143 Japan third-party submission, paras. 16-21.
144 India third-party submission. (This submission contains no paragraph numbering).
145 Mexico third-party submission, paras. 38-43 and 47; third-party oral statement, paras. 10-11 and 13-
16; third-party response to Panel questions 1 and 2.

"direction", the latter considered that such percentage (among other factors) was sufficient to establish
that an entity was a public body), Norway consid ers that both reports support the position that
government ownership is not sufficient, in itself, to determine that an entity is a "public body", and
that other factors (in particular, the exercise of governmental functions) must be present. Thus,
Norway submits, not all companies with more th an 50 per cent government ownership (or even
100 per cent ownership) are automatically to be considered "public bodies", but rather, the
determining factor would be whether the body exercises "governmental functions".
146
10. Saudi Arabia
8.51 Saudi Arabia considers that the term "public body" refers to an entity vested with
governmental authority that exercises governmental functions and that government ownership (alone)
does not suffice to deem an entit y a "public body" under the Agr eement. Saudi Arabia argues, inter
alia, that: (i) the terms "organismo publico" and "organisme public" (in the Spanish and French
versions of the Agreement, respectively) refer i ndistinctively to both "public body" and "government
agency", and that in Canada – Dairy the Appellate Body interpreted both terms to mean an entity that
"exercises powers vested in it by a government to perform functions of governmental character"; (ii)
the drafters considered the terms "government " and "public body" to be equivalents since
Article 1.1(a)(1) states that both are to be "referred to in this Agreement as 'government'"; (iii) the fact
that "public bodies" can "entrust or direct" private bodies confirms that they must possess some sort of
governmental authority; (iv) consistently with the panel's finding in EC – Countervailing Measures on
DRAM Chips, state ownership is not sufficient to conclude that an entity is entrusted or directed and,
thus, a fortiori, such ownership is not sufficient to consider an entity to be a "public body", as such a
finding would eliminate the need to determine the existence of entrustment or direction; (v) in US –
Countervailing Duty Investigation on DRAMS the Appellate Body accepted, in the context of
Article 1 of the Agreement, the Draft Articles' c onclusion that the conduct of state-owned entities is
not attributable to the State "unless they are exercising elements of governmental authority"; (vi) in
Korea – Commercial Vessels , the panel's findings were based on "control" and not "ownership" and
therefore that report supports that a "public body" is an entity that is controlled by the government;
and (v) the GATS definition of "public entity", which requires more than mere government ownership
or control, provides useful context to interpreti ng "public body" in the SCM Agreement. Finally,
Saudi Arabia considers that China's Working Pa rty Report should not be used as the basis for
interpreting the term "public bodies", i.e., the Working Party Report contains commitments specific to
China, while the WTO Agreement, including Article 1 of the SCM Agreement, applies to all WTO
Members.
147
11. Turkey
8.52 Turkey considers the terms "government" and "p ublic body" in Article 1.1(a)(1) of the SCM
Agreement as distinct, and thus requiring to be constructed differently. Namely, Turkey is of the view
that institutions falling under the definition of th e term "government" cannot be classified as "public
bodies". According to Turkey, China's interpretation narrows the actual meaning of the term "public
body" and equates it to the term "government", a nnulling therefore the distinction between the two
terms and rendering the term "public body" meani ngless. Turkey considers both the Draft Articles
and the GATS Financial Services Annex to be irrele vant. In Turkey's view, the Draft Articles' lex
specialis clause makes it impossible to apply them, and the GATS Financial Services Annex makes
clear that the definition provided therein applies "f or the purposes of [that] Annex" exclusively.
Turkey agrees with the panel in Korea – Commercial Vessels that government control is the most

146 Norway third-party submission, paras. 12-21.
147 Saudi Arabia third-party submission, paras. 23-28, 32-46 and 47-50; third-party oral statement,
paras. 2-12.

proper criterion for determining whether an entity is a "public body", and that government ownership
is the main indicator of control.148
D. ASSESSMENT BY THE PANEL
1. Interpretation of the term "public body" in Article 1.1(a)(1) of the SCM Agreement
8.53 In examining China's claims concerning the US DOC's determinations in all four of the
countervailing duty investigations at issue in this dispute that the SOEs that provided certain inputs
were public bodies, and in the OTR investigation that the SOCBs that provided loans also were public
bodies, the first issue that we must address is the meaning of the term "public body" in
Article 1.1(a)(1) of the SCM Agreement.
8.54 The relevant text of Article 1.1 of the SCM Agreement reads as follows:
"1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as "government"),
i.e. where:

(iv) a government makes payments to a funding mechanism, or entrusts or directs
a private body to carry out one or more of the type of functions illustrated
[...] above." (emphasis added)
On its face, Article 1.1 of the SCM Agreement id entifies three possible types of actors that could
convey government financial contributions: "governments", "public bodies", and "private bodies" that
have been "entrusted or directed" by the government to make a financial contribution. Given that the
USDOC found that the entities in question were "pub lic bodies", the focus of China's claim is the
meaning of the term "public body" in the SCM Agreement. We note nevertheless that we must
interpret the entire phrase "a government or any pub lic body within the territory of a Member
(referred to in this Agreement as 'government')" in order to find that meaning.
8.55 We recall that China's argument is that the terms "government" and "public body" are
"functional equivalents", with the meaning of th e latter (while not identical to "a government")
149
being "'an entity which exercises powers [or author ity] vested in it by a 'government' for the purpose
of performing functions of a 'governmental' characte r'" (in essence, the same definition as that given
by the Appellate Body to the term "government agency" in Article 9.1 of the Agreement on
Agriculture).150 For the United States, on the other hand , the terms "government" and "public body"
have distinct meanings. 151 The particular interpretative questi on thus posed by China's claim is how
broad or narrow a meaning should be given to the te rm "public body", as used in Article 1.1(a)(1) of
the SCM Agreement.
8.56 We note that the interpretative process under Article 31 of the Vienna Convention is a holistic
one, that the ordinary meaning of treaty terms may be ascertained only in their context and in light of

148 Turkey third-party submission, paras. 4-25; third-party oral statement, paras. 4-8.
149 China second written submission, paras. 15-16.
150 China first written submission, para. 55, paraphrasing the definition of "government agency" set
forth by the Appellate Body in Canada – Dairy.
151 United States first written submission, para. 98.

the object and purpose of the treaty
152, and that dictionary meanings alone are not necessarily capable
of resolving complex questions of interpretation. 153 That said, the task of interpreting a treaty must
begin with its specific terms.154
8.57 As the SCM Agreement contains no definition of either "government" or "public body",
dictionary definitions provide a useful starting point . The definitions of "government" include: "The
governing power in a State; the body or successive bodies of people governing a State; the State as an
agent; an administration, a ministry". 155 The definition of "to form a government" is consistent with
this definition: "Establish an administration, esp. after a general election". 156 These definitions seem
to conform to the meaning of this term in comm on parlance as referring to the formal organs of
government (agencies, offices, ministries, etc.). Th is is in fact the meaning ascribed to the term
"government" by both parties.
8.58 The dictionary definition of "public" includes th e following: "Of or pertaining to the people
as a whole; belonging to, affecting, or concerning the community or nation". 157 Both parties submit
definitions of the term "public" that are similar to this. China also submits additional definitions
which, in its view, indicate that the essential elem ents of a "public" body are that it acts for the
welfare and best interests of a nation or community as a whole, and does so under the authority of, or
officially on behalf of, the nation or community as a whole.158
8.59 The dictionary definition of "body" includes: "a group of individuals regarded as an entity; a
corporation"159; and "a number of individua ls spoken of collectively, usually as united by some
common tie, or as organized for some purpose; a coll ective whole or totality; a corporation; as, a
legislative body, a clerical body". 160 On the basis of these definitions, therefore, the term "public
body" standing alone could include, inter alia , "corporations" "belonging to the community or
nation". We note here that there seems to be no universally-accepted definition of the term "public
body", and China has not put one forward. We recall that China argues that the dictionary definitions
of the word "public" compel a narrow reading of the term "public body" as something functionally
equivalent to "government agency" or "government", i.e., as an entity authorized by law to exercise
functions of a governmental or public character, who se acts are performed in the exercise of such
authority. We consider that the above definitions would appear to encompass, but could not be said to
be limited to, such entities.
8.60 Nor, in practice, do governments share a uniform and narrowly-drawn meaning of the term
"public body" such that as proposed by China in their actual usage. To the contrary, different
jurisdictions have varying definitions and practices as to what for purposes of their own domestic laws

152 Appellate Body Report on China – Publications and Audiovisual Products, para. 348.
153 Appellate Body Report on US – Gambling, para. 164.
154 Appellate Body Report on US – Carbon Steel, para. 62.
155 Shorter Oxford English Dictionary, L. Brown (ed.) (Claredon Press, 1993), Vol. I, p. 1123 (the
"Shorter Oxford English Dictionary").
156 Id., Vol. I, p. 1123.
157 Id., Vol. II, p. 2404.
158 China first written submission, para. 51. The definitions submitted by China are: "of or relating to
the people as a whole; that belongs to, affects or concerns the community or the nation"; "authorized by, serving
or representing, the community; carried out or made on behalf of the community or State"; "aimed at or devoted
to the promotion of the general welfare; committed to the best interests of the community or nation"; "[a]cting in
an official capacity on behalf of the people as a whole"; "of, relating to, or affecting all the people or the whole
area of a nation or state … of or relating to a government"; and "relating or belonging to an entire community,
159 Free Dictionary online (accessed 28 April 2010) <http://www.thefreedictionary.com>.
160 Accurate and Reliable Dictionary online (accessed 28 April 2010) <h ttp://ardictionary.com/>.
(emphasis added)

and systems are considered "public bodies". So me of these go well beyond government agencies or
similar organs of government, and include, inter alia, government-owned or -controlled corporations
providing goods and/or services.161
8.61 We also consider the French and Spanish versions of Article 1.1(a)(1) of the SCM
Agreement, and in particular, of the term "pub lic body", about which the parties have presented
arguments. The French term for public body is "o rganisme public", and the Spanish is "organismo
público". In French, the word "organisme" (in th e non-biological sense) has the broad meaning of an
organized grouping of elements (persons, offi ces, etc.) working to a common purpose (e.g.,
"public" also has a broad meaning, including related to, belonging to, or controlled by the State (e.g.,
"d'État, qui est sous contrôle de l'État, qui appartie nt à l'État, qui dépend de l'État, géré par l'État"). 164
The Spanish term "organismo" is defined similarl y to the French "organisme" as referring to a
grouping of elements forming a body or institution (e.g., "conjunto de oficinas, dependencias o
empleos que forman un cuerpo o institución"). 165 The Spanish term "público", like the French
"public", is defined as belonging to or related to the government (e.g., "perteneciente o relativo al
Estado o a otra administración"). 166 Here, as in the English, we co nsider that while these definitions

161 We note two examples:

 Example 1 : (from Free Dictionary online (accessed 28 April 2010)
<http://encyclopedia.thefreedictionary.com/Scottish+public+bodies>):
"Scottish public bodies are a group of organizations that are funded by the Scottish
Government. It includes executive and adviso ry non-departmental public bodies [...];
tribunals, and nationalised industries
. These bodies are distinct from executive agencies of the
Scottish Government, as they are not considered to be part of the Government and staff of
public bodies are not civil servants". (emphasis added)

 Example 2: (from EC Commission Research Directorate note on "Public bodies in
FP6 contracts", (accessed 28 April 2010 ) <http://ec.europa.eu/research/fp6/model-
contract/pdf/fp6-public-bodies-annex5231_en.pdf>):
"What is a public sector body?
Any
 public authority or entity set up under public law by a state or one of its authorities (e.g.
government). Even if such an entity has a legal personality (e.g. French universities), it acts on
behalf of the State with regard to and within the limits of its specifi c areas or competencies.
Activities carried out by such authorities or entities may be of a commercial nature ".
(emphasis added)

162 "Institution composed of inter-related elements, and performing a specific function; each of the
services thus coordinated, or of the associations of the persons comprising it". ( Centre National de Ressources
Textuelles et Lexicales (accessed 28 April 2010) <http://www.cnrtl.fr/definition/organisme>).
163 "Ensemble of services and offices devoted to a task". (Le Nouveau Petit Robert, J. Rey-Debove and
A. Rey (ed.) (Dictionnaires Le Robert, 2002), p. 1798).
164 "Of the State, that is controlled by the State, that belongs to the State, that depends on the State, that
is run by the State". ( Centre National de Ressources Textuelles et Lexicales (accessed 28 April 2010)
<http://www.cnrtl.fr/definition/public>). See also Le Nouveau Petit Robert, J. Rey-Debove and A. Rey (ed.)
collectivité sociale, politique et en émane; qui appartient à l'État ou à une personne administrative [...]" ("That
relates to the people taken in its totality, that belongs to society, the body politic, and emanates from it; that
belongs to the State or to an administrative entity").
165 "Group of offices, dependencies or employments that form a body or institution". ( Real Academia
Española Dictionary online (accessed 28 April 2010) <http://buscon.rae.es/draeI/>).
166 "Belonging or related to the State or other administration". ( Real Academia Española Dictionary
online (accessed 28 April 2010) <http://www.rae.es>). We note that this is the Spanish definition put forward

could encompass the narrow meaning espoused by Ch ina of the term public body, or organisme
public, or organismo público, we see no indication that they are limited to that meaning.
8.62 Our view is confirmed by examples that we fi nd of uses of the terms "organisme public" and
"organismo público" to cover, inter alia, government-owned or -controlled entities that are engaged in
activities other than those of a strictly governmental character. For example, in French one use of the
term "organisme public" (identified as a synonym of the term "organisme gouvernemental") is a body
or entity created by a law or decree, the majority of whose directors are appointed by the government
or a minister, and which has a certain autonomy, ev en if a large part of its global financing comes
from the State.
167 The synonymous term "organisme gouvernmental" in turn can mean "distinguished
from the Ministerial apparatus, from other decentr alized public entities, and from entities covered by
private law", and as including "State enterprises", whose "main function is [...] of a commercial,
financial or industrial nature, and which seeks to be self-financing". 168 An example in Spanish is
Spain's Law 6/1997 of 14 April 1997, on the Organization and Functi oning of the General
Administration of the State, which identifies th ree types of "organismos públicos": "autonomous
bodies", "public business entities", and "State agencies". 169 Not only do the above sources showing
various governments' usages give meaning to th e terms "organisme public (gouvernemental)" and
"organismo público" that go well beyond government agencies and formal arms of the government as
such, both also include as public bodies certain "business" entities owned and/or controlled by
governments.
8.63 Given the above, we are not persuaded by Chin a's argument that the meaning of the terms
"organisme public" and "organismo público" is lim ited to "government agency" or other entity vested
with and exercising governmental authority, and thus that the English term "public body" must be
understood to be the "functional equi valent" of "government". China bases this argument principally
on the fact that the English term "governments or their agencies" in Article 9.1 of the Agreement on
Agriculture appears in the Spanish version as " gobiernos o [...] organismos públicos", and on the
French and Spanish versions of the Appellate Body Report in Canada – Dairy , in which the English
term "government agency" is translated respectiv ely as "organisme public" and "organismo público".
China also cites the OECD Economics Glossary whic h translates "organisme public" as "government
agency" in this context. While these definitions and usages indicate that "public body" can have the
narrow meaning of "government agency" or similar entity, as discussed above we have found other
definitions and usages showing a broader possible sc ope. We thus do not cons ider this definitional

by China for the word "público". While China translates th e term "perteneciente a" as "pertaining to", in fact
this term connotes "belonging to". ( See, e.g., The Oxford Spanish Dictionary, B. Galimberti (ed.) (Oxford
University Press, 2003), p. 630; Spanish Dict online (accessed 28 April 2010)
<http://www.spanishdict.com/translate/perteneciente>).
bonne part de son financement global provient de l'État. Synonyme : organisme gouvernemental". (Johanne
Turbide et al, HEC Montreal, Chaire de gestion des arts, "Règles de Base TPS-TVQ pour les OBNL Culturels"
(accessed 28 April 2010) <http://www.gestiondesarts.com/index.php?id=1519>).
ou industrielle tout en poursuivant un objectif d’autofi nancement". (ENAP, L'Observatoire de l'administration
<http://www.etatquebecois.enap.ca/docs/ste/organisation/a-organismes.pdf>).
169 In particular, Article 43.1 of this Law reads:
"1. Los Organismos públicos se clasifican en:
 a. Organismos autónomos.
 b. Entidades públicas empresariales.
c. Agencias Estatales, que se regirán por su normativa específica y, supletoriamente,
por esta Ley."

analysis to give a conclusive answer to how the term "public body", as it appears in the SCM
Agreement, should be understood.
8.64 Indeed, as noted, a treaty term can only be prope rly understood in its context and in the light
of the object and purpose of the treaty, and we thus now turn to the immediate context of the term
"public body" in Article 1.1(a)(1) of the SCM Agre ement, and in particular how "public body" is
related to the term "a government" in the drafting of the provision. In this regard, the question raised
by China's claim is whether the clause " a government or any public body within the territory of a
Member (referred to in this Agreement as 'government')", by collectively referring to the two terms "a
government" and "any public body" as "government", means that these terms must be read as
"functional equivalents", such that a "public body" must possess characteristics similar to those of a
government, i.e., must be an entity which "exercises powers [or authority] vested in it by a
'government' for the purposes of performing functions of a 'governmental' character".
8.65 We consider significant that in Article 1.1( a)(1) the terms "a government" and "any public
body" are separated by the disjunctive "or", suggesting that they are two separate concepts rather than
a single concept or nearly synonymous. In addition, the use of the word "a" before "government" at
the beginning of the clause, and the use of the word "any" before "public body", further suggest that
these terms have separate meanings. Furthermore, the word "any" before "public body" suggests a
rather broader than narrower meani ng of that term, i.e., as referring to "public bodies" of "any" kind.
Taking these contextual elements together suggests a meaning of the term "public body" as something
separate from and broader than "government" or "government agency", and we consider that given the
use of the words "a", "or" and "any", this read ing of the phrase "a government or any public body"
gives meaning to that phrase as a whole.
8.66 We now turn to the collective term "governme nt" that is equated to the entire phrase "a
government or any public body within the territory of a Member" in the clause at issue. We recall that
the phrase as a whole reads: "a government or an y public body within the territory of a Member
(referred to in this Agreement as 'government')". While for China, the use of the collective expression
"government" compels a reading of the terms "a government" and "any public body" as "functional
equivalents", we consider more likely that the u se of the collective expression is merely a device to
simplify the drafting, to avoid having to repeat the entire phrase "a government or any public body"
throughout the SCM Agreement. This can easily be the case even if the two elements "a government"
and "any public body" have very distinct mean ings. We note that a similar drafting device is
employed in Article 2.1 of the SCM Agreement, on specificity, where the undeniably very different
concepts of "an enterprise or industry or group of en terprises or industries" are collectively referred to
as "certain enterprises". In our view, this collec tive expression is used to simplify the drafting of
Article 2, as it obviates the need to repeat the en tire long phrase "an enterprise or industry or group of
enterprises or industries" every time this concept appear s in the text. Yet, given that the term "certain
enterprises" is defined as having the meaning of the longer phrase, where "certain enterprises" appears
in Article 2 it must, by definition, refer to any
 of its underlying constituent elements. Thus, a subsidy
that is limited to a single enterprise ("an enterp rise") is, for purposes of the SCM Agreement, limited
to "certain enterprises". Equally, a subsidy that is limited to, e.g., three industries (i.e., a "group of
industries") also is limited to "certain enterprises". This does not mean that a single enterprise is the
functional equivalent of, or synonymous with, a group of industries. No r must this be the case for the
term "certain enterprises" to make sense in the text of the Agreement. In the same way, while the
drafting of the phrase that we are examining does not on its face exclude an interpretation of the terms
"any public body" and "a govern ment" as "functional equivalents" , the latter referring to entities
vested with and exercising governmental authority, such an interpretation is certainly not necessary
for the collective term "government" to make sens e in the text of the SCM Agreement. To the
contrary, entities of whatever type controlled by governments, along with formal governmental
organs, could all be encompassed by the collective term "government" as that term subsequently is
used throughout the Agreement.

8.67 The phrase "within the territory of a Member" that also appears in the same phrase in
Article 1.1(a)(1) of the SCM Agreement provides ad ditional immediate context, as a further modifier
to the collective term "government" that appear s in parentheses and that encompasses both "a
government" and "any public body". Again, the entire phrase in Article 1.1(a)(1) reads "by a
government or any public body within the territory of a Member (referred to in this Agreement as
'government')". This phrase seems to say, in es sence, that where the author of the financial
contribution is either an executive organ of any level of government, or a public body of any kind at
any level of government, within the territory of a Member, the Agreement considers the financial
contribution to have been made by the "government" of that "Member" (directly). In other words, the
drafting "a government […] within the territory of a Member" seems to connote a broad reading of the
term "a government" to cover whatever forms and organs of government, be they national, provincial,
municipal, etc., that may be present within the territory of a given Member. Similarly, the word "any"
before "public body" also conveys a broad sense of that term, particularly when coupled with the
phrase "within the territory of a Member", reinforc ing that the word "or" means that "any public
body" is something other than "a government" as such. Seen in its totality, th erefore, in our view the
collective term "government" – which equates to "a government within the territory of a Member, or
any public body within the territory of a Memb er" – conveys breadth, suggesting a wide range of
different possible types of entities whether formally part of, or owned by, or controlled by, any level
of government.
8.68 Perhaps the most important contextual element in Article 1.1(a)(1) is the term "private body"
in Article 1.1(a)(1)(iv), and its relationship with th e terms "a government" and "any public body". In
particular, we note that Article 1.1(a)(1) describes three kinds of potential providers of subsidies for
purposes of the SCM Agreement, namely "government s", "public bodies" and "private bodies". From
the standpoint of pure logic, this is a complete universe of all potential actors: every entity
(individual, corporation, association, agency, Mi nistry, etc.) must fall into one of these three
categories. In other words, the SCM Agreement does not a priori rule out any
 entity from potentially
coming within its scope. The specific question raised in this dispute is whether wholly or majority
government-owned enterprises that produce and sell goods and services are more appropriately
categorized as "governments", "public bodies" or "private bodies" for purposes of the SCM
Agreement. Neither party argues, and we do not co nsider, that such enterprises could in any way be
termed "government" as such. Rather, China's argumen t is that such enterpri ses are, as a matter of
law, presumptively "private bodies", whose actions would be covered by the SCM Agreement only to
the extent that those actions were the result of "ent rustment or direction" by a government. Thus, the
question is the correct basis on which to distinguish between "public" and "private" bodies.
8.69 We find the dictionary definitions of the terms "private enterprise" ("a business etc. that is
privately owned and not
 under State control ")170, and "public sector" ("that part of an economy,
industry etc. controlled by the State") 171 helpful in understanding the relationship between the terms
"private body" and "public body". In particular, these definiti ons taken together suggest that a
"public" body is any entity that is under State c ontrol, while a "private" body is an entity not
controlled by the State, and that ownership is highly relevant to the question of control, a point which
we address below. This is fully in keeping with the everyday notions of "private" meaning unrelated
to the government, and "public" meaning governmental in some sense. It also is consistent with the
usage of the term "public body" (and its French a nd Spanish equivalents) by various governments, as
discussed above. If we were nonetheless to interpre t the term "public body" narrowly, as meaning
government agencies and other entities vested with and exercising governmental authority, and as
presumptively excluding government-owned and/or government-controlled enterprises, by default this

170 Shorter Oxford English Dictionary, Vol. II, p. 2359. (emphasis added).
171 Id. (emphasis added).

would mean that such entities would be "private bodies". 172 In our view, such a reading would
constitute a complete reversal of the ordinary me aning of the term "priva te body", and we find no
support for in the text of the SCM Agreement for such a reversal.
8.70 A further contextual element informing the mean ing of the term "any public body" is the list
of types of financial contributions in Article 1.1(a)(1)(i)-(iii), i.e.:
"(i) a government practice involves a direct transfer of funds (e.g. grants, loans,
and equity infusion), potential direct transfers of funds or liabilities (e.g. loan
guarantees);
(ii) government revenue that is otherwi se due is foregone or not collected (e.g.
fiscal incentives such as tax credits) [footnote omitted];
(iii) a government provides goods or service s other than general infrastructure, or
purchases goods".
In particular, pursuant to the chapeau of Article 1. 1(a)(1), these are the functions that "a government"
or "any public body" might in the first instance perf orm directly (i.e., rather than by entrustment or
direction of a private body in the sense of s ubparagraph (iv)). Among these functions are the
provision of loans and loan guarantees, as well as the provision of goods or services, functions that are
typically carried out by, indeed in the first instance are the core business of, firms or corporations
rather than governments. Thus, to read the term "any public body" as presumptively excluding
government-owned or -controlled corporations or an y other types of public entities engaging in these
sorts of typical business functions (absent specific ev idence in a particular cas e that they are vested
with and exercising governmental authority), would appear largely to deprive these provisions of their
common sense meaning and role.
8.71 We also note the reasoning of the panel in Korea – Commercial Vessels , in respect of a
similar issue raised before it. In that case, Kore a had argued that for an entity to be a public body, it
must be acting in an official capacity, or pursuing a public policy purpose, and that if in a particular
instance or overall it was behaving commercially, it would not be a public body in that instance, or
overall. The panel rejected that argument, in part because it introduced the concept of benefit (i.e.,
whether the entity was behaving commercially in a particular instance or overall) into the
determination of whether the entity in question w as a public body, while, as has been confirmed by
the Appellate Body, the SCM Agreement treats "fin ancial contribution" (where the question of
"public body" arises) as a separate, independent concept from "benefit".
173 The panel noted in this

172 This is China's legal interpretation of the Agr eement. For instance, at the second substantive
meeting with the Panel, China stated:

"China is not arguing that government-owned entities can never be public bodies within the
meaning of Article 1.1(a)(1). Our position is only that their conduct should be deemed
presumptively private […]. Consistent with that presumption, their conduct ordinarily should
be examined under the entrustment or direction standard of Article 1.1(a)(1)(iv). If the
evidence in a particular case established th at a government-owned entity was exercising
delegated authority to perform functions of a governmental character, then it would be
appropriate to conclude that it was a public body and that subparagraph (iv) was inapplicable.
But absent such evidence, subparagraph (iv) shou ld apply […]". (China oral statement at the
second substantive meeting, paras. 30-31).

173 The Korea – Commercial Vessels panel stated in this regard:

regard that if the test advanced by Korea was a pplied, a given entity potentially could be a "public
body" on one day and a "private body" the next, sole ly on the basis of its behaviour on those days, a
result that the panel did not accept because it woul d make the public/priva te body determination
entirely dependent on the existence of a benefit in particular transactions.
174
8.72 We share the concern of the Korea – Commercial Vessels panel in respect of China's
argument that "public bodies" are limited to "enti ties which exercise powers or authority vested in
them by a 'government' for the purpose of performing functions of a 'governmental' character". In this
regard, we note that China argues that only if, in a particular case, a government-owned or -controlled
firm were actually exercising governmental authorit y to carry out governmental functions would such
an entity, in that particular instance, be a "public body". We consider that such an approach would
suffer from the same flaw of mixing considerations of benefit (behaviour in a particular instance) with
determining the nature of the entity (without regard for its behaviour in a particular instance).
Contrary to China's argument, under the SCM Agreemen t the question of the nature of the entity (i.e.,
whether it is "a government or any public body") is entirely separate from the behaviour of that entity
in a given instance (i.e., whether there is a fina ncial contribution, whether a benefit is thereby
conferred, and whether there is specificity).
8.73 To us, the foregoing detailed examination of the text of Article 1.1(a)(1) of the SCM
Agreement in its context strongly suggests that a "public body" extends to entities controlled by
governments, and is not limited to government agen cies and other entities vested with and exercising
governmental authority. We now consider this reading in the light of the object and purpose of the
SCM Agreement.
8.74 This object and purpose has been characterized by the Appellate Body as "to strengthen and
improve GATT disciplines relating to the use of bot h subsidies and counterva iling measures, while
recognizing at the same time, the right of Me mbers to impose such measures under certain
conditions"
175, and by various panels as, inter alia , "to impose multilateral disciplines on subsidies
which distort international trade" 176 and to "disciplin[e] trade-distorting subsidies in a way that
provides legally binding security of expectations to Members". 177 As these statements indicate,
subsidies are certain types of government interven tions in markets on non-commercial terms, which
interventions can distort trade to the detriment of other Members' interests.
8.75 In their discussions of the object and purpose of the SCM Agreement, including in respect of
predictability and certainty, the Appellate Body a nd various panels have emphasized the importance
of avoiding overly-narrow interpretations of th e Agreement that would create loopholes by which
Members could largely, if not entirely, escape th e reach of these disciplines. For example, the
Appellate Body stated in US – Softwood Lumber IV that:
"It is in furtherance of [the Agreement' s] object and purpose [of strengthening GATT
disciplines] that Article 1.1(a)(1)(iii) rec ognizes that subsidies may be conferred, not

"The Appellate Body ruled in Brazil – Aircraft that 'the issues – and the respective definitions – of a
'financial contribution' and a 'benefit' [are] [...] two sepa rate legal elements'. (footno te omitted) Likewise, we
consider that the concepts of 'public body' and 'benefit' should also be treated as separate legal elements. Thus,
the question whether an entity is a public body should not depend on an ex amination of whether that entity acts
pursuant to commercial principles. Rather, it is the fact that a financial contribution is provided by a public
body (or pursuant to entrustment or direction by a public body) that gives rise to the possibility that the financial
contribution might be provided on below-market terms in order to advance public policy goals." (Panel Report
on Korea – Commercial Vessels, para. 7.44 (quoting Appellate Body Report on Brazil – Aircraft, para.157)).
174 Panel Report on Korea – Commercial Vessels, para. 7.45.
175 Appellate Body Report on US – Softwood Lumber IV, para. 64.
176 Panel Report on Brazil – Aircraft, para. 7.26.
177 Panel Report on US – FSC (Article 21.5 – EC), para. 8.39.

only through monetary transfers, but also by the provision of non-monetary inputs.
Thus, to interpret the term 'goods' in Arti cle 1.1(a)(1)(iii) narrowly, as Canada would
have us do, would permit the circumvention of subsidy disciplines in cases of
financial contributions granted in a form other than money[...]".178
Similarly, the panel in US – FSC (Article 21.5 – EC) stated that:
"[I]t is evident that the interpretation [of 'revenue foregone'] advanced by the
United States would be irreconcilable with th[e] object and purpose [of disciplining
trade distorting subsidies in a way that pr ovides security to Members], given that it
would offer governments ' carte-blanche' to evade any effective disciplines, thereby
creating fundamental uncertainty and unpredic tability. In short, such an approach
would eviscerate the subsidies di sciplines in the SCM Agreement".
179 (emphasis
original)
8.76 In keeping with this object and purpose, we consid er it important to read Article 1.1(a)(1) in a
manner that does not allow avoidance of the SCM Agreement's disciplines by excluding whole
categories of government non-commercial behaviour undertaken by government-controlled entities.
In this regard, we note that the categorization of a given entity as a government, a public body or a
private body under Article 1.1(a)(1) is simply the fi rst filter in a multi-part analysis to determine
whether a given measure is covered by the SCM Agre ement. That first filter does not look at the
behaviour (i.e., the measure), but rather is c oncerned with whether the entity undertaking the
behaviour is or is not the WTO Member, i.e., the entity covered by the WTO Agreement. In this
sense, the juxtaposition of "a government or any p ublic body" with the term "private body" makes
clear that the SCM Agreement does not cover and thus does not disci pline, in any way, any purely
private "subsidies" or other purely private transac tions, in which the government has no involvement
(direct or via entrustment or direction).
8.77 In this connection, we agree with the following statement by the Korea – Commercial Vessels
panel:
"We do not accept Korea's argument that there is only a 'financial contribution' in the
meaning of Article 1.1(a)(1(i) if the relevant government or public body is engaged in
'government practice' such as regulation or taxation. Article 1.1(a)(1) states in
relevant part that the term 'government' refe rs to both 'government' and 'public body'.
Since the phrase 'government practice' in Article 1.1(a)(1)(i) therefore refers to the
practice of both governments and public bodies, the practice at issue need not
necessarily be purely 'governmental' in the narrow sense advocated by Korea. In this
regard, we consider that the concept of 'financial contribution' is writ broadly to cover
government and public body actions that mi ght involve subsidization. Whether the
government or public body action in fact gi ves rise to subsidization will depend on
whether it gives rise to a 'benefit'. Since the concept of 'benefit' acts as a screen to
filter out commercial conduct, it is not necess ary to introduce such a screen into the
concept of 'financial contribution'".
180
8.78 Thus, to say that an entity is part of the SCM Agreement's collective term "government" is not
to condemn that entity, or otherwise to cast it in a negative light. Rather, such a characterization
simply allows a further analysis to be conducted as to whether the entity's behaviour in particular
instances is covered by the SCM Agreement. (O bviously, much "government" behaviour has nothing

178 Appellate Body Report on US – Softwood Lumber IV, para. 64.
179 Panel Report on US – FSC (Article 21.5 – EC), para. 8.39.
180 Panel Report on Korea – Commercial Vessels, para. 7.28.

to do with "financial contributions" and thus subsidization). Similarly, to say that certain behaviour of
an entity is covered by the SCM Agreement (i.e., is a specific subsidy) in itself carries no negative
connotation. Only in the particular, narrow instan ce of a prohibited subsidy does the existence of the
subsidy give rise to such a connotation, and otherwis e the existence of specific subsidies is a neutral
event under the Agreement, actionable only where it cau ses, in particular instances, defined forms of
adverse effects on another Member's interests.
8.79 In this sense, we consider that interpreting "a ny public body" to mean any entity that is
controlled by the government best serves the obj ect and purpose of the SCM Agreement. This
reading ensures that whatever form a public entity takes (whether agency, Ministry, board,
corporation, etc.) the government that controls it is di rectly responsible for those of its actions that are
relevant under the Agreement. In our view, th e particular form of government-controlled entity
intervening in a market cannot be determinative of whether a government fina ncial contribution (and
hence potentially a subsidy) exists. To read "any public body" in Article 1.1(a)(1) as excusing from a
Member government's direct responsibility a wide swathe of government-controlled entities engaging
in exactly the sorts of transactions listed in Ar ticle 1.1(a)(1)(i)-(iii) of the SCM Agreement would
fundamentally undermine the Agreement's logic, cohe rence and effectiveness, and thus would be at
odds with its object and purpose.
8.80 Here, we agree with the finding of the panel in Korea – Commercial Vessels that a public
body is an entity controlled by a government. In terms of the object and purpose of the SCM
Agreement, we consider particularly relevant that pa nel's statement that "it is the fact that a financial
contribution is provided by a public body (or pursuant to entrustment or direction by a public body)
that gives rise to the possibility that the financial contribution might be provided on below-market
terms in order to advance public policy goals".
181 In our view, it is the government's control of an
entity that gives that entity the potential to intervene in markets so as to advance public policy goals,
by providing financial contributions on better-than-market terms.
8.81 In short, the systemic implications for Memb ers of interpreting "any public body" to mean
any government-controlled entity are fully in line with the object and purpose of the SCM Agreement
of effectively disciplining trade distorting subs idies provided by Member governments. These
implications fall very far from disciplining, let al one condemning, every act of such entities. This
interpretation simply means that the actions of a government-controlled entity are, for purposes of the
SCM Agreement, directly attributable to the gove rnment itself – no more, no less. Finding that a
given entity is a public body does not speak to the na ture of its actions, including whether they are
even covered by the Agreement.
8.82 By contrast, the systemic implications of interpreting "any public body" as limited to
government agencies or other entities vested with a nd exercising governmental authority would be to
seriously undermine the entire SCM Agreement, something that cannot be reconciled with the
Agreement's object and purpose. Large numbers of government-controlled entities whose very raison
d'être is to engage in the kinds of transactions identif ied in Article 1.1(a)(1)(i)-(iii) would be legally
presumed to be unrelated to the government (i.e., effectively "private bodies"). Governments could
easily hide behind the presumptively "private" natu re of such entities, even while running those
entities so as deliberately to provide trade-distorting subsidies. Yet, before the SCM Agreement could
even apply to any such entity, such that an inquiry could be started into the possible existence of a
subsidy and specificity, a particular instance of "entrustment or direction" in the sense of
Article 1.1(a)(1)(iv) would need to be established. In our view, this would be equivalent to inquiring
whether the government "entrusted or directed" itself to do something, and would turning the
"entrustment or direction of a private body" provision on its head.

181 Panel Report on Korea – Commercial Vessels, para. 7.44. (emphasis added).

8.83 The foregoing analysis of the ordinary meaning of the terms of the treaty at issue, in their
context and in the light of the object and purpose of the treaty, leads us to conclude that for the
purposes of the SCM Agreement, "any public b ody" is any government-controlled entity. By
contrast, in our view, the narrow reading advanced by China is not supported either by the context of
this term or by the object and purpose of the SC M Agreement and, to the contrary, would seriously
weaken the integrity and effectiveness of the SCM Agreement.
8.84 We recall that China's arguments are not limited to the foregoing elements based on the SCM
Agreement itself. Rather, China also has adva nced arguments based on other international
instruments that it considers relevant context fo r interpreting the term "any public body". The
question we now turn to is whether any of these ot her instruments would override our analysis and
conclusions based on the text of the SCM Agreement itself.
8.85 The first of the other instruments cited by China is the Draft Articles. China argues that these
Draft Articles constitute "relevant rules of interna tional law applicable in the relations between the
parties" in the sense of Article 31(3)(c) of the Vienna Convention, and that they thus must be "taken
into account" in the analysis of the term "public body ". In particular, China considers that the Draft
Articles codify customary international law with resp ect to certain principles of state responsibility, a
proposition that in China's view has repeatedly been recognized by panels and the Appellate Body.
182
8.86 As such, China argues, the term "public body" must be interpreted in a manner analogous to
Article 5 of the Draft Articles such that the actions of state-owned corporate entities will be attributed
to the State only when "empowered by the law of th at State to exercise elements of the governmental
authority [...] provided the person or entity is acti ng in that capacity in the particular instance").
183
China considers that the Appellate Body "expressly endorsed" the principles of the Draft Articles with
respect to when the conduct of state-owned entities may constitute a financial contribution within the
meaning of Article 1.1(a)(1) of the SCM Agreement.184
8.87 Before we address the substance of this argument, we consider the status of the Draft Articles,
and in particular whether as China argues we must as a matter of law interpret the provisions of the
SCM Agreement at issue in conformity with language and concepts in certain provisions of the Draft
Articles. In this regard, the first question is wh ether the Draft Articles are recognized in the WTO as
"rules of international law applicable in the relatio ns between the parties" to the dispute, and the
second question is whether they are "relevant" to this dispute. On the first question, in our view,
China significantly overstates the status that has b een accorded to the Draft Articles where they have
been referred to by panels and th e Appellate Body. Indeed, in not a single instance of such citations
identified by China has a panel or the Appellate Bo dy identified the Draft Articles as "relevant rules
of international law applicable in the relations betw een the parties" in the sense of Article 31(3)(c) of
the Vienna Convention, such that they should be "t aken into account together with the context" when
interpreting the treaty. Rather, in our view, the va rious citations to the Draft Articles have been as
conceptual guidance only to supplement or confirm, but not to replace
185, the analyses based on the
ordinary meaning, context and object and purpose of the relevant covered Agre ements. In particular,
while in some cases the Draft Articles have been cited as containing similar provisions to those in
certain areas of the WTO Agreement, in others they have been cited by way of contrast with the

182 See, e.g., China response to Panel question 15(a) (first meeting).
183 See., e.g., China first written submission, paras. 75-79.
184 Id., para. 72.
185 Indeed, in at least one prior proceeding, one of the parties strenuously obj ected to preferring the
meaning of the term "countermeasures" in the Draft Articles over dictionary definitions advanced by the parties,
on the grounds that the Draft Articles are not "relevant rules of international law applicable to the relations
between the parties" within the meaning of Article 31(3)(c) of the Vienna Convention. (Decision by the
Arbitrators on Brazil – Aircraft (Article 22.6 – Brazil), para. 3.44 and footnote 48).

provisions of the WTO Agreement, as a way to better understand the possible meaning of the
provisions of the WTO Agreement. In all cases, however, the exercise undertaken by these panels
and the Appellate Body has been to interpret the WTO Agreement on its own terms, i.e., on the basis
of the ordinary meaning of the terms of the treaty in their context and in the light of the object and
purpose of the treaty.
8.88 We note that this is true of the Appellate Body's reference to the Draft Articles in US –
Countervailing Duty Investigation on DRAMS , the instance at the heart of China's arguments before
us concerning the Draft Articles. In particular, th at reference – which appears in a footnote making
the observation, in the context of the issue of "entru stment or direction" of a "private body", that the
conduct of private bodies is presumptively not attributable to the state – does not state that the Draft
Articles constitute relevant rules of international la w in the sense of Article 31(3)(c) of the Vienna
Convention for purposes of interpreting language in the SCM Agreement. Indeed, the footnote says
nothing whatsoever about the status of the Draft Articles vis-à-vis the WTO Agreement.
186
8.89 Furthermore, in some cases, panels and the A ppellate Body have made explicit that the Draft
Articles are not binding. 187 We thus find no basis for the assertion that as a general matter the
Appellate Body and panels have found that the Draf t Articles must be "taken into account" as "rules
of international law applicable in the relations between the parties" in interpreting the WTO
Agreement, and we note that in the present disput e, the United States has e xplicitly rejected this
proposition.188
8.90 In any event, even by their own terms, the Draft Articles "do not attempt to define the content
of the international obligations the breach of which gives rise to responsibility" 189, i.e., they are not
concerned with the substance of the underlying in ternational obligations, but are rather concerned
with determining whether a state is or is not re sponsible for a given action that may constitute a
substantive breach of such an obligatio n. In this regard, of particular relevance to the issue before us,
the Draft Articles contain a provision on lex specialis: "These articles do not apply where and to the
extent that the conditions for an internationally wr ongful act or the content or implementation of the
international responsibility of a State are govern ed by special rules of international law". 190 We view
the taxonomy set forth in Article 1.1 of the SCM Agreem ent at heart as an attribution rule in the sense
that it identifies what sorts of entities are and are not part of "government" for purposes of the
Agreement, as well as when "private" actors may be said to be acting on behalf of "government".
This has precisely to do with "the content or im plementation of the intern ational responsibility of a
State"191 for purposes of the SCM Agreement, a furthe r indication that the Draft Articles are not

186 We recall that in another footnote in the US – Countervailing Duty Investigation on DRAMS report,
the Appellate Body also noted the statement of the panel that the USDOC might have been entitled to treat
wholly-government owned entities as "public" rather th an "private" bodies. (Appellate Body Report on US –
Countervailing Duty Investigation on DRAMS, footnote 225).
187 See, e.g., Appellate Body Report on US – Line Pipe , para. 259; Panel Report on US – Gambling ,
para. 6.128.
188 The United States argues, for exam ple, that even if certain parts of the Draft Articles may have the
status of customary international law, this does not mean that the Draft Articles in their entirety, and in their full
detail have that status, a question which the United States characterizes as "open" and "contested".
(United States second written submission, para. 58).
189 General Commentary, para. 1 of the Draft Articles.
190 Article 55 of the Draft Articles.
191 We emphasize that here we express no view as to other possible parts of the WTO Agreement that
might also fall within the scope of the lex specialis provision of the Draft Articles. The issue before us is the
interpretation of Article 1.1 of the SCM Agreement, and our analysis thus is limited to that provision. We do
note, however, that the Commentary to this provision of the Draft Articles refers at length to the WTO Dispute
Settlement Understanding as an example of a treaty whose text makes clear "that only the consequences
specified [therein] are to flow". (Commentary (3) to Article 55 of the Draft Articles).

relevant to interpreting Artic le 1.1 of the SCM Agreement. 192 In this connection, we recall that the
panel in Korea – Commercial Vessels , presented with virtually the same argument by Korea that
China makes before us, declined to rely on the Draft Articles. In that panel's view, Korea's entire line
of argumentation concerning the meaning of "public body" (which included its arguments based on
the Draft Articles) conflated the concept of "benefit" with the nature of the actor.
8.91 On the basis of the foregoing considerations , we do not find that the Draft Articles are
"relevant rules of international la w applicable to the relations betw een the parties", such that we
should "take them into account, together with the context" in the sense of Article 31(3)(c) of the
Vienna Convention. Given this, we do not need to take up the other issues that would need to be
resolved in that situation, not least of which is the meaning of "take into account" for that purpose.
8.92 The second instrument invoked by China as contex t is the GATS, in particular its Annex on
Financial Services. This Annex contains the term "public entity", and China argues that this term
must inform the meaning of the term "public body " in the SCM Agreement. We note that China's
argument is the same as one raised by Korea in Korea – Commercial Vessels: That panel rejected this
argument, on the grounds that the argument conti nued to conflate the c oncepts of financial
contribution and benefit. The panel also questioned the relevance of the GATS to the interpretation of
different language in an entirely different agreement, and finally noted that even the text of the GATS
Financial Services Annex itself seemed to imply that , in the absence of the clarification in the cited
provision, "an entity principally engaged in supplying financial services on commercial terms" might
be treated as a "public entity", a fact that in the vi ew of the panel undermined Korea's argument that a
public entity acting on commercial terms could not be treated as a "public body". 193 We, like the
panel in Korea – Commercial Vessels , do not see the relevance for th e interpretation of the term
"public body" in Article 1.1 of the SCM Agreement, of the different term "public entity" in a different
Agreement, and in particular we see nothing to requi re us to equate these terms or to give them the
same interpretation.194 Nor do we consider the term "non-gove rnmental bodies" in Article I:3 of the
GATS, which China invokes, to be re levant to the interpretation of " public body" in Article 1.1(a)(1)
of the SCM Agreement. These are very different terms in separate Agreements, and we find no
indication in either Agreement of any conceptual or other link between them.
8.93 Finally, in terms of other instruments, we r ecall that the United States points to the discussion
in paragraph 172 of the Working Party Report on Ch ina's accession as relevant context making clear

192 The panel in EC – Commercial Vessels reached a similar conclusion that it was unwarranted to read
public international law concepts including elements of the Draft Articles into the WTO Agreement to
determine the meaning of Article 23.1 of the DSU. In this regard, that panel stated:

"The Panel recalls that it has concluded, based on an interpretation of Article 23.1 of the DSU
in accordance with the ordinary m eaning of its terms and in light of the object and purpose of
the provision, that measures not involving a suspension of WTO concessions or other
obligations are not excluded from its scope. While the Panel realizes that in a number of
WTO dispute settlement and arbitration cases reference has been made to the public
international law concepts invoked by the European Communities, the Panel can see no basis
for using these concepts to read into Artic le 23.1 a limitation that is unsupported by an
interpretation based on its text, context and object and purpose.". (footnotes omitted) (Panel
Report on Korea – Commercial – Vessels, para. 7.205).

Similarly to that panel, we can see no basis to read into Article 1.1 of the SCM Agreement any concept
from public international law that is unsupported by an interpretation based on that Article's text, context and
object and purpose.

193 Panel Report on Korea – Commercial Vessels, footnote 42.
194 Id., para. 7.47.

that China accepted that its stat e-owned enterprises (including banks ) are government actors, or at
least public bodies, within the meaning of the SCM Agreement.
195 We note that the United States
does not rely directly on this language, and does not argue that it constitutes a commitment by China
as to any particular interpretation of Article 1.1(a)(1 ) of the Agreement. In light of our conclusions
based on the text of that provision, we do not cons ider it necessary to analyze the cited language of
the Working Party Report.
8.94 For the foregoing reasons, we conclude that a "public body", as that term is used in Article 1.1
of the SCM Agreement, is any entity controlled by a government. In our view, this is the correct
interpretation, which emerges from an analysis of th e ordinary meaning of the term in its context and
in the light of the object and purpose of the provision and of the SCM Agreement.
2. The USDOC's determinations that certain SOEs and SOCBs were "public bodies"
8.95 Having interpreted the term "public body", we now turn to the USDOC determinations in the
four countervailing duty investigations before us that certain entities were public bodies, and that their
respective provisions of inputs and loans thus were financial contributions by the government, in the
sense of Article 1.1(a)(1) of the SCM Agreement.
(a) Background
8.96 The USDOC made "public body" and "financial c ontribution" determinations in respect of (i)
state-owned suppliers of inputs, including some tr ansactions made through private trading companies
(government provision of goods); and (ii) state- owned commercial banks (government provision of
loans).

8.97 In the four investigations at issue, the US DOC determined that China's provision of inputs
through state-owned producers (SOEs) constituted c ountervailable subsidies. It particular, the
USDOC determined that the SOEs were "public bodi es" that provided financial contributions in the
form of certain goods – HRS, rubber, and petroche micals – to investigated producers of, respectively,
CWP, LWR, OTR, and LWS, for less than adequate remuneration thus confe rring benefits to those
producers, and that these subsidies were specific.
196 Before us, China challenges all of these public
body determinations.

195 The passage of paragraph 172 of the Working Party Report reads as follows:

 "Some members of the Working Party, in view of the special characteristics of China's
economy, sought to clarify that when state-owned enterprises (including banks) provided financial
contributions, they were doing so as government actors within the scope of Article 1.1(a) of the
SCM Agreement. The repres entative of China noted, however, that such financial contributions would not
necessarily give rise to a benefit within the meaning of Article 1.1(b) of the SCM Agreement. He pointed out
that China's objective was that state- owned enterprises, including banks, should be run on a commercial basis
and be responsible for their own profits and losses. The Working Party took note of this commitment."

196 In the CWP and LWR investigations , the USDOC determined that the government provision of
HRS through SOE producers for less than adequate remuneration was a financial contribution which conferred a
benefit to CWP and LWR investigated producers. (See, e.g., Exhibits CHI-1, p. 9 and CHI-2 p. 8).
In the LWS investigation , the USDOC determined that the government provision of petrochemicals –
BOPP – through SOE producers for less than adequate remuneration was a financial contribution which
conferred a benefit to LWS investigated producers. (See, e.g., Exhibit CHI-3, p. 18).
In the OTR investigation , the USDOC determined that the government provision of natural and
synthetic rubber through SOE producers for less than adequate remuneration was a financial contribution which
conferred a benefit to OTR investigated producers. (See, e.g., Exhibit CHI-4, pp. 9-10).

8.98 In three of the four investigations at issue (CWP, OTR and LWS), the USDOC also
determined that loans provided by SOCBs to i nvestigated producers constituted countervailable
subsidies.197 In particular, the USDOC found that the SOCBs were "public bodies" providing
financial contributions in the form of loans, that the loans were on terms more favourable than the
market, and that these subsidies were specific. In the present dispute, China only challenges the
USDOC's "public body" determination regarding SOCBs in the OTR investigation.198

(b) USDOC public body determinations in respect of government-owned input suppliers (SOEs)
8.99 In all of the investigations at issue, the USDOC determined that the SOE input suppliers were
"public bodies" (referred to as "authorities" in the U.S. statute and thus in the USDOC's
determinations
199) by applying a rule of majority government-ownership. Under this approach, the
USDOC treated as a public body any input producer in which the government held a majority
ownership share.
200 Where the parties presented additional arguments and evidence related to this
issue, the USDOC also referred to these in its dete rminations. The analysis conducted in each of the
investigations is summarized below.

(i) CWP investigation
8.100 In its final determination in the CWP inv estigation, the USDOC determined that SOE
producer-suppliers of HRS were public bodies ("authorities"). In particular, any producer-supplier in
which a government entity held a majority ownership share was treated as a public body. 201 In this
regard the determination indicates, and China do es not contest, that the Government of China
provided ownership information only in respect of some of the investigated producer-suppliers of
HRS. The USDOC treated the entities in respect of which the Government of China failed to provide
the requested ownership information as public bodi es (on the basis of applying facts available or
adverse facts available).202
8.101 During the course of the investigation, the Government of China contested the USDOC's
majority-ownership approach to its public body de terminations, which also had been used in the
preliminary determination. China argued that the USDOC should conduct the factual five-factor
analysis it had applied in certain pr ior investigations, in particular Korea – DRAMS , to determine
whether entities were public bodies. The five fact ors that the USDOC had examined in that case
were: (i) government ownership; (ii) government pr esence on the board of directors; (iii) government

197 In the LWR investigation, the USDOC concluded that any government programme to provide loans
to the steel industry was "not used" by the respondents. (Exhibit CHI-2, p. 47).
198 China first written submission, footnote 132. As discussed in Section X, infra, China challenges the
USDOC's determinations of benefit from these loans in a ll three of the investigations in which producers were
found to have received countervailable subsidies in the form of government-provided loans.
199 According to the United States, under its domestic statute the definition of the term "authority"
includes the term "public entity", and this latter term means "public body". (United States first written
submission, footnote 87). There is no disagreement between the parties as to the equivalence of the terms
"public entity" under U.S. law and "public body" in Article 1.1(a)(1) of the SCM Agreement.
200 Exhibits CHI-1, p. 63; CHI-2, pp. 29-30; CHI-3, p. 67; and CHI-4, p. 77.
201 Exhibit CHI-1, pp. 62-63.
202 Id., pp. 10-11. With regard to other specific suppliers for which petitioners had claimed SOE status,
the USDOC noted that the identities of those suppliers were proprietary and therefore addressed petitioners'
comments in a "BPI Memorandum". (Id., p. 63). This document is not on the record of the present dispute.

control over activities; (iv) pursuit of governmental policies/interests; and (v) whether the entity was
created by statute.
203
8.102 The USDOC acknowledged that it had used such a five-factor test in prior investigations 204
but stated that there was insuffici ent evidence on the record to do so in the CWP investigation. In
particular, the USDOC noted that other than th e levels of government ownership of certain
companies, the Government of China had not provide d the information that was needed to consider
the five-factor analysis, and that therefore the USDOC had applied a rule of majority ownership. 205
The USDOC noted, however, that it would reconsider the feasibility of applying the five-factor test
during an administrative review, should a countervailing duty order result from the investigation.206
8.103 Finally, the USDOC stated that because it had de termined that the SOEs were public bodies,
it did not reach the issue of whether they were priv ate entities entrusted or directed by the government
to provide financial contributions.207
(ii) LWR investigation
8.104 In its final determination in the LWR investig ation, the USDOC determined on the basis of
majority government ownership that SOE producer-supp liers of HRS were public bodies, pursuant to
an essentially identical analysis to that performed in the CWP investigation.208
8.105 During the course of the investigation, the Government of China and an investigated
producer/exporter contested the USDOC's "public body" preliminary determ inations, which were
made on the same basis. They asserted that govern ment ownership was insufficient grounds for an
entity to be a public body, and that not every g overnment entity is a public body, as the USDOC had
recognized in the Preamble to its countervailing dut y regulations. (The Preamble states that the
USDOC would continue to treat "most" government -owned corporations as the government itself). 209
These respondents further argued that the USDOC should have applied the five-factor factual analysis
that it had used in Korea – DRAMS (as described above in respect of the CWP investigation).210 They
noted that in Korea – DRAMS , the USDOC itself had found that cer tain wholly government-owned
companies should not be treated as government entiti es. For these respondents, the "real question"
under the approach taken in DRAMS was whether an entity exercised governmental authority.
8.106 The USDOC acknowledged that it had used such a fi ve-factor test in some, but not all, prior
investigations211, but determined that there was insuffi cient evidence on the record of the LWR
investigation to perform such an analysis because, beyond the levels of govern ment ownership of the
companies involved, the Government of China ha d not provided the information needed to conduct

203 Exhibit CHI-1, p. 62. In addition to contesting the basis for the public body determination, the
Government of China also asserted that the USDOC had not established that the Government of China had
"entrusted" or "directed" those companies to provide the financial contributions at issue. (Id.).
204 Specifically, the USDOC noted that it had used the five-factor test in DRAMS from Korea and
Magnesium from Canada. (Id., p. 62).
205 Exhibit CHI-1, pp. 62-63.
206 Id., p. 63.
207 Id.
208 Exhibit CHI-2, pp. 28-30.
209 Id., pp. 26-27.
210 Id., p. 27.
211 The USDOC noted that it had previously used the five-factor test in DRAMS from Korea and
Magnesium from Canada , but also noted that in other investigations it had not applied this test where a
government-owned entity provided a financial contribution to a respondent. (Id., p. 28 and footnote 103).

the analysis.212 The USDOC noted that it would reconsider the necessity and feasibility of applying
the five-factor test during an administrative review.213
8.107 The USDOC nevertheless specifically discussed in its final determination China's arguments
in support of the five-factor analysis in respect of one input supplier, Baosteel. In so doing, however,
the USDOC stated that it was not making a finding as to whether it was required to apply the five-
factor test in respect of Baosteel.
8.108 Concerning the five factors as applied to Baosteel, the USDOC stated that although the
Government of China had cited record information rela ted to each of the five factors, the information
was not sufficient for the USDOC to conclude that Baosteel was not an "'authority'". Further, because
Baosteel was majority-owned by the government, the first of the five factors clearly supported that it
was a public body.214 On the other four factors, the USDOC's analysis was as follows:
• With respect to government presence on the Boar d of Directors, the USDOC stated that the
Government of China had contended that there was no evidence that any member of
Baosteel's board of directors was a government official. The USDOC referred to record
evidence suggesting that some members of the board had ties to the government.215
• Concerning government control over activities, the USDOC stated that the Government of
China had argued that there was no evidence of government control over Baosteel's activities,
including production or pricing, and in suppor t had contended that no government authority
regulated steel producers or set prices. The USDOC noted, however, that the Government of
China had cited no information specific to the activities of Baosteel.216
• With respect to pursuit of government po licies or interests, the USDOC noted the
Government of China's argument that Baosteel did not pursue government interests because it
had a duty under Chinese law to protect share holders and maximize profitability. The
USDOC stated that these facts did not demonstrate that Baosteel did not pursue government
interests. In this regard, the USDOC cite d statements from Baosteel's 2005 and 2006 annual
reports referring, inter alia , to implementation of the government's five year plan, and the
government's steel industry policy. The US DOC noted that although these were general
statements, they suggested that the govern ment might pursue government policies and
interests through its ownership of Baosteel.217

212 Exhibit CHI-2, pp. 28-29.
213 Id., p. 29.
214 According to China, Baosteel's private ownership amounted to 27 per cent. (Exhibit CHI-2, p. 27).
215 Id., p. 29. The USDOC noted that according to the Baosteel's 2006 Annual Report ("2006 Annual
Report"), one of the members of the board of directors during the period of investigation "has been trusted by
the State-Owned Assets Supervision and Administra tion Commission of the State Council as the outside
director of Baosteel Group as well as director of the Company". Moreover, it noted that the Baosteel's 2005
Annual Report ("2005 Annual Report") indicated that at least one independent director was also a director of
state-owned China Minmetals Corp. Ltd. (Id.).
216 Id., p. 30.
217 Id., p. 30. The USDOC noted that the 2005 Annu al Report indicated that "China has strengthened
macroeconomic control over steel industry since 2004 and issued the first Steel Industry Development Policies
in 2005 […] The Steel industry will undergo strategic restructuring" and that "one of the Major Tasks of
Baosteel's 2006 Business Plan is to Speed up the implementation of the 11
th Five Year Projects". It further
noted that the 2006 Annual Report also referred to China's steel industry policy and indicated that "Baosteel
Group Corporation, the controlling shareholder [of Baosteel ], mainly deals with state-owned assets within the
authorized scope set by the State Council". (Id.).

• Concerning creation by statute, the USDOC noted the Government of China's argument that
Baosteel operated under the same Chinese law as private enterprises, but stated that this
information was not sufficient to determine that Baosteel was not created by statute. The
USDOC indicated that China had provided no in formation on Baosteel's ultimate controlling
shareholder, the State-owned Assets Supervision and Administration Commission of the State
Council ("SASAC").
218
8.109 Overall, the USDOC found that the information on the record was not sufficient to conclude
that Baosteel was not an "'authority'", noting th at the Government of China had presented general
information on each of the five factors, which was contradicted by other ge neral information on the
record. The USDOC stated that it therefore had used the same rule of majority ownership applied to
other producer-suppliers to determin e whether Baosteel was an "'authority'". The USDOC noted that
because it determined that the SO Es at issue were public bodies, it did not reach the issue of
entrustment or direction.219
(iii) LWS investigation
8.110 In the LWS investigation, the USDOC determ ined that the state-owned petrochemical
producers under consideration were public bodies on th e basis of majority government ownership.
The USDOC stated that this was consistent with its approach in the CWP investigation, as well as
with the Preamble to its countervailing duty regulati ons ("we intend to cont inue our longstanding
practice of treating most government-owned corporations as the government itself […]"). 220
8.111 During the investigation, the Government of China contested the public body preliminary
determinations, arguing, inter alia, that the USDOC should have applied the five-factor test, and that
the respondents had provided sufficient information for the test to be applied.221
8.112 Although the USDOC acknowledged that it had used such a five-factor test in some prior
investigations222, it rejected the Government of China's argument on the grounds that there was
insufficient evidence on the record , as beyond the levels of government ownership of the companies
in question, the Government of China had not provided the information necessary to conduct a
complete analysis. Nevertheless, the USDOC responded to the Government of China's arguments and
"limited" evidence on this issue as follows:
• Concerning government ownership, the USDOC stated that the Government of China had
simply relied on the fact that the companies were not wholly government-owned (one being a
joint venture with a publicly listed corporation, and the other being a publicly listed company
with shares traded on foreign and Chinese stock exchanges), but had not demonstrated that
the companies had significant private ownership. Rather, the record evidence was "clear" that
the SOE suppliers were majority government-owned.
223
• Concerning government presence on the Board of Directors and pursuit of governmental
interests, the USDOC stated th at China's argument simply rested on the fact that the
companies were listed on domestic and foreign stock exchanges, and that this argument

218 Exhibit CHI-2, p. 30.
219 Id.
220 Exhibit CHI-3, p. 67.
221 Id., p. 65.
222 Id., pp. 66-67. The USDOC noted that it had used the five-factor test in the following prior
investigations: DRAMS from Korea and Magnesium from Canada. (Id., p. 67).
223 Id. p. 67. The USDOC cites the February 1, 2008 submission of verification exhibits, which are not
on the record of the present dispute. (Id.) China does not contest this point before the Panel.

reflected the unsubstantiated assumption that being listed on these exchanges somehow
showed that the directors of the companies acted independently in pursuing only commercial
and not governmental interests.224
• Concerning government control over the activities of the companies relating to pricing and
production decisions, the USDOC stated that th e Government of China failed to acknowledge
the role that the SASAC exercised over managi ng SOEs "based on 'the rights attendant to the
ownership of shares'" (citing to the Governme nt of China's questionnaire response). The
USDOC considered that this management w ould be substantial based on the government's
majority ownership of the SOEs in question.225
8.113 The USDOC concluded that it had therefore a pplied a rule of majority ownership to
determine whether a government-owned petrochemical input supplier was an "authority" (a public
body). It further concluded that because it had found these SOEs to be public bodies, it did not reach
the issue of entrustment or direction.226
(iv) OTR investigation
8.114 In the OTR investigation, the USDOC determin ed that majority government ownership of a
rubber producer qualified it as a public body, and that this was consistent with the Preamble to its
countervailing duty regulations and with past prac tice (namely, the CWP and LWS investigations,
Hot-Rolled Steel from India , and Stainless Steel from Korea ).227 While respondents argued that the
USDOC was required to apply the five-factor test, the USDOC found that "conducting such a test is
not necessary absent information that calls into question whether government ownership does not
mean government control".
228 In this respect, it cited other inv estigations where it had not applied the
five-factor test, but had made a public body dete rmination purely on the basis of government
ownership.229 The USDOC noted that it would, if appr opriate, reconsider the necessity of applying
the test if there were a countervailing duty order, and an administrative review were required.230
8.115 Finally, the USDOC found that because it had dete rmined that SOEs were public bodies, it
was not necessary to evaluate the question of entrustment or direction.231

(c) USDOC public body determination in respect of SOCBs
8.116 As discussed above, concerning loans by SOCBs China challenges the USDOC's public body
determinations only in the OTR investigati on, although it challenges the USDOC's benefit

224 Exhibit CHI-3, p. 67. The Government of China's arguments were (i) that several directors were
independent non-executive directors and that some were officers of the company with no outside government
positions, and that these companies pursued only commerci al interests based on their stock exchange listings;
(ii) that by law they were required to protect the intere st of shareholders and to maximize profits; (iii) that one
was listed on the New York Stock Exchange and thus was subject to US corporate governance requirements;
and (iv) that SOEs in China operate under the same co mpany law as private enterprises and they do not exist by
virtue of any special statute. (Id., pp. 65-66).
225 Exhibit CHI-3, p. 67. The cited questionnaire response is not on the record of this dispute, but
China does not contest the USDOC's characterization thereof.
226 Id.
227 Exhibit CHI-4, pp. 10 and 77.
228 Id., p. 10.
229 The USDOC cited, for example, its prior investigation in Hot-Rolled Steel from India, where it had
countervailed the provision of iron ore from a mostly government-owned mine without any reference to the
five-factor test. (Id., pp. 10 and 77).
230 Id., p. 10.
231 Id., p. 77.

determinations in respect of loans by SOCBs in three of the four countervailing duty investigations
before us. (The claims concerning these benefit determinations are addressed in Section X, infra).
8.117 In the OTR investigation, the USDOC found that the Government of China provided
subsidies to the tire industry in the form of pr eferential lending by state-owned commercial banks.
232
It determined that the SOCBs were "authorities" (i.e., public bodies) on the basis of its previous
finding in the CFS Paper investigation, where it had concluded that Chinese policy banks and SOCBs
constituted such "authorities". In the OTR investig ation, the USDOC stated that the parties in the
investigation had not demonstrated that the Ch inese banking sector had significantly changed such
that reconsideration of the CFS decision was warranted. 233 The USDOC also cited scholarly
publications on the record that reported that SO CBs were required to support the government's
industrial policies.234
8.118 In the CFS Paper investigation, in turn, the USDOC stat ed that in its general practice, loans
provided in any given country by state-owned comme rcial banks are not necessarily, or in all cases,
treated as government loans, since these banks may operate on a commercial basis. 235 However, it
determined that in respect of China, treatment of SOCBs as commercial banks was not warranted.
The USDOC found that the record evidence did not indicate that China's banking sector operated on a
commercial basis, as it was subject to significant distortions, mainly from the continued dominant role
of the government in that sector and the legacies associated with the sector's longstanding pursuit of
government policy objectives. 236 Therefore, while stating that government control over SOCBs in
China had been changing and that the record ev idence in that regard was mixed, the USDOC
nevertheless determined that the reforms were still in transition and that the government's influence
remained a significant factor in the operation of China's banking sector.237
8.119 In the CFS Paper investigation, the USDOC first stated that the central government had been
very cautious on completely reforming the banking system; and that as a result, and because banks in
China had never operated on a commercial basis, th e government was still very involved in the
banking sector.
238 The USDOC found this view, to vary ing degrees, confirmed by independent
experts. It reported some experts stating that "recent trends have moved away from local government
influence over bank operations" and "[t]here still is some local gove rnment control over the bank
branches, but [while] this has lessened in recent years […] it is still an ongoing process". Other
experts stated that "the banking law prohibited go vernment interference […] but […] this prohibition
was not very effective in decreasing local governme nt influence [...] [howev er] the creation of the

232 According to China, there are four principal state-owned commercial banks in China (i.e., the so-
called "Big Four" banks): the China Construction Bank ("CCB"); the Industrial and Construction Bank of China
("ICBC"); the Bank of China ("BOC"); and the Agricultu ral Bank of China ("ABC"). (China first written
233 Exhibit CHI-4, p. 101. For example, the USDOC noted that at verification, an official from the
Tianjin municipal government confirmed that SOCBs are supervised by the Tianjin State-Owned Assets
Supervision and Administration Commission ("Tianjin SASAC"). Tianjin is the city where an investigated
OTR producer (TUTRIC) was located. (Id.).
234 As an example, the USDOC cites the IMF Wo rking Paper on China's Banking System Reform
(Exhibit US-52), which states that "it is difficult to find clear evidence that SCBs have changed their behavior
and became commercially oriented" and that governments should avoid "interferen ce for policy purposes".
(Exhibit CHI-4, footnote 45).
235 Issues and Decision Memorandum for the Fina l Determination in the Countervailing Duty
Investigation of Coated Free Sheet from the People's Republic of China ("CFS Paper Countervailing Duty I&D
Memo"), Exhibit CHI-93, p. 55. As an example, the USDOC cites its previous findings in DRAMS from Korea.
(Id.).
236 Id., p. 55.
237 Id., pp. 58, 60-61.
238 Id., p. 56.

[Chinese Banking Regulatory Commission] [has led] to significant decreases in the extent of local
government interference […] [although it] continu es to lack the enforcement powers it needs to
properly implement its regulations a nd fulfill its mandate" and "there is still a control perspective, as
banks continue to be dominated by government and are exposed to outside political influences".239
8.120 Second, the USDOC determined that China' s banking system still operated in accordance
with governmental planning policies.240 For example, the Chinese Commercial Banking Law required
banks to carry out their loan activities consistently with "the needs of national economy and the social
development and under the guidance of State industrial policies". 241 Further, the USDOC found that
while SOCBs were improving their risk management capacities, they still lacked adequate risk
management and analysis skills. It also stated that interest rates remained generally undifferentiated –
interest rates were quite close to the benchmark set by the People's Bank of China ("PBOC").242
8.121 Furthermore in this context, in addition to its findings as to inadequate risk management and
analysis, and as to SOCBs' lending in pursuance of government economic plans, the USDOC pointed
to government ownership in the banking sector. In particular, the USDOC determined that China's
banking sector remained almost entirely state-owned 243 and that even if the largest SOCBs had
undergone some reorganization to become formal corporate entities – limited initial public offerings,
and sale of minority stakes to foreign interests – th e Government of China as the majority shareholder
continued to exert control over the largest commercial banks.244 The USDOC noted in this regard that
foreign investment in Chinese banks was tightly cons trained, with total fore ign ownership limited to
25 per cent in SOCBs.245
8.122 According to the USDOC's OTR Countervailing Duty I&D Memo, the Government of China
argued in that case that the SOCBs' specific actions should be analyzed to determine whether "a
financial contribution was provided through preferentia l lending". TUTRIC (one of the investigated
producers), is cited as arguing that the SOCBs we re not necessarily government authorities, as they
had undergone significant reorganizations to become formal corporate entities operating under market

239 Exhibit CHI-93, pp. 56-57.
240 Id., pp. 57-58.
241 Id., p. 58. Similarly, it noted that the Bank of China Offering states that "Commercial Banking Law
requires commercial banks to take into consideratio n government macroeconomic policies in making lending
decisions. [They] are encour aged to restrict their lend ing to borrowers in certain industries in accordance with
relevant government policies". (Id.) The USDOC also noted that, at verification, officials from the People's
Bank of China stated that "it may be necessary for banks to heed industrial policies; banks may be taking on
great risk if their customers use loans in a way that is inconsistent with industrial policies". (Id.).
242 Id., p. 59. For example, the USDOC noted that at verification, the PBOC explained that interest rate
spreads are close to the PBOC-set benchmark rate becaus e "the Big Four [(the largest SOCBs in China)] attract
the largest borrowers [...] [which] are creditworthy [...] and have long-term relationship with the banks". (Id.).
243 The USDOC's examination of the SOCBs' ownership appears in the section of the Issues and
Decision Memorandum covering "benchmarks" for SOCB lending, which is cross-referenced in the section of
the Memorandum addressing "policy lending". The analys es in these two sections overlap substantively to a
considerable extent.
244 The USDOC noted that according to the data provided by the OECD ("Economic Survey of China,
Paris: Organization for Economic Cooperation and Development" (2005)) the state ownership in the Chinese
banking sector is much more widespread than in any other major world economy. The OECD report states that
the "extent of ownership in China's financial system is exceptional. All but one of the major commercial banks
are controlled by the central or local government […] the four largest banks […] known as the state owned
commercial banks (SOCBs), still account for almost three- quarters of commercial bank assets". (Exhibit CHI-
93, p. 67; and OECD Economic Surveys: China (2005), Exhibit US-54, p. 140). In its first written submission,
China acknowledges that at the end of 2006, China's ownership in the Big Four was as follows: 75 per cent in
the ICBC; 74 per cent in the CCB; 68 per cent in the BOC; and 100 per cent in the ABC. (China first written
submission, para. 165).
245 Exhibit CHI-93, p. 67.

conditions, and that the USDOC had in previous cases found that wholly government-owned banks
were not government authorities. Starbright (anothe r investigated producer), is cited as arguing that
its loan from the Bank of China was not counterva ilable as the USDOC had incorrectly determined
that SOCBs in China were government authorities. The Memorandum also indicates that Bridgestone
(a domestic interested party in the investigation) disagreed with the Government of China that the
banks were private entities not controlled by th e government, arguing that record evidence and
scholarly publications demonstrated that the Govern ment of China owned almost all banks in China,
and that Chinese law required that the banks suppo rt government industrial policies. Bridgestone
contended that trends such as decreasing governme nt ownership did not contradict the record
evidence that during the period of investigation the government "maintained a strong hold on both
bank ownership and lending", such that in Bridg estone's view the USDOC should find that SOCB
lending and debt forgiveness to the tire producers were financial contributions.
246
8.123 The final determination in the OTR investig ation summarizes the USDOC's finding that the
SOCBs were public bodies as being based on the facts: (i) that national, provincial and municipal
government authorities effectuated policies to provi de countervailable loans to OTR producers, and
that the loans at issue were provided pursuant to these policies; (ii) that the parties in the OTR
investigation had not demonstrat ed that conditions in the Chin ese banking sector had significantly
changed since the CFS Paper determination, such that a reconsideration was warranted, citing in this
regard the verification report of the Tianjin G overnment, where a Tianjin municipal government
authority had confirmed that SOCBs were under Tian jin SASAC supervision; and (iii) that scholarly
publications on the record reported that SOCBs were required to support the government's industrial
policies.
247
(d) Assessment by the Panel
8.124 We recall our finding above that the meaning of "public body" in Article 1.1 of the SCM
Agreement is an entity controlled by a government . We note that China's claim concerning the
USDOC's determinations that the SOEs and SOCBs at issue were public bodies is based not only on
its own, different, legal interpreta tion of the term "public body", but also on the public body analysis
and conclusions of the USDOC in the four investig ations. In particular, China claims that these
determinations by the USDOC were based on the application of a " per se majority ownership test",
and that the USDOC did not conduct the "five-factor analysis" that it had applied in some prior cases,
which China holds up as evidence that the USDOC had recognized that a "fact-intensive" inquiry
(including an entity's pursuit of governmental policies or interests, and whether an entity is created by
statute), was necessary to establish that an entity is a public body in the sense of Article 1.1 of the
SCM Agreement. More generally, China considers th at the USDOC failed to meet its investigatory
burden by improperly basing its public body determinations on a presumption that government-owned
entities are public bodies, rather than gathering a nd analyzing the factual information necessary for
the five-factor test.
8.125 We start by considering China's statements concerning the five-factor test. While we note
China's disclaimer that it is not arguing about the consis tency of the five-factor test with Article 1.1 of
the SCM Agreement, we view China's statements about the test as implying (as China had argued
during the investigations), that the USDOC was ob ligated to have applied that test, in which
government ownership is just one factor. For exam ple, citing the USDOC's statements regarding the
non-application of the test in the investigations, that it would "reconsider the feasibility of applying
the five-factor test during an administrative revi ew", China states that it "takes no solace in this
response".
248 Thus, for the sake of the completeness of our analysis, we examine the potential

246 Exhibit CHI-4, pp. 100-101.
247 Id., p. 101.
248 China first written submission, para. 100. See also footnote 94, supra.

relevance of the five-factor test to the concept of "public body" in Article 1.1 of the SCM Agreement.
In this regard, we recall China's argument that the "key" question regardi ng whether an entity is a
public body is whether it exercises governmental aut hority, and China appears to consider that the
five-factor test addresses that question. 249 Given our finding that a public body is an entity controlled
by a government, however, the legal question is whether under the SCM Agreement it would be
necessary to examine the five factors to establish th at an entity is government-controlled. We recall
that the factors are (i) government ownership; (ii) the government's presence on the entity's board of
directors; (iii) the government's control over th e entity's activities; (iv) the entity's pursuit of
governmental policies or interests; and (v) whether the entity is created by statute. While these factors
appear generally to be related to the issue of control, we see no basis in the SCM Agreement on which
to conclude that consideration of these particular fi ve factors (or any other specific factors) is a legal
prerequisite for a valid finding that an entity is c ontrolled by a government and thus a public body in
the sense of the Article 1.1 of the SCM Agreemen t. Put another way, even if under U.S. law
application of the five-factor test were mandatory for a finding that an entity is a "government
authority" (which the evidence before us suggests is not the case), the failure to conduct that test in a
given investigation would be a matter for the U.S. judicial review system, not the WTO.
8.126 This brings us to the analyses that the USDO C did conduct in the four investigations in
respect of the SOE input suppliers, and in the OTR investigation in respect of SOCBs. The question
for the Panel is whether these analyses were reasoned and were based on adequate evidence of
government control of the entities in question.
(i) SOE input suppliers as public bodies
8.127 Concerning the SOE input suppliers in the f our investigations, as described above the
USDOC's public body determinations were principa lly based on the uncontested fact that these
entities were majority government-owned. China characterizes this as a simple per se majority
ownership test. We read the USDOC's determinati ons differently, however. In particular, we do not
see the USDOC's determinations as depicting the mech anical application of a per cent-of-ownership
test, without regard for any other evidence or argume nts. To the contrary, these determinations show
that the USDOC examined all of the evidence and arguments that were before it in reaching its
conclusions that the SOEs were public bodies.
8.128 In particular, in the CWP investigation, the USDOC noted that other than the levels of
government ownership of certain companies produ cing HRS, the Government of China had not
provided the information that was needed to consider the five-factor analysis, and that therefore the
USDOC had applied a rule of majority ownership.
250 In this context, where ownership information
was not available for certain HRS producers, th e USDOC found them to be government-owned, and
thus public bodies, on the basis of facts available.
8.129 In the LWR investigation, the USDOC determin ed that there was insufficient evidence on the
record to perform the five-factor analysis in resp ect of HRS producers, because the Government of
China had not provided such evidence. Rather, it had provided only ownership information, and only
for some companies, but otherwise had not furnis hed information necessary to conduct the five-factor
analysis.251 Despite this, the USDOC did include a sp ecific, detailed discussion of the arguments
advanced by the Government of China concerning the five factors in respect of one trading company,
Baosteel, while stating that it made no finding as to whether a five-factor test was required. As
described supra, the USDOC found that the evidence was insu fficient to conclude that Baosteel was

249 See, e.g., China first written submission, paras. 90-102.
250 Exhibit CHI-1, pp. 62-63.
251 Exhibit CHI-2, pp. 28-29.

not a public body, and/or that the evidence contradi cted the factual assertion in support of which it
was advanced.
252
8.130 In the LWS investigation, the USDOC again found that there was insufficient evidence on the
record for it to be able to conduct a five-f actor analysis, as beyond the levels of government
ownership of the companies in question, the Gove rnment of China had not provided the information
necessary to conduct a complete analysis. The USDOC nevertheless conducted a detailed discussion
of the Government of China's arguments and "limite d" evidence on the five factors, concluding that
either that evidence was not apposite to the ques tions examined, or disproved the Government of
China's argument. Of particular relevance in this regard was the statement in the Government of
China's questionnaire response that the State- Owned Assets Supervision and Administration
Commission of the State Council played a role in managing SOEs "based on 'the rights attendant to
the ownership of shares'".253
8.131 In the OTR investigation, the USDOC found that a five factor test is not necessary in the
absence of evidence calling into question whether government ownership does not mean government
control.
254 The record documents before us make no mention of any party submitting evidence
suggesting an absence of government control, and before us China points to none. Rather, the
USDOC's OTR Countervailing Duty I&D Memo indi cates that the Government of China and the
respondent parties focused most of their argum entation on the USDOCs' failure to conduct an
entrustment or direction analysis. Thus, it appears that there was no evidence other than that of the
government's share of ownership of the input supplie rs before the USDOC in respect of whether these
SOEs were public bodies.
8.132 On the basis of our review of the USDOC's public body determinations, we find sufficient
discussion and analysis to explain the basis for tho se determinations and the reasons therefore. In
other words, it is clear to us from these determin ations what evidence was before the USDOC and,
where there were gaps, the reasons for those gaps , and how the USDOC addressed them. It also is
clear to us from the determinations what specifi c arguments and evidence were presented to the
USDOC and how the USDOC took them into considerati on. In particular, we note the statements of
the USDOC that in a number of instances, fa ctual assertions were made without any supporting
evidence, or with evidence that contradicted the assertions. We further note that the USDOC
explained why it considered that it was not legally required to conduct the five-factor test, in
particular that in making its public body findings, it relied on the evidence of record that the input
suppliers in question were majority government-owned.
8.133 This then brings us to the legal question of whether the evidence of government ownership of
the SOE input producers was a sufficient basis on which to conclude that they were government
controlled and thus public bodies. Here, the United St ates argues extensively before us that majority
ownership indicates control, and indeed China also acknowledges that ownership can indicate control.
The difference is that for China, government contro l is the wrong legal test for determining whether
an entity is a public body.
255
8.134 We recall, however, our conclusion that a public body is any entity controlled by a
government, and in this regard we consider government ownership to be highly relevant (indeed
potentially dispositive) evidence of government contro l. Here we note in particular the everyday

252 See summary at para. 8.109, supra. See also Exhibit CHI-2, pp. 29-30.
253 Exhibit CHI-3, p. 67.
254 In this investigation, a petitioner had argued that "treating Chinese SOEs as public entities is
consistent with China's commitments to the WTO" (c iting paragraph 172 of the WTO Working Party Report).
(Exhibit CHI-4, p. 76). The USDOC, however, did not address this argument in its "public body" analysis.
255 See, e.g., China first written submission, para. 61.

financial concept of a "controlling interest" in a comp any. The technical definition of what is needed
for a controlling interest is a maximum of 50 per cent plus one share of the voting stock of a company,
with the possibility that a much smaller voting block can be controlling, depending on how dispersed
the ownership of the remaining shares is, and the exte nt to which the other shareholders participate in
voting.256

256 "Controlling interest" is defined as:
"Strictly speaking, an ownership stake of any business which is 50% or more. In practice it
means a sufficiently large stake in a company by an individual shareholder to allow effective
control. In principle, a stake of 50% plus one share gives a blocking majority, but in practice
effective control can be had with a smaller holding. Key holding levels are 25%, which can
block changes in the articles of the company, 51%, which gives voting control, and 76%,
which permits changes to the articles. In a company setting it usually means holding a
majority of the voting rights which usually comes from the ownership of equity. The ability
to capture ownership, or acceptances or pledges, of around this percentage of the voting
equity in a company can be crucial in such situations as contested takeovers ". (The
Handbook of International Financial Terms, P. Moles (ed.) (Oxford University Press, 1999),
p. 110). (emphasis original)

See also the following online dictionaries:

• From Investment Dictionary: "When one shareholder or a group acting in kind holds a high
enough percentage of ownership in a company to enact changes at the highest level. By
definition, this figure is 50 per cent of the outstanding shares or voting shares, plus one.
However, controlling interest can be achieved with less than 50 per cent ownership of the
stock if that person/group owns a significant proportion of the voting shares, because in many
cases, not every share carries a vote in shareholder meetings."

• From Financial & Investment Dictionary and Business Dictionary: "Ownership of more than
50 per cent of a corporation's voting shares. A much smaller interest, owned individually or
by a group in combination, can be controlling if the other shares are widely dispersed and not
actively voted."

• From Wikipedia: "Controlling interest in a corporation means to have control of a large
enough block of voting stock shares in a company such that no one stock holder or coalition of
stock holders can successfully oppose a motion. In theory this normally means that
controlling interest would be 50 per cent of the voting shares plus one.

 In practice, though, controlling interest can be far less than that, as it is rare that 100 per cent
of a company's voting shareholders actively vote.

 In addition, a company that requires a 2/3 s uper-majority of shares to vote in favour of a
motion, can grant, in effect, veto power to a minority shareholder or block of shareholders that
own essentially 1/3 of the shares. Thus in some cases, a single entity can essentially maintain
control, with only 33.4 per cent of the outstanding shares. Ford Motor Company's former 33.9
per cent ownership of Mazda is an example of a controlling interest with minority
shareholding."

• From Investopedia: "For the majority of large public companies (such as those that belong to
the S&P 500), a shareholder with much less than 50 per cent of the outstanding shares can still
cause a lot of shake-up at the company. Single shareholders with as little as 5-10 per cent
ownership can push for their own seats on the board, or enact changes at shareholder meetings
by publicly lobbying for them."

(Answers.com (accessed 28 April 2010) <http://www.answers.com/topic/controlling-interest>).

8.135 We see no reason to consider that the concept th at "control" of a company resides with its
majority owner, which is uncontested in the priv ate sector, would be inapplicable to government-
owned companies. Logically, quite the reverse should be true, given the generalized power of
governments over economic affairs within their territori es. As such, we consider that, on its own,
majority government ownership is clear and highl y indicative evidence of government control, and
thus of whether an entity is a public body for purposes of the SCM Agreement.
8.136 We find no legal error, in analyzing whether an entity is a public body, in giving primacy to
evidence of majority government-o wnership. Of course, public body determinations are to be made
case-by-case, on the basis of the evidence of record in a given investigation, and the authority's
determination must explain its analysis based on the evidence before it, in order for that determination
to be reasoned and adequate and thus consistent with the SCM Agreement.
257 We note in this regard
that there could be cases (however rare in pr actice) in which a government-owned entity was
completely insulated (e.g., by law) from any gove rnment involvement in, or influence over, its
operations, such that the entity was not controlled by the government and thus fell outside the scope
of the term "public body". In such a situation, it would be the entity and the government in question
that would have in their possession the information as to the absence of government control, and in
our view it would be incumbent upon them, and certain ly it would be in their interest, to bring that
information to the attention of the investigating au thority. To the extent that such evidence were
placed on the record, the investigating authority woul d be required to include its analysis of that
evidence in its determination as to whether the entity was or was not a public body.
8.137 In the investigations at issue in this dis pute, as noted above, respondents advanced certain
information and/or arguments regarding the ques tion of public body in respect of SOE input
producers – mainly based on the five-factor test that the respondents considered the USDOC was
legally required to perform, and some of which went to the issue of control – and in all such instances
the USDOC in its determinations discussed and resp onded to that information and those arguments.
In no case does it appear that the USDOC refused to consider, or dismissed summarily, any such
information or arguments, and China does not allege any such instances. The USDOC did not find in
any case that there was record eviden ce to indicate that in spite of being owned by the government,
the SOEs in question were not public bodies. Furthe rmore, it is not the USDOC's factual findings as
to the extent of government ownership or control of input suppliers that is the focus of China's
challenge, but rather the legal relevance thereof as determinative of whether an entity is a public body.
In particular, China advances the same argument that the respondents advanced in the investigations,
namely that the USDOC – as a matter of law – shou ld have treated the SOEs as private bodies, and
thus conducted an entrustment or direction analysis.
8.138 We have rejected this legal argument, as well as the legal test advanced by China, in respect
of "public body". We also have concluded that the USDOC's determinations that the SOE input
suppliers were public bodies were ba sed on relevant evidence of government control (which in these
cases was principally evidence of government owners hip), and that the dete rminations acknowledge
and come to reasoned conclusions in respect of all of the additional evidence and arguments before it,
including in particular those advanced by res pondents, as to the question of public body. We
therefore find that China has failed to establish that the USDOC acted inconsistently with the
obligations of the United States under Article 1.1(a) (1) of the SCM Agreement in determining in the
four countervailing investigations at issue in this dispute that the SOE input producers were public
bodies.258

257 See, Section VII.A.2, supra.
258 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.

(ii) SOCBs as public bodies
8.139 We turn now to the USDOC's determination in the OTR investigation that the SOCBs were
public bodies. In that case, the undisputed reco rd evidence shows that the government owned the
large majority share of the SOCBs, and exercised si gnificant control over their operations. Before us
China does not contest these factual findings but instead argues that government ownership and
control are not relevant to whether the banks in question are public bodies.
8.140 In particular, in the OTR investigation, the USDOC's determination that SOCBs were public
bodies is based on, and incorporates by reference, the en tirety of its analysis of the same issue in the
earlier CFS Paper investigation . In the OTR investigation, th e USDOC maintained the same
conclusions that it had reached in CFS Paper on this issue, stating that the parties in the investigation
had not demonstrated that the Chinese banking sector had significantly changed such that
reconsideration of the CFS Paper decision was warranted. We find no indication in the USDOC's
determination in the OTR investigation that the respondents provided evidence or arguments seeking
to establish that the USDOC's factual findings from the CFS Paper case were no longer valid, nor did
they challenge the USDOC's characterization in th e OTR investigation that the situation in the
banking sector had not signi ficantly changed since the CFS Paper investigation. In particular, the
respondents in the OTR investigation did not contest any of the information or analysis from the CFS
Paper investigation either as to the degree of governme nt ownership of these banks or the extent to
which they were controlled by the government. In this regard, we note the uncontested statement on
the record of the OTR investigation, by a Tianjin government official, that the SOCBs were under
government supervision. Rather, the respondents adva nced legal arguments as to the interpretation of
the term "public body" and as to the kind of analysis they considered that the USDOC was required to
conduct.
8.141 Before us China does not challenge either th e factual evidence or the conclusions drawn
therefrom by the USDOC as to the extent of government ownership of the SOCBs or the
government's involvement in their operations. Rath er, China argues that the USDOC's analysis was
based on the legally incorrect and irrelevant elemen t of government ownership and control, i.e., the
same legal argument that it advances in respect of the SOE input suppliers.
8.142 For the same reasons as discussed supra in the context of the SOE input producers, we reject
China's arguments as to the interpretation of the term "public body", and as to the necessity of
applying the five factor test or any other specific t est to determine whether an entity is a public body.
Rather, we have found that the determinant of wh ether an entity is a public body is government
control, and that majority government ownership is strong evidence of control.
8.143 We have reviewed the determination in the OTR investigation, and the cross-referenced
determination from the CFS Paper investigation, that the SOCBs are public bodies. We note the
lengthy discussion in the CFS Paper determination of the evidence that the SOCBs during the period
of investigation were either wholly or majority government-owned, and that there was extensive
government involvement in and control over their operations. As noted, China does not challenge
these factual findings. We consider that the USDOC 's findings constitute a sufficient basis for its
public body determination in respect of the SOCBs. We therefore conclude that China has failed to
establish that the USDOC acted inconsistently with the obligations of the United States under
Article 1.1(a)(1) of the SCM Agreement in determining that the SOCBs were public bodies.259

259 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.

(iii) Concluding remark
8.144 Having found that China has failed to establish that the United States acted inconsistently
with its obligations in so far as its determinations of "public body" in the investigations before us in
this dispute, we recall, as we have already emphasize d, that a finding that an entity is a public body is
simply the first step in a multi-part analysis. This finding, on its own, does not mean in any way that
the entity in question acted in a non-commercial manne r, by conferring a benefit, nor that any such
benefit was specific. Those elements are independent and as such each must established in order for a
valid basis to exist for the imposition of a countervailing measure.
IX. CHINA'S CLAIMS PERTAINING TO SPECIFICITY
A. D
E JURE SPECIFICITY OF SOCB LENDING TO THE TIRE INDUSTRY
1. Claims of China
9.1 China claims that the USDOC acted inconsistent ly with the obligations of the United States
under Article 2.1(a) of the SCM Agreement, by finding in the OTR investigation that preferential
lending by SOCBs to the tire industry was de jure specific. China further claims that, as a
consequence, the United States acted inconsistently with Articles 10 and 32.1 of the SCM Agreement
and Article VI:3 of the GATT 1994.260
2. Main arguments of the Parties
(a) China
9.2 China submits that the legislation upon which the USDOC relied as the basis for this finding
of de jure specificity neither refers to the alleged s ubsidy, nor explicitly limits access to the alleged
subsidy to the tire industry. 261 China further argues that the SO CB loans were not made pursuant to
the legislation in question.262
9.3 According to China, a valid determination unde r Article 2.1(a) of the SCM Agreement that
certain legislation confers a subsidy that is de jure specific requires the establishment of three
elements: (i) that the legislation define or refer to all of the elements of a subsidy (i.e., the financial
contribution and the benefits that will be conferred thereby); (ii) that the legislation explicitly limit the
access to the subsidy to certain enterprises (i.e., th at it must clearly and unambiguously provide that
the relevant subsidy – the financial contribution and benefit – is only available to "certain enterprises",
to the exclusion of other "certain enterprises"); a nd (iii) that the countervailed transaction must have
been made pursuant to the subject legislation (i .e., must be an instance of the subsidy that the
legislation defines, and the recipient must be among the "certain enterprises" to which the subsidy is
explicitly limited).263
9.4 China notes in addition that pursuant to Article 2.4 of the SCM Agreement, any specificity
determination must be "clearly s ubstantiated on the basis of positive evidence", and argues that "clear
substantiation" is an even higher standard than "p ositive evidence" as that term was interpreted by the

260 Paragraphs B.1(c)(iii) and B.1( e)(i)-(iii) of the "as applied" claims in China request for
establishment of a Panel; China first written submission, para. 468 (d); second written submission, para. 315 (e).
261 China first written submission, paras. 208 and 214.
262 Id., paras. 223 and 225.
263 Id., para. 209.

Appellate Body in US – Hot-Rolled Steel.264 In this regard, China submits that evidence showing that
a particular subsidy is broadly available throughout an economy is inconsistent with a valid finding of
specificity.265
9.5 China argues that the USDOC's specificity determination in respect of SOCB lending to the
tire industry is deficient in respect of all three of the elements it considers to be necessary. First,
China asserts, the USDOC relied on broad statemen ts in various planning documents and then
implicitly linked these statements to other statements in the same planning documents that refer to
providing support to various industries. 266 China submits that none of these statements refers to
preferential lending by SOCBs to the tire industry – the subsidy that the USDOC actually
countervailed – and that the only statement in wh ich SOCBs are mentioned does not indicate that
SOCBs provide loans at preferential interest rates.
267 For example, China argues that the USDOC
misinterpreted the statement in the "Hebei Provin ce 9th Five-Year Plan" that the "'automobile and
components industry' would, among other industries, be 'developed greatly and stronger'" as requiring
SOCBs (which are not even mentioned) to provide preferential loans (which also are not mentioned)
to companies in the "automobile and components industry". 268 In China's view, these documents do
not explicitly refer to the allege d subsidy, and therefore (on that basis alone) cannot constitute the
basis for a finding of de jure specificity within the meaning of Article 2.1(a) of the SCM
Agreement.269
9.6 Second, China submits, even assuming that the legislation at issue referred to the alleged
subsidy, the USDOC's final determination provided no analysis of and made no findings as to whether
the alleged subsidy was explicitly limited to companies in the tire industry. 270 China considers that
the USDOC's statement that "there are no discrete policy plans for the tire industry, per se, [but] the
totality of the information on this record […] shows that the government is directing policy lending to
the tire industry or to specific enterprises in the tir e industry" does not support the conclusion that the
alleged subsidy was explicitly limited to the tire industry. 271 China argues that no statements in the
planning documents indicate that the alleged subsid ies were "explicitly limited" to the tire industry.
In this connection, China asserts that if the SOCBs were required to support China's industrial policies
as the USDOC contended, this would mean that the SOCBs were required to support all of the
Chinese industrial policies that concerned the vast array of industries covered by the planning
documents. In this regard, China notes that the "GOC Catalogue" (one of the documents on which the
USDOC based its specificity determination) identif ies 539 "encouraged national projects" in 26 broad
categories. China contends that if the "subsid y" inferred from this document applied to the tire
industry, then it should apply to all of th e industries identified in the GOC Catalogue. 272 I n t h i s
regard, China considers that the list of encouraged national projects is both so long (539) and so broad
(in 26 diverse categories) that it could not, as a legal matter, form the basis for a specificity finding.
China considers that the findings of the panel in US – Upland Cotton , in particular its statement that
"a subsidy would cease to be specific because it is sufficiently broadly available throughout an

264 China first written submission, paras. 210-211, citing to Appellate Body Report on US – Hot-Rolled
Steel, para. 192. China contends in this regard that any determination of specificity must be based upon a
thorough examination of all relevant evidence. (Id., para. 212).
265 Id., para. 213.
267 Id., paras. 214, 216-217; oral statement at the first meeting of the Panel, para. 61.
268 China first written submission, footnote 184 (referring to Exhibit CHI-4, p. 14).
269 Id., para. 217.
270 Id., para. 219.
271 Id., para 219 and footnote 185 (referring to Exhibit CHI-4, p. 98).
272 Id., para. 221 and footnote 186 (referring to the Guiding Catalogue of the Industrial Restructuring
(2005), promulgated by the National Deve lopment and Reform Commission (the "GOC Catalogue"), Exhibit
CHI-70).

economy as not to benefit a particular lim ited group of producers of certain products" supports its
view.
273
9.7 China further argues in this context that cont rary to the USDOC's finding, the preferential
loans by SOCBs are available to any borrower in China that borrows money from SOCBs at
prevailing interest rates.274 For China, given the broad availability and use of this financing, it cannot
be considered specific.275
9.8 Finally, China asserts that the USDOC failed to demonstrate that the SOCB loans were made
pursuant to the legislation on which the USDOC re lied. China submits that the USDOC merely
"presumed" that all of the loans that SOCBs exte nded to GTC were made pursuant to the legislation
identified by the USDOC. According to China, such a presumption does not meet the stringent
requirements for a finding of specificity under Article 2.1(a) of the SCM Agreement. 276 Furthermore,
China submits, the evidence on the record does not support this presumption. China asserts that the
interest rates that GTC paid on RMB-denominated loans from SOCBs were entirely in the range of
interest rates paid by borrowers across all other indu stry sectors in China, and that the interest rates
that GTC paid on dollar-denominated loans were consistent with the USDOC's own benchmark.277
9.9 For these reasons, China contends that the USDOC did not clearly substantiate, based on
positive evidence, its de jure specificity determination in the OTR investigation.278
(b) United States
9.10 The United States argues that the USDOC's de jure specificity finding in respect of SOCB
loans to the tire industry was consistent with Ar ticle 2 of the SCM Agreement. According to the
United States, the USDOC found the "policy lending" in question to be specific because the loans
were provided as part of government programmes guiding financial institutions to lend to tire
producers.
279
9.11 The United States notes that Article 2.1 of the SCM Agreement provides that a subsidy is de
jure specific if the granting authority, or the legislation pursuant to which that authority operates,
explicitly limits access to the subsidy to certain ente rprises. The United States points to Article 2.4,
which requires that any determination of specificity must be "clearly substantiated on the basis of
positive evidence", and notes the Appellate Body's finding that such evidence must be of "an
affirmative, objective and verifiable character", which is "credible". 280 The United States argues that
where an investigating authority clearly substantiates on the basis of positive evidence that access to a
subsidy is explicitly limited, then a finding of speci ficity is consistent with Article 2 of the SCM
Agreement; and the USDOC's finding of de jure specificity in respect of SOCB lending to the tire
industry met this test.281

273 China response to Panel question 56 (first meeting), citing to Panel Report on US – Upland Cotton,
para. 7.1142.
274 China first written submission, para.228. China refers, in this connection, to record evidence that
borrowers in the OTR tires industry obtained loans from SOCBs at interest rates that were not materially
different from the interest rates on loans that SOCBs pr ovided to borrowers in other industries. (China first
written submission, paras. 168-173; response to Panel question 62 (first meeting)).
275 Id., para. 229.
277 Id., para. 224.
278 See, e.g., China first written submission, paras. 217 and 219; second written submission, para. 191.
279 United States first written submission, paras. 330-332.
280 Id., paras. 333-334, citing to Appellate Body Report on US – Hot-Rolled Steel, para. 192.
281 Id., para. 335.

9.12 The United States argues that the USDOC found th at the Chinese laws, plans and policies –
which operated at central, provincia l and municipal levels of governme nt – limited access to policy
lending to a group of industries that explicitly incl uded the OTR tires industry. Furthermore, the
USDOC found that the provincial and municipal policies and plans were designed to implement
central government plans and were intended to be consistent with those.
282
9.13 According to the United States, a catalogue of encouraged projects, which formed "an
important basis for guiding investment directions" and for government investment and fiscal policies,
inter alia, pursuant to the central government's 11th Five-Year Plan, included "advanced belt tires" and
related materials and equipment. The 10 th Five-Year Plan had referred to "meridian radial tires" as a
national security priority, to which the contribution of funds should be "reasonably directed". The
United States asserts that the provincial and muni cipal governments closely coordinated their own
plans with those in the central plans.283
9.14 Regarding the interpretation of Article 2 of the SCM Agreement, the United States argues that
this provision does not require the identification of le gislation that defines the elements of a subsidy,
as this would conflate the determination of sp ecificity and benefit with that of financial
contribution.284 The United States also disagrees with China that the range of projects in the planning
documents was so broad as to render policy lending non-specific. In the view of the United States,
the referenced projects concerned a "group of indust ries" (the terminology of Article 2.1 of the SCM
Agreement). The United States also notes that the USDOC found that the planning documents
prohibited policy lending to projects in the "restricted" and "to be abolished" categories.285
9.15 The United States further argues that the questi on of specificity in respect of the SOCB
lending is different from that of benefit (i.e., the terms of the lending): specificity has to do with
making credit available to certain enterprises, including tire companies. 286 In this regard, the
United States argues that the USDOC found that SO CBs acted pursuant to Chinese laws, policies and
plans in providing policy loans to the OTR tire industr y. The United States considers that the primary
means of differentiating among borrowers from th e SOCBs was not lending rates (most borrowers
paid rates near government-set benchmarks) but the availability of credit at all.287
3. Main arguments of the Third Parties
(a) Australia
9.16 Australia disagrees with China's contention that for a de jure specificity finding the legislation
must specify a subsidy, that the legislation must explicitly limit access to the subsidy to certain
enterprises "to the exclusion of other enterprises", and that the specific transaction must be made
pursuant to the legislation forming the basis of the de jure specificity finding. According to Australia,
this argument conflates elements of Article 1 with Article 2.1, whereas de jure specificity does not
require legislation identifying the elements of a subsid y. Rather, Australia considers that the tests for
the existence of a subsidy, and for specificity, are sep arate, and that this approach is consistent with
that taken by previous panels. Australia consider s that statements of government policies, plans and
intentions are highly relevant in determining, inter alia , that subsidies are targeted to certain
enterprises. Quoting Article 2.1 of the SCM Agreement, Australia argues that for a finding that policy

282 United States first written submission, para. 336; response to Panel question 61 (first meeting).
283 United States first written submission, paras. 337-338.
284 Id., paras. 346-347; opening statement at the first meeting of the Panel, para. 43.
285 United States first written submission, paras. 348 and 351-353; opening statement at the first
286 United States first written submission, paras. 354-356.
287 Id., paras. 357-360.

lending is de jure specific, the policy statement that fo rms the basis of the programme must
"'explicitly limit access to certain enterprises'". Au stralia sees nothing in this language requiring that
such limitation be explicitly to the exclusion of others. Australia adds that the test for de jure
specificity does not require a direction from the government on "what the benefit will be" and "who it
will go to". Australia also argues that once the exis tence of a subsidy, and specificity, are established
in accordance with Articles 1 and 2 of the SCM Ag reement, there is no need to impose the third
requirement advanced by China that the individual transactions be made pursuant to the legislation in
question.
288
(b) European Communities
9.17 Without prejudice to the determination of specificity in the present dispute, the European
Communities submits that a subsidy that reaches a wide number of beneficiaries and industries may
call into question the specificity of the measure. Recalling the panel report on US – FSC (Article 21.5
– EC), the European Communities notes that it is unlikely that a subsidy in the form of a loan could be
either de jure or de facto specific under Article 2 of the SCM Agreement if the loan can be obtained
by companies of all sizes (as long as they are suff iciently credit-worthy) with respect to projects
across all sectors of the economy. The European Communities also submits that the specificity
analysis should focus on the characteristics of the measure at issue rather than merely on the
disbursements made thereunder, because it is the subsidy itself that de jure or de facto limits access to
an "enterprise or industry or group of enterprises or industries". The European Communities adds that
the Panel must determine "financial contributi on" and "benefit" as a matter independent from
"specificity" since these elements must be identif ied and examined separately in order to find the
existence of specific subsidies within the meaning of the Agreement.289
(c) Saudi Arabia
9.18 Saudi Arabia considers that specificity is a separate and independent condition from financial
contribution and benefit, c onsistent with previous panels' decisions . Saudi Arabia is also of the view
that specificity must be found with regard to the subsidy as a whole, i.e., financial contribution and
benefit. To illustrate its point, Saudi Arabia argues that the provision of low-interest loans to a limited
group of enterprises or industries does not fulfil th e specificity criterion if the preferential lending
rates do not differ materially from the rates that all enterprises in the country of provision may receive
for similar loans.290
4. Assessment by the Panel
9.19 The issues presented by this claim are: what th e required analytical elements are for a valid
finding of de jure specificity under Article 2.1(a) of the SCM Agreement; in this regard whether the
three-part test advanced by China is required by that provision; and finally, on the basis of both the
facts of the OTR investigation and applicable legal requirements, whether the USDOC's de jure
specificity determination in respect of SOCB lendi ng to the OTR tire industry was inconsistent with
the United States' obligations under the SCM Agreemen t. Concerning the analytical elements for a
valid finding of de jure specificity, China's claim raises both how the limitation of access to a subsidy
must be structured, and the meaning of the term "certain enterprises".

288 Australia third-party submission, paras. 26-30 and 32; third-party response to Panel questions 10
and 11.
289 European Communities third-party submission, paras. 41-44; third-party response to Panel questions
10 and 11.
290 Saudi Arabia third-party response to Panel questions 10 and 11.

(a) Interpretation of Article 2.1 of the SCM Agreement
9.20 We start by considering the text of Article 2.1 of the SCM Agreement:
"Article 2

Specificity

2.1 In order to determine whether a s ubsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the
granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to
which the granting authority opera tes, explicitly limits access to a
subsidy to certain enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to
which the granting authority operates, establishes objective criteria or
conditions2 governing the eligibility for, and the amount of, a
subsidy, specificity shall not exist, provided that the eligibility is
automatic and that such criteria and conditions are strictly adhered to.
The criteria or conditions must be clearly spelled out in law,
regulation, or other official document, so as to be capable of
verification.
(c) If, notwithstanding any appearance of non-specificity
resulting from the application of the principles laid down in
subparagraphs (a) and (b), there are reasons to believe that the
subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of
certain enterprises, predominant use by certain enterprises, the
granting of disproportionately large amounts of subsidy to certain
enterprises, and the manner in which discretion has been exercised by
the granting authority in the decision to grant a subsidy.
3 In applying
this subparagraph, account sha ll be taken of the extent of
diversification of economic activiti es within the jurisdiction of the
granting authority, as well as of the length of time during which the
subsidy programme has been in operation".

discipline trade-distorting subsidies. In partic ular, the specificity provisions establish that the
subsidies deemed under the Agreement to be potentially trade distortive are those that are targeted in
some way to particular beneficiaries, rather than being broadly available throughout the economy of a
Member. In other words, the specificity requirement is not about the existence of a subsidy, which is
dealt with in Article 1.1, but rather about access thereto. Article 2 of the SCM Agreement makes
clear that specificity can take a number of different forms (enterprise, industry, regional, as well as
deemed specificity in the case of prohibited subsid ies), and that the superficial appearance of non-
specificity is not sufficient for a subsidy to avoid coverage by the SCM Agreement. In short, the issue
under Article 2 of the Agreement is the limitation, on some basis, of access to the subsidy. Subsidies
to which access is limited in any of the ways referred to in that provision are specific and thus covered
by the SCM Agreement.
9.22 Furthermore, the limitation can be "explicit" (commonly referred to as " de jure ") as per
Article 2.1(a), or can be determined on the basi s of how, in practice, an apparently non-specific
subsidy is allocated (commonly referred to as "de facto") as per Article 2.1(c) of the SCM Agreement.
In this regard, we note the balance struck in Ar ticle 2 of the SCM Agreement – a subsidy to which
access is automatic based on neutral, horizontally-a pplicable economic criteria is not specific, and
thus falls outside the scope of the SCM Agreemen t, but the appearance of non-specificity can be
overridden by the facts of how the subsidy is allocate d in practice. We thus must guard against both
an overly-broad reading of the specificity requireme nt which would sweep within the coverage of the
SCM Agreement non-specific subsidies, and an overly-rigid or restrictive reading which would
subvert the purpose of the specificity requirement , and thus undermine the effectiveness of the SCM
Agreement.
9.23 In the provision at issue, Article 2.1(a) of the SCM Agreement, the text requires, and the
parties do not dispute, that the limitation in questio n must be explicit. Where the parties disagree is
with respect to how that explicit limitation must be st ructured for a measure to fall within the scope of
Article 2.1(a) of the SCM Agreement.
9.24 We recall that the text of Article 2.1(a) of the SCM Agreement establishes two bases on
which de jure specificity can be established: either the granting authority, or the legislation pursuant
to which it operates, "explicitly limits access to a subs idy to certain enterprises". We recall that the
first element of the test advanced by China is th at the granting authority, or the legislation setting
forth the measure in question, must identify or sp ecify the elements of a subsidy, i.e., financial
contribution and benefit. We understand that China bases th is contention on the words "explicitly"
and "subsidy" in Article 2.1(a), i.e., that the grantin g authority, or the legislation pursuant to which it
operates, must explicitly limit access to a subsidy. For China, this means that if the granting authority
or the legislation in question does not explicitly set forth both the financial contribution and the
benefit elements, the measure cannot be a de jure specific subsidy.
291 (China does not rule out that
such a measure could, in particular instances, be a de facto specific subsidy).292
9.25 The first issue raised by this claim is whethe r, to explicitly limit access to a subsidy, a
granting authority or a legislation must specify al l of the elements of a subsidy, i.e., financial
contribution and benefit. As noted, for China, this is first and foremost a textual question following
from the definition of "subsidy" in Article 1 of th e SCM Agreement, i.e., that the use of the word
"subsidy" in Article 2.1(a) requires that both the financial contribution and the benefit be explicitly

291 For instance, in response to a question from the Panel, China states: "[T]he necessary consequence
of the use of the defined term 'subsidy' in Article 2 of the SCM Agreement is that the investigating authority
must find that the subsidy is 'explicitly li mited' [...] It is [ ] inadequate, as a matter of law, for an investigating
authority to find that only a financial contribution or a benefit is de jure specific". (China response to Panel
question 55 (first meeting)).
292 Id.

identified by the granting authority or the law. A nother way to look at this issue, however, is from a
functional standpoint. That is, f unctionally, could a granting authority or a legislation explicitly limit
access to a "subsidy" without identifying both the financial contribution and the benefit flowing
therefrom? Or put another way, would the only way for a granting authority or a legislation to
explicitly limit access to a subsidy be to explicitly identify both th e financial contribution and the
benefit, and explicitly limit access to both?
9.26 We consider that there are many ways in which access to a subsidy could be explicitly
limited, and we do not see that both the financial co ntribution and the benefit necessarily would have
to be set forth explicitly to effect such a limitation. In particular, if access is explicitly limited to a
particular type of financial cont ribution, which sometimes but not always gives rise to benefits, the
particular cases in which the benefits existed would be de jure specific subsidies. This is because the
explicit limitation of access to the financial contribu tion would have the effect of also limiting any
benefits resulting from the financial contribution, w ithout the limitation of access to the benefits itself
needing to be explicit. Similarly, access could be e xplicitly limited to a par ticular set of benefits
without the access to the underlying financial contribu tions also needing to be explicitly limited, and
again, in our view, the access to the "subsidy", th e combination of the financial contribution and the
benefit, would be explicitly limited.
9.27 Hypothetical examples help to illustrate this point. Suppose that a law established a
government credit facility exclusively for the cardbo ard box industry, but was silent concerning the
terms and conditions on which the financing was to be provided. In this example, it is clear that while
access to the financial contribution would be explicitl y limited to a particular industry, there would be
no explicit limitation of any benefits that might aris e therefrom. Suppose that some of the financing
under this facility were provided on be tter-than-market terms, i.e., that benefits were conferred. In
this scenario, because by law only the cardboard box industry could obtain any financial contributions
(the loans) under the programme, any benefits flowi ng therefrom necessarily also would be limited to
the cardboard box industry, meaning that any subsidies under this programme would be de jure
specific to that industry. Alternatively, suppo se that a law established a government credit facility
accessible to all enterprises in all industries, and further provided that companies in the cardboard box
industry (and only that industry) would get loans unde r this facility on better-than-market terms. In
this second example, access to the financial contribu tion (the loans) would not be limited, but access
to the benefits flowing therefrom would be – to a sing le industry. By virtue of this explicit limitation
on access to the benefits, this subsidy also would be de jure specific.
9.28 We consider that a reading of Article 2.1( a) of the SCM Agreement that would require
explicit limitation of both the financial contribution and the benefit, such as China advocates, is not
supported by the text of that provision. In our view, it would limit de jure specificity to a single,
narrow set of circumstances, in which a single piece of legislation (or perhaps more than one formally
interrelated pieces of legislation) or some action by the granting authority, would explicitly set forth,
in the form of a formal programme, the financial contribution and benefit elements (including the
form they would take and how th ey would operate) and would then specify the particular eligible
beneficiaries (and possibly also would state explicitly that only those beneficiaries were eligible). We
cannot agree with such a reading, which in our vi ew would exclude many situations in which access
to a given subsidy was explicitly limited, by virtue of a limitation of access to either the financial
contribution or the benefit.
9.29 We note that a wide variety of possible forms of subsidization falls within the definition in
Article 1 of the SCM Agreement, and we see not hing in Article 2 that would narrow down those
forms, in a scenario of either de jure or de facto specificity. In this regard, Article 1.2 of the SCM
Agreement treats the concepts of subsidy and specifi city as separate. In particular, that provision
establishes that subsidies in the sense of Article 1 are subject to the SCM Agreement only if they are
specific in the sense of Article 2. Indeed, financ ial contribution, benefit and specificity are three

independent and cumulative elements, all of which must be present for a measure to be covered by the
SCM Agreement. Concerning financ ial contribution and benefit in th is regard, we recall the findings
of the Appellate Body in Brazil – Aircraft, that these are independent concepts, both of which must be
present for a measure to be a subsidy in the sense of the SCM Agreement.
293 Similarly, we agree with
the approach taken by the panels in EC – Countervailing Measures on DRAM Chips, US –
Countervailing Duty Investigation on DRAMS, and Korea – Commercial Vessels , all of which
analyzed the question of specificity separately from financial contributi on and benefit. In EC –
Countervailing Measures on DRAM Chips , the panel overturned some of the European Communities'
determinations as to the existence of financial c ontributions and the amounts of benefits pursuant to
the measures at issue, but nevertheless as a sep arate matter considered, and upheld, the European
Communities' specificity finding in respect of the measures as a whole. 294 The US – Countervailing
Duty Investigation on DRAMS panel followed the same approach , affirming the investigating
authority's finding of de jure specificity of the measures at issue while overturning some of the
investigating authority's findings of financial contribution and benefit. 295 The panel in Korea –
Commercial Vessels likewise separately evaluated the existence of specificity of the measures before
it from the questions of financial contribution and benefit.296
9.30 While ultimately all three elements (financial c ontribution, benefit and specificity) must be
present for a given measure to be covered by th e SCM Agreement, a formalistic reading of the
specificity provisions as implying a particular conjunc tion of these elements, or a particular order of
analysis, might have the effect of omitting from coverage measures which viewed in their entirety
have all three necessary elements to be covered by the SCM Agreement. As we noted above, in the
particular case of de jure specificity, to require that a given legislation or granting authority lay out all
elements of a specific subsidy, explicitly lim iting access to both the financial contribution and the
benefit, would have the effect of treating as non- de jure specific a wide variety of subsidies to which
access was explicitly limited. This would mean th at the only basis on which specificity could be
found for such subsidies would be on a de facto basis, a fact-intensive, case-by-case inquiry that
would be both illogical and entir ely superfluous under the described scenarios where an explicit
limitation of access to a subsidy existed. Furtherm ore, where the details as to the actual distribution
of the subsidy could not be obtained, the subsid y would be left outside the scope of the SCM
Agreement in spite of its undeniably being explicitly lim ited to particular beneficiaries. We consider
that such a reading would frustrate the purpose of the specificity provisions, and would open
considerable scope for circumvention of the SCM Ag reement, based on a distinction in form but not
substance.
9.31 By the same token, we see no potential that being able to establish de jure specificity on the
basis of an explicit limitation of access either to a financial contribution or to a set of benefits could
improperly bring within the scope of the SCM Ag reement measures that in fact are not specific
subsidies. In whatever order the analysis is c onducted, and regardless of whether access is explicitly
limited in respect of the financial contribution or th e benefit or both, the three elements of financial
contribution, benefit and explic it limitation of access would be present, and the measure thus would
be a de jure specific subsidy and hence covered by the SCM Agreement.
9.32 For the same reasons, we disagree with the third pa rt of China's three-part test, i.e., that the
specific transaction under investigation must be an inst ance of the subsidy that the legislation defines.
We consider that this is largely a restatement of China's argument that the de jure specificity provision

293 Appellate Body Report on Brazil – Aircraft, para. 157.
294 Panel Report on EC – Countervailing Measures on DRAM Chips , paras. 7.110, 7.186, 7.215 and
7.230-7.232.
295 Panel Report on US – Countervailing Duty Investigation on DRAMS , paras. 7.206-7.208. See also
Japan – DRAMs (Korea), paras. 7.253-7-254, 7-316, 7-361 and 7.375.
296 Panel Report on Korea – Commercial Vessels, para. 7.192.

requires the granting authority or the relevant legi slation to identify both the financial contribution
and the benefit. We see no limitation in the text to such a specific scenario, and thus no such
requirement. Again, we note that subsidies can take many forms and can be provided through many
different kinds of mechanisms, some more and some less explicit. Of course, where a countervailing
measure is applied in respect of de jure specific subsidies, the limitation to "certain enterprises" must
be explicit, but again we consider that the limitatio n to those recipients could be in respect of the
financial contribution, or the benefit, or both. Furthermore, for the application of a countervailing
measure, there must be evidence that the subsidy that has been provided and is being countervailed is
the subsidy that has been found to be specific, but this would be the case for any sort of specific
subsidy, not just a de jure specific subsidy.
(ii) "Certain enterprises"
9.33 China's claim also raises the meaning of the term "certain enterprises" in Article 2.1 of the
SCM Agreement. In particular, the second element of China's three-part test is that the legislation
pursuant to which the subsidy is provided must cl early provide that the subsidy (the financial
contribution and benefit) is only available to "certa in enterprises" to the exclusion of other "certain
enterprises". We understand that what China is em phasizing in this element is the explicit limitation
to "certain enterprises". While Article 2.1(a) of the SCM Agreement requires such an explicit
limitation, that provision does not address the related but separate question of the breadth or
narrowness of the term "certain enterprises".
9.34 The relevant text of Article 2.1 of the SCM Agreement reads:
"In order to determine whether a subsidy [...] is specific to an enterprise or industry or group
of enterprises or industries (referred to in th is Agreement as "certain enterprises"), the
following principles shall apply:"
9.35 Concerning the meaning of the term "certain enterprises", China cites with approval the
statement of the panel in US – Upland Cotton that:
"'[a]t some point that is not made precise in the text of the agreement, and which may
modulate according to the particular circumstances of a given case, a subsidy would
cease to be specific because it is sufficiently broadly available throughout an
economy as not to benefit a particular limited group of producers of certain
products'".
297 (emphasis added by China)
China argues on the basis of this statement that "a 'group of enterprises or industries' within the
meaning of Article 2 of the SCM Agreement must be 'sufficiently discrete' so that the 'group of
enterprises or industries' represents no more than a 'limited group of producers of certain products'".298
China acknowledges that there is a certain amount of "indeterminacy" in the concept of specificity,
but argues that the "539 'encouraged' industries in China spanning 26 broad sectors of economic
activity" identified in the GOC Catalogue ( one of the documents on which the USDOC's de jure
specificity determination was based), are too br oad to be "specific" for purposes of the SCM
Agreement.299

9.36 We see China's argument as pointing to two different elements of the availability of a subsidy:
the diversity of the recipients, and the breadth of av ailability of the subsidy. Concerning diversity, we

297 China response to Panel question 56 (first meeting), citing to Panel Report on US – Upland Cotton,
para. 7.1142.
298 Id.
299 China response to Panel question 54 (first meeting).

understand China's argument to mean that the sheer diversity of the "encouraged" projects or
industries, and of the economic sectors from which they come, as identified in the documents relied
on by the USDOC, is too great to support a finding of specificity.
9.37 Starting with the text of the definition of "certain enterprises" we see nothing that addresses
the question of diversity of the "certain enterprises" . The text simply says that "certain enterprises"
can be single enterprises or industries, or groups th ereof, but in our view does not imply that there
needs to be any similarity among them in order fo r them to constitute "cer tain enterprises". If
anything, the context suggests the contrary. Article 2.1(b) of the SCM Agreement, on non-specificity,
emphasizes entirely other factors, namely the non-sel ectivity of the eligibility criteria (economic in
nature and horizontal in application) and the automaticity of eligibility, which speak to broad
availability. Article 2.1(c), on de facto specificity, suggests that an apparently non-specific subsidy
might be confirmed as non-specific even if the facts concerning its actual distribution show that it is
being used by a narrow range of enterprises, agai n emphasizing the breadth of availability of a
subsidy throughout an economy. In particular, th is provision cautions that in examining whether de
facto specificity exists based on patterns of usage, "account shall be taken of the extent of
diversification of economic activities within the juri sdiction of the granting authority". This suggests
that where the extent of the underlying economic divers ification is low, lack of diversification in the
distribution of benefits would not by itself give rise to a finding of de facto specificity. We note that
the panel in US – Upland Cotton based its analysis of specificity on how broadly available a subsidy
is throughout an economy, and that the panel in US – Softwood Lumber IV found that specificity has
to do with subsidies that, either in law or in fact, "[are] not broadly available".
300 We consider the
breadth of availability of a given subsidy in an ec onomy to be a fundamentally different concept from
the diversity of activities of the subsidy's recipients.
9.38 For these reasons, we do not consider that the sheer diversity of economic activities supported
by a given subsidy is sufficient by itself to preclude that subsidy from being specific, and we do not
read US – Upland Cotton as standing for such a proposition. To the contrary, the main emphasis of
the panel in US – Upland Cotton was on the case-by-case nature of the analysis of the breadth of
availability of a subsidy in the context of a specificity finding 301, and we consider that if anything the
panel was cautioning against interpreting the concept of specificity too narrowly. For example, the
panel emphasized that the SCM Agreement, as an ag reement covering trade in goods, is applicable to
all goods, and that the concept of specificity must be understood from that perspective.302 We note as
well in this context that the US – Upland Cotton panel found that a particular subsidy programme
benefiting some 100 different agricultural commodities (crops as well as livestock) was a "sufficiently
discrete" segment of the United States economy to qualify as specific for purposes of the SCM
Agreement.
303 We take these as indications that that pane l did not consider the economic diversity of
beneficiaries, by itself, necessarily to bar a finding of specificity.

300 Panel Report on US – Upland Cotton , paras. 7.1142-7.1152; and Panel Report on US – Softwood
Lumber IV, para. 7.116.
301 In this regard, we agree with the US – Upland Cotton panel that: "The plain words of Article 2.1
indicate that specificity is a general concept, and the breadth or narrowness of specificity is not susceptible to
rigid quantitative definition. Whether a subsidy is specific can only be assessed on a case-by-case basis".
(Panel Report on US – Upland Cotton, para. 7.1142).
302 The panel specifically stated that: "the concept of specificity in Article 2 of the SCM Agreement is
germane to the disciplines imposed by the SCM Agreement. The SCM Agreement is an agreement on trade in
goods, in Annex 1A of the WTO Agreement. By its own terms, subject to considerations reflected in the text of
some of its provisions, it applies in respect of all goods. The concept of specific ity must be considered within
the legal framework and frame of reference of that agreement as a whole". (e mphasis original) (Id.,
para. 7.1144). The panel noted in this connection that the Agreement on Agriculture contains no specificity
requirement. (Id., footnote 1274).
303 Id., paras. 7.1150-7.1151.

9.39 Indeed, we can imagine many examples of subs idies that could be specific in spite of
benefiting very diverse recipients. For instance, a subsidy might be limited to producers of oranges,
producers of dental implants, producers of comput ers, producers of scuba diving equipment, and
producers of certain parts for the space shuttle. Th ere is no question that these are extremely diverse
industries – their products are essentially totally unr elated, and come from five very different sectors
of the economy. Or a subsidy might be explicitly limited to one pa rticular company in each of 200
distinct and unrelated industries or sectors. Again, there would be no question that the recipients were
economically very diverse. Yet, (subject to the comp lete facts of the case), we consider that each of
these subsidies could easily be specific, given its availability to only that particular "group of
enterprises or industries".
9.40 Thus, as a matter of legal interpretation, we do not consider that economic diversity of
subsidy recipients, by itself, is sufficient to prevent a subsidy from being de jure specific.
9.41 The second element of China's argument has to do with the breadth of availability of a
subsidy which, as noted, is the question addressed by the US – Upland Cotton panel. We agree with
that panel that the dividing line between a subsidy to which access is limited enough to be specific, as
opposed to broadly enough available throughout an economy to be non-specific, is not precisely
defined in the SCM Agreement and can only be dete rmined on a case-by-case basis. We therefore
consider this question infra, in our analysis of the details of the USDOC's determination of de jure
specificity in respect of lending by SOCBs to the OTR tire industry.
9.42 We note, finally, that China also argues in regard to "certain enterprises" that "the legislation
must provide that the relevant subsidy [...] is only av ailable to 'certain enterprises', to the exclusion of
other 'certain enterprises'".304 China does not make clear whether it is suggesting that Article 2.1(a) of
the SCM Agreement requires the granting authority or the legislation to identify explicitly both the
"certain enterprises" that are and the "certain enterpri ses" that are not eligible for the subsidy. To the
extent that China is making this argument, we fi nd no such requirement in Article 2.1(a) of the SCM
Agreement.
9.43 To recall, the provision states that for de jure specificity to exist, the granting authority or the
legislation must explicitly limit access to certain recipients, i.e., it must in some manner identify or
define the eligible or affected enterprises, and th ese enterprises must be "cer tain enterprises" in the
sense of Article 2.1(a) of the SCM Agreement. We see no requirement that in addition, the legislation
must explicitly exclude from access the other "certain enterprises" that are not eligible.
(b) USDOC de jure specificity determination
9.44 In the light of the foregoing considerations as to the interpretation of Article 2 of the SCM
Agreement, we now take up China's arguments concerning the USDOC's determination that SOCB
lending to the OTR tire industry was de jure specific. In particular, we examine whether the USDOC
provided a "reasoned and adequate" explanation as to: (i) how the evidence on the record supported its
factual findings; and (ii) how those factua l findings supported its determination of de jure
specificity.305
9.45 In the OTR investigation, the USDOC determined that China provided subsidies in the form
of preferential lending by SOCBs (referred to by the USDOC as "policy lending" 306) to the tire

305 Appellate Body Report on US – Countervailing Duty Investigation on DRAMS, para. 186.
306 China contests this term, arguing that there is no programme known as "policy lending" by SOCBs
in China, and that to the contrary, the SOCBs are commercial banks operating on a commercial basis. (See, e.g.,
China first written submission, paras. 155 and 165).

industry, in particular to two companies, GTC and Starbright.
307 It determined that these subsidies
were de jure specific on the basis that relevant Chinese laws, plans and policies explicitly limited
access to such "policy lending" by SOCBs to a group of industries that included the OTR tires
industry.
9.46 We turn to an assessment of this determinati on in the light of our interpretation, above, of
Article 2.1(a) of the SCM Agreement regarding de jure specificity. In particular, we understand that
the USDOC based this determination on a finding that a number of central, provincial and municipal
government planning documents provided for th e development of the OTR tire industry, inter alia,
through the provision of loan financing by SOCBs (i.e., government financial contributions) to the tire
producers, in some instances identified by name. The USDOC's benefit determination in respect of
this lending was made in a separate part of its de termination, not on the basis of these planning
documents. Given our interpretation of Article 2.1(a) , we find no legal error in this separate analysis
of these two elements.
9.47 The remaining question before us in respect of the USDOC's de jure specificity
determination, therefore, is whether that determ ination is reasonably supported by the documents on
which it was based. We must consider, in par ticular whether the evidence before the USDOC
supports its findings that the various planning do cuments identified "certain enterprises", which
included the OTR tires industry, for development, inter alia, through the provision of loan financing,
and whether documents on the record also support the USDOC's finding that that SOCBs were acting
pursuant to the prescriptions of the planning documen ts when they provided loan financing to the
OTR tire producers.
9.48 Turning now to the USDOC's findings and the related record evidence, the USDOC found
that at the central government level the Govern ment of China's Five-Year Plans set the overall
economic policies for China, which policies then were implemented in de tail through subsidiary
central government-level instruments (the Impl ementing Regulations, the GOC Catalogue, the SETC
Circular). The USDOC further found that the provi ncial and local governments implemented at their
respective levels these national plans and policies. 308 The USDOC stated, inter alia, that the record
indicated that GTC had been a "key target for economic development by Guizhou province and
Guiyang municipality", citing specific references to GTC in their respective provincial and municipal
five-year plans, and indicating that the plans also st ated that lending should be allocated according to
the plans, and that record evid ence showed that GTC had received numerous project development
loans from SOCBs. 309 Summarizing its view of how these policies at the various levels of
government were related, the USDOC found that "cen tral level plans should be considered a central
government policy or programme that local govern ments adopt and implement through their own
five-year plans".310
9.49 Via this statement, we consider that the US DOC made a finding that the "policy lending
programme" was a central-government programme, i. e., a programme designed and mandated at the
central government level, and that this central-level policy then was implemented at the provincial and
municipal levels. This is significant as it defines th e level of analysis for our review of the USDOC's
determination. Thus our first a nd principal task is to analyze wh ether the central government-level
planning documents could support the USDOC's finding of de jure specificity. Put another way,
given the USDOC's determination that the programme is a central level programme, we must analyze

307 The USDOC found that a third co mpany, TUTRIC, had received debt forgiveness with respect to
certain of its outstanding loans, and the USDOC therefore did not calculate a benefit for this company in respect
of government policy lending. (Exhibit CHI-4, footnote 16).
308 Exhibit CHI-4, pp.13 and 98.
309 Id., p. 112.
310 Id., pp. 13-14.

its specificity determination at the same level. If we were to find that the specificity determination
was not supported by the central government-level planning documents, such that the programme was
non-specific, then provincial and/or municipal-leve l evidence of specific instances of implementation
of the central-level programme (even if they refe rred explicitly to particular industries and/or
enterprises) could not override the programme's non-specificity. We thus begin our analysis by
reviewing the USDOC's findings in respect of the central government-level planning documents.
9.50 Here, we recall that specificity is an issue in respect of which an investigating authority has
affirmative obligations under the SCM Agreement, even without any party raising arguments during
an investigation. We also recall that pursu ant to Article 2.4 of the SCM Agreement, any
determination of specificity must be "clearly substantiated on the basis of positive evidence".
311 We
thus cannot reach a conclusion on China's claim unde r Article 2.1(a) without considering in some
detail the evidence relied upon, and the conclusions drawn therefrom, by the USDOC, as well as the
arguments raised both during the investigation and be fore us concerning that evidence. In conducting
this analysis, we are conscious of the need to avoid a de novo review of the evidence, but we are
equally mindful of the Appellate Body's admoniti on that it is the duty of a panel reviewing an
investigating authority's determination to conduct a "critical and searching" examination, based on the
information contained in the record and the expl anations given by the authority in its published
report.312 We also recall the Appellate Body's finding that it is not necessary for an authority
conducting a countervailing duty inves tigation to cite or discuss every piece of supporting record
evidence for each fact in the final determination.313 By the same reasoning, we consider a fortiori that
where a given piece of evidence forms an explicit part of a finding by an investigating authority, it can
be presumed that that evidence has been fully examined even if the discussion in the determination is
limited to certain of its aspects.
9.51 These are admittedly fine lines, which can only be drawn on a case-by-case basis. In this
case, we consider that the most appropriate way to approach our consideration of the various planning
documents referred to in the USDOC's specificity determination is to examine them both on their own
terms and in the light of the USDOC's actual dete rmination, with a view to seeing whether they
constitute positive evidence on the basis of which a reasonable and objective administering authority
could have found that these documents describe a "s ufficiently discrete segment of the economy" (in
the words of the US – Upland Cotton panel) as to support a finding of de jure specificity in respect of
any subsidies provided thereunder to that segment of the economy.
9.52 Finally, we note that by its own terms, the US DOC's specificity determination in respect of
SOCB lending to the OTR tire industry was ba sed on the "totality" of the evidence. 314 In this regard,
we recall the Appellate Body's ruling that a panel re viewing a determination on a particular issue that
is based on the "totality" of the evidence relevant to that issue must conduct its review on the same
basis. In particular, the Appellate Body held th at if an investigating authority relies on individual
pieces of circumstantial evidence viewed together as support for a finding, a panel reviewing such a
determination normally should consid er that evidence in its totali ty in order to assess its probative
value with respect to the agency's determination, rather than assessing whether each piece on its own
would be sufficient to support that determination. Furthermore, to examine the evidence in the light
of the investigating authority's methodology, a pa nel's analysis usually should seek to review the
agency's decision on its own terms, in partic ular, by identifying the inference drawn by the agency
from the evidence, and then by considering whether the evidence could sustain that inference. In

311 We note that although China refers to Article 2.4 of the SCM Agreement in its arguments, it makes
no claim pursuant to that provision. Nonetheless, the standard in Article 2.4 must guide our evaluation of the
USDOC's findings of specificity.
312 Appellate Body Report on US – Softwood Lumber VI (Article 21.5 – Canada), para. 93.
313 Appellate Body Report on US – Countervailing Duty Investigation on DRAMS, para. 164.
314 See para. 9.80, infra.

particular, where a piece of evidence led the investig ating authority to an intermediate inference, the
panel should examine whether that evidence supports th at intermediate inference, rather than whether
that evidence could directly lead to the ultimate conclusion arrived at on the basis of the totality of the
evidence.315 We will follow this approach in reviewing the USDOC's de jure specificity finding in
respect of SOCB lending to the OTR tire industry.
(i) Central Government planning documents
9.53 At the central government level, the USDOC de termined that through a number of related
planning documents the Government of China enc ouraged the tire industry. The USDOC noted in
particular that: (i) the 11 th Five-Year Plan of the Government of China (the "GOC 11 th Five-Year
Plan") provided for increasing the development of important spare parts for the automobile
industry316; (ii) the GOC Catalogue identified the "production of advanced belt tires" as an "an
encouraged national project" 317; (iii) the "Implementing Regulation" 318 identified the GOC Catalogue
as the "'important basis for funding investments directions, etc.'" 319; and (iv) the "SETC Circular
716"320 under the 10 th Five-Year Plan identified the production of "meridian tyres" as a national
priority and required that the contribution of public funds be reasonably directed in order to guarantee
the realization of the target under the plan. 321 In reviewing this determination, we examine in some
detail the documents cited by the USDOC in the light of its determination, with a view to seeing
whether those documents support the inferences, and the ultimate conclusion, drawn from them by the
USDOC.
(1) The GOC 11 th Five-Year Plan322 (2006-2010)
9.54 The USDOC determined that in general, under its 11 th Five-Year Plan covering 2006-2010,
the central government of China set goals regarding macroeconomic policies. In this regard, the
USDOC quotes a questionnaire response of the Govern ment of China as indicating that the plans
"'provide a vision for economic development, market and regulatory activities, social administration
and the provision of public services". 323 Concerning the GOC 11 th Five-Year Plan in particular, the
USDOC found that it calls for "increasing the development of important spare parts for the
automobile industry".324
9.55 We note that in its own words, the stated purpose of the GOC 11 th Five-Year Plan is "to
clarify the national strategic intention, define th e key emphasis in the government work and guide the

315 Appellate Body Report on US – Countervailing Duty Investigation on DRAMS, paras. 150-151;
Appellate Body Report on US – Softwood Lumber VI (Article 21.5 – Canada), para. 94.
316 The USDOC identifies the GOC 11 th Five-Year Plan as the source document for this statement.
(Exhibit CHI-4, p. 13). We understand that this is the same document as that identified by China as the
"Guidelines of the 11 th Five-Year Plan for Economic and Social Development" in Exhibit CHI-69 (p. 3) on the
Examination of the Measures identified by Commerce in the OTR Final Determination as the Basis for its
Finding of De Jure Specificity in Respect of the Alleged "Policy Lending" Programme . The full text of the
"Guidelines of the 11th Five-Year Plan for Economic and Social Development" is contained in Exhibit CHI-71.
317 Exhibit CHI-4, p. 13. The GOC Catalogue, as provided by the parties, is contained in Exhibits CHI-
70 and US-86.
318 The Decision of the State Council on Promulgating the "Interim Provisions on Promoting Industrial
Structure Adjustment" for Implementation (the "Implementing Regulation"), Exhibit US-87.
319 Exhibit CHI-4, p. 13.
320 The Circular of the State Economy and Trade Commission on the Promulgation of the Guidance of
Recent Development in the Industrial Sector (2002) (the "SETC Circular 716"), Exhibit US-83.
321 Exhibit CHI-4, p. 13.
322 Exhibit CHI-71.
323 Exhibit CHI-4, pp. 13 and 98.
324 Id., p. 13.

behaviour of market subject".325 Given that it constitutes the guidance for the economy as a whole, its
scope clearly is very broad. In particular, the GOC 11 th Five-Year Plan contains 14 Parts and 48
Chapters. The Parts refer in general terms to: Guiding Principles and Development Objectives,
Construction of Social Villages, Industrial Struct ure Optimization and Upgrading, Service Industry,
Regional Development, Resource Efficiency and E nvironment, Science and Education, Structural
Reform, Trade and Foreign Investment, Constructi on of Socialist Society, National Defence, and
Mechanism for Implementation. 326 That said, particular industries and sectors are mentioned
explicitly as priorities for development. One of these industries is the automobile industry: in
Chapter 11, "Vigorously Develop Equipment Manuf acturing Industry", Section 2 is devoted to
"Promote Automobile Industry Level" and calls fo r "accelerat[ion of] the development of automobile
engine, automobile electronics, key assemblies and parts and components with independent
intellectual property rights". (emphasis added) Th is section also "encourage[s] the development and
use of energy saving and environmental protection and new type fuel automobiles". 327 In addition, in
Chapter 19, "Implement the Overall Regional Devel opment Strategy", both Section 2 ("Boom the Old
Industrial Bases such as Northeast Region") and Section 3 ("Promote the Grow-Up of Central
Region") refer to the automobile industry among the industries to be promoted/supported. 328 Given
these references, we consider that this document supports the USDOC's conclusion that this document
identified automobile spare parts as a target for development.
(2) The Implementing Regulation of the 11 th Five-Year Plan329
9.56 The Implementing Regulation, in its own wo rds, sets forth implementing provisions "to
achieve the objective of the Eleventh Five-Year planning" (2006-2010) and to "propel the industrial
structure adjustment" (among other goals).330 According to the USDOC, this Regulation identifies the
GOC Catalogue as the "'important basis for funding investments directions, etc.'".331
9.57 The Implementing Regulation provides that:
"[t]he people's governments of all provin ces, autonomous regions and municipalities
directly under the Central Government [...] shall, in accordance with the [Regulation]
and in light of the local situation on industrial development, formulate specific
measures, rationally guide the investment directions, encourage and support the
development of advanced production capac ities, restrict and eliminate outdated
production capacities, prevent blind i nvestments and low-level redundant
construction, and effectively propel indust rial structure optimization and upgrading.
All relevant administrative departme nts shall speed up the formulation and
amendment of policies of public finance, taxation, credit, land, import and export,
etc., effectively intensify the coordination and cooperation with industrial policies,
and further improve and promote the policy system on industrial structure
adjustment".332

325 Exhibit CHI-71, p. 1.
326 Id.
327 Exhibit CHI-71, pp. 13-14. Chapter 11, Section 2 appears in Part 3 of the Guidelines, entitled "Push
Forward Industrial Structure Optimization and Upgrading". (Id., p. 12).
328 Id., p. 23.
329 Exhibits CHI-4, p. 13; and US-87.
330 Exhibit US-87, p. 5.
331 Exhibit CHI-4, pp. 13. The text of the Implementing Regulation cited in the USDOC's
determination refers to "guiding" rather than "funding" investment directions (Exhibit USA-87, p. 11).
332 Exhibit US-87, p. 5.

9.58 As indicated in the USDOC's determination, the Implementing Regulation states that the
GOC Catalogue constitutes the "important basis for guiding investment directions".
333 It also
indicates that the GOC Catalogue is the important basis "for the [sub-central] governments to
administer investment projects, to formulate and enforce policies on public finance [...] credit [...]
import and export, etc.".334
9.59 Of particular relevance to the present dispute, the Implementing Regulation further describes
the functions of the industry categories referred to in the GOC Catalogue (discussed in the next
section) as follows:
• Encouraged category: The Regulation describes this category as covering investment projects
that are to be encouraged and supported with policies and measures. The Regulation further
indicates that the category mainly includes ke y technologies, equipment, and products with
important functions of economic and social development, resource saving, environmental
protection, and industrial structure optimizati on and upgrading, and states that investment
projects within this category must be examined , approved, ratified or archived according to
the relevant provisions of the state on investment administration. In addition, it indicates that
"all financial institutions are required to provi de credit supports in compliance with economic
principles". Furthermore, it provides that equi pment imported in connection with encouraged
projects shall be exempted from customs duties and import value added tax.

• Restricted category : The Regulation describes this category as covering production
capacities, techniques, equipment and products w ith outdated techniques that do not meet the
conditions for industry access, are unconducive to industrial structure optimization and
upgrading, and thus need to be transformed or prohibited from being newly built. The
Regulation prohibits investments in projects in this category, and provides that no financial
institution shall grant loans for such projects, and that no administrative departments, urban
planning, construction, customs, etc. are permitte d to handle the procedures for such projects.
Violations of any of these provisions are subject to penalties. The Regulation indicates that
nevertheless, under certain circumstances, en terprises with existing production capacities in a
restricted industry can be allowed to transf orm or upgrade themselves, and that in those
circumstances, the financial institutions sha ll, in compliance with the credit principles,
continue providing supports.

• Eliminated category: The Regulation describes this category as covering outdated techniques,
equipment and products that do not conform to the relevant laws and regulations, seriously
waste resources, pollute the environment, do no t meet work safety conditions, and need to be
eliminated. Not only are financial institutions required to stop providing any form of credits
in support of such projects, but those institutions are instructed to take measures to recover
previously granted loans. Furthermore, the Regulation provides that all localities and
departments "shall take powerful measures" to e liminate such projects, and that violations
will be subject to penalties.

• Non-listed projects : Article 13 of the Regulation states that projects not belonging to the
encouraged category, the restricted category or the eliminated category, but conforming to the
relevant laws, regulations and policies of the state, belong to the "permitted" category, and are
not listed in the catalogue.335

333 Exhibit USA-87, p. 11.
334 Exhibit US-87, p. 10.
335 Exhibit US-87, pp. 5 and 10-12.

9.60 In our view, the Implementing Regulation in its own words confirms the finding of the
USDOC that the function of the GOC Catalogue whic h it cross-references is to form the basis for
investment direction by the various levels of government. It also appears from the mandatory
wording of the Regulation, and its references to penalties for violati ng the restrictions on financing,
investment, and business transactions relating to the categories, that the categories, and thus the GOC
Catalogue elaborating the details thereof, are mandatory. We further note that the Regulation
explicitly provides that a principal function of the GOC Catalogue is the allo cation of loan financing
by financial institutions – the categories are define d in large part in terms of whether funds are
required to be provided, prohibited from being provided , and/or subject to recovery. In other words,
the Regulation indicates that the function of the GO C Catalogue is to provide the details on how the
investment priorities in the central government plan are to be implemented by the lower levels of
government. We thus find the USDOC's character ization of the Implementing Regulation to be
reasonable and supported by the record evidence.
(3) The GOC Catalogue 336 (11th Five-Year Plan)
9.61 This brings us to the GOC Catalogue itself. Be fore considering its contents in detail, it is
important to place this document into its contex t among the various central government planning
documents. In particular, we recall that the centr al government's five-year plan indicates certain
priority industries and activities for investment, a nd that its Implementing Regulation both defines the
encouraged, restricted and prohibited categories, and indicates that the GOC Catalogue contains the
list of the particular projects that fall within each of these categories. Thus, the GOC Catalogue – in
particular its encouraged category – identifies the universe of types of projects singled out as a matter
of national policy for encouragement and investment. Thus, in our view, this document is the central
document in the USDOC's specificity determination: our conclusion as to the de jure specificity
finding must necessarily hinge on whether the en couraged projects, taken as a whole, could
reasonably be viewed as a sufficiently discrete segme nt of the economy as to constitute, collectively,
"certain enterprises". If so, then we must con tinue our analysis by examining the remaining
documents relied upon by the USDOC. If we find, by contrast, that the universe of encouraged
projects must be seen as so broad as to be non-specific, then our analysis necessarily would stop at
that point, as no further references to particular instances of funding pursuant to this category would
override the non-specificity of the programme as a whole.
9.62 We recall that the USDOC in its determina tion cites the GOC Catalogue's listing as an
"encouraged national project" of "the production of advanced belt tir e radial, its supporting materials
and equipment production".
337 We note in this regard that the Catalogue lists types of projects, and
not, for example, either whole industries or single enterprises.
9.63 As discussed above in connection with the Implementing Regulation, the GOC Catalogue
classifies projects into three categories, "encouraged", "restricted" and "to be abolished", as follows:
• Encouraged: 539 projects are listed, in the following 26 sectors: Agriculture and Forestry;
Irrigation and Water Conservancy; Coal; Electric Power; Nuclear Energy; Petroleum and
Natural Gas; Steel; Nonferrous Metals; Chemical Industry; Building Materials; Medicine;
Machinery; Automobiles; Ships; Aerospace; Light Industry; Textile;
Architecture/Construction; City Infrastructure and Real Estate; Railway; Highway; Shipping;
Air Transport; Information Industry; Othe r Service Industry; and Combination of
Environmental Protection and Resources Savings. (As noted by the USDOC, the

336 Exhibits CHI-70 and US-86. In this section, we rely principally on the version of the GOC
Catalogue submitted by the United States (Exhibit US-86), as in many places in the version submitted by China
(Exhibit CHI-70), the English translations are unintelligible.
337 Exhibit CHI-4, p. 13.

"[p]roduction of advanced belt tyre radial, its supporting materials and equipment production
"
is identified as an encouraged project within the Chemical Industry sector). 338 (emphasis
added)

• Restricted: 190 projects are listed, in the following 17 sectors: Agriculture and Forestry;
Coal; Electric Power; Pe troleum, Natural Gas and Chemical Industry; Information Industry;
Steel; Non-ferrous Metals; Gold; Building Mate rials; Medicine; Machinery; Ships; Light
Industry; Textile; Tobacco; Fire Fighting Equipment; Other.
• To be abolished: 399 projects (subdivided into "Backward Production Technique Equipment"
and "Backward Products") are listed, in the fo llowing 17 sectors: Agriculture and Forestry;
Coal; Electric Power; Petroleum, Natural G as and Chemical Industry; Steel; Nonferrous
Metals; Gold; Building Materials, Medicine; M achinery; Railway, Light Industry; Textiles;
Printing; Fire Fighting; Other.339

9.64 The record documents before us do not contain any indication that either the parties to the
investigation or the USDOC engaged in detailed discussion of the GOC Catalogue, in particular
concerning the diversity or breadth of the "encouraged" projects listed therein, during the
investigation.
340 Rather, this point has only been raised before us.
9.65 In the present dispute China's main argument a bout the GOC Catalogue is that, even if this
document referred to all elements of a subsidy, its coverage is too broad to give rise to a finding of
specificity. China points in this regard to both th e diversity and the breadth of the sectors covered by
the "encouraged" category ("26 broad categories sp anning virtually the entire range of economic
activity").341 Concerning diversity, as discussed above, as a legal matter we are not persuaded that the
diversity of the listed sectors in the "encouraged" category by itself precludes a finding of de jure
specificity based on the GOC Catalogue.
9.66 Concerning the breadth of the sectors referred to in the GOC Catalogue we note that, as China
argues, the sectors or categories under which the en couraged projects are grouped do cover a wide
swath of economic activity. Nonetheless, as a factual matter what is either "encouraged", "restricted",
or "to be abolished" within a given sector pursuant to the GOC Catalogue is clearly not the entirety of
that sector. Indeed, there is considerable overlap in the sectors identified in the three respective
categories: twelve sectors appear in all three lists 342; and an additional five sectors appear in two of
the lists.343 Purely as a matter of logic, it would be impossible for a given sector, in its entirety, to be

338 We note that the USDOC's determination refers to the "production of advanced belt tires [...] and
equipment production", which is how this item appears in the translation of the GOC Catalogue submitted by
the United States (Id., p. 13 and US-86). The translation of the same item in the version of the GOC Catalogue
submitted to us by China reads: "high-performance meridian tires and the special materials and equipment".
(Exhibit CHI-70, p. 7).
339 Exhibit US-86.
340 The arguments by the parties during the investigation, in particular those of the Government of
China and the Chinese tire producers, were in the main that the planning documents were not binding, and that
references to particular industries or companies did not mean that support for those industries was required.
These respondent parties also raised arguments similar to those raised by China before us that the planning
documents did not refer to, or require, prefer ential SOCB lending to the tire industry. ( See, e.g., Exhibit CHI-4,
pp. 93-94).
341 See, e.g., China response to Panel question 54 (first meeting).
342 That is, agriculture and forestry; coal; electric power; steel; non-ferrous me tals; chemical products;
petroleum and natural gas; building materials; medicine; machinery; light industry; and textiles. (In the
"encouraged" category, chemical s is treated as a separate sector from petroleum and natural gas, while in the
other two categories, chemicals, petroleum and natural gas are treated as a single sector).
343 Ships; railway; information industry; gold; and fire fighting equipment.

simultaneously "encouraged", "restricted", and/or "t o be abolished". Thus, to note that the sectors
under which the encouraged projects are grouped co ver a broad spectrum of economic activity adds
little to our analysis of the USDOC's de jure specificity determination.
9.67 We consider more relevant the characterization by the US – Upland Cotton panel that non-
specific subsidies are broadly available throughout an economy, in contrast to specific subsidies to
which access is limited to a "sufficiently discrete segment" of an economy as to constitute "certain
enterprises". From this perspective, we cons ider whether the USDOC could reasonably have
concluded on the basis of positive evidence before it that the list of encouraged projects taken as a
whole, in spite of being lengthy and diverse, c onstituted a "sufficiently discrete segment of the
economy" as to constitute "certain enterprises".
9.68 In this respect, we consider significant that the GOC Catalogue does not describe what is to
be either encouraged, restricted or abolished in general, broad terms. To the contrary, these are
individual project types, described in very specifi c and narrowly-circumscribed terms. To us, the
impression given by the narrowness of the projects described within each of the listed sectors (in spite
of the breadth of those sectors as a whole, indi vidually and collectively) , is not one of broad
availability but rather of singling out of very particular types of projects. Furthermore, as the
Implementing Regulation makes clear, the express purpose of both the "restricted" and
"eliminated"/"to be abolished" categories is to impose limitations on investment, provision of credit,
etc., in respect of the projects in those categories.
9.69 We note that in a number of cases, closely related projects appear in two or three of the
categories, with one variant to be encouraged, a second to be restricted, and a third to be abolished.
For example, among the "encouraged" projects in th e "chemical products" sector is "manufacture of
PVC by oxychlorination means with the annua l yield no less than 200,000 tons"; while the
"restricted" category lists "ethylene oxychlorinatio n PVC units with its annual yield no more than
200,000 tons annually, calcium PVC units with its annual yield no more than 120,000 tons".
344 I n
other words, it appears that in respect of th e PVC industry, the emph asis pursuant to the GOC
Catalogue is to increase the size of production facilities, on the basis of detailed parameters. A similar
tendency appears in respect of electric power : among the encouraged projects are "heat-supply
machines with the concentrated integrated thermal power capacity no less than 300,000 kw [...]",
whereas among the restricted projects are "normal coal-fuel thermal power generating units with the
unit machine capacity no more than 300,000 kw [... ]", and among projects be abolished are "normal
condenser coal-fueled thermal power generation units with [...] single machine less than 10,000 kw
within the range of large grid coverage".
345 Most significantly for the present dispute, tires of various
kinds appear in all three lists, with an apparent tendency away from bias tires and toward radial tires.
In particular, "production of advanced belt tyre radial, its supporting materials and equipment
production" is listed as an encouraged project, "bias ty[r]e" 346 (not further described) appears as a
restricted project, and "bias tyre or tyre productio n line with natural cotton flat chafer fabric as
framework and with its annual yield no more than 500,000" is identified as a project to be
abolished.347
9.70 In addition, we recall that the Implementing Re gulation makes explicit that the "encouraged",
"restricted" and "eliminated" projects, taken together , do not describe all economic activity in China.

344 Exhibit US-86, pp. 7 and 19.
345 Id., pp. 4, 19 and 25.
346 The English translation of the GOC Catalogue submitted by the United States contains a
typographical error, i.e., for this entry it reads "bias typ e" (emphasis added) (Exhibit US-86, p. 20). We note,
however, that the corresponding entry in the version of the Catalogue submitted by China refers to "Inclined tire
item." (Exhibit CHI-70, p. 24).
347 Exhibit US-86, pp. 7 and 25.

Rather, as noted supra, there is a default "permitted" category, which covers all activities not
specifically listed but otherwise in conformity with the relevant laws and regulations. While there is
no information on the record as to th e absolute or relative magnitude of this category, or of the three
listed categories, the existence of a "permitted" category by definition narrows the maximum possible
scope of the "encouraged" category (as well as of the "restricted" and "eliminated" categories) relative
to the economy as a whole.
9.71 In this respect, we do not see that the documents of record demonstrate that the list of projects
in the "encouraged" category spans "virtually th e entire range of economic activity in China", as
suggested by China.
348 We thus do not consider that these documents would compel a reasonable and
objective investigating authority to conclude that any subsidies granted on the basis of that category
were non-specific. To the contrary, we consid er that a reasonable and objective investigating
authority could conclude that any subsidies grante d on the basis of the "encouraged" category were to
a sufficiently discrete segment of the economy as to be limited to "certain enterprises".
9.72 For these reasons, we consider reasonable the USDOC's reliance, in reaching its de jure
specificity determination in respect of SOCB lending to the OTR industry, on the reference in the
GOC Catalogue to "'advanced belt tires […]"' as an "'encouraged"' project.
(4) The GOC 10 th Five-Year Plan (2001 – 2005) and the SETC Circular 716
9.73 In addition to the central government planning documents pertaining to the 11 th Five-Year
Plan, the USDOC also examined and took into account in its specificity analysis the SETC Circular
716 349, which relates to China's 10th Five-Year Plan (2001-2005).
9.74 The USDOC points to two particular statements in the Circular; first, its reference to "the
production of 'meridian tires' (i.e., radial tir es) as a national priority under the GOC 10 th Five-Year
Plan"350, and second, that the contribution of public f unds be reasonably directed "so as to [...]
guarantee the realization of the target [...]".351
9.75 We note, first, that the SETC Circular 716 is directed to:
"The economy and trade commissions (economy commissions) of all provinces,
autonomous regions, municipalities directly under the Central Government and
municipalities separately listed on the State plan and Xinjiang Army Corps of
Production and Construction, all associations directly under the State Economy and
Trade Commission".
352
We further note that in the preamble to the Circular, the SETC states that:
"We have printed the Guidance of Recent Development in the Industrial Sector and
hereby distribute it to you. Please abide by and implement it".353 (emphasis added)
9.76 The full passage partially quoted in the USDOC' s determination, which sets forth in general
terms the orientation of the Circular, reads:

348 China response to Panel question 54 (first meeting).
349 Exhibit US-83.
350 Exhibit CHI-4, p. 13.
351 Id. According to the USDOC, "OTR tires" can be "bias ply" tires, "merid ian tires" and "radial"
tires. (Id., pp. 14 and 99).
352 Exhibit US-83, p. 1.
353 Id.

"[W]e should, taking the enterprises as the ma in body, the market as the orientation,
the development as the topic, the struct ural adjustment as the motif, and the
improvement of the competitive power as the target, reasonably direct the
contribution of public funds and foreign investments, adjust the public investment
structure, improve the efficiency and bene fits of using funds, so as to promote the
structural adjustment of the industrial sector, and guarantee the realization of the
target under planning".
354
The Circular goes on to say:
 "The recent development orientation of th e industrial sector is hereby proposed
pursuant to the industrial development dir ection clarified in the industry and sector
planning of the Tenth Five-Year Plan for the sake of strengthening the macro-control,
leading the acts of market subjects, and optimizing the allocation of resources".
355
9.77 The Circular then identifies five "basic princi ples" – market orientation, highlighting key
industries and products, technical progress, coordina tive development, and sustainable development –
in accordance with which:
"[W]e have proposed the recent development orientation for machinery, automobiles,
metallurgy, non-ferrous metal, petroleum, petrochemical industry, chemical industry,
medicine, coal, building materials light industr y, textiles, etc., which is offered to all
investors and the financial, securities and public consulting departments for
reference".356
Following this introductory section, the Circular then contains sections headed "Recent Development
Orientation" for each of the sectors listed in the above-quoted passage. These sections set forth in
some detail (in similar fashion to the project listings in the GOC Catalogue under the 11 th Five-Year
Plan), a series of priority projects or areas for investment.
9.78 The section on "Recent Development Orientation for Chemical Industry" contains four
subheadings, one of which is "Meridian Line Tires". The text of this subsection reads:
"We should accelerate the product structural adjustment of tyre enterprise, and
continue developing meridian line tyres. We should accelerate the development of
new varieties, and emphatically develop th e 65, 60, 55 and 50 series with the rim
diameter at 15-17 inches, and meridian tyres of high-speed serial saloon cars and
high-capacity meridian tyres of low section without inner tyres; we should enhance
the technical renovations of a few major en terprises, and form 2 to 3 large tyre
enterprise groups with the annual producti on capacity reaching 5 to 8 million (with
the annual consumption of raw rubber at 40,000 tons or more). We should
appropriately support the backbone tire enterp rises in central and western regions, so
as to enable the regional distribution of meridian tyre production to become more
reasonable".
357
9.79 We note that some of the language in the SETC Circular 716 appears to be non-mandatory,
and that before the USDOC the Government of China argued that the central government planning
documents were "aspirational rec itations of general deve lopment goals", rather than "instruments

354 Exhibit US-83, p. 2.
355 Id.
356 Id., p. 3.
357 Id., p. 15.

through which government policies are implemented" . Likewise before us, China argues that the
central planning documents are non-binding general policy orientations. Given the detailed and
precise descriptions, in respect of tire industry in vestments to be "encouraged" or "supported",
however, and the fact that these encouraged investment projects are specifically addressed to all of the
sub-central government entities, which are enjoined to "abide by and implement" the Circular, we
consider that their own wording seems to suppor t the USDOC's finding that the SETC Circular 716
conveyed policy directions, inter alia, concerning investment in the OTR tires industry, to those other
levels of government.
(ii) Provincial and municipal governments planning documents
(1) General

9.80 We now take up the USDOC's analysis and conclu sions in respect of the sub-central planning
documents, with a view to assessing whether they contain evidence, as the USDOC found, that the
sub-central governments established and carried out their own planning by implementing the central
government plans. Concerning these documents, the USDOC found that:
"Information on the record shows that provincial and municipality goals and
objectives conform with and implement th e central government policy goals and
objectives with a focus more tailored to the particular interests and circumstances of
that province or municipality. Specifically, the central-level plans set goals regarding
macroeconomic policies and [quoting a Government of China's questionnaire
response] 'provide a vision for economic development, market and regulatory
activities, social administration, and the pr ovision of public services'. [citation to
record omitted] Information on the reco rd also shows that the provincial and
municipal five-year plans are drafted based on the goals and objectives of the central-
level plans. [citation to record omitted] In other words, local governments (i.e.,
provinces and municipalities) align their policies with stated central government
policies and carry out those policies to the extent that such measures affect their
locality. Therefore, central-level plans should be considered a central government
policy or program that local governments adopt and implement through their own
five-year plans. [cross-reference omitted]
[...] Although in this case there are no discrete policy plans for the tire industry, per
se, the totality of the information on this r ecord […] shows that the government is
directing policy lending to the tire industr y or to specific enterprises in the tire
industry".
358
9.81 In this respect, the USDOC indicated that it disag reed with the Government of China that the
plans were purely aspirational in nature, stating:
"If [the plans] were simply aspirational r ecitations of general development goals with
no meaning, there would be little reason for the provinces and municipalities to
develop plans in accordance with central gove rnment plans. Nor would there be any
reason for provinces or municipalities to ta ilor their plans to conditions and needs
within their jurisdictions, and there certa inly would be no reason to single out
companies, industries or specific developm ent projects (e.g., technology renovation)
within those plans. The fact that comp anies or tires or rubber are specifically
mentioned in these plans or catalogues and the fact that these plans and catalogues

358 Exhibit CHI-4, p. 98.

discuss support, including loans for 'key' or promoted projects demonstrates that
government policy lending in the OTR tires industry is de jure specific".359
(2) GTC
(A) USDOC determination
9.82 With respect to GTC, the USDOC examined r ecord evidence pertaining to Guizhou province,
and within that province, Guiyang municipality where GTC was located. The USDOC determination
noted that: (i) GTC had been explicitly targeted as a key enterprise for economic development by
Guizhou province and Guiyang municipality since earlier five-year plans; (ii) the number of
enterprises specifically targeted was limited (in particular, that the Guizhou 10
th Five-Year Plan,
besides singling out GTC for the project of technology renovation for two meridian tire lines,
mentioned three other enterprises); (iii) the Guizhou 10 th Five-Year Plan further required that policy
bank loans and loans from abroad be allocated according to the plans; and (iv) the loans were actually
provided to GTC by Guizhou province and Guiyang municipal policy lending. 360 The USDOC
further noted that the plans indicated that bot h the provincial and muni cipal governments were
required to give priority to the 5-million-unit semi-steel radial tire project of GTC.361
9.83 In this regard, the USDOC cited the Guizhou 11 th Five-Year Plan as requiring that "under 'the
leadership of Guizhou Tyre, [the rubber industry] sh all give priority to the 5-million-unit semi-steel
radial tire project of Guizhou Tyre". 362 The USDOC stated that Section 6 of the Guizhou 10 th Five-
Year plan also singled out GTC, for the project of technology renovation for two meridian tire lines
(i.e., "radial" tires), noting that OTR tires also can be "bias ply" tires. The USDOC noted that the
number of enterprises specifically targeted in Se ction 6 was limited, in that only three other
enterprises, in addition to GTC, were singled out for the technology renovati on, and concluded that
therefore section 6 was "clearly targeted rather than broad in its scope".
363 In addition, the USDOC
stated that that plan indicated that policy bank lo ans and loans from abroad were to be allocated
according to the plans. 364 Finally, the USDOC stated that, at the municipal level, the Guiyang 10 th
Five-Year Plan also had given priority to GTC's 5-million-unit radial tire project.365
(B) Guizhou and Guiyang planning documents
9.84 We now examine the Guizhou (provincial) and Guiyang (municipal) plans relied upon by the
USDOC, in the light of the USDOC's analysis and conclusions.
9.85 At the provincial level, we note that the Guizhou Province 11 th Special Industrial
Development Plan (the "Guizhou 11 th Five-Year Plan") makes very specific reference to GTC's five-
million unit tire project, stating that "under the lead ership of Guizhou Tyre, (the rubber industry shall)
[...] reduce the production of bias tires, vigorously develop radial tires and new high-speed low-
section tubeless and give priority to the 5-million- unit semi-steel radial tire project of Guizhou
Tyre".366

359 Exhibit CHI-4, p. 99.
360 Exhibit CHI-4, pp. 13-14 and 99. The USDOC noted that business proprietary information provided
by GTC underlined GTC's importance in early five-year plans. (Id., p. 14).
361 Id., p. 112.
362 Id.
363 Id., pp. 14 and 99.
364 Id., p. 112.
365 Id.
366 Exhibit CHI-77. It is not clear whether this document also refers to other industries/projects since
the document (as presented) only contains the translation of this one paragraph.

9.86 The Tenth Five-Year Plan Outline For the Na tional Economic and Social Development of
Guizhou Province (the "Guizhou 10
th Five-Year Plan"), in Section 6 ("Traditional industry shall be
improved through high technology") of Chapter 7 ("Industry shall be optimized, industry with specific
advantages shall be promoted"), states that the "r enovation of traditional industry and development of
high technology industry shall be combined to promote the whole industry's updating and continuous
development".367 This Section states that the technolog y renovation of industries with chemistry
advantages must be supported, and specifically refers to the technology renovation project of meridian
line tires of GTC as well as the renovation projects for three other enterprises. The same plan also
encourages support to, inter alia, automobile components, and states that by 2005, the renovation and
updating of key equipment of enterprises of chemical s, machinery, etc., must be completed and the
production base of automobile components established.368
9.87 The Guizhou 9th Five-Year Plan states that "policy ba nks loans and loans from abroad should
continue to be allocated according to the plans". 369 Here we note that although in the USDOC's
determination this statement is attributed to the Guizhou 10th Five-Year Plan, before us it was clarified
between the parties that this statem ent in fact appears in the Guizhou 9 th Five-Year Plan. According
to the United States, this mistake was due to e rrors made by the Government of China in the
information it submitted to the USDOC.370
9.88 At the municipal level, the Guiyang Muni cipality Economic and Social Development 11 th
Five Year Plan (the "Guiyang 11th Five-Year Plan") states that the automotive manufacturing industry
must, inter alia, "develop auto parts, tires and other auto -use rubber products aimed at both domestic
and world markets" as well as "facilitate the devel opment of new products [...] and foster famous
products with intellectual property rights". 371 This plan explicitly requires the government to give
priority to GTC's 5-million-unit tire project. The plan also calls for "loans from State policy banks"
and strengthening the "public credit system, and increase credit loans".372 The plan also "encourage[s]
financial institutions to provide funds to the project s in conformity with economic policies" and states
that "cooperation between banks and enterprises" should be "enhanced".373
9.89 Given the explicit references to GTC's tire project in the provincial and municipal planning
documents cited by the USDOC, and the similarity of the priorities for the tire industry in these
documents to the description in the GOC Catal ogue of the "encouraged" tire project, and the
references to the provision of credit financing to th e projects targeted for development, and given the
indications in the central-level documents that th e lower-level governments are to establish their own
plans based on the central plans, we consider that it was reasonable for the USDOC to have
concluded, in respect of GTC, that these provincial and municipal plans implemented the central plans
for development of the OTR tires industry, including in respect of the provision of credit financing.

367 Exhibit CHI-72, p. 2.
368 Exhibit CHI-72, p.2.
369 Exhibit US-82, p.41.
370 In its first written submission, the United States notes that, as China has pointed out to the Panel,
this statement was mistakenly cited to the 10 th Five-Year Plan rather than the 9 th Five-Year Plan. The
United States attributes this error to the fact that when it submitted the 9 th and 10 th Five-Year Plans to the
USDOC, China had reversed all but the first pages of both documents, attaching the Chinese language version
of the 10th Five-Year Plan to the English translation of the 9 th Five-Year Plan and vice versa. The United States
further argues that China failed to provide the USDOC with an English translation of the portion of the 9 th five-
year plan discussing the allocati on of loans, which the USDOC only became aware of because a domestic
producer provided the USDOC with a partial translation of the Chinese language version. (United States first
written submission, footnote 518 (referring to Exhibits CHI-69, US-84 and US-82)). China does not contest this
representation by the United States.
371 Exhibit CHI-78.
372 Id.
373 Id.

(3) Starbright
(A) USDOC determination
9.90 Concerning Starbright, the USDOC's determinati on states that, in contrast to the Guizhou and
Guiyang five-year plans, the five-year plan of th e province of Hebei (where Starbright was located)
identified as "key projects" for development certain industries, rather than individual enterprises or
projects. According to the USDOC's determination, the Hebei 11 th Five-Year Plan for technology
referred to "automobile parts and the rubber i ndustry as 'key projects'" and the Implementing
Guidelines of this plan "direct[ed] comm ercial banks to support 'key projects'". 374 The USDOC also
found that the Hebei 10 th Five-Year Plan stated that "'auto parts', among other industries, shall be
supported'", and that the Hebei 9 th Five-Year Plan stated that the "automobile and components"
industry, among other industries, would be "developed greatly and stronger". 375 According to the
USDOC, tires were considered to be part of the automobile parts industry in China.376
(B) Hebei planning documents
9.91 Starting with the Hebei Province Science & Technology 11 th Five Year Plan & 2020 Long
Term Target (the "Hebei 11 th Five-Year Plan for technology"), we note that this plan states that the
"economic and social development of the Province heavily depends on the technology
development".377 In this context, inter alia , the plan calls for arranging "a layout for the key
industries" and developing "new products with in dependent intellectual property rights", referring
specifically to the "development of key automobile parts". 378 In addition, among "key technology
projects", the plan identifies the establishment of industrial bases for several industries, including the
"rubber industry" and the "rubber and plastics industry". 379 The plan designates the automobile and
automobile spare parts industries, among several others, as the priority industries for accomplishing
the provincial "equipment manufacture industry" goal, a nd states that three to five leading enterprises
will be involved in the provincial equipment manufacture industry scheme. 380 Furthermore, the plan
designates certain cities (including Xingtai City, where Starbright is located) 381 as the bases for
automobile development, and identifies automobile spare parts as among the "supported products" for
which the production base was to be developed.382
9.92 The Guidelines for the Implementation of Hebei Province Science & Technology 11 th Five
Year Plan (the "Implementa tion Guidelines of the Hebei 11 th Five-Year Plan") state that policy
financial institutions "shall s upport" national and provincial key technology projects and key
technology industrialization projects. The Guidel ines further state that commercial banks "shall
support" these projects through the granting of cred it loans in accordance with national investments
and credit loan policies.383

374 Exhibit CHI-4, pp. 14 and 99.
375 Id., p. 99-100.
376 In this regard, the USDOC noted that the Guiyang 11 th Five-Year Plan referred to the GTC 5-
million-unit tire project within the context of identifying automobile parts as a key industry, and that given the
parallels among the central and provincial plans, the central, provincial and municipal governments appeared to
consider radial tires to be part of the automobile parts industry. (Id., footnote 17).
377 Exhibit CHI-73.
378 Id.
379 Id.
380 Exhibit US-88.
381 United States first written submission, para. 342.
382 Exhibit US-88.
383 Exhibit CHI-74.

9.93 The Tenth Five-Year Plan Outline for the Na tional Economic and Social Development of
Hebei Province (the "Hebei 10
th Five-Year Plan") requires that "the equipment industry such as
environment protection, auto parts, packing, foodstuff, machinery shall be supported". 384 Finally, the
Ninth Five-Year Plan Outline for the National Econom ic and Social Developm ent of Hebei Province
and Year 2010's Prospective Goals (the "Hebei 9 th Five-Year Plan") identifies the automobile industry
as one of the "mainstay" industries "which can ta ke the lead for the whole economic growth and
structural upgrade. The plan specifies that amo ng other "mainstay" industries, "the machinery
industry which takes the automobile and its co mponents and large-scale complete plants and
equipment as the dominance", "will be developed greatly and stronger".385
9.94 Given the explicit references in the Hebei pla nning documents to the rubber industry and the
automobile parts industry, as well as to the provision of credit financing in support of projects in these
industries, we consider that it was reasonable for the USDOC to have concluded that these documents
implemented the central-level plan in respect of the OTR tires industry, which included the provision
of financing to that industry.
(iii) Conclusion in respect of planning documents
9.95 For the foregoing reasons, we conclude that a reasonable and objective investigating authority
could have determined, on the basis of the evidence on the record, that the Government of China, at
the central level, explicitly identified "certain ente rprises" in the sense of Article 2.1(a) of the SCM
Agreement for encouragement and development (incl uding the tire industry), and instructed the sub-
central governments to implement this policy. We also conclude that a reasonable and objective
investigating authority could have determined th at pursuant to these same planning documents,
SOCBs (among other financial institu tions) were instructed to provid e financing to the "encouraged"
projects. Thus, we find no legal error in the USDOC's determination on the basis of these documents
that government authorities at all levels of governme nt in China (central, provincial and municipal)
effectuated policies to ensure the provision of loans to the OTR tire industry.
(iv) USDOC determination that SOCBs acted purs uant to government industrial policies in
making loans to the tire industry
9.96 The final element of the USDOC's de jure specificity determination in respect of SOCB
lending to both GTC and Starbright was its findi ng that both policy banks and SOCBs acted pursuant
to the government policies set forth in the planni ng documents just discussed when they provided
loans to tire producers. We note in this regard that there is no disagreement between the parties as to
the existence of SOCB lending to the two tire produ cers. Instead, the disagreement in the context of
the de jure specificity finding centres on whether the SOCBs made these loans pursuant to the policies
set forth in the planning documents.
9.97 Concerning GTC, the USDOC's determination indicates that business confidential
information on the record indicat ed that loans to GTC were policy lending by Guizhou and Guiyang,
at the provincial and municipal levels, respectively. The determination states in this regard:
"The Department notes that both the provinc ial and municipal five-year plans discuss
GTC. Based on verification and the docu mentation on the on the record, we have
determined that these loans were provided to GTC by Guizhou provincial and
Guiyang municipal policy lending. (A full discussion of our analysis concerning
GTC's loans is only possible by means of reference to business proprietary
information. [cross-reference omitted]) Ther efore, the Department continues to find

384 Exhibit CHI-76, p. 5.
385 Exhibit CHI-75, p.4.

that all of the loans received by GTC and its cross-owned affiliates from SOCBs were
made pursuant to a government policy to provide loans to the tire industry."386
9.98 Concerning Starbright, the USDOC cited the He ibei Five-Year Plans and related documents
just discussed, which identified automobile parts and the rubber industry as key projects, and called
for financing support to these projects. The USDOC then stated that "[t]herefore, the Department
continues to find that the loans received by Starbright from SOCBs were made pursuant to a
government policy to provide loans to the tire industry".387
9.99 Concerning SOCBs' lending to the OTR tire producers in general, the USDOC stated that:
"After examining all information on the reco rd, we continue to find that national,
provincial and municipal government aut horities effectuate policies to provide
countervailable loans to OTR tire producers. Acting pursuant to these official
policies, PRC policy banks and SOCBs provided loans to OTR tire producers".388
The USDOC then cited its prior "public body" finding in respect of Chinese policy banks and SOCBs,
in the investigation on CFS Paper, incorporating by reference that finding and analysis into the record
of the OTR investigation. 389 The USDOC stated that in the OT R investigation, parties "ha[d] not
demonstrated that conditions within the Chinese ba nking sector ha[d] changed significantly since that
previous decision such that a reconsideration of that decision is warranted". 390 The USDOC also cited
a statement at verification by an official from the Tianjin municipal government confirming that
SOCBs there were supervised by the Tianjin SASAC, and noted that there were scholarly publications
on the record reporting that SOCBs were required to support the Government of China's policies.
391

9.100 One such publication cited by the USDOC in th is context was the IMF Working Paper. The
USDOC quoted that publication as stating that "it is difficult to find clear evidence that SCBs have
changed their behavior and become commercially oriented" and as recommending that governments
should avoid "interference for policy purposes".392
9.101 We note that in the CFS Paper investigation, which formed pa rt of the record in the OTR
investigation, the USDOC had determined that SO CBs followed government policies in making their
lending decisions.393 First, the USDOC had found that the state ownership of the Chinese banking
sector and the legacies associated with the longsta nding pursuit of govern ment policy objectives
undermined the SOCBs' ability to act on a commercial basis. 394 Second, the USDOC had examined
the Chinese legal framework for banking, noting that the Chinese Commercial Banking Law required
banks to carry out their loan activities consistently with "the needs of national economy and the social

386 Exhibit CHI-4, p. 99.
387 Id., p. 100.
388 Id., p. 101. This statement appears in the section entitled "SOCBs and Financial Contribution".
389 Id.
390 Id.
391 Id. TUTRIC, the third investigated tire producer, was located in Tianjin. The USDOC did not
calculate a benefit to TUTRIC from policy lending, as it found that instead outstanding loans to TUTRIC had
been forgiven. (Id., footnote 16).
392 Id., footnote 45 (quoting the IMF Working Paper, pp. 18-19).
393 Exhibit CHI-93, pp. 49-58.
394 Id., p. 55. The USDOC noted that it had found evidence of reforms in al most all sectors of the
economy in China, including the bankin g sector. It stated that the cent ral government however had been very
cautious in completely reforming the banking system, and that as a result, and because banks in China had never
operated on a commercial basis, the government was still very involved in the sector. The USDOC noted that
this view was to varying degrees confirmed by independent experts interviewed by the USDOC. (Id., pp. 55-
58).

development and under the guidance of State industrial policies".
395 At the CFS Paper verification,
officials from the People's Bank of China had stated that "it may be necessary for banks to heed
industrial policies, banks may be taking on greater risk if their customers use loans in a way that is
inconsistent with industrial policies". 396 Similarly, the Bank of China Offering had stated that
"Commercial Banking Law requires commercial banks to take into consideration government
macroeconomic policies in making lending decisions. [T hey] are encouraged to restrict their lending
to borrowers in certain industries in acco rdance with relevant government policies". 397 T h i r d , t h e
USDOC had determined that while SOCBs were im proving their risk management capacities, they
still lacked adequate risk management and analysis skills. The USDOC had stated that interest rates
remained generally undifferentiated, and were cl ose to the benchmark set by the People's Bank of
China.398
9.102 In the OTR investigation, as noted, the USDOC determined that the respondent parties had
not demonstrated that this situation had changed sufficiently to warrant a reconsideration of the
analysis and conclusions concerning SOCBs from the CFS Paper investigation. In this regard, the
main specificity-related argument of the respondents in the OTR investigation was that the central
government and provincial and m unicipal planning documents we re indicative only, and not
mandatory. It is not clear what evidence was put on the record of the investigation in support of this
point, and before us China identifies none. As not ed above, the USDOC determined in this regard
that "central-level plans should be considered a central government policy or program that local
governments adopt and implement through their own five-year plans". 399 We recall in this context the
USDOC's specific rejection of the respondents' argument that the plans were not binding, as described
in paragraph 9.81, supra.
9.103 In addition, before us, the United States refers to a range of documents from the CFS Paper
investigation, on the record of the OTR investig ation, which in the view of the United States
demonstrates that the SOCBs lent in accordance with government policies. 400 These documents
include annual reports and other publications of certain Chinese banks , verification reports, and other
documents. In particular, the United States cites to the following statements by banks: (i) the
People's Bank of China "'guided financial in stitutions to grant loans at a proper pace'" 401; (ii) the
People's Bank of China briefs bank offi cers on "'how credit should be guided'" 402; (iii) the Bank of
China takes industrial policies into account "' in assessing a company' s total credit limit'" 403; and (iv)
"'commercial banks are encouraged to restrict th eir lending to borrowers in certain industries in
accordance with relevant government policies'".404
9.104 We note that China does not contest the accuracy of the United States' representations of these
statements. Nor does it point to any evidence contra dicting the USDOC's conclusion, from either the
CFS Paper or OTR investigation.
9.105 For the reasons described above, we consider that a reasonable and objective investigating
authority could conclude on the basis of the record evidence that the SOCBs followed the policies set
forth in the planning documents in providing credit to GTC and Starbright. We thus find no error in
this conclusion by the USDOC.

395 Exhibit CHI-93, p. 58.
396 Id.
397 Exhibit CHI-4, p. 58.
398 Id., p. 59.
399 Id., p. 98.
400 United States first written submission, paras. 357-358.
401 Id., para. 358 (quoting the People's Bank of China 2006 Annual Report, p. 37, Exhibit US-93).
402 Id., para. 358 (referring to the. CFS CVD GOC Verification Report, p. 5, Exhibit US-89).
403 Id., (referring to Exhibit US-89, p. 17).
404 Id., (referring to Exhibit CHI-93, p. 58).

(v) Conclusion by the Panel
9.106 As discussed supra, we have found that a reasonable and objective investigating authority
could have determined, on the basis of the evidence on the record, that the government of China, at
the central level, explicitly identified "certain ente rprises" in the sense of Article 2.1(a) of the SCM
Agreement for encouragement and development, and instructed the sub-central governments to
implement this policy, and that among these "certain enterprises" were advanced radial tires, which all
parties acknowledge include OTR tires. We have found that a reasonable and objective investigating
authority could have determined that pursuan t to these same planning documents, SOCBs (among
other financial institutions) were instructed to provide financing to the "encouraged" projects, and that
SOCBs did lend to both GTC and Starbright's OTR tire facilities. Finally, we have found that a
reasonable and objective investigating authority coul d conclude on the basis of the record evidence
that the SOCBs followed the policies set forth in th e planning documents when they lent to GTC and
Starbright.
9.107 For these reasons, we therefore conclude that China has failed to establish that the USDOC's
finding in the OTR investigation, that lending by SOCBs to the OTR tire industry (in particular to
GTC and Starbright) was de jure specific, was inconsistent with th e obligations of the United States
under Article 2.1(a) of the SCM Agreement.405
B. REGIONAL SPECIFICITY OF LAND-USE RIGHTS
1. Claims of China
9.108 China challenges the USDOC's dete rmination in the LWS investigation that the provision of
land-use rights to one company (Aifudi) located in the "New Century Industrial Park" (the "Industrial
Park" or the "Park") was regionally specific. China claims that this determination was inconsistent
with Article 2 of the SCM Agreement and, as a consequence, Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994.406
2. Main arguments of the Parties
(a) China
9.109 China argues that for a subsidy to be regionally sp ecific, it must be limited in three ways: (i)
it must be limited to certain enterprises within a designated geographical region within the jurisdiction
of the granting authority; (ii) it must be limited to "certain enterprises" as that term is defined in
Article 2.1 of the SCM Agreement; and (iii) those certain enterprises must be located within the
designated region. China argues that it follows a contrario from the limitations in Article 2.2, that if a
subsidy is available to all enterprises within the designated region , then it is not regionally specific;
and that if it is available to enterprises outside that region, it likewise is not regionally specific.407
9.110 In respect of the provision of land-use right s in the New Century Industrial Park, China
argues that it is implicit in its specificity analysis that the USDOC considered the industrial park to be
the "designated geographical region" in the sense of Article 2.2 of the SCM Agreement. China
considers, however, that the term "designated geographical region" should be understood to mean an
economic or administrative subdivision (region) with in a particular physical area of a country

405 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
406 Paragraphs B.1(b)(i) and B.1(e)(i)-(iii) of the "as applied" claims in China request for establishment
of the Panel; China first written submission, para. 468 (f); second written submission, para. 315 (g).
407 China first written submission, paras. 283-284.

(geographical) that has been set apar t for some special purpose (designated).
408 China finds
contextual support for this reading of the term in Article 8.2(b) of the SCM Agreement (non-
actionable subsidies), which referred to an eligible disadvantaged region, inter alia , as "a clearly
designated contiguous geographical area with a de finable economic and administrative identity".
China argues that the similarity of the phrasing in Articles 2.2 and 8.2(b) means that the same
concepts should apply to the term "designated ge ographical region" in Article 2.2 of the SCM
Agreement.409
9.111 China cites the negotiating history of Article 2.2 of the SCM Agreement in support of its
position. In particular, China recalls that the D unkel Draft of the SCM Agreement provided that "a
subsidy which is available to all enterprises located within a designated geographical region shall be
specific irrespective of the nature of the granti ng authority", but that the phrase "available to all
enterprises" was changed to "limited to certain enterprises" in the final version of the SCM
Agreement.410 For China this signifies that the drafte rs of the SCM Agreement considered – and
rejected – the meaning that the United States now seek s to give to Article 2.2 of the SCM Agreement.
By using the term "certain enterprises" in Article 2.2, as it is used elsewhere in Article 2, the drafters
clearly intended that a subsidy would be regionally specific if it were limited to " certain enterprises
located within a designated geographical region". This requires the same inquiry into whether the
beneficiaries of the regional subsidy represent no more than a "discrete segment" of the economy, just
as it does elsewhere in Article 2 of the SCM Agreement.
411
9.112 In this regard, in response to a question from the Panel concerning the purpose of Article 2.2,
in the light of this argument that for a subsidy to be specific under Article 2.2 it would need to be
limited to only certain beneficiaries within the re gion, China states that this provision addresses the
particular circumstance in which a subsidy is in fact limited to certain enterp rises located within such
a region. China notes in this regard that unlike Artic le 2.1(a), Article 2.2 does not refer to an "explicit
limitation" of access to the subsidy by the granting authority or the legislation in question.412
9.113 China argues that the New Century Industrial Park is not a designated geographical region in
the sense of Article 2.2 of the SCM Agreement b ecause it did not have its own definable economic
and administrative identity and had not been desi gnated for any purpose, let alone to provide
subsidies. Rather, it was simply an area of land that Huantai County had rezoned from agricultural to
industrial use, and which it decided to call the "New Century Industrial Park".413 China considers that
the United States' argument, under which provisi on of land to any single company for less than
adequate remuneration would be regionally specific to that land, would be "absurd". In particular,
under the logic of the USDOC's "r egional specificity" finding in respect of the Industrial Park, any
parcel of land could be called "regionally specific".414
9.114 China asserts that during the investigation, the USDOC made no finding that the alleged
subsidy was limited to "certain" enterprises located "within" the Industrial Park (i.e., a subset of all
enterprises in the Park), and thus that it was not limited in the manner required by Article 2.2 of the
SCM Agreement.415 China further states that the USDOC did not find that the alleged subsidy was
limited to enterprises obtaining land use rights in th e Industrial Park, to the exclusion of companies
obtaining such rights elsewhere in th e county where the Park is located. 416 Finally, China argues, the

408 China first written submission, paras. 286-287.
409 Id., paras. 288-289.
410 China response to Panel question 58 (first meeting); second written submission, para. 195.
412 China response to Panel question 58 (first meeting).
414 Id., para. 291.
415 Id., paras. 293-294.
416 Id., para. 295.

USDOC's specificity finding was that the provision of land rights (i.e., the financial contribution) was
limited to enterprises in an industrial park with in the county's jurisdiction, whereas the Agreement
requires that for a valid finding of specificity, the USDOC would have needed to find that the subsidy
was limited to certain enterprises within the Park, to the exclusion of others within the Park, and to the
exclusion of others located elsewhere in the county.417
9.115 Finally, China argues, even if the USDOC had applied the legal framework advanced by
China, the evidence would not support a finding that the alleged subsidy was limited to the Industrial
Park. According to China, th e evidence showed that all companies (with a small number of
exceptions) within the Park paid the same lease rate, such that if there were a subsidy, it was not
specific as all holders of the land-use rights paid th e same rate. China stat es that the evidence also
demonstrated that commercial leaseholders elsewher e in the county paid the same or lower rates than
those within the Park. Thus, any subsidy was not li mited to the Park, the area considered by USDOC
as the "designated geographic region".418
(b) United States
9.116 The United States argues that the USDOC found that China's provision of land-use rights to
Aifudi was regionally specific because it was limi ted by a county to enterprises located in an
industrial park within the county's jurisdiction. 419 The United States argues that pursuant to
Article 2.2 of the SCM Agreement, a subsidy is speci fic if it is limited to certain enterprises located
within a designated geographical region within the ju risdiction of the granting authority, and Huantai
County limited the land rights to enterprises locat ed within a designated geographical region – the
Industrial Park. 420 The United States argues that China's interpretation − that a "designated
geographical region" must have its own economic and administrative identity – is overly strict, as
these requirements do not appear in Article 2.2 of th e SCM Agreement. Nevertheless, even by this
overly-restrictive definition, the industrial park would qualify. 421 For the United States, "designated"
means "'specified'" or "'called by a name'". Geographical means, inter alia, "'pertaining to, or of the
nature of, geography'", with geography defined to in clude "'the features or arrangement of a region or
a place, building, etc.'"; and "region" means, inter alia, "'[a] large tract of land; a country; a definable
portion of the earth's surface". 422 Thus, for the United States, a "designated geographical region" is a
large tract of land, defined by the tract of land's feature or arrangement, called by a name or described.
According to the United States, the Industrial Park met this definition.423
9.117 The United States considers that it and China are of more or less the same view in terms of
the meanings of "designated" and "geographical", but that they differ in respect of "region", where the
United States' reading is much broader than China' s "economic or administrative subdivision". Here,
the United States disagrees that Article 8.2(b) of the SCM Agreement supports China's argument:
among other things, if the drafters had meant "r egion" to connote "administrative or economic
subdivision", they would not have had to include in Article 8.2(b) of the SCM Agreement the
modifier "a definable economic and administrative identity" to the term "disadvantaged region".424
9.118 The United States takes further issue with China's argument that Article 2.2 of the SCM
Agreement requires that a subsidy must be limited to "certain enterprises" (i.e., a subset of enterprises)

417 China first written submission, paras. 296-297.
418 Id., paras. 299-301.
419 United States first written submission, para. 364.
420 Id., para. 366.
421 Id., paras. 367-368.
422 Id., para. 369.
423 Id., para. 370.
424 Id., paras. 371-372.

within the region in order to be regionally specific. For the United States this would render
Article 2.2 itself redundant, as in any case, even without any geographical limitation, the subsidy
would be specific to "certain enterprises" pursuant to Article 2.1(a), and such an interpretation would
be impermissible.
425 Furthermore, the United States considers that Article 8.2(b) of the SCM
Agreement supports its, not China's view, as th at provision indicates that in order to be non-
actionable, the specified regional subsidies among other things would need to be "non-specific"
within the regions. Under China's interpretation, this would be unnecessary to specify, as such non-
specific aid within a region would already fall outside the scope of the Agreement. 426 T h e
United States also points to Article 8.1(b) of the SCM Agreement which refers to the various non-
actionable subsidies listed in Article 8.2 as specific, including the regional subsidies referred to in
Article 8.2(b) which are, by definition, non-specific w ithin the regions in question. According to the
United States, here again, the non-specificity requirement in Article 8.2(b) would be unnecessary if
those subsidies already were, in general, non- specific pursuant to Article 2.2 of the SCM
Agreement.
427
9.119 Finally, the United States argues that the ava ilability of similar subsidies to enterprises
outside the region does not invalidate a finding of regi onal specificity. The United States asserts that
if this were the case, governments could easily circumvent the SCM Agreement by providing a given
subsidy to one company outside the region. According to the United States, the land-use rights
subsidy at issue was used as an incentive to relocate producers to th e Industrial Park, and was tied to
the level of investment within the Park. The fact that the county granted other types of land-use rights
to other leaseholders outside the Pa rk is irrelevant to the regional specificity of the land-use subsidy
provided to enterprises in the Park.
428
9.120 Concerning the facts of the investigation, the United States asserts that evidence on the record
distinguished the way in which land-use rights we re provided by the government in the Industrial
Park, in that only enterprises with a certain leve l of investment qualified, and the subsidy was
available only to enterprises willing to physically lo cate in the Park. In add ition, the record evidence
indicated that land-use rights were not prov ided in accordance with government-established
requirements, as the land in question had not been co nverted from agricultural to industrial use at the
time the land-use rights were provided to the ente rprises in the Park. Furthermore, the local
authorities had not conducted a formal appraisal of the land, as was required. In these ways, the
United States argues, the provision by the county government of land-use rights in the Park was
distinct from its provision of land-use rights outside the Park.
429
3. Main arguments of the Third Parties
(a) Australia
9.121 Australia disagrees with China that a subsidy is non-specific if it is available to all enterprises
located within a designated geographic region under the jurisdiction of the granting authority. Rather,
regional specificity stems from the limitation based on regional locality. Australia therefore disagrees
with China that Article 2.2 of the SCM Agreement i nvolves a three-step test. Australia considers that
such a test would render the regional specificity prov ision (Article 2.2) redundant, as one of the other
bases for specificity (2.1(a)-(c)) already would be present under the three-step test. Australia
considers Articles 8.1(b) and 8.2(b) of the SCM Agre ement to be relevant c ontext, and also suggests

425 See, e.g., United States first written submission, paras. 374-376; opening statement at the first
426 United States first written submission, para. 377.
427 Id.
428 Id., paras. 380-382.
429 United States response to Panel question 8 (second meeting).

that the Panel consider whether the reference in Ar ticle 2.2 to "certain enterprises" is descriptive to
distinguish between enterprises that are located with in the designated geographical regional and those
that are outside.430
(b) Canada
9.122 Canada agrees with the United States that Artic le 2.2 of the SCM Agreement simply covers
subsidies that are limited to a designated geogr aphical region. According to Canada, reading
Article 2.2 as also targeting subsidies that are limited to certain enterprises as provided for in
Article 2.1, would allow all enterprises located in a designated geographical region to escape the
disciplines of the SCM Agreement, even if these subsidies are not broadly available within the
country.431
(c) European Communities
9.123 The European Communities argues that subsidies destined to all enterprises in a geographical
region are not considered specific under Article 2.2 of the SCM Agreement, noting that the text of this
provision was changed from what was proposed in the Dunkel Draft of the SCM Agreement, which
would have rendered all regional subsidies specific. For the European Comm unities, such a change
should have meaning. The European Communities ar gues that the specificity of regional subsidies
must be established by an integrated reading of Ar ticle 2 of the SCM Agreement. In particular, the
European Communities is of the view that if elig ible regions under a regional subsidy programme are
chosen on the basis of objective criteria under Article 2.1(b), there would be no regional specificity.432
4. Assessment by the Panel
(a) Interpretation of Article 2.2 of the SCM Agreement
9.124 We begin our analysis with the text of Artic le 2.2 of the SCM Agreement which reads as
follows:
"2.2 A subsidy which is limited to certa in enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific.
It is understood that the setting or change of generally applicable tax rates by all
levels of government entitled to do so shall not be deemed to be a specific subsidy for
the purposes of this Agreement".
9.125 The particular language in dispute between the par ties is the first sentence. First, the parties
disagree whether the reference to "certain enterp rises" means that for speci ficity in the sense of
Article 2.2 of the SCM Agreement to exist, there mu st be a limitation of a subsidy to a subset of
enterprises located within a designated geographical re gion, or instead whether limitation of a subsidy
on a purely geographic basis, to part of the territory within the jurisdiction of the granting authority, is
sufficient.
9.126 The parties also disagree as to the meaning of "designated geographical region". For China,
this language refers to a formal administrative entity, whereas for the United States it refers to any
specified, identified large piece of land (whether or not it has a separate administrative identity or
apparatus).

430 Australia third-party submission, paras. 33-36.
431 Canada third-party submission, paras. 60-62.
432 European Communities third-party submission, para. 46.

(i) "Certain enterprises" as referred to in Article 2.2 of the SCM Agreement
9.127 Beginning with the term "certain enterprises" we recall, as discussed supra in the context of
de jure specificity, that the chapeau to Article 2.1 of the SCM Agreement defines this term as follows:
"In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is
specific to an enterprise or industry or group of enterprises or industries (referred to
in this Agreement as "certain enterprises") within the jurisdiction of the granting
authority, the following principles shall apply:". (emphasis added)
9.128 Thus, the first question concerning the meaning of the term "certain enterprises" in Article 2.2
of the SCM Agreement is whether that phrase cove rs all enterprises located within the designated
geographical region within the jurisdiction of the gr anting authority, or is limited to some subset
thereof. For China, this term should be understood to mean that only if a subsidy is limited to some
subset of enterprises within the region is that su bsidy regionally specific. For the United States,
however, the reference to "certain enterprises" in the particular context of Article 2.2 serves to
distinguish those enterprises within the designated re gion from those outside it. To try to answer this
question, we first substitute into the text of Article 2.2 of the SCM Agreement the full phrase that is
equivalent to the contraction "certain enterprises". This would read, in pertinent part, "[a] subsidy
which is limited to [ an enterprise or industry or group of enterprises or industries ] located within a
designated geographical region within the jurisdiction" of a granting authority. We do not consider,
however, that the text of the provision, in isolatio n, either with or without this substitution, sheds
particular light on the question at issue.
9.129 We thus next turn to the context of the provisi on, the most relevant of which we find to be
that afforded by Articles 8.1(b) and 8.2(b) of the SCM Agreement, as these Articles together shed
considerable light on the question before us. These provisions read, in relevant part:
"8.1 The following subsidies sha ll be considered as non-actionable
 [footnote
omitted]:
(a) subsidies which are not specific within the meaning of
Article 2;
(b) subsidies which are specific within the meaning of Article 2
but which meet all of the conditions provided for in
paragraphs 2(a), 2(b) or 2(c) below.
8.2 Notwithstanding the provisions of Pa rts III and V, the following subsidies
shall be non-actionable:

(b) assistance to disadvantaged regi ons within the territory of a
Member given pursuant to a general framework of regional
development [footnote omitted] and non-specific (within the
meaning of Article 2) within eligible regions provided that:
 (i) each disadvantaged region must be a clearly
designated contiguous geographical area with a
definable economic and administrative identity;

 (ii) the region is considered as disadvantaged on the
basis of neutral and objective criteria [footnote
omitted], indicating that the region's difficulties arise
out of more than temporary circumstances; such
criteria must be clearly spelled out in law, regulation,
or other official document, so as to be capable of
verification;
 (iii) the criteria shall include a measurement of economic
development which shall be based on at least one of
the following factors:
[...]".
9.130 Before considering the exact wording of these provisions, we first recall that the overall
purpose and effect of Article 8 of the SCM Agreement during the period when it was in force
433, as
indicated in Article 8.1(b), was not to change the sp ecificity rule of Article 2 of the SCM Agreement.
Rather, Article 8 gave a special non-actionable status to a limited subset of the universe of specific
subsidies which, in the absence of that Article, would have been actionable by virtue of their
specificity. Upon the lapsing of Article 8, the form erly non-actionable subsidies simply reverted to
the same (actionable) status as all other specific subsidies.
9.131 Turning now to the text of Article 8.1(b) of the SCM Agreement, we note that this provision
explicitly identifies as "specific" all of the subsid ies described in Article 8.2 as non-actionable. In
particular, this provision describes the non-acti onable subsidies as "subsidies which are specific
within the meaning of Article 2 but which meet " the conditions provided for in the various sub-
paragraphs of Article 8.2, including Article 8.2(b) , covering assistance to disadvantaged regions. In
other words, Article 8.1(b) makes clear that the subsidies for disadvantaged regions described in
Article 8.2(b), as well as the other subsidies described in Article 8.2 are, by definition, "specific"
within the meaning of the SCM Agreement. This of course is logical, as if these subsidies were not
specific, they would not be covered by, and th us would not be actionable pursuant to, the SCM
Agreement. Indeed, Article 8.1(a) of the SCM Agre ement makes this point explicitly, identifying as
one of the two categories of non-actionable subsidies those "subsidies which are not specific within
the meaning of Article 2".
9.132 As for Article 8.2(b) of the SCM Agreement, the relevant point for this dispute is that in order
for a subsidy to a disadvantaged region to ha ve had non-actionable status, that subsidy, inter alia, had
to be " non-specific [...] within [an] eligible region [...]". What this means is that a subsidy to a
particular, disadvantaged region was defined by the SCM Agreement as specific in the sense of
Article 2 of the Agreement, in spite of being non-specific within the region in question. Had the non-
specificity within the region been enough to render the subsidy non-specific in the sense of Article 2,
this would have made Article 8.2(b) entirely re dundant given, as just noted, that non-specific
subsidies are not covered by, and thus not acti onable in any way under, the SCM Agreement.
Furthermore, in view of the fact that the regional aid in question, to be non-actionable, had to be non-
specific within the region in question, the only possi ble basis for such aid to be specific pursuant to
Article 2 was its geographical limi tation, i.e., on the basis of Article 2.2 of the SCM Agreement on
regional specificity.

433 Pursuant to Article 31 of the SCM Agreement, Ar ticles 6.1, 8 and 9 applied provisionally for five
years from the entry into force of th e WTO Agreement, and the period of a pplication could have been extended
by consensus decision of the SCM Committee. No such consensus was reached, however, and these provisions
thus lapsed.

9.133 Finally, we consider the role of Article 2.2 within Article 2, especially in relation to Article2.1
of the SCM Agreement. Here, we are concerned by the implications of China's argument that
subsidies limited to a designated geographical regi on within the jurisdiction of a granting authority
would have to be further limited to a subset of the enterprises located within that region in order to be
specific in the sense of Article 2.2 of the SCM Agr eement. In our view, such an interpretation would
be inconsistent with the principle of effectiv e treaty interpretation: it would entirely deprive
Article 2.2 of meaning and purpose, as any such subsidy already would be specific pursuant to
Article 2.1 of the SCM Agreement. By the same toke n, to view Article 2.2 as a particular case of the
specificity referred to in Article 2.1, i.e., where the "certain enterprises" in Article 2.2 are those
located within the designated geographical region, does not render Article 2.2 redundant. This is
particularly clear when Article 2.2 and Article 8.2(b) are considered together, given that Article 8.2(b)
defined and singled out for special treatment under the disciplines of the SCM Agreement a subset of
the regionally specific subsidies covered by Article 2.2 of the SCM Agreement.
9.134 We recall that in response to our question on this point, China argued that the purpose of
Article 2.2 of the SCM Agreement is to address "the particular circumstance in which a subsidy is in
fact limited to certain enterprises located within" a designated geographical region, by which we
understand China to argue that specificity in the sense of Article 2.2 can exist only in the de facto, and
not in the de jure, sense. In the first place, such an inte rpretation would not resolve the issue, as a
subsidy such as the one described by China already w ould be specific pursuant to Article 2.1(c) of the
Agreement. Nor do we see any limitation to de facto specificity in the text of Article 2.2 of the SCM
Agreement. Indeed, the only textual basis that China offers in support of this argument is that, unlike
Article 2.1(a), Article 2.2 does not refer to an "e xplicit limitation" of access to the subsidy by the
granting authority or the legislation in question. Given, however, that regional specificity appears in
its own article (Article 2.2), separate from the gene ral provisions containing the respective definitions
of de jure and de facto specificity, and given as well that Article 2.2 does not refer either to de jure or
de facto specificity, we see no basis in the text for co ncluding that Article 2.2 would pertain only to a
de facto situation, and not a de jure one, or vice versa. In our view, such an interpretation not only is
unsupported by the text, but also is considerably less plausible than one that would read Article 2.2 as
a particular case of specificity, on the basis of ge ographic limitations, which could arise in either the
de jure or the de facto sense.
9.135 On the basis of the foregoing analysis we conc lude that the term "certain enterprises" in
Article 2.2 of the SCM Agreement refers to those enterprises located within, as opposed to outside,
the designated geographical region in question, wi th no further limitation within the region being
required.
9.136 Given that we find this meaning to be clear ba sed on the text of the provision in its context
and in light of the object and purpose of the provision and the SCM Agreement, we see no need to
resort to supplemental means of interpretation in r espect of this issue. We note, however, that China
has raised arguments based on the negotiating histor y of Article 2.2 of the SCM Agreement, and we
thus now consider those arguments.
9.137 In particular, China compares the adopted Uruguay Round text of Article 2.2 of the SCM
Agreement with the counterpart provision in the "Dunkel Draft" 434 of the Agreement. China recalls
that the Dunkel text read, in pertinent part:

434 China refers to the Draft Text on Subsidies and Countervailing Measures of 7 November 1990
(MTN.GNG/NG10/23). (China second written submission, footnote 160). We note that this document is one of
the so-called "Cartland drafts" of 1990 and that the "D unkel Draft" (20 December 1991) was circulated in
document MTN.TNC/W/FA. The relevant texts of both documents, however, contain the wording on regional
specificity cited by China.

"A subsidy which is available to all en terprises located w ithin a designated
geographical region shall be specific irr espective of the nature of the granting
authority".
while the adopted language in the SCM Agreement reads:
"A subsidy which is limited to certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific".
For China, the change of the language from "avail able to all enterprises" in the Dunkel Draft to
"limited to certain enterprises" in the final, adopt ed Agreement means that th e negotiators considered
– and rejected – the meaning whereby a subsidy w ould be specific pursuant to Article 2.2 based on
geographical limitation only.
9.138 In considering this argument, we note that the changes between the Dunkel text and the
adopted text of the SCM Agreement go beyond the substitution of the term "limited to certain
enterprises" for "available to all enterprises", and that the meaning of this change can only be
understood by looking at the entirety of the two sentences. In particular, the Dunkel text provided that
even if a subsidy granted within a region were comple tely generally available, to "all enterprises"
within a designated geographical region, it would ha ve been specific, without regard to who the
granting authority was or what its territorial reach was. In practical terms, this would have meant that
even a subsidy granted by a provincial government to all enterprises within the entirety of its own
territory would have been regionally specific.
9.139 By contrast, Article 2.2 of the SCM Agreemen t changes the focus of the provision, to the
granting authority in juxtaposition with its geographical jurisdiction, such that only where a subsidy is
limited to a subpart of the territory within the jurisdiction of the granting authority would specificity
arise under this provision. It is this change in orientation and focus between the Dunkel text and the
SCM Agreement that explains the need, from the poi nt of view of technical drafting, to change
"available to all" to "limited to certain". The ne gotiating history of the provision thus certainly does
not detract from, and if anything supports, the co nclusion that we have reached regarding the term
"certain enterprises" in Article 2.2 of the SCM Agreement based on our analysis of that provision
itself.
(ii) "Designated geographical region" in Article 2.2 of the SCM Agreement
9.140 A further question of legal interpretation rai sed by China's claim is whether a "designated
geographical region" in the sense of Article 2.2 of the SCM Agreement must necessarily have some
sort of formal administrative or economic identity as China argues, or whether any identified tract of
land within the territory of a granting authority can be a "designated geographical region" for the
purposes of a specificity finding pursuant to Article 2. 2 of the Agreement. Starting with the text of
Article 2.2, we find no limitation of the kind advanced by China, nor does China point to one. Thus,
the text on its own would appear to allow any iden tified tract of land within the jurisdiction of a
granting authority to be a "designated geographical region" in the sense of Article 2.2 of the SCM
Agreement.
9.141 We recall that China's main support for its argum ent is the context provided by Article 8.2(b)
of the SCM Agreement. In particular, China recalls that Article 8.2(b) required that a disadvantaged
region in the sense of that provision, inter alia, had to be clearly designa ted and contiguous, and had
to have a definable economic and administrative identit y. China argues that due to the similarity of
the language in Articles 2.2 and 8.2(b), the concepts in the latter provision should also apply to the
term "designated geographical region" in Article 2.2 of the SCM Agreement.

9.142 We note first that in fact the texts of the two pr ovisions are different. As an initial matter, we
consider that if the drafters had intended for their meanings to be the same, they would have used the
same language in both places.
9.143 In addition, we recall that the purpose and function of Article 8 of the SCM Agreement was to
confer non-actionable status on a certain subset of the subsidies that are specific in the sense of
Article 2 of the SCM Agreement. Given this, we c onsider that the context provided by Article 8.2(b)
in respect of the meaning of the term "designated ge ographical region" in Article 2.2 points rather to
the opposite conclusion from that drawn by China. In particular, the requirements in Article 8.2(b)
imposed special restrictions and conditions the purpose of which was to define and circumscribe, from
among the universe of subsidies that were specific on the basis of Article 2.2, those that were non-
actionable. The need for these restrictions and cond itions thus is obvious, i.e., to ensure that the
assistance was in reality limited to generalized economic assistance to regions that were economically
disadvantaged based on specified, quantifiable pa rameters, and to prevent the non-actionability
provisions from being used to disguise what in fact were targeted, trade distortive subsidies. Indeed,
without the additional restriction that a disadvant aged region, to qualify under Article 8.2(b), among
other things had to have a definable economic and administrative identity, it would have been possible
for Members to define any parcel of land – incl uding, say, a particular, individual factory – as a
"disadvantaged region" and on that basis to provi de non-actionable subsidies to that plant, thus
entirely avoiding the disciplines of the SCM Agreemen t. Similarly, if China's argument as to the
meaning of "designated geographical region" in Artic le 2.2 were correct, it would become a simple
matter to circumvent the SCM Agreement by providing subsidies through industrial parks or similar
geographical areas, without targeting particular enterprises within those areas.
9.144 On the basis of the foregoing analysis, we conc lude that a "designated geographic region" in
the sense of Article 2.2 of the SCM Agreement can encompass any identified tract of land within the
jurisdiction of a granting authority.
(b) USDOC regional specificity determination
9.145 Having reached our conclusions regarding the le gal interpretation of Article 2.2 of the SCM
Agreement, we now turn to the USDOC's regional specificity determination in the LWS investigation,
in respect of the provision of allegedly subsidized land-use rights.
(i) USDOC determination
9.146 In the LWS investigation, the USDOC determined that China's provision of land-use rights in
the New Century Industrial Park to an investigated producer (Aifudi)
435 constituted a countervailable
subsidy in the form of land-use rights for less th an adequate remuneration. The USDOC first found
that China's provision of land-use rights to Aifudi constituted a financial contribution by a
government in the form of provision of goods or services. The USDOC then found that this financial
contribution was de jure specific because the provision of the land-use rights within the Industrial
Park was limited to an enterprise or industry lo cated within a designated geographical region.
Furthermore, since the provision of land-use rights was found to be "regionally specific", the USDOC
determined that factors such as the number of users a nd the types of industries were not relevant to its
specificity analysis.
436 The USDOC then found, as a separat e step, that the land-use rights were

435 The USDOC's determination indicates that "Golden Moon" was the enterprise that actually obtained
the land-use rights, that it shared the land with Aifudi in the Industrial Park, and th at the two enterprises were
cross-owned. The USDOC therefore referred to Aifudi as the buyer of the land-use rights. (Exhibits CHI-3,
p. 14 and CHI-34, p. 67906).
436 Exhibit CHI-3, pp. 14 and 55.

provided for less than adequate remune ration and therefore conferred a benefit. 437 W e c o n s i d e r
China's claims in respect of this benefit determination in Section X, infra.
9.147 Concerning specificity, the USDOC found that the provision of land-use rights was specific
because the provision of those rights in an industrial park within the county's jurisdiction was limited
to an enterprise or industry or group thereof located within a designated geographical region.
438 In
particular, the USDOC found that Aifudi was situated in an industrial park that had been created by
the Huantai County government for the purpose of providing industrial land-use rights to industries
within that government's jurisdiction, i.e., that the New Century Industrial Park was within the
authority of Huantai County and thus that Aifudi re ceived land-use rights by virtue of its location in
the Industrial Park.
439
9.148 The USDOC indicated that at verification it ha d confirmed that the county had identified a
specific, contiguous area of land within its jurisdic tion, designated that land as an industrial park, and
controlled the granting of land-use rights within the industrial park. 440 On the latter point, officials
from the Huantai County Land Bureau had indicated at verification that the county government gave
the final approval to companies for land-use rights, and that all levels and all agencies of the county
government had to approve land-use rights.441
9.149 Thus, the USDOC's determination makes clear th at its regional specificity finding was in
respect of the government financial contribution, i. e., the provision of land-use rights. The USDOC's
benefit determination was a separate step in its analysis of this programme.
9.150 As discussed supra, China's basic arguments against this approach are that regional specificity
cannot be determined solely on the basis of geogra phic location but must involve a further selectivity,
and that regional specificity can only exist in a de facto but not in a de jure sense. China's general
argument that de jure specificity (on whatever basis) cannot be found unless the law or regulation in
question specifies all elements of a specific subsi dy (financial contribution and benefit, as well as
specificity) also is relevant here.
9.151 Part of China's specificity argument thus also concerns the benefit element of USDOC's
finding regarding the provision of land-use rights. That part of the finding was that the land prices
within the park, the purpose of which was to provide land-use rights, were below-market, as measured
against an external market benchmark (certain land-use prices in Bangkok and adjacent provinces).
China argues however that the evid ence on record showed that land pr ices within the Industrial Park
were if anything higher than those outside the Park in the same county, and that this comparison
should have factored into both the specificity and be nefit determinations. In particular, for China,
even if regional specificity were determined on th e basis of geography alone, the price for land use
inside the Industrial Park would need to be lowe r than land use prices elsewhere in the county for
either a benefit or any possibility of regional specificity to exist.
(ii) Assessment by the Panel
9.152 The question before the Panel in respect of the LWS investigation is whether the USDOC's
finding that the provision of land-use rights to Aifudi was regionally-specific was consistent with the
SCM Agreement. The United States argues that th ere was a financial contribution by a government
(provision of land-use rights which are totally cont rolled by the government), and that the particular

437 Exhibit CHI-3, p. 14.
438 Id.
439 Id., p. 55.
440 Id.
441 Id., pp.14 and 55.

land-use rights in question – those to Aifudi, whic h were in the Industrial Park – were regionally
specific because they were available only to the companies operating in the Industrial Park. The
United States also argues that there was very little record evidence on prices of land-use outside the
Park, and that even if there were some subsidies conferred to some land-users outside the Park that
would not alter the fact that land-users in the Park were receiving land-use subsidies by virtue of their
location (i.e., regionally-specific subsidies).
9.153 China, in addition to its legal arguments that regional specificity cannot be determined on the
basis of a geographic limitation alone, and that an industrial park cannot be a designated geographic
region, argues that the evidence of record did not sh ow that any benefit was enjoyed by Aifudi that
was not also enjoyed by other companies inside th e Industrial Park and, moreover, showed that the
price for land-use in the Industrial Park was if anyt hing higher than that outside the Park in Huantai
County.
442 As such, according to China, being located in the Industrial Park conferred no special
advantage.443 China thus seems to be saying that ev en if any subsidy existed, it was generally
available to purchasers of land-use rights in Huantai County. China also argu es that by the USDOC's
logic, the provision by a government of any piece of land would be regionally specific purely by
virtue of the geographical nature of land; an outcome that China considers would be absurd.
9.154 We note that there is no substantial disagreemen t between the parties as to the facts of the
situation. The record evidence indicates that a ll of the land in China ultimately was owned by the
government, that before agricultural land could be put to industrial use it had to be converted by the
relevant provincial government, and that the provision of land-use rights to particular enterprises was
the responsibility of the relevant municipal (county) government. The record evidence also indicates,
and the parties do not disagree, (i) that the Industria l Park was created through the conversion, by the
Huantai County government, of a tract of agricultu ral land to industrial use, and (ii) that only
sometime after the establishment of the Industrial Pa rk and the installation of a number of enterprises
(including Aifudi) in the Park was that land conve rsion brought to the attention of, and approved by,
the provincial government. Finally, there is no disagre ement between the parties as to the price that
Aifudi paid for the land, or as to the prices paid under other land-use contracts on the record, for
certain land both inside and outside of the Industria l Park. Where the disagreement on the latter point
lies is in respect of the relevance of such other la nd prices to the question of specificity, and in respect
of the representativeness of this other pricing info rmation (the United States notes that only a few
such contracts were produced by the respondents in response to the USDOC's request).
9.155 We recall our finding, supra, that it is not necessary for a granting authority or the relevant
legislation to identify all elements of a specific subsidy for a valid finding of de jure specificity. We
thus find no legal error in the USDOC having based its determination of regional specificity on the
element of the financial contribution, i.e., on the provision of land-use rights by Huantai County.
9.156 We also recall our finding that an industrial pa rk, as a designated tract of land within the
jurisdiction of a granting authority, would fall with in the scope of the term "designated geographical
area within the jurisdiction of the granting authority" in Article 2.2 of the SCM Agreement. We thus
find no error in the USDOC's having found the Industr ial Park to be a "designated geographical area"
within the jurisdiction of Huantai County.

443 Id., para 202. In particular, China argues that the subsidy that the USDOC determined to be
countervailable was the provision of land by the governme nt at a price that the USDOC considered to represent
less than adequate remuneration, but that the United States fails to identify any aspect of the alleged subsidy that
was "only available" to companies lo cated within the New Century Industri al Park. According to China, the
same government – Huantai County – provided land to enterprises located outside of the "designated
geographical region" at the same or lower prices, and the subsidy identified by the USDOC therefore was not
"unique" or "only available" to companies located within the New Century Industrial Park. (Id.).

9.157 Finally, we recall our finding that specificity in the sense of Article 2.2 of the SCM
Agreement refers to limitation of access to a subs idy on the basis of geographic location alone, and
that no further limitation to a subset of the enterpri ses in the region in question is necessary for such
specificity to exist. Thus, we find no error in the fact that the USDOC, in reaching its regional
specificity determination, did not examine whether some of the companies in the Industrial Park
obtained their land-use rights on more favourable terms than others.
9.158 We do not consider that these findings fully resolv e this claim, however. In particular, we are
troubled by the implications of the USDOC's analytical approach in the context of the specific facts of
the LWS investigation. In this regard, we read the USDOC's determination as meaning that the
provision of the land-use rights to Aifudi was re gionally specific because the land was physically
located in a designated area within the jurisdiction of the granting authority, i.e., inside the Industrial
Park. In particular, the USDOC indicated in its de termination that the Industrial Park was created for
the purpose of providing land-use rights to companies that were located there, and thus met the
criteria for regional specificity. We consider that this reasoning is essentially circular, however, given
that land itself is a location.
9.159 Furthermore, we recall the undisputed fact of record that in China the government was the
ultimate owner of all land. This implies first that any time an enterprise obtained land-use rights
anywhere in China it was receiving a financial contri bution by a government. The further implication
of the USDOC's approach would be that those land-u se rights, wherever in China they were provided,
would be regionally specific, given that land is by definition always limited by and to its geographic
location. Here, we note that in the investiga tion before us, while a perimeter was drawn around a
particular tract of land within the jurisdiction of the granting authority, which was labelled the New
Century Industrial Park, and the USDOC considered th e Park, rather than Aifudi's particular piece of
land within it, to be the "geographical region" in question, we see no basis under the USDOC's
analytical approach, and the United States points to no record evidence, to establish that the provision
of land-use rights in the Industrial Park constituted a distinct regime for the provision of that financial
contribution, compared with the provision of financ ial contributions in the form of land-use rights
outside the Park.
9.160 Nor has the United States pointed to anything in the record that shows that the creation of the
Industrial Park went beyond the re-zoning of a par ticular tract of land from agricultural to industrial
use. While this re-zoning initially was undertaken by the county government without the required
provincial government authorization, that authoriza tion was subsequently obtained. We note in this
regard that the verification report indicates that there was no separate land policy for land in industrial
zones, and that as long as land was for industrial use, it had to be in accordance with industrial land
policy, which applied whether the land was inside or outside an industrial zone.
444 We further recall
that the USDOC's determination and the evidence cited therein indicates that the county government
set the industrial land-use prices both within and outside the Industrial Park, and the United States
points to no record evidence showing that the i ndustrial land-use prices within the Park were
uniform445, or that these prices had any clear distinctive identity compared with the prices outside the
Park, indicating that the land-use regime for the Pa rk was a distinct financial contribution. We
emphasize that we refer here to land-use prices, a nd in particular to any indication on the record of
differences in land-use prices within and outside th e Industrial Park, as possible factual evidence of
the existence of a separate land-use regime for the Industrial Park. We do not mean to imply that any
such price differences would be indicative of the exis tence or amount of a benefit, which is a separate
issue, addressed in Section X, infra. The ultimate implication of the USDOC approach to regional

444 Verification of the Questionnaire Responses Submitted by the Government of the People's Republic
of China (GOC) – Provincial and Local Government (the "Verification Report"), Exhibit US-79, p. 8.
445 The Verification Report indicates th at there were at least two land-use prices within the Park. (Id.,
pp. 12-14).

specificity in respect of the land-use rights at issue is that if it was then determined (as was the case in
the LWS investigation) that the particular land-use rights in question were provided for less than
adequate remuneration, the result would be that a regionally specific subsidy would be provided. This
would be the case even if all purchasers of land-use rights throughout the jurisdiction of the granting
authority paid exactly the same below-market price for land, because each individual purchase, due to
its inherent geographical limitation, would be regionally specific.
9.161 We consider that such an outcome, and thus the approach that generates it, cannot be
reconciled with Article 2 of the SCM Agreement, th e purpose of which is to identify those subsidies
that by virtue of being limited on some basis, are subject to the Agreement's disciplines. We therefore
find that the USDOC's determination of regional sp ecificity in respect of the provision of land-use
rights to Aifudi is inconsistent with the obliga tions of the United States under Article 2 of the SCM
Agreement.
9.162 We emphasize here that our conclusion concer ning the USDOC's regional specificity finding
in the LWS investigation is driven by the specific facts that were on th e record of that investigation.
In particular, we emphasize that we are not saying that the intrinsic geographic nature of land-use
rights would always preclude a regional specificity finding in respect of the provision of land-use
rights. Nor, when we say that the United States ha s pointed to no record evidence that the Industrial
Park constituted a unique land-use regime, as might have been indicated by special rules or distinctive
pricing or other elements that distinguished the pr ovision of land in the Park from the provision of
land outside the Park, do we mean to imply any factual findings of our own that the Industrial Park
was or was not such a regime, or that the terms a nd conditions for land-use inside the Park were or
were not indistinguishable from those outside. It is entirely possible that ev idence relevant to these
points existed, and had such evidence been placed on the record, it might have resulted in a finding of
regional specificity consistent with Article 2.2 of the SCM Agreement.
9.163 It does not appear to us, however, that the USDOC pursued these or similar lines of inquiry
assiduously. Indeed, while before us the United Stat es argues that the record evidence on land prices
outside the Industrial Park was thin because Ch ina only supplied a few examples of such land-use
contracts, and while in its determination the US DOC implies that those contracts were not fully
relevant to its inquiry
446, we note that when it verified that information, the USDOC appears not to
have requested any additional land-use contracts, but instead simply verified the ones it was given. 447
As for the nature of the Industrial Park, we see no indication in the record evidence that the USDOC
examined whether it constituted a land-use regime th at was clearly distinguishable from the general
provision of land-use rights by the county governme nt. Instead, the USDOC appears to have focused
principally on the process by which the Industrial Park was created, and the irregularities in that
process, as well as on how the land-use prices were set both inside and outside the Industrial Park, but
with no findings as to any clear basis on which the pr ovision of a financial contribution in the form of
land-use rights differed as between land inside and ou tside the Park. In short, had the USDOC made

446 On this point, the USDOC's determination reads:

"Although the Department was provided some documentation at verification showing the
prices charged for land-use rights in an industrial park in another county, these two contracts
were not contemporaneous with the original contracts negotiated for Aifudi's land-use rights
[...] Similarly, our examination of two other co ntracts for industrial la nd located in Huantai
county that is outside of the industrial park, did not provide us any information as to how
these prices were determined". (Exhibit CHI-3, p. 59).

447 The Verification Report indicates that "we [...] requested and the land bureau provided us with
information on contracts for industrial land outside of the industrial zone". (Exhibit US-79, p. 14). There is no
indication in the report either that the information in the contracts was unable to be verified, or that any
additional contracts were requested.

further inquiries into these or si milar issues, and depending on the outcome of those inquiries, our
conclusions as to the WTO-consistency of the USDOC' s regional specificity finding in respect of the
provision of land-use rights to Aifudi might have been different.
9.164 For the foregoing reasons, we conclude th at the USDOC's determination of regional
specificity in respect of the provision of land-use rights to Aifudi was inconsistent with the obligations
of the United States under Article 2 of the SCM Agreement.448
X. CHINA'S CLAIMS PERTAINING TO BENCHMARKS
A. CLAIMS OF CHINA
10.1 China claims that, "in connection with each inst ance in which US authorities resorted to a
benchmark outside of China for the purpose of de termining the existence and amount of any alleged
subsidy benefit", the USDOC's "rejection of preva iling terms and conditions in China as the basis for
determining whether, and to what extent, subj ect producers received a subsidy benefit under the
methodologies set forth in Article 14" was inconsiste nt with that provision and, as a consequence,
with Articles 10 and 32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994. 449 Under this
generally-worded claim, China raises the following series of specific allegations.
10.2 First, China alleges, in respect of SOE-produced inputs 450 in the CWP, LWR and LWS
investigations, that the USDOC unlawfully presumed that Chinese private prices were distorted, based
exclusively on the extent of government involvement in the market, and that it thus acted
inconsistently with Article 14(d) of the SCM Agre ement when it rejected those prices as benchmarks
and resorted instead to benchmarks based on out-o f-country prices, i.e., it failed to determine the
adequacy of remuneration for the inputs in relation to prevailing market conditions in China. China
argues that the USDOC's reliance on these alte rnative benchmarks for measuring adequate
remuneration with respect to the provision of input s in the three investigations "was predicated
exclusively on its invalid findings that private prices were distorted", and that "[a]ccordingly, all of
[the USDOC's] benefit calculations relying on those alternative benchmarks likewise are invalid".
451
10.3 Also concerning these inputs, Ch ina notes that the alleged unlawfulness of the distortion
findings and consequential rejection of Chinese pr ivate prices "makes it unnecessary for the Panel to
inquire whether each alternative benchmark [ ...] satisfied the requirements set forth in
Article 14(d)".452
10.4 Second, China alleges, in respect of government provision of land-use rights in the LWS and
OTR investigations, that the USDOC unlawfully pres umed that private pri ces for land-use in China
were distorted due to the significant government role in the market, and that it thus acted
inconsistently with Article 14(d) of the SCM Agre ement when it rejected those prices as benchmarks
and resorted instead to benchmarks based on out-o f-country prices. i.e., it failed to determine the
adequacy of remuneration for land-use rights in relation to prevailing market conditions in China.453

448 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
449 Paragraphs B.1(d)(i) and B.1(e)(i)-(iii) of the "as applied" claims in China request for establishment
of the Panel; China first written submission, para. 468 (b ) and (e)-(g); second writte n submission, para. 315 (c)
and (f)-(h).
450 Both sourced directly from SOEs and purchased from trading companies. (China first written
submission, para. 129).
451 See, generally, China first written submission, paras. 113-130.
452 Id., paras. 129-130.
453 China first written submission, paras. 302-306.

10.5 Third, also in connection with land-use rights, China alleges that the USDOC failed to satisfy
the requirements of Article 14(d) in respect of the particular benchmark that it used (certain land
prices in Bangkok, Thailand), because Thai land pr ices (and foreign land prices more generally) do
not relate or refer to prevailing market conditions for land-use rights in China.
454
10.6 Fourth, China alleges, in respect of SO CB loans denominated in RMB, the USDOC's
rejection in the OTR, CWP and LWS investigations of Chinese RMB interest rates as benchmarks
was inconsistent with Article 14(b), as only Chinese RMB-denominated loans are "comparable
commercial" loans that the borrowers "could actually obtain" in a lending market in which they were
able to borrow in that currency.
455
10.7 Fifth, also concerning SOCB loans denominated in RMB, China argues that the USDOC's 33-
country regression analysis used in the OTR, CWP and LWS investigati ons to generate the
benchmark interest rates did not represent "compa rable commercial loans" that the borrower could
"actually obtain on the market", as the fictitious loans were not denominated in the same currency
and, being fictitious, no borrower could "actually obtain" these loans in any commercial market.456
10.8 Sixth, concerning SOCB loans denominated in U. S. dollars, China alleges that by using as a
benchmark in the OTR investigation an average annual LIBOR rate, the USDOC used a benchmark
that was inconsistent with Article 14(b), as it did not reflect what the tire producer at issue (GTC)
"would pay on a commercial loan" that it "could actually obtain on the market". That is, GTC would
not have paid an average annual LIBOR rate, but rather the correct daily LIBOR rates for a dollar-
denominated loan of the same maturity and the same interest rate terms as the SOCB loans.457
B. APPLICABLE PROVISIONS OF THE COVERED AGREEMENTS
10.9 China's request for the establishment of the Panel included claims under both Article 14 of the
SCM Agreement as well as under Section 15, paragr aphs (b) and (c), of China's Protocol of
Accession. Section 15(b) of China's Protocol of Accession contains rules pertaining to the
determination of the existence and amount of benefit in countervailing duty investigations on Chinese
products.458 Section 15(c) imposes upon importing Members the obligation to notify, inter alia, the
methodologies that it uses pursuant to Section 15(b).
10.10 In its submissions to the Panel, China requ ested that the Panel only make findings with
respect to the WTO-consistency of the USDOC benefit determinations at issue under the provisions of
Article 14 of the SCM Agreement. 459, 460 China reserved its right to present arguments under
Sections 15(b) and (c) of its Protocol in the event that the United States invoked the disciplines

454 China first written submission, paras. 307-319.
455 See, e.g., China first written submission, paras. 233 and 238-239.
456 Id., para. 245.
457 Id., para. 242.
458 See Section VII.B, supra.
459 The main provision of the SCM Agreement cited by China is Article 14. China's claims under
Articles 10 and 32.1 of the SCM Agreement and Article VI :3 of the GATT 1994 are consequential to its claims
under Article 14.
460 China first written submission, paras. 29-30 and footnote 8; response to Panel question 25 (first
meeting). Essentially, China considers that in the in vestigations at issue, the USDOC did not rely upon
Section 15(b) as a rationale for its use of non-Chines e benchmarks, or that the USDOC considered that the
conditions for resorting to out-of country benchmarks unde r Section 15(b) do not differ from those that apply
under Article of the SCM Agreement. China argues that, as a consequence, the United States may not seek to
defend its use of non-Chinese benchmarks on a basis other than Article 14 of the SCM Agreement. (Id.) China
further notes that the USDOC did not use a methodology notified to the WTO as would have been required
under Section 15(c) of the Protocol. (China first written submission, footnote 10).

contained therein. 461 The United States indicated that, in its view, the Panel did not need to make
findings under Section 15(b) of the Protocol of Accession.462
10.11 In response to a specific question from the Pa nel on the issue, the United States confirmed
that even if we were to find that the determinations at issue are inconsistent with its obligations under
Article 14(b) and (d), we would not, in the view of the United States, have to evaluate whether the
USDOC determinations nevertheless were justified under China's Protocol of Accession. Conversely,
China indicated that it is not seeking findings from the Panel under its Protocol of Accession in the
event that we find that the USDOC determinations are consistent with the obligations of the
United States under Article 14 SCM Agreement.463
10.12 In sum, neither China nor the United States is invoking the specific provisions contained in
Section 15(b) of China's Protocol of Accession pertaining to the application of the disciplines set forth
under the SCM Agreement and Article VI of the GATT in countervailing duty investigations on
imports from China. In addition, the application of Section 15(b) of China's Protocol of Accession in
specific factual circumstances raises a number of inte rpretative issues that have yet to be considered
by a panel or by the Appellate Body, and th e parties have only provided us with limited
argumentation as to how, in their view, the terms of th is provision should be interpreted. In light of
these considerations, we consider it appropriate to limit our analysis of the consistency with the
covered agreements of the USDOC's benefit determinations to the provisions of the SCM Agreement
invoked by China, primarily Article 14 thereof.464
C. ORDER OF ANALYSIS OF CLAIMS
10.13 As indicated in the above summary, the issues ra ised by China in respect of benchmarks fall
into two broad categories. The first category conc erns the USDOC's rejection of internal Chinese
input prices, land-use prices, and interest rates as the benchmarks used to measure the amount of the
benefit from SOE-produced inputs, government-p rovided land-use rights, and SOCB loans,
respectively. The second category concerns the be nchmarks actually used by the USDOC to measure
the benefits from land-use rights and SOCB loans. (As indicated, China makes no allegations
concerning the benchmarks actually used in respect of inputs).
10.14 Because the two broad categories are con ceptually distinct, and because we address infra our
doubts as to whether the second category of issues is covered by our terms of reference, we first
analyze all of the issues related to the rejection of Chinese input prices, land-use prices and interest
rates, in the light of the requirements of Articles 14(d) and 14(b) of the SCM Agreement, respectively,
before turning to the issues related to the benc hmarks actually used by the USDOC in the three
investigations at issue.

461 China first written submission, para. 31. Later, China confirmed its understanding that the
United States was not invoking Section 15. (China response to Panel question 25 (first meeting); second written
submission, para. 53).
462 In essence, the United States argue s that its determinations were consistent with Article 14 of the
SCM Agreement. We note, however, that the Un ited States also argued that it was neither necessary nor
appropriate for the USDOC to seek to justify its de terminations on other bases than U.S. law. ( See, e.g.,
United States response to Panel questions 25-27 and 29 (first meeting); second written submission, para. 67).
Later, the United States argued that China had "aban doned" its claims und er Section 15 of its Protocol of
Accession, having made no arguments in this respect. (United States response to Panel questions 25-26 and 31
(first meeting)).
463 United States and China responses to Panel question 10 (second meeting).
464 To be clear, while we mention, in our summary of its position on the interpretation of Article 14(d)
below, the United States' arguments referencing China's Protocol of Accession (see infra, paras. 10.26 and
10.70), we do not take these arguments into account in our analysis of China's claims on benchmarks.

10.15 Before doing so, however, we note that there ha ve been two past, closely related disputes in
which both of these categories of issues were addressed. We consider that these disputes provide
useful background for the analyses that we are called upon to make, and we therefore start by
summarizing the pertinent parts of those findings.
D. R
EJECTION OF IN-COUNTRY BENCHMARKS AND RESORT TO ALTERNATIVES – THE
SOFTWOOD LUMBER DISPUTES
10.16 The questions of whether it is possible to rej ect private benchmarks from within the country
allegedly providing a subsidy, and to resort to alternative benchmarks, including out-of-country
benchmarks, first arose in the context of governme nt provision of goods in the disputes concerning
the United States' countervailing duty investigati ons and measures on imports of softwood lumber
from Canada. In those investigations, the United States had found that private Canadian stumpage 465
prices were distorted by virtue of the fact that the government was the predominant owner of the
forested land, and provider of stumpage contracts, in Canada. On this basis, the United States rejected
private stumpage prices in Canada as the benchmar k to compare with government stumpage prices,
and instead used certain U.S. stumpage prices as th e benchmark. On that basis, the USDOC found
that Canada provided st umpage for less than adequate remu neration. Canada challenged this
approach on the grounds that it was inconsistent with the language in Article 14(d) of the SCM
Agreement that adequacy of remuneration is to be determined in relation to prevailing market
conditions for the good in question "in the country of provision" of that good. The panels in the
disputes concerning both the USDOC's preliminary and final investigations and determinations agreed
with Canada, finding that Article 14(d) of th e SCM Agreement (calculation of the benefit, inter alia,
from government provision of goods) did not permit the rejection of in-country private prices, because
of the language requiring that the adequacy of remuneration be determin ed in relation to the
prevailing market conditions "in the country of provision" of the good in question.
10.17 The United States appealed this panel ruling in the dispute concerning the final investigation
and determination
466, and the Appellate Body reversed that panel on this point. First, concerning
whether any benchmark other than private prices in the country of provision of the good in question
can be used, the Appellate Body found that Artic le 14(d) does not require in all cases the use of
private prices in the country of provision; rather, it found that the requirement in that provision is that
any benchmark used must "relate or refer to, or be connected with" the prevailing market conditions
in that country.
10.18 Second, concerning the "very limited" circum stances under which a benchmark other than
private prices in the country of provision can be used, the Appellate Body found that such an
alternative benchmark can be used "when it has been established that the private prices are distorted,
because of the predominant role of the government in the market as a provider of the same or similar
goods".
467 This was the sole issue on appeal on this point. In particular, the question as framed by the
United States, to which the Appellate Body thus limit ed its analysis, concerned the situation in which
"the government has such a predominant role in th e market as a provider of the goods that private
suppliers will align their prices with those of the government-provided goods".468

465 Stumpage refers to the right to harvest standing timber.
466 The panel report was circulated in document WT/DS257/R. There was no appeal of the panel report
in respect of the preliminary investigation and determination (WT/DS236/R).
467 Appellate Body Report on US – Softwood Lumber IV, para. 103.
468 Id., para. 99. The Appellate Body stated in particular that its examination was limited to "whether
an investigating authority may use a benchmark other than private prices in the country of provision in th[e]
particular situation" of "government predominance in the market, as a provider of certain goods". (Id.).

10.19 We note here, however, that the panel also had found that a benchmark other than private
prices in the country of provision of a good would be allowable in the situations where the
government is the sole supplier in the country of the good in question, and where the government
administratively controls all of the prices for that good in that country. In considering the issue
appealed by the United States, the Appellate Body expressed "some difficulty with the Panel's
approach of treating a situation in which the government is the sole supplier of certain goods
differently from a situation in which the government is the predominant supplier of those goods. In
terms of market distortions and effect on pri ces, there may be little difference between [these]
situations".
469 We take this to mean that the Appellate Body did not disagree with the panel that
rejection of in-country prices was allowable where the government is the sole supplier of the good in
question. Furthermore, to us this statement indicates a fortiori that the Appellate Body had no
difficulty with the panel's conclu sion that rejection of in-country prices is allowed where the
government administratively controls all of the prices for the good in question.
10.20 Concerning the sole issue on appeal in US – Softwood Lumber IV on this point, i.e., "the
situation of government predominance in the mark et, as a provider of certain goods", the Appellate
Body distinguished the situations where the governme nt is a "significant" supplier from that where it
is "the predominant" supplier, noting that "an allegation that the government is a significant supplier
would not, on its own, prove distortion and allow an investigating authority to choose a benchmark
other than private prices in the country of provision". 470 Rather, the Appellate Body found, "[t]he
determination of whether private prices are distorted because of the government's predominant role in
the market, as a provider of certain goods, must be made on a case-by-case basis, according to the
particular facts" of each investigation.471
10.21 Third, concerning the alternative benchmarks that could be available in such situations, the
Appellate Body agreed with the participants and th ird participants in the dispute that "alternative
methods for determining the adequacy of remunera tion could include proxies that take into account
prices for similar goods quoted on world markets, or proxies constructed on the basis of production
costs".472 The Appellate Body emphasized that in pr oceeding in this manner, an investigating
authority "is under an obligation to ensure that th e resulting benchmark relates or refers to, or is
connected with, prevailing market conditions in the country of provision, and must reflect price,
quality, availability, marketability, transportation and other conditions of purchase or sale, as required
by Article 14(d)".
473 The Appellate Body noted that it was not called upon in that appeal to suggest
particular alternative methods, nor to assess the c onsistency with Article 14(d) of all alternative
methods suggested by the participants and third pa rticipants in the appeal , as such an assessment
would depend on how a given method was applied in a particular case, and could not be performed in
the abstract.474
10.22 Finally, concerning the specific alternative method used by the USDOC, which was to use
certain stumpage prices in the United States as the benchmark, although the Appellate Body
emphasized the need for considerable caution when resorting to an out-of-country benchmark, it did
not find that the benchmark used by the United States was inconsistent with Article 14(d) by virtue of
being an out-of-country benchmark (or on any othe r basis). Concerning the use of out-of-country
benchmarks in general, the Appellate Body warned that:

469 Appellate Body Report on US – Softwood Lumber IV, para. 100. (emphasis added).
470 Id., para. 102. (emphasis added).
471 Id. (emphasis added).
472 Id., para. 106.
473 Id.
474 Id.

"prices in the market of a WTO Member w ould be expected to reflect prevailing
market conditions in that Member; they are unlikely to reflect conditions prevailing in
another Member. Therefore, it cannot be presumed that market conditions prevailing
in one Member [...] relate or refer to, or are connected with, market conditions
prevailing in another Member [...]. Indeed, it seems to us that it would be difficult,
from a practical point of view, for inves tigating authorities to replicate reliably
market conditions prevailing in one country on the basis of market conditions
prevailing in another country. First, there are numerous factors to be taken into
account in making adjustments to market conditions prevailing in one country so as to
replicate those prevailing in another country; secondly, it would be difficult to ensure
that all necessary adjustments are made to pr ices in one country in order to develop a
benchmark that relates or refers to, or is connected with, prevailing market conditions
in another country, so as to reflect price, quality, availability, marketability,
transportation and other conditions of purchase or sale in that other country".
475
(footnote omitted)
The Appellate Body then noted that different fact ors can result in one country having a comparative
advantage over another with respect to the provisi on of certain goods, and that necessary adjustments
would need to be made to any out-of-country benc hmark to ensure that any resulting countervailing
duties were used only for the purpose of offsetting a subsidy, and not for offsetting the difference in
comparative advantages between the countries involved.
476
10.23 The Appellate Body made no finding in respect of the USDOC's particular finding of market
distortion due to the predominant role of the government as the supplier of stumpage, because the
panel had not reached that issue, but instead had stopped its analysis once it concluded that
Article 14(d) did not allow use of any benchmark othe r than private prices in the country of provision
of the good.
E. CHINA'S CLAIMS UNDER ARTICLE 14(D) OF THE SCM AGREEMENT – SOE-PRODUCED INPUTS
1. Claim of China
10.24 China claims that the USDOC's determinations to reject private prices in China for HRS
inputs in the CWP and LWS countervailing duty investigations, and for BOPP in the LWS
countervailing duty investigation, we re inconsistent with Article 14( d) of the SCM Agreement, as
interpreted by the Appellate Body in US − Softwood Lumber IV.477, 478
2. Main arguments of the Parties
(a) China
10.25 China argues that the prices at which private s uppliers in China sold the same inputs alleged
to be provided by SOEs should have been used as th e "primary benchmark" in order to determine the
adequacy of remuneration under Artic le 14(d) of the SCM Agreement. 479 In addition, China submits
that the USDOC's rejection of Chinese private prices for HRS and BOPP was inconsistent with

475 Appellate Body Report on US – Softwood Lumber IV, para. 108.
476 Id., para. 109.
477 China first written submission, para. 123; opening oral statement at the first meeting of the Panel,
para. 42.
478 As indicated at para. 10.1, supra, China also raises consequential claims pursuant to Articles 10 and
32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
479 China first written submission, para. 124, citing to Appellate Body Report on US – Softwood
Lumber IV, para. 90.

Article 14(d). Specifically, China argues that th e USDOC did not establish that such prices were
distorted, but, rather, used a per se rule under which it relied exclusively on the purported
predominance of SOEs as suppliers of the inputs co ncerned to determine that private prices in China
for HRS and BOPP were distorted.480 This, in China's view, disregards the Appellate Body's decision,
in US – Softwood Lumber IV , that distortion cannot be "presumed" but rather must be "established"
through a factual inquiry. 481 China submits that the Appellate Body in that case established
unequivocally that the predominant role of a government in the market does not, in any
circumstances, suffice to establish distortion.
482 Accordingly, China ar gues that investigating
authorities are obliged to establish th at the predominant role of the government in a market has, in
fact, caused private suppliers to "align their prices" with those of the government such that "the
government effectively acts as a 'price-sette r'" and private suppliers as "price-takers". 483 To this end,
China submits that investigating authorities must conduct an analysis of the relevant market, and
establish the conditions under which prices were established in that market. 484 China asserts that the
USDOC, however, disregarded the evidence on the reco rd that would have established that private
prices of HRS and BOPP in China were not distorted.485
(b) United States
10.26 The United States rejects China's claims and submits that the USDOC's benefit
determinations are consistent w ith Article 14(d) of the SCM Agreement. In particular, the
United States argues that the Appellate Body has recognized that Article 14 provides flexibility and
permits the use of out-of-country be nchmarks in certain situations. 486 In addition, the United States
observes that Section 15(b) of China's Protocol of Accession and paragraph 150 of the Working Party

480 China first written submission, para. 124; second written submission, para. 48. For instance, China
notes that in the CWP and LWR investigations, the USDOC rejected China's arguments – that it had an
obligation to "look beyond the degree of state-ownership" and consider the actual nature and structure of the
HRS industry – solely on the basis that "the govern ment accounts for a significant portion of production" of the
HRS market. China also submits that the USDOC's determination that it would have found private prices of
HRS to be distorted even if it would have relied on China's data rather than on facts available further indicates
that the "level of government ownership" was the di spositive factor in the USDOC's distortion analysis. ( See,
e.g., China opening oral statement at the first meeting of the Panel, paras. 37-38; response to Panel Question 13
(second meeting)).
481 China opening oral statement at the first meeting of the Panel, para. 40. According to China, the
United States has effectively conceded that it resorted to out-of-country benchmarks without conducting any
price distortion analysis. (China second written submission, paras. 48, 54 and 61).
482 China cites in this regard the Appellate Body's st atement that "an allegation that a government is a
significant supplier would not, on its own, prove distortion and allow and investigating authority to choose a
benchmark other than private prices in the country of provision", but rather, "[t]he determination of whether
private prices are distorted because of the government's predominant role in the market", must be made on a
"case-by-case basis". (emphasis omitted) ( See, e.g., China first written submission, para. 128; second written
submission, paras. 55-58, citing to Appellate Body Report on US – Softwood Lumber IV, para. 102).
483 China second written submission, para. 59, citing to Appellate Body Report on US – Softwood
Lumber IV, para. 99.
484 Id. China argues that in US – Softwood Lumber IV , the Appellate Body declined to complete the
analysis, though the undisputed facts demonstrated that a single governmen t supplier in each of the Canadian
provinces set prices administratively and held market shares for the good in question ranging from 83 to 99 per
cent. (Id., para. 60, citing to Appellate Body Report on US – Softwood Lumber IV, para. 115 and footnote 141).
485 China points, in particular, to the evidence it prov ided with respect to the structure and operation of
the HRS and BOPP markets in China. (China first written submission, paras. 125-127).
486 United States first written submission, paras. 18 2, 184-185, 189-190 and 193; response to Panel
question 30 (first meeting), citing to Appellate Body Reports on Japan – DRAMs (Korea) , para. 191 and US –
Softwood Lumber IV, paras. 92-95, 100.

Report confirm the permissibility of using out-of-c ountry benchmarks to measure any benefit in
countervailing duty investigations involving imports from China.
487
10.27 The United States argues that, based on all of the evidence on the record, the USDOC
determined that China had a predominant role in the HRS and BOPP markets, and therefore, resorted
to out-of-country benchmarks to measure the benefits at issue. Thus, the United States disagrees with
China's assertion that the USDOC determined that pr ivate prices in China were distorted by applying
a per se rule that only considered the degree of govern ment ownership in the input markets at issue.488
In respect of the LWR and CWP investigations, the United States submits that China failed to provide
necessary information regarding its control of th e HRS market and that, as a result, the USDOC
determined on the basis of facts available that over 96 per cent of HRS production in China was
accounted for by SOEs. In addition, the USDOC fou nd that the private prices of HRS in China (i.e.,
four per cent of the HRS market) reflected the predominant role of the government in the HRS
market. The USDOC also considered the role played by imports in the market, but determined that
they were small relative to the state-owned producti on of HRS, representing only three per cent of the
total Chinese HRS production. On that basis, th e USDOC concluded that the Government of China
had a predominant role in the market of HRS. 489 Similarly, in the LWS investigation, the
United States submits that the USDOC's analysis wa s impaired by China's failure to supply requested
information on the percentage of government produ ction of BOPP. The USDOC therefore relied on
facts available to determine that one government -owned producer accounted for 90 per cent of the
petrochemical industry and, as a result, the USDOC concluded that the Government of China played a
predominant role in the BOPP market.490
10.28 The United States further submits that, contrary to China's assertions, neither the text of
Article 14 nor the Appellate Body report in US – Softwood Lumber IV requires Members to perform a
separate "price distortion" analysis before resorting to out-of-country benchmarks. In US – Softwood
Lumber IV , according to the United States, the Appellate Body did not find that the Agreement
requires a "price distortion" analysis, but, instead, he ld that where the participation of the government
in the market is "so predominant", "it effectively determines the price at wh ich private suppliers sell
the same or similar goods, so that the compar ison contemplated by Article 14 would become
circular", and therefore, investigating authorities do not act inconsistently with Article 14(d) by using
out-of-country benchmarks where they have determined that a government plays such a role. 491 The

487 See, e.g., United States first written submission, para.195.
488 See, e.g., United States first written submission, para. 201-202; second written submission, 84, 88-
89; response to Panel question 37 (first meeting). To illu strate its point, the United States also submits that in
the OTR countervailing duty investigation, although China owned a significant portion of the natural and
synthetic rubber produced domestically, the USDOC relied upon the investigated producers' import prices and
domestic purchase prices as a benchmarks. Similarly, in the CWP investigation, the USDOC relied on import
prices of HRS in addition to world market prices. ( See, e.g., United States response to Panel question 16
(second meeting); opening statement at the first meeting of the Panel, para. 33).
489 United States first written submission, paras. 215-219; second written submission, para. 84-85;
response to Panel question, 37 (first meeting); response to Panel question 14 (second meeting).
490 See, e.g., United States first written submission, paras. 221-223; second written submission,
paras. 84, 86, 89. The United States further indicates that the USDOC could not assess the viability of the
private BOPP sector in China because China failed to pr ovide requested information on the size of the private
sector. Moreover, there was no basis upon which the USDOC could assess import data with respect to BOPP.
The applicable Chinese tariff code fo r BOPP also covered another petrochemical product, and therefore, China
could not provide imports figures for BOPP. Likewise, China was unable to provide domestic consumption
figures for BOPP. (United States response to Panel question 37 (first meeting); response to Panel question 14
(second meeting).
491 See, e.g., United States second written submission, para s. 75-76, 79; response to Panel question 36
(first meeting), citing to Appellate Body Report on US – Softwood Lumber IV , para. 93. The United States
further argues that the analysis of the Appellate Body reflects the so- called "Dominant Firm Model" according
to which price distortion is the "resu lt" of the predominant role of a dominant firm(s) that holds a dominant

United States asserts that the USDOC's determin ations in the underlying investigations were
consistent with the reasoning of the Appellate Body in US – Softwood Lumber IV . That is, the
USDOC determined that private pri ces in China were not "sufficiently free" from the effects of the
government's distortions, and therefore, could not be considered as appropriate benchmarks. 492 The
United States further emphasizes that while China improperly conflates the terms "significant" and
"predominant", the USDOC's determinations were based on the Government of China's
"predominant" rather than "significant" role in the markets at issue.493
10.29 Finally, the United States argues that, alt hough China alleges that the USDOC applied a per
se rule, China has cited no evidence on the record contradicting the USDOC's findings that the
government of China owns 96 per cent of the produc tion of HRS and 90 per cent of the production of
BOPP. Nor, it contends, has China explained wh at other factors should have been taken into
consideration to determine whether the government has a predominant role and which record evidence
was not assessed to that effect. Instead, the Un ited States argues, China restates the arguments it
made during the investigations, without addressing the USDOC's determinations that these arguments
have no bearing on whether the government played a predominant role in the markets at issue.494
3. Main arguments of the Third Parties
(a) Australia
10.30 Australia recalls the Appellate Body's findings in US – Softwood Lumber IV that Members
have some flexibility in the use of methodologies for calculating benefit, provided that such
methodologies conform with the "mandatory" guidelin es provided for in Article 14. In this regard,
Australia further considers that the panel's statement in EC – Countervailing Measures on DRAM
Chips that "the investigating authority is entitled to considerable leeway in adopting a reasonable
methodology" is limited to the specific circumstanc es where, in the absence of a comparable market
benchmark, the text of Article 14 provides no guidance on how to determine the benefit (e.g.,
Article 14(b)). With respect to Article 14(d), Aust ralia notes that this provision permits the use of
out-of-country benchmarks so long as investigating au thorities calculate the benefit "'in relation to'"
the prevailing market conditions in the country of provision.495
(b) Canada
10.31 Canada considers that the United States' r eading of the Appellate Body's decision in US –
Softwood Lumber IV is erroneous. In particular, Canada c onsiders that according to the interpretation
of Article 14(d) of the Appellate Body in that dispute, the predominance of the government as a
provider of goods in the market is not sufficient, in and of itself, to establish that private prices are
distorted and therefore unusable as benchmarks. In Canada's view, distortion must actually be
demonstrated. In this respect, Canada consider s that in the CWP and LWR investigations, the
USDOC's determinations to reject private pri ces in China do not satisfy the requirement, under US –

position in a market. (United States second written submis sion, para. 78; response to Panel question 12 (second
meeting), citing to Appellate Body Report on US – Softwood Lumber IV, para. 101).
492 See, e.g., United States second written submission, para. 80.
493 United States second written submission, footnote 100; response to Panel question 12 (second
meeting).
494 United States second written submission, para. 87. For instance, the United States notes that while
the Government of China asserted that private producers of HRS and BOPP could set their own prices, the
USDOC did not determine that the Government of China sets a country-wide price for HRS and BOPP, but
rather, that the government's predominant role in these markets distorted prices for HRS and BOPP.
(United States first written submission, paras. 209-210, citing to Appellate Body Report on US – Softwood
Lumber IV, para. 101).
495 Australia third-party oral statement, paras. 19-20; third-party response to Panel question 6.

Softwood Lumber IV, to establish that government predominan ce has actually distorted private prices
in the market of the country of provision. Cana da considers that the USDO C's determinations were
nevertheless consistent with Section 15(b) of China's Protocol of Accession.
496
(c) European Communities
10.32 The European Communities agrees with the panel statement in Korea – Commercial Vessels
that public bodies "do not constitute a reliable market benchmark with which to asses the existence of
benefit". Accordingly, the European Communities considers that prices set by public bodies may not
be considered as a relevant market benchmark as those bodies are also involved as players in the
market concerned. The European Communities also considers that the observations of the Appellate
Body in US − Softwood Lumber IV are pertinent to the present dispute. In particular, the European
Communities is of the view that the fact that the government plays a predominant role in the market
as a supplier of certain goods is likely to be a determining factor in ascertaining whether private prices
can be used as benchmarks. In the investigations at issue, the European Communities understands
that the USDOC's rationale to use an external benchmark was primarily based on the preponderant
share of SOEs in China. The European Communities considers that if it is demonstrated that private
prices are almost fully determined by SOEs repres enting public bodies and that such prices are highly
distorted, then an investigating authority would have sufficient grounds to depart from the general rule
of prices in the country of provision. The European Communities also notes that Section 15(b) of
China's Protocol of Accession provides an additional set of rules which permit the use of a benchmark
outside China in certain circumstances and subject to certain conditions.
497
(d) India
10.33 India considers that the United States' use of ex ternal benchmarks must be assessed in light of
the limitations on the use of such benchm arks expressed by the Appellate Body in US − Softwood
Lumber IV, notably the Appellate Body's indications th at the circumstances in which a Member may
use benchmarks other than the private prices in the country of provision are "very limited" and that
the price distortion analysis "must be made on a case-by-case basis, according to the facts underlying
each countervailing duty investigation".498
(e) Japan
10.34 Japan considers that, consistently with the findings of the Appellate Body in US − Softwood
Lumber IV, the question before the Panel is whether the USDOC had sufficient evidence (including
adverse inferences) to arrive at the conclusions th at private prices of inputs in China were distorted
and thus unavailable as benchmarks under Article 14(d). Japan is of th e view that where the evidence
on the record shows such distortion, the investig ating authority has a certain discretion to find a
reasonable methodology but that, as indicated by the Appellate Body, this discretion is not unlimited –
Article 14 establishes mandatory guidelines within which a benefit must be calculated. Japan
therefore submits that the USDOC was required to fi nd benchmarks that "related or referred to, or
were connected with" prevailing mark et conditions in China. In this regard, Japan further considers
that requiring investigating authorities to replicate such market conditions "at a level practically too
high to comply" would ignore the balance that Pa rt V of the SCM Agreement seeks to strike –
between the right to impose countervailing duties to o ffset injurious subsidization, and the obligations
that Members must respect in order to do so. Finally, Japan is of the view that although the Appellate
Body has determined that "Article 14 provides a WT O Member with some latitude as to the method it
chooses to calculate the amount of benefit", the A ppellate Body has also acknowledged that the terms

496 Canada third-party submission, paras. 22, 27 and 29-41.
497 European Communities third-party submission, paras. 19-24.
498 India third-party oral statement. (this statement contains no paragraph numbering).

of Article 14 do not become completely inapplicab le. For Japan, whether investigating authorities
may deviate from the parameters set forth in Article 14 depends on the facts underlying the case under
consideration and the Panel's task is to determine whether the evidence on the record supports the
"reasonableness" of the benchmarks selected by the USDOC in light of the latitude given to
investigating authorities under Article 14.499
(f) Mexico
10.35 Mexico considers that a benefit determination must be consistent with the guidelines set forth
in Article 14, regardless of whether the benchmark used is internal or external to the country allegedly
granting the subsidy. Mexico agrees with th e standard provided by the Appellate Body in US −
Softwood Lumber IV according to which an investigating au thority can resort to the use of out-of-
country benchmarks where private prices are distor ted because of the government's predominant role
in the relevant market. Thus, Mexico considers th at in determining whether the benchmarks used by
the USDOC are WTO-consistent, the essential factor to be analyzed is the presence or absence of
distortions caused by the role of the Government of China. In this regard, Mexico considers that
China's arguments do not address the standa rd provided by the Appellate Body in US − Softwood
Lumber IV and that the Panel should confirm the USDOC's use of external benchmarks, provided that
there was evidence that the role of the Govern ment of China in the markets in question was
"predominant". Mexico does not however opine as to whether the alternative benchmarks used by the
USDOC meet the requirements set out by the Appellate Body in that case.500
(g) Saudi Arabia
10.36 Saudi Arabia considers that, accordi ng to the Appellate Body report in US − Softwood
Lumber IV , Article 14(d) only permits the use of out-o f-country benchmarks in very exceptional
circumstances (i.e., when private ma rket prices are distorted by the government's predominant role as
a provider) and only after actual distortion of the do mestic market has been established according to
the facts of the investigation. According to Saudi Arabia, presumptions based on indirect evidence or
on theoretical economic deductions, including presumptions of distortion based on the mere fact that
the government is a significant supplier or has a majo r presence in the market, are insufficient to meet
this requirement. Saudi Arabia also considers that, consistent with the Appellate Body report in that
case, the investigating authority's discretion to choose a benchmark is limited by the mandatory
parameters set forth in Article 14, and that therefor e the benchmark used still must "relate or refer to,
or be connected with" the prevailing market conditi ons in the country of provision and must not be
used to "offset differences in comparative advant ages between countries". Saudi Arabia further notes
that while the Appellate Body indicated that ex ternal benchmarks are theoretically alternative
benchmarks under Article 14(d), "in practice", thei r application in a manner consistent with the
requirements of this provision is virtually impossible, because of the nature and extent of the
adjustments that would be required for the exte rnal benchmark to reflect in-country market
conditions. Thus, Saudi Arabia c onsiders that benchmarks based on the domestic cost of production
of the goods or services in question are the most appropriate alternative benchmark where private
prices have been found to be distorted, and th at these benchmarks have been endorsed by the
Appellate Body in US
− Softwood Lumber IV and in Canada – Dairy (Article 21.5 – New Zealand and
US).501

499 Japan third-party submission, paras. 27-31; third-party oral statement, paras. 7-9; third-party
response to Panel questions 6 and 7.
500 Mexico third-party submission, paras. 57-60; third-party oral statement, paras. 19-20; third-party
response to Panel question 6.
501 Saudi Arabia third-party submission, paras. 65-71 and 73-75; third-party response to Panel
question 6; third-party oral statement, paras. 14-15.

(h) Turkey
10.37 Turkey agrees with the findings of the Appellate Body in US
− Softwood Lumber IV that
investigating authorities may use out-of-country benchm arks where they have established that private
prices on the exporting country are distorted because of the predominant role of the government. In
Turkey's view, by accepting the terms and conditi ons in the Protocol of Accession, China has
confirmed its predominant role in the Chinese economy. In this regard, Turkey notes that the findings
of the Appellate Body on the use of external benchmarks related to cases in market economy
conditions, and considers it obvious th at an investigating authority may apply external benchmarks
when dealing with non-market economy conditions.502
4. Assessment by the Panel
(a) Can evidence of government predominance alone suffice to establish market distortion?
10.38 The central legal question raised by this set of claims is whether record evidence that the
government was the predominant supplier of a good can be sufficient, on its own, to establish market
distortion such that rejection of in-country priv ate prices as benchmarks would be permissible under
Article 14(d) of the SCM Agreement. In this regard, given the findings of the Appellate Body in US –
Softwood Lumber IV to the effect that market distortion due to government predominance must be
established on a case-by-case basis for in-country priv ate prices to be rejected, would some evidence
in addition to the government's share of the market for the good in question always be required before
in-country private prices could be rejected?
10.39 We note that China takes the latter position. China argues that for rejection of in-country
private prices to be valid, the inv estigating authority must have de termined that the government's
predominant role in a market has, in fact, caused pr ivate suppliers to "align their prices" with those of
the government-provided goods "such that the gove rnment effectively acts as a price-setter and
private suppliers as price takers".503 According to China, before an investigating authority could make
findings in this respect, it would have to conduct an analysis of th e relevant market, and evaluate
conditions under which prices were established in that market.504
10.40 For a number of reasons, we read the Appellate Body report in US − Softwood Lumber IV
differently from China. We wish to emphasize at th e outset, however, that we share China's view that
that report does not envisage or countenance the application of a " per se" rule, whereby in every case
and regardless of any other evidence, the fact th at a government was the predominant supplier of a
particular good would be a sufficient basis for rejecting private in-country prices as the benchmark.
10.41 That said, we consider that the Appellate Body report makes clear that evidence of
government predominance as a supplier is the principal evidence relevant to this question. We note in
this regard, in particular, the Appellate Body's indication that it sees no material difference between
the situations where the government is the predomin ant as opposed to the sole supplier of a good, and
its implicit endorsement in that context of the pane l's finding that the latter situation, without more,
would justify looking elsewhere than private in-count ry prices for a benchmark (as such prices would
not exist).
10.42 Concerning the issue of government as the predom inant supplier of the input, we note that the
analytical justification for the possibility to reject private in-country prices in that situation is identical
for the other two cases of government in volvement that were identified in US – Softwood Lumber IV ,

502 Turkey third-party submission, paras. 33-35; third-party oral statement, para. 12.
504 Id.

and indeed applies a fortiori to both, i.e., where the government administratively controls all of the
prices for the good in the country; and where the govern ment is the sole supplier of the good in the
country. In particular, the Appellate Body's analysis was that to require that private prices in the
country be used as the benchmark whenever they exis t could give rise to situations in which there is
no way of telling whether the recipient is "bette r off" than it otherwise would be, absent the
government financial contribution. That is, the Appe llate Body said, where "the government's role in
providing the financial contribution is so predominan t that it effectively determines the price at which
private suppliers sell the same or similar goods, [...] the comparison contemplated by Article 14 would
become circular".505
10.43 By the same token, where the government is the sole supplier, i.e., where there are no private
in-country suppliers and no or negligible imports 506, there would be no private prices at all, and thus
nothing to compare with the government prices for purposes of calculating benefits. Similarly, where
the government administratively controls all of th e prices, the private suppliers' prices would not
reflect in any way their own pricing decisions, but instead would be those established and mandated
by the government, such that again, effectively, there would be no "private" prices to compare with
the government prices.
10.44 Returning to the situation where the government is the predominant supplier (the situation
that the USDOC found to exist in the investigati ons at issue before us), the Appellate Body
emphasized that to require an effectively circular price comparison in such a situation is not supported
by the objective of Article 14 which, as indicated by its title, deals with the calculation of the amount
of a subsidy in terms of the benefit to the recipi ent. The Appellate Body recalled its statement in
Canada – Aircraft that "there can be no 'benefit' to the r ecipient unless the 'financial contribution'
makes the recipient 'better off' than it would otherwise have been, absent that contribution".
507 The
circular comparison that would result if Article 14(d) required in-country private prices even where
the government was the predominant supplier of the good would, in the words of the Appellate Body,
"frustrate the purpose of Article 14", as well as, "[m] ore generally, [...] the object and purpose of the
SCM Agreement, which includes disciplining the us e of subsidies and countervailing measures while,
at the same time, enabling WTO Members whose domestic industries are harmed by subsidized
imports to use such remedies".
508 The Appellate Body noted here that if the calculation of the benefit
yielded a result that was artificially low or even zero, as could be the case from an overly-restrictive
interpretation of Article 14(d), then a WTO Member could not fully offset, by applying countervailing
duties, the effect of the subsidy as permitted by the SCM Agreement.509
10.45 Thus, we view the Appellate Body's report as underscoring the many reasons why, where the
government is the predominant supplier of a good, being forced nevertheless always to use private
prices in the country of provision of the good as th e benchmark would "frustrate the purpose" of both
Article 14 and the SCM Agreement more generally. In our view, this indicat es that the evidence of
the government's predominance as supplier of the good is the central fact that must be established for
a decision to depart from private in-country prices to be valid. While this is of course not to the
exclusion of other evidence that may be releva nt to the question of whether the government's
predominance as a supplier would lead to a circular price comparison in a particular investigation, we
see the Appellate Body's report as indicati ng that evidence of predominance is the sine qua non for
any such decision by an investigating authority. Similarly, we see nothing in that report that would

505 Appellate Body Report on US − Softwood Lumber IV, para. 93. (emphasis added).
506 This is the scenario evoked by the panel in US – Softwood Lumber IV . (Panel Report on US –
Softwood Lumber IV, footnote 135).
507 Appellate Body Report on US – Softwood Lumber IV , para. 93 (quoting Appellate Body Report on
Canada – Aircraft, para. 157).
508 Id., para. 95 (quoting Appellate Body Report on US – Carbon Steel, paras. 73-74).
509 Id.

prohibit, a priori , a finding of market distortion, and a decision to depart from in-country private
prices, where the only relevant evidence was that the government is the predominant supplier of the
good.
10.46 In this regard, we disagree with China that th e Appellate Body used the terms "predominant"
and "significant" interchangeably. In our view, the se are distinct concepts and we read the Appellate
Body's report as treating them as such.
510 In particular, " a significant" supplier, in our view, refers to
something smaller than " the predominant" supplier. Furthermore, to us it is clear that being the
largest or even the only domestic supplier in the country in question is not at all the same as being "the
predominant" supplier of the good in question in the country. In particular, the concept of
"predominance" is in relation to the domestic ma rket as a whole for the good in question, including
imports. Obviously, the larger the share of imports, the lower the possibility to find that a government
is "the predominant" supplier of the good in the country in question.
10.47 Ultimately, as the Appellate Body stated, the decision to reject in-country prices as the
benchmark due to the role of the government in th e market for the good in question can only be made
on a case-by-case basis, in accordance with the relevant evidence in the particular investigation, rather
than in the abstract. We thus now turn to the facts of the investigations before us.
(b) USDOC determination with respect to HRS inputs (CWP and LWR investigations)
10.48 The USDOC's determinations of market dist ortion due to government predominance as a
supplier of HRS in the CWP and LWR investigations are identical. We thus conduct a single, joint
analysis of both.
10.49 In its final determinations in these investiga tions, the USDOC determined that because of the
Government of China's "overwhelming" involvement in the HRS market, private prices of HRS in
China were not an appropriate basis of comparison for determining whether a benefit existed. In
particular, the USDOC relied on facts available a nd drew adverse inferences, on which basis it
established that 96.1 per cent of Chinese HRS production was from SOEs.511
10.50 The final determinations recall that in the prel iminary determinations in both investigations,
the USDOC had not relied on observed HRS prices in China because the Government of China had
failed to provide any requested information with regard to the HRS industry as a whole. 512 Instead,
relying on "adverse facts available", the USDOC had used world market prices from a private
publication, "Steel Benchmarker", to preliminar ily determine whether HRS from SOEs was provided
for less than adequate remuneration. 513 The final determinations indicate that following the

510 In particular, the Appellate Body contrasts an allegation that a government is a "significant" supplier
(which would not be sufficient to establish distortion) to a finding of distortion based on the government's
"predominant" role. (Appellate Body Report on US – Softwood Lumber IV, para. 102). (emphasis added).
511 Exhibits CHI-1, p. 11 and CHI-2, p. 4. The USDOC considered that the Government of China had
failed to properly disclose information as regards the ownership of CISA (China Iron and Steel Association)
members, and therefore considered that the Government of China did not act to the best of its ability. As a
result, the USDOC drew adverse inferences with respect to the ownership of HRS producers in China. (Id.).
We note that in the present dispute, China does no t challenge the USDOC's reliance on facts available and
adverse inferences to establish this percentage of government ownership of HRS producers. Rather, as
discussed in Section XVI, infra, China's facts available claim is lim ited to the USDOC's reliance on the same
percentage to estimate the amount of the HRS purchased from trading companies by CWP and LWR producers
that had been produced by SOEs.
512 Exhibits CHI-1, p. 64 and CHI-2, p. 35.
513 Exhibits CHI-1, pp. 11-12 and 64; and CHI-2, p. 37. In both investigations, the USDOC used Steel
Benchmarker prices of "hot-rolled band" which is a type of HRS that is 5 mm thick x 1200-1500 mm wide. In
the LWR investigation the USDOC used these prices ev en though it acknowledged that hot-rolled band could

preliminary determinations, the Government of China provided so me information concerning the
ownership structure of the Chinese HRS industry, so that the USDOC did not simply reject in-country
prices, but instead examined reco rd evidence regarding "all potential benchmark prices" to determine
the appropriate one under the hierarchy in the U. S. law (including whether it could use in-country
private prices).
514
10.51 The final determinations indicate that the par ties on both sides of the investigation presented
arguments to the USDOC as to whet her private prices could and should be used as the benchmarks.
The applicants presented, and made arguments base d on, record evidence, to the effect that the
government's dominant position in the HRS market dist orted private prices. In particular, in the CWP
investigation, the petitioners referre d to the high level of government ownership of the industry, and
the market power of SOEs, as well as record ev idence that the Government of China successfully
carried out policies to suppress domestic prices, a nd the existence of industrial policies aimed at
enhancing the output of downstream steel-using i ndustries. The applicants also argued that
"substantial" record evidence indicated that Chinese prices were distorted because SOEs had
significant market power. In this regard, they argued that verified record evidence supported a private
ownership share of only 2.5 per cent of the industry, meaning that the state could act as a monopolist;
that documentation from government agencies 515 indicated that the state controlled sectors it deemed
important to national economic performance, including the steel industry, and that record evidence for
specific companies demonstrated the government's "significant influence" over the operations of
private producers.
516 In the LWR investigation, the final de termination indicates that the applicants
argued that they had submitted evidence that made clear that there was not a usable market-
determined price for HRS in China.517
10.52 In both investigations, the Government of China and the respondent companies urged the
USDOC to look beyond government ow nership and consider the actual nature and structure of the
HRS market. The Government of China argued in particular that certain aspects of the market
demonstrated that government involvement did not distort the market. In this regard, the Government
of China argued that: (i) there was no single or uniform government-set price for HRS in China, and
that SOE producers competed with one another; ( ii) the HRS industry was highly fragmented (i.e., the
44 large-and medium-sized steel producers that repo rted their production data to the China Iron and
Steel Association, together accounted for only 52 per cent of HRS production in China; the single
largest producer only accounted for 9.6 per cent; and the five largest producers combined accounted
for less than 30 per cent of total production and one of the five largest producers was privately-
owned); (iii) the major SOE producers operated on the basis of the same laws as private producers,
and thus had the duty to protect their shareholders and maximize profits (noting that some SOEs had

not be used to produce LWR (i.e., the wall thickness of hot-rolled band was 5 mm thick, while the wall
thickness for LWR was less than 4 mm). While it noted that it was not able to find another world market price
for HRS that could be used to produce LWR, the USDOC nevertheless considered that "additional rolling would
be required to produce the thinner HRS used in LWR production and, therefore, the market price for thinner
HRS would presumably be higher". Therefore, relying on facts available, the USDOC determined that Steel
Benchmarker prices were appropriate to measure the adequacy of remunera tion for state-owned HRS. (Exhibit
CHI-2, p. 37).
514 Exhibits CHI-1, p. 64 and CHI-2, p. 35. U.S. law specifies a hierarchy of "market-determined"
benchmarks in this regard: "(1) market prices from actual transactions within th e country under investigation
(e.g., actual sales, actual imports or competitively run gov ernment auctions) ('tier one'); (2) world market prices
that would be available to purchasers in the country u nder investigation ('tier two'); or (3) an assessment of
whether the government price is consistent with market principles ('tier three')". (Exhibits CHI-1, p. 63 and
CHI-2, p. 35).
515 The determination indicates that the applicants re ferred in particular to the National Development
and Reform Commission (the "NDRC"), and the SASAC. (Exhibit CHI-1, p. 60).
516 Id., pp. 56-57 and 59-61.
517 Exhibit CHI-2, p. 34.

significant shares of private ownership); (iv) th e HRS industry had increasing levels of private
investment and encompassed significant private pr oducers; (v) the SOEs were profitable, and thus
were unlikely to be selling for less than adequate remuneration; and (vi) a functioning HRS market
existed in China, as evidenced by prices fluctuating from day to day, and varying across regions, with
no clear pattern of higher or lower prices being charged by private or SOE producers.
518 T h e
Government of China also argued that available private pricing demonstrated that there was a
functioning market, such that private prices for HRS were not distorted and could be used as a
benchmark.
519 China also urged the USDOC, if it found that private prices could not be used, to
assess whether the prices charged by SOEs were consistent with "'market principles'" as per the U.S.
domestic legislation.520
10.53 In both determinations, the USDOC considered and rejected as unpersuasive these arguments
by the respondents. First, the USDOC considered that the Government of China's "assertions" that
there was no single or uniform government-set price; that the HRS industry was highly fragmented;
that the SOEs behaved like private producers; that private investment in the industry was growing;
and that a functioning market existed, as prices fl uctuated from day to day and varied across regions,
did not mitigate the fact that the government accounted for 96.1 per cent of Chinese HRS production.
The USDOC stated that "in such instances, it is reasonable to conclude that domestic prices for
comparable goods provided from privates sources are effectively determined by the government
provided prices".
521 Second, the USDOC found, the profitability of state-owned HRS producers was
irrelevant for determining whether HRS was provided for less than adequate remuneration.522
10.54 Thus, in its final determinations the USDOC, as it did in the preliminary determinations,
rejected private prices in China (both from dome stic producers and from imports into China) as
benchmarks. In this regard, the final determinations refer first to the 96.1 per cent share of the HRS
produced in China that was produced by SOEs (which the USDOC characterized as "the government's
overwhelming involvement" in the HRS market in China). 523 The determinations indicate that
because of this, using private producer prices in Chin a "would be akin to comparing the benchmark to
itself, (i.e., such a benchmark would reflect the distortions of the government presence)". 524 T h e
determinations also indicate that trade statistics showed that the import quantities of HRS were small
relative to the Chinese domestic production, such th at unit values of imports into China were not
sufficient to serve as reliable benchmarks. 525 The USDOC considered that where the government
accounts for a significant portion of production, privat e prices for comparable goods effectively align
with those set by the government. The USDOC's a ssessment in respect of the government's 96.1 per
cent share, as noted above, was that "in such inst ances, it is reasonable to conclude that domestic
prices for comparable goods provided from privat e sources are effectively determined by the
government provided prices". 526 Overall, the USDOC thus concluded that "prices stemming from
private transactions within China cannot give rise to a price that is sufficiently free from the effects of

518 Exhibits CHI-1,pp. 58-59 and CHI-2, pp. 32-33.
519 Exhibits CHI-1, p. 58 and CHI-2, p. 33.
520 Exhibits CHI-1, pp. 58-59 and CHI-2, p. 33.
521 Exhibits CHI-1, p. 65 and CHI-2, p. 36.
522 Id.
523 Exhibits CHI-1, pp. 64-65 and CHI-2, p. 36.
524 Exhibits CHI-1, p. 64 and CHI-2, p. 36. In this context, in both determinations the USDOC cited its
determination in its investigation of Canadian Lumber , where it had noted that "[w]here the market for a
particular good [...] is so dominated by the presence of the government, the remaining private prices in the
country in question cannot be considered to be independent of the government price. It is impossible to test the
government price using another price that is entirely, or almost entirely, dependent upon it. The analysis would
become circular because the benchmark price would reflect the very market distortion which the comparison is
designed to detect". (Id.).
525 Exhibits CHI-1, footnote 212 and CHI-2, p. 36.
526 Exhibits CHI-1, p. 65 and CHI-2, p. 36.

the [Government of China's] actions, and therefore cannot be considered to meet the statutory and
regulatory requirement [under U.S. law] for the use of market-determined prices to measure the
adequacy of remuneration".527
10.55 We recall that China's legal argument, essentially , is that in these investigations the USDOC
applied an unlawful " per se" rule whereby evidence that the government was the majority supplier of
a good led ipso facto to the determinations that the Chinese market prices for HRS were distorted such
that they were not suitable as benchmarks. On the basis of the determinations, as just summarized, we
do not view the USDOC's determinations in the sa me way. To the contrary, given the extensive
summaries and discussion contained in the determina tions, it is clear that the USDOC received from
parties on both sides of the investigation, and consid ered, arguments and evidence relevant to the role
of the government in the Chinese HRS market. In this regard, we note that because China did not
provide complete, verifiable information regard ing the amount of domestically-produced HRS that
was accounted for by SOEs, the USDOC relied on "fact s available" and drew adverse inferences in
establishing this fact. China does not argue before us , and there is no indication in the record, that the
Government of China provided during the investiga tion any information that demonstrated that the
government was not the predominant supplier, and indeed the various arguments raised by the
Government of China (which the USDOC characterized as based on "assertions" rather than evidence)
were found by the USDOC not to be relevant to the question of the government's predominance as a
supplier or its ability effectively to set the prices for HRS in China.
10.56 In this regard, we disagree with China's inte rpretation of a statement in a footnote in these
determinations, to the effect that even if the (unverifiable) figure of approximately 71 per cent
advanced by China as the share of Chinese HRS pr oduced by SOEs were accepted, the USDOC still
would have found that lower figure to be a reasonabl e basis on which to conclude that private prices
in China were distorted and thus unusable as benchmar ks. For China, this statement confirms that the
USDOC applied a "per se" rule. To us, however, this is simply an indication that the USDOC would
have considered this percen tage to be a level that could give rise to distortion. We see nothing in the
USDOC's determinations that indicates that the USDO C's analysis would have stopped at that point.
Indeed, the determinations indicate the contrary in that, although the government's share as a domestic
supplier actually found in the investigations was much higher than 71 per cent, the record shows that
the USDOC obtained and analyzed a range of other information, including information gathered on its
own initiative (such as that on the volume and market share of imports). The fact that the USDOC
ultimately did not find that that other information led to the conclusion that government predominance
did not distort the market provides no indication, in our view, that a " per se" rule was applied in these
investigations.
10.57 Finally, we consider that the USDOC's analys is and conclusions in the OTR investigation
provide strong circumstantial evidence that the USDO C's general approach to predominance is not a
mechanical, per se test under which, any time the government is "a significant" supplier, the USDOC
mechanically concludes that private in-country prices are unusable as benchmarks. Rather, this
investigation was clearly based on a case-by-case analysis of the particular facts of the investigation,
on the basis of which the USDOC found that the domestic prices were not distorted, in spite of SOEs
being major producers of the rubber inputs in question.
10.58 In particular, in the OTR investigation, the USDOC found that SOE producers accounted for
a significant portion of Chinese production of natural and synthetic rubber inpu ts. Nevertheless, the
USDOC decided to use as benchmarks, for the tire producers' purchases of rubber from SOEs, both
prices of their rubber purchases from private Chin ese producers, and prices that they paid for

527 Id. We note in this regard that according to the USDOC's determination, under U.S. law, "market
prices from actual transactions" include prices from "actual sales, actual imports or competitively run
government auctions". (Exhibits CHI-1, p. 63 and CHI-2, p. 35).

imported rubber. In other words, the USDOC consid ered that market prices (including import prices)
within China constituted suitable be nchmarks. The basis for this c onclusion was the record evidence
demonstrating the high import penetration of the Ch inese markets for the relevant goods (50 per cent
for natural rubber and 75 per cent for synthetic rubber), and the absence of any other evidence
demonstrating government control or distortion of these markets.
528
10.59 The USDOC found that while SOE producers acc ounted for "a significant portion" of the
domestic production of both categories of rubber:
"imports of natural rubber exceed the tota l domestic production of natural rubber as a
percentage of natural rubber consumption in the PRC. Imports of synthetic rubber
exceed the total domestic production of synthe tic rubber as a percentage of synthetic
rubber consumption in the PRC. Thus, gi ven the large penetration of imports of
natural rubber and synthetic rubber in the PRC rubber markets and the lack of other
evidence on the record to show that SO Es or government agencies through other
methods had control of, or otherwise distorted, these markets during the POI, we do
not find government distortion of the PRC rubber markets".
529 (footnote omitted)
10.60 Thus, to relate this finding back to the reasoning of the Appellate Body in US – Softwood
Lumber IV, it is clear based on the import penetration figures in the OTR determination that there was
no evidence that the government was "the predominan t supplier" or otherwise controlled prices. The
USDOC's determination recognized this and thus re lied on the observed prices (of private suppliers
and imports) in China as benchmarks.
10.61 For the foregoing reasons, we find that China has not established that the USDOC acted
inconsistently with the obligations of the United States under Article 14(d) of the SCM Agreement by
rejecting in-country private prices in China as be nchmarks for HRS in either the CWP or the LWR
investigations.530
(c) USDOC determination with respect to BOPP inputs (LWS investigation)
10.62 In the LWS investigation, the USDOC determined that SOE involvement in the petrochemical
industry distorted the market, and that therefore it would be inappropriate to rely on private domestic
input prices in China as a benchmark. 531 We note that these conclusions were the result of the
USDOC's application of facts available and adver se inferences because the Government of China did
not provide the requested information necessary fo r determining whether domestic prices could be
used as benchmarks, and did not act to the best of its ability.532
10.63 In particular, the USDOC found on this basis that SOEs accounted for 90 per cent of the
BOPP production in China and distorted the market. The final determination indicates in this regard
that in spite of repeated requests to the Government of China, including at verification, to provide
information concerning the ownership of Chinese BOPP producers, no such information was
provided. The USDOC therefore stated that "because the [Government of China] failed to provide us
with the necessary information, we are unable to ga uge the extent of government involvement in the
petrochemical industry which produces these three input s. Without such information, the Department
is unable to analyze the nature and structure of the market in order to determine whether the level of

528 Exhibit CHI-4, pp. 79-80.
529 Id., p. 11.
530 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
531 Exhibit CHI-3, p. 19.
532 Id.

government ownership significantly distorts the prices for these inputs in the PRC". 533 In this regard,
the USDOC stated that because th e Government of China had failed to provide the requested
information:
"we have no record evidence to contravene petitioners' allegation that SOES such as
China Petroleum and Chemical Corporation (Sinopec), which was alleged to control
90 percent of the Chinese petrochemical industry and produces [...] BOPP, distort the
market. As such, we determine in this final determination that domestic private
prices for these inputs are distorted and not usable as benchmarks".534
10.64 On the basis of this determination, the US DOC concluded that "prices stemming from private
transactions within China cannot give rise to a price that is sufficiently free from the effects of the
[Government of China's] distortions" to be used as benchmarks. 535 The USDOC noted that this
approach was consistent with its decision in the CWP investigation, where it had determined that
because of the government's overwhelming involvement in the market for the inputs, the use of
private producer prices in China would be akin to comparing the benchmark to itself (i.e., such a
benchmark would reflect the distortions of the government presence).
536 The USDOC also cited its
regulations as providing that "where it is reasona ble to conclude that actual transaction prices are
significantly distorted as a result of the government's involvement in the market, we will resort to"
sources other than in-country private prices for benc hmarks. The USDOC also noted that there were
no actual, company-specific import transactions that it could consider using as benchmarks, as Aifudi
had not imported BOPP.537
10.65 We note that here again, China's claim is th at the USDOC unlawfully based its decision to
reject private in-country prices as the benchmark for BOPP on a per se test based on the government's
share as a producer of the product. We disagree with this characterization. It is clear from the record
of the investigation that China did not cooperate with the USDOC in respect of the information
regarding the Chinese industry producing BOPP. In deed, the USDOC found that the Government of
China provided none of the requested information in this regard, and before us China makes no
representation to the contrary. In the words of the USDOC, this left it in the situation where it had
before it "no record evidence to contravene" the alle gations of applicants that the SOE petrochemical
producers accounted for 90 per cent of domestic production of BOPP and distorted the market. In
other words, the applicants had made these a llegations, and the USDOC had requested from the
Government of China but had not received, informat ion on the structure and operation of the Chinese
petrochemical industry. The USDOC thus had no ev idence to rebut the allegations that had been
made and in addition found that the Government of China had not cooperated such that the drawing of
adverse inferences (concerning both the government's share of production, and government distortion
of the market) was justified. We do not consider that this set of facts can be construed as the
mechanical application of a per se test, given that it was based on the failure by the Government of
China and the respondent companies to provide request ed or other evidence to rebut the allegations as
to both government ownership and market distortion. Instead we consider that this conclusion is one
which the USDOC could lawfully reach on the circumstances of the case.

533 Exhibit CHI-3, pp. 69-70.
534 Id., pp. 19-20.
535 Id., p. 72.
536 Id., pp. 20.
537 Id., pp. 20 and 72.

10.66 For the foregoing reasons, we find that China has not established that the USDOC acted
inconsistently with the obligations of the United States under Article 14(d) of the SCM Agreement by
rejecting in-country private prices in China as benchmarks for BOPP in the LWS investigation.
538
F. CHINA'S CLAIMS UNDER ARTICLE 14(D) OF THE SCM AGREEMENT – GOVERNMENT-
PROVIDED LAND-USE RIGHTS
1. Claim of China
10.67 We now take up China's challenge to the USDOC's decision to reject in-country prices as the
benchmark to use for the adequate remuneration determination with respect to subsidies in the form of
the provision of land-use rights. 539 China's claim is that the USDOC's decisions to reject land prices
in China as the appropriate benchmark to determin e benefit in the LWS and OTR countervailing duty
investigations was inconsistent with Article 14(d) of the SCM Agreement.540, 541
2. Main arguments of the Parties
(a) China
10.68 China argues that the USDOC's decisions to reject land prices in China as the appropriate
benchmark disregarded the plain la nguage of Article 14(d), as interpre ted by the Appellate Body in
US – Softwood Lumber IV.542
10.69 In particular, China submits that, alt hough the USDOC acknowledged that there are
secondary markets for land-use rights in China, th e USDOC rejected these private prices on two
grounds: (i) the application of a per se rule based on its finding that the government is the ultimate
owner of all land in China; and (ii) its finding th at property rights in China "remain poorly defined
and weakly enforced". 543 Concerning what it considers to be the USDOC's application of a per se
rule, China argues that in US − Softwood Lumber IV the Appellate Body rejected the notion that a
presumption of distortion could provide a sufficient basis for resorting to out-of-country
benchmarks.
544 With regard to the USDOC's characterizati on of the legal status of property rights in
China, China alleges that there is no basis in Article 14(d) to reject "prevailing market conditions"
merely because they do not accord with an investigating authority's conception of how markets should
be structured and regulated, or b ecause they are insufficiently "pure". 545 China emphasizes that the
term "prevailing market conditions" in the country of provision, as interpreted by the Appellate Body
in US – Softwood Lumber IV , does not refer to a "pure market", a "market undistorted by government

538 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
539 China's related challenge, in respect of the benc hmark actually used, is addressed in Section X.I,
infra.
540 See, e.g., China first written submission, para. 304.
541 As indicated at para. 10.1, supra, China also raises consequential claims pursuant to Articles 10
and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
542 See, e.g., China second written submission, para. 64.
543 China first written submission, paras. 303 and 305; response to Panel question 34 (first meeting).
544 See, e.g., China second written submission, para. 49; response to Panel question 34 (first meeting),
citing to Appellate Body Report on US – Softwood Lumber IV, para. 102.
545 See, e.g., China response to Panel questions 34 and 43 (first meeting). China also argues that the
sources relied upon by the USDOC for its Thai benchmark prices provide no indication that prices in China are
distorted or that China is a "special case" in this resp ect, and that these sources rather contradict the USDOC's
finding that all land prices in China are distorted. China notes that the reports relied on by the USDOC to this
effect illustrate the wide variations for land prices within China, thus, confirming that China has a functioning
market for land-use rights. (China response to Panel question 34 (first meeting)).

intervention", or to a "fair market value".546 Moreover, China submits that the Appellate Body limited
the possibility of using benchmarks other than in-c ountry private prices to a single situation, that
where distortion exists due to the "government's pr edominant role in the market as provider of the
same or similar goods". 547 Thus, China argues, investigating authorities do not have carte blanche to
reject private prices whenever they consider "prevailing market conditions" not quite "market
enough".548
(b) United States
10.70 The United States argues that China's claim is unsupported by the text of the SCM Agreement
and China's Protocol of Accession, and therefore, shoul d be rejected. In particular, the United States
submits that nothing in the text of Article 14(d) suggests that land-use rights are exceptional, or that
they should be treated differently than other goods with respect to the use of external benchmarks. 549
The United States also argues that China's position is contradicted by the "flexibility" of Article 14,
which the Appellate Body has e xplained permits the use of out-o f-country benchmarks, and by the
terms of Section 15(b) of China's Protocol of Accession, which provides no basis to exclude
government-provided land-use rights, but rather co nfirms the permissibility of using out-of-country
benchmarks in countervaili ng duty investigations concerning imports from China.
550 In addition, the
United States submits that China's restrictive in terpretation, if accepted, would eliminate the
possibility of countervailing the subsidized provision of land-use rights, contrary to the object and
purpose of the SCM Agreement.551
10.71 The United States submits that the USDOC's determination to use an out-of-country
benchmark is consistent with Article 14(d), as interpreted by the Appellate Body in US – Softwood
Lumber IV. Specifically, the United States argues that, based on all the evid ence on the record, the
USDOC determined that due to China's predominan t role in the land market, it was necessary to use
an out-of-country benchmark to measure the benefits at issue. 552 Furthermore, the United States
submits that the USDOC did not limit its distorti on analysis to the mere fact that the Chinese
government owns all the land in China. Rather, the United States argues that the USDOC also found
that China retains and exercises significant control over the supply side of the entire land market in
China, including land-use rights for private industria l use, so as to distort prices in the primary and

546 China response to Panel questions 34 and 43 (first meeting), citing to Appellate Body Report on US
– Softwood Lumber IV, para. 87.
547 In China's view, the Appellate Body did not even suggest that other situations, such as government
intervention in markets generally, could justify the rejection of private prices. ( See, e.g., China response to
Panel question 32 (first meeting), citing to Appellate Body Report on US – Softwood Lumber IV , paras. 93 and
106).
548 China opening statement at the first meeting of the Panel, para. 46.
549 United States first written submission, paras. 272- 273. The United States emphasizes that it is not
necessary that goods be tradable acr oss borders for them to be covered by the Agreement, arguing that in US –
Softwood Lumber IV the Appellate Body noted that excluding non-tradable goods would permit the
circumvention of the WTO's subsidies disciplines. (Id., para. 274, citing to Appellate Body Report on US –
Softwood Lumber IV, paras. 57, 67, 64).
550 See, e.g. United States first written submission, para. 2 76; opening statement at the first meeting of
the Panel, para. 32, citing to Appellate Body Report on US – Softwood Lumber IV, para. 103.
551 United States first written submission, para. 275. For instance, the United States argues, China's
position would prevent Members from measuring the benefit of land-use rights provided by the government
since the comparison of this financial contribution to the benchmark would become circular, i.e., prices for
government-provided land would be compared to itself. (United States opening statement at the first meeting of
the Panel, para. 31, citing to Appellate Body Report on US – Softwood Lumber IV, para. 93).
552 The United States argues that in US – Softwood Lumber IV the Appellate Body considered that the
government's predominant role in the market suffices to distort private prices and to justify the use of out-of-
country benchmarks. ( See, e.g. , United States second written submission, para. 80; response to Panel
question 44 (first meeting), citing to Appellate Body Report on US – Softwood Lumber IV, para. 93).

secondary markets.
553 Thus the United States submits that contrary to China's assertions, the
USDOC's determination was not based on a finding th at market conditions were insufficiently "pure",
but rather on a finding that the land market in China had significant distortions from the government's
predominant role in the market.
554 In addition, the United States rejects China's argument that,
because there is a differentiation in pricing for land-use rights in China, it has an undistorted
"functioning market". The United States submits that uniform pricing in China was not a basis for the
USDOC's findings that China had a predominant role in the land market.555
3. Main arguments of the Third Parties
(a) Australia
10.72 Australia considers that nothing in the SCM Agreement supports the argument that the
provision of land should be treated differently from the provision of other goods under Article 14(d).
Consistently with the interpreta tion of the Appellate Body in US – Softwood Lumber IV , Australia
notes that the term "goods" has been given a br oad meaning under Article 1.1(a)(1)(iii) of the
Agreement to include immovable property.556
(b) European Communities
10.73 The European Communities recalls that, consiste nt with the observations of the Appellate
Body in US − Softwood Lumber IV , investigating authorities may use out-of-country benchmarks if
they find that prices in the relevant market are distorted.557
(c) Mexico
10.74 Mexico recalls that the Appellate Body found in US − Softwood Lumber IV that resorting to
out-of-country benchmarks in the case of the provis ion of land is consiste nt with Article 14(d)
provided that benchmark used "relates or refers to, or is connected with" prevailing market conditions
of the country of provision.558
(d) Saudi Arabia
10.75 Saudi Arabia agrees with China that the u se of external benchmarks is especially
inappropriate with respect to financial contri butions in the form of the provision of land, inter alia,
because the value of land is determined not only by its physical characteristics, but also by the legal
system in which the land exists.559

553 See, e.g., United States second written submission, paras. 105-106; response to Panel question 42(b)
(first meeting).
554 The United States also disagrees with China's assertion that factors other than the government's
predominant role in the market cannot justify rejecting in-country prices as benchm arks. The United States
submits that the Appellate Body in US – Softwood Lumber IV did not address and, therefore, did not exclude the
possibility that other types of government intervention w ould also distort the market so as to render private
prices unreliable. (See, e.g., United States second written submission, paras. 81-82 and 107).
555 The United States adds that the fact that prices differ is not dispositive of whether the government
has a predominant role in the market. (United States second written submission, para. 108).
556 Australia third-party oral statement, para. 21.
557 European Communities third-party submission, para. 47.
558 Mexico third-party response to Panel question 6.
559 Saudi Arabia third-party submission, para. 77.

4. Assessment by the Panel
10.76 In the LWS and OTR investigations, the USDOC determined that China's provision of land-
use rights to investigated producers (Aifudi and Starbright) for less than adequate remuneration
constituted a countervailable subsidy. In this context, the USDOC determined that it could not use an
in-country benchmark for government-provided land-use rights because Chinese land prices were
distorted by the significant government role in th e market that prohibited private land ownership in
China and resulted in all land being owned by some level of government. The USDOC indicated in
this regard that it had verified that all ur ban land was state-owned (owned by the national
government), and that all rural land was collectivel y-owned (owned by the local government), i.e.,
that the government, either at the national or lo cal level, was the ultimate owner of all land in
China.560
10.77 We note here that, on the basis of the reas oning of the panel and the Appellate Body in US –
Softwood Lumber IV , the USDOC's finding that the government was the sole supplier of the good in
question might have been sufficient for a conclusi on by the USDOC that it could not use in-country
prices for land as the benchmark. We do not cons ider, however, that in fact the USDOC based any
conclusion as to the availability of in-country benc hmarks directly on the government's degree of
ownership of the land or the general fact that it was significantly involved in the market as a provider
of land-use rights, as such. To the contrary, these were cited as facts describing the nature of the
government's significant involvement in the land-use market, which then was further analyzed.
10.78 In particular, the USDOC did not stop with these statements but instead continued its
analysis, gathering, assessing and verifying a wide variety of information as to land-use pricing in
China, aimed at determining "whether the […] [G ]overnment [of China] exercises control over the
supply side of the land market in China as a whole so as to distort prices in the primary and secondary
markets".561 In this regard, the USDOC found that g overnment authorities controlled, albeit on a
decentralized basis, the supply and allocation of land that could be used by non-state-owned
enterprises for non-agricultural purposes, and that the restrictions imposed extended the control by the
government to the secondary in addition to the pr imary market. The USDOC further found that this
control significantly distorted the price paid fo r the granted land-use rights in both primary and
secondary markets, and that land-use prices in China were not set in accordance with market
principles.
562
10.79 In this connection, the USDOC found that notw ithstanding the legal reforms implemented by
China, agricultural land-use rights remained limite d in scope and were poorly defined and weakly
enforced, such that land-use rights of farmers in Ch ina still were not secure and their right to alienate
their land was severely restricted. Local governments had often exercised broad and unrestricted
powers to expropriate land from farmers and had given them only partial compensation for such
expropriation. Further, agricultural land could be so ld for non-agricultural use only if its legal status
was first changed from "collective land" to "sta te-owned land", and the power to effect that
conversion rested solely with local governments.
563 The supply of land for non-agricultural use in the

560 Exhibits CHI-3, p. 58 and CHI-50, pp. 71368-71369.
561 See, e.g., Exhibit CHI-3, p. 58.
562 Id., pp. 15-17 and 58-59; and Exhibit CHI-50, p. 71369.
563 Exhibits CHI-34 p. 67907 and CHI-50, p. 71369. In the Antidumping Duty Investigation of Certain
Lined Paper Products from the People's Republic of China (the "Lined Paper investigation"), the USDOC noted
that the status of agricultural land could only be chan ged after it had been expropriated. Therefore, local
governments acted in the dual roles of owners of the agri cultural land and as representatives of the state, and as
such, could expropriate land from farmers, convert it in to state-owned land, and thereafter sell the land-use
rights to private enterprises. ( Antidumping Duty Investigation of Certain Lined Paper Products from the
People’s Republic of China ("China") − China's status as a non-market economy ("NME") , Exhibit US-69,
p. 42).

primary and secondary markets furt her depended, in part, on the "allocated" land-use rights which
were provided to SOEs on a purely administrative b asis: the government allocated land-use rights to
SOEs for a nominal one-time charge and annual fee. "Allocated" land-use rights were transferable for
commercial purposes only if they were first converted into "granted" land-use rights. The power to
convert "allocated" land-use rights into "granted" land use rights (and therefore, the land available to
private enterprises for commercial use) rested solely with the government.
564 The USDOC also found
that some SOEs illegally (without first converting their land-use rights as required) had used their
allocated land-use rights in order to attract foreign investments. Consequently, the USDOC found, the
conversion of land from "allocated" to "granted" was not a pro forma process.565
10.80 The USDOC further determined that China's gove rnment control of the land market distorted
the prices of "granted" land-use rights in both the primary and secondary markets. 566 Although noting
that the Government of China had implemented certa in land reforms in order to increase transparency
and competitive market conditions, the USDOC dete rmined that these reforms had not been fully
implemented – i.e., that there was a wide divergence between the de jure reforms and their de facto
implementation.567 Specifically, it found that land-use right s were still transferred via "closed-door"
negotiations and not via public auc tions, tenders or listings as required by law. Therefore, the
USDOC determined that the Government of China reta ined a predominant role in the land market and
that this control distorted the supply and pricing of land-use rights in China, such that private prices in
China were not an appropriate basis of comparison for determining whether a benefit existed.568
10.81 Given all of these findings, we also disagree w ith China that the USDOC's determinations
were based simply on a finding that land-use right s were limited in scope and weakly enforced.
While this was among the USDOC's characterizations of certain aspects of the land-use market in
China, it is by no means the entirety of the USDOC's analysis or determinations. To the contrary, we
are satisfied that the USDOC conducted an extensiv e analysis of the land-use market in China.
Before us, the only specific record evidence that China points to is the "existence" of a secondary
market, which it argues the USDOC "rejected" as a source for benchmarks. 569 We note, however, as
indicated, that the USDOC's inquiry was not whether there was a secondary market, but whether the
evidence showed that prices in th at market were distorted. The USDOC found that the evidence
indicated that those prices were distorted, and befo re us China points to no record evidence to the
contrary.
10.82 For the foregoing reasons, we find that China has not established that the USDOC acted
inconsistently with the obligations of the United States under Article 14(d) of the SCM Agreement by
rejecting in-country land-use prices in China as be nchmarks for government-provided land-use rights
in the LWS and OTR investigations.570

564 Further, the USDOC noted that enterprises could also purchase "granted" land-use rights directly
from the government, and therefore determined that such purchases were government-controlled. (Exhibit CHI-
34, p. 67907).
565 Exhibit CHI-34, p. 67907.
566 As an example, the USDOC noted that if farmer land-use rights were well-defined and effectively
enforced, there would be less land available for non-agr icultural use and therefore higher prices for granted
land-use rights. (Id.).
567 Exhibits CHI 3, p. 16 and CHI-50, pp. 71368-71369.
568 Exhibits CHI-3, pp. 16 and 59; CHI-34, pp. 67907-67908; CHI-50 p. 71369.
569 China response to Panel question 34 (first meeting).
570 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.

G. CHINA'S CLAIMS UNDER ARTICLE 14(B) OF THE SCM AGREEMENT – GOVERNMENT
PROVISION OF PREFERENTIAL LENDING
1. Claims of China
10.83 In the CWP, LWS and OTR investigations, the USDOC determined that China provided
subsidies to producers of the investigated produc ts in the form of RMB-denominated loans by
SOCBs. In addition, in the OTR investigation, th e USDOC determined that one of the investigated
producers, GTC, received subsidies in the form of U.S. dollar-denominated loans from SOCBs.
10.84 In the three investigations at issue, the USDOC found that lending rates in China were
significantly distorted, and therefore unsuitable as market benchmarks. 571 For this reason, the
USDOC resorted to external benchmarks to determine whether loans from SOCBs conferred a
benefit.572 According to the USDOC, the use of external benchmarks was consistent with its past
practice.573
10.85 Before us, China challenges, as inconsistent with Article 14(b) of the SCM Agreement, the
USDOC's decision to reject Chinese in-country interest rates, and to resort to external benchmarks, for
calculating the existence and amount of any be nefit from SOCB-provided loans denominated in
RMB.574 China makes no such claim in respect of th e USDOC's decision to reject Chinese in-country
interest rates and resort to external benchmar ks for calculating the exis tence and amount of any
benefit from SOCB loans denominated in U.S. dollars . In respect of both RMB- and U.S. dollar-
denominated loans, China also ch allenges the specific benchmarks u sed by the USDOC. The issues
concerning the specific loan benchmarks are discussed in Sections X.J and X.K, infra.
2. Main arguments of the Parties
(a) China
10.86 China argues that the USDOC's decision to reject interest rates in China as benchmarks for
the RMB loans was inconsistent with the requirement s in Article 14(b) of the SCM Agreement. In
particular, China alleges that under Article 14(b) the benchmark for determining whether a loan
provided by the government confers a benefit is a "comparable commercial loan that the firm could
actually obtain on the market", and that a benchmar k can meet these criteria only if it is denominated
in the same currency as the government-provided loan. 575 China argues that because interest rates
differ by currency, loans denominated in different currencies cannot be "comparable". According to
China, a comparison involving loans in different cu rrencies will necessarily measu re the "factors that
cause interest rates to be different in different currencies", rather than the extent to which the recipient
of the government-provided loan is "be tter off" as required by Article 14(b). 576 In addition, China
considers that the "market" in which a firm can "actually obtain" a "comparable" loan will depend

571 Exhibits CHI-1,p. 6; CHI-3,pp. 11 and 83; CHI-4, pp. 7 and 104.
572 Exhibits CHI-1, pp. 6-7; CHI-3, p. 83; CHI-4, pp. 104-105.
573 The USDOC cited its previous findings in Softwood Lumber from Canada; CFS from the PRC; and
CFS from Indonesia, where it had resorted to out-of-country benchmarks. (See, e.g., Exhibits CHI-1, p. 7; CHI-
3, p. 83; and CHI-4, pp. 7 and 104-105).
574 As indicated at para. 10.1, supra, China also raises consequential claims pursuant to Articles 10 and
32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
575 China first written submission, para. 233; oral statement at the first meeting of the Panel, paras. 50-
51; second written submission, para. 77.
576 China, second written submission, paras. 76-77, citing to Appellate Body Report on Canada –
Aircraft, para. 157.

upon the characteristics of the loan, including the currency in which it is denominated.
577 Thus, China
submits that because the RMB can only be borrowed in the Chinese market, the USDOC was required
to identify "comparable commercial loans" as benchmarks within this market. 578 China argues that
despite the existence of such lo ans in the Chinese market, the US DOC unlawfully rejected them on
the ground that China's "predominant role in the banking sector results in significant distortions that
render lending rates in [China] unsuitable as market benchmarks".579
10.87 China disagrees with the United States that the Appellate Body's interpretation of
Article 14(d) in US – Softwood Lumber IV is relevant to the question of interest rates under
Article 14(b). Even accepting arguendo that the concept of "distortion" as discussed by the Appellate
Body in that case had some relevance in the c ontext of interest rates under Article 14(b), China
submits that, consistently w ith the Appellate Body's findi ng, the benchmark selected under
Article 14(b) would still need to be based on "a comparable commercial loan which the firm could
actually obtain on the market". 580 China also submits that none of the factors of government control
and intervention on which the United States seems to base its distortion rationale (i.e., government
ownership of banks, government re gulation of deposit and lending ra tes, and government actions to
influence the direction of interest rates) ca n plausibly support the USDOC's disregard of the
requirements of Article 14(b).581
10.88 China argues, first, that interest rates are a direct consequence of the monetary policies
pursued by governments, and that as a consequence, the interest rates set by governments affect the
commercial interest rates charged by all banks, regardless of their level of state ownership. 582 In fact,
China argues, the record evidence demonstrates that all interest rates in China, including those
charged by non-state owned banks, are affected by the efforts of the central bank to curb monetary
expansion through the setting of interest rates, rather than by the extent of the government's ownership
of banks. 583 Thus, in light of the direct relationship between interest rates and national monetary

577 China second written submission, para. 83; response to Panel question 18 (second meeting). In
support of its position, China relies on the Appellate Body's finding in US – Upland Cotton that the geographic
scope of the relevant "market" will "depend on the product itself and its ability to be traded across distances".
Consistently with this interpretation, China adds that factors such as the curr ency in which a loan is
denominated, the borrower's creditworthiness, and the re gulatory factors affecting the ability of borrowers and
banks to operate across national borders are all relevant to determine the geographic "market" under
Article 14(b). China therefore disagrees with the United States that there is a "wor ld market" for lending, and
adds that neither the United States, nor the USDOC have provided any evidence that the relevant "market" for
RMB-denominated loans is anything "other" than China's lending market. ( See, e.g., China first written
submission, paras. 237-239; comments on the United States ' response to Panel question 17 (second meeting),
citing to Appellate Body Report on US – Upland Cotton, para. 405).
578 China first written submission, para. 239. China fu rther submits that, as also acknowledged by the
USDOC, the mere fact that a bank is wholly or partially owned by a government does not mean that loans by
that bank are not "commercial". That is, a benchmark loan is "commercial" if it is made by a bank in the
ordinary course of commerce. (Id, para. 235).
579 See, e.g., China oral statement at the first meeting of the Panel, para. 51.
580 China first written submission, paras. 247-248; second written submission, paras. 88-92.
581 See, e.g., China first written submission, paras. 249, 264, 273.
582 Id., paras. 255-256, 261; second written submission, paras. 98-102; oral statement at the first
meeting of the Panel, para. 54. China refers in this co ntext to an expert report (which was prepared for and
submitted in the CVD investigation), stating that government intervention in credit markets to affect the level of
interest rates is a widespread tool of monetary policy, (China first written submission, para. 256, referring to
Exhibit, CHI-81, para. 7).
583 China explains that the main tool used by its centr al bank (the PBOC) to di rect commercial interest
rates is a system of benchmark rates under which all commercial banks in China may not extend loans at less
than 90 per cent of the prevailing benchmark rate applicable to the loan in question, and that as the PBOC raises
or lowers the benchmark rates, it affects the rates at which commercial banks lend to borrowers. (China first
written submission, para. 261).

policies, China submits that the United States' implicit analogy that government ownership of
financial institutions is akin to the "'role of the go vernment in the market as a provider of the same or
similar goods'" is unfounded. 584 Moreover, China alleges that the USDOC's presumption that all
loans by state-owned commercial banks in China are made on non-commercial terms, merely by
virtue of state ownership, contradicts the USDOC finding of specificity in respect of the alleged
subsidy. In particular, China submits that by rejecting all SOCB loans as benchmarks, the USDOC
has implicitly found that "all" such loans were "made on non-commercial terms", and that therefore
the alleged subsidy could not be specific because it would benefit every borrower in China.585
10.89 Second, China disagrees with the United States ' assertions that China's banking regulatory
system, particularly the fact that China maintains a deposit rate cap and a lending rate floor, distorts
lending rates or that it is different from what are c onsidered "traditional" regulatory controls. China
submits that these are ordinary features of bank regulatory systems and that the United States does not
dispute this. In addition, China argues that nothing in Article 14(b) allows investigating authorities to
disregard the applicable benchmark set forth th erein based on the subjective understanding that a
banking regulation system is "traditional" or "unt raditional", or to second-gu ess the correctness of
banking regulations imposed by Members.586
10.90 Third, in regard to the government intervention in setting interest rates, China submits that it
is undisputed that governments all over the world set interest rates for thei r currencies, and that
therefore the whole premise of the USDOC's rati onale for rejecting Chinese interest rates as
"distorted" is invalid. For China, there are no inte rest rates that are "undistorted" by government
"control" and "intervention", and as such, government "distortion" of interest rates cannot provide a
basis for disregarding the requirements of Article 14(b), even if there were any lawful basis to do
so.587
10.91 China disagrees with the United States' argument that given the lack of commercial loans in
China the USDOC would have been unable to measure the benefit at issue had it applied Article 14(b)
verbatim. China submits that, according to the record evidence, there are plenty of "comparable
commercial loans" in China that provide an a ppropriate benchmark as required by Article 14(b).588 In
addition, China considers that becau se prevailing interest rates are determined by government action,
the problem of circularity referred to by the Appellate Body in US – Softwood Lumber IV does not
arise in the case of interest rates. Specifica lly, China argues that, unlike the situation in US –
Softwood Lumber IV, it is the government's role "as a government" – rather than as a provider of the
financial contribution – that affects prevailing inte rest rates and therefore the applicable benchmark

584 China first written submission, paras. 263-264; second written submission, para. 102. China argues
that even if such analogy had any basis, the United States' ownership argument would amount to the same per se
test for "distortion" that the Appellate Body has already rejected in respect of Article 14(d). China adds that
such a per se test is even more inappropriate in the context of Article 14(b), since the government's role as a
provider of a financial contribution is unrelated to the factors that determine interest rates, and the USDOC in
fact identified no evidence indicating that state owne rship in commercial banks had any bearing upon the
direction of interest rates. (Id., paras. 270-271; second written submission, para. 102).
585 China first written submission, footnote 223.
586 Id., para. 272; second written submission, paras. 105-106, 110; response to Panel question 41 (first
meeting).
587 China second written submission, paras. 111-112.
588 Id., para. 115. For instance, China argues that the "big four" SOCBs are among the largest
commercial banks in the world, are traded on international stock exchanges, and have attracted strategic
investments from major international financial institutions. China adds that other commercial banks in China,
which have either minority state ownership or no state ownership, are also traded on stock exchanges and have
domestic and overseas investors. (Id., paras. 116-117).

under Article 14(b).
589 Therefore, China submits, when an investigating authority compares the
interest rate of a government-provided loan to prevailing national interest rates, it is not comparing the
government-provided loan to itself, but rather, to the interest rate conditions that affect all commercial
lenders in that market. China also argues that this comparison is consistent with the notion of benefit
under Articles 1 and 14 of the SCM Agreement. That is, a borrower would be "better off" only if it
obtains an interest rate on a government-provided loan th at is lower than the interest rate that it would
have paid on a comparable commercial loan under prevailing interest rate conditions. 590 Thus,
according to China, it was entirely possible to appl y Article 14(b) to government-provided loans in
China in order to determine whether the recipi ent was better off as a result of the financial
contribution at issue.591
10.92 China rejects the "access to credit" argumen t advanced by the United States during the
proceedings in this dispute. China argues that th e United States' argument – that the "benefit" of the
alleged "policy lending" subsidy is the mere "access to credit", even if the credit is provided at
prevailing interest rates – amounts to an impermissible ex post rationalization, since it bears no
relationship with the "benefit" that the USDOC ac tually purported to measure, i.e., the difference
between interest rates in China and the benchmarking interest rates. 592 In any event, China submits
that "access to credit", on its own, does not confer a benefit under Article 14(b). For China, "access to
credit" at ordinary commercial interest rates coul d provide a benefit only if the firm receiving the
government-provided loan could not "actually obtain" a comparable loan from a commercial bank
because of its credit status. The record evidence does not indicate th at companies in China could not
"actually obtain" loans from non-SOCBs in the absence of the alleged "policy loans".
593
10.93 Finally, China points to the broader systemic im plications of the issue before the Panel.
According to China, the rationale used by the USDOC to reject interest rates in China as benchmarks
could open the way for WTO Members, through th eir countervailing duty laws, to judge other
Members' sovereign monetary policy.594
(b) United States
10.94 The United States rejects China's arguments and submits that the USDOC's determination to
use out-of-country interest rates was consistent with Article 14(b) of the SCM Agreement. In
particular, the United States argues that, based on all of the evidence on the record, the USDOC
determined that not only did China have a predominan t role in the lending market as an owner of the

589 China notes that in US – Softwood Lumber IV the Appellate Body was concerned with the situation
in which "the government's role in providing the financial contribution is so predominant that it effectively
determines the price at which private suppliers sell the same or similar goods, so that the comparison
contemplated by Article 14 would become circular". (emphasis as added by China) (China response to Panel
question 34 (first meeting), citing to Appellate Body Report on US – Softwood Lumber IV, para. 93).
590 China second written submission, para. 100; citing to Appellate Body Report on Canada – Aircraft,
para. 157; response to Panel question 34 (first meeting).
591 China second written submission, paras. 120-121. In particular, China submits that it is consistent
with Article 14(b) to compare the interest rate on a government-provided loan in China to the PBOC benchmark
rate. In China's view, there is nothing "circular" in this comparison, as it is a comparison of the interest rate on
the government-provided loan to the interest rate conditio ns that affect all borrowers of comparable commercial
loans in the same market. (Id.).
592 Id., para. 122; oral statement at the first meeting of the Panel, paras. 11-12, citing to the Appellate
Body Report on US – Softwood Lumber IV (Article 21.5 – Canada), para. 93.
593 China second written submission, paras. 125-130.
594 China first written submission, paras. 273-275; oral statement at the second meeting of the Panel,
para. 47.

majority of banks in China, it also directly cont rolled interest rates through its regulations of the
market, thereby distorting loan rates in China.595
10.95 The United States disagrees with China's argument that "[a]ll interest rates are distorted by
government intervention", arguing that China's inte rvention in the lending market is significantly
different from that of most other governments. For the United States, the mechanism of having both a
floor on lending rates and a cap on deposit rates re nders China's regulation different from a typical
government lending market regulation, and ensures that banks in China earn considerable profits
through lending at or near the floor rate. 596 Accordingly, the United States argues, the USDOC's
determination to reject in-country interest rat es as a benchmark was not based only on China's
intervention in the banking sector, but also on the extent and nature of its intervention and the
resulting distortion in the lending market. 597 The United States therefor e rejects China's assertions
that the USDOC rejected Chinese lo an rates because they were not "fully" market-based, or that the
USDOC presumed that all loans by SOBCs were ma de on non-commercial terms, merely by virtue of
state ownership.598
10.96 Likewise, the United States maintains that th e USDOC's concern was not to judge China's
monetary policies and/or to determine whether China's direct control over interest rates was
traditional. Rather, the United States submits, the USDOC determined, consistently with the
reasoning of the Appellate Body in US − Softwood Lumber IV, whether such control created distortion
in the Chinese lending market. 599 In fact, the United States argues, the USDOC evaluated the extent
to which China's invasive control over interest rates distorted the lending market, such that it was
inappropriate to rely upon any in-country interest rates as benchmarks. 600 The United States also

595 United States first written submission, para. 230; second written submission, paras. 80-81; opening
statement at the second meet ing of the Panel, para. 29. The United States notes that in determining that the
lending rates in China were unsuitable as market benchmarks, the USDOC relied on the reasoning it had applied
in the previous investigation of CFS Paper , where the USDOC concluded that China's intervention in the
lending market distorted that market. The USDOC's findings relied largely upon three major factors: (i) China's
banking sector remained almost entirely state-owned; (ii) there was ex tensive government regulation of interest
rates; and (iii) foreign bank lending in China was subjected to the same distortions as domestic bank lending.
(United States first written submission, para. 236). The United States observes that China does not contest the
facts upon which the USDOC relied, e.g., the fact that it ow ns the majority of the banking sector or the fact the
Chinese banks are still operating on non-commercial basis. (United States second written submission, para. 91).
596 United States first written submission, para. 240; second written submission, para. 92. The
United States indicates that China ensures that its banks earn a profit on "each" loan by (i) capping the deposit
rate below the interest rate floor and (ii) preventing competition among banks for savers' capital. The
United States adds that China's policies further provide savers' few investment options beyond depositing their
savings with the banking system. (United States second written submission, para. 92).
597 The United States observes that while China does not contest the USDOC's factual findings
regarding its regulations in the lending market, its indication that "most commercial borrowers in China obtain
interest rates of loans [...] that fall somewhere between the interest floor and the benchmark itself" confirms the
distortion provoked by these regulations in the lending market. For the United States, the marginal difference
between such interest rates is due to the fact that bank s can lend at the floor rate and are still ensured a profit,
and therefore, the interest rates are not at the level they otherwise would be absent these controls. (Id., para. 93).
598 United States first written submission, paras. 201-202, 235.
599 United States second written submission, pa ra. 96, citing to Appellate Body Report on US –
Softwood Lumber IV, para. 101; response to Panel question 41 (first meeting). The United States indicates that
in the OTR investigation the USDOC refrained from judging China's monetary policies as it rejected arguments
made by domestic producers that "China had monetary policies that distorted the inflation rate and, therefore,
Commerce should not adjust for inflation in its lending benchmark." ( See, e.g., United States second written
submission, footnote 161).
600 Id., para. 96. The United States rejects China's argument that the Appellate Body's recognition of
the possibility of resorting to out-of-co untry benchmarks is limited to Article 14(d), arguing that the "Dominant
Firm" theory applies equally to the lending market. (Id., para. 95).

submits that China's position would require the use of loans distorted by the government's intervention
as benchmarks and that this position is at odds with prior panel and Appellate Body findings.
601
10.97 The United States also disagrees with China that the terms "comparable" and "actually obtain
on the market" in Article 14(b) require that the benchmark be denominated in the currency of the
government-provided loan. The United States submits that nothing in Article 14(b) requires the use
of a benchmark loan denominated in any particular currency, and that such an outcome would be
incongruous with the flexible nature of Article 14 of the Agreement which, as the Appellate Body has
explained, permits the use of out-of-country benchmarks. 602 The United States adds that while this
flexibility is confirmed by China's Protocol of Accession, China's interpretation would exclude all
RMB lending from the scope of that provision, and th ere is no basis in the text of the Accession
Protocol for such an exclusion. 603 According to the United States, China's interpretation is also
inconsistent with the object and purpose of the SCM Agreement, since it would prevent Members
from fully offsetting the effects of a subsidy.604
10.98 The United States submits that the term "market" is not qualified in Article 14(b), and that the
context of Article 14 suggests that the relevant "marke t" is not limited to the country of provision. In
this regard, the United States observes that while Articles 14(a) and (d) refer to a geographical
indicator, no geographic specification is reflected in Article 14(b). The United States also notes that
although Article 14(d) contains a geographical indicat or, the Appellate Body found that Article 14(d)
does not bind investigating authorities to select onl y in-country benchmarks when the government has
a predominant role in the market. Therefore, the United States submits, there is no basis for
interpreting Article 14(b) as imposing a more restrictive "geographical limitation" than
Article 14(d).605 Nor does the term "market" in Article 14(b) require or exclude the possibility of a
national market or a world market for lending.606
10.99 Finally, the United States submits that the term "market" in Article 14(b) must not be read in
such a way as to require the use of benchmark loan s distorted by government predominance and other
interventions, as such an interpretation would eff ectively eliminate the word "commercial" from the
term "comparable commercial loan", and would in some cases imply a circular benefit comparison.
In addition, the United Sates argues that in EC – Countervailing Measures on DRAM Chips the panel
recognized the difficulties that investigating author ities face in measuring the benefit of government-
provided loans, finding that investigating authorities are "entitled to considerable leeway" in adopting
reasonable methodologies to calculate the benefit.607
3. Main arguments of the Third Parties
(a) Australia
10.100 Australia considers that there is no basis in Artic le 14(b) for the benchmark used to "relate or
refer to, or be connected" with the conditions prevailing in the market of the country of provision.
Australia notes in this respect that loans are availa ble on an international financial market that is
subject to international influences. Furthermore, Au stralia considers that there is no basis in the text

601 United States response to Panel question 41 (first meeting), citing to, inter alia , Appellate Body
Report on US – Softwood Lumber IV, para. 103.
602 United States first written submission, paras. 249-2 53; opening statement at the first meeting of the
Panel, para. 32.
603 United States first written submission, para. 254.
604 Id., para. 252.
605 See, e.g., United States response to Panel question 17 (second meeting), citing to Appellate Body
Report on US – Softwood Lumber IV, para. 103.
606 Id., citing to Appellate Body Report on US – Upland Cotton, para. 406.
607 Id., citing to Panel Report on EC – Countervailing Measures on DRAM Chips, para. 7.213.

of Article 14(b) to limit the permissible benchmark to loans in the same curren cy as that of the loans
being investigated given that loans obtained in one currency can be used to purchase any currency at
rates determined by international markets.608
(b) European Communities
10.101 The European Communities considers that the interpretation of Article 14(d) by the Appellate
Body in US − Softwood Lumber IV is relevant for clarifying the meaning of Article 14(b). The
European Communities notes that the Appellate Bo dy based its interpretation on the objective of
Article 14 of the SCM Agreement ("Calculation of th e amount of a subsidy in terms of the benefit to
the recipient"). The European Communities is of the view that in light of this objective, once it has
been established that the relevant market conditions are distorted, the comparison contemplated by
Article 14 would become useless. The European Communities considers that if it has been shown that
the "comparable commercial loan which the firm could actually obtain on the market" is also distorted
because of the government intervention, then having recourse to alternative benchmarks could be
possible on a reasonable basis, and such other benchmarks might correspond to a "comparable
commercial loan" as provided for by Article 14(b), which has no express territorial limitation.609
(c) Japan
10.102 Japan considers that, consistent with the findings of the Appellate Body in Japan – DRAMs
(Korea), where the government dominates the relevant financial market, an investigating authority has
"some latitude as to the method it chooses to calculate the amount of benefit", although it still has to
identify a "comparable" and "commercial loan" as a be nchmark. Therefore, Japan considers that the
question before the Panel is whether sufficient ev idence supports the USDOC's conclusion that there
was no benchmark within China that could be used, and should the Panel find that there were no such
benchmarks, it should then examine the consistency with Article 14(b) of the benchmark selected by
the USDOC.610
(d) Mexico
10.103 Mexico disagrees with China that the USDOC relied on China's monetary policy in order to
reject the interest rates in China as a benchmark. In Mexico's view, the USDOC's determinations
were based on other considerations, which include d the predominant position of public bodies in the
commercial banking sector and the extent to which this situation distorted the interest rates fixed by
China's central bank.611
(e) Saudi Arabia
10.104 Saudi Arabia considers that a benchmark loan mu st comply with the "cumulative" criteria set
forth in Article 14(b) of the Agreement. In this regard, Saudi Arabia is of the view that the term
"comparable" suggests that the be nchmark loan should be a loan de nominated in the same currency,
and subject to the same generally applicable fina ncial regulations of the country providing the
government loan. In addition, the word "commercial" refers to any transaction that is made in the
ordinary course of commerce, while the phrase "which the firm could actually obtain on the market"
imposes a requirement that the benchmark be based on the actual borrowing experience of the
recipient firm. Saudi Arabia argues that the use of constructed benchmarks based on loans that are

608 Australia third-party submission paras. 37-40; third-party response to Panel question 7.
609 European Communities third-party submission, paras. 39-40; third-party response to Panel
question 7.
610 Japan third-party submission, paras. 33-37.
611 Mexico third-party response to Panel question 7.

not actually available, but rather represent an aver age of a set of loans gathered in a discretionary
manner to represent the "average commercial loan" ar e inconsistent with Artic le 14(b). Saudi Arabia
takes issue with the United St ates' argument that the reasoni ng of the Appellate Body in US
−
Softwood Lumber IV , although decided under Article 14( d), is "equally applicable" under
Article 14(b). Saudi Arabia argues, inter alia, that nothing in the Appellate Body's report indicates its
application to Articles 14 (a), (b), and (c), nor to the "entirety of Article 14". However, assuming
arguendo that the reasoning of the Appellate Body in that case applies to Article 14(b), Saudi Arabia
considers that the clear admonitions made by the Appellate Body on the use of out-of-country
benchmarks would apply as well.612
4. Assessment by the Panel
(a) Whether Article 14(b) permits rej ection of in-country interest ra tes as benchmarks, and if so,
under what circumstances
10.105 The central question of legal interpretation raised by this claim is whether, and if so under
what circumstances, Article 14(b) of the SCM Agreem ent permits the rejection of in-country interest
rates as benchmarks for government-provided loans. We recall here that China's claim and arguments
in this regard are limited to SOCB loans denominated in RMB, and in particular that RMB loans can
only be obtained in China, and that to be "compa rable" in the words of Article 14(b), a benchmark
loan must be denominated in the same currency as the one under investigation. We note that China
does not challenge the rejection of in-country inte rest rates as benchmarks in respect of SOCB U.S.
dollar-denominated loans. 613 That said, the USDOC's determinatio ns in the investigations at issue
made no distinction on the basis of the currency of the loans as to whether or not in-country interest
rates could be used. To the contrary, the USDOC's analysis and conclusions were in respect of the
Chinese banking sector, and lending market, in gene ral. Thus, our analysis under Article 14(b)
focuses on the general question of whet her, and if so when, rejection of in-country interest rates is
permissible.
10.106 We turn first to the text of Article 14 of the SCM Agreement:
"Article 14
Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient
 For the purpose of Part V, any method used by the investigating authority to
calculate the benefit to the recipient conf erred pursuant to paragraph 1 of Article 1
shall be provided for in the national legisl ation or implementing regulations of the
Member concerned and its application to each particular case shall be transparent and
adequately explained. Furthermore, any such method shall be consistent with the
following guidelines:
 (a) government provision of equity capital shall not be considered as
conferring a benefit, unless the investment decision can be regarded as

612 Saudi Arabia third-party submission, paras. 91-99.
613 In fact, China appears to agree in principle with the USDOC's choice of be nchmark for these loans,
citing the USDOC's use in the OTR investigation of a LIBOR-based benchmark for U.S. dollar-denominated
loans as indicative of the USDOC's "r ecognition" that a "comparable" loan must be denominated in the same
currency as the loan under investigation, and that this is consistent with a proper understanding of what it means
for a loan to be "comparable". (China first written submission, para. 234).

inconsistent with the usual investment practice (including for the provision of
risk capital) of private investors in the territory of that Member;
 (b) a loan by a government shall not be considered as conferring a
benefit, unless there is a difference between the amount that the firm
receiving the loan pays on the government loan and the amount the firm
would pay on a comparable commercial loan which the firm could actually
obtain on the market. In this case the benefit shall be the difference between
these two amounts;
 (c) a loan guarantee by a government shall not be considered as
conferring a benefit, unless there is a difference between the amount that the
firm receiving the guarantee pays on a loan guaranteed by the government
and the amount that the firm would pay on a comparable commercial loan
absent the government guarantee. In this case the benefit shall be the
difference between these two amounts adjusted for any differences in fees;
 (d) the provision of goods or services or purchase of goods by a
government shall not be considered as conferring a benefit unless the
provision is made for less than adequate remuneration, or the purchase is
made for more than adequate remunera tion. The adequacy of remuneration
shall be determined in relation to prevailing market conditions for the good or
service in question in the country of provision or purchase (including price,
quality, availability, marketability, tr ansportation and other conditions of
purchase or sale)".
10.107 As discussed in Section XI.E.3, infra, the chapeau of Article 14 indicates that the provisions
set forth in sub-paragraphs (a)-(d) of this provisi on are "guidelines", and that while investigating
authorities must respect these guidelines in calculati ng the benefits from the particular kinds of
financial contributions identified in the respective sub-paragraphs, they have flexibility as to the
precise methodology that they use, so as to be able to take into account the particular facts of a given
investigation.
10.108 Concerning the specific provision at issue, Artic le 14(b) of the SCM Agreement provides that
the relevant comparison for determining whether a government loan confers a benefit is with "a
comparable commercial loan that the firm could actua lly obtain in the market". In our view, the key
concept in this phrase is the word "commercial". In particular, the basic task in calculating a benefit
from a government loan is to determine whether, when an investigated entity borrows from the
government, the terms are better-than-commercial, i. e., better than a commercial lender would charge
for the same loan.
10.109 This view of Article 14(b) is in keeping with the general interpretation of the concept of
benefit as an advantage that makes the recipient better off, by virtue of the government's provision of
the financial contribution in question, than the r ecipient would be if it obtained the same financial
contribution from the market (i.e., commercially).
614 Indeed, in broad terms this is the comparison
required by all of the subparagraphs of Article 14, namely, to compare the terms of the government
financial contribution with the terms that would be offered through the commercial market for the
same financial contribution.
10.110 Furthermore, we consider that the chapeau of Article 14 establishes this comparison with
commercial market terms as the general principle fo r the determination of the amount of benefit from

614 See, e.g., Panel Report on Canada – Aircraft, para. 9.113.

any kind of government financial contribution (inc luding those not specifically referred to in the sub-
paragraphs of Article 14), via its generally worded requirement that "any method used [...] to calculate
the benefit to the recipient conferred pursuant to para graph 1 of Article 1 [...] be consistent with the
guidelines" in the sub-paragraphs.
615 Our view in this regard is essentially the same as the general
characterization of Article 14 by the panel in Canada – Aircraft , namely that the guidelines in
Article 14 "employ a commercial benchmark, whereby a financ ial contribution 'shall not be
considered as conferring a benefit' unless that fina ncial contribution is made on terms that are more
advantageous than would have been available to the recipient on the commercial market".616
10.111 Thus, pursuant to Article 14(b) of the SCM Agreement, the comparator to be used to
determine the existence and amount of any bene fit from a government loan must be, first and
foremost, "commercial". One possible interpretation of this term could be that any loan made by a
government would, ipso facto, not be "commercial", because to require otherwise would involve the
comparison of the terms of one financial contribution by a government to those of another. We are
not, however, called upon in this dispute to definiti vely rule on this question, because in fact the
USDOC did not reach its determination that interest rates in China could not be used as benchmarks
on the basis that the government was the predominan t supplier of credit in China, but instead looked
at a number of other factors as well, as discussed in Section X.J, infra.
10.112 Second, Article 14(b) indicates that the benchmark loan must be "comparable". That is,
Article 14(b) indicates that not any "commercial" lo an can be used as a benchmark, but instead the
particular benchmark loan selected must be "compa rable" to the investigated government loan. We
view the term "comparable" to mean, in general terms, that the benchmar k loan should have been
established around the same time, shoul d have the same structure as (fixe d or floating interests rates)
and similar maturity to the government loan, should be about the same size, and should be
denominated in the same currency, as these are the fu ndamental elements used to describe loans, and
thus the elements on the basis of which different loans can be compared.
10.113 Finally, the benchmark loan should be one that the borrower "could actually obtain on the
market". We see this as a reference first and foremost to the individual characteristics of that
particular borrower (essentially, its risk profile). In other words, how would a commercial lender
evaluate that borrower in deciding whether to make the investigated loan? Most importantly, what
interest rate would the commercial lender charge, a nd what repayment terms, collateral, etc., would it
require, for a loan of the same structure and matu rity as the government loan, based on its evaluation
of the borrower's likelihood of defaulting?
10.114 The guidelines thus would prevent, for instance, the amount paid on a one-year floating rate
government loan from being directly compared to the amount that would be paid on a 10-year fixed
rate commercial loan. Similarly, the guidelines w ould prevent the amount paid on a government loan
to a AAA-rated borrower from being compared with the amount that would be paid on a commercial
loan to a B-rated borrower. Furthermore, they would prevent the amount paid on a government loan
denominated in Canadian dollars from being directly compared to the amount that would be paid on a
commercial loan denominated in Japanese yen, and so forth. Ultimately, therefore, the guidelines of
Article 14(b) provide that the benchmark interest ra te used to determine the existence and amount of

615 For example, in the case of grants, which are not listed in Article 14, the comparison with the
market would give the result that the benefit amount is the full amount of the grant because grants are in essence
gifts, and it is clear that the market does not give gifts. Similarly, the amount of the benefit from a tax
exemption or similar tax measure also would be the full amount of the taxes not paid, as the tax exemption or
reduction also would be in essence a gift from the government to the recipient.
616 Panel Report on Canada – Aircraft , para. 9.113. (emphasis added) We recall that in Canada –
Aircraft, the Appellate Body upheld the panel's analysis and interpretation of the term "benefit" in Article 1.1(b)
of the SCM Agreement, including its reliance on Article 14 as relevant context. (Appellate Body Report on
Canada – Aircraft, paras. 155 and 161).

benefit from a government loan reflect not only the basic features of the government loan, but also
reflect the risk level of the borrower.
10.115 On the basis of this analysis, it is clear that th e "ideal" benchmark in terms of Article 14(b) of
the SCM Agreement would be an actual loan from a commercial lender of the same size, maturity,
structure and currency, to the investigated entity , taken out on the same day as the investigated
government loan. It also is clear, however, that in practice the existence of such an ideal benchmark
loan will be extremely rare. The commercial loan s actually held by a given borrower will almost
inevitably have certain differences, whether in timi ng, size, maturity, structure, and/or currency from
the investigated government loan, that would make them not perfectly comparable, or even not
comparable at all, to that government loan. As one example, in a given country there may be no
commercial market for long-terms loans – all such loans may be government-provided. In such a
situation, the only commercial loans in existence in that country would be short-term. Similarly, a
given borrower may have on its books a commercia l loan that is essentially identical to the
government loan except for its origination date, a nd there may have been a very large generalized
movement in interest rates during the interval that would make these loans not directly comparable.
10.116 The question then becomes how Article 14(b) addresses such situations, which will arise
frequently, indeed probably in the large majority of cases. In particular, where there are differences in
existing commercial loans held by the borrower such th at in the strict sense of the term they are not
"comparable" with the investigated government loan, does Article 14(b) require an investigating
authority to conclude that there simply is no benc hmark, and that as a result no benefit amount can be
determined (which would mean, in effect, that the benefit amount is zero)? In our view, this is not the
case.
10.117 We note, first, the phrase "the amount the firm would pay on a comparable commercial loan
that which the firm could actually obtain on the market". In our view, the use of the conditional mode
here, in conjunction with the reference to the indi vidual borrower's situation, is an indication that
where loans are concerned, the very individualized nature of borrowing, as discussed above, often will
limit an investigating authority's ability to identify a fully comparable existing commercial loan held
by the investigated borrower to use as a benchm ark for the investigated government loan, meaning
that some degree of approximation will be inevita ble. Often this approximation can be accomplished
by making adjustments to a loan that is not comp arable in every respect, such that, following the
adjustments, the resulting adjusted loan's terms have been made comparable. In this sense, an
adjusted non-comparable loan would be a proxy fo r a theoretical "comparabl e commercial loan" that
the borrower "could actually obtain on the market". We thus see that Article 14(b), by its own terms,
makes allowance for the use of proxies when an identical or nearly-iden tical loan is not available as a
benchmark. The same terms, however ("comparable" and "could actually obtain on the market"), also
require that, where adjustments and/or proxies are necessary due to the absence of an existing
commercial loan that is comparable in every respect, the resulting benchmarks must be appropriate.617
10.118 In this regard, we view the identification of a loan benchmark pursuant to Article 14(b) as a
series of concentric circles. The first best option, as noted, is to find a commercial loan to the same
borrower that is identical or nearly identical to th e investigated loan (in terms of timing, structure,
maturity, size and currency). If that borrower has no such loan, then the next place to look logically
would be the borrower's other existing commercial loan s, to see if any of them is sufficiently similar
that its terms could be adjusted to reflect the basic characteristics of th e government loan. Such

617 Of course, the SCM Agreement does not requ ire the imposition of countervailing measures,
meaning that an investigating authority always has the option not to apply a countervailing measure in respect of
a given subsidy. In this sense, if an investigating authority had difficulty in identifying a suitable benchmark for
a given government financial contribution, it could choose not to perform a benefit calculation, and thus to omit
the particular financial contribution from its overall calculation of subsidization of the investigated product.

adjustments might reflect, for example, different dates of origination of the loans (to account for
interest rate fluctuations that may have taken place in the market during the interval), different sizes,
different maturities, different currencies, different structures, changes in the borrower's credit risk
(e.g., if a loan on the borrower's books was originated at a time when the borrower had a high credit
rating, but the rating had been downgraded by the ti me the government loan was made), etc. There
are many possible examples, and we do not mean here to rule on all potential situations that might
arise or to pronounce in any way as to what particular kinds of adjustments might or might not be
acceptable under Article 14(b) in the circumstances of a given investigation. These are questions that
could only be resolved on a case-by-case basis, and our point here is, simply, that in many or most
cases, certain adjustments will need to be made to ensure that ultimately the amount of the benefit that
is calculated is based on the amount that "would" be paid on a "comparable commercial loan" that the
borrower "could" actually have obtained on the market.
10.119 There may be circumstances, however, where the actual differences between any of the
commercial loans on a borrower's books and the inves tigated government loan are so significant that
it is not realistically possible to address them through adjustments; or the investigated government
loan might be the only loan on the borrower's books ; or the borrower's only other loans might also be
from the government. In these circumstances, the investigating authority would need to look beyond
actual loans held by the investigat ed borrower, and use other sources of information. One possibility
in this regard could be a similar commercial loan granted to another borro wer with a similar credit
risk profile as the investigated borrower (if such a loan could be identified). If no appropriate
commercial loan benchmark can be identified, then the authority could construct a benchmark loan
proxy. While Article 14(b) contains no specific guidance as to how this would need to be done, we
see no a priori restriction to any geographical market (as exists, for example, in Articles 14(a) and
14(d)), or any prohibition of any particular approach to constructing a proxy. Rather, the fundamental
rule in Article 14(b) is that the measurement of th e benefit be based on what "would" have been paid
on a comparable commercial loan that "could" act ually have been obtained by the investigated
borrower, even if no such loan exists.
10.120 We note in this regard that China invokes th e particular case of RMB-denominated loans as a
situation in which it is impossible to use any inte rest rate other than one found inside China as a
benchmark, due to the impossibility of borrowing RMB anywhere outside China. We acknowledge
that the currency in which a loan is denominated is of course one of its most important characteristics,
and that using as a benchmark a loan in another cu rrency poses particular challenges. That said, in
our view, currency differences do not necessarily po se the insurmountable hurdle that China posits.
In particular, there are means to determine the equi valence of loans expressed in different currencies,
notably the various forms of swap transactions that are routinely used in international financial
markets, whereby borrowers in different currenci es swap principal amounts and/or interest payment
streams on their respective loans. By definition, these exchanges between willing partners express the
equivalence of the values of the dissimilar things being exchanged. We note that swap transactions of
this type were originally devel oped to circumvent restrictions a nd limitations on borrowing in foreign
currencies.
618 Thus, unlike China, we do not consider that the geographic restriction of lending in a
particular currency precludes, as a matter of law, a comparison with a benchmark loan expressed in a
different currency from that of the government loan. Rather, this is a feature of a loan that can, at
least in certain circumstances, be made to be "c omparable", in the sense of Article 14(b), to the
investigated government loan.

618 See http://www.sjsu.edu/faculty/watkins/swaps.htm. We further note that in 2005, the People's Bank
of China reportedly allowed banks for the first time to engage in cross-currency swaps for forward foreign
exchange contracts (although not interest). (Risk magazine, "China opens up renminbi swaps market",
1 September 2005).

10.121 More generally, we see China's interpretation of the terms of Article 14(b) as excessively
formalistic, in that it would effectively limit an investigating authority's ability to identify an
appropriate benchmark, forcing it instead to fall back on a choice from among inappropriate
benchmarks. In particular, in our view, the implication of China's argument is that even if all loans in
a given country were made by the government, the investigating authority would have no choice but
to identify as a benchmark for the investigated gove rnment loan another government loan, so long as
the second loan was made in the "ordinary course of commerce" 619 (a term for which China offers no
explanation).620 In our view such a comparison would be entirely circular given that the point of the
exercise under Article 14(b) is to compare the gove rnment loan in question to something that is not a
government loan. Similarly, we consider that pursuan t to China's argument, if a loan were made in a
particular currency which was only lent in the country subject to the investigation, then even if all of
the loans in that currency were government-provided lo ans, the fact of the currency restriction again
would force the investigating authority to iden tify the benchmark from among the same-currency
government loans, in spite of the circularity of th e resulting comparison. To us, this is directly
counter to the directives of Article 14 in general a nd Article 14(b) in particular, which are aimed at a
meaningful comparison with the commercial market.
10.122 In this respect, we see the logic of the Appellate Body's reasoning in US – Softwood
Lumber IV in regard to Article 14(d) of the SCM Agreemen t to be equally applicable to Article 14(b),
and indeed to Article 14 in its entirety. Here we re call in particular the Appellate Body's analysis of
the terms "in relation to prevailing market conditions [...] in the country of provision" in Article 14(d).
The Appellate Body reversed the panel's interpretati on that this required the use of in-country prices
as the benchmark even if distorted by the government's predominance as a supplier of the good. The
Appellate Body found that instead any benchmark, to be "in relation to" those market conditions, had
to "relate or refer to, or be connected with" them . In this regard, the Appellate Body specifically
indicated that where in-country benchmarks were not available, "proxies" could be used so long as
these related or referred to, or were connected with , the "prevailing market conditions in the country
of provision".
10.123 We recall in this context that the problem wh ere in-country benchmarks cannot be used to
determine adequacy of remuneration for goods is th at the prevailing, observed conditions of purchase
or sale in the country of provision of the good reflect the government's role as predominant supplier or
as controller of the prices. As such, it is clear that the appropriateness of any selected proxy in such a
situation (in terms of how well it reflects the "pre vailing market conditions" for the good in that
country) cannot be verified directly. We thus unde rstand the Appellate Body, in these statements, to
indicate that while proxies can be used in pl ace of the directly observed prices in certain
circumstances, those proxies must be carefully sel ected and adjusted as n ecessary to as closely as
possible represent the market conditions that wo uld prevail if the government was not the
predominant supplier or did not control the prices. Furthermore, given that the Appellate Body has
found that the language in Article 14(d) referring to the "country of provision" does not limit, in a
formalistic way, the selection of a benchmark fro m among the observed prices in that country, we
consider that the same is equally true where, as in Article 14(b), the term "market" is not
geographically modified in any way.
10.124 We note China's argument that its approach w ould not result in a circular comparison. In
particular, China views the United States' approa ch as based on a misplaced analogy between the
Appellate Body's reasoning in US – Softwood Lumber IV in respect of the "role of the government in

619 See, e.g., China first written submission, para. 235.
620 China only provides a dictionary definition of the term "commercial" and cites a paragraph of the
Panel Report on China – Intellectual Property Rights and a paragraph of the Panel Report on Canada – Wheat
Exports and Grain Imports in which the dictionary definition of the term "commercial" appears. China provides
no definition and/or explanation of its own phrase "ordinary course of commerce".

the market as a provider of the same or simi lar goods" under Article 14(d), and government
ownership of financial institutions. China states that implicit in this argument is the suggestion that
government ownership of financial institutions somehow "distorts" th e interest rates charged by all
financial institutions within a country, such that natio nal interest rates are "unreliable" or "unsuitable"
as a benchmark under Article 14(b). China disagrees because, it argues, central banks set interest
rates as a tool of monetary policy, which rates in turn affect the interest rates on commercial loans
charged by all banks, whether or not the latter are government-owned. According to China, there is
nothing "circular" about comparing the interest rate on a government-provided loan to the interest rate
conditions that affect all borrowers in the same cu rrency, regardless of the source of the loan, because
the effect that governments have on interest rates do es not result from whatever role they play in the
market for commercial lending, i.e., from their "role in providing the financial contribution". Rather,
it arises from their role as a government in guiding monetary policy.
621
10.125 We do not consider that this argument by Chin a resolves, or even squarely addresses, the
legal issue before us. In particular, China's argument presumes that all government control or
regulation of or intervention in lending markets, of whatever kind and degree, must be treated as the
simple implementation of general monetary policy, which by definition cannot give rise to distortion
of lending rates so as to make the observed interest rates within the country unusable as benchmarks
(even if all of those observed interest rates happene d to be for government-provided loans). We see
no such rule in Article 14(b) or anywhere else. Indeed, we recall that the overall purpose of the SCM
Agreement includes, precisely, to di scipline certain forms of market interventions by governments.
We can see no logic, given this, to considering that a particular class of government market
interventions (relating to interest rates) must be accepted "as is" as the underlying "market" condition,
particularly where the question to be resolved is exactly whether on a given loan transaction the
interest rate charged by that same government is "below-market".
10.126 Furthermore, we see no requirement that observed interest rates in the particular country or
geographical market must simply be accepted as the "commercial" rates against which to measure the
investigated government loan, even if the government 's interventions of whatever kind (as opposed to
the operation of market forces) effectively dictate the levels of those interest rates. Here, we see a
clear distinction between, on the one hand, the go vernment as the setter and implementer of the
general monetary policy of a country; and, on the ot her hand, the government participating as a lender
and/or otherwise intervening in the lending market as such, in a way and to an extent that effectively it
is the government, and not the market, that establishes the lending rates.
10.127 We acknowledge, as China points out, that govern ment influence over interest rates is an
important feature of monetary policy. Indeed, ad justing their own lending rates up or down is one of
the principal tools by which central banks influence the money supply. It also is true that interest rate
movements at the central bank level ripple throu gh the commercial lending market such that the
different sorts of commercial lending rates (short- and long-term, fixed and floating, for borrowers of
different risk levels, etc.) tend to move in parallel with the central bank rates. This indeed is generally
the goal of such central bank actions, as the loosen ing or tightening of commercial credit directly
increases or decreases the money supply.
10.128 This is a very different matter, however, from a hypothetical situation in which, for example,
the government is the only lender in a country. In su ch a situation, whatever its underlying monetary
policy, the government itself would directly set all of the lending rates to all of the firms in the
country. Thus, there would be no commercial benchm ark interest rate in that country to which the
interest rate on any government loan could be co mpared in the sense of Article 14(b). Any in-country
comparison would be inherently circular.

621 China second written submission, paras. 98-100; response to Panel question 34 (first meeting).

10.129 It also is very different from a hypothetical s ituation in which the government simply dictated
the lending rates to be charged by "commercial" banks . That is, even if the government itself was not
a lender, and even if the banks were not govern ment-owned, and regardless of the underlying
monetary policy, it would be the government, not market forces, that set the lending rates for
commercial borrowers, by fiat. Thus, here again there would be no commercial benchmark rate to
which the interest rate on a government loan could be compared in the sense of Article 14(b). Again,
any in-country comparison would be inherently circular.
10.130 Similarly, some combination of a large govern ment role as a lender to commercial borrowers,
and significant direct control over lending and in terest rates to commercial borrowers, also could
result in a situation in which the interest rates to commercial borrowers do not reflect the operation of
market forces, but instead are distorted in the sense that they are effectively established by the
government. In this situation as well, we consider that comparing the interest rate on a government
loan to another loan in the same country would be a circular exercise. We view such a situation as
analogous to that analyzed by the Appellate Body in US – Softwood Lumber IV (government
predominance as a supplier of a good), and as discussed we consider that inherent in Article 14(b), as
in Article 14(d), is sufficient flexibility to permit th e use of a proxy in place of observed rates in the
country in question where no "commercial" benchmark can be found.
(b) The USDOC determinations not to rely on inte rest rates in China as benchmarks for SOCB
loans
10.131 In the three investigations at issue, the US DOC stated that the benefit from a government-
provided loan normally is measured by comparison to a "loan that the recipient could actually obtain
on the market" and therefore "the benchmark should be a market-based rate". In these investigations,
however, the USDOC determined that there was not a functioning market for loans within China
622,
and that therefore none of the sources of Chinese interest rates could be used as benchmarks, as
follows:
• SOCBs loans, which were found to be made under the "Government Policy Lending"
program, could not used as benchmarks since these loans were the ve ry loans for which
suitable benchmarks were needed623;
• Chinese national interest rates were not reliable as benchmarks because of the pervasiveness
of China's intervention in the banking sector – i.e., loans provided by Chinese banks reflected
significant government intervention and did not reflect the rates that would be found in a
functioning market624; and

622 Exhibits CHI-1, p. 6; CHI-3, p. 11; and CHI-4, p. 7. The USDOC considered that while
benchmarks must be comparable commercial loans – i.e. , they must be from a commercial lending institution,
and similar in structure to government loans with respec t to whether they are fixed or variable, the date of
maturity, and the currency in which th ey are granted – interest rates are un usable to measure the benefit from
government loans where they are found to be distorted. In the LWS and OTR investigations, citing to its
previous findings in the CFS Paper investigation, the USDOC further determined that these market distortions
could not be adjusted. It noted that for an adjustment to be practical, an underlyi ng market-based rate must
exist; however, in China (where no underlying market-b ased rate exists), determining what the necessary
adjustments would be in order to form a market-determined interest rate would be highly complex, speculative,
and impracticable. (Exhibits CHI-3, p. 83; CHI-4, p. 104; and CHI-93, p. 70).
623 The USDOC noted that it does not treat comparable commercial loan s, which it normally uses for
benchmarking purposes, as commercial loans where they were provided pursuant to a government programme.
(Exhibits CHI-1, p. 6; CHI-3, p. 11 and CHI-4, p. 7).
624 Exhibits CHI-1, p. 6; CHI-4, pp. 7 and 104; and CHI-34, p. 67900.

• Foreign bank lending in China was unsuitable as a benchmark since China's involvement in
the banking sector created significant distortions , restricting and influencing foreign banks
operating within China.
625
10.132 The USDOC's assessment and conclusions in the three investigations that Chinese interest
rates were distorted and did not reflect the rates that would be established by a functioning market
were based on its previous findings in the CFS Paper investigation. In that investigation, the USDOC
had reviewed the role of the Government of Chin a in the banking sector and concluded that China's
intervention in the lending market distorted the market. 626 In the three investigations at issue before
us, the USDOC determined that the respondents ha d not demonstrated that these findings no longer
held. The USDOC's determinations in the three inve stigations thus are based on, and cross-reference
extensively, its determination in CFS Paper. Given this, before we examine the USDOC's specific
findings in the three investigations, we summarize the relevant portions of the CFS Paper
determination.
(i) The CFS Paper determination relied upon by the USDOC in the OTR, CWP and LWS
investigations
10.133 In CFS Paper, China and investigated producers had generally argued that:
• There was not a program in place to provide preferential lending : The Government of China
and Chinese producers argued that "policy banks" an d "policy lending" no longer existed as
such in China. They noted that the importa nce of both had decreased since the year 2000
when the need for policy lending (and thus, for po licy banks) declined. Since that time, the
lending from policy banks had shifted from policy loans to commercial loans. The
respondents argued that record evidence – statements by the PBOC and the China Bank
Regulatory Commission (the "CBRC") – demonstrated that both SOCBs and policy banks
functioned essentially as commercial banks, independent from government influence, and that
industrial policy was only one of the factors that such banks considered in analyzing risk.
Thus, they argued, these banks' decisions were based on commercial considerations.627

• SOCBs and Policy Banks opera ted on a commercial basis : The respondents also argued that
other characteristics of the banking system de monstrated that SOCBs as well as policy banks
operated on a commercial basis and acted indepe ndently from the government: (i) the loan
application and approval processes were similar to those in the United States and other
countries, and the government was not involved in such processes (as demonstrated at
verification); (ii) banks in China had adopted and implemented risk analysis systems based on
best practices, the implementation of which w as monitored by the CBRC (the effect of the
adoption of these risk analysis systems was that the number of non-performing loans was
declining); (iii) the refusal of loans to some of the companies under investigation proved that
they did not enjoy preferential lending from SOCB s; and (iv) according to record evidence
(verification), banks competed regarding inter est rates and customers were able to shop
around for the best rates.
628

625 Exhibits CHI-1, p. 6; CHI-4, p. 105; and CHI-34, p. 67900.
626 In its previous anti-dumping duty investigation in Lined Paper , (in which, consistent with its
practice, it treated China as a non-ma rket economy), the USDOC determined that the banking sector in China
did not operate on a commercial basis and that it was subject to significant distortions because of the continued
dominant role of the government in the banking sector. This finding was further elaborated in CFS Paper,
where the USDOC found that the government of China continued to dominate the domestic banking sector and
to prevent banks from operating on a fully commercial basis. (Exhibits CHI-1, p. 7 and CHI-34, p. 67900).
627 Exhibit CHI-93, pp. 42-43.
628 Id., p. 44.

• The role of the government was similar to that of any other government : The respondents
submitted that the role of the government in China was similar to that of any other
government in allocating credit to specific industr ies: (i) the main role of the PBOC, which
was macroeconomic analysis and monetary policy (including issues such as interest rates and
inflation), did not indicate that it was able to ensure that banks' lending decisions and credit
allocations conformed to government policies; (ii) the provisions of the Commercial Banking
Law were not internally-inconsistent (some pr ovisions prohibited govern ment interference in
the banks while others encouraged lending cons istent with State industrial policy). Taken
together, they provided that lending should ta ke into consideration government policy and its
effect on the borrower/project to be finan ced; (iii) banking reforms in China had been
implemented, thus, the assumption that banks based their lending decisions on industrial
policy was entirely based on "policy statemen ts"; (iv) there was no evidence that bank
officials appointed by the government were required to implement government industrial
policies; (v) there was no "direct" record evid ence to support the proposition that lending and
credit allocation in China was directed (i.e., the studies referred to by the applicants contained
outdated data (before 2005) and were subject to an opposite interpretation from that of
petitioners)629; and (vi) numerous studies, which showed that a significant amount of capital
flowed into and out of China, demonstrated th at the Government of China could not constrain
Chinese capital markets.630
• Internal benchmark in China : The respondents argued that there were appropriate
benchmarks in China that the USDOC should use in its benefit calculation. 631 Interest rates in
China were like those in a functioning market since, although in the past there had been
government intervention, there had not been in the recent past and during the period of
investigation, and there had been a gradua l liberalization of the financial markets.
632 Interest
rates for foreign currency loans 633 and interest rates on loans received by investigated
producers from privately-owned Chinese banks (which were fully verified) were the rates that
should be used for benchmarking purposes.634
10.134 The USDOC rejected these arguments. The USDOC stated that gove rnment influence was
still present in the lending sector and that China's banking reforms had not been fully implemented.
Specifically, the USDOC determined that:

629 Respondents further argued that where information from secondary sources (e.g., articles, and
commentaries) is in conflict with primary source information, the USDOC should rely on the latter. They noted
that evidence from primary sources on the record indicated that SO CBs and policy banks functioned as
commercial banks – i.e., statements by bank officials, bank loan approval documents, bank project guidelines as
well as banking regulations and policies indicated that banks evaluated loans on a commercial basis and that
government industrial policies were a minor factor in the lending decision making process. (Exhibit CHI-93,
p. 45).
630 Id., p. 44-45.
631 Id., p. 62.
632 Similar to its arguments in the present dispute, the Government of China argued that its
interventions on interest rates were not that different from those carried out by other countries around the world,
and that the mechanisms applied by the government did not distort interest rates, rather it actually kept them too
high (and not too low as asserted by petitioners). (Id., p. 63).
633 They argued that in fact, the USDOC found government control only of RMB-denominated lending
and deposit rates, and not of foreign-currency lending in China. Further, the USDOC did not determine that the
Government of China controlled foreign-currency lending practices. (Id., pp. 63-64).
634 Id., p. 64. The Government of China and Chines e investigated producers also made a number of
arguments with respect to the out-of-country benchmark calculated by the USDOC: they, inter alia, challenged
the USDOC's reliance on gross national income (GNI) to determine the proper basket of comparison countries
(challenged as an outdated World Bank categorization), and argued that the rate of inflation should also be
considered in determining the real cost of a loan. (Id.).

• China's banking system was still under state-control : The USDOC found that China's
banking system remained under state control and continued to suffer from legacies related to
the longstanding pursuit of government policy objectives, undermining the SOCBs' ability to
act on a commercial basis. 635 While the scope and extent of government control over SOCBs
was changing and evidence on the record with resp ect to such control was mixed, the central
government had been very cautious on completely reforming the banking system; as a result,
and since banks in China had never operated on a commercial basis, the government was still
very involved in the sector. 636 Further, the USDOC found that while banking reforms in
China might be starting to take effect, the evid ence on the record indicated that they had not
yet been fully implemented and that the influence from the government remained a significant
factor in the operation of China's banking sector. 637 The USDOC noted that although the
largest SOCBs had undergone some reorganiza tion to become corporate entities (limited
initial public offerings had been conducted and minority stakes in SOCBs were sold to
foreign banks) their primary shareholder remained the Chinese government. Foreign
investment in Chinese banks was tightly constrai ned, with total foreign ownership limited to
25 per cent in SOCBs.638
• China's banking system still operated in acco rdance with governmental planning-policies :
The USDOC found that (i) the government owne rship of the banking sector in China was
"one" factor in the legacy effects of government control of the banking sector; (ii) the legal
framework of China's banking sector contra dicted the argument that SOCBs operated
independently from the government 639; (iii) the Government of China had not demonstrated

635 The USDOC relied on statements from various reports as follows: (i) the OECD Report stated that
"chief executives of the head offices of the SOCBs are government appointed and the party retains significant
influence in their choice"; ( ii) the 2005 IMF Staff Report stated that "[r]ooting out the legacy of government
directed lending, and training banks to make lending decisions based on purely commercial considerations …
remains a major reform challenge"; (iii) the 2005 PBOC Annual Report stated that "[a]s the economic reform
was not completed yet, investment was still orchestrated to a large extent by government […]"; (iv) the 2004
PBOC Annual Report stated that "some local governments still seek to promote economic growth by expanding
investment"; (v) the 2004 China Monetary Policy Report stated that "[i]n 2004 the PBC under the guidance of
the central government […] strengthening its window guidance and credit policy advi ce for commercial banks
to follow the State industrial policy constrain credit to overheated industries and those inconsistent with the
State industrial policy and to increase financial support for development of agriculture small and medium-sized
enterprises consumption employment education and non-state sector guided"; and (vi) the 2005 Monetary Policy
Report stated that "[t]he PBC implemented […] the m acroeconomic strategy mapped out by the central
government which called for differentiated treatment to different sectors by timely conveying to financial
institutions the governments policy intentions so as to guide the commercial banks in taking forward-looking
approach to respond to changes of economic cycles and industrial development and to improve the credit
structure". (Exhibit CHI-93, pp. 55-57).
636 The USDOC noted that this view was, at varying degrees, confirmed by independent experts. (Id.,
pp. 56-57).
637 Id., p. 58.
638 Id., p. 67. As we have noted, footnote 244, supra, China acknowledges that at the end of 2006,
government ownership of the Big Four was as follows: 75 per cent in the ICBC; 74 per cent in the CCB; 68 per
cent in the BOC; and 100 per cent in the ABC. (China first written submission, para. 165).
639 The USDOC noted that while the Chinese Commerc ial Banking Law states that "commercial banks
are responsible for their own profits and losses, must protect the interests of their depositors, and are protected
from government influence", it further requires banks to "carry out their loan business upon the needs of
national economy and the social development and under the guidance of State industrial policies". Similarly,
the Bank of China Global Offering stated that "Commercial Banking Law requires commercial banks to take
into consideration government macroeconomic policies in making lending decisions. [They] are encouraged to
restrict their lending to borrowers in certain industries in acco rdance with relevant government policies". At
verification, officials from the People's Bank of China stated that "it may be necessary for banks to heed
industrial policies; banks may be taking on great risk if their customers use loans in a way that is inconsistent
with industrial policies". Further, the 2006 Repor t from State Council revealed that the reforms on

how or to what extent industrial policy was c onsidered in the loan approval process, although
it had argued that industrial policies were only on e of the factors considered in this process;
(iv) while SOCBs were improving their risk management capacities, they still lacked
adequate risk management640; (v) despite several requests, the USDOC had not been provided
with sufficient evidence to examine the comple te loan-approval process, or with evidence
necessary to show that the loans were made on a commercial basis 641; and (vi) since the
Chinese legal banking framework required banks to take into consideration government
macroeconomic policies in making lending deci sions, China's excess liquidity (or high
volumes of loans) did not indicate that the Gove rnment of China could not have control over
the SOCBs and guide their loan portfolios.642
• Interest rates regulated by the government : The USDOC found that the continued dominance
of the State in Chinese banks as well as China's long history of using the banks to carry out its
policy objectives, made uncertain the reliability of interest rates in China and their suitability
as commercial benchmarks. Although the CBRC had been established in 2003, it was
supervised by the PBOC until 2004. Thus , it was improbable that it could have
revolutionized the operations of the banking sector only one year after taking on its
supervisory role. 643 Furthermore, while banks were improving their risk management
capacities, the way that interest rate formati on was regulated in China both distorted lending
rates and proved that SOCBs were not fully able to price their loans on a commercial basis.
China maintained a system of both deposit rate caps and lending floor rates in such as way to
guarantee the banks a considerable profit margin on their loans. 644 The lending rate floor was
set so as to prevent the banks from pricing their loans at unsustainably low levels. In fact,
interest rates remained generally undifferentia ted – interest rates were quite close to the
PBOC-set benchmark. On the other hand, the cap on deposit rates was set at a level slightly
higher than inflation. Therefore, savers in China, beyond being restricted by the government
to access alternative forms of investment, were prevented (by law) from receiving more than a
negligible real return on their savings. As such, banks in China did not compete on deposit
rates and almost had an unlimited access to the savers' capital at very little cost. 645

"implementing a system that grants independence in investment coupled w ith responsibility for risk" were an
ongoing process and were not complete in 2005. (Exhibit CHI-93, p. 58).
640 According to the USDOC, this was partially demons trated by the fact that interest rates in China
remained generally undifferentiated. At verification, an official from the PBOC explained that interest rates
spreads were close to the PBOC-set be nchmark rate because "the Big Four attract the largest borrowers [which]
are creditworthy [...] and have long-term relationship with the banks". (Id., pp. 59, 68-70). The USDOC further
noted that the risk analysis system of most of these banks was not fully implemented: the PBOC stated that the
ceiling on the deposit rate had been put in place "in orde r to afford banks time to restructure and a floor on
lending rates to maintain order in th e market [...] these restrictions will eventually be eliminated when banks
have fully developed risk management and cost controls"; the CBRC stated that it "ha[d] [...] established a
framework for achieving an international level of risk management" but at the same time acknowledged that
"[such a] framework does not necessarily indicate a high level of risk management in practice"; and the BOC
stated that its risk management implementation "i s an on-going process [and that] there was not a
comprehensive risk management system fully established in 2005". (Exhibit CHI-93, pp. 59-60).
641 Id., p. 60.
642 Id.
643 Id., p. 68.
644 The USDOC noted that at verification "the PBOC conceded that this floor and cap system sets
China apart from other countries and that it is necessary because the banks have not yet fully implemented risk
control". (Id., p. 68).
645 The USDOC noted that the cap on deposit rates was both binding in 2005 and set at a level that was
barely higher than inflation. Thus, according to the USDOC, savers were prevented from receiving more than a
negligible real return on their savings and banks in China "do not compete on deposit rates and have access to
savers' capital at very little cost". Thus, given that the government directs China's savings to the banking sector,
that only a low return on deposits is allowed, an d that banks cannot compete on deposit rates, the USDOC

Furthermore, the interest rates of the "issuance of commercial paper" or "corporate bills" – the
equivalents for lending rates in China that we re not regulated by the government – were not
market-based and therefore not useable as a benchmark.
646
• Foreign-owned banks in China were subject to the same restrictions as SOCBs : The USDOC
determined that foreign-owne d banks operated in the same distorted environment as the
Chinese banks. It further found that these banks ' share of financial assets and lending activity
was negligible compared with those of SOCBs. While their participation in the domestic
banking sector had increased, they provided only a very small share of credit in China and
still operated mostly in niche markets. They did not compete directly with SOCBs.647
• Foreign currency lending rates in China for m easuring the benefit of loans issued in RMB :
While the rates for foreign-currency loans in Ch ina might follow international trends to some
extent – being influenced by the monetary po licies of the foreign country's central bank –
foreign currency lending in China formed a very small portion of the overall financial
sector.648 Further, these rates did not provide any basis for a benchmark of what RMB rate
would prevail in a market situation (as China's dominance of and intervention in the banking
sector meant that such a benchmark did not exist in China).649
10.135 As noted, in each of the investigations at issue in the present claim, the USDOC relied on
these findings. It determined that the market distortions it had found in the CFS Paper case were still
present and that the Government of China and inte rested parties had not demonstrated that the
Chinese banking sector had significantly changed such that reconsideration of the CFS Paper decision
was warranted. 650 As a result, the USDOC determined in each of the investigations at issue that
interest rates in China did not provide a suitabl e basis for assessing whether the loans provided to
investigated producers conferred a benefit.
10.136 The specific arguments of the respondents and the findings of the USDOC in these three
investigations were as follows:
(ii) OTR Investigation
10.137 In the OTR investigation, the Government of China argued that according to the evidence on
the record, banks in China operated on market princi ples, and that the government five-year plans and
other policy documents did not instruct banks to provide preferential financing to the OTR tire

determined that "the concern about the banks driving interest rates down on their own to unsustainable levels
[was] not surprising". (Id., pp. 69-70).
646 The USDOC found that even thou gh the Drazen Report (submitted by the Government of China to
the USDOC) was correct in stating that these instruments were similar to bank loans and that they constituted an
exception to the usual regulatory framework on lending, this lending regulatory framework – which served to
keep rates higher than they would be otherwise – made the rates of these financial instruments to be lower than
that of standard bank loans. The USDOC considered that this was not a genuine market outcome since these
instruments constituted only a limited exception within the market. It noted that, in fact, it was the PBOC's
maintenance of lending rate floors – in order to avoid lending rates going down to a level that could endanger
the whole financial system – that allowed these alternative financial instruments to constitute only a limited
exception. The USDOC noted in this respect that bank loans accounted for over 90 per cent of total financing in
China in 2004, such that the alternative financial instruments proposed in the Drazen Report accounted for a
very small share of total financing in China. (Exhibit CHI-93, p. 69).
647 Id., p. 70. The USDOC's determination relied on the OECD Report.
648 For example, CCB foreign currency loans only accounted for 5 per cent of their total loans. (Id.,
p. 70).
649 Id.
650 Exhibits CHI-1, p. 7; CHI-4, p. 105; and CHI-34, p. 67900.

industry. Further, the Government of China claimed that government influence over the operations of
the SOCBs was little and that state ownership of banks was diminishing and the state was not
influencing competition among banks or influencing their lending decisions. 651 The Government of
China noted that it had eliminated control of inte r-bank lending, liberalized the ability of banks to
determine lending and deposit rates, and provided greater latitude to the banks in paying interest on
consumer deposits by only setting a ceiling on deposit interest rates. The Government of China
argued that therefore domestic interest rates in China should have been used as a benchmark. 652 An
investigated producer argued that interest rate s from foreign banks operating within China should
have been considered as the internal benchmark since foreign banks were not controlled by the
government and provided loans on commercial terms.653
10.138 In its determination in the OTR investigati on, the USDOC stated that the government's
predominant role in the banking sector resulted in significant distortions that rendered the lending
rates in the country unsuitable as benchmarks, cro ss-referencing its findings to this effect in CFS
Paper. The USDOC noted that pursuant to U.S. domestic law, benchmarks must be comparable
commercial loans, i.e., they must come from a commer cial lending institution, they must be similar in
structure (variable or fixed rate), date of matur ity, and currency. Because of the distortion of the
interest rates in China, howeve r, these interest rates were unusable to measure the benefit from
government loans, and it was not possible to adjust for those distortions, as such an endeavour would
be "highly complex, speculative, and impracticable".654
10.139 The USDOC found that the government's intervention in the banking sector created
significant distortions, restricting and influencing ev en foreign banks within China, such that the
interest rates of neither Chinese nor foreign banks could be used as benchmarks. Concerning the
government involvement in the banking sector, th e USDOC found that while there had been some
positive developments in SOCBs' lending practices in respect of increased cr edit risk analysis and
other scrutiny measures before making lending decisions, the government continued to play a
predominant role with significant distortions in its commercial banking sector.
655 In this regard, the
USDOC noted that it had been denied access to many loan documents that it n eeded for its analysis.
The USDOC further found that parties in the inv estigation had not demonstrated that conditions
within the banking sector had changed since its determination in CFS Paper that the Chinese credit
market was distorted. Although the period of inv estigation in the OTR investigation was one year
later than that in the CFS Paper investigation, the respondents had not pointed to specific changes that
had occurred between those periods that would warrant a reconsideration of the determination that the
credit market was distorted. The USDOC noted th at the government's guidance in assisting reform,
and in moving the banking system toward a commerc ial footing, did not mean that the credit market
was not distorted through the government's ownershi p and control of banks. It also noted that

651 Exhibit CHI-4, p. 101. The Government of China noted that banks in China, including the four
largest SOCBs, made their lending de cisions according to commercial considerations and had in place written
procedures for risk analysis and loan approval similar to those of United States' banks and other market
economies. At verification, BOC offi cials informed the USDOC that it cons idered all relevant factors when
evaluating loan applications (including the company's operation and management, financial performance,
competitive position, industrial risks, future prospects, the development cycle of the industry, changes in that
cycle, information on the particular industry, and the structure of competition in the industry) and that its
lending practices followed very detailed internal credit risk analysis guidelines. (Id., p. 102).
652 Exhibit CHI-4, p. 102.
653 Id., p. 104.
654 Id.
655 The USDOC's determination was based on the fact that it was denied access to many of the loan
documents that it deemed critical for its analysis. In addition, the USDOC noted that the parties did not point to
any specific changes that occurred between 2 005 (the period of investigation in the CFS Paper investigation)
and 2006 (the period of investigation in the OTR inves tigation) that would have warranted a reconsideration of
the determination in CFS Paper that the credit market in China was distorted. (Id. p. 105).

although SOCBs were moving toward a more solid commercial focus, this did not preclude them from
serving as the implementing arm of government policy lending.
656
(iii) CWP Investigation
10.140 In the CWP investigation, the Government of China argued that the record evidence
demonstrated that: (i) China had a commercially-o riented lending market; (ii) loan pricing was
determined by market forces, with banks making lending decisions based upon commercial
considerations, including proper risk assessment; and (iii) governmental industrial policy had a very
limited role in lending decisions, and was only one factor that a bank might take into account in
examining risk.657
10.141 The USDOC rejected the Government of Chin a's arguments. It recalled that in the Lined
Paper investigation it had found that China's banking sector did not operate on commercial basis and
was subject to significant distortions, primarily ar ising out of the continued dominant role of the
government in the sector. It also recalled its determination in CFS Paper that the government still
dominated the domestic Chinese banking sector a nd prevented banks fro m operating on a fully
commercial basis. In the CWP investigation, the USDOC found that these distortions were still
present in the Chinese banking sector, and that theref ore the interest rates of the domestic Chinese
banking sector did not provide a suitable b asis for benchmarking the loans in question. 658 A l s o
recalling the CFS Paper determination, the USDOC found that foreign-owned banks operating in
China were subject to the same restrictions as the SOCBs, and that their share of assets and lending
was negligible compared with those of the SOCBs. Therefore, for the same reasons discussed in the
CFS Paper investigation, the USDOC determined that foreign bank lending did not provide a suitable
benchmark.659
(iv) LWS Investigation
10.142 During the LWS investigation, the Governme nt of China argued that the USDOC had
committed a legal error in the preliminary determinat ion when it used an out of country benchmark to
determine whether the government loans at issue conferred benefits. Th e Government of China
argued that under U.S. domestic law, the benchmar k must be a comparable commercial loan that the
borrower could actually obtain on the market, and th at the world-wide interest rates used did not
represent loans that a recipient could obtain in China.660
10.143 For its final determination in the LWS inves tigation, the USDOC relied on its preliminary
determination as well as its pr evious findings in CWP and CFS Paper to determine that interest rates
in China were distorted and thus unusable as be nchmarks to measure the benefit from government
loans. The USDOC also had found that while fo reign-owned banks operated in China, they were
subject to the same restrictions as the SOCBs an d their share of assets and lending was negligible
compared with those banks. 661 The USDOC stated in this regard that no new information had been
submitted subsequent to the preliminary determination to give a reason to revisit that determination as

656 Exhibit CHI-4, pp. 104-105.
657 China did not identify any specific evidence on the record. (Exhibit CHI-1, p. 72).
658 Id., p. 7. In its overall benchmarking determination, the USDOC noted that "there is not a
functioning market for loans within th e PRC. Therefore, because of the sp ecial difficulties inherent in using a
Chinese benchmark for loans, the Department is selecting [an out-of-country benchmark]". (Id., p. 6).
659 Id.
660 Exhibit CHI-3, p. 82.
661 Id., p. 11 and CHI-34, p. 67901.

to the benchmark issue. The USDOC also noted th at it was not possible to adjust for the market
distortions it had found, because to do so would be too complex, speculative and impracticable.662
(c) Assessment by the Panel
10.144 Having reached the legal conclusion that, where lending rates in a given market are distorted
due to government involvement such that no commercial benchmark can be found, Article14(b) of the
SCM Agreement permits resort to alternative s ources for benchmarks, we now analyze the USDOC's
determinations not to rely on Chinese interest ra tes as benchmarks. In particular, we consider
whether, based on the evidence before the USDOC, a reasonable and objective investigating authority
could have reached the conclusion reached by the US DOC, namely that rates in China were distorted
by government involvement in and control over the lending market such that there were no
commercial interest rates that could be used as benchmarks.
10.145 We note that although the analysis as presented in the determinations in the investigations
before us in this claim is relatively brief, in each case there is a cross-reference to the determination in
the CFS Paper investigation. That determination thus fo rmed the principal substantive basis for the
USDOC's determinations, in the three investigations before us, that Chinese interest rates were
unusable as benchmarks. We note, further, that th e descriptions in the determinations in the CWP,
LWS and OTR investigations appear to indicat e that little new evidence in respect of the
government's role in the banking sector was addu ced by respondent parties beyond what had been
relied upon in the CFS Paper investigation, and that what was submitted did not lead the USDOC to
change its assessment of the government's role in the banking sector. Before us, China makes little
reference to any new record evidence of this type having been submitted, instead raising legal issues
as to the permissibility of disregarding the interest ra tes in China. In other words, before us China
does not argue that, contrary to the USDOC's determ ination, there had been a major change in the
government's role in the banking sector between the determination in the CFS Paper investigation and
those in the CWP, LWS and OTR investigations.
10.146 We thus now turn to the analysis and c onclusions from the determination in the CFS Paper
investigation. Here we note that the CFS Paper determination makes extensive reference to
publications by outside institutions (OECD and IMF) as well as internal documents including
published reports of Chinese banks, laws, etc. in support of its basic finding that the Chinese
government played a predominant role in the Chinese banking sector and distorted interest rates. The
USDOC also conducted extensive verification at whic h various officials made statements indicating
the same role and influence of the Chinese government. Furthermore, there was extensive discussion
in the CFS Paper determination to the effect that lending rates were largely undifferentiated, with
most loans being made at rates close to the govern ment-set benchmark rate. While before us, China
refers to this as evidence of interest rate competiti on, and the operation of market forces, we consider
that the USDOC was not unjustified in concluding that this was rather evid ence that market forces
were not operating, in particular, that banks still lacked adequate risk management and analysis
skills.663 We also note that China does not dispute the USDOC's factual findings that the foreign
banks in China were subject to the same governme nt controls as domestic banks, and that privately-
owned Chinese banks accounted for a very small percentage of total lending.
10.147 In sum, on the basis of the record evidence be fore the USDOC, we find that a reasonable and
objective investigating authority could have concluded that the government played a predominant role
in the Chinese commercial lending market as both a lender and in terms of controlling the operation of

662 Exhibit CHI-3, p. 83. From the record evidence be fore the Panel, it appears that the Government of
China did not present arguments and/or evidence on the question of governmental control of the banking sector
in the LWS investigation.
663 Exhibit CHI-93, p. 59-60.

this market, and thus distorted interest rates, such that the observed rates were not suitable as
benchmarks. We also note the statements by the USDOC in the LWS and OTR investigations that it
would not be possible to make the necessary adjustme nts to the observed rates to convert them into
usable benchmarks. It is not the role of a Panel to conduct a de novo review of the evidence, and
China has not objected to this conclusion of the USDOC. We thus find no basis in the evidence
before us to question this judgement by the USDOC.
10.148 For the foregoing reasons we therefore find th at China has not establis hed that the USDOC's
decision not to rely on Chinese interest rates as benchmarks for SOCB loans denominated in RMB
was inconsistent with the obligations of th e United States under Article 14(b) of the SCM
Agreement.
664
H. PANEL'S TERMS OF REFERENCE – BENCHMARKS ACTUALLY USED BY THE USDOC
1. Introduction
10.149 WTO dispute settlement panels are under a duty to address and dispose of certain issues of a
fundamental nature on their own motion if the parties to the dispute remain silent on those issues. No
doubt, the vesting of jurisdiction on a panel through its terms of reference constitutes such an issue of
a fundamental nature. 665 Because we wanted to ascertain the scope of our terms of reference in
respect of China's claims under Article 14 of the SCM Agreement, at the second meeting of the Panel
with the parties, we asked the parties' views on whether the text of China's request for the
establishment of the Panel – in particular paragra ph B.1(d)(i) thereof – provides a sufficient basis for
China's claims in respect of the benchmarks actually used by the USDOC in its benefit determinations
in respect of land-use rights and loans. 666 The issue does not arise with respect to subsidies in the
form of inputs because for these, Chin a does not challenge the benchmarks that were actually used by
the USDOC.667
2. Main arguments of the Parties
(a) China668
10.150 China argues that the language of paragraph B.1(d)(i) of its panel request provides a sufficient
basis for its claims in respect of the benchmarks actually used by the USDOC for land use rights and
loans. China first argues, in this respect, that paragraph B.1(d)(i ) necessarily encompasses the use of
benchmarks that are not based on prevailing terms and conditions in China. Second, China submits
that the USDOC's out-of-country benchmarks for la nd-use rights and loans are the embodiment of its
decision to reject market conditions in China as the basis for determining the existence and amount of
the benefits in question. Third, China argues th at it was only through the use of these benchmarks
that the USDOC, in fact, rejected market conditions in China as the basis for identifying the relevant
benchmark under Article 14 of the SCM Agreement.
10.151 China further argues that it liste d the articles that it alleged to have been violated (including
Article 14 of the SCM Agreement), and that this, by itself, is sufficient to encompass its claims
against the benchmarks that the USDOC actually used for land-use rights and loans. China notes that
panel requests have sometimes done nothing more than list the articles that are alleged to have been

664 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
665 Appellate Body Reports on Mexico – Corn Syrup (Article 21.5 – US) , para. 36 and US – Carbon
Steel, para. 123.
666 Panel question 5 to the Parties (second meeting).
667 China response to Panel question 35 (first meeting).
668 China response to Panel question 5 (second meeting).

violated. Even in those instances, the Appellate Bo dy has found that the panel request satisfied the
requirements of Article 6.2 of the DSU.
10.152 Finally, China notes that there is no indication that the United States harboured any
misunderstanding as to the scope of China's claims or suffered any prejudice as a result of how China
phrased its panel request. (China notes that by c ontrast, the United States requested a preliminary
ruling with respect to the measure challenged as part of China's "as such" claims on double remedies.)
Thus, even if there were some ambiguity in paragr aph B.1(d)(i) of the panel request, China argues, it
is clear from the course of the Panel proceedings that there has been no misunderstanding concerning
China's claims against the benchmarks that the USDOC actually used for loans and land-use rights.
(b) United States669
10.153 The United States notes that the claim identified in China's request is directed at the "rejection
of prevailing terms and conditions in China [...]" and that nowhere in paragraph B.1(d)(i) or elsewhere
in China's request for the establishment of the Pa nel, does China refer to the "benchmarks actually
used" by the USDOC for land-use rights or loans.
10.154 The United States notes that the panel request speci fies that China's claim relates only to "the
following obligations of the United States" and lists certain aspects of the USDOC determinations in
connection with Article 14 of the SCM Agreement, indi cating that this is the extent of China's claims
with respect to the use of benchmarks. Thus, the United States argues, to the extent that China is
bringing a different claim, this claim would be outsi de the scope of its panel request. In this regard,
the United States notes that the China – Publications and Audiovisual Products panel found that by
listing certain specific requirements under the Chines e measures at issue, the United States had only
notified China of a claim in respect of these sp ecific requirements to the exclusion of other
requirements contained in the measures at issue.
10.155 The United States disagrees with China that the language in pa ragraph B.1(d)(i) of its panel
request "necessarily encompasses the use of a benchm ark that is not based on prevailing terms and
conditions in China". The United States considers that the USDOC's rejection of prevailing terms and
conditions in China and its selection of benchmarks actually used are separate determinations.
10.156 Likewise, the United States notes that China has discussed these issues separately throughout
its submissions in this dispute, showing that in China's view, the consistency with the covered
agreements of the USDOC's determination to "rej ect prevailing terms and conditions in China" and
the benchmark "actually used" are distinct analytical questions. That said, the United States considers
it irrelevant whether China made it clear in its s ubmissions to the Panel that it was challenging the
benchmarks actually used by the USDOC for land-u se rights and loans: The question is whether a
claim against the benchmarks "actually used" was in cluded in China's request for the establishment of
the Panel. Finally, the United States considers it irrelevant that it did not raise any objection to
China's claims before the Panel posed a question on the issue, noting that WTO panels have to address
and dispose of certain issues of a fundamental nature, even if the parties to the dispute remain silent
on those issues.
3. Assessment by the Panel
10.157 Article 6.2 of the DSU sets out the requirement s pertaining to a complaining party's request
for the establishment of a panel. It provides as follows:

669 United States response to Panel question 5 (second meeting); comments on China's response to
Panel question 5 (second meeting).

"The request for establishment of the panel [...] shall indicate whether consultations
were held, identify the specific measures at issue and provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly".
10.158 The requirement, in Article 6.2 of the DSU, to identify the measures at issue in a dispute and
to provide a brief summary of the legal basis of th e complaint has been linked to the dual necessity of
establishing the Panel's terms of reference and th e due process objective of notifying the responding
party (and third parties) of the case it has to answer:
"The requirements of precision in the requ est for the establishment of a panel flow
from the two essential purposes of the terms of reference. First, the terms of
reference define the scope of the dispute. Secondly, the terms of reference, and the
request for the establishment of a panel on which they are based, serve the due
process objective of notifying the parties and third parties of the nature of a
complainant's case [...]".
670 (footnote omitted)
10.159 Compliance with Article 6.2 must be demons trated on the face of the request for the
establishment of a panel, and reading the panel request "as a whole". 671 We agree with the Japan –
DRAMs (Korea) panel's reasoning that the principles embodied in Article 6.2 of the DSU may only
properly be upheld if panels appl y that provision on the basis of the text of the panel request, i.e.,
without regard to whether or not the responding party suffered a prejudice by considering what
happened during the course of the panel proceedings.672
10.160 In raising with the parties the question of our terms of reference, we sought to ascertain our
jurisdiction by identifying the precise claims at issue in the present dispute. Specifically, we sought to
ascertain whether the terms of China's panel request were sufficiently broad to cover both aspects of
China's "benchmarks" claims in respect of land- use rights and loans, i.e., concerning not only the
USDOC's rejection of land-use prices and interest rates in China as benchmarks, but also the
consistency with Article 14 of the benchmarks actually used by the USDOC in each instance.
10.161 The relevant part of China's panel request, section B.1.(d)(i), reads as follows:
"B. Legal Basis of the Complaint

1. As Applied Claims
 China considers that the CWP, OTR, LWRP, and LWS anti-dumping and
countervailing duty investiga tions, determinations and orders, the definitive anti-
dumping and countervailing duties imposed pursuant thereto, as well as the combined
effect of the anti-dumping and countervaili ng duty determinations, orders, and duties
in each such investigation, are inconsis tent, at a minimum, with the following
obligations of the United States under the covered agreements

670 Appellate Body Report on US – Carbon Steel, para. 126.
671 Appellate Body Report, US – Carbon Steel , para. 127, cited with approval in, inter alia, Appellate
Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 169.
672 Panel Report on Japan – DRAMs (Korea), paras. 7.5-7.10. The panel, in its analysis, attached great
importance to comments made by the Appellate Body in para. 126 of its Report in US – Carbon Steel . The
panel also noted the approach taken by the Canada – Wheat Exports and Grain Imports panel. Given that the
United States did not raise the issue we discuss here on its own initiative, we might in any case be hard pressed
to conclude that the United States was prejudiced by any defect in China's panel request.

(d) in connection with each instance in which the US authorities resorted to a
benchmark outside of China for the purpo se of determining the existence and amount
of any alleged subsidy benefit –
(i) the US authorities' rejection of prevailing terms and conditions in
China as the basis for determining whether, and to what extent, subject
producers received a subsidy benefit under the methodologies set forth in
Article 14 of the SCM Agreement;".
10.162 We are satisfied that read in its totality, China's panel request provides a sufficient basis for
China's claims in respect of the benchmarks actually used by the USDOC. We note in particular that
the introductory sentence to paragraph B.1.(d) refe rs to the instances in which the USDOC relied on
"benchmarks outside of China". This, in our view , is a sufficient indication of China's intent to
challenge before the Panel not onl y the consistency with Article 14 of the SCM Agreement of the
USDOC's decision to reject terms and conditions prev ailing in China, but also the consistency with
the same provision of the external benchmarks that the USDOC actually relied upon.
10.163 For the foregoing reasons, we find that China's claims in respect of the benchmarks actually
used by the USDOC with respect to loans and land- use rights fall within our terms of reference.
Given this finding, we now turn to an assessment of these claims of China.
I. C
ONSISTENCY WITH ARTICLE 14(D) OF THE SCM AGREEMENT OF THE BENCHMARKS
ACTUALLY USED BY THE USDOC – LAND-USE RIGHTS
1. Claim of China
10.164 China claims that the benchmark relie d upon by the USDOC in the LWS and OTR
investigations to determine the existence and amount of benefit conferred by the provision of land-use
rights on, respectively, Aifudi and Starbright, w as inconsistent with Article 14(d) of the SCM
Agreement.673, 674
2. Factual background
10.165 In the LWS and OTR investigations, the USDOC determined the existence and amount of
benefit conferred by the provision of land-use rights by comparing the price paid by the investigated
producers to prices for certain industrial prope rty in Bangkok and adjacent provinces in Thailand.
675,
676 The USDOC considered Thailand to be comparab le to China in terms of its "prevailing market

673 See, generally, China first written submission, paras. 302-319.
674 As indicated at para. 10.1, supra, China also raises consequential claims pursuant to Articles 10
and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
675 Exhibits CHI-3, p. 17; CHI-34, p. 67909; and CHI-50, p. 71369.
676 The USDOC also considered, and rejected, two a dditional benchmarks: First, the USDOC rejected
the possibility of using world market prices as benchm ark because there is no "world market" for land (the
USDOC reasoned that land being an in situ property, it could not simultaneously be "available to an in-country
purchaser" while located and sold out-of-country on the world market). The US DOC also examined whether
land prices in China were determined in accordance with market principles. The US DOC found that they were
not, due to the government's involvement in the land-use rights market as well as the widespread and
documented deviation from the authorized methods of pricing and allocating land. In this context, the USDOC
also rejected an argument of the Government of China that it should have applied the price discrimination test
provided for in its "market-principles analysis"; the Government of China had argued that Chinese land-use
rights prices were consistent with market-principles an alysis because (i) the investigated producer at issue did

conditions", taking into considera tion certain economic and demographic factors. Specifically, the
USDOC found that (i) China and Thailand had similar per capita gross national income ("GNI") at
$2,010 and $2,990, respectively and that (ii) popul ation density in China and Thailand were roughly
comparable at 141 persons/km
2 in China and 127 persons/km 2 in Thailand. 677 The USDOC also
found that producers consider a number of markets, including Thailand, as an option for diversifying
production bases in Asia beyond China. 678 In the LWS investigation, the USDOC further took into
consideration that population density was higher than national averages in both Shandong province
(where the investigated producer was located) and in Zone 1 in Thailand (the benchmark used), at
562/km2 and 908/ km 2, respectively and that Shandong province had a per capita GNI of
approximately $2900, i.e., closer to that of Thailand than China's overall GNI.679
10.166 In its price-comparison analysis, the USDOC relied on Thai land prices reported in
independent real estate market reports. In the LWS investigation, in which the land-use rights at issue
were "granted" land-use rights (rights which requi red a large up-front fee but no annual fees aside
from taxes), the USDOC used a one-time purchase benchmark in order to measure the benefit at issue.
For this purpose, the USDOC selected industrial land prices in one of three industrial promotion zones
in Thailand (comprising Bangkok and adjacent provinces) as reported in the market reports.680
10.167 In the OTR investigation, in which the land-u se rights also included "allocated" rights (land-
use rights provided to SOEs for a nominal one-tim e charge and an annual land-use fee), the USDOC
determined that these more closely resembled a lease or rental arrangement rather than a one-time
purchase.
681 The USDOC therefore looked for an appropriate "property yield" for commercial land in
Thailand, i.e., the annual cash flow from rent that a land owner in Thailand c ould expect to earn, and
to that effect used dividend yields from real estat e investment trusts ("REITs"), as reported in market
reports prepared by the same source that compiled the reports on which it relied to determine the
industrial land prices.682

not benefit from any price discrimination in acquiring its land-use rights; and (ii) the government's price covered
its own costs and made profits for managing and selling land-use rights. (Exhibits CHI-3, pp. 15-16 and 59;
CHI-34, p. 67908; and CHI-50, p. 71369).
677 Exhibits CHI-34, p. 67909 and CHI-50, p. 71369.
678 The USDOC considered that the same produc ers could compare prices across borders when
deciding what land to buy. It noted that the market reports from which it obtained its benchmark prices
compared real estate prices in China with other prices in Asia (including Thailand). Further, the USDOC noted
that studies by the Japan External Trade Organizatio n (JETRO) comparing Asian alternative investment
destinations beyond China reported that "Thailand got the highest score as the best location for establishing a
production base over the next five to 10 years" and that "Thailand ranks as the second-best choice after China as
a location for expanding both high and mid to low end production". Finally, the USDOC took into
consideration a statement contained in a market report that "[m]any foreign companies believe that Thailand is
still a strategic choice for a Southeast Asian producti on base". (Exhibits CHI-34, p. 67909 and CHI-50,
p. 71369).
679 Exhibit CHI-34, p. 67909.
680 Id., p. 67909 and CHI-50, p. 71369.
681 Exhibit CHI-50, pp. 71369-70.
682 REITs "are trusts that are dedicated to owning and/or operating income-producing real estate" and
their dividends "are based on the income, often rent, generated from the real estate holdings". The USDOC
noted that REITs portfolios in Thailand held not only industrial but also non-industrial real estate and that there
was a wide range of returns. The USDOC considered that nothing on the record indicated that industrial land
would yield a higher or lower income than other types of real estate in Thailand and on that basis concluded that
dividend yields from REITs were a reasonable proxy for assessing the market-value an nual rent for industrial
land in Thailand. In order to calculate an annual rent , the USDOC calculated an annu al yield percentage (i.e.,
the average dividend yield of the REITs in Thailand in the period contemporaneous with the one-time purchase
benchmark established in the LWS determination), which it multiplied by the up-front purchase price per square
foot established in the LWS determination. (Id., pp. 71369-70).

3. Main arguments of the Parties
(a) China
10.168 China submits that the benchmark actually used by the USDOC in the investigations at issue,
i.e., land prices in Bangkok, Thailand, is inconsiste nt with Article 14(d) of the SCM Agreement, as
interpreted by the Appellate Body in US – Softwood Lumber IV.683
10.169 China argues that land prices in Thailand (or any other country) do not "relate or refer to" the
prevailing market conditions for land in China, and that the Thai benchmark, 3000 km away, bears no
relationship to prevailing market conditions in China. 684 China adds that the factors affecting the
value of land (its physical and legal characteristics) are unique to a particular country and even often
significantly vary within a country 685 and questions whether it would ever be possible to make what
the Appellate Body referred to as "all necessary adju stments" to undertake that sort of comparison
with respect to land-use rights. 686 In addition, China argues that the USDOC did not explain how the
factors it considered relevant for choosing land prices in Thailand (e.g. the similar levels of per capita
GNI) have any connection to prevailing market c onditions for land in a particular country or
location.687 China also notes the admission by th e United States that the USDOC made no
adjustments to its Thai benchmark to ensure that it would "relate or refer to, or be connected with"
prices prevailing on the Chinese land-use rights market.688
10.170 Further, China argues that the USDOC could ha ve used alternative benchmarks other than
land prices in another country: China argues that the USDOC has in the past resorted to methods,
other than the use of external benchmarks for ev aluating the existence and amount of benefit in the
case of land. In particular, China notes that the USDOC has for instance, in the past, looked at
whether land prices are determined in accordance with market principles. 689 This, in China's view,

683 See, e.g., China second written submission, para. 64; response to Panel question 43 (first meeting),
citing to Appellate Body Report on US – Softwood Lumber IV, paras. 103 and 108.
685 Id., paras. 310 and 313-314. According to China, land is a non-tradable good and its value is
inherently locational, that is, the value of land cannot be separated from its physical and legal characteristics, for
instance, topography, transportation infrastructure, taxes, land-use restrictions, labour and environmental laws.
(Id., para. 308) China submits that the sources relied upon by the USDOC for its Thai land price data confirm
that national and local property factors affect the value of land and therefore that land values significantly vary
among different countries, regions, and even within a single country. (Id., paras. 311-313).
686 Id., paras. 307 et seq. China argues in this respect that while Article 14(d) makes clear that
availability, marketability, and transportation form part of the "prevailing market conditions" for the good in
question, land is an unmovable good so that it is impossible to "replicate reliably" the prevailing market
conditions for land in China by referring to land prices in Thailand. ( See, e.g., China first written submission,
paras. 314-315, citing to Appellate Body Report on US – Softwood Lumber IV, para. 108).
687 Id., para. 318.
688 China second written submission, para. 50; opening statement at the first meeting of the Panel,
para. 49.
689 China argues that in previous investigations where the government was found to be the sole provider
of the land in question, the USDOC determined the ex istence of the benefit by evaluating whether there was
price discrimination among the users of such land, a method which China argues, the Preamble to the USDOC's
countervailing duty regulations recognizes. (China response to Panel Question 34 (first meeting) (quoting from
comments made by the USDOC in the CWP investigation and USDOC determinations in Steel Wire Rod from
Trinidad and Tobago (Exhibit CHI-149) and Certain Cut-to-Length Carbon-Quality Steel Plate from the
Republic of Korea (Exhibit CHI-150)). China argues that, had the USDOC applied a similar approach in the
LWS investigation, there would have been no subsidy to the investigated producer concerned (Aifudi). China
also adds that in all thr ee of these instances, the USDO C recognized that land values are unique to particular
locations, and therefore that any benchmark must be drawn from the same general location and take into account
specific factors that affect land values at that location. (Id.).

belies the United States' argument that it would be im possible to calculate the benefit at all in certain
circumstances if China's position were accepted.
690
10.171 Finally, China does not consider sufficient the United States' defence of the benchmarks on
the ground that "[t]here is not always a perfect set of data upon which to rely" and that it may
consequently not always be possible to make all the adjustments required by Article 14(d) of the SCM
Agreement. China argues that the mandatory la nguage of the Agreement cannot be disregarded on
the ground that it was too difficult a standard to apply. China also adds that the fact that it would be
impractical to adjust for all the factors in Article 14(d) was precisely why the Appellate Body, in US –
Softwood Lumber IV, seriously questioned whether out-of country benchmarks could ever lawfully be
used. China also highlights the warning of the Appellate Body, in US − Softwood Lumber IV , that
even in the limited circumstance in which out-of-c ountry benchmarks may be used, the benchmark
must – without exception – "relate or refer to, or be connected with" the prevailing, i.e., existing
market conditions in the country of provision.691
(b) United States
10.172 The United States defends the consistency with Article 14(d) of the Thai benchmark used by
the USDOC in the LWS and OTR investigations.
10.173 The United States argues that nothing in the text of Article 14(d) suggests that land-use rights
are exceptional, or that they should be treated di fferently than other goods w ith respect to the use of
external benchmarks. 692 The United States considers that China's restrictive interpretation, if
accepted, would eliminate the possibility of countervailing the subsidized provision of land-use rights,
contrary to the object and purpose of the SCM Agreement.693
10.174 The United States submits that by selecting la nd prices in a country with a comparable per
capita GNI and population density and by using prices for comparable types of land (e.g., industrial
zones, allocated versus granted land-use rights) , the benchmark used by the USDOC reasonably
reflected the "prevailing market conditions for the good in question".
10.175 Specifically, the United States argues that the Th ai prices used accounted for the prevailing
market conditions, consistent with Article 14(d) of the SCM Agreement. The United States notes the
factors that the USDOC took into consideration in selecting Thai prices as the benchmark ( per capita
GNI, population density, and types of land transactions) to ensure that these prices would "relate or
refer to or be connected with" China's prevailing market conditions. The United States submits that

690 China response to Panel question 34 (first meeting).
691 See, e.g., China opening statement at the first meeting of the Panel, para. 49; first written
submission, para. 309.
692 The United States notes that in US − Softwood Lumber IV, the Appellate Body rejected an argument
similar to China's argument that land use-use rights sh ould be treated differently under Article 14(d): the
Appellate Body rejected an argument of Canada that stan ding timber is attached to the land and incapable of
being traded across borders. The Appellate Body explained that excluding non-tradable goods would permit the
circumvention of the WTO's subsidies disciplines. (U nited States first written submission, paras. 273-274,
referring to Appellate Body Report on US − Softwood Lumber IV, paras. 57, 64 and 67).
693 Id., para. 275. In addition to its arguments based on Article 14(d) of the SCM Agreement, the
United States also argues that China's position is contradicted by the terms of Section 15(b) of China's Protocol
of Accession, which provides no basis to exclude government-provided land use rights, and which confirms the
permissibility of using out-of-country benchmarks in countervailing duty investigations concerning imports
from China. (Id., para. 276). Because, as explained in Section X.B, supra, the United States has clarified to the
Panel that it is not relying on the Protocol of Accession in defending this or any of China's claims pursuant to
Article 14 of the SCM Agreement, we do not take thes e arguments of the United St ates into account in our
analysis.

Article 14(d) of the SCM Agreement lists several factors in relation to which the adequacy of
remuneration should be determined, including price, quality, availability, marketability, transportation
and other conditions of purchase or sale. The Un ited States considers that demand is typically the
primary determinant of the price for urban land (becau se supply is considered to be fixed) and that
demand in turn is a function of population dens ity and the level of economic development, as
measured by per capita GNI. The United States also submits that quality and marketability of land-
use rights prices in China were taken into consideration by the fact that producers, in general, consider
a number of markets, including Thailand, as an option for diversifying production bases in Asia
beyond China. Moreover, the USDOC used prices for land in industrial zones, as the land-use rights
in China were also located in in dustrial zones; the United States ar gues that use of similar types of
land (i.e., land in industrial zones) would account for the quality and marketability of the land. The
USDOC also took into account whether the transaction involved allocated or granted land-use rights,
which would impact the marketability of the land- use rights. Availability was accounted for by
selecting benchmark prices from an urban area, Bangkok, where population densities were higher than
on average for Thailand, because the land-use rights at issue in the OTR and LWS investigations were
also from urban areas of China. 694 Thus, the United States argues, the Thai prices selected by the
USDOC reasonably reflected the "prevailing market conditions" for the land-use rights in China.695
10.176 The United States notes that China argues that the USDOC should have taken into account
other factors such as capital control measures limitin g foreign ownership of companies in Thailand or
various incentives that governments provide to co mpanies, but does not point to any relevant
information on the record that would have allowed the USDOC to make any such adjustments. The
United States submits that investigating authorities are restrained in their ability to adjust prices
because of the limited information before them so th at it may not always be possible to adjust for all
of the items listed in Article 14(d), but that this should not preclude a Member from selecting a
comparison price.
696 The United States also argues that if the bar for selecting the out-of-country
benchmark is set so high that it requires the use of unavailable data, investig ating authorities will be
required to use in-country prices even where they c ontain the very subsidy that they are trying to
measure, and that such measurement, in turn, woul d not capture properly the benefit of the subsidy
due to the predominant role of the government. 697 The United States also argues that China's position
ignores the inherent "flexibility" in the guidelines under Article 14 of the SCM Agreement.698
10.177 In response to arguments of China, the United States argues that it considers benchmarks used
in other USDOC investigations to be irrelevant to this dispute and that the other cases cited by China
are not analogous to the land-use rights market in China as the USDOC did not find in any of these
cases that the land markets were distorted by the government's predominant role.699 The United States
also argues that in the investiga tions at issue, the USDOC did in fact perform a "market principles
analysis" and found that land-use rights in China are not priced in accordance w ith market principles.
The United States adds that China's argument that a "price discrimination" analysis could have been

694 United States first written submission, para. 278-2 84; second written submission, paras. 115-119.
The United States also argues that transportation is not a factor in valuing land as land is not transported
695 See, e.g., United States first written submission, para. 293.
696 Id., para. 286.
697 United States response to Panel question 46 (first meeting), citing to Appellate Body Report on US –
Softwood Lumber IV, para. 93.
698 See, e.g. , United States first written submission, para. 286, citing to Panel Report on EC –
Countervailing Measures on DRAM Chips, para. 7.213; response to Panel question 46 (first meeting).
699 United States second written submission, paras. 110-112. The United States submits that China
misrepresents the USDOC's practice since the USDOC consistently relies on out-of-country benchmarks when it
determines that the government plays a predominant role in the market. In addition, the United States submits
that one of the cases cited by China did not even concern the provision of land, but, instead, pertained to an
analysis of "revenue forgone" by the USDOC. (Id.).

applied is misleading because such an analysis is pa rt of the "market principles" analysis that the
USDOC performed.
700
4. Main arguments of the Third Parties
(a) European Communities
10.178 The European Communities considers that the me re fact that a piece of land is located
3000 km away is not a sufficient reason alone to co nclude that a market benchmark is unreasonable.
The European Communities also argues that any comparison must be adjusted in order to replicate the
prevailing terms and conditions which would have existed absent price distortion.701
(b) Saudi Arabia
10.179 Saudi Arabia argues that the use of external benchmarks is especially inappropriate with
respect to financial contributions in the form of the provision of land and that, as a result, the
adjustments required under Article 14(d) ( as acknowledged by the Appellate Body in US − Softwood
Lumber IV) apply a fortiori when the benchmarks concerns the provision of land.702
5. Assessment by the Panel
10.180 We recall our finding above that China has not established that the USDOC's decision not to
rely on Chinese prices for land-use rights as benchmarks was inconsistent with Article 14(d) of the
SCM Agreement. The remaining question before us thus is whether China has established that the
actual benchmarks used by the USDOC are inconsistent with Article 14(d) of the SCM Agreement.
10.181 We recall that under the terms of Article 14(d) of the SCM Agreement, the adequacy of
remuneration for the government-provision of goods "s hall be determined in relation to prevailing
market conditions for the good or service in question in the country of provision or purchase
(including price, quality, availability, marketability, transportation and other conditions of purchase or
sale)". We further recall that the Appellate Body, in US − Softwood Lumber IV, cautioned that:
"[w]hen an investigating authority resorts [...] to a benchmark other than private
prices in the country of provision, the benchmark chosen must, nevertheless, relate or
refer to, or be connected with, the preva iling market conditions in that country, and
must reflect price, quality, availability, marketability, transportation and other
conditions of purchase or sale, as required by Article 14(d)".
703
10.182 The Appellate Body indicated that a range of factors would have to be taken into account
when making adjustments to replicate conditions that would prevail in the country of provision (in the
absence of the distortion caused by the government's role that led to the conclusion that in-country
prices could not be used as benchmarks). In the pa rticular situation of reliance on prices in another
country as a proxy for the prices that would prevail in the country of provision of a good or service,
the Appellate Body noted that "it would be difficult, from a practical point of view, for investigating
authorities to replicate reliably market conditions pr evailing in one country on the basis of market

700 The United States explains that, according to the Preamble to the USDOC's regulations, the USDOC
"will assess whether the government price was in accordan ce with 'market principles'" in situations where the
government is the only source available to consumers in the country, and that, one factor which the USDOC
"may" rely upon in that assessment, is "possible price discrimination". (Id., paras. 113-114).
701 European Communities third-party submission, para. 47.
702 Saudi Arabia third-party submission, para. 77.
703 Appellate Body Report on US − Softwood Lumber IV, para. 103.

conditions prevailing in another count ry", and that appropriate adjustments would need to be made to
avoid in particular the countervailing of comparative advantages.704
10.183 Concerning the implications of these findings by the Appellate Body for the use of cross-
border benchmarks for land-use rights, China argues fi rst that because land is by definition not traded
across borders and because its value is significantly determined by its location and by the applicable
legal regime, it is impossible to replicate reliably the prevailing market conditions for land in one
country by referring to land values in another country, which has its own physical, social, political and
economic environment.705
10.184 In our view, the considerations identified by China certainly mean th at ensuring that any
benchmark (especially any out-of-country benchmark) used for land-use rights "relate[s], refer[s] or is
connected with" prevailing market conditions in th e country of provision of the land is a difficult
exercise. Yet, we do not consider that the terms of Article 14(d) exclude, a priori, the possibility of
determining the existence and amount of benefit for subsidies in the form of provision of land on the
basis of land prices in another country. Further, accep ting that it would never be permissible to resort
to land prices in other countries as benchmarks in situations such as were found to exist in the LWS
and OTR investigations would mean that precisely because the land market in the country of
provision is distorted, it would become impossible for the investigating authority to determine the
existence and amount of any benefit. Such a resu lt – that countervailing certain forms of subsidies
would become impossible in certain situations 706 – would, in our view, undermine the object and
purpose of the SCM Agreement, "which is to strengthen and improve GATT disciplines relating to the
use of both subsidies and countervailing measures, wh ile, recognizing at the same time, the right of
Members to impose such measures under certain conditions".707
10.185 The other principal argument of China focuses on what it perceives as a requirement under
Article 14(d) of the SCM Agreement for the investiga ting authority to make adjustments, in all cases,
to any alternative benchmark that may be selected , to ensure that that benchmark approximates
prevailing conditions in the country of provision. In other words, we see China as arguing that
without "adjustments", an y proxy benchmark will be, ipso facto, inconsistent with Article 14(d). In
this regard, China argues, and the United States does not contest, that in the investigations at issue, the
USDOC performed no adjustments to the Thai land-use prices it used as benchmarks. The
United States' response to this argument of Chin a is that the USDOC ensured that it met the
requirements of Article 14(d) through its selection of the benchmark, such that it was not necessary to
perform further adjustments.
10.186 We recall that the ultimate goal in selecting a benchmark is to ensure the comparability of that
benchmark with the relevant market conditions, and this is particularly true where proxies are used

704 Appellate Body Report on US − Softwood Lumber IV, paras. 108-109.
705 China first written submission, paras. 310 and 315.
706 The claims before us are limited to the benchmarks actually used by the USDOC. Hence, we do not
have to consider what benchmarks other than land-use prices in China or land-use prices in other countries the
USDOC could possibly have resorted to . Yet, we note China's arguments that in other instances in which it
considered domestic land prices to be distorted, the USDOC relied on benchmarks such as whether the price
paid for the land was consistent with market principles or the price paid by the investigated producer was
different than that paid by other entities (price discrimi nation). (China response to Panel question 34 (first
meeting)). The United States responds that those other cases did not involve situations where the market was
found to be distorted, and that in the investigations at issue in this dispute, in fact the USDOC did conduct a
market principles examination, of which the price discrimination analysis is a part. In our view, the facts of the
investigations at issue underscore the inherent difficulties that would arise from the use of benchmarks focusing
on market distortions in a situation in which it has been found that the entire land-use rights market in the
country of provision is distorted.
707 Appellate Body Report on US − Softwood Lumber IV, para. 64.

due to the unavailability of in-country prices. In turn, comparability can be achieved either through
the selection of the particular benchmark to be used , or through application of adjustments to a price
on which the benchmark price will be based, or through some combination of selection and
adjustment. This is how we read the Appellate Body's discussion in US
− Softwood Lumber IV about
the need to ensure that all necessary adjustments are made. 708 That is, rather than establishing a
litmus test that in every case, "adjustments" must be made no matter how inherently comparable the
selected benchmark is to the market conditions th at it is being used to approximate, we see the
Appellate Body as highlighting the elements of comp arability that must be reflected in the benchmark
ultimately applied. That is, the inquiry under Article 14(d) is whether the benchmark as actually used
is one that "relates or refers to, or is connected with" the prevailing market conditions in the country
of provision, in particular as to "price, quality, availability, marketability, transportation and other
conditions of purchase or sale".709
10.187 While this is a demanding standard, we recall th at the use of a benchmark other than private
prices in the country of provision is, in the first pla ce, made necessary by the fact that the (land-use)
market in the country of provision is distorted. It would in our view be incongruous to interpret
Article 14(d) so as to effectively require the investig ating authority, confronted with such a situation,
nevertheless to choose between not performing the benefit calculation or calculating it on the basis of
a benchmark based on distorted market conditions. In sum, in such a situation, we see Article 14(d)
as requiring an investigating authority to do its b est to identify a benchmark that approximates the
market conditions that would prevail in the absence of the dist ortion. While inherently such a
benchmark cannot be perfect as it will never be possible to take into account all of the myriad factors
that establish market conditions, and it will never be possible to know with certainty the market
conditions that would prevail in the absence of th e government-caused distortion, the authority must
conduct a reasoned analysis based on factual informa tion, selected and adjusted as necessary to be as
comparable as possible to such market conditions. In other words, whatever benchmark is selected
and whatever methodology is used must be on es that a reasonable and objective investigating
authority could use for that purpose.
10.188 Turning now to the approach taken by the USDOC in selecting its land-use benchmarks in the
LWS and OTR investigations, we are satisfied th at the method adopted by the USDOC meets these
requirements. We note in particular that when selecting the benchmark to use for Chinese land-use
prices, the USDOC took into consideration a number of factors such as per capita GNI, population
density (in the case of the LWS investigation, both for the countries and the provinces at issue), the
types of land transactions, and the type of land at issue (land in industrial zones), with a view to
approximating what the market conditions would be for the land-use rights at issue in China but for
the market distortions. We recall that we have de termined that China has not demonstrated that the
USDOC was not justified in resorting to a benchmark other than land-use prices in China in the first
place. This being the case, the USDOC was faced with a situation in which it had to construct a
benchmark to approach what essentially would be a counterfactual situation – what prices for land-use
rights in China would be in the absence of distortion.
10.189 Before us, China identifies various factors that, in its view, may affect the value of land, such
as the tax incentives that may be prov ided to investors or the quality of infrastructure (availability of
schools, hospitals, public transportation, etc.).
710 In China's view, the USDOC's methodology was
flawed, inter alia , because the USDOC did not "even attemp t to account for these factors" in its
comparison of land prices in Bangkok to land prices in the Chinese industrial parks at issue. Before
us, as before the USDOC in the investigations at issue, the arguments of the Government of China and
the other respondents have primarily focused on th e permissibility as such of using out-of-country

708 Appellate Body Report on US − Softwood Lumber IV, para. 108.
709 Id., para. 103.
710 China first written submission, paras. 313-314.

prices for land-use rights and on whether Thai prices could at all provide an appropriate proxy for
Chinese land market prices, rather than on identifying specific adjustments which the USDOC ought
to have made to ensure the consistency of its benchmarks with Article 14(d) of the SCM
Agreement.711 We might add that while there can be no question that the Thai land prices and
constructed annual rents relied upon by the USDOC do not provide a perfect picture of what prices for
land-use rights would be in China in the absence of the distortions that the USDOC found to exist, it
nevertheless is not clear that the fact of adjusti ng those benchmarks, as such, would ensure a closer
approximation of the counterfactual situation (an undi storted land use rights market in China). In any
case, China has not demonstrated that the USDOC fa iled to make any specific adjustment which it
was required to make or which the Government of China or interested parties had identified, before
the USDOC or before us.
10.190 Finally, we note that China's argument in respect of the USDOC's use of the Thai benchmark
in the OTR investigation is limited to a footnote to its first written submission, in which it refers to its
argument in respect of the USDOC's LWS determination. 712 For this reason, our examination of the
USDOC's Thai benchmarks in the OTR investigations is limited to the general arguments presented
by China in respect of the USDOC's LWS determination.
10.191 For the foregoing reasons, we find that China h as not established that the benchmarks relied
upon by the USDOC for land-use rights in the LWS a nd OTR investigations were inconsistent with
the obligations of the United States under Article 14(d) of the SCM Agreement. In making this
finding, we note that we are limiting ourselves to th e questions raised by China in connection with
this claim.713
J. CONSISTENCY WITH ARTICLE 14(B) OF THE SCM AGREEMENT OF THE LOAN BENCHMARKS
ACTUALLY USED BY THE USDOC – RMB-DENOMINATED LOANS
1. Claim of China
10.192 China claims, in respect of SOCB loans denomin ated in RMB, that the benchmarks used by
the USDOC in its benefit calculations in the OTR, CWP and LWS investigati ons were inconsistent
with Article 14(b) of the SCM Agreement.714
2. Factual background
10.193 In the CWP, LWS and OTR investigations, having determined that it could not use interest
rates in China as benchmarks for RMB-denominated loans from SOCBs, due to the distortion of the
Chinese lending market as a whole, the USDOC constr ucted a proxy interest rate using a regression
analysis of inflation-adjusted interest rates in 33 lower-middle-income countries 715, on the basis of a
"broad inverse relationship" that it had f ound between income leve ls and lending rates. 716 According
to the USDOC, the inflation adjustments served as a proxy for the adjustment for exchange rate
expectations necessary when comparing interest ra tes across currencies. Th e USDOC stated that a

711 While in the OTR investigation GTC argued that the USDOC should make adjustments to reflect
market conditions in Guizhou Province – i.e. account for the fact that Guizhou Province is one of China's most
impoverished provinces – ultimately, the USDOC did not countervail the provision of land-use rights to GTC
and to TUTRIC. (Exhibit CHI-4, pp. 187, 191).
712 China first written submission, footnote 237.
713 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
714 See, e.g., China first written submission, para. 273.
715 As identified by the World Bank's classification of countries. (See, e.g., Exhibit CHI-1, p. 8).
716 The USDOC cited its findings to this effect from the CFS Paper investigation based on its analysis
of IMF data. (Exhibits CHI-1, pp. 7-8; CHI-3, p. 12; CHI-4, p. 8; and CHI-93, p. 71).

cross-country comparison of "real" interest rates is a rough proxy for a comparison of exchange rate-
adjusted nominal rates because of the general link between inflation and (nominal) exchange rate
expectations. The regression analysis also took in to account the "quality of a country's institutions"
(including political stability, government effectiveness and rule of law) which, the USDOC stated "is
not directly tied to state-imposed significant dist ortions in the banking sector". The USDOC stated
that the governance factors facilitated cross-country comparisons because they incorporated other
important factors that can influence interest rate fo rmation, in particular because differences in these
factors will give rise to differences in perceived ri sk associated with the particular country which will
be reflected in a country's overall level of interest rates.
717
3. Main arguments of the Parties
(a) China
10.194 China claims that the interest rates derived from the USDOC's 33-country regression analysis
are inconsistent with Article 14(b) of the SCM Agre ement. In particular, China submits that these
interest rates do not reflect "comparable commercial loans" that a borrower could "actually obtain in
the market".718
10.195 China argues that the benchmark loans are not denominated in the same currency as the
RMB-denominated loans under investigation and are therefore not comparable. China rejects the
United States' assertion that its benchmark loan was "comparable" because it was "based upon lending
rates from countries with similar [ per capita gross national incomes] and institutional quality as
measured by World Bank governance indicators". Ch ina asserts that neith er the USDOC nor the
United States has provided any coherent e xplanation as to why these factors (i.e., per capita GNI and
institutional quality) somehow relate to whether loans are "comparable" within the meaning of
Article 14(b).719 Moreover, China argues that the United States' notion of "comparability" fails to
give any legally operative meaning to the term "c omparable" in Article 14(b), contrary to the
fundamental principle of effectiveness in treaty interpretation.720
10.196 China also alleges that no borrower could "act ually obtain" the USDOC's benchmark loans in
"any" commercial lending market – whether in China or elsewhere. For China, fictitious, non-existent
loans cannot be obtained by anyone. 721 China disagrees with the United States' assertion that the
regression analysis it used was "tailored to approximate" a comparable loan that a firm could "actually
obtain on the market". According to China, the USDOC's loan benchmark does not "approximate" a
comparable commercial loan in China, nor is "ta ilored to approximate" the applicable standard under
Article 14(b). Rather, China argues, Article 14 es tablishes mandatory para meters with which any
methodology used by investigating authorities must comply.
722 China also rejects the argument

717 Exhibits CHI-1, pp. 7-8 and 78; CHI-3, pp. 12-13; and CHI-4, p. 8 and 109-110.
718 See, e.g. , China first written submission, para. 244. According to China, whatever "flexibility"
exists in the application of Article 14(b), any methodol ogy used by investigating authorities must refer to a
"comparable commercial loan which the firm could actually obtain on the market". (China response to Panel
question 30 (first meeting)).
719 China first written submission, para. 245; second written submission, paras. 74 and 81. China adds
that the USDOC provided no explanation of how "governance indicators" such as government effectiveness,
regulatory quality and political stability had any bearing upon the process of interest formation or the policy
choices of monetary authorities as regards the direction of monetary conditions and interest rates. (China first
written submission, para. 266).
721 China first written submission, para. 245; second written submission, para. 84; oral statement at the
first meeting of the Panel, para. 52.
722 China second written submission, para. 85, citing to Appellate Body Report on US – Softwood
Lumber IV, para. 92.

advanced by the United States that the benchmark loans were "from the ma rket" because they were
"based on a regression of actual average lending rat es reported by each country". China argues that
there was no evidence that respondent borrowers coul d "actually obtain" loans in any of these lending
markets, and no amount of regressing could overcome the lack of such evidence.723
(b) United States
10.197 The United States argues that, due to the governme nt's predominant role in the banking sector
and other government interventions, the USDOC f ound that the lending "market" in China was so
distorted that there were no comparable "commercia l" loans for benchmark purposes. Therefore, the
USDOC selected a benchmark lending rate that was both "commercial" and "comparable", as required
by Article 14(b) of the SCM Agreement.724
10.198 The United States argues that the USDOC used an out-of-country benchmark derived from
interest rates from a group of countries rather than a single country, because various factors can affect
national interest rates. 725 The United States also submits that the USDOC controlled for the most
significant factors affecting interest rates by sel ecting inflation-adjusted rates in countries with per
capita GNI similar to that of China, and then perform ed a regression of those rates, the GNI data and
a range of World Bank governance indicators to de termine a yearly comparison interest rate.
Countries in the same GNI category (lower middle income) as China that were found to be
anomalously high or low in terms of their inter est rates, or were non- market economies, were
excluded from the regression analysis.
726
10.199 The United States indicates that the USDOC ad justed the interest rates of the included
countries for inflation, because of the general link be tween inflation and exchange rate expectations.
In addition, the United States argues that the factors related to the quality of the countries' institutions
were included because banks take these into account when assessing risk of lending to businesses in a
particular country, and because the Federal Rese rve Board had found a correlation between higher
quality of institutions and lower real interest ra tes. The United States further submits that the
benchmark used took account of the maturity of th e loans and matched lending during the same time
periods. Thus, the benchmark was "tailored to a pproximate a 'comparable commercial loan which the
firm could actually obtain on the market'".727
10.200 The United States rejects China's contention that the benchmark in Article 14(b) must be an
actual interest rate available to a borrower in China, arguing that the regression analysis was, in fact,
based on a regression of actual interest ra tes available to borrowers in China. 728 The United States

724 See, e.g., United States response to Panel question 17 (second meeting). The United States argues
that investigating authorities are entitled to consid erable leeway in adopting reasonable methodologies,
including the use of out-of-country benchmarks where alternatives are inappropriate. (United States response to
Panel question 39 (first meeting)).
725 The United States submits that the USDOC could have chosen an out-of-country benchmark from
one particular country, but that such an approach could have sacrif iced comparability. Th at is, each country's
lending rates may be affected by a variety of economic factors for which there may be insufficient information
to permit an adjustment, and therefore, those rates individually would not provide sufficient comparability.
(United States response to Panel question 17 (second meeting)).
726 United States first written submission, paras. 244-246; second written submission, para. 99.
727 United States first written submission, paras. 247-248; second written submission, paras. 99
and 102.
728 See, e.g., United States second written submission, para. 101. The United States adds that a
regression analysis is essentially an average of interest rates that takes more factors into account than a simple
average, and that China has not obj ected the USDOC's use of average pr ices in other instances (e.g. the
USDOC's use of average world market prices for HRS and BOPP). Furthermore, the United States argues that

also disagrees with China that a benchmark loan ca n meet the criteria of Article 14(b) only if it is
denominated in the same currency as the government -provided loan. The United States submits that
although the use of such a benchmark may be prefer able, Article 14(b) contains no obligation to do
so, and that China's restriction of its currency from international lending markets cannot be interpreted
as to require Members to use a lending benchmark within China's distorted banking market.
729
4. Main arguments of the Third Parties
(a) Australia
10.201 Australia considers that there is no basis in Artic le 14(b) for the benchmark used to "relate or
refer to, or be connected with" the conditions preva iling in the market of the country of provision.
Australia notes in this respect that loans are availa ble on an international financial market that is
subject to international influences. Furthermore, Au stralia considers that there is no basis in the text
of Article 14(b) to limit the permissible benchmark to loans in the same curren cy as that of the loans
being investigated given that loans obtained in one currency can be used to purchase any currency at
rates determined by international markets.730
(b) Saudi Arabia
10.202 Saudi Arabia considers that a benchmark loan mu st comply with the "cumulative" criteria set
forth in Article 14(b) of the Agreement. In this regard, Saudi Arabia is of the view that the term
"comparable" suggests that the be nchmark loan should be a loan de nominated in the same currency,
and subject to the same generally applicable fina ncial regulations of the country providing the
government loan. In addition, the word "commercial" refers to any transaction that is made in the
ordinary course of commerce, while the phrase "which the firm could actually obtain on the market"
imposes a requirement that the benchmark be based on the actual borrowing experience of the
recipient firm. Saudi Arabia argues that the use of constructed benchmarks based on loans that are
not actually available, but rather represent an aver age of a set of loans gathered in a discretionary
manner to represent the "average commercial loan" ar e inconsistent with Artic le 14(b). Saudi Arabia
takes issue with the United States' argument that the reasoning of the Appellate Body in US-Softwood
Lumber IV, although decided under Article 14(d), is "equa lly applicable" under Article 14(b). Saudi
Arabia argues, inter alia , that nothing in the Appellate Body's report indicates its application to
Articles 14 (a), (b), and (c), nor to the "entirety of Article 14". However, assuming arguendo that the
reasoning of the Appellate Body in that case applies to Article 14(b), Saudi Arabia considers that the
clear admonitions made by the Appellate Body on the use of out-of-country benchmarks would apply
as well.731
5. Assessment by the Panel
10.203 We have found above that where lending rates in a country are distorted by the government's
role in the lending market it is permissible under Article 14(b) of the SCM Agreement to rely on
sources other than in-country interest rates as benc hmarks. We have further found that in such cases
it is permissible to use constructed proxies fo r what a borrower "would pay" on a comparable
commercial loan that it "could actually obtain on the market". In other words, we have concluded that
the terms "would pay" and "could actually obtain on the market" accommodate the use of proxies, and

Article 14(b) does not state a preference for the use of one interest rate ra ther than an average of interest rates.
(Id.).
729 United States second written submission, para. 100. Moreover, the United States recalls that the
USDOC adjusted for inflation as a proxy for an adjustment for currency exchange rate expectations. (Id.).
730 Australia third-party submission paras. 39-40; third-party response to Panel question 7.
731 Saudi Arabia third-party submission, paras. 91-99.

do not mean that where an actual benchmark loan is not available, the investigating authority is forced
to conclude that it is impossible to calculate a benefit (effectively meaning a benefit of zero). We also
recall our finding that China has not established that the USDOC's determination that interest rates in
China could not be used as benchmarks because of the distortion of the lending market due to the
government's role was inconsistent with Article 14(b). The remain ing question before us thus is
whether China has established that the actual benc hmark used by the USDOC is inconsistent with
Article 14(b) of the SCM Agreement.
10.204 In our view, the legal question in this regard is whether the constructed proxy used as a
benchmark by the USDOC sufficiently approximates wh at "would" have been paid on a comparable
commercial loan that "could actually" have been obtained on the market, in the particular
circumstances of the CWP, LWS and OTR investigations, where it was found not only that no such
specific loans existed, but that in fact it was not po ssible to identify any inte rest rates in China that
could even be adjusted to approximate what would be paid on such a commercial loan. In this regard,
we recall that the USDOC did consider the possibility of adjusting the observed interest rates to try to
approximate what the commercial rates would be, but decided not do so because this would have been
a highly complex, speculative, and impracticable exercise. 732 We further note that before us China
makes no arguments as to any such ad justments that should have been made, as its position is that the
observed interest rates in China should have been used as benchmarks.
10.205 We thus must determine on what basis to evalua te the proxy benchmark actually used. In our
view, the appropriate approach is to consider wh ether the methodology applied by the USDOC is one
that a reasonable and objective investigating authorit y could use, in the particular situation found to
exist in the CWP, LWS and OTR investigations, to ge nerate a proxy for the interest rate that "would"
have been paid on a commercial RMB loan that th e borrower "could actually" have obtained if the
Chinese lending market were not distorted. We cons ider this approach appropriate because, in view
of the USDOC's finding that there were no undistorted RMB interest rates in China that could be used
as benchmarks, there is no point of reference in the record evidence on the basis of which we could
judge the absolute value of the benchmark used. We also note in this context that China makes no
arguments as to specific flaws in the USDOC' s methodology that could and should have been
corrected733, as indeed its argument is that no such proxy methodology based on other countries'
interest rates is permissible as a matter of law, a proposition that we have rejected.
10.206 Given that constructing such a proxy is an exercise in estimation and approximation, in
considering whether the USDOC's methodology is ai med at generating, in an unbiased and objective
way, a proxy for commercial RMB interest rates that would exist (and thus "could" be obtained) in an
undistorted market, we consider that our task is to evaluate the internal logic of the methodology
employed, and the soundness and appropriateness of the data relied upon by the USDOC, in
constructing the proxy.
10.207 In this light, we first consider the USDOC's u se of a basket of other countries' currencies as
the basic source for its proxy interest rate. Under th e circumstances in the investigations, we find that
this approach was permissible. Further, the reliance on the World Bank grouping of countries in the
same income category as China based on GNI per capita also seems to us not unreasonable, as this is
a pre-existing grouping, not one created for the inv estigations. This appears to us to introduce a
certain element of macroeconomic similarity among these "benchmark" countries, reflecting the

732 Exhibits CHI-3, p. 83 and CHI-4, p.104. China makes no argument that this is what the USDOC
should have done. Rather, China's argument is that the USDOC should simply have used observed interest rates
in China, directly, as the benchmarks.
733 For example, China makes no argument that the wrong countries were included in or excluded from
the basket of countries, or that the inflation adjustments were incorrect or should not have been applied at all, or
any other arguments as to any specific aspects of the methodology.

USDOC's identification of a broad inverse relationship between real interest rates and income levels.
We accept that the USDOC's exclusion of countries whose interest rates it found to be anomalous, and
of NME countries, enhances this macroeconomic sim ilarity. The adjustment for inflation also seems
appropriate, inter alia, as a way of accounting at least partially for exchange rate expectations, which
are influenced by inflation, as noted by the US DOC. Finally, we do not consider the USDOC's
inclusion of factors related to the quality of the c ountries' institutions to be unreasonable, as factors
such as political stability, government effectiveness and rule of law are taken into account by lenders
when assessing the riskiness of lendi ng to borrowers in a given country. Nor has China argued that
there was a mismatch in terms of either maturities or dates of the benchmark interest rates and the
investigated government loans. We thus do not find the methodology used by the USDOC to be
unreasonable under the circumstances of the three investigations at issue.
10.208 In reaching this conclusion, we emphasize that the benchmark established by the USDOC was
not perfect and could not literally represent the situation that wo uld have been faced by any given
borrower in China in the absence of the distortions that were found to exist. However, our conclusion
reflects our view that the methodology seems to be based on a reasoned and even-handed approach to
the unusual situation with which the USDOC was con fronted, rather than appearing arbitrary, or
biased. In particular, as noted, the USDOC had the right under Article 14(b) of the SCM Agreement
to approximate on a reasonable basis the RMB inter est rate that would have been available on
"comparable commercial loans" that borrowers in China could "actually" have obtained if an
undistorted market for such loans existed in Chin a. We consider that a reasonable and objective
investigating authority could have used the met hodology used by the USDOC, and relied on the data
that it did, to make such an approximation.
734
10.209 For the foregoing reasons, we thus find that China has not established that the benchmark
actually used by the USDOC to calculate th e benefit from RMB-denominated SOCB loans was
inconsistent with the obligations of the United States under Article 14(b) of the SCM Agreement.735
K. CONSISTENCY WITH ARTICLE 14(B) OF THE SCM AGREEMENT OF THE LOAN BENCHMARK
ACTUALLY USED BY THE USDOC – U.S. DOLLAR-DENOMINATED LOANS
1. Claim of China
10.210 China claims that in the OTR investiga tion the USDOC acted inconsistently with
Article 14(b) of the SCM Agreement when it applied as a benchmark an annual average LIBOR-based

734 In making our findings related to SOCB lending, while we are mindful of the uniqueness of the
situation in the investigations at issue, we do not consider that the findings imply that all lending in China ipso
facto confers subsidies covered by the SCM Agreement. In particular, our findings are confined to the particular
facts of the investigations at issue in this dispute. In this regard, first, we do not mean to imply by our findings
that all lending in China is a "financial contribution" in the sense of Article 1.1 of the SCM Agreement (i.e., that
it is by the government, or a public body, or is made pursuant to government entrustment or direction of a
private body). Second, we do not mean to imply that all lending in China is made pursuant to the economic
planning documents on the basis of which the USDOC found specificity. Third, concerning the existence of a
benefit, while record evidence indicated that the lending rates were in a narrow range during the period of
investigation, there was some, albeit limited, differentiation of interest rates. Finally, while we have not found
that the benchmark used by the USDOC was inconsistent with the provisions cited in China's claim, this
certainly does not imply that this is the only possible benchmark that could have been or could be used, and
another benchmark may have led to a different outcome in the investigations.
735 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.

interest rate, instead of the applicable daily ra tes, to U.S. dollar-denominated SOCB loans to
GTC.736, 737
2. Main arguments of the Parties
(a) China
10.211 China argues that the USDOC's benchmark me thodology for U.S. dollar-denominated loans
was not based on a comparison of like terms. Sp ecifically, China argues that GTC's U.S. dollar-
denominated loans were short-term (generally be tween 90 and 120 days) fixed-rate loans, with
interest rates based on the applicable U.S. dollar inte rest rates in effect on the days that GTC received
the loans. China argues that becau se LIBOR is a rate that changes daily, the interest rate benchmark
applied to each loan also should have varied accord ing to the date on which the loan was received.
Thus, according to China, the correct method of de termining the existence and amount of the benefit
at issue was to compare the interest rate on the allegedly government-provided loan to the
corresponding benchmark rate in effect on the sam e date. China argues that the annual average
benchmark rate used does not represent what woul d be paid by GTC on a comparable commercial
loan because GTC would not have paid an averag e annual LIBOR rate, something that can only be
determined in retrospect given that LIBOR fl uctuates on a daily basis. China submits that,
alternatively, the USDOC could have applied an average-to-average comparison, i.e., compare an
average annual LIBOR rate to GTC's average intere st rate on its dollar-denominated loans for the
same year.738 China alleges that the USDOC, however, co mpared the actual interest rate on each loan
to a retrospectively-determined average annual LI BOR rate, and that, as a result, it found "benefits"
where, in fact, none existed.739
10.212 China disagrees with the United States' argument that nothing in Article 14(b) requires the use
of daily rates over annual average rates. China submits that Article 14(b) requires the use of
"comparable" commercial loans as benchmarks, a nd that LIBOR interest rates change daily
throughout the year, such that a loan taken out at one point in the year is not "comparable" to a loan
taken out at another point in the year. China adds that the USDOC's comparison did not measure
whether the recipient of a government-provided loan was "better off", but only the extent to which
interest rates varied throughout the year.
740 China also rejects the United States' argument that no
party provided the relevant information (i.e., daily in terest rate data) to the USDOC, arguing that it is
the investigating authorities' obligation – not that of the interested parties – to identify and collect the
"information which the authorities require" to ensu re that the imposition of countervailing duties is
consistent with the requirements of the Agreement.741
10.213 Finally, China submits that had the USDOC ma de a proper comparison, it would have found
unequivocally that GTC did not obtain a benefit on its U.S. dollar-denominated loans; and that
although this argument was not raised during the i nvestigation at issue, the Appellate Body has

736 See, generally, China first written submission, paras. 240-243.
737 As indicated at para. 10.1, supra, China also raises consequential claims pursuant to Articles 10 and
32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.
738 See, e.g., China response to Panel question 25 (secon d meeting). According to China, the USDOC
had the data on the record to undertake such comparison. (Id.).
739 Id.
741 Id., para. 134, citing Articles 10 and 12.1 of the SCM Agreement. China further notes that daily
LIBOR data are publicly available on the Internet. (Id.).

established that a WTO Member "is not confined mere ly to rehearsing arguments that were made [...]
during the domestic investigation".
742
(b) United States
10.214 The United States argues that the benchmark developed by the USDOC for the U.S. dollar-
denominated loans was consistent with Article 14( b) of the SCM Agreement. The United States
explains that the USDOC used the one-year average of the daily interest rates for LIBOR, and that in
order to adjust the LIBOR rate to one that a pr ivate company could receive, the USDOC determined
the average spread between the LIBOR rate and the one-year U.S. corporate bond rates for companies
with a BB rating. The USDOC then added this av erage spread to the LIBO R rate to measure the
benefit at issue.743
10.215 The United States submits that this benchmark in terest rate was constructed on the same basis
as GTC's loans, which were also based on LIBOR pl us a spread. The United States submits that the
benchmark also matched the dura tion and currency denomination of the underlying loans, and that
therefore, it represented a "comparable commercial loan ". In addition, the United States argues that
the benchmark was from the "market" because it was based on an average of actual LIBOR interest
rates.744
10.216 The United States disagrees with China's argume nt that the USDOC was required to use daily
rather than annual averages rates. The United Stat es submits that daily LIBOR rates were not on the
record of the investigation and that no party ar gued that the USDOC should depart from its usual
practice of using annual rates.745 Furthermore, the United States argues that Article 14(b) contains no
preference for daily over yearly average rates, and that in using an annual interest rate, the USDOC
was within the flexibility afforded by Article 14(b).746
3. Assessment by the Panel
10.217 This claim raises a single legal issue: th e comparability of loans due to, in essence,
differences in timing. In particular, the issue raised by China is whether, to be comparable to the
government loans provided to GTC, the commercia l benchmarks should have reflected the rates
prevailing on the particular days on which those loans were taken out.
10.218 We recall our discussion, supra, of the characteristics that make a loan comparable in the
sense of Article 14(b) of the SCM Agreement. Am ong these are the date, i.e., to be comparable, a
benchmark loan should be established around the same date as the government loan. In this regard, as
China points out, LIBOR changes on a daily basis. While we agree with the United States that
Article 14(b) affords certain flexibility to inves tigating authorities in the identification and/or
construction of suitable benchmarks , particularly where no strictly comparable commercial loans are
available, we do not consider that this is the situa tion before us. In particular, there seems to be no
dispute between the parties as to the basic suitability of comparing the interest rate on GTC's U.S.

742 China second written submission, para. 134, citing to Appellate Body Reports on US – Lamb ,
para. 113; US – Corrosion-Resistant Steel Sunset Review , para. 131; and Panel Report on Japan – DRAMs
(Korea), para. 7.304.
743 See, e.g., United States first written submission, paras. 257-258.
744 United States response to Panel question 39 (first meeting).
745 The United States explains that the USDOC's regul ations generally provides for the use of annual
averages to determine the benefit from government-provided loans.
746 United States first written submission, paras. 260-261, citing to Panel Reports on EC –
Countervailing Measu res on DRAM Chips , para. 7.213 and US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC), paras. 7.121-7.122.

dollar-denominated fixed-rate loans to th e LIBOR-based rates used by the USDOC. 747 T h u s , t h e
availability of a suitable benchmark rate is not in question. Nor is there any dispute between the
parties that daily LIBOR rates are publicly and easily available. Given that over the course of a year,
LIBOR, like any interest rate, can and does fluctuate, sometimes considerably, we consider that by not
making any attempt to match the LIBOR interest rate benchmarks to the actual origination dates of
GTC's U.S. dollar-denominated loans (which were the dates on which their respective interest rates
were fixed), the USDOC did not sufficiently ensure that its benchmarks were "comparable" to the
investigated loans, in the sense of Article 14(b) of the SCM Agreement.
10.219 For the foregoing reasons, we find that Ch ina has established that the USDOC acted
inconsistently with the obligations of the United States under Article 14(b) of the SCM Agreement by
using average annual interest rates as benchmarks for GTC's U.S. dollar-d enominated loans from
SOCBs in the OTR investigation.
748
XI. CHINA'S CLAIM PERTAINING TO "CREDIT" OR "OFFSET" FOR
UNSUBSIDIZED TRANSACTIONS
A. CLAIMS OF CHINA
11.1 China claims that the USDOC's inclusion, in the OTR investigation, of only positive
"benefits" (and its corresponding exclusion of negativ e "benefits") in its benefit calculations with
respect to the provision of rubber inputs by SOE rubber producers was an arbitrary methodology
inconsistent with Articles 10, 14, 19 .1, 19.4 and 32.1 of the SCM Agreement and Article VI:3 of the
GATT 1994.
749
B. MAIN ARGUMENTS OF THE PARTIES
1. China
11.2 Based on the use of the word "product" in Article VI:3 of the GATT and Articles 10, 19.3 and
19.4 of the SCM Agreement, China submits that the SCM Agreement establishes that a countervailing
duty is to be imposed in respect of the "product" und er investigation. Therefore, subsidization, like
dumping, is to be defined in relation to a "product as a whole ", and "margins of subsidization", like
"margins of dumping", can only be calculated fo r the product under investigation "as a whole". 750
Thus, China submits, paraphrasing the Appellate Bo dy's findings on zeroing in the anti-dumping
context, while the USDOC could choose to undertake multiple comparisons at an intermediate stage
to establish the margin of subsidi zation, it could only establish the margin of subsidization for each
producer on the basis of aggregating all these "inter mediate values". China adds that the Appellate
Body's findings on zeroing in the anti-dumping context apply with even greater force in the
countervailing duty context given that subsidization is not investigated on an individual transaction
basis but instead necessarily involves an aggreg ated inquiry focusing on the "manufacture" or
"production" of a product over the entire period of i nvestigation. In particular, China submits, the

747 As noted supra, China appears to consider the USDOC's choice of a LIBOR-based benchmark to
have been appropriate. (China first written submission, para. 234).
748 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.
749 Paragraph B.1(a)(vi) of the "as applied" claims in China request for establishment of the Panel;
China first written submission, para. 468 (c); second written submission, para. 315 (d).
750 China refers to the Appellate Body Reports on US – Softwood Lumber V , paras. 93 and 96, US –
Zeroing (EC), para. 126 and US – Zeroing (Japan), para. 115. (China first written submission, paras. 146-150).

principal policy justification advanced by the proponents of zeroing in the anti-dumping context –
targeted dumping – does not arise in the countervailing duty context.
751
11.3 Further, China argues, when goods are purchased frequently over the peri od of investigation,
determining whether remuneration was "adequate" necessarily requires an aggregate analysis that
takes into account all purchases over that entire period. China adds that because of the lack of perfect
information and frequent fluctuations in market conditions, buyers and sellers never know with
certainty what the market price is on any given day. As a consequence, the USDOC's approach
implies that government suppliers would have to sell at or above a retroactively-established
benchmark price in every transaction to avoid a find ing of subsidization. China submits that no
market actor could ever meet this test, and that the drafters of the SCM Agreement could not have had
such an outcome in mind when they created the "adequate remuneration" standard in Article 14.752
11.4 China argues that the use of the singular terms "a benefit" and "the good" in Article 14(d) of
the SCM Agreement limit an investigating author ity's discretion in selecting benefit calculation
methodologies and mandate that for alleged subsidies in the form of the provision of inputs, adequacy
of remuneration be determined on an aggregated basis for that "good" over the entire period of
investigation.753 China submits that under the plain text of Article 14(d), where the same good is
purchased on multiple occasions over the period of investigation, the only way for "a subsidy" to exist
in the form of the provision of "the good" for less than adequate remuneration is if the individual
transactions are considered in the aggregate. China considers that its interpretation of Article 14(d) is
the only one compatible with the definition of a subs idy in Article 1.1 as interpreted by the Appellate
Body in past jurisprudence: a producer is not "be tter off" over a period of investigation if it ends up
paying, on average, more than the market price for any "good" that it purchases from the
government.754
11.5 In this regard, China indicates that, contrary to the United States' characterization, it is not
arguing that the SCM Agreement requires that credit be provided across different types of subsidies or
across different types of inputs: if more than one input is provided, Article 14(d) requires a separate
adequate remuneration analysis for each such "good". China submits, however, that in the
investigation at issue, the USDOC defined the programme under investigation as the provision of a
single good – rubber – by the Chinese government for less than adequate remuneration,
notwithstanding the fact that rubber was purchased in various forms. 755 China states that the USDOC
then calculated a single, period-wide subsidy margin for rubber, regardless of the form in which it was
purchased, rather than calculating five different period-wide subsidy margins for each separate type of
input.756
11.6 Concerning the other provisions of which it alle ges a violation, China argues that within the
legal framework of Article VI:3, it is neither logical nor lawful to consider adequacy of remuneration
on an individual transaction-by-transaction basis in the circumstance where multiple inputs are
purchased over the period of investigation, since that provision makes clear that subsidization is to be
investigated on an aggregate basis (i.e., on the "m anufacture" or "production" of a product, the
investigation, in turn, l eads to the calculation of a single subsidy margin for an entire period of

752 Id., para. 151.
753 China response to Panel question 51 (first meeting); second written submission, paras. 141-144.
754 China second written submission, para. 145, citing to Appellate Body Reports on Canada – Aircraft,
755 China response to Panel question 51 (first meeting).
756 China second written submission, para. 144 and footnote 120. China refers to the USDOC's
description of the alleged subsidy programme as the "Government Provision of Rubber for Less than Adequate
Remuneration", OTR Countervailing Duty I&D Memo, Exhibit CHI-4, pp. 9 and 69.

investigation).757 China submits that the Appellate Body, in US − Softwood Lumber IV, noted that the
requirements of Article VI:3 of the GATT 1994 a nd of Articles 10 and 32.1 of the SCM Agreement
"apply on a cumulative basis" and that, any incons istency with Article VI:3 would necessarily also
render the countervailing measures inconsistent with Articles 10 and 32.1 of the SCM Agreement.
China also relies on the Appellate Body Reports in US – Countervailing Measures on Certain EC
Products and US − Softwood Lumber IV as support for the propositions that to comply with the
overarching obligations that these provisions impose, investigating authori ties, before imposing
countervailing duties, must ascertain the precise am ount of subsidy, and that to carry out this
obligation in an original investigation, Article 19. 1 of the SCM Agreement, read in conjunction with
Article 1, requires the investigating authority to ma ke a determination of th e existence of a benefit
before countervailing measures can be imposed. 758 China also argues (relying on the panel report in
US – Lead Bismuth II ) that Article VI of the GATT, and Articles 19.1 and 19.4 of the SCM
Agreement collectively "establish[] a clear nexus between the imposition of a countervailing duty, and
the existence of a (countervailable) subsidy", and are all based on the premise that no countervailing
duty may be imposed absent (countervailable) subsidization. 759 Concerning the United States'
argument that Article 19.4 of the SCM Agreement do es not apply to original investigations, China
replies that panels and the Appella te Body have determined that Article 19.4 of the SCM Agreement
and Article VI:3 of GATT 1994 do impose obligations on the USDOC during original investigations
under the United States' retrospective system.760
11.7 In response to a question from the Panel con cerning Canada's third party argument that
depending on the facts of a given case (for example, where there is an on-going contractual
relationship) it may be necessary to examine more than one input transaction to determine whether
government provision of a good is made for adequate remuneration
761, China considers that
aggregation in countervailing duty investigations is inevitable, and that the question therefore is not
whether but how an investigating authority sh ould aggregate when calculating benefit under
Article 14(d).762 China argues in particular in this regard that subsidies are identified, investigated,
and measured on a programme-specific basis in the first instance, and where the "programme" is the
alleged provision of a "good" for less than adequate remuneration, and there are multiple transactions
during the period of investigation involving the pur chase of that "good", the investigating authority
necessarily has to perform an aggregation in order to arrive at a single, period-wide subsidy benefit
amount for that programme. For China, therefore, because the benefit from such a "less than adequate
remuneration" programme is ultimat ely determined on a period-wide basis, aggregation is simply the
natural and inevitable by-product of the Article 14(d) "benefit to the recipient" evaluation. Only
where there was a single transaction for the good in question during the period would aggregation not
occur.
 763
11.8 Regarding the specific example cited by Canada of an "on-going contractual relationship",
China agrees that in such an inst ance the adequate remuneration inqui ry would be legally required to
examine all of the transactions during the period of in vestigation. China considers, however, that it is
not the nature of the contractual relationship betw een buyer and seller that compels that outcome, but
instead the plain language of Article 14(d) , the Appellate Body's interpretation in Canada – Aircraft
and in US – Softwood Lumber IV of the circumstances in which a "benefit" may be deemed to exist,

757 China second written submission, paras. 146-147.
758 Id., paras. 156-157, citing to Appellate Body Reports on US – Countervailing Measures on Certain
EC Products, paras. 139 and 147; and US − Softwood Lumber IV, paras. 134, 138 and 154 (quoting Panel Report
on US – Countervailing Measures on Certain EC Products, para. 7.44).
759 Id., para. 159, citing to Panel Report on US – Lead Bismuth II, paras. 6.52-6.53 and 6.56.
760 China response to Panel question 52 (first meeting).
761 See para. 11.28, infra.
762 China response to Panel question 6 (second meeting).
763 Id.

and the requirement in Article VI:3 of the GATT 1994 that countervailing duties be imposed to offset
subsidies bestowed on the "manufacture" or "produc tion" of "the product" over the entire period of
investigation.
764 China argues in this regard that if a producer of subject merchandise purchases ten
units of an input during the period of investigation, and pays on average at or above the market price
for those inputs, it has not received the "good" for l ess than adequate remuneration, it is not "better
off" for having made purchases from the government, and the "manufacture" and "production" of its
merchandise can in no objective sense be considered subsidized. For Ch ina, this is the case whether
the ten purchases of inputs were made from the same government supplier as part of an "on-going
contractual relationship", or from ten different government suppliers in one-time only transactions.
765
11.9 Finally, China argues that the USDOC used "aggregate" monthly benchmarks, which it
compared to individual transactions in performing its benefit analysis and, in some instances, used
benchmark prices that were not contemporaneous to the input transactions, such that the USDOC did
not perform an "apples-to-apples" comparison. In response to a question from the Panel as to the
relationship between this apples-to-apples argument and its claim that the USDOC was required to
include both positive and negative results from its "less-than adequate remuneration" calculations
concerning rubber inputs, China asserts first that it is not raising a new issue, but showing that the
USDOC used aggregations in its calculations, such that the issue in the dispute was whether the
method of aggregation used by the USDOC was consistent with the covered agreements.766
11.10 China notes that the USDOC, in calculating be nchmarks where there was more than one
transaction per month, aggregated by calculating a single, weighted-average monthly benchmark
based on all of the transactions in that month. China argues that the USDO C then aggregated the
individual transactions involving the "good" that it was investigating – rubber – over the period of
investigation whenever the purchase price was lower than the benchmark price to determine a single,
period-wide benefit for that subcategory of rubber. Finally, the USDOC conducted a further
aggregation when it added each of the "benefits" for these subcategories together into a single, period-
wide benefit for the overall programme entitled "provision of rubber for less than adequate
remuneration".767
11.11 China argues that this method of aggregation, in which the USDOC included in its aggregate
benefit calculation the 18 instances in which the tw o respondents paid less than the benchmark price
for rubber inputs, but ignored the 55 transactions in which they paid more than the benchmark price,
cannot plausibly be considered consistent with the covered agreements. In particular, China submits
that the USDOC's aggregation methodology in the OTR investigation cannot pass the "basic
reasonableness test" Article 14 imposes 768, but instead produces manifestly arbitrary and punitive
results, not reasonable ones. China argues that the United States has not offered a single justification
for its methodology based on market conditions, bu siness practices, commercial considerations or
anything else.769
11.12 China indicates that its second reason for referri ng to the USDOC's use of benchmark prices
that were not contemporaneous to the transactions al leged to have been made for less than adequate
remuneration was to underscore why China's legal arguments regarding the proper interpretation of
Article 14(d) and the unreasonableness of the USDOC's methodology must be correct.770

764 China response to Panel question 6 (second meeting).
765 Id.
766 China response to Panel question 7 (second meeting).
767 Id.
768 Id., referring to Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213.
769 Id.
770 Id.

11.13 China argues that for GTC's purchases of butadie ne rubber ("BR"), one of the subcategories
of rubber examined, the USDOC used a single import transaction for the month of May 2006 as the
benchmark for GTC's purchases of BR in January through May. China states that during that period,
prices for BR in China steadily incr eased. China asserts that more than 90 per cent of the purported
benefit that GTC obtained from its purchases of BR dur ing the period of investigation was due to the
USDOC's use of the single May import transaction as a benchmark for GTC's January to April
purchases.
771
11.14 According to China, a similar situation occurred for the other respondent, TUTRIC, where the
USDOC used a single import transaction involving one category of synthetic rubber – SBR – as the
benchmark for all of TUTRIC's purchases during the en tire period of investigation, not only of SBR,
but of BR as well. China states that the only in stances in which TUTRIC's purchase price for any
category of rubber was found to be below the benc hmark resulted from this comparison of its actual
purchase price to a single import price.
772
11.15 According to China, the limitations in the be nchmarks that the USDOC developed, and their
lack of contemporaneity with the transactions being investigated, underscore why the USDOC was
legally required to aggregate the results of all of the comparisons during the period of investigation –
not just those that yielded positive "benefits". China asserts that doing so was the only means
consistent with the Article 14(d) for determini ng if GTC and TUTRIC paid less than adequate
remuneration for their purchases of the "good" the US DOC was investigating. Only by aggregating
all of the comparisons could the USDOC know wh ether GTC and TUTRIC were "better off" for
having made purchases from SOEs, and whether the manufacture or production of their tires during
the period of investigation benefited from subsidies.
773
2. United States
11.16 The United States argues that the USDOC was not required to provide a credit in the
calculations for instances in which SOEs provided rubber inputs for adequate remuneration. The
United States submits, first, that Article 14 of the SCM Agreement affords Members a great deal of
flexibility in calculating benefit in countervailing duty investigations.774 Recalling the panel report in
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , the United States argues
that Article 14 does not prescribe any particular leve l of aggregation at which the benefit calculation
must be conducted, but instead permits investig ating authorities to apply methodologies that account
for different factual situations and the c onditions under which th e subsidy was provided. 775 T h e
United States also argues that Article 14 contains no obligation to consider instances in which a
government provides no benefit or to provide a cred it for such instances when calculating the benefit
conferred by a subsidy; the concept of "benefit" rela tes only to situations in which a firm received an

771 China response to Panel question 7 (second meeting).
772 Id.
773 Id.
774 The United States refers, inter alia, to the Appellate Body Report on US – Softwood Lumber IV ,
775 The United States notes that the panel in US – Countervailing Measures on Certain EC Products
(Article 21.5 – EC) found that it was consistent with the SCM Agreement for an investigating authority to
segment a share offering into four categories of trans actions in order to evaluate whether the change in
ownership effected through the offering extinguished the benefit of prior subsidies, and that in particular, the
panel found that there was no legal basis to require the inve stigating authority to conduct its analysis on either a
segmented or a non-segmented basis, as long as the authority's methodology was transparent and "not
unreasonable", adding that it could find no legal basis "to require the USDOC to conduct its analysis in a
particular manner". (Id., para. 292, citing to Panel Report on US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC), para. 7.121).

advantage.
776 The United States considers in this respect that China's argument cannot be reconciled
with the definition of a subsidy under Article 1 of the SCM Agreement: any time a government
provides a financial contribution and a benefit is thereb y conferred, a subsidy is "deemed to exist". In
the present case, each time China provided a rubber input for less than adequate remuneration, a
benefit was conferred, and a subsid y was deemed to exist. The fact that at other times, China may
have provided rubber inputs to the investigated producer for adequate remuneration, and therefore that
no subsidy existed in those instances, is irrele vant. These non-subsidies could not eliminate or
diminish the benefits conferred when China provided rubber inputs for less than adequate
remuneration.777
11.17 Overall, with respect to the various claims of inconsistencies put forward by China, the
United States submits that: 778 (i) China has failed to establish that the United States acted
inconsistently with Article 14 of the SCM Agreemen t; (ii) it is not clear whether China is making a
claim under Article 1 of the SCM Agreement , because although China ma kes an assertion that the
United States acted inconsistently with that provi sion in the relevant section of its first written
submission, it makes no request for panel finding in this respect; (iii) Chin a provides no explanation
in support of its claims that the United States acte d inconsistently with the other provisions it cites
(Articles 10, 19.1, 19.4, 32.1 of the SCM Agreemen t, Article VI:3 of the GATT 1994 ). With respect
to the latter, the United States notes that China me rely points to the use of the term "product" in
Articles 10 and 19.4 of the SCM Agreement and Article VI:3 but does not otherwise explain how the
United States acted inconsistently with these pr ovisions; and that China makes no reference
whatsoever to Articles 19.1 and 32.1 of the SCM Agreement in its arguments. Finally, the
United States submits that Ar ticles VI:3 of the GATT 1994 and 19.4 of the SCM Agreement do not
impose obligations with respect to countervailing duty investigations as they both pertain to the
levying of countervailing duties, i.e., the definitive or final legal assessment or collection of a duty or
tax which, in the United States' retrospectiv e system, only occurs after the conclusion of
administrative reviews.
11.18 The United States further argues that China's reliance on the Appellate Body reports with
respect to "zeroing" is misplaced as the legal provision on which those decisions are based applies
solely to anti-dumping determinations. The United Stat es also states that neither the term "margins of
subsidization" used by China in its first written submission, nor the term "margin", appears in the
SCM Agreement. The United States submits that accepting China's argument would mean that the
mere use of the term "product" in certain provisions of the SCM Agreement or the GATT 1994 would
override the flexibility afforded to i nvestigating authorities under Article 14.
779 The United States
also submits that a necessary implication of China' s argument is that the obligation to provide a credit
would apply to all of Article 14, such that an i nvestigating authority would have to provide a credit
whenever it found that a financial contribution did not provide a benefit, including across different
types of input products and even different types of subsidies. 780 The United States notes in this
respect that in the investigation at issue, the USDOC investigated the provision of five different types
of rubber inputs by SOEs, i.e., the provision of fi ve different goods and that, for one company, China
only arrives at an overall "negative benefit" by offsetting the positive benefits in respect of one of the
input products with negative benefits in respect of another input product.781
11.19 The United States also rejects China's argument based on the use of the term "good" (in the
singular) in Article 14(d). The United States cons iders it unlikely that the drafters of the SCM

776 United States first written submission, para. 294.
777 Id., paras. 300-301.
778 Id., paras. 310-315.
779 United States first written submission, para. 299.
780 Id., paras. 302-304.
781 Id., para. 305.

Agreement would have sought, through the mere use of that term, to establish an obligation to
aggregate the benefits of all transactions duri ng the entire period of investigation involving the
provision of a good; and an obligation to provide credit in such an aggregate benefit calculation for
transactions in which the good was sold for more than the established benchmark; while also limiting
these obligations to the unique situation of government-provided goods or services.
782 F o r t h e
United States, the term "good" in the second sentence of Article 14(d) is in the singular, and
associated with the terms "in question", because, wh ile a government may provide a variety of goods
and services, the adequacy of remuneration for a particular good provided by the government must be
determined at the "prevaili ng terms and conditions" for that good. The United States notes that the
investigating authority must look at the terms and co nditions prevailing at the time of the sale of the
good, "including price, quality, availability, mark etability, transportation and other conditions of
purchase or sale": such terms and conditions would be expected to vary over time and in many cases
would be unique to each given transaction. Hence, for the United States, the text of Article 14(d)
supports the conclusion that the adequacy of remune ration, and the benefit, may be determined on a
transaction-specific basis.
783
11.20 According to the United States, the different typ es of inputs at issue in the OTR investigation
constituted different types of goods. The Unite d States notes that the respondents in the OTR
investigation reported that SOEs pr ovided them with several distinct types of rubber, and that China
itself, in its first written submission referred to "five separate types of rubber inputs".784
11.21 The United States submits that under the SCM Agreement, investigating authorities are
permitted to apply methodologies that account for different factual situations, including the conditions
under which the subsidy was provided. In all case s, benefit determinations are made on a case-by-
case basis and depend on the particular facts of a given situation.785
11.22 Indeed, the United States argues, the context of the SCM Agreement supports analyzing the
benefit to the recipient on a disaggregated basi s. The SCM Agreement defines a subsidy in the
singular form, supporting the conclusion that invest igating authorities have the option of analyzing
each subsidy on a transaction-by-transaction basis. 786 Moreover, the United States asserts, even if an
authority were to choose to conduct an analysis at a particular level of aggregation in certain
circumstances, nothing in the SCM Agreement requi res an authority to provide a credit for those
transactions that do not provide a benefit when performing such an analysis.787
11.23 Concerning China's "apples-to-apples" argument, the United States argues that it is not clear
how this criticism of the USDOC methodology rela tes to China's countervailing duty credit/offset
argument. Additionally, the United States notes that th is argument appears to be a reversal of China's
prior position that it was within the USDOC's discr etion under the covered agreements to compare
financial contributions and benchmarks on a monthly basis.788

782 United States second written submission, para. 127. The United States notes, inter alia that, by
contrast, in paragraph 6 to Annex IV of the SCM Agreement (concerning the calculation of the overall rate of
subsidization under Article 6.1 of the Agreement) the draf ters used the term "aggregated": "In determining the
overall rate of subsidization in a given year, subsidies given under different programmes and by different
authorities in the territory of a Member shall be ag gregated". (United States first written submission,
footnote 227).
783 United States second written submission, para. 128.
784 Id., para. 133.
785 United States response to Panel question 6 (second meeting).
786 United States second written submission, paras. 129-131.
787 United States response to Panel question 6 (second meeting).
788 United States response to Panel question 7 (second meeting).

11.24 In any event, the United Stat es argues, China's arguments mi srepresent the facts. The
comparison the USDOC performed in evaluating the benefit conferred by the provision of rubber was
an "apples-to-apples" comparison fully consistent w ith Article 14 of the SCM Agreement. In the
OTR investigation, the USDOC requested that the investigated producers report their purchases of
each kind of rubber input by providing the "monthly, weighted-average price paid [...] to each of your
suppliers".
789 The USDOC calculated benefits for the pr ovision of rubber for less than adequate
remuneration by comparing the monthly price of each government-sourced input to a monthly
benchmark based on the average price in a given mont h that the investigated producer paid to private
input suppliers (i.e., private Chinese producers and/ or the price of the input imported from outside
China).
790
11.25 The United States argues that in most in stances, the USDOC compared the monthly
benchmark to one monthly price for the government-sourced input as reported by the investigated
Chinese producers. However, in a number of instan ces, investigated producers reported two or three
prices in a given month. 791 Where this was the case, the US DOC accepted the data in the manner
provided by the investigated producers and compar ed the monthly benchmark to each price reported
for purchases of the rubber inputs in question. In a ddition, the United States argues, in most instances
the monthly benchmarks were based on private prices from the same month in which the investigated
producers reported purchases of the government produced input. However, for some rubber inputs,
the USDOC employed monthly data from a proximate month because the investigated producer did
not have private purchases of the input in the given month.
792
11.26 The United States submits that the USDOC comp lied with the guidelines in Article 14(d) by
employing benchmarks based on th e investigated producers' actual purchases of inputs from private
suppliers during the period of investigation. Acco rding to the United States, this provision does not
require that an investigating authority measure the benefit on any particular temporal basis (i.e., daily,
monthly, annually). Thus, the USDOC's compar ison of the monthly government-sourced prices
reported by the investigated producers to a monthly benchmark – whether it was one, two or three
reported government prices in a given month – was not inconsistent with Article 14(d). Nor,
according to the United States, does this provi sion require that benchmarks be exactly
contemporaneous with the purchase of goods, i.e., from the same month, same week or same day.
Introducing such a requirement could make benefit calculations almost impossible in many situations.
Thus, in the view of the United States, the USDOC 's use of benchmark data from a proximate month
when data for the month of purchase was unavailable is not inconsistent with the obligations of t he
United States.793
11.27 The United States considers that if China' s argument were accepted, authorities would
effectively be required, in all cases, to compare th e average price paid in all transactions during the
period of investigation against a single average benchmark for the same period. Nothing in the text of
Article 14(d) of the SCM Agreement supports Chin a's view, and China's reading would have the
perverse effect of prohibiting authorities from taking into account the market conditions that in fact
prevailed at the time of each individual purchase when determining the adequacy of remuneration for
the good in question.794

789 United States response to Panel question 7 (second meeting).
790 Id.
791 Id.
792 Id.
793 Id.
794 United States comments on China's response to Panel question 6 (second meeting).

C. MAIN ARGUMENTS OF THE THIRD PARTIES
1. Canada
11.28 Canada sees no basis for extending the Appellate Body's reasoning in the "zeroing" disputes
to the interpretation of the SCM Agreement. Sp ecifically, Canada notes that in a dumping context,
the calculation of a dumping margin is made by examining various transactions that involve the
product under investigation. In a subsidy context, although the focus of the investigation is on a
product that is allegedly subsidized and causing in jury, the calculation of the amount of benefit does
not necessarily involve directly that product under investigation. More generally, Canada considers
that there is no provision in the SCM Agreement th at specifically requires the offsetting argued for by
China. However, under certain circumstances, th e examination of whether the provision of a good
through one or more transactions is made for adequate remuneration ma y require that other
transactions be examined; in particular, Canada c onsiders that where there is an on-going contractual
relationship between a government supplier and a purchaser, it may be appropriate to take into
account a range of transactions between the same parties concerning the same goods in order to
determine whether one or more transactions were made for adequate remuneration.795
2. European Communities
11.29 The European Communities does not view the issue of "offsets" raised by China as
comparable to the "zeroing" issue arising under the AD Agreement: (i) the AD Agreement contains
specific provisions, which are not present in the SCM Agreement, and which when taken together
preclude a dumping determination on a transaction-speci fic basis; and (ii) the calculation of benefit
under the SCM Agreement is not conceptually comp arable to the calculation of a dumping margin.
Generally, in comparing a particular price with a benchmark under the SCM Agreement, the guiding
principle is that like must be compared with like, due adjustment being made where necessary, unless
there is a justification for doing otherwise, and on a case-by-case basis. If that is done, then the
prevailing market conditions will take into account the normal fluctuations or variations in the price of
the product in question within the selected period of time. 796 On the other hand, the European
Communities considers that injurious subsidisation is not investigated on an individual transaction
basis; rather, Article VI:3 of the GATT a nd various provisions of the SCM Agreement refer to
"merchandise", "product" or "product under investig ation". Thus, the calculation of the total amount
of subsidisation granted to a particular product allo ws for the aggregation of "all" subsidies found to
have been granted to that product during the peri od of investigation. As to whether a similar
aggregation can be done when calculating the amount of subsidisation in a particular subsidy scheme,
the European Communities is of the view that when calculating the amount of subsidisation in a given
case, the question is what amount of benefit has been given to a particular product through the
specific subsidy scheme during the period of investig ation, and in that exercise, great importance
should be given to how the investigating authority defines the relevant subsidy scheme and the period
of investigation. Once the subsidy scheme has been defined and the period selected, the investigating
authority must be "coherent" with its own selecti on throughout the investigation when calculating the
"overall" benefit granted to the product concerne d through that subsidy practice in the selected
period.797

795 Canada third-party response to the United States' question to Canada; third-party oral statement,
paras. 22-23.
796 The European Communities gives as example the is sue of whether the terms of the transaction are
determined ex ante (at the time of the contract) or ex post (at the time of the order) – the benchmark used must
then correspond to prevailing market conditions either as of the date of contract or as of the date of the order.
797 European Communities third-party submission, paras. 29-34; response to Panel questions 8 and 9.

3. India
11.30 India submits that benefit must be calculated on the basis of an aggregate analysis of all
transactions during the period of investigation, and not by reference to isolated transactions or merely
of those transactions which confer benefit, disregarding other transactions.
798
4. Japan
11.31 Japan considers that the benefit should be examined on a subsidy-specific basis without
zeroing and that China's argument on "zeroing" ma y have certain merit. Japan notes that a
countervailing duty may be imposed to offset the am ount of a subsidy, and that the question before
the investigating authority (and this Panel) is to define the scope of "a subsidy".799 As regards benefit,
Japan considers that the benchmark under Article 14( d) must be the prevailing market price for the
sale of the goods at issue under comparable terms ava ilable at the time that the financial contribution
was granted. Whether normal fluctuations or vari ations in the price of a good or service should be
reflected or taken into account to determine the benchmark would depend on the terms of the financial
contribution. For example, a government might sell input materials under certain terms and
conditions for a certain period of time through multiple shipments. Japan considers that in such a
case, the entire series of shipments could be cons idered to be a financial contribution and the
calculation of the amount of the subsidy should be b ased on the total value of all shipments – rather
than the assessment of the benefit for an individua l shipment based on the value of its shipment.
Japan adds that it also may not be reasonable to pick certain transactions and disregard other
transactions to assess the amount of benefit conferred by the financial contribution.800
5. Norway
11.32 Norway considers that two elements support Chin a's claim that the use of "zeroing" in the
benefit calculations to create a countervailable subsidy where none would otherwise exist is
inconsistent with Article VI:3 of the GATT. Fi rst, Article VI:3 makes clear that a countervailing
measure is to be levied on a product, and any duty sha ll not be in excess of the benefit granted on the
manufacture, production or export of "such" product. For Norway, the use of the singular form makes
clear that the calculation of benefit from inputs received from SOEs must be for all input transactions
during the period of investigation; the reasoning that led the Appellate Body, in its "zeroing"
jurisprudence, to find that similar words in Ar ticle VI:2 of the GATT precluded a finding of dumping
for individual transactions applies with equal force to the calculation of benefits derived from single
input transactions viewed separately. Second, No rway states that the United States resorted to
monthly external benchmarks, and thus that the "benefit" determination was not based on a
calculation of the product cost for the SOEs providing the five types of rubber, and took no account of
factors that could have explained cyclical di fferences in product types of these enterprises as
compared to the monthly variations in the benc hmark prices. Using monthly benchmark prices in
such a situation, and "zeroing" monthly results wh ich showed "no benefit" made a finding of benefit
almost certain from the outset. No rway considers that the application of a methodology that is almost
certain to lead to a conclusion of benefit in all cases, based on single transactions compared to a

798 India third-party oral statement (this statement contains no paragraph numbering). India cites a
number of provisions (Articles VI:3 of the GATT, Articles 19.2 and 19.4 of the SCM Agreement) in making its
arguments with respect to "offset", but does not directly link these provisions to the obligation to take all
transactions into consideration which it puts forward.
799 Japan notes that Article 1.1(a)(1) and 2.1(c) refer to the existence and specificity of "a subsidy".
800 Japan third-party submission, paras. 40-44; response to Panel questions 8 and 9.

benchmark set by the investigating authorities, cannot be said to comply with the requirements of
Article 14(d) of the SCM Agreement and Article VI:3 of the GATT.801
D. FACTUAL BACKGROUND
11.33 In the OTR investigation, the USDOC calculate d benefits to each investigated tire producer
from its purchases of rubber inputs from SOEs) as follows. 802 For each month in which rubber was
purchased by a tire producer from an SOE, the USDOC calculated, for each type of rubber input
purchased (natural rubber, butadiene rubber (BR), styrene butadiene rubber ("SBR"), neoprene),
whether a benefit was provided during that month, by comparing the purchase price of the rubber
input in question to a monthly benchmark price for th at type of rubber. The benchmark prices were
constructed from the price paid by the tire producer in question for imported rubber of the same type
and, where available, for domestically-produced rubber from private producers.
803 For any monthly
comparison in which the purchase price for a given rubber input sourced from an SOE was less than
the benchmark price, the USDOC calculated a monthly "benefit" in the amount of the difference. For
any month in which the purchase price was greater than the benchmark price, the USDOC concluded
that no benefit had been provided.
11.34 For each type of rubber input, the USDOC then aggregated all of the positive monthly
"benefit" amounts, to arrive at a total benefit for that input for the entire period of investigation.
These total amounts then were further aggregated to arrive at an overall benefit amount for the tire
producer from its purchases from SOEs of all types of rubber inputs combined. In other words, for
each tire producer, the USDOC aggregated all positive monthly comparisons for each type of rubber
input, and then aggregated all of the resulting input- specific sub-totals to arrive at the total benefit
amount for rubber inputs. For two of the three producers (GTC and TUTRIC), the USDOC
determined that there were positive overall benefit amounts.
804 For the third producer (Starbright) the
USDOC determined that there was no benef it from purchases of rubber inputs from SOEs. 805
Therefore, the remainder of our discussion focuses only on GTC and TUTRIC.
11.35 The following table illustrates th e approach taken by the USDOC to calculate the benefits
from government provision of rubber inputs, and the approach that China argues should have been
taken instead. Here we note that the numbers in the table are fictitious and are used simply to
illustrate the two approaches:

801 Norway third-party submission, paras. 34-37.
802 See, Final Calculation Memorandum for Guizhou Tire Company Limited (GTC) (the "USDOC
Calculation Memorandum for GTC"), Exhibit CHI-56; Final Calculation Memorandum for Tianjin United Tire
& Rubber International Co., Ltd. (TUTRIC) (the "USDOC Calculation Memorandum for TUTRIC"), Exhibit
CHI-57; China's Calculations with Offsets, Exhibit CHI-58; and CHI-4, p. 92.
803 The USDOC requested, and the in vestigated producers reported, information on rubber purchases
separately by type of rubber, on a monthly basis. ( Attachment to the Supplementa l Questionnaire Concerning
the Countervailing Duty Investigation of New Pneumatic Off-The-Road Tires from the People's Republic of
China – Government of the People's Republic of China , Exhibit US-107, part III(c)). In some instances, an
investigated producer reported a single volume and value of a given type of rubber input purchased from a given
SOE during a particular month, in other instances the producer reported more than one volume and value of a
given type of rubber purchased from a given SOE during a particular month. The USDOC made comparisons to
the monthly benchmarks on whatever basis the inves tigated producer reported their input purchases.
(United States first written submission, footnote 477).
804 Exhibit CHI-4, p. 12.
805 Id.

 SBR BR Neoprene Natural Rubber
Month Bench-
mark

Price

Benefit
Bench-
mark

Price

Benefit
Bench-
mark

Price

Benefit
Bench-
mark

Price

Benefit
USDOC
approach

1 10 8 2 11 10 1 6 5 1 8 9 0
2 9 9 0 11 11 0 5 6 0 8 9 0
3 11 12 0 13 14 0 7 5 2 7 8 0
4 10 9 1 12 11 1 8 9 0 9 12 0
POI total 3 2 3 0

POI total
all rubber 8

China
approach

1 10 8 2 11 10 1 6 5 1 8 9 -1
2 9 9 0 11 11 0 5 6 -1 8 9 -1
3 11 12 -1 13 14 -1 7 5 2 7 8 -1
4 10 9 1 12 11 1 8 9 -1 9 12 -3
POI total 2 1 1 -6

POI total
all rubber

-2

11.36 We recall that, as illustrated above, China is challenging the fact that the USDOC did not
"offset" the positive benefit amounts it found in certain months for certain types of rubber inputs with
negative amounts in the other months, and for the othe r types of rubber. In other words, in China's
view, the USDOC was required by Article 14(d) of the SCM Agreement, Article VI:3 of the GATT
1994, and the other provisions cite d in this claim, to have summed these positive and negative
amounts over the entire period of investigation and – the USDOC having defined the good at issue as
"rubber" – all four kinds of rubber inputs. In par ticular, China argues that the references to "product"
in Article VI:3 of the GATT 1994, and Articles 10, 19.3 and 19.4 of the SCM Agreement require an
aggregate analysis of the inputs in question over the entire period of investigation.
806 Furthermore,
specifically in regard to Article 14(d) of the SCM Agreement, China argues that "in the context of a
case like OTR, where the alleged government-provi ded goods were purchased frequently over the
period of investigation, determining whether remuneration was 'adequate' [in the sense of
Article 14(d)] necessarily required an aggregate analysis that took into account all of the respondents'
purchases over the entire period of investigation".807 For China, if the net effect of these transactions
over the course of a year is that the average pr ice charged by the governme nt supplier equals or
exceeds the average "market price" benchmark, it would be nonsensical to suggest that the
government received insufficient remuneration for the goods it sold. 808 China further argues that if a
purchaser of inputs pays on average at or above th e market price for those inputs, it has not received
the "good" for less than adequate remuneration, it is not "better off" for having made purchases from
the government, and the "manufacture" and "production" of its merchandise can in no objective sense
be considered subsidized.
809 China's view is that there is a legal obligation under the covered
agreements, at least in some circumstances, to use a method of aggregation that takes into account the

806 China first written submission, paras. 145-149.
807 Id., para. 149.
808 Id., para. 151.
809 China response to Panel question 6 (second meeting).

full range of transactions that occurred during the pe riod of investigation, not just some of them.810 In
sum, China argues, the USDOC was obligated to conduct an aggregate analysis of all transactions
involving the purchase of rubber inputs over the period, including those that were made for more than
the benchmark price, and not merely those that were made for less than the benchmark price.811
11.37 The record shows that, as described above, th e USDOC calculated monthly benchmarks for
each of four kinds of rubber inputs (SBR, BR 812, natural rubber, and neoprene), and compared these
with the monthly average unit values of the co rresponding kinds of rubber purchased by the tire
producers from SOE suppliers. We note here that Ch ina is not challenging the benchmarks that were
applied813, but rather the fact that the USDOC did not calculate the amount of benefit on an average,
net basis, aggregating positive and negative amount s from all transactions, for all types of rubber
inputs combined, across the entire period of investigation.
E. ASSESSMENT BY THE PANEL
11.38 We recall that China's claim cites a number of provisions of the SCM Agreement, as well as
Article VI:3 of the GATT 1994, and that China based its initial arguments principally on this latter
provision, in particular the word "product" in Artic le VI:3 of the GATT 1994. This word is the basis
for China's argument drawing on an analogy with the Appellate Body's findings in the anti-dumping
"zeroing" disputes. We address that argument infra.
11.39 China's explanation, in response to an argumen t advanced by the United States, of the legal
basis of this claim, however, focuses in detail on Article 14(d) as a source of the substantive
obligations it asserts.814 China then explains that the USDOC's benefit calculations relating to rubber
inputs also were inconsistent with Article VI:3 of the GATT 1994 and Article 10, as well as
Articles 19.1 and 19.4 of the SCM Agreement because the USDOC used a benefit methodology that
resulted in an inflated benefit amount, or pr oduced a purported benefit where none existed. 815 On the
basis of this explanation, we understand that the a lleged violations of Article VI:3 of the GATT 1994
and of Articles 10, 19.1 and 19.4 of the SCM Agreement in the context of this particular argument are
consequential to the alleged substan tive violation of Article 14(d). We thus begin our analysis with a
consideration of Article 14(d) of the SCM Agreement.
11.40 There is no disagreement between the parties that Article 14(d) of the SCM Agreement
directly pertains to the calculation of benefit fro m government provision of goods. This provision
reads:
"Article 14
Calculation of the Amount of a Subsidy in Terms of the Benefit to the
Recipient
 For the purpose of Part V, any method used by the investigating authority to
calculate the benefit to the recipient conf erred pursuant to paragraph 1 of Article 1
shall be provided for in the national legisl ation or implementing regulations of the
Member concerned and its application to each particular case shall be transparent and

810 China response to Panel question 6 (second meeting).
812 SBR and BR are collectively referred in some of the record documents as "synthetic rubber".
813 China response to Panel question 35 (first meeting).
814 China second written submission, paras. 137-152.
815 Id., paras. 153-160.

adequately explained. Furthermore, any such method shall be consistent with the
following guidelines:

(d) the provision of goods or services or purchase of goods by a
government shall not be consid ered as conferring a benefit
unless the provision is made for less than adequate
remuneration, or the purchase is made for more than
adequate remuneration. The ad equacy of remuneration shall
be determined in relation to prevailing market conditions for
the good or service in question in the country of provision or
purchase (including price, quality, availability, marketability,
transportation and other conditions of purchase or sale)".
11.41 The precise question before us is whether th e methodology used by the USDOC to determine
that the provision of rubber inputs by SOEs conferred benefits on OTR tire producers was inconsistent
with Article 14(d). We recall that China's argume nt based on the text is that because Article 14(d)
refers to "the good [...] in question", and to "a be nefit", in the singular, and the USDOC identified the
"good" in question as "rubber", the calculation re garding the adequacy of remuneration must be
conducted on an aggregate basis in respect of all of the rubber inputs, combined. China also argues
that where a given good is purchased on multip le occasions over a period of investigation,
Article 14(d) requires that those individual transacti ons be considered in the aggregate to determine
whether a producer is "better off" over a period of i nvestigation. In China's view, the producer is not
better off if it ends up paying, on average, more than the market price for any "good" that it purchases
from the government over that period. China furthe r considers that pursuant to Article 14(d) some
aggregation is inevitable, such that the question becomes not whether, but how, to aggregate in a
WTO-consistent manner.
11.42 We further recall China's argument that in th e OTR investigation, the USDOC identified as a
"programme" the provision of rubber inputs by the government for less than adequate remuneration.
China argues that the USDOC thus was required to a ggregate all of the different types of rubber (as
"the good" in question) in performing its benefit calculations.
11.43 We thus see two main components to China's argument based on Article 14(d): temporal (the
period of investigation as a whole); and regarding th e meaning of "good" in this provision (how the
input "programme" is defined by the investigating authority).
1. Period of investigation
11.44 Starting with the temporal element, we note that there is no direct reference to time in
Article 14(d), or elsewhere in Article 14 of the SCM Agreement. In fact, the only way in which
Article 14(d) refers to time, albeit indirectly, is through its referenc e to "prevailing market
conditions", which we understand to mean the conditions in the market prevailing at the time of the
purchase of the good or service in question from the government. But this is a different issue from the
one raised by China.
11.45 From the practical point of view, we agree with China that countervailing duty investigations
inherently have a temporal component, as alleged subsidies must be analyzed in relation to a
particular period to ultimately arrive at an overall am ount of subsidization of the investigated product,

ad valorem and/or per unit, as provided for in Articles 11.9 and 19.4 of the SCM Agreement. 816 For
this reason, an investigating authority will define a period of investigation and typically will need to
perform a certain amount of aggregation and/or disaggregation of benefit amounts from different
investigated subsidies to determine the total amount of subsidization of the product during that period.
11.46 This observation, which is shared by China, that benefit amounts from different subsidies
need somehow to be aggregated over the period of in vestigation in order to arrive at the total amount
of subsidization of the investigated product, does not however address the temporal issue raised by
China. In particular, China is arguing that Article 14( d) (via its references to a "good" and "a benefit"
in the singular) requires that the determination of whether purchases of inputs from government
sources were for less than adequate remuneration mu st be calculated on an overall, net basis for the
entire period of investigation for the good in questi on, using for each transaction the benchmark price
identified by the investigating authority as the yardstic k. In other words, China's argument is that if
some purchases during the period of investigation are made for a higher-than-benchmark, or above-
market, price, the full amount of these "negativ e" benefit amounts, as measured against the
benchmark price, must, as a matter of law, be o ffset against the "positive" benefit amounts, over the
full period of investigation.
11.47 In assessing this argument, we note first that Article 14(d) of the SCM Agreement contains no
reference to any notion of offsetting, or "negativ e benefits" or of averaging across the period of
investigation, for a particular good. Indeed, in our view, the language of the provision – especially the
statement that "the provision of goods or services or purchase of goods by a government shall not be
considered as conferring a benefit unless the provision is made for less than adequate remuneration" –
if anything suggests both a disaggregated analysis and a focus on instances where benefits are found
to exist. We note in particular the negative terms in which this sentence is drafted – a benefit "shall
not" be conferred "unless" – which could be restated as there being no benefit, i.e., a benefit of zero,
where the remuneration is at least "adequate".
11.48 The fact that the comparison required by Article 14(d) is with "prevailing market conditions",
in our view, also cuts against China's argument th at if on average over the period of investigation a
purchaser of a good has not paid a below-market price, there is no benefit. In particular, given that
"prevailing market conditions" can and do change over time, an investigating authority would need to
ensure that its benchmark price was updated as necessa ry to reflect any such changes that might occur
during the period of investigation. This suggests th at rather than viewing the period of investigation
monolithically, an investigating authority shou ld be seeking to match the transactions under
examination to contemporaneous benchmarks, and that the existence or absence of a benefit in respect
of one transaction or group of transactions is indepe ndent of the existence or absence of a benefit in
other transactions.
11.49 We also note that the approach advocated by China has a significant internal inconsistency
which is most easily seen in a hypothetical situation where all of the purchases of a given good from a
government are for prices above "prevailing market conditions". Under China's methodology, the
benefit calculations would generate "negative benefits", both indivi dually and overall. China argues
that it sees no requirement under the SCM Agreement to offset any such net negative benefits from
provision of goods against positive benefits from any ot her kinds of subsidies. Yet, we can find no
basis in China's argument on which such a distin ction could be made be tween positive and negative
benefit amounts from one given ki nd of subsidy and positive and negative benefit amounts across
different kinds of subsidies. We see no such requi rement in the SCM Agreement, and to the contrary

816 Article 11.9 of the SCM Agreement establishes that subsidization of less than 1 per cent ad valorem
is de minimis and must result in termination of an investiga tion. Article 19.4 of the SCM Agreement refers to
calculation of "the amount of the subsidy found to exist [...] in terms of subsidization per unit of the subsidized
and exported product".

consider that the Agreement – starting with the ba sic definition in Article 1 – instead provides that
each subsidy must be analyzed and assessed independently.
817 China's proposed methodology is
inconsistent with this principle.
11.50 For the foregoing reasons, we find no requirement in Article 14(d) of the SCM Agreement
that, as such, positive and "negative" benefits from government provision of a good must be offset
over the period of investigation.
2. "Good" in the sense of Article 14(d) of the SCM Agreement
11.51 The second aspect of China's aggregation argument is that the USDOC should have treated all
rubber inputs as a single "good" in the sense of Ar ticle 14(d), and that an overall net benefit amount
(positive or negative) should have been calculated for "rubber" of all types together, for each tire
producer. China bases this argument on the fact that the USDOC notionally treated provision of
"rubber inputs" for less than adequate remuneration as a "programme" in its investigation.
11.52 While this argument of China would at first sight appear to be a purely factual one, it raises a
legal question, that of the breadth of the term "good" in Article 14(d), and the extent to which what is
considered to be a "good" for the benefit de termination pursuant to Article 14(d) should be
determined by the way in which the investigating authority groups various alleged subsidies in the
investigation.
11.53 We consider that the text of Article 14(d) must be understood to refer to the intrinsic
characteristics of the good itself, i.e., that the existence of a benefit must be determined based on how,
in practice, the specific good in question is sold. In particular, this is the purpose of the language in
that provision referring to "prevailing market conditions" as "including price, quality, availability,
marketability, transportation, and other conditions of purchase or sale". This means that any
benchmark identified as representing the "prevailing market conditions" for the good provided by a
government must reflect the price for that same good as it would be or is sold by private sources at
that time and on comparable terms and conditions. This language thus requires a careful matching of
the transactions being examined with appropriate benchmarks, and militates against an aggregated,
averaged approach across different kinds of goods.
11.54 We thus consider that, like the temporal question, Article 14(d) of the SCM Agreement points
more to a disaggregated than an aggregate analysis of the pricing of a government-provided "good"
for purposes of benefit calculation. Given this, we see no requirement in the text that simply because
an investigating authority may refer to the provi sion of certain goods as a "programme" for purposes
of its analysis, all of those goods must be treated as a bloc, on the basis of their average unit value, in
the benefit calculations. To the c ontrary, we see a clear requirement that the benchmark must in fact
reflect the actual market conditions, starting with price, for any given good at issue.
3. Degree of flexibility for investigating authorities under Article 14 of the SCM
Agreement
11.55 We note that while China argues that the met hodology it advances is required in all cases, the
United States counters that Article 14 provides inves tigating authorities with considerable leeway to
perform benefit calculations, with in the general framework mandated by Article 14 of the SCM
Agreement. We thus now turn to this question. In this regard, we note first that the chapeau of
Article 14 explicitly characterizes the rules set forth in the four subparagraphs of Article 14 as

817 For example, Article 1 of the SCM Agreement refers to "a subsidy", "a financial contribution", and
"a benefit"; and "countervailing duty" is defined in footnote 36 as a special duty to offset "any subsidy"
bestowed upon the manufacture, production or export of any merchandise.

"guidelines". In this respect, we agree with the findi ngs of past panels and the Appellate Body that as
such, these "guidelines" establish the basic framework for the calculation of benefits from the kinds of
financial contributions referred to in the various subparagraphs, but that they leave a considerable
amount of leeway to investigating authorities as to precisely how those calculations are to be
undertaken in any given case, depending on the specific facts under investigation. We note in
particular the following statements of the Appellate Body in US – Softwood Lumber IV:
"[...] The chapeau of Article 14 requires that ' any' method used by investigating
authorities to calculate the benefit to the recipient shall be provided for in a WTO
Member's legislation or regulations, and it re quires that its application be transparent
and adequately explained. The reference to ' any' method in the chapeau clearly
implies that more than one method consis tent with Article 14 is available to
investigating authorities for purposes of calculating the benefit to the recipient. [...]
"[T]he term 'guidelines' suggests that Ar ticle 14 provides the 'framework within
which this calculation is to be performed ', although the 'precise detailed method of
calculation is not determined'. [...] [T]hese terms establish mandatory parameters
within which the benefit must be calculate d, but they do not require using only one
methodology for determining the adequacy of remuneration for the provision of
goods by a government. Thus, [...] the use of the term 'guidelines' in Article 14
suggests that paragraphs (a) through (d) shoul d not be interpreted as 'rigid rules that
purport to contemplate every conceivable factual circumstance'".
818 (emphasis
original)
We further note the Appellate Body's similar statement in Japan – DRAMs (Korea):

"The chapeau of Article 14 provides a WTO Member with some latitude as to the
method it chooses to calculate the amount of benefit. Paragraphs (a)-(d) of Article 14
contain general guidelines for the calculation of benefit that allow for the method
provided for in the national legislation or regulations to be adapted to different factual
situations".
819

11.56 We recall that we have found, above, no requireme nt in Article 14(d) for either the temporal
or the product "offsetting" advocated by China. The above findings of th e Appellate Body support
this view, by indicating that no one specific methodol ogy (whether that put forward by China or any
other) is required by Article 14(d) of the SCM Agreem ent. We also have found that the language of
Article 14(d) suggests more a disaggregated than an aggregate approach, both temporally and in
respect of a "good" in the sense of that provision. That said, as discussed above, we consider that the
basic requirement of Article 14(d), as expressed by the phrase "prevailing market conditions for the
good [...] in question [...] (includi ng price, quality, availability, marketability, transportation and other
conditions of purchase or sale)", is that the benchm ark used must correspond to the particular good at
issue, as it is actually sold, at the time of the transaction being analyzed (i.e., it must reflect the factual
situation found to exist in respect of the govern ment-provided good). It is within this basic
"guideline" that an investigating authority can exercise the methodological flexibility accorded to it
under Article 14 so as to appropriately take into account the specific facts of the investigation.
11.57 Finally, we recall China's initial argument, based on an analogy with certain dispute
settlement findings on the issue of "zeroing" in the context of anti-dumping, that Article VI:3 of the
GATT 1994 as well as Articles 10, 19.3 and 19.4 of the SCM Agreement establish that a
countervailing duty is to be imposed in respect of th e "product" under investigation, and that therefore

818 Appellate Body Report on US – Softwood Lumber IV, paras. 91-92.
819 Appellate Body Report on Japan – DRAMs (Korea), para. 191.

subsidization, like dumping, is to be defined in relation to a "product as a whole ", and that "margins
of subsidization", like "margins of dumping" , can only be calculated for the product under
investigation "as a whole". China submits therefore that while the USDOC could choose to undertake
multiple comparisons at an intermediate stage to establish the "margin of subsidization", it could only
establish that "margin" for each producer on the basi s of aggregating all these "intermediate values",
and that the Appellate Body's findings on zeroing in the anti-dumping context apply with even greater
force in the countervailing duty context given that s ubsidization is not inves tigated on an individual
transaction basis but, rather, necessarily involves an aggregated inquiry focusing on the "manufacture"
or "production" of a product over the entire period of investigation.
11.58 As we have discussed above, we consider that a countervailing duty analysis does inherently
involve a certain amount of aggregation, of be nefits from distinct subsidies benefiting the
manufacture, production or export of an investigated product, and of those benefits over the course of
the period being investigated. In our view, however, such aggregation of benefits to the investigated
product from different subsidies is unrelated to Ch ina's contention that "negative" benefit amounts
must offset "positive" benefit amounts in calcula tions pertaining to the government provision of a
given good (one among several possible subsid ies affecting a given investigated product).
820 We
recall here that in any case, China itself argues (and we agree) that offsets of "positive" and "negative"
benefit amounts across different subsidy programm es are not required, by Article 14 of the SCM
Agreement or any other provision of the WTO Agreement. We thus do not find China's zeroing
analogy to be apposite to this claim.
11.59 For these reasons, we do not find that, as a matter of law, Article 14(d) or any of the other
provisions cited in China's claim requires the me thodology advanced by China, or any specific
methodology, to be applied in calculating be nefits from the government provision of a good.
821 We
have instead found that Article 14(d), the directly applicable provision, requires that benefit be
determined in a way that reflects the actual facts of the investigation. We do not here exclude, a
priori, the possibility that a given set of factual circ umstances (perhaps a hypo thetical scenario along
the lines referred to in Canada's third party arguments) might dictate the methodology advocated by
China in a specific case. That said, the questi on remains whether the OTR investigation presented
such a situation.
4. The USDOC benefit determination in respect of rubber inputs
11.60 Having considered the legal issues under Article 14(d) of the SCM Agreement and the other
provisions cited by China, we now turn to the US DOC's analysis and determination of benefit from
the government provision of rubber inputs to OTR tire producers. In particular, we consider whether
the particular facts of the OTR investigation necessitated the methodology advocated by China.
11.61 The record demonstrates that in the OTR inves tigation, the USDOC referred to the subsidy at
issue as the provision of "rubber" for less than adequate remuneration. 822 In its calculations,

820 We note further that the term "margin of subsidization" does not appear in the SCM Agreement.
821 Nor do we consider that China has established the existence of a "basic reasonableness test" under
Article 14 that would impart particular obligations that do not appear on the face of that provision. Indeed,
China provides no discussion of what it means by the term "basic reasonableness test", instead simply citing a
paragraph of the report of the panel in EC – Countervailing Measures on DRAM Chips in which that term
appears.
822 See, inter alia , Exhibit CHI-4 pp. 9 and 69 (title of the programme "determined to be
countervailable" is the "Government Provision of Rubber for Less than Adequate Remuneration"); Exhibit CHI-
50, p. 71372-71374, ("Provision of Natural and Synthetic Rubber by SOEs for Less than Adequate
remuneration"); Exhibit CHI-51 p. 40484, item D ("Gove rnment Provision of Rubber for Less than Adequate
Remuneration"); Exhibits CHI-56 and CHI-57 (Final Calculation Memoranda for GTC and TUTRIC
("Government Provision of Rubber for Less than Adequate Remuneration")).

consistent with the basis on which the informatio n was reported by investigated producers, the
USDOC performed a separate calculation for each of the rubber inputs. 823 GTC and TUTRIC both
reported to the USDOC their purchases of rubber inputs from SOEs by month (sometimes reporting
more than one transaction during a given month), separately for each of the types of rubber. There is
no indication in the record of the investigation or before us that this was at odds with how the tire
producers maintained the records of their rubber purchases.
11.62 The USDOC calculated monthly market benchmar k prices for each type of rubber, based on
the tire producers' actual purchases of rubber from private sources, and used these monthly
benchmarks to determine on a monthly basis whethe r a benefit had been conferred. For each tire
producer, the USDOC summed the positive benefit amounts thus calculated for each type of rubber, to
arrive at a total benefit for the period of investiga tion to that tire producer from that type of rubber.
These input-product-specific benefit totals then were added together to arrive at the total benefit to the
tire producer from government provision of rubber inputs of all kinds during the period of
investigation.
11.63 We note first that China does not contend that all of the different types of rubber were sold for
a single, undifferentiated price. Nor does the record evidence indicate that this was the case. To the
contrary, the record evidence shows that each type of rubber was sold as a specific, separate product
with its own pricing, and that the tire producers ma intained their purchase records separately for each
type.
824 Furthermore, we recall that China raises no cl aim in respect of the benchmarks used by the
USDOC in these benefit calculations, or the matching of any particular benchm ark to any particular
rubber purchase. In other words, China does not claim that the benchmarks used by the USDOC
failed to reflect "prevailing market conditions" either temporally or in terms of the characteristics or
terms and conditions of sale of the particular kinds of rubber at issue.
11.64 Instead, what China contends is that in spite of their differentiated pricing, all of the different
rubber inputs were legally required to be treated as a single "good" in the sense of Article 14(d)
because the USDOC treated the government provision of rubber inputs to the OTR tire producers as a
"programme".
11.65 In our view, China's characterization of the USDOC's description of the measure places undue
weight upon the title given by the USDOC to the progr amme at issue, and we are not convinced that
the USDOC sought to define the "good" at issue as "rubber" in the aggregate, without distinction
between various types of rubber inputs. But in a ny case, even if we were to agree with China's
characterization of the USDOC's description of the s ubsidy or good at issue, we find no basis in the
SCM Agreement for China's arguments, nor do we c onsider that aggregating all "rubber" inputs, as
China suggests was required, would reflect any market reality. Indeed, we note that there would be a
considerable margin for inaccuracy if investigating authorities were legally required to ignore the
actual pricing of a given good in favour of an average value across a range of goods with
differentiated pricing. Furthermor e, we consider that the guidelines of Article 14(d) mean that the
level of aggregation or disaggregation of the anal ysis of a given "good" must correspond to how that
good is marketed in reality. Given the facts of the case before us, we thus c onsider it appropriate for
the USDOC to have separately calculated benefit am ounts for the different kinds of rubber purchased
by the tire producers.
11.66 Turning to the USDOC's approach of analyzing the rubber transactions on a monthly basis
and taking into account only the positive monthly am ounts, we recall that China contends that the
USDOC should instead have calculated the overall positive or negative net benefit for the period of
investigation as a whole, i.e., that it should have compared the average price paid for all forms of

823 See Exhibits CHI-56 and CHI-57 (Final Calculation Memoranda for GTC and TUTRIC).
824 Exhibits CHI-56 and CHI-57.

rubber over that period with the average benchmark.
825 We consider that there could be certain
situations in which some sort of grouping or aver aging of transactions might be necessary in order to
arrive at a determination of the amount of the benefit. Examples might include where a given set of
transactions was made pursuant to a contract, or possibly where the actual prices paid to the
government fluctuated slightly around the market benchmark(s) over the entire period of
investigation. In the OTR investigation, howe ver, the positive benefits calculated by the USDOC
were clustered in particular months of the period of investigation and generall y were sizeable, rather
than being small amounts above and below the benchm arks spread uniformly over that period. This
fact pattern, to us, does not mandate the kind of te mporal averaging advanced by China. We thus
consider that the USDOC acted within the limits of the flexibility accorded to it by Article 14(d) of
the SCM Agreement in performing as it did the benefit calculations on a monthly basis.
11.67 Finally, we consider China's argument that the fact that the USDOC compared "aggregate"
monthly benchmarks to individual transactions in performing its benefit analysis, and in some
instances used benchmark prices that were not cont emporaneous to the input transactions, resulted in
comparisons that were not "apples-to-apples". We note that China reiterates, in making this
argument, that it is not raising any new issues pertaining to non-contemporaneous (or non-like)
benchmarks. We consider, however , that the benchmarks used by the USDOC are in fact the precise
focus of this argument, which we see as a different issue from the "offset" issue that is the subject of
China's claim as set forth in its request for establi shment of the Panel. We thus do not find this
argument germane to our consideration of that claim.
5. Conclusions
11.68 For the foregoing reasons, we find that China has not established that the USDOC acted
inconsistently with the obligations of the United States under Article 14(d) of the SCM Agreement by
not "offsetting" positive benefit amounts with "nega tive" benefit amounts, either across different
kinds of rubber or across different months of the pe riod of investigation, nor that the United States
also thereby acted inconsistently with its obligati ons under Articles 10, 19.1, 19.4 or 32.1 of the SCM
Agreement, or Article VI:3 of the GATT 1994.
11.69 We recall that we are called upon by this claim, as by all others before us, to determine
whether the United States has acted inconsistently w ith its obligations on the basis alleged by China.
In finding that China has not established its claim we thus are not making a judgement as to the
overall consistency or inc onsistency of the USDOC's benefit calcu lations in respect of rubber inputs
with the United States' obligations, under the cited provisions or any other provisions.
XII. CHINA'S CLAIMS PERTAINING TO THE PROVISION OF SOE-PRODUCED
INPUTS BY PRIVATE TRADING COMPANIES
A. C
LAIMS BY CHINA
12.1 China submits that even if the USDOC's finding that SOE input producers were public bodies
were valid, in the CWP, LWR and OTR investig ations the USDOC acted inconsistently with
Article 1.1 of the SCM Agreement (and as a c onsequence with Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994) by finding subsidies where inputs produced by SOEs
were purchased from private trading companies by th e producers of the investigated products, as the

825 See para.11.36, supra. This is another way used by China to express its argument that the positive
and negative subsidy amounts should have been "offset".

USDOC made no finding that the trading companies we re "entrusted" or "directed" in the sense of
Article 1.1(a)(1)(iv) of the SCM Agreement to provide the goods.826
12.2 China further submits that if the Panel were to conclude that the USDOC was not obligated to
make a finding that the trading companies themselv es provided a financial contribution, the benefit
analysis in respect of the sale of inputs was nonetheless flawed because it was predicated on an
unlawful presumption that the trading companies rece ived, and passed-through to the producers of the
investigated products, countervailable benefits from their purchases of the inputs from SOEs.827
12.3 Concerning the first issue (the entrustment or di rection issue), the relevant portion of China's
request for establishment of the Panel (paragraph B.1(a)(iii)) reads as follows:
"(iii) even assuming a valid determination that certain SOEs are public bodies, the
US authorities' failure to make a determina tion that SOEs "entrust or direct" trading
companies to provide goods to producers of subject merchandise, within the meaning
of Article 1.1(a)(1)(iv) of the SCM Agreement;" (footnote omitted)
12.4 Concerning the second issue (the pass-through issue) , which China raises in the alternative to
the financial contribution issue discussed supra, China, in response to a question from the Panel,
identifies paragraphs B.1(a)(iv) and B.1(a)(v) of its request for establishment of the Panel as setting
forth its claim(s) relative to the pass-through issue.
828 These paragraphs read:
"(iv) the US authorities' determination that the sale of goods by trading companies
to producers of subject merchandise confers a countervailable subsidy within the
meaning of Article 1 of the SCM Agreem ent and a benefit under the guidelines set
forth in Article 14(d) of the SCM Agreement;
(v) the US authorities' failure to determ ine whether the alleged benefit received
by trading companies was passed through to producers of subject merchandise, in
violation of Article VI:3 of the GATT 1994 and Articles 10, 14, 19.1, 19.4, and 32.1
of the SCM Agreement".
B. M
AIN ARGUMENTS OF THE PARTIES
1. China
12.5 China argues that the USDOC had no basis to conclude that the respondents obtained
"government-provided goods" when they purchased inputs from the trading companies, since the
USDOC made no findings that the private tradi ng companies themselves had made a financial
contribution when selling SOE produced inputs, i.e., that they had been "entrusted or directed" to
"provide goods" within the meaning of Article 1.1. For China, this necessarily means that the
subsidies at issues were countervailed unlawfully.
829
12.6 China alleges that even if the Panel were to disagree with this conclusion, the USDOC’s
findings with respect to trading companies would still be unlawful, because they are based on an
erroneous benefit analysis as well. In particul ar, China submits that the USDOC never established
that the private trading companies themselves received subsidies, in particular that it did not examine

826 Paragraphs B.1(a)(iii) and B.1( e)(i)-(iii) of the "as applied" claims in China request for
establishment of the Panel; China first written submission, para. 132; second written submission, paras. 44 and
315 (b).
827 China first written submission, paras. 133-138.
828 China response to Panel question 34 (second meeting).
829 See, e.g., China first written submission, para. 132.

the price paid by the trading companies for th e inputs they purchased from SOEs in any of the
investigations. Rather, according to China, th e USDOC "presumed, without any investigation or
analysis, that the purported financial contribution to the trading companies – the provision of [inputs]
by SOEs – conferred a benefit on the trading co mpanies". By presuming, rather than actually
determining, whether and to what extent a benefit was conferred in the transaction between the SOEs
and the trading companies, the USDOC acted incons istently with Articles 1.1(b) and 14(d) of the
SCM Agreement.
830
12.7 China further argues that without a valid findi ng that the trading companies themselves had
received a benefit, the USDOC had no legitimate basi s to conclude that "all or some portion of the
benefit" they purportedly received was "confe rred on the […] producers who purchase the [inputs]
from the trading company suppliers". In other words, China submits, the USDOC presumed the "pass
through" of a benefit that had not been found to ex ist. According to China, the USDOC analysed the
purchase of inputs from trading companies as if they were "indirect" subsidies, and although the
USDOC did not expressly characterize it as such, its ra tionale for concluding that the investigated
producers received a benefit was based on an assumption that some or all the subsidy conferred to the
trading companies "passed through" to the inves tigated producers when they purchased inputs from
the trading companies.
831 In China's view, the USDOC’s approach cannot be reconciled with the
Appellate Body's jurisprudence on "pass through": the USDOC could not lawfully establish that the
SOEs had conveyed an indirect subsidy upon the investigated producers "via" their purchases from
the trading companies unless it had first established that the trading companies themselves were the
direct recipients of a subsidy. China argues th at the USDOC had to examine both the transactions
between the SOEs and the private trading companies and the transactions between the private trading
companies and the investigated producers. By examining only the latter of these transactions, the
USDOC's benefit determinations with respect to the trading companies transactions were inconsistent
with Articles 10, 14, 19.1, 19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT.832
2. United States
12.8 With respect to sales through trading compani es, the United States argues that the USDOC
properly applied the SCM Agreement when it dete rmined that the public bodies (the SOEs) made
financial contributions to the trading companies, and that these financial contributions conferred
benefits to the producers of investigated products.833
12.9 Concerning the financial contribution issue, the United States argues that no entrustment or
direction analysis was required, and that China has not substantiated its claim that the USDOC's
analysis was improper. According to the United States, the USDOC found that "'the [Government of
China's] financial contribution (provision of a good [by an SOE]) is made to the trading company
suppliers that purchase the [good], while all or some portion of the benefit is conferred on the OTR
tire producers who purchase rubber from the trading companies'", and explained that the producer is
the key link in the sales chain, su ch that when the producer is state-owned, there is a financial

830 China first written submission, para. 133-135; response to Panel question 34 (second meeting).
831 China explains that under the USDOC’s approach, the "full difference" between its benchmark price
and the price paid by investigated producers to trading companies would presumptively be considered a
countervailable "benefit". However, China argues, there is no basis for such a presumption: there are a number
of reasons (unrelated to subsidization) why the price between the trading companies and the investigated
producers may be lower that the (unlawfully presumed ) subsidized price at which the trading companies
originally purchased from SOEs. For example, China notes, the market price for the inputs in question could
have been lower at the time the trading company resold the inputs than when it purchased them from SOEs.
(China first written submission, para. 136; response to Panel question 34 (second meeting)).
832 China response to Panel question 34 (second meeting), citing to Appellate Body Report on US –
Softwood Lumber IV, paras. 129 and 140-146.
833 United States first written submission, para. 147.

contribution by a public body.834 The United States argues that there is no indication in Article 1.1(a)
of the SCM Agreement of who must receive a fina ncial contribution, as that provision only addresses
who grants a financial contribution.835
12.10 In this regard, the United States submits that, although the financial contribution must confer
a benefit, Article 1.1(b) does not specify upon whom the benefit must be conferred. The
United States quotes the finding of the Appellate Body that "the 'benefit' of a financial contribution
[...] [does not necessarily have to] be 'received and enjoyed' by the same person, or put differently,
there is nothing indicating that the 'benefit' cannot be 'received and enjoyed' by two or more distinct
persons".836 The United States recalls that in Mexico – Olive Oil, the panel interpreted the Appellate
Body's findings as meaning that "a benefit might be received by different recipients, that the recipient
of the benefit might be different from the recipient of the financial contribution, and that a subsidy can
be bestowed directly or indirectly, and in r espect of production, manufacture or export of a
product".837
12.11 According to the United States, China's clai m that the USDOC "presumed" a financial
contribution from the trading companies misses the point , as the USDOC instead found a financial
contribution to the trading companies. Fo r the United States, this argument by China assumes that
Article 1.1 of the SCM Agreement requires there to be only one recipient, which must receive both
the financial contribution and the entire amount of the benefit, an assumption for which China has
offered no support.838
12.12 The United States argues that in the investigations at issue, the financial contribution occurred
with the sale of goods by the SOE to the "intermedi ary" trading company, and that this government
provision of goods then conferred benefits upon the respondent produ cers of investigated products,
when the trading companies sold the goods to those producers. According to the United States,
although the trading companies received "perhaps some benefit" this did not preclude the producers of
the investigated products from receiving a benefit, wh ich existed to the extent that the prices paid by
those producers for the goods were less than the corresponding benchmark prices.839
12.13 Concerning the pass-through issue, the United States disagrees that the USDOC presumed the
pass-through of a benefit that had not been found to exist. According to the United States, to the
extent that a trading company received a benefit from the financial contribution provided by an SOE
in the form of provision of goods, and some portion of that benefit in effect passed through the trading
company to a producer of subject merchandise, the USDOC accounted for this and properly
calculated the benefit conferred upon the producer of the investigated product. To do so, the
United States submits, the USDOC compared the pri ce the producer of the investigated product paid
for the goods in question with an appropriate benchmark price.
840 The United States cites the
Appellate Body and the Olive Oil panel for the propositions that a pass-through analysis is not
required every time there is an arms'-length transac tion between unrelated companies in the chain of

834 United States first written submission, paras. 148 and 156.
835 Id., para. 150.
836 Id., para. 152, citing to Appellate Body Report on US – Countervailing Measures on Certain EC
Products, para. 110. (emphasis original).
837 Id., para. 154, citing to Panel Report on Mexico – Olive Oil, para. 7.152.
838 Id., paras. 155-156.
839 Id., para. 157.
840 Id., para. 320.

production of an investigated product, and that the recipient of a benefit may be different from the
recipient of the financial contribution.
841
12.14 The United States further argues that in the transactions at issue, the USDOC accurately
measured the benefit by comparing the price paid by the producer of the investigated product for the
input with an appropriate benchmark price. In particular, any difference between the price paid by the
trading company to the SOE for the input and the pr ice paid to the trading company by the producer
of the investigated product, e.g., the mark-up adde d by the trading company, was reflected in the
benefit calculations. Put another way, the United States argues, even if the USDOC had first
determined the difference between the benchmark and the price paid by a trading company to an SOE
for a government-provided good, and then also de termined the difference between the benchmark and
the price paid by the producer of the investigat ed product to the trading company for the good, the
resulting determination of benefit would be the same.
842 The United States concludes that whether the
trading company sells the goods for the price it pa id for them or with a mark-up, the benefit
calculation properly determines the benefit confe rred on the last buyer, the producer of the
investigated product.843
C. MAIN ARGUMENTS OF THE THIRD PARTIES
1. Australia
12.15 Australia considers that when trading companies are mere inte rmediaries in a transaction, a
complete pass-through analysis may not be necessary, and that this approach is consistent with the
findings of the Appellate Body in US – Countervailing Measures on Certain EC Products and US –
Softwood Lumber IV . Australia further notes that where intermediaries do not change the nature of
the input, the benefit is most accurately calculated at the level of the exporters concerned. Australia
suggests that the Panel examine what could cons titute a pass-through analysis, which could include
establishing the existence of a subsidy to an input product, and the price paid by the producer of the
investigated product for the input compared with an appropriate benchmark.
844
2. Canada
12.16 Canada argues that to impose a valid count ervailing duty on a product as a result of the
successive sales at issue, the USDO C had to determine that the sales of inputs by the SOEs to the
trading companies constituted a financial contribution that conferred a benefit both directly upon the
trading companies and indirectly upon the respondent producers, recalling that pursuant to Appellate
Body findings, no separate financial contribution de termination would be required for the sale of
inputs to those producers. Concerning benefit, Ca nada submits that wher e the direct recipient
purchases goods from a government or public body, and resells them without further processing them,
the difference between the resale price paid by the indirect recipient and the benchmark price reflects
the extent to which the benefit has passed through.845
3. European Communities
12.17 The European Communities considers that provision of goods by trading companies is a mere
intermediate act, that does not change the nature of the financial contribution (i.e., the fact that the

841 See, e.g., United States first written submission, para. 321; citing to Panel Report on Mexico – Olive
Oil, paras. 7.143 and 7.152 (quoting Appellate Body Report on US – Countervailing Measures on Certain EC
Products, paras. 110-113).
842 United States first written submission, paras. 323-324.
843 Id., para. 324.
844 Australia third-party submission, para. 24; third-party oral statement paras. 16-18.
845 Canada third-party oral statement, paras. 8-12 and 17.

suppliers of the goods are SOEs), and in such cases, where there is no transformation of the product
concerned, it would be unnecessary for the USDOC to have shown pass-through.846
4. Mexico
12.18 Mexico recalls the Appellate Body finding that a financial contribution may be granted to a
company indirectly. In the present dispute, becau se the private trading companies were only the
vehicle through which the financ ial contribution reached the companies under investigation, the
investigated companies received the contribution i ndirectly, and thus it was not necessary to make a
finding of benefit to the trading companies. Concerning pass-through, such an analysis is only needed
when the subsidies are given for the production of a good that is an input for the product under
investigation (in other words, upstream), which was not the case in the investigations at issue.
847
5. Saudi Arabia
12.19 Saudi Arabia argues that in case of alleged subs idized inputs, a pass-through analysis should
be conducted to determine if the downstream produ cer has received a benefit. Saudi Arabia argues
that a two steps analysis must be undertaken each time the investigated product did not directly
receive a subsidy from the government. The investig ating authority must first determine whether a
subsidy (financial contribution and benefit) was provided to the original recipient; second, it must
determine whether all or part of the benefit from the original subsidy passed through to the exporter of
the investigated product by the sale of the input product.848
6. Turkey
12.20 Turkey, referring to the report of the panel in Mexico – Olive Oil , considers that the SCM
Agreement does not require the recipients of a benefit a nd a financial contribution to be the same.
Acceptance of the opposite proposition would lead to the circumvention of the disciplines on
subsidization simply by including a private party in the distribution chain.849
D. ASSESSMENT BY THE PANEL
12.21 We find a certain lack of clarity as to the exact nature and basis of China's claims concerning
the provision of SOE-produced inputs by private tr ading companies. In respect of the first issue
raised by China (the entrustment or direction i ssue), the relevant portion of China's request for
establishment of the Panel (paragraph B.1(a)(iii)) reads as follows:
"(iii) even assuming a valid determination that certain SOEs are public bodies, the
US authorities' failure to make a determina tion that SOEs "entrust or direct" trading
companies to provide goods to producers of subject merchandise, within the meaning
of Article 1.1(a)(1)(iv) of the SCM Agreement". (footnote omitted)
This formulation indicates that the inconsistency alleged by China in its request for establishment
focuses not only on the USDOC's failure
 to have made a determination that trading companies were
entrusted or directed to provide goods to producers of the investigated product, but also that in the
view of China that determination, to be valid, shou ld have been in respect of the SOE input producers
(presumably as the public bodies that would have had to so entrust or direct the trading companies).

846 European Communities third-party submission, para. 27.
847 Mexico third-party oral statement, para. 18; third-party submission, paras. 54-56.
848 Saudi Arabia third-party submission, paras. 106-108, citing Appellate Body Report on US –
Softwood Lumber IV.
849 Turkey third-party submission paras. 36-40; third-party oral statement, para. 14.

12.22 In its first written submission, China again argued that the USDOC erred by not finding
 that
the trading companies made financial contributions , i.e., that the USDOC made no finding that the
trading companies were entrusted or directed to provide goods. China makes no reference in the
context of this argument to the role of the SOEs as entrusters or directors. 850 In the same submission,
China makes a generally-worded request for findings in respect of the issue of financial contributions
connected to the provision of goods, in particular that the Panel find the USDOC's determination of
financial contributions in respect of the allege d provision of goods to be inconsistent with the
provisions referred to in paragraph 12.1, supra. There is no specific request for findings in respect of
the transactions involving trading companies.851
12.23 In its second written submission, China argues that in the absence of a finding of entrustment
or direction of the trading companies, the USDOC had no basis for its conclusion that the producers
of the investigated products purchased "governme nt-provided" as opposed to "government-produced"
goods, so that the USDOC's failure to make a finding that the trading companies provided financial
contributions rendered its subsidy findings in resp ect of those transactions inconsistent with
Article 1.1 of the SCM Agreement. 852 In the same submission, however, the finding requested by
China in respect of this claim is that the USDOC's "findings [...] that private trading companies
provided financial contributions [...]" was the sour ce of the inconsistency with the cited provisions. 853
Thus while the argument refers to the failure to make the finding as the legal error, the ruling
requested of the Panel identifies as the source of the legal error findings that were made to the effect
that private trading companies provided financial contributions.
12.24 China's oral statements make no reference to this issue.
12.25 In short, the arguments and requests for findi ngs made by China during the course of the
present dispute in respect of the financial contribution issue do not exactly match the claim as set forth
in its request for establishment of the Panel.
12.26 Concerning the second issue (the pass-through issue) , which China raises in the alternative to
the financial contribution issue discussed supra, there also is a lack of clarity as to China's claims. In
the first place, it is not entirely clear on the face of the request for establishment of the Panel whether
only paragraph B.1(a)(v) pertains to this claim, or wh ether paragraph B.1(a)(iv) also is relevant to this
issue. We note that China, in responding to a question from the Panel, identifies both of these
paragraphs as setting forth the claim(s) relative to the pass-through issue. These paragraphs read:
"(iv) the US authorities' determination that the sale of goods by trading companies
to producers of subject merchandise confers a countervailable subsidy within the
meaning of Article 1 of the SCM Agreem ent and a benefit under the guidelines set
forth in Article 14(d) of the SCM Agreement;
(v) the US authorities' failure to determ ine whether the alleged benefit received
by trading companies was passed through to producers of subject merchandise, in
violation of Article VI:3 of the GATT 1994 and Articles 10, 14, 19.1, 19.4, and 32.1
of the SCM Agreement".
12.27 In its first submission, China argues in regard to the pass-through issue that the USDOC never
established that the trading companies received s ubsidies when they purchased inputs from SOEs.

850 China first written submission, paras. 103-110.
851 Id., para. 468(a).
853 Id., para. 315(b).

Instead, according to China, although the USDOC found that the trading companies received financial
contributions when they purchased inputs from th e SOEs, it never investigated whether the trading
companies also received benefits therefrom. Without a valid finding of benefit, China argues, there
was no legitimate basis for the USDOC to conclude that benefits were conferred on the producers of
the investigated products when they purchased input s from the trading companies; that is the USDOC
presumed the pass-through of a benefit that had not been found to exist.
12.28 We note that this argument in the first submission makes no reference to any alleged violation
of any provision, nor does it contain any cross-reference to any part of the request for establishment of
the Panel. Furthermore, in the list of requested findings contained in the first submission, China asks
the Panel to make the generally-worded finding that the USDOC's benefit determinations in respect of
the provision of goods are inconsistent with Artic le 14 and, as a consequence, with Articles 10 and
32.1 of the SCM Agreement, and Article VI:3 of the GATT 1994. There is no request for a finding
that the benefit determination in respect of the pr ovision of goods was inconsistent with Article 1 of
the SCM Agreement. We note that China's second written submission contains no arguments related
to the pass-through issue, and China makes no speci fic request for findings on this issue in that
submission. Nor do China's oral statements refer to this issue.
12.29 In response to a question from the Panel at th e second substantive meeting as to what, in
particular, China was asking the Panel to do in resp ect of the pass-through issue as referred to in its
first written submission, China stated that this issue corresponded to the claims in
paragraphs B.1(a)(iv) and (v) of its request for establishment of the Panel, quoted above. China
argues that the USDOC presumed a pass-through of benefits by trading companies (an indirect
subsidy) without first finding that the trading comp anies had received benefits (a direct subsidy).
According to China, this result cannot be reconcile d with the Appellate Body's findings relating to
pass-through of a subsidy from one transaction to anot her. According to China, under the Appellate
Body's reasoning in US – Softwood Lumber IV
854, the USDOC could not lawfully establish that the
SOEs had conveyed an indirect subsidy upon the pr oducers of the subject goods via their purchases
from trading companies without first establishing th at the trading companies were themselves the
direct recipients of a subsidy via their purchases from SOEs. According to China, the only way for
the USDOC lawfully to find an indirect subsidy w ould be to examine both the transactions between
the SOEs and the private trading companies, and t hose between the private trading companies and the
investigated tire producers. China argues that a number of reasons having nothing to do with
subsidization might cause the price between the trading company and the subject producer to be lower
than the (unlawfully presumed) subsidized price at which the trading companies originally purchased
from the SOE. China cites as a po ssible example a situation where the market price of the input
declines between the time the trading company pur chases and resells that input, which might occur
where the trading company holds inventory. China argues that presuming rather than determining a
benefit in the transactions between SOEs and tradi ng companies was inconsistent with Articles 1.1(b)
and 14(d) of the SCM Agreement, and that exam ining only the second transaction (between the
trading companies and the producers of investigated products) in making the benefit determination for
these purchases was inconsistent with Article VI:3 of the GATT 1994 and Articles 10, 14, 19.1, 19.4,
and 32.1 of the SCM Agreement.

854 Here, China argues that the Appellate Body found that a pass-through analysis is required where "a
subsidy is received directly by an entity other than a producer of subject products, and that entity subsequently
sells inputs to producers of subject products. [...] In ot her words, it cannot be assumed that some or all of the
indirect subsidy has passed through". (China response to Panel question 34 (second meeting), citing Appellate
Body Report on US – Softwood Lumber IV, para. 129. (emphasis original)) We note, however, that this passage
does not reflect a statement of opinion or reasoning by the Appellate Body, but rather summarizes an argument
by the United States.

12.30 We note that this set of arguments explaining the legal basis of this claim does not exactly
match the claim as set forth in the request for estab lishment of the Panel. In particular, while the
claim in paragraph B.1(a)(iv) of that request iden tifies the transactions between the trading companies
and the tire producers as the source of the alleged in consistencies with Articles 1 and 14(d), in the
arguments presented in support of this claim the source of these alleged inconsistencies are the
transactions between the SOEs and the trading companies.
12.31 As outlined above, we find a certain lack of clar ity concerning this set of claims, due to the
somewhat variable way in which China characteriz ed the issues in its submissions, and due to the
inconsistencies between the statement of the claims in China's request for establishment of the Panel
and China's descriptions of them in its submissions . We thus have some doubts as to whether these
claims are properly before us. That said, we note th at the United States has raised no objection in this
regard. To the contrary, not only does the Un ited States appear to understand the claims, it has
presented full and substantive rebuttals to China's arguments, in spite of noting (at least in its first
submission) that China's first submission makes no re ference, in respect of the pass-through issue, to
any alleged inconsistency with an y provision of the WTO Agreement. Thus, we have decided to
analyze the substance of these claims in spite of our doubts.
1. Financial contribution
12.32 China's claim regarding the financial contributi on issue, as expressed in the arguments in its
submissions, is that because the USDOC ma de no findings, in the CWP, LWR and OTR
investigations, that the trading companies that supplied SOE-produ ced inputs were entrusted or
directed to, in turn, make a financial contribution to the producers of the investigated product in the
form of the inputs, the USDOC's finding that these transactions conferred subsidies on those
producers was inconsistent with SCM Article 1.1 of the SCM Agreement.
12.33 Article 1 of the SCM Agreement requires that, for a subsidy to exist, there must be a financial
contribution, as defined, and a benefit conferred thereby. That provision does not, however, specify
who must be the recipient of the financial contri bution and the benefit. In particular, it does not
indicate that for a subsidy to exist, a single entit y must receive both the financial contribution and the
benefit.
12.34 This point was made by the Appellate Body in US – Countervailing Measures on Certain EC
Products, and by the panel in Mexico
− Olive Oil . Furthermore, the analyses by both the panel and
the Appellate Body in US – Softwood Lumber IV reflected the same understanding. In particular, the
issue in US – Softwood Lumber IV was whether the initial recipient of a subsidy (i.e., a financial
contribution conferring a benefit) retained all of the benefits when it so ld an input to a producer of the
investigated product, or instead whether some or all of the benefits from the subsidy were passed
along to the producer of the investigated product. That analysis thus was not premised on a series of
government financial contributions at each successive transaction (i.e., an initial financial contribution
by the government itself, followed in each late r transaction by a passing along of the financial
contribution via entrustment or direction in the sense of Article 1.1(a)(1)(iv) of the SCM Agreement).
To the contrary, the initial financial contribution, to the initial recipient, was sufficient for there to
have been, for the purposes of the SCM Agreement, a financial contribution by a government. (The
issue of benefit was treated as a separate question).
12.35 In all of the investigations at issue pursuant to this claim (CWP, LWR and OTR), the USDOC
found that there was a financial contribution by th e government to the trading companies in the form
of the provision of goods (the inputs in question) by SOE input producers. The USDOC then found,
as a separate matter, that the benefits from those fina ncial contributions were conferred in whole or in

part on the producers of the investigated products when those producers purchased the inputs for less
than the applicable benchmark prices.855
12.36 While the factual situations in the prior dis putes just discussed were somewhat different from
that before us, we consider that the basic prin ciples from those disputes apply here. First, the
recipient of the financial contribution can be someone other than the recipient of the benefit. Second,
where an initial government financial contribution ha s been made (under any of the subparagraphs of
Article 1.1(a)(1)), the SCM Agreement does not requi re, for a valid finding of the existence of a
subsidy, that in any ensuing transactions involving the proceeds of the financial contribution the
government has entrusted or directed the initial recipi ent of the financial contribution itself to make a
financial contribution. In other words, if the government makes a financial contribution in the form of
a loan to a goods producer, the SCM Agreement does not require, for a valid finding of the existence
of a subsidy to be possible, that the sale of goods pr oduced with the proceeds of that loan be the result
of government entrustment or direction. Again, the question of benefit is separate, and where the
purported recipient of the benefit is someone other th an the recipient of the financial contribution, the
recipient of the benefit must be connected somehow to the matter at issue (whether in a countervailing
duty investigation or a subsidy dispute pursuant to the SCM Agreement's multilateral disciplines), but
again, the issue of benefit requires a separate analysis.
12.37 We consider that if, instead, a chain of entrustment or direction by a government were
required for every subsequent transaction involving th e proceeds of a financial contribution, in order
for a valid finding of the existence of a subsidy to be possible, the disciplines of the SCM Agreement
could be easily circumvented. This is particular ly evident in the case of government provision of
goods.
12.38 For these reasons, we find that China has not established that by not determining in the CWP,
LWR and OTR investigations that the trading co mpanies were entrusted or directed by the
government to make financial contributions (in the form of provision of goods) to the producers of the
investigated products, the USDOC acted inconsistently with the obligations of the United States under
Article 1.1 of the SCM Agreement.856
2. Pass-through of benefits
12.39 China's claim in respect of the pass-through i ssue, as expressed in its arguments, is an
argument in the alternative. In particular, China makes this claim in the event that the Panel finds that
the USDOC was not required by Article 1.1 of th e SCM Agreement to determine that the trading
companies were entrusted or directed by the governme nt to make financial contributions in the form
of provision of goods to the producers of the investigated products in the CWP, LWR and OTR
investigations. Having made this finding, we now take up China's pass-through claim.
12.40 In this regard, we note first that we find, infra, that in the CWP and LWR investigations, the
United States acted inconsistently with its oblig ations under Article 12.7 of the SCM Agreement by
resorting to facts available in determining the am ount of HRS produced by SOEs that was purchased
by CWP and LWR producers. Given this finding, there is no need for us to reach the pass-through
issue in respect of the CWP and LWR investigations . Our analysis and findings in respect of this
claim thus are confined to the OTR investigation.

855 We recall here that we have found no inconsis tency in the USDOC's determination that the SOE
input producers were public bodies, and as a consequence, no inconsistency in the USDOC's determination that
the sales of inputs by the SOE producers to trading companies constituted financial contributions by the
government in the form of government provision of goods. See Section VIII, supra.
856 Concerning China's claims of consequential violations of Articles 10 and 32.1 of the SCM
Agreement and Article VI:3 of the GATT 1994 in connection with this claim see Section XIII, infra.

12.41 Unlike in the CWP and LWR investigations, in the OTR investigation, GTC and TUTRIC
(the tire producers found to have received subsidies in the form of government provision of goods)
857,
reported the full details of their rubber purchases, by producer, source and supplier (i.e., seller). The
USDOC thus based its analysis of rubber inputs (tho se sold directly by SOEs and those produced by
SOEs and sold by trading companies) on verified information gathered in the investigation, and not on
facts available.
12.42 This brings us to the substance of China's clai ms related to the pass-through issue, in respect
of which we note that China presents no specific legal argumentation concerning the provisions it
cites, or of how precisely it considers that these provi sions apply in this dispute. For its claims under
Articles 1.1 and 14(d) of the SCM Agreement, China's legal reasoning seems to be, in essence, that no
benefit, and thus no subsidy, to the trading compan ies was found to exist in the first place, meaning
that Articles 1.1(b) and 14(d) of the Agreement were violated.
12.43 Concerning the remaining provisions cited, China says only that because the USDOC's
examination was limited to the transactions betw een the trading companies and the producers of
investigated products, and did not also include an analysis of the transactions between the SOEs and
the trading companies, the USDOC's benefit determin ations in respect of the purchases of inputs from
trading companies were inconsistent with Articl es VI:3 of the GATT 1994 and Articles 10, 14, 19.1,
19.4 and 32.1 of the SCM Agreement. China's apparent legal basis for this set of alleged violations is
the Appellate Body's reasoning in US – Softwood Lumber IV , as China simply asserts that the
USDOC's analytical approach cannot be reconciled with that reasoning.
12.44 Turning in more detail to the particular provisions cited by China, starting with Articles 19.1
and 19.4 of the SCM Agreement, we recall that neither the panel nor the Appellate Body in the US −
Softwood Lumber IV dispute – the only prior dispute cited by Ch ina in support of its claims related to
pass-through – made findings under any of these provisions, as the panel exercised judicial economy
in respect of those claims. Give n that China has provided no legal reasoning in support of its claims
under these provisions, nor even identified any prior dispute settlement findings concerning those
provisions
858, we find that China has not established that the USDOC's determination in respect of the
provision of SOE-produced rubber inputs by private trading companies is inconsistent with the
obligations of the United States under Article 19.1 or 19.4 of the SCM Agreement.
12.45 Concerning China's citation of Article 14 of the SCM Agreement in this context, it is not clear
to us whether this second citation is in addition to the inconsistency allege d due to the absence of a
finding that trading companies received a benefit described in paragraph 12.42, supra. To the extent
that that allegation is the basis for this second refe rence to Article 14, we consider that argument by
China, although brief, to be reasonably clear. To the extent, however, that China is making a second,
different claim of violation of Article 14, in partic ular in connection with the issue of pass-through of
benefits as such, it has made no argument whatsoever as to the legal basis for this claim, nor did either
the panel or the Appellate Body in US – Softwood Lumber IV make any finding under Article 14 of
the SCM Agreement in the context of pass-through, as Canada raised no such claim. Therefore, to the
extent that China is asserting that the absence of a finding by the USDOC that benefits received by
trading companies selling rubber were passed through (as such) to producers of tires was inconsistent
with Article 14 of the SCM Agreement, we find that China has not established this claim.

857 We recall that the USDOC found that Starbright received no benefits from its purchases of rubber
inputs from SOE producers.
858 We do not here mean to imply that citing prior dispute settlement findings by itself would have been
sufficient in terms of legal argumentation. We simply wish to emphasize the entire absence of any legal basis,
in China's representations to the Panel, for its claims under Articles 19.1 and 19.4 of the SCM Agreement.

12.46 Concerning the remaining provisions cited by Ch ina in its claims related to pass-through,
(Article VI:3 of the GATT 1994, and Articles 10 and 32.1 of the SCM Agreement), we note that these
provisions formed the basis of the pass-through findings of the panel and Appellate Body in US –
Softwood Lumber IV. In particular, the substantive obligatio ns were found in Article 10 of the SCM
Agreement and Article VI:3 of the GATT 1994, with Article 32.1 of the SCM Agreement found also
to have been violated as a consequence. As not ed above, the only apparent legal basis for these
claims advanced by China is its implication that the reasoning of the Appellate Body in that dispute
directly applies to the situation at issue before us.
12.47 We recall that in US – Softwood Lumber IV , the panel and the Appellate Body found that the
United States had impermissibly presumed that be nefits from subsidies provided to input producers
were passed through, in full, to producers of th e investigated products wh en the latter purchased the
inputs. The specific problem identified in that dispute was that, although the United States had
calculated the amount of the subsidy benefits provided to the producers of inputs (raw logs), it had not
examined the extent to which the input producers pass ed along any of the benefits when they sold the
inputs to the producers of the investigated products.
12.48 The panel found in favour of Canada's claims under Article 10 of the SCM Agreement, and
consequentially Article 32 of the SCM Agreemen t, as well as Article VI:3 of the GATT 1994, in
respect of the situations where producers of logs were unrelated to the sawmills that processed the
logs into primary lumber, as well as where producers of remanufactured lumber were unrelated to the
lumber manufacturers (sawmills) from which the rema nufacturers obtained their lumber inputs. The
panel found that no pass-through analysis was requi red where the producer of the inputs was related
to the lumber producer (i.e., where the production w as vertically integrated). The panel exercised
judicial economy in respect of Canada's Article 19 claim.
859
12.49 The Appellate Body upheld the panel's findings that Article 10 of the SCM Agreement and
Article VI:3 of the GATT 1994 require a pass-through an alysis in circumstances in which a subsidy is
received by a producer of an input product, and the inves tigated product is a different, downstream
product produced by an unrelated producer using the subsidized input. More specifically, the
Appellate Body found that:
"Where a subsidy is conferred on input products , and the countervailing duty is
imposed on processed products , the initial recipient of the subsidy and the producer
of the eventually countervailed product, may not be the same. In su ch a case, there is
a direct recipient of the benefit—the producer of the input product. When the input is
subsequently processed, the producer of the processed product is an indirect recipient
of the benefit—provided it can be establishe d that the benefit flowing from the input
subsidy is passed through, at least in part, to the processed product. Where the input
producers and producers of the processed products operate at arm's length, the pass-
through of input subsidy benefits from the direct recipients to the indirect recipients
downstream cannot simply be presumed; it must be established by the investigating
authority. In the absence of such analysis, it cannot be shown that the essential
elements of the subsidy definition in Article 1 are present in respect of the processed
product".
860 (Italic emphasis in original; underline emphasis added)
12.50 We note and agree with the characterization by the panel in Mexico – Olive Oil that in US −
Softwood Lumber IV the Appellate Body "emphasized that not every situation in which a subsidy is
provided on the production of an input product gives rise to an obligation to conduct a pass-through
analysis", and that the existence of such an obligation also depends on the relationship between the

859 Panel Report on US – Softwood Lumber IV, paras. 7.81-7.99.
860 Appellate Body Report on US – Softwood Lumber IV, para. 143.

producer of the input product and the producer of the imported, processed product, as well as on the
scope of the investigated product. In the latter regard the Appellate Body, reversing one of the panel's
pass-through findings, held that no pass-through analys is was required in respect of sales by lumber
producers to unrelated lumber remanufacturers because both the lumber inputs and the
remanufactured (further processed) lumber products were imported products covered by the
countervailing duty investigation.
861
12.51 In this regard, we note that the quotation that China characterizes as an opinion or reasoning
of the Appellate Body in US − Softwood Lumber IV (quoted at footnote 854, supra ) in fact is the
summary of an argument by the United States, an d that the Appellate Body's actual findings and
reasoning are as quoted at paragraph 12.49, supra. We also note that the factual situation in the US −
Softwood Lumber IV dispute was quite different from that be fore us, in that the entities from which
the producers of the investigated products purchased inputs were the producers of those inputs, and
those input producers were the recipients of subsidies in respect of their production of the inputs. The
language in the Appellate Body's reasoning indeed refe rs only to that particular factual situation (i.e.,
the situation in which the immediate recipient of the s ubsidy is a producer of an input that is then sold
to and used by a producer of an investigated produ ct). We do not consider that a reference to a
misattributed statement in the Appellate Body report from US − Softwood Lumber IV is sufficient to
establish China's claim that the USDOC's determinati on in the OTR investigation is inconsistent with
Article VI:3 of the GATT 1994 and Articles 10 a nd 32.1 of the SCM Agreement because the USDOC
did not conduct an analysis to determine whether an y subsidy benefits received by trading companies
selling rubber inputs were passed through to the tire producers purchasing those inputs.
12.52 This leaves us with China's claims that the USDOC's failure to establish that the trading
companies received a benefit when they purchased the rubber inputs from the SOEs meant that the
determination that the tire producers received a benefit when they purchased the rubber inputs from
the trading companies was inconsistent with Articles 1.1 and 14(d) of the SCM Agreement. While, as
discussed above, the actual arguments presented by Ch ina, and its related requests for findings, are
somewhat internally inconsistent; and there is an apparent discrepancy between the arguments, which
focus on the existence of a benefit to the trading companies, and the description of the claim in the
request for establishment of the Panel, wh ich focuses on the existence of a benefit to the producers of
the investigated products; we nevertheless consid er the essential legal basis of this claim to be
relatively clear. That is, China argues that the methodology used by the USDOC did not establish the
existence of a benefit (and thus of a subsidy) consiste ntly with the two cited provisions of the SCM
Agreement.
12.53 As noted above, in the OTR investigation, GTC and TUTRIC (the tire producers found to
have received subsidies in the form of government provision of goods)
862, reported the full details of
their rubber purchases. This included not only the dates, quantities, prices and delivery terms for
these purchases, by type of rubber, but also the de tails as to the identity of the producer of each
purchase of rubber.
863 GTC and TUTRIC also provided details concerning which particular purchases
were from trading companies and which were direc tly from producers. Furthermore, these companies

861 Panel Report on Mexico – Olive Oil, para. 7.140 (quoting Appellate Body Report on US – Softwood
Lumber IV, paras. 140-147, 156-159 and 163).
862 We recall that the USDOC found that Starbright received no benefits from its purchases of rubber
inputs from SOE producers.
863 With respect to TUTRIC, see Final Calculation Memorandum for Tianjin United Tire & Rubber
International Co., Ltd. (TUTRIC) ("USDOC Calculation Memorandum for TUTRIC") as contained in Exhibit
US-156; and Further Detail on Reported Rubber Prices , Exhibit US-157. As regards GTC, see Final
Calculation Memorandum for Guizhou Tire Company Limited (GTC) ("USDOC Calculation Memorandum for
GTC"), Exhibit CHI-56; and GTC Minor Corrections and Supporting Documents, "Rubber Purchases" , Exhibit
US-155.

provided information as to which of the producer s from which they purchased rubber inputs (whether
directly or through trading companies) were SOEs. Thus, the record evidence shows that in respect of
every purchase of each type of rubber, including fr om trading companies, the two tire producers at
issue had full knowledge both of the identity of the producer of the rubber that they were buying, and
of whether that producer was an SOE.
864
12.54 We recall that the methodology used by the USDOC to determine the existence of a benefit to
the tire producers from the rubber purchased from trad ing companies was to calculate the difference
between the price paid by those producers to the trading companies and the applicable benchmark
price. We note that the United States justifies b asing its analysis exclusively at this level of
transaction, and not also performing such a calcu lation for the sales by SOE rubber producers to the
trading companies, on the basis that any portion of the initial benefit retained by the trading
companies would be reflected in their selling pr ice for the inputs. By this we understand the
United States to be arguing, for example, that if the trading company received a benefit of 10 (based
on the market benchmark) when it purchased rubber fr om an SOE, and it added a mark-up of 4 when
it sold the rubber to a tire producer, the comparison of the price paid by the tire producer with the
market benchmark would yield a benefit of 6 to the tire producer.
12.55 We see a certain logic in this methodological a pproach to the extent that it could (at least
under certain circumstances) accomplish in a single step exactly the same result that otherwise would
require a two-step calculation. That is, this appro ach would not give rise to an inflated calculation of
benefits, or a finding of benefits where there were none, where the trading company acted as a simple
logistical intermediary in individual transacti ons, for which services it charged a commission or a
mark-up on the transaction (or was otherwise compensated), and did not itself purchase for and/or sell
out of its own inventory, or hold title to the goods in question over an extended period. Thus, in a
situation where a producer of an investigated product nominally purchases from a trading company,
but the trading company in turn places a specific order for that purchase with the producer of the
input, and the merchandise is then shipped to the producer of the investigated product on the basis of
that particular order, in our view the methodology used by the USDOC would not give rise to an
inflated calculation of the amount of the benef it, and thus would not raise any concerns under
Article 1 or 14(d) of the SCM Agreement. This is because in such a situation it would be perfectly
reasonable to assume that the trading company, as a simple logistical intermediary, would always
collect its commission or mark-up, such that the price it charged its customer (the producer of the
investigated product) would always be higher by that amount than the price it paid to the input
producer.
12.56 We note, however, that this is one particular role that a trading company might play, but that
trading companies in fact operate in a range of di fferent ways. For example, some trading companies
act as distributor/stockists, taking ownership and p hysical possession of goods and selling out of their
own inventories. Others might enter into contr acts to purchase in bulk (even if they never take
physical possession), and then make individual sal es from their bulk purchases. In these and similar
circumstances, the methodology used by the United States would not be accurate. Price fluctuations
in the market between the time a trading company purchased inputs (whether or not it physically
inventoried them) and the time it sold them to a pr oducer of an investigated product would inevitably
give rise to situations where the benchmark price a pplicable to the trading company's purchase of the
inputs was different from the benchmark price applicable to its sale of those inputs to the producer of
the investigated product, and this would require so me adjustments to the methodology, or the use of
an entirely different methodology.
12.57 This brings us to the facts of the OTR inves tigation, where, as described, the tire producers
provided full details on all of their rubber purchases, including the precise identity of the producer of

864 Exhibits US-156-157 (TUTRIC) and CHI-56 and US-155 (GTC).

each reported purchase. This fact suggests that the trading companies involved may well have been
acting purely as intermediaries, on a transacti on-by-transaction basis, rather than as
distributor/stockists or as bulk purchasers. This is further suggested by the "ex-works" delivery terms
of a number of purchases
865, a phrase generally synonymous with "ex-factory". That said, there is no
reference in the USDOC's determination in the OTR investigation to any evidence regarding the
precise role played by the trading companies fro m which GTC and TUTRIC purchased rubber inputs,
nor any indication that the USDOC made inquiries in that regard. Before us, the United States makes
no arguments in this respect. We consider th at, for the reasons explained above, given the
methodology that the USDOC chose to use to the esta blish the existence and amount of the benefit to
the tire producers from their purchases of inputs fro m trading companies, it was incumbent on the
USDOC to have investigated the precise role played by the trading companies, so as to ensure that its
methodology did not calculate a benefit in excess of that conferred by the government provision of
SOE-produced inputs.
12.58 The record evidence presented to us does not indicate that the USDOC undertook any such
inquiries. Therefore, there is nothing before us that demonstrates that, under the particular facts of the
investigation, the USDOC's methodology could not and di d not give rise to a ca lculation of benefit in
excess of that conferred by the provision of the in puts. We therefore find on this basis that the
USDOC acted inconsistently with the United States ' obligations under Article 1.1 and Article 14 of
the SCM Agreement.
XIII. CHINA'S CONSEQUENTIAL CLAIMS
13.1 We now turn to various consequential claims raised by China. In particular, at
paragraph B.1(e) of its request for establishment of the Panel, China alleges consequential violations
of Articles 10 and 32.1 of the SCM Agreement, and of Article VI:3 of the GATT 1994, "in connection
with all countervailing duty investig ations, determinations and orders specified above" (i.e., specified
at paragraphs B.1(a)-(d) of the request for establis hment of the Panel). China requests findings in
respect of these consequential claims at paragraphs 468 (a), (b), (d), (e), (f), and (g) of its first written
submission, and at paragraphs 315 (a), (b), (c), (e), (f), (g), and (h) of its second written submission.
We note that China has presented no argumentation in support of these consequential claims, but
simply requests findings on them in the paragra phs just identified. Particularly under these
circumstances, in the light of the findings we have made supra, we see no need to rule on these
consequential claims. We therefore apply judicial economy in respect of all of them.
13.2 We recall, however, that in respect of its othe r allegations pursuant to Article 10 and 32.1 of
the SCM Agreement and Article VI:3 of the GATT 1994 (specifically, those raised in connection with
its claims addressed at Sections XI and XII.D.2 supra, and Section XIV, infra) China did present
argumentation. As set forth in the respective sec tions and as summarized below at Section XVII, we
have examined and made findings in respect of these allegations.
XIV. CHINA'S CLAIMS PERTAINING TO "DOUBLE REMEDIES"
A. INTRODUCTION
14.1 We now consider China's claims with respect to "double remedies". China's claims in this
respect arise from the concurrent imposition, by the United States, of countervailing duties and of

865 See Exhibit US-156. Ex Works is defined as: "An <Incoterm> whereby the seller is responsible
only for having the ordered <goods> av ailable for pickup at the agreed pl ace, which is usually the seller's own
premises. The seller is also usually responsible for export packing to the extent that the transportation
particulars are made available [...]". (A to Z of international trade, F. Reynolds (ICC Publishing S.A., 2002),
p. 79).

anti-dumping duties calculated pursuant to the USDOC's NME methodology on products from China
in the four sets of parallel anti-dumping and countervailing duty investigations at issue.
1. Background
14.2 In anti-dumping investigations involving pr oducts from countries it considers to be non-
market economies ("NMEs"), the USDOC calculates the normal value on the basis of surrogate values
taken from countries which it considers to be "mar ket economies" rather than on the basis of the
prices or costs of production actually incurred by the investigated producer. 866 Specifically, under its
NME methodology, the USDOC: (i) determines the quantities of the factors of production (e.g.
inputs, labour, energy) actually used by the respondent producer in producing the investigated good;
(ii) multiplies those quantities by the prices of each of those factors based on a "surrogate value" from
a market economy country (or, where available, th e actual price paid for an input imported from a
market economy country); and (iii) adds an amount for factory overhead, selling, general and
administrative (SG&A) expenses, and profit, calcula ted on the basis of ratios of these costs to the
costs of the other inputs in the surrogate country.
867
14.3 The USDOC generally treats China as an NME in anti-dumping investigations, and did so in
the anti-dumping investigations at issue in this di spute. As a result, the USDOC applied its NME
methodology in calculating the normal value for th e investigated Chinese producers. The normal
value so constructed was then used to determine these producers' dumping margins.
14.4 As China points out, the four countervailing duty inve stigations at issue in this dispute mark a
policy change on the part of the USDOC. The USDOC had taken the position, in 1984, that its
countervailing duty legislation did not apply to imports from non-market economies: In its
investigations on Wire Rod from Poland and from Czechoslovakia, the USDOC determined that it was
impossible to identify a "bounty" or "grant" within the meaning of U.S. countervailing duty law in
NMEs, because of the pervasive role played by the governments of such centrally-planned economies.
This interpretation of the U.S. countervailing duty st atute was affirmed by the U.S. Court of Appeals
for the Federal Circuit in Georgetown Steel .868 In March 2007, the United States reversed this
longstanding policy of not applying U.S. count ervailing duty legislation to NMEs: In the CFS Paper
investigation, the USDOC considered that while still not a market economy, China's economy had
evolved sufficiently that it was possible to identify and countervail subsidies granted by China. 869 At
the same time, the USDOC maintained China's NM E status for purposes of applying the U.S. anti-
dumping regime. 870 Ultimately, no duties were imposed in the CFS Paper case. Thus, the four

866 Section 773(c) of the U.S. Tariff Act of 1930 (codified at 19 U.S.C. 1677b(c)), Exhibit CHI-119.
The USDOC may, in anti-dumping inves tigations involving an NME country, determine that the industry being
investigated operates on market prin ciples (market-oriented industry, or "MOI"). China indicates that the
USDOC has never found any industry in any country that it designates as an NME to be an MOI.
867 United States first written submission, para. 450.
868 Georgetown Steel Corporation v. United States , U.S. Court of Appeals for Federal Circuit,
18 September 1986, Exhibit CHI-90. This USDOC polic y was reaffirmed in the Preamble to the USDOC's
countervailing duty Regulations, Countervailing Duties: Final Rule, 63 Fed. Reg. 65348, Exhibit CHI-91,
p. 65360.
869 Countervailing Duty Investigation of Coated Free Sh eet Paper from the People's Republic of China
– Whether the Analytical Elements of the Georgetown Steel Opinion are Applicable to China's Present-Day
Economy ("Georgetown Steel Memo"), Exhibit CHI-89, p. 5; and Issues and Decision Memorandum for the
Antidumping Investigation of Certain Pneumatic Off-the-Road Tires from the People's Republic of China ("OTR
Anti-Dumping Duty I&D Memo"), Exhibit CHI-53, pp. 5-10.
870 In maintaining its qualification of China as an NME, the USDOC in August 2006 considered that
"market forces in China are not yet sufficiently develope d" to allow it to rely on Chinese costs and prices in
establishing normal value. (Final Affirmative Countervailing Duty Determination: Certain New Pneumatic Off-

countervailing duty investigations at issue in the present dispute constitute the first instances of
imposition by the USDOC of countervailing duties on imports from an NME.
14.5 China claims that this imposition by the US DOC of countervailing duties concurrently with
anti-dumping duties calculated under the U.S. NME methodology results in the imposition of a
"double remedy". China explains that by "doubl e remedy" it means that the subsidies at issue are
"offset" twice, once through the imposition of the countervailing duties, and once through the
imposition of the anti-dumping duties, because of the manner in which the latter are calculated.
14.6 The Government of China and Ch inese interested parties raised the issue of double remedies
in each of the four countervailing duty investigations before us. In its determinations in three of the
investigations (LWS, LWR, and OTR), the USDOC i ndicated that it had no authority to address the
issue of double remedies in the context of count ervailing duty investigations, and that if any
adjustment to avoid a double remedy were possible, it would only be in the context of anti-dumping
investigations.
871 Interested parties also raised th e issue in the CWP and OTR anti-dumping
investigations. In the CWP anti-dumping investigation, the USDOC declined to make adjustments for
double remedies given that the interested party that had raised the issue had not received an individual
company-specific margin. The USDOC also indicated that "Congress provided no anti-dumping
adjustment for CVDs imposed to offset s ubsidies that are not export subsidies". 872 In the OTR anti-
dumping investigation, the USDOC considered th at interested parties had not established the
existence of a double remedy, and in particular had not provided sufficient evidence in support of
their arguments that domestic subsidies automati cally lower prices or that they "pass through", pro
rata, to domestic prices.
873 The USDOC also considered that the Chinese interested parties had not
demonstrated that they were "entitled to an ad justment under US AD law to prevent a presumed
double remedy from arising".874

the-Road Tires from the People's Republic of China – Final Loan Benchmark and Discount Rate , Exhibit CHI-
88, Attachment 2).
871 For instance, in the LWR countervailing duty investigation, the USDOC addressed the double
counting arguments presented by respondents as follows:

"[...] The [Government of China and a respondent ] have not cited to any statutory authority
that would allow us to terminate this countervailing duty investigation to avoid double
counting and the CVD law provides no authority to make an adjustment to the CVD
calculations to prevent double counting. If any adjustment to avoid a double remedy is
possible, it would only be in the context of an antidumping investigation and no party raised
this claim in the companion antidumping investigation of LWR". (Exhibit CHI-2, p. 19).

The USDOC made virtually identical statements in its determinations in the LWS and OTR
countervailing duty investigations. (Exhibits CHI-3, p. 40 and CHI-4, p. 53). In the CWP countervailing duty
investigation, the USDOC incorporated by reference its treatment of the issue in the concurrent anti-dumping
investigation. (Exhibit CHI-1, p. 101).

872 Exhibit CHI-9, pp. 21-22.
873 Exhibit CHI-53, pp. 13-14. The USDOC rejected the argu ments that it must assume that domestic
subsidies necessarily result in lower export prices and that it had recognized that domestic subsidies lower prices
pro rata in both domestic or export markets, indicating that "when it has considered the issue, the Department
has sometimes presumed that, whatever the effect, if an y, of domestic subsidies upon the prices subsequently
charged by their recipients, that effect would be the same for domestic prices and export prices". (Id., p. 14).
874 In this respect, the USDOC stated that:

"As we noted in [ CFS Paper], 'despite addressing the issue of parallel AD duties and CVDs
directly, and explicitly requiring that the amount of any CVDs to offset export subsidies be
added to U.S. price, Congress provided no adjustment for CVDs imposed by reason of

2. Claims of China
14.7 China considers that the imposition of a "doubl e remedy" is incompatible with the United
States' obligations under the covered agreements. Ch ina makes "as such" and "as applied" claims in
this respect.
(a) China's "as applied" claims
14.8 China's "as applied" claims concern the duties imposed as a result of the four sets of anti-
dumping and countervailing duty investiga tions at issue in this dispute. China claims that in each of
these four sets of determinations, the USDOC's use of its NME methodology to determine normal
value in the anti-dumping determinations, concurre ntly with the imposition of countervailing duties
on the same products, was inconsistent with Article s 10, 19.3, 19.4, and 32.1 of the SCM Agreement
and with Article VI of the GATT 1994.875
14.9 In addition, China claims that the United Stat es acted inconsistently with Article I:1 of the
GATT 1994 in each of the four sets of anti-dumping and countervailing duty determinations at issue
due to the failure of the USDOC to extend to im ports from China the same unconditional entitlement
to the avoidance of a double remedy that it extends to like products originating in other Members.
876
14.10 China also claims that, in the determinations at issue, the United States acted inconsistently
with: (i) Article 12.1 of the SCM Agreement, due to the USDOC's failure to provide interested
parties notice of the information which the USDOC required to evaluate the existence of a double
remedy; (ii) Article 12.8 of the SCM Agreement, due to the USDOC's failure to inform China and
interested parties of the essential facts under cons ideration that would "form the basis" for the
USDOC's determinations in respect of the issue of "double remedy".877
(b) China's "as such" claims
14.11 The measure that is the subject of China's "as su ch" claims is an alleged omission, defined by
China as the "failure of the United States to provide sufficient legal authority for Commerce to avoid
the imposition of double remedies for the same alleged acts of subsidization when it imposes anti-

domestic subsidies in NME proceedings.' In addition, the statutory and legislative history
provides no basis for adjusting for domestic subsidies, or any presumption of their effect on
export prices."

"[...] the Department has determined that, absent a statutory directive for an adjustment and
underlying assumption similar to that regarding CVDs imposed to offset export subsidies, or
evidence that domestic subsidies have lowered U.S. prices in a given case, any adjustment for
an assumed or undetermined effect would be inappropriate." (Exhibit CHI-53, pp. 14-16).

875 Paragraphs B.1(f)(i)-(iv) of the "as applied" claims in China request for establishment of the Panel;
China first written submission, para. 468 (h); second written submission, para. 315 (i).
876 Paragraph B.1(f)(vii) of the "as applied" claims in China request for establishment of the Panel;
China first written submission, para. 468 (j); second writte n submission, para. 315 (k). In its panel request,
China also made claims of violation of Articles 2.4, 9.2 and 9.3 of the AD Agreement, due to the alleged
imposition of double remedies. China did not pursue these claims before the Panel.
877 Paragraphs B.1(g)(vi)-(vii) of the "as applied" claims in China request for establishment of the
Panel; China second written submission, paras. 269-270. China did not include this claim in its requests for
findings. Further, China's panel request also included claims under Articles 2.4 and 6.1, as well as Annex II(1)
of the AD Agreement, which China did not pursue.

dumping duties determined pursuant to its NME me thodology simultaneously with the imposition of
countervailing duties on the same product".
878, 879
14.12 China contends that, as a result of this failure, U.S. law is inconsistent "as such" with (i)
Articles 10, 19.3, 19.4, and 32.1 of the SCM Agre ement and Article VI of the GATT 1994; and (ii)
Article I:1 of the GATT 1994 due to the absence of legal authority to extend to imports from China
the same unconditional entitlement to the avoidance of a double remedy that the United States extends
to like products originating in other Members.880
B. UNITED STATES REQUESTS FOR PRELIMINARY RULINGS
14.13 The United States requests that we find that th e measure challenged as part of China's "as
such" claims, as well as China's "as such" claims themselves, fall outside our terms of reference. 881
The United States requests that we make findings on two distinct grounds: First, the United States
submits that the alleged "failure [...] to provide legal authority" was not among the measures included
in China's request for consultations. Second, the Un ited States submits that this alleged "failure" is
not a "specific measure at issue" identified in China's panel request pursuant to Article 6.2 of the
DSU.
14.14 China asks us to reject these requests for preliminary rulings.882
1. Main arguments of the Parties
(a) United States
(i) U.S. request for ruling concerning China's failure to consult on the "omission"
14.15 The United States argues that the alleged "failure [...] to provide legal authority" was not
included in China's request for consultations and is therefore not within the Panel's terms of
reference.883 The United States submits that the Appellate Body has indicated that, in determining
whether measures not included in the consultations re quest fall within a panel's terms of reference, a
panel should compare the respective parameters of th e consultations request and of the panel request
to determine whether the addition of measures in th e panel request expanded the scope or changed the
essence of the dispute. 884 The United States argues that the a ddition, by China, of the "omission"
converted the dispute from one limited to a series of "as applied" claims to one which includes a

878 China first written submission, para. 468 (i) and (k); see also paragraph B.2 of the "as such" claims
in China request for establishment of the Panel and second written submission, para. 315 (j) and (l).
879 China proceeds under alternative hypotheses with respect to extent of the legal authority conferred
on the USDOC to avoid the imposition of double remedies under U.S. law. China argues that while the
USDOC's position on "double remedies is "opaque and apparently contradictory", it is possible to draw the
conclusions that: (i) the USDOC has no authority to avoid the imposition of double remedies under the U.S.
countervailing duty legislation; (ii) the USDOC "appears" to lack such le gal authority under U.S. anti-dumping
laws, "but this is unclear", and to the extent that the USDOC does possess authority under the U.S. anti-dumping
laws to avoid imposing double remedies, "this legal authority whatever it might be, places the burden on
respondent producers to present 'evidence' that 'subsidies pass through, pro rata, to U.S. prices'". (China first
written submission, paras. 359-363 and footnote 1).
880 In its panel request, China also made claims of violation under Articles 2.4, 9.2 and 9.3 of the AD
Agreement. China did not pursue these claims before the Panel.
881 United States first written submission, paras. 65-86; second written submission, paras. 5-16.
882 China response to the U.S. request for preliminary rulings, para. 40.
883 United States first written submission, paras. 74-86.
884 Id., para. 87, citing to Appellate Body Report on US – Shrimp (Thailand) / US – Customs Bond
Directive, para. 294.

"measure" challenged "as such", resulting in an expa nsion of the scope and a change in the essence of
the dispute.885
14.16 The United States takes issue with the argument of China that the alleged "failure" to provide
legal authority to avoid the imposition of a dou ble remedy was evident on the face of the
determinations at issue. First, the United States rejects China's suggestion that the USDOC made any
broad pronouncement in those dete rminations as to whether it had legal authority to adjust the anti-
dumping duties to avoid any double remedy. 886 The United States adds that even assuming that the
alleged "absence of legal authority" were reflected in the determinations at issue, it would not follow
that consulting on the specific investigations w ould have fulfilled the obligation to consult on the
alleged "failure". The United States submits in this respect that higher-order measures such as
statutes and regulations are often referenced in ruli ngs and determinations that apply those measures;
if such references were sufficient to place a re sponding Member on notice that they would be the
subject of an "as such" challenge, consultations on "as such" claims would almost never be
required.887 Lastly, the United States reads China's argument as an admission that China was aware of
the existence of the alleged measure before it re quested consultations, meaning that it consciously
opted not to include the measure in its consultations request.888
(ii) U.S. request for ruling under Article 6.2 of the DSU
14.17 The United States recalls that Article 6.2 of the DSU requires a complaining party to identify
in its panel request the "specific measures" at issu e in the dispute. The United States argues that the
"failure" identified in China's panel request is not a "specific measure at issue" in this dispute and, as a
result, is not within the Panel's terms of reference. The United States considers that China's complaint
is not about the absence of any "legal authority", but about a requirement that China believes exists
under U.S. law to apply anti-dumping and countervailing measures in a way that results in the "double
remedy" alleged by China.889 Thus, the United States argues, China is actually challenging a positive
act, yet China's panel request fails to identify the specific U.S. legal provisions underlying this alleged
requirement (i.e., the aspects of U.S. law allegedly requiring or authorizing the concurrent application
of anti-dumping duties and countervailing duties). In fact, the United States notes, China's panel
request contain no references to any U.S. legal provision.890
14.18 The United States further considers that an "omi ssion" or "failure" presents a special case for
purposes of dispute settlement, and ma y only be considered to be a "m easure taken" if there is an
affirmative obligation on a Member to take the action that it is accused of not having taken. As China
fails to identify any WTO requirement for the United States to enact legislation to provide particular
authority to the USDOC with respect to doubl e remedies, and because no such WTO requirement
actually exists, the United States considers that Ch ina has not established that the alleged "failure"
constitutes an "omission" cognizable for purposes of WTO dispute settlement.891

885 United States first written submission, para. 85, citing to US – Oil Country Tubular Goods Sunset
Reviews, paras. 172-173; oral statement regarding the U.S. preliminary ruling request at the first meeting of the
Panel, para. 9; response to Panel question 8 (first meeting).
886 United States oral statement regarding the U.S. preliminary ruling request at the first meeting of the
Panel, para. 11.
887 United States response to Panel question 7 (first meeting).
888 United States oral statement regarding the U.S. preliminary ruling request at the first meeting of the
Panel, paras. 12-13; first written submission, para. 84.
889 United States first written submission, paras. 65-72.
890 Id., paras. 65-72; second written submission, paras. 11-13; responses to Panel questions 1, 2 and 3
(first meeting).
891 United States oral statement regarding the U.S. preliminary ruling request at the first meeting of the
Panel, paras. 4-5; responses to Panel questions 1 and 2 (first meeting); second written submission, para. 9.

(b) China
(i) U.S. request for ruling concerning China's failure to consult on the "omission"
14.19 China argues that it is well established in WTO jurisprudence that there need not be "a precise
and exact identity between the specific measures that were the subject of consultations and the
specific measures identified in the request for the establishment of a panel"; rather, the relevant
question is whether the addition of a measu re "expand[s] the scope of the dispute".
892 China notes
that in the recent US – Continued Zeroing dispute, the Appellate Body, in evaluating this issue,
examined whether the additional me asures "relate" to th e measures identified in the request for
consultations, and whether the "legal basis" of the claims raised in respect of the additional measures
is the same as the legal basis of the claims set forth in the consultations request". 893 China submits
that the additional measure it added in its panel re quest easily meets both criteria as: (i) the USDOC's
lack of legal authority was already evident on the face of the measures that were the subject of
consultations and the panel request does nothing more than identify this absence of legal authority as
a distinct measure; (ii) the measures are "related " because the USDOC specifically referred to the
absence of legal authority in the underlying determina tions, and even in the absence of such a specific
reference, the absence of legal authority is one po ssible explanation for the USDOC's failure to avoid
the imposition of double remedies in the investigations at issue; and (iii) the legal basis for China's
claims in respect of the additional measure is identic al to the legal basis for China's claims in respect
of the measures that were the subject of consulta tions and the legal issue with respect to all these
measures is the same (i.e., whether the impositi on of double remedies for the same alleged acts of
subsidization is inconsistent with the covered agreements). 894 China also considers that the
complaining party's prior awareness of a measure has no relevance to whether that measure is
sufficiently related to the measures that were consulted upon.895
14.20 Finally, China submits that the fact that it is challenging a measure "as such" is not relevant to
whether that measure relates to the dispute that w as the subject of consultations. China notes in this
respect that the Appellate Body observed in US – Continued Zeroing that "the distinction between 'as
such' and 'as applied' claims does not govern the definition of a measure for purposes of WTO dispute
settlement".896
(ii) U.S. request for ruling under Article 6.2 of the DSU
14.21 China argues that it is the United States' own conduct that is at the origin of whatever
uncertainty exists as to the provisions of U.S. law – or their absence – that re late to the problem of
double remedies. China considers that although th e USDOC acknowledges the existence of the issue
of "double remedies", the USDOC has been vague and evasive as to whether it possesses legal
authority to avoid the imposition of double reme dies, and under what legal framework it would
analyze that issue.897 In any case, China notes, the Appellate Body has found that the identification of
a measure under Article 6.2 need be framed only with sufficient particularity as to indicate the nature
of the measure and the gist of what is at issue. China considers that it has gone well beyond this
minimal requirement and that it was not required to identify the entire body of U.S. trade remedy laws

892 China response to the U.S. request for preliminary rulings, paras. 27-28, citing Appellate Body
893 Id., para. 29, citing to Appellate Body Report on US – Continued Zeroing, paras. 228 and 235.
894 China response to the U.S. request for preliminary rulings, paras. 30 et seq. ; response to Panel
question 7 (first meeting).
895 China response to Panel question 6 (first meeting).
896 China response to the U.S. request for preliminary rulings, para. 36, citing to Appellate Body Report
on US − Continued Zeroing , para. 179; and Panel Report on US − Continued Zeroing , para. 7.46; response to
Panel question 8 (first meeting).
897 Id., paras. 3-10.

and regulations in its panel request in order to apprise the United States of the nature of this dispute.898
China also argues that is has exhaustively documen ted the facts and circumstances that demonstrate
the omission by the United States 899 and that the "absence of legal authority" identified in its panel
request is the same omission that has been the subject of extensive consideration within the
United States and that the USDOC itself identified as the explanation for its failure to avoid double
remedies in the investigations at issue.900
14.22 In addition, China takes issue with the United States' characterization of its claims. China
submits that its complaint does not relate to any provision of U.S. law requiring the USDOC to apply
AD duties calculated under the NME methodology concurrently with countervailing duties. Rather,
China's claim is that when the USDOC chooses to apply countervailing duties concurrently with anti-
dumping duties determined in accordance with its NME methodology, a necessary consequence of
that choice is the imposition of a double remedy an d that this is because th e USDOC lacks authority
under U.S. law to account for the double remedy that arises in such circ umstances. Thus, the
impairment identified by China in this dispute fi nds its source in the fact that the USDOC lacks
authority to avoid the imposition of double remedies whenever it applies anti-dumping and
countervailing measures in respect of the same product from China.
901
14.23 Finally, China notes that the Appellate Body has indicated that an examination of the
sufficiency of a panel request does not entail a substa ntive consideration as to what types of measures
are susceptible to challenge under the DSU 902, and has made clear that any act or omission can be a
measure for purposes of dispute settlement.903
2. Assessment by the Panel
(a) U.S. request for a preliminary ruling with resp ect to the alleged failure to consult on the
"omission"
14.24 We first consider the United States' argument that the "omission" 904 identified by China in its
request for the establishment of the panel does not fall within our terms of reference because it is a
measure that was not included in China's request for consultations.905 The United States' request for a
preliminary ruling in this respect raises the question of the relationship between the measures included
in a complaining party's request for consultatio ns and those included in its request for the
establishment of a panel.

898 China response to the U.S. request for preliminary rulings, para. 24; response to Panel question 3
(first meeting).
899 China response to the U.S. request for preliminary rulings, paras. 21-23.
900 China response to Panel question 4 (a) (first meeting).
901 China response to the U.S. request for preliminary rulings, paras. 15-17; response to Panel
question 3 (first meeting).
902 China response to the U.S. request for preliminary rulings, paras. 13, 20; response to Panel
question 4(b) (first meeting), all citing to Appellate Body Report on US – Continued Zeroing, para. 169.
903 China response to the U.S. request for preliminary rulings, para. 20, citing to Appellate Body
Reports on US – Corrosion-Resistant Steel Sunset Review , para. 81, EC – Selected Customs Matters , para. 133
and US – Continued Zeroing, para. 176; response to Panel question 4(b) (first meeting).
904 Our reference to the alleged "failure [...] to provide legal authority" as an "omission" or a "measure"
in this section is for ease of reference only and is w ithout prejudice to the United States' argument that China's
panel request does not identify the "sp ecific measure" at issue in the disput e in accordance with Article 6.2 of
the DSU.
905 We address the United States' request for preliminary ruling with respect to the absence of
consultations on the "omission" before considering the United States' request concerning the identification of
this measure in China's panel request. In our view, proceeding in this order follows the logical sequence of
events that determine a panel's terms of reference.

14.25 The "measure" the inclusion of which in the pa nel request is challenged by the United States
is the following:
"In certain of the investigations specifi ed above, the US Department of Commerce
stated that US law provides no basis to make any adjustment to either the anti-
dumping or countervailing duty calculations to avoid the imposition of a double
remedy for the same unfair trade practice, where such a double remedy arises from
the use of the US non-market economy (NME) methodology to impose anti-dumping
duties simultaneously with the impositi on of countervailing duties on the same
product. The measures therefore include, as an omission, the failure of the United
States to provide legal authority for the US Department of Commerce to avoid the
imposition of a double remedy when it im poses anti-dumping duties determined
pursuant to the US NME methodology simultaneously with the imposition of
countervailing duties on the same product".
906 (emphasis added)
14.26 Further, China's panel request contains a se ction entitled "As Such Claims" which indicates,
inter alia, that:
"[...] The United States has not provided the Department of Commerce with any legal
authority to adjust either the anti-dumping or countervailing duty calculations to
avoid the imposition of a double remedy when it imposes anti-dumping duties
determined pursuant to its NME methodolog y simultaneously with the imposition of
countervailing duties on the same product. The Department of Commerce has
acknowledged the absence of any such legal authority.
China considers that the absence of any legal authority for the Department of
Commerce to avoid the imposition of a double remedy is an omission that, as such, is
inconsistent with the following obligations under the covered agreements" [follows a
list of provisions of the covered agreem ents which, the request indicates, are
contravened by the "absence of legal authority to avoid a double remedy]".
907

"To the extent that US law does not permit the Department of Commerce to avoid the
imposition of a double remedy for the same unfair trade practice in parallel anti-
dumping and countervailing duty investig ations involving imports from WTO
Members that the United States has d esignated as non-market economies, China
considers that US law is, as such, inc onsistent with Article I of the GATT 1994
[...]".
908 (emphasis added)
14.27 There is no disagreement between the parties th at China's request for consultations does not
explicitly identify, as a "measure at issue", the om ission included by China in its request for the
establishment of a panel. China's request for cons ultations states that it "concerns definitive anti-
dumping and countervailing duties imposed by the Un ited States pursuant to the final anti-dumping
and countervailing duty determinations and orders issued by the US Department of Commerce" in the
four sets of anti-dumping and countervailing duty investig ations at issue in this dispute. The request

906 China request for establishment of the Panel, Section A, p. 3.
907 Id., Section B.2, p. 7.
908 Id., Section B.2, p. 8.

concludes "China reserves the right to raise a dditional claims and legal matters regarding the above-
mentioned measures during the course of the consultations".909
14.28 Article 4 of the DSU, governing requests fo r consultations, and Article 6 of the same
Agreement, governing requests for the establishment of a panel, are relevant to the issue before us.
Article 4.4 of the DSU provides:
"[...] Any request for consultations shall be submitted in writing and shall give the
reasons for the request, including identifi cation of the measures at issue and an
indication of the legal basis for the complaint".
14.29 Article 6.2 of the DSU provides:
"The request for establishment of the panel [...] shall indicate whether consultations
were held, identify the specific measures at issue and provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly".
14.30 A panel's terms of reference are determined by the content of the request for its establishment.
Yet, "as a general matter, consultations are a prerequisite to panel proceedings"910, and therefore to the
inclusion of a measure in the request for the establishment of a panel and (by consequence) the panel's
terms of reference. The Appellate Body has explaine d that "Articles 4 and 6 of the DSU [...] set forth
a process by which a complaining party must request consultations, and consu ltations must be held,
before a matter may be referred to the DSB for the establishment of a panel". 911 The Appellate Body
has also highlighted the importance of consultations, explaining that they "provide the parties an
opportunity to define and delimit the scope of the dispute between them".
912
14.31 Past panels and the Appellate Body have r ecognized a certain degree of latitude to the
complaining party in terms of the correspondence be tween the request for consultations and the panel
request: there need not be "a precise and exact identity between the specific measures that were the
subject of consultations and the specific measures identified in the request for establishment of a
panel".913 Where a complainant includes, in its panel request, a measure that was not part of the
consultations request, it must be asked whether the co mplaining party, in so doing, expands the scope
of the dispute914 or changes its essence.915
14.32 In answering this question, panels and the Appe llate Body have, in prior disputes, focused on
various aspects of the relationship between the me asures included in the panel request and those
identified in the consultation request. Notably, in certain disputes, they considered whether the
additional measures constituted "separate and lega lly distinct" measures from those which had been

909 China request for consultations, pp. 1 and 6. (emphasis added).
910 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US), para. 58, cited with approval in
Appellate Body Report on US – Upland Cotton, para. 284.
911 Appellate Body Report on Brazil – Aircraft , para. 131, cited with approval in Appellate Body
Report on US – Upland Cotton, para. 285.
912 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US), para. 54, cited with approval in
Appellate Body Report on US – Continued Zeroing, para. 222.
913 Appellate Body Report on Brazil – Aircraft , para. 132, (emphasis original), cited with approval in
e.g., Appellate Body Reports on US – Upland Cotton, para. 285 and US – Continued Zeroing, para. 222.
914 Appellate Body Report, US – Upland Cotton , para. 293, cited with approval in Appellate Body
Reports on US – Continued Zeroing, paras. 222, 224 and 228, and US – Shrimp (Thailand) / US – Customs Bond
Directive, para. 293.
915 Appellate Body Report on US – Shrimp (Thailand) / US – Customs Bond Directive , para. 293
(quoting Appellate Body Report on Mexico – Anti-Dumping Measures on Rice , para. 137, (referring to
Appellate Body Report on Brazil – Aircraft, para. 132)).

consulted upon, in view of the content of the measures, their legal bases, the government agencies that
issued them and/or the legal linkages between them.
916 In other, more recent disputes, they found that
the measures added in the panel request fell within the panel's terms of reference because they were
similar or sufficiently related to those that had b een consulted upon, and because the legal basis of the
claims made in respect of the two different sets of measures were identical.917
14.33 While this prior jurisprudence offers some gui dance on how to resolve the question identified
above, we do not read it as establishing precise criteria that would apply in every instance,
irrespective of the factual situation at issue. This understanding is consis tent with the Appellate
Body's indication that "whether a complaining party has 'expand[ed] the scope of the dispute' or
changed the 'essence' of the dispute through the inclus ion of a measure in its panel request that was
not part of its consultations request must be determined on a case-by-case basis".
918
14.34 In any event, the present dispute involves factual circumstances which have not been
considered in past WTO disputes. In the present case, China's panel request added a new measure in
the form of a rule or norm of general and prospectiv e application (albeit formulated in the negative) –
the "omission" – whereas the request for consultatio ns had only included measures in the nature of
individual instances of application of that rule of general application – the eight USDOC anti-
dumping and countervailing dut y determinations. Paralleling this expansion in the nature of the
measures at issue was an expansion in the nature of the legal claims in respect of these measures
which, as the United States points out, had the effect of transforming a dispute involving only "as
applied" claims into one also including "as such" challenges.
919
14.35 In its argument that the "omission" falls within our terms of reference, China, relying on the
findings of the Appellate Body in US – Continued Zeroing, argues that the measure added in the panel
request "relates" to the measures id entified in the request for consulta tions and that the legal basis of
the claims raised in respect of the additional measure is the same as the legal basis of the claims set
forth in the consultations request. We consider that the examination of the nature and extent of the
relationship between these two sets of measures is a tool to help us understand whether including the
additional measure "expands the scope of the disput e" or "changes its essence" and, we agree with
China that, in the present dispute, the additional measure is significan tly related to the measures that
were identified in China's request for consultations, albeit for reasons other than those put forward by

916 Appellate Body Report on US – Certain EC Products , paras. 60-82; Panel Report, US – Customs
Bond Directive, paras. 7.173-7.204; Appellate Body Report on US – Shrimp (Thailand) / US – Customs Bond
Directive, paras. 286-295.
917 Panel Report on US – Continued Zeroing , paras. 7.16-7.29; Appellate Body Report on US –
Continued Zeroing , paras. 213-236. See also Appellate Body Report on Brazil – Aircraft , paras. 127-133,
finding that the additional measures (regulatory instruments relating to the administration of the subsidy
programme at issue) did not change the essence of the measure consulted upon. In US – Continued Zeroing, the
Appellate Body qualified its findings in US – Certain EC Products (additional measure excluded on the basis
that it was separate and legally distinct from the measur es consulted upon), indicating that the two measures at
issue in US – Certain EC Products were not only legally distinct, but "were entirely different and, as a
consequence, the matters covered by the consultations requ est and the panel request were distinct". (Appellate
Body on US – Continued Zeroing, para. 230).
918 Appellate Body Report on US – Shrimp (Thailand) / US – Customs Bond Directive , para. 293. In
the same case, the Appellate Body indicated that its findings (which it referred to as a "dictum") in US – Certain
EC Products (considering whether the measures were "separate a nd legally distinct") were not to be treated "as
creating an exclusive test or precedent". (Id., para. 295 and footnote 391).
919 The Appellate Body has indicated that panels should limit their analysis to the request for
consultations, and not whether consultations actually took place with respect to the alleged measure. (Appellate
Body Report on US − Upland Cotton, para. 287). In consequence, in determining whether the inclusion of the
"omission" in China's panel request had the effect of expanding the scope of the dispute or changing its essence,
we limit our analysis to the text of China's request for consultations.

China.920 Yet, we do not consider the "relationship" between the "omission" and the determinations
identified in China's consultations request to be comparable to that which existed between the
measures at issue in US – Continued Zeroing . In that case, the measures at issue were subsequent
determinations taken in the context of the same anti-dumping orders, and "derive[d] from the same
underlying legal basis".
14.36 By contrast, and as discussed above, the relations hip in this dispute is between specific
behaviour in the first case and the norm of general or prospective application on which that specific
behaviour is allegedly based on the other. The m easures identified in China's consultations request
constitute specific instances of application of the measures identified in its panel request. For this
reason, it comes as no surprise that the measures c ontained in each of these documents are closely
connected. For the same reason, one would expect in such circumstances that the complaining party
would allege violation of similar pr ovisions of the covered agreements, as is the case here. Yet, this
close relationship between the measures included in each of the requests and the fact that the legal
claims made in respect of these measures invoke th e same provisions of the covered agreements does
not, in our view, outweigh the fact that the inclus ion of the "omission" by China had the effect of
bringing a wholly new type of measure – norms of general and prospective application – within the
scope of the dispute and of adding "as such" claims to the "as applied" ch allenges included in the
request for consultations. We consider that the a ddition of such new measures and claims in this case
so broadens the scope of the present dispute, and changes its nature, as to place that measure outside
of our terms of reference.
14.37 In reaching this conclusion, we take into c onsideration the recognition by panels and the
Appellate Body that "as such" challenges against la ws, regulations or other instruments that have
general and prospective application are serious cha llenges that have more far-reaching implications
than "as applied" challenges against individual inst ances of application of such norms of general and
prospective application.921, 922
14.38 Our conclusion that the inclusion of the "omission" by China significantly expands the scope
of the dispute and therefore that this measure and th e claims made in its respect are outside our terms

920 In our view, the "relationship" between the measures set out in the panel request and those identified
in the request for consultations derives from their substan tive connection, not from the fact that the former may
or may nor have been "evident" on the face of the latter. See paragraph 14.39, infra.
921 See Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews, para. 172:

"[...] 'as such' challenges against a Member's measures in WTO dispute settlement proceedings
are serious challenges. By definition, an 'as such' claim challenges laws, regulations, or other
instruments of a Member that have general an d prospective application, asserting that a
Member's conduct—not only in a particular instan ce that has occurred, but in future situations
as well—will necessarily be inco nsistent with that Member's WTO obligations. In essence,
complaining parties bringing 'as such' challenges seek to prevent Members ex ante from
engaging in certain conduct. The implications of such challenges are obviously more far-
reaching than 'as applied' claims".

922 To be clear, we consider that taki ng into account the nature of the claims at issue in examining the
correspondence between the measures listed in the request for consultations and those listed in the panel request
is appropriate since they, together, determine the "matter" which is before a panel. We note that in US –
Continued Zeroing, the Appellate Body found that the panel had properly examined both components of the
"matter" before it – claims and measures – when it took into account the fact that the legal nature of the
European Communities' claims regarding the additional measures "[did] not in any way differ from that of the
[...] measures identified in the [...] consultations request" in reaching its conclusion that the consultations request
and the panel request in that case referred to the same subject-matter, and as a result, that the additional
measures fell within the panel's terms of reference. (Appellate Body Report on US
− Continued Zeroing,
para. 233).

of reference finds support in the findings of the Appellate Body in US – Shrimp (Thailand) / US
−
Customs Bond Directive. In that dispute, the Appellat e Body was critical of the proposition that the
inclusion, in the request for consultations, of a sp ecific measure would suffice to bring within the
scope of the dispute any legal instrument providing a general authority or legal basis for that specific
measure.923 The Appellate Body added that such an a pproach would imply that laws and regulations
providing general authority – incl uding constitutional provisions – w ould automatically be implicated
in a dispute even if they were not mentioned in a consultations request".924
14.39 We recall China's view that there is a relationship between the determinations identified in the
request for consultations and the alleged "omission" because those determinations "stated that U.S.
law provides no basis to make any adjustment […] to avoid the imposition of a double remedy". 925
Leaving aside whether or not China's characterizat ion of the determinations is correct, we do not
believe that such a reference, in and of itself, establishes a relationship sufficiently close as to bring
the alleged omission within the scope of this disput e. An applied measure ma y often refer, implicitly
or explicitly, to the legal basis under which it is taken and measures of gene ral application will often
be referenced in the specific instances in which they are applied. We agree with the United States that
if China's arguments were followed, consultations on "as such" claims would almost never be required
since consultations on related " as applied" matters would suffice. 926 In sum, as previously explained,
we consider that the addition to a dispute of "as such" claims regarding a norm of general and
prospective application represents a significant expans ion of the scope of the dispute, and changes its
nature, even if the norm is substa ntively related to the individual in stances of behaviour identified in
the request for consultations.
14.40 Further, unlike China, we do not read the Appellate Body Report in US – Continued Zeroing
as suggesting that the distinction between "as such" a nd "as applied" claims is irrelevant to a panel's
consideration of its terms of reference. 927 The statement of the Appellate Body relied upon by China
addresses the question of what constitutes a "mea sure" for purposes of WTO dispute settlement and
what types of measures are susceptib le to WTO challenge, substantive questions that are not to be
confused with the jurisdictional issues before us. In essence, in that statem ent, the Appellate Body
makes the narrow point that "[i]n order to be suscepti ble to challenge, a measure need not fit squarely
within one of [the] two categories" of measures recognized in WTO jurisprudence. The Appellate
Body did not, in that case or elsewhere, suggest th at there is no significant difference between norms

923 Appellate Body Report on US – Shrimp (Thailand) / US – Customs Bond Directive, para. 294.
924 Id., footnote 390. The parties debate the relevance of the panel and Appellate Body findings in US –
Shrimp (Thailand) / US – Customs Bond Directive in light of the differences between the facts of that dispute
and those of the present one. As noted above, the panel and Appellate Body reports in US – Customs Bond
Directive do not directly address the issue before us. Consequently, we do not consider it necessary to examine
in detail the factual differences between that dispute and the present one.
925 China response to U.S. request for preliminary rulings, paras. 30-32; response to Panel question 7
(first meeting).
926 United States response to Panel question 7 (first meeting).
927 China relies on the following statement of the Appellate Body:

"We share the Panel's view that the distinction between 'as such' and 'as applied' claims does
not govern the definition of a measure for purposes of WTO dispute settlement. This
distinction has been developed in the jurisprudence as an analytical tool to facilitate the
understanding of the nature of a measure at issue. This heuristic device, however useful, does
not define exhaustively the types of measures that may be subject to challenge in WTO
dispute settlement. In order to be susceptible to challenge, a measure need not fit squarely
within one of these two categories, that is, eith er as a rule or norm of general and prospective
application, or as an individual instance of the application of a rule or norm". (China response
to the U.S. request for preliminary rulings, para. 36 (quoting Appellate Body Report on US –
Continued Zeroing, para. 179).

of general and prospective applica tion and individual instances of application of such norms, or that
such difference is irrelevant in determining a pa nel's terms of reference. To the contrary, the
Appellate Body has repeatedly made it clear that challenges to the former not only entail a different
legal analysis on the part of the panel, but also that "as such" challenges have systemic implications
that go well beyond those of "as applied" claims.928
14.41 Finally, the parties have debated the issue of the relevance of China's awareness of the
existence of the additional measure at th e time of its request for consultations. 929 Prior cases offer
little guidance on whether a complaining party's prior knowledge of such an "additional" measure is a
relevant consideration. In any event, given our findi ngs above, this is an issue we need not decide in
the present case.
14.42 For the reasons set out above, we find that the "omission" challenged by China in its "as such"
claims falls outside our terms of reference, and c onsequently, that China's "as such" claims equally
fall outside our terms of reference.
(b) United States request for a preliminary ruling under Article 6.2 of the DSU
14.43 Having already determined that the measure ch allenged by China in the context of its "as
such" claims and China's "as such" claims themsel ves are not properly before us because China did
not identify them in its request for consultations , we do not need to address the second request for
preliminary ruling presented by the United States, i.e., that these measure and claims fall outside our
terms of reference due to China's failure to identify the "measure at issue" in the dispute pursuant to
Article 6.2 of the DSU.
C. C
HINA'S "AS APPLIED" CLAIMS
1. Introduction
14.44 In the following sections, we address China' s "as applied" "double remedy" claims.
Specifically, we consider China's claims that:
(i) the United States imposed a "double remedy", inconsistent with Articles 10,
19.3, 19.4 and 32.1 of the SCM Agreement and Article VI:3 of the GATT
1994;
(ii) the USDOC's treatment of the qu estion of "double remedy" in the
investigations at issue was inconsiste nt with United States' obligations under
Articles 12.1 and 12.8 of the SCM Agreement;
(iii) the United States denied imports from China "most-favoured nation"
treatment under Article I:1 of th e GATT 1994 by imposing double remedies
in the investigations at issue.

928 In US – Oil Country Tubular Goods Sunset Reviews the Appellate Body recognized that the
distinction between "as such" and "as applied" challe nges may be relevant to issues affecting a panel's
jurisdiction in making observations about the identification of "as such" claims in a panel request . The
Appellate Body in that case found that Argentina had sufficiently identified the measure at issue pursuant to
Article 6.2 of the DSU but nonetheless opined that Argentina could have been clearer in setting out it claims. It
"urge[d] complaining parties to be especially diligent in setting out 'as such' claims in their panel requests as
clearly as possible". (Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews, paras. 172-
173). (emphasis original).
929 We do not understand China to contest that it was aware of the existence of the alleged omission at
the time it submitted its request for consultations.

14.45 Also as a preliminary remark, we consider it a ppropriate to emphasize that the dispute before
us is limited to the consiste ncy with the covered agreements
 of the USDOC's determinations in the
four sets of investigations at issue; the consistency of double remedies with U.S. law is not before us.
2. General considerations with respect to the potential for "double remedies" to arise from
the simultaneous imposition of countervailing duties and of anti-dumping duties
calculated pursuant to the U.S. NME methodology
14.46 We first examine the parties' arguments with respect to whether the concurrent imposition of
anti-dumping duties calculated under the U.S. NME methodology and of countervailing duties results
in the imposition of double remedies.
(a) Main arguments of the Parties
(i) China
14.47 China argues that where anti-dumping duties calculated pursuant to a methodology that relies
on surrogate, market-determined, values (NME methodology) and countervailing duties are
simultaneously applied to imports of a same good, it necessarily results that any domestic subsidy
bestowed upon the production of that good is offset twice, once through the calculation of the
dumping margin, and once as a result of the imposition of the countervailing duties.
930
14.48 By way of background, China notes that for a long time, the USDOC held the position that it
could not apply countervailing duties to countries wh ich it determined to be non-market economies, a
position which the USDOC reversed in the CFS Paper case.931 The four investigations at issue in this
dispute represent the first instances in which the USDOC simultaneously imposed anti-dumping
duties calculated under its NME methodology and countervailing duties.
14.49 China notes that the issue of double remedies has been the subject of extensive discussions in
the United States and was acknowledged by all three branches of the Government of the
United States, including the USDOC itself.
932 In addition, China argues that, more generally, the
USDOC has consistently recognized that the manne r in which it calculates anti-dumping duties can
offset subsidies, including domestic subsidies. In particular, China argues that in numerous anti-
dumping investigations of imports from market economy countries, the USDOC has recognized that
by (i) adding subsidies to the producer's cost of production; (ii) deducting countervailing duties from
the export price; or (iii) using a producer's repor ted costs, if these costs do not reflect subsidies
received (or otherwise using unsubsidized costs) to determine constr ucted normal value; it would

930 See, e.g., China first written submission, para. 326.
931 Id., paras. 328-346. See paras. 14.2-14.4, supra, for the Panel's discussion of the evolution of the
USDOC's position on the applicability of the U.S. countervailing duty regime to NMEs.
932 China oral statement at the first meeting of the Panel, para. 79; first written submission, paras. 347-
354; oral statement at the second mee ting of the Panel, para. 60. China notably refers to a 2005 report of the
U.S. Government Accountability Office (the "GAO"), in which the GAO assessed whether it would be possible
for the USDOC to apply countervailing duties to imports from China; to draft legislation (which was adopted by
the U.S. House of Representatives but not the U.S. Senate) to provide the USDOC with explicit authority to
address the issue of double remedies, should it apply the U.S. countervailing duty legislation to NMEs; to the
recent decision of the U.S. Co urt of International Trade in GPX, (discussed in more detail below); and to
statements made by the USDOC in relation to the CFS Paper case. (Id., referring, inter alia , to U.S.
Government Accountability Office, U.S. – China Trade: Commerce Faces Practical and Legal Challenges in
Applying Countervailing Duties , GAO-05-474 (June 2005) ("GAO Report"), Exhibit CHI-121; United States
Trade Rights Enforcement Act, H.R. 3283, Exhibit CHI-122; and to United States Court of International Trade,
GPX International Tire Corporation and Hebei Starbright Tire Co., Ltd., v. United States (" GPX"), Exhibit
CHI-169).

effectively collect countervailing duties a second time.933 China submits that the United States fails to
explain how the double remedy that arises from the use of an NME methodology differs from these
other forms of double remedies, which the USDOC has taken all necessary steps to avoid.
934
14.50 In China's view, a double remedy arises in all instances of concurrent imposition of
countervailing duties and of anti-dumping duties cal culated pursuant to a methodology relying on
surrogate values.935 This, in China's view, results from th e overlapping rationales and effects of NME
methodologies and of countervailing duties: China explains that the rationale for using an NME
methodology in an anti-dumping investigation su bsumes the rationale for imposing countervailing
duties and that these are two different approaches fo r remedying the fact that a producer's costs and
prices were not determined by market forces. China argues that when it uses its NME methodology,
the USDOC places the producer in the position of ha ving unsubsidized, market-determined costs of
production,936 and calculates a dumping margin based on the difference between this market-
determined cost of production and the producer's expor t price. China explains that in doing so, the
USDOC necessarily captures any trade-distorting effects of alleged subsidies in the anti-dumping
margin. Thus, having brought the producer's costs of production "to the market", and having
calculated a duty on this basis, the USDOC's NM E methodology necessarily offsets any benefit that
the producer obtained by receiving financial c ontributions from the government on terms more
favourable than those available in the market. When the USDOC simulta neously calculates the
amount of subsidization in a parallel countervailing duty investigation – again by placing the producer
in the position of having market-determined costs of production – it is repeating the same exercise
undertaken in the anti-dumping NME calculation. T hus, China explains, the same subsidy is offset
twice.
14.51 China notes the United States' arguments that the use of an NME methodology may not
constitute a complete remedy for the subsidies. Consistent with the explanation above, China argues
that the existence of a double remedy occurs entirely on the cost side of the equation. Accordingly,
China rejects the United States' contention that the existence of a double remedy is a factual question
and depends, in particular, on whether subsidies pass through, pro rata , to U.S. prices.
937 C h i n a
provides a number of examples from the investigations at issue (with respect to subsidies in the form
of the provision of inputs), as well as theoretical examples which it considers support its arguments in
this respect.938 China also rejects the United States' ar gument that the existence of a double remedy

933 China second written submission, paras. 214 and 227, response to Panel question 74 (first meeting).
China adds that in these investigations, the USDOC did not consider the existence of a double remedy to be
"theoretical", required any "evidence" or "presumptions" about the effects of subsidies on a producer's costs or
prices, or suggest that it had no legal obligation to avoid the double remedy that it had identified. (China second
written submission, para. 215). See Section XIV.C.5, infra , (Panel's consideration of China's claims under
Article I:1 of the GATT 1994), for a more detailed review of China's arguments in this respect.
935 Id., para. 374.
936 China argues that in calculating a constructed normal value, the USDOC seeks to ensure that the
surrogate values that it uses are, in fact, market-determined values and avoids the use of any surrogate value that
may itself be subsidized. (China first written submission para. 371 and footnote 315, inter alia referring to
Omnibus Trade and Competitiveness Act of 1988, Exhibit CHI-123).
937 Id., paras. 330, 372 and 391-392; oral statement at the first meeting of the Panel, para. 81; second
written submission, paras. 219, 233-238, response to Pa nel question 73 (first meeting). China considers that
whether subsidies pass through, pro rata , to U.S. prices, is entirely irrele vant. But China argues that even
assuming that the United States were correct and that the existence of a double remedy depends on the effects of
subsidies on export prices, the only lawful basis on which an investigating authority could impose
countervailing duties would be to presume that the subs idies had precisely that effect. (China second written
submission, para. 289 et seq.).
938 China first written submission, para. 395; oral stat ement at the first meeting of the Panel, para. 81;
second written submission, paras. 222-225, response to Pa nel question 73 (first meeting); response to Panel
question 26 (second meeting); Exhibit CHI-142 ("Further Examples of Offsetting the Same 'Subsidies' Twice");

can be ascertained from a "mathematical" comparis on between the dumping and countervailing duty
margins. China's response to the Un ited States' argument in this r espect is that the use of an NME
methodology necessarily offsets any competitive advantage that the producer obtained from
countervailable subsidies, but that this does not mean that an anti-dumping margin determined
pursuant to an NME methodology is mathematica lly comparable to a countervailing duty margin
calculated in respect of the same product, because: (i) the use of an NME methodology is meant to
address a broader set of distortions (e.g. non-speci fic subsidies); and (ii) the dumping margin is
dependent on the level of the producer's export price, a variable that plays no role in the
countervailing duty calculation. Further, for China, the fact that, in a given instance, the USDOC
could theoretically arrive at a zero dumping margin does not alter the fact that in using an NME
methodology, it necessarily offset the benefit of any countervailable subsidies along the way.
939
14.52 Overall, China considers that the theories put forward by the United States demonstrate that
the United States does not deny the existence of double remedies but rather, considers that the
existence of double remedies is solely a matt er of degree that depends on certain factual
circumstances.940 Yet, China notes, in the investigations at issue, the USDOC did not take any steps
to determine the extent of the double remedy that may have arisen. 941 In any event, China considers
that it has demonstrated, at a minimum, that ther e was at least "some overlap" between the method by
which the USDOC determined normal value in the an ti-dumping investigations and the subsidies that
were identified and countervailed by the USDOC in the parallel countervailing duty investigations.942
14.53 Finally, China draws the Panel's attention to the 2009 decision of the U.S. Court of
International Trade ("CIT") in GPX International Tire v. United States , a judicial review of the
determination in the OTR investigation at issue in the present dispute. In GPX, the CIT held that the
USDOC is obligated to avoid o ffsetting the same subsidies twic e when it uses its NME methodology
in conjunction with countervailing duties. 943 China notes that the CIT observed that the USDOC
addresses subsidization of NME producers "t hrough the NME AD methodology" and that it is
fundamentally incompatible with the purposes of the countervailing duty laws to offset the same
subsidies twice; China also cites the CIT's conclusion that the USDOC has an obligation to investigate
and to avoid double remedies. China posits that in GPX, the CIT rejected U.S. arguments that are
similar to those the United States makes before this Panel.944

and Exhibit CHI-170 (examples, in scenarios in which subsidies "pass through" or do not "pass through" to
export prices).
939 China response to Panel question 93 (a)-(b) (first meeting).
940 See, e.g., China's second written submission, para. 305. China also argues that the United States has
implicitly acknowledged before the Panel the potential for at least some degree of overlap between the two
remedies. In particular, China notes the United States ' statements that the use of an NME methodology to
determine normal value may not constitute a complete re medy for any subsidies received by the producer, and
that it will "not necessarily capture the full amount" of any subsidies. China argues that th ese statements are
consistent with the USDOC's statement, in CFS Paper that "a possibility of double counting results from
simultaneous antidumping and CVD investigations" of impo rts from NME countries and with the statement by
the GAO that anti-dumping duties determined in accorda nce with the U.S. NME methodology "offset much of
the value of both export subsidies and domestic subsidies". (China response to Panel Question 92 (first
meeting)).
941 China oral statement at the first meeting of the Panel, para. 82; second written submission,
para. 305.
942 China response to Panel question 92 (first meeting).
943 China oral statement at the second meeting of the Panel, paras. 56-73.
944 Id.

(ii) United States
14.54 The United States asks the Panel to reject Chin a's argument that a double remedy results from
the imposition of countervailing duties concurren tly with the imposition of anti-dumping duties
calculated under the U.S. NME methodology. In pa rticular, the United States contests what in its
view is an argument of China that every calculation of a dumping margin using the NME
methodology will be artificially inflated by the full amount of subsidies that are remedied by
countervailing duties determined and imposed simultaneously on the subject goods. The
United States argues that China has not provided evidence to support its arguments in this respect.945
14.55 The United States proffers that the theory adva nced by China suggests that surrogate values
used to determine normal value under the U.S. NME methodology are the mathematical equivalent of
what actual production costs would be if China we re a market economy plus the precise amount of
subsidization. The United States challenges wh at it sees as the theoretical premises and the
assumptions underlying China's theory. The Unite d States argues that it cannot be assumed that
replacement of actual (subsidized) values of f actor inputs with surrogate values under the NME
methodology results in an increase in the normal value by an amount that is equal to or greater than
the amount of the subsidy. The United States argue s that it cannot be assumed that the normal value
arrived at using the NME calculation is, in every instance, completely insulated from any of the
effects of the countervailed subsidy. The United States posits that the subsidy could actually lower
the normal value, for instance by increasing a reci pient's efficiency and reducing the quantity of
factors used in production, or affect the surroga te (third-country) prices and/or profit and expense
ratios.946 The United States further submits that another fundamental premise for China's arguments
is that subsidies reduce costs of production, pro rata; the United States contends that this would be a
necessary basis for arguing that normal values determined using the NME methodology are invariably
inflated by an amount that fully remedies the subs idy. The United States considers it far from clear
that most subsidies achieve anything close to pro rata reductions in cost.947
14.56 The United States characterizes as "self-serving" the illustrations offered by China using the
investigations at issue in the current dispute, a nd asks the Panel not to consider that these establish
that double remedies were imposed in these investig ations. The United States disagrees with China's
suggestion that similarities between the surrogate values used in the anti-dumping calculations and the
benchmarks used in the countervailing duty investig ations prove that the resulting duties remedy the
same economic "distortion". In addition, the Un ited States submits counter-examples to demonstrate
that in some instances, the surr ogate values used by the USDOC in its dumping margin calculation
were in fact lower than both the producer's actual costs and the benchmarks used by the USDOC in its
calculation of the amount of the subsidy.948
14.57 Further, the United States argues that China incorrectly equates the normal value with the
anti-dumping remedy, and notes that normal values are only one side of the anti-dumping equation. 949
The United States argues that even if it is assumed that a subsidy lowers the recipient's costs of
production, it may not pass-through to prices.950

945 United States first written submission, paras. 445-4 62; opening statement at the first meeting of the
Panel, para. 56; response to Panel question 73 (first meeting).
946 United States first written submission, paras. 451-454 and footnote 612; response to Panel
question 71 (first meeting); second written submission, paras. 203-207; response to Panel question 27 (second
meeting).
947 United States first written submission, paras. 455-459.
948 United States comments on China's response to Panel question 26 (second meeting).
949 United States second written submission, paras. 198-202.
950 United States response to Panel questions 71 (a) and 72 (first meeting).

14.58 The United States urges the Panel to reject the argument made by China that there are
"overlapping rationales" for (i) the use of NME me thodologies in anti-dumping investigations and (ii)
the imposition of countervailing duties. In the view of the United States, China mischaracterizes the
relevant rationales and incorrectly assumes that subsidization is among the market distortions that the
NME methodology is "meant to counteract". The United States argues that under the GATT, the AD
Agreement, and China's Protocol of Accession, subsidization is not re levant to the application of the
NME methodology. The United States submits in this regard that the USDOC does not and cannot
ensure that the NME constructed normal value is "subs idy-free", and that in some instances, including
in the investigations at issue, the surr ogate value exceeds the producer's actual costs.
951 T h e
United States further submits that the effects of subsidies on costs or prices is not, under the covered
agreements, relevant to the calculation of the amount of countervailing duties. On the contrary, under
Article VI:3 of the GATT and Article 19.2 of the SCM Agreement, countervailing duties may be
imposed for the full amount of the subsidy found to exist, irrespective of the effects these subsidies.952
14.59 Finally, the United States argues that even if it is accepted at face value, the GAO Report does
not support China's argument that double remedies are inherent in the concurrent application of
countervailing duties to offset domestic subsidie s and of anti-dumping duties calculated under an
NME methodology. Rather, the United States argu es, "the report agrees with Commerce's stated
position [that] the concurrent imposition of AD and CV duties c ould create some potential for
overlapping rationales". 953 The United States also asks the Pa nel not to rely on, or consider
dispositive or even persuasive, the Opinion of the CIT in the GPX case. The United States argues that
this decision represents the Court's ruling on U.S. law and results from other considerations than those
focussed on by China in the current dispute. Th e United States notes that the CIT concludes that
some degree of double counting is likely and dir ects the USDOC to investig ate the issue and report
back to the Court. Further, the United States considers the CIT ruling to be in error and notes that it is
not final as it may be appealed.954
(b) Main arguments of the Third Parties
(i) Argentina
14.60 Argentina argues that China incorrectly assumes that the use of an NME methodology in an
anti-dumping investigation necessarily addresses any po tential subsidization. On the contrary,
Argentina argues, using analogue country prices a nd costs to mirror market economy conditions does
not mean that such costs and prices have been adjust ed from subsidization. Further, Argentina is of
the view that the purpose of the NME methodology is to provide an alternative to obtain undistorted
prices in circumstances where there are distortions in the economy, rather than to offset subsidies, and
that even assuming arguendo that subsidies are the quintessence of distortions as China contends, they
are not the only category of distortions affecting a market. As a consequence, Argentina argues, the
concurrent application of anti-dumping duties cal culated under a surrogate country methodology and
of countervailing duties does not, in itself, imply the situation of duplication alleged by China.955

951 United States second written submission, paras. 180-190; opening statement at the second meeting
of the Panel, para. 80.
952 United States second written submission, paras. 191-195; response to Panel question 71(b) (first
meeting).
953 United States response to Panel question 80 (first meeting). The United States emphasizes that the
GAO stated that "it appears that some double counting [...] could occur [...]". (Id.). (emphasis added by the
United States).
954 United States opening statement at the second meeting of the Panel, paras. 85-88; response to Panel
Question 32 (second meeting).
955 Argentina third-party submission, para. 33; third-party oral statement, paras. 6-9.

(ii) Australia
14.61 Australia submits that anti-dumping and countervailing duties are distinct trade remedies with
different purposes and effects. Australia considers that the use of a surrogate market in an anti-
dumping investigation and the calculation of an NM E normal value do not relate to an assessment of
whether a subsidy exists or a calculation of the amount of that subsidy, and notes that an anti-dumping
investigation entails a price comparison between the normal value and the export price.956
(iii) Brazil
14.62 Brazil argues that the potential effects on pricing practices of subsidies to the "manufacture or
production" of a product are normally much less direct than is the case for export subsidies and that it
is therefore inappropriate to apply the logic behind Article VI:5 to domestic subsidies.957
(iv) European Communities
14.63 The European Communities expresses concern wi th China's allegation that there is an
"inherent" double remedy in cases where normal value is established on the basis of a surrogate
country and with China's apparent assumption that domestic subsidies inevitably affect prices,
including export prices. The European Communitie s also posits that there may be cases where export
subsidies have no measurable impact on export price, or have no discernable impact on prices at all.
958
(v) Japan
14.64 Japan considers that in certain situations, the dumping margin calculation captures not only
the dumping behaviour of exporters, but also the effe cts of governmental financial contributions; if in
such a situation, the importing Member also im poses a countervailing duty, it would counteract the
effects of the financial contribution by the governme nt twice. Japan argues that a double remedy may
or may not occur in situations other than situa tions of export subsidiza tion, depending on the method
used in the calculation of the margin of dumping in a given case. For example, if a subsidy is
conferred on inputs and the final product is sold both in the home and export markets, both the home
market price and the export price would be lowered by the same amount due to the effects of the
subsidy, and in such a case, a double remedy ma y occur if the dumping margin is calculated by
adjusting the home market price upward for the per-unit amount of the subsidy without an adjustment
of the actual export price. Japan also considers that a double remedy unavoidably occurs in the case
of export subsidies.
959
(vi) Mexico
14.65 Mexico considers that China's argument th at the application of a surrogate country
methodology in an anti-dumping investigation yields a normal value free from distortions is without
foundation. Mexico is of the view that an NME methodology does not offset the effect of subsidies
granted in the exporting country. Further, Mexico argues that even assuming arguendo that the
normal value determined on the basis of a surrogate country would reflect unsubsidized prices, these
prices would be those in the surrogate country, not in China itself.960

956 Australia third-party submission, para. 42; third-party response to Panel questions 14 and 17.
958 European Communities third-party submission, paras. 53 and 56.
959 Japan third-party submission, paras. 4-7; third-party oral statement, paras. 2-4.
960 Mexico third-party submission, paras. 32-34; third-party oral statement paras. 6-8; response to Panel
questions 21 and 23.

(vii) Norway
14.66 Norway considers that the choice of the methodology and the costs elements that go into the
calculation of the normal value can have an important bearing on the issue of subsidization. Where
the normal value is constructed on the basis of th e producer's actual data for the inputs (i.e.,
subsidized input prices), the constructed normal value will be lower than for non-subsidized
production. In such cases, simultaneous anti-dumpi ng and countervailing duties may be applied. If,
on the other hand, the constructed normal value is calculated not with subsidized prices, but with
"non-distorted" or "benchmark" prices (including prices from a surrogate county) for the (otherwise
subsidized) inputs, then the effect of any subsidy is "extinguished" in the constructed normal value
calculation and applying an anti-dumping duty up to the maximum permitted by the AD Agreement
will provide a remedy for the subsidization at the same time. Norway notes that China argues, and the
United States does not appear to dispute, that in calculating the constructed normal value based on a
third country market benchmark, the USDOC avoids the use of any surrogate value that may itself be
subsidized. Thus, Norway submits, it appears th at the USDOC used a market-economy cost of
production free from any dumping or subsidy distortion in the dumping margin calculation. Norway
submits that by applying the full anti-dumping duty up to this third-country market benchmark, all
effects of the subsidization were extinguished.
961
(c) Assessment by the Panel
14.67 As we explain in more detail in the followi ng paragraphs, we have no difficulty accepting the
general proposition that the use of an NME methodology likely provides some form of remedy against
subsidisation, and therefore, that the simulta neous imposition of anti-dumping duties calculated under
an NME methodology and of countervailing duties likely results in any subsidy granted in respect of
the good at issue being offset more than once.
14.68 An "NME methodology" is a methodology for the calculation of dumping margins under
which the export price is compared to a normal valu e that is based on "surrogate" costs or prices from
a third country. The rationale behind the use of such an NME methodology is that prices and costs of
production in the exporting country are distorted as a result of government intervention in the
economy and therefore do not reflect market economy conditions. 962 In such a situation, it is
considered that neither the sales prices of the NME producer on its domestic market nor a normal
value constructed on the basis of that producer's actual costs of production would offer a reliable
source of comparison to calculate a margin of dumping. This is why the normal value is determined
on the basis of costs or prices prevailing in a thir d country where market economy conditions prevail,
and hence where prices and costs are regarded as "undistorted". In practice, the investigating
authority typically "constructs" the normal value on the basis of costs of production in the third
country market economy, an approach which the U.S. NME methodology generally follows.
963
14.69 It follows from this description of NM E methodologies that, conceptually, the dumping
margin calculated under an NME methodology – i.e. , the difference between the constructed normal
value and the export price – reflects not only price discrimination by the investigated producer
between the domestic and export markets ("dumping"), but also, in addition, the economic distortions
that affect the producer's costs of production. Sp ecific domestic subsidies granted to the producer of
the good in question, in respect of that good – i.e., the same subsidies which are countervailed in the
context of a countervailing duty investigation – are one of these economic distortions that are

961 Norway third-party submission, paras. 43-47.
962 See second Ad Note to Article VI:1; Section 15(a) of China's Protocol of Accession.
963 See our description of the U.S. NME methodology, para. 14.2, supra.

"captured" in the NME dumping margin calculation. 964 Expressed differently, the dumping margin
calculated under an NME methodology generally is higher than would be the case otherwise because
it results from a comparison of the export price to market-determined, and hence unsubsidized, costs
of production, rather than to the producer's actual, subsidized (or distorted) costs of production.965
14.70 To the extent that part of the dumping margin found to exist resulted from subsidies provided
in respect of the exported good, the anti-dumping duties calculated under an NME methodology will
remedy both dumping and subsidization. In this sen se, it can be said that if countervailing duties are
simultaneously applied to imports of the same good, the subsidy is likely to be "offset" more than
once, i.e., once through the anti-dumping duty, and again at least partially through the countervailing
duty. For this reason, we consider that the concurrent imposition of anti-dumping duties calculated
under an NME methodology and of countervailing duties creates the potential for imposition of a
"double remedy", as China defines this term.
14.71 We do not understand the United States to di spute the basic notion that double remedies may
result from the concurrent use of its anti-dum ping and countervailing duty laws on imports from
China. In fact, as China points out, the US DOC itself has recognized the potential for double
remedies to arise in such circumstances. 966 Rather, the United States in its arguments before us
focuses on whether a double remedy can be demonstrated on the facts of each specific instance of
concurrent imposition.
967 One of the United States' arguments in this respect is that the existence of a
"double remedy" depends on export prices (because , the United States argues, the normal value is
only one half of the dumping margin equation) and in particular, on whether the subsidy leads to a
reduction in the export price.968

964 That other distortions are also captured – for instance non-specific subsidies – is irrelevant; what
matters is that those same distortions which are count ervailed under Part V of the SCM Agreement are also
captured by the NME dumping margin calculation.
965 It is noteworthy that the U.S. NME methodology takes into account the quantities of factors of
production actually used by the investigated producer in the production of the investigated good (e.g. x tonne of
input). The USDOC then us es surrogate values (e.g. y dollar or renminbi/tonne of input) to calculate the costs
for each of the various factors used in the production of the investigated good by that investigated producer.
That the U.S. NME methodology factors in the investigated producer's actual use of factors of production does
not, in our view, fundamentally alter the conclusion that using surrogate, market economy values presumptively
puts the producer in the position of having unsubsidized costs of production.
966 See, e.g., the USDOC statement that:

"Since the possibility of double counting resulting from simultaneous anti-dumping and
countervailing duty investigations is dependent on the specific facts arising in such
investigations, to the extent that the parties to these pro ceedings provide evidence on the
record of these investigations, Commerce will have to respond to these concerns in the course
of our investigations". (USDOC – Office of Public Affairs, "Commerce Applies Anti-Subsidy
Law to China", (30 March 2007), Exhibit CHI-135).

 We also note that in response to a ques tion from the Panel, the United States states
that the GAO Report "agrees with Commerce's stated position [that] the concurrent
imposition of AD and CV duties could create some potential for overlapping remedies ."
(United States response to Panel question 80 (a) (first meeting)). (emphasis added).

967 The USDOC seems to have taken a similar approach in the CFS Paper case. ( Coated Free Sheet
Paper from the People's Republic of China: Prelimin ary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination, CHI-137, p. 30760).
968 We note the United States' insist ence that China must demonstrate that each countervailed subsidy
"passes through", in full ( pro rata ) to the export price, and that a double remedy for the full amount of the
subsidy results from every instance of double imposition. The parties' arguments concerning whether a subsidy

14.72 Taking both sides of the dumping margin equati on into consideration does not alter the
conclusion that double remedies are likely to r esult from the concurrent imposition of anti-dumping
duties calculated under an NME methodology and of countervailing duties. Viewed from this
perspective, the use of an NME methodology l eads to an asymmetric dumping margin comparison
between an unsubsidized normal value and a subsidized export price.
969 Thus, once again, the
difference between the two finds its source not only in price discrimination (dumping), but also in the
subsidies that were granted to the investigated producer. This was, in essence, the reasoning
underlying the conclusions of the U.S. Govern ment Accountability Office (GAO) in its 2005 report
on the implications for the United States of appl ying countervailing duty laws to China. The GAO
explained that when an anti-dumping duty is calculated under the U.S. NME methodology,
"the normal value of the product [...] is based not on Chinese prices (which might be
artificially low as a result of domestic subsidies) but on information from a country
where prices are determined by free markets. Thus, when the normal value is
compared with the export price, the difference will, at least in theory, reflect the price
advantages that the exporting company h as obtained from both export and domestic
subsidies".
970
The GAO Report concludes, on this basis, that econom ic theory suggests that there is a substantial
potential for domestic subsidies to be "double c ounted" in the event th at the USDOC applied
countervailing duties to NME country products while continuing to use surrogate country values to
calculate anti-dumping duties on those same products. 971 The decision of the U.S. Court of
International Trade in GPX is based on a similar theoretical foundation – in fact, the Court cites to the
GAO Report in support of its finding that withou t some type of adjustment being made, the
concurrent imposition of anti-dumpi ng duties and of countervailing duties with respect to Chinese
products could very well result in a double remedy.972

"passes through" to the export price concerns the question whether the subsidy leads to a reduction of the export
price, in totality ( pro rata) or in part. The United States explains that a pro rata "pass through" of the subsidy
would be where one dollar or renminbi of subsidy reduces the export price by one dollar/renminbi, or where a
ten dollar/renminbi subsidy bestowed upon a producer of ten widgets and expensed in one year would lower the
price of each widget by one dollar/re nminbi. (United States response to Panel question 73 (first meeting),
footnote 173). Because the term "pass through" of subsidies is generally u nderstood to refer to another concept
(see, for instance, Section XII.D.2, supra) and to better reflect the meaning of the parties' arguments, in
discussing this argument, we use the concept of the reduc tion in the export price that results from the subsidy,
rather than the terms "pass through" used by the parties. Also, we note that the United States argues that the
USDOC only discussed the issue of "pass through" in its determinations in the investigations at issue because of
China's arguments before the USDOC. (United States fi rst written submission, footnote 607; response to Panel
question 73 (first meeting)). Whether or not the question of the "pass through" of subsidies was first raised by
China or by the USDOC, it is clear to us that the United States views this question as relevant to the existence of
a double remedy.
969 See Brian D. Kelly, "The Law and Economics of Simultaneous Countervailing Duty and Anti-
Dumping Proceedings", 3 Global Trade and Customs Journal , (2008), p. 41, Exhibit CHI-138, p. 48. We note
that this "theory" assumes that domestic subsidies lower both domestic prices and export prices.
970 Exhibit CHI-121, p. 28. (footnotes omitted).
971 Id., pp. 27-28.
972 Exhibit CHI-169, p. 17, citing to the excerpt of the GAO Report cited above. Certain statements of
the USDOC in market economy anti-dumping investigations illustrate why a similar "double remedy" arises in
the context of export subsidies, and why it generally does not in the context of domestic subsidies granted by
market economies: in Cold-Rolled Corrosion-Resistant Carbon Steel Flat Products from Korea (quoted in LEU
from France ), the USDOC wrote that "domestic subsidies presumably lower the price of the subject
merchandise both in the home and th e U.S. markets, and therefore have no effect on the measurement of any
dumping that might also occur". The USDOC contrasted this situation with that of export subsidies, which,
"benefit only exported merchandise" and therefore brings about "the potential for double remedies". ( Notice of

14.73 The United States puts forward a number of scenarios under which it is plausible that the
subsidy would not have a one-for-one impact on th e producer's costs of production or on export
prices. The United States also points out that the imposition of countervailing duties is not
conditioned upon a demonstration of the price effects of the subsidy
973; in other words, that a Member
is allowed to countervail subsidies that have no effects on the price of subsidized imports. 974
14.74 All else being equal, one would expect a domest ic subsidy to lower the recipient's production
costs, allowing that producer to lower its prices in both the domestic and export markets. 975 It would,
in our view, be a rare case in which a subsidy bestowed upon the producer of an exported good has no
effect at all on either the producer's costs of production or – assuming they are relevant – export
prices, such that no portion of that subsidy wo uld be subject to a double remedy where both anti-
dumping duties based on an NME methodology, and countervailing duties, were imposed on imports
of a given product.
14.75 In sum, the United States' arguments raise the qu estion of the extent of a double remedy in
specific factual circumstances – whether a complete double remedy necessarily results from all
instances of concurrent imposition of anti-dumping duties calculated under an NME methodology and
of countervailing duties. They do not, however, invalidate the general proposition that at least some
double remedy will likely arise from the concurrent impositi on of countervailing duties and anti-
dumping duties calculated under an NME methodology. If anything, the arguments put forward by
the United States reinforce the idea that ascertaining the precise extent of double remedy in specific
investigations would be a complex task, a fact which is highlighted by both the GAO, in its 2005
Report, and by the CIT in GPX.
976
14.76 Because in the next section of our findings, we concl ude that China has not established that
the imposition of "double remedies" is inconsistent with the provisions it cites, i.e., Articles 10, 19.3,
19.4 and 32.1 of the SCM Agreement and Article VI:3 of the GATT, or with Article I:1 of the same
Agreement, we do not need to examine further the extent to which the concurrent imposition of anti-
dumping duties determined under the USDOC's NME methodology and of countervailing duties
resulted in the imposition of "double remedies" in the f our investigations at issue. For this reason, we
do not decide whether China has conc lusively established that, in the investigations at issue, double
remedies resulted from the concurrent imposition of anti-dumping duties calculated under the U.S.
NME methodology and of countervailing duties. We therefore also do not consider the specific

Final Results of Antidumping Duty Administrative Review: Low Enriched Uranium From France ("LEU from
France"), Exhibit CHI-124, p. 46506). In LEU from France , the USDOC reached a similar conclusion, and
stated in passing that "domestic subsidies are assumed not to affect dumping margins, because they lower prices
in both the U.S. market and the domestic market of the exporting country equally". While the question is not
before us, it would seem that a double remedy could aris e in investigations involving market economy imports,
depending on the costs that are used to calculate the normal value: A double remedy may arise when the normal
value of a market economy producer is constructed using costs that do not reflect the subsidies that this producer
received.
973 United States second written submission, para. 192.
974 The United States also contests the notion that surrogate values ar e necessarily "unsubsidized". It
notes in this respect that in some instances in the inves tigations at issue, the surrogate value was inferior to the
producers' actual costs. (United States response to Panel question 27 (second meeting); comments on China's
response to Panel question 26 (second meeting). That this would be the case does not, in our view, undermine
the conclusions we reach above: what we conclude is not that the totality of every dumping margin calculated
under an NME methodology results from subsidization but, rather that where a margin of dumping is found to
exist under such a methodology, it likely reflects not only dumping, but also subsidization.
975 The USDOC itself seems to have made this assumption in the past. See footnote 972, supra.
976 Exhibits CHI-121, p. 48; CHI-169, pp. 17-19. We note that the GAO indicated that the experts it
consulted agreed that in theory, the double remedy would be significant. (Exhibit CHI-169, p. 28).

examples submitted by China from these investigations in order to determine whether they support its
arguments.
3. Claims under Article VI of the GATT 1994 an d Articles 10, 19.3, 19.4 and 32.1 of the
SCM Agreement
(a) Main arguments of the Parties
(i) China
14.77 China argues that by virtue of the collective operation of Article VI:3 of the GATT and
Articles 10 of the SCM Agreement, read in light of Articles 19.1, 19.3, and 19.4 of the SCM
Agreement, the United States has an affirmative legal ob ligation to (i) ensure that it does not impose
countervailing duties to offset subsidies that it simultaneously offsets through the methods by which it
calculates anti-dumping duties; (ii) take "all necessary steps" to ensure that this does not occur; and
(iii) ensure that investigating authorities investig ate and make a determination as to the "precise
amount of a subsidy attributed to the imported prod ucts under investigation", taking into account that
using simultaneously an NME anti-dumping methodol ogy has the effect of offsetting the same
subsidies.
977 China submits that in the investigations at issue, the USDOC failed to investigate and
avoid the imposition of double remedies, did not take any steps to determine "whether, and in what
amount" the use of market-determined costs of pro duction in the parallel anti-dumping investigations
had the effect of offsetting the same subsid ies that it identified in the countervailing duty
investigations978, and therefore, did not "ascertain the precise amount of a subsidy attributed to the
imported products under investigation".979
14.78 China makes an analogy with panel and Appe llate Body jurisprudence on extinction of
subsidies in the context of privatization (US – Countervailing Measures on Certain EC Products), and
on pass-through of subsidies to downstream producers (US − Softwood Lumber IV) and argues that, as
in these cases, the calculation of a dumping marg in pursuant to the U.S. NME methodology is an
event that calls into question whether any subsidy re mains to offset. China further considers that, like
a situation of "privatization" at arm's length for fair market value, using an NME methodology to
calculate anti-dumping duties places the investigat ed producer in a position of having market-
determined costs of production, such that there remains no benefit to be countervailed.980

977 China second written submission, paras. 243-247; response to Panel question 76 (first meeting).
China notes that in US – Countervailing Measures on Certain EC Products , the Appellate Body held that these
provisions define "the obligation of Members to limit countervailing duties to the amount and duration of the
subsidy found to exist by the investigating authority". China further argues that as with arm's-length sales of
subsidized input products, the use of an anti-dumping methodology, which has the effect of offsetting subsidies,
calls into question whether there remains a "subsidy" to "offset" through the imposition of countervailing duties
and that in such circumstance it is the obligation of the investigating authority to "establish[] whether, and in
what amount" there is still a su bsidy to offset in respect of the importe d product. On this, China cites to the
Appellate Body Report in US – Softwood Lumber IV . (China response to Panel question 76 (first meeting),
citing to Appellate Body Reports on US – Countervailing Measures on Certain EC Products , para. 139 and US
– Softwood Lumber IV, para. 141).
978 China second written submission, paras. 248-250.
979 China response to Panel question 76 (first meeti ng); second written submission, paras. 245 and 249.
China argues that given that the United States will already have offset the entire amount of the subsidy found to
exist through the application of countervailing duties, the United States acts inconsistently with its obligations
under the covered agreements to the extent that the simultaneous imposition of anti-dumping duties determined
in accordance with its NME me thodology offsets any portion
 of these subsidies. (China response to Panel
question 92 (first meeting)).
980 China second written submission, paras. 233-238.

14.79 China considers that the imposition of double remedies is inconsistent with Article 19.4 of the
SCM Agreement because any countervailing duty im posed in addition to the anti-dumping duty is in
"excess of the subsidy found to exist" given that the United States has already offset the subsidy
through the NME anti-dumping methodology. 981 Further, China rejects th e United States' argument
that the "amount of the subsidy" in Article 19.4 is not the amount that should have been properly
determined under WTO rules.982
14.80 China also claims that the imposition of double remedies in the investigations at issue was
inconsistent with the obligation, under Article 19.3 of the SCM Ag reement, to impose countervailing
duties "in the appropriate amounts". 983 Citing the panel report in EC – Salmon (Norway) , China
argues that the "appropriateness" of the amount in Ar ticle 19.3 must be determined in light of the
purpose of the duty. Given that the purpose of countervailing duties is to "offset" subsidies, China
argues that it is not "appropriate" to impose c ountervailing duties to offset subsidies that the
investigating authority offsets through the method by which it calculates anti-dumping duties in
respect of the same products.
984
14.81 China also rejects the United States' suggestion that its claims under Articles 19.3 and 19.4
are about whether "the sum" of the anti-dumping and countervailing duties is in excess of the
"appropriate amounts" or that anti-dumping duties are "actually CVDs in disguise" as the
United States asserts. Rather, China submits, its cl aims are that the countervailing duties imposed by
the USDOC are not "in the appropriate amounts" si nce they are in excess of the subsidy found to
exist.
985 In addition, referring the Panel to prior decisions on the WTO-consistency of U.S. original
investigations in which the panel and/or the Appella te Body made findings under Articles VI:3 of the
GATT and 19.3 and 19.4 of the SCM Agreement or referred to these provisions, China rejects the
United States' argument that the use of the term "levy" indicates that these provisions do not apply to
U.S. original investigations determinations.
986
14.82 China also rejects the United States' characterization of its position as being that the importing
Member must choose between the use of countervailing duties and the use of an NME methodology.
China considers that the United States is free to engage in the concurrent application of countervailing
and anti-dumping duties determined in accordance w ith an NME methodology, and that the question
before the Panel is not a questi on of "concurrent application" per se, but rather a question of whether
the United States may impose countervailing duties without accounting for the fact that it offsets the
same subsidies through the manner in which it calculates anti-dumping duties.
987 In other words, the
USDOC is free to impose both remedies simultaneously, as long as it takes steps to ensure that no
double remedy ensues. China adds that in GPX, the U.S. Court of International Trade held that the
USDOC may choose either to forego the imposition of countervailing duties on products to which it
applies the NME methodology, or "adopt additional policies and procedures to adapt its NME AD and

981 China's first written submission, paras. 375-379; second written submission, paras. 255-257, citing
to the Panel Report on US – Countervailing Measures on Certain EC Products , para. 8.1(a), and Appellate
Body Report on US – Countervailing Measures on Certain EC Products, para. 161(a).
982 China second written submission, footnote 218; response to Panel question 86 (first meeting).
983 China first written submission, paras. 380-384.
984 China second written submission, paras. 251-254; response to Panel question 89 (first meeting),
citing to Panel Report on EC – Salmon (Norway), paras. 7.704-7.705.
985 China second written submission, paras. 253-254 and 258.
986 China response to Panel question 52 (first meeting).
987 China oral statement at the first meeting of the Panel, paras. 75-76; second written submission,
paras. 208-209 and 212; response to Panel question 69; oral statement at the second meeting of the Panel,
paras. 68-69.

CVD methodologies to account for the imposition of countervailing duty remedies on merchandise
from the PRC".
988
14.83 China also considers that the United Stat es' position on the WTO-consistency of double
remedies is based on a complete disregard for the object and purpose of the SCM Agreement. China
notes that the Appellate Body has observed that the object and pur pose of the SCM Agreement is "to
strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing
measures" and that Part V of the SCM Agreement, in particular, is meant to impose disciplines on the
use of countervailing duties. China considers that for a Member to obtain twice the remedy to which
it is entitled is no discipline at all.
989
14.84 China rejects the United States' suggestion th at the drafters of the GATT, of the SCM
Agreement and of China's Protocol of Accession in tended to allow the imposition of double remedies
resulting from the concurrent use of NME methodologies and of countervailing duties. In this respect,
China argues that the fact that Article VI:5 of the GATT 1994 addresses one particular circumstance
in which a double remedy could arise does not mean that (i) there are no other circumstances in which
a double remedy could arise (as the USDOC has in fact recognized), or (ii) all these other forms of
double remedies are therefore permissi ble. Nor does China believe that the absence of an express
provision in the SCM Agreement and/or the GATT relating to the imposition of double remedies in
the case of domestic subsidies means that double reme dies are permissible. China notes that there are
many issues – e.g. the WTO jurisprudence on "privati zation" (effect of a privatization of state-owned
assets on previously-conferred subsidies) and "pass-th rough" (treatment of subsidies conferred upon
upstream inputs) – relating to subsidies and counter vailing duties that the covered agreements do not
expressly address. This has not prevented panels and the Appellate Body from finding that the
covered agreements nonetheless impose disciplines on a Member's actions in respect of those issues.
14.85 Further, China considers that the fact that Article 15 of the Tokyo Round Subsidies Code was
not replicated in the SCM Agreement cannot be interpreted to mean that double remedies arising from
the use of an NME methodology in conjunction with countervailing duties are permissible. China
argues in this regard that the circumstances surrounding the Uruguay Round negotiations strongly
suggest that issues relating to these double remedies we re no longer considered relevant at the time:
during the Uruguay Round, (i) no Contracting Party had a practice of applying an NME methodology
concurrently with the application of countervaili ng duties to the same product; (ii) the United States –
by far the largest user of countervailing duties – had taken a clear position at the beginning of the
Uruguay Round that it would not apply countervailing duties to imports of NMEs; (iii) towards the
end of the Uruguay Round, the USDOC's position was that it could apply countervailing duties to
imports from NME countries, but only if it were to find that the industry in question was a "market-
oriented industry"; (iv) under U.S. practice, the fo rmer Soviet bloc countries (which were in a process
of transition to market economies) were subject to the NME methodology, but not countervailing
duties, until the United States classified them as market economies. Against this backdrop, China
considers that it is likely that the drafters of the SCM Agreement no longer considered the subject-
matter of Article 15 of the Tokyo Round Subsidies Code to be relevant. 990
(ii) United States
14.86 The United States takes the position that th e covered agreements do not prohibit the
imposition of double remedies in respect of domestic subsidies.

988 China oral statement at the second meeting of the Panel, para. 68.
989 Id., paras. 64-65.
990 China second written submission, para. 211; response to Panel questions 69 and 70 (first meeting).

14.87 The United States argues that anti-dumping a nd countervailing duties are two distinct
instruments, meant to address different kinds of harm , and that where the criteria for the imposition of
each remedy are satisfied, duties may be imposed up to a level prescribed by the respective
agreement.
991 The sole limitation in this respect is , the United States submits, the one found in
Article VI:5 of the GATT 1994, which appli es only in the case of export subsidization. 992 T h e
United States infers from the absence of any similar provision with respect to domestic subsidies that
Members did not agree that any other circumstances warranted a restriction on the concurrent
application of the AD and CVD instruments. The United States also attaches significance to the fact
that Article 15 of the Tokyo Round Subsidies C ode (which provided that, for imports from NMEs,
Members could resort to either anti-dumping or to countervailing duties) was not carried forward in
the SCM Agreement.
 The United States further reads Article 15 as an indication that the parties to
the Code considered that no other provision in the GATT 1947 contained a similar requirement
prohibiting the concurrent application of anti-dumpi ng and countervailing duties to NMEs, and infers
from the non-inclusion of a similar provision in the SCM Agreement that a prohibition on the
concurrent use of anti-dumping and count ervailing duties to NMEs no longer exists. 993 T h e
United States, repeating an argument made by Argentina, also notes that the Tokyo Round Code
contained provisions that were virtually identi cal to Articles 19.3 and 19.4 of the SCM Agreement;
had these provisions prohibited the imposition of double remedies, as China contends, there would
have been no need to include in the same Code an express prohibition on concurrent anti-dumping
and countervailing duty investigations. 994 Finally, the United States submits that China's Protocol of
Accession makes clear, at Section 15, that Member s contemplated the concurrent application of
countervailing duties and of anti-dumping measures ca lculated on the basis of surrogate values,
without any limitation on the use of countervailin g duties in such circumstances, and without any
limitation on the concurrent application of both remedies.
14.88 Related to this, the United States argues th at the logic of China's argument necessarily
imposes upon Members a choice between imposing anti-dumping duties on the basis of an NME
methodology and imposing countervailing duties; in other words, that China is in fact challenging the
concurrent application of countervailing duties a nd of anti-dumping duties calculated using the NME
methodology. The United States submits in this resp ect that while China suggests that the concurrent
application of anti-dumping and countervailing duties would still be permissible where the
investigating authority takes "steps" to ensure th at the NME normal value does not offset the same
subsidies twice, China also considers that the NME normal value "necessarily" fully offsets the same
subsidies "in all cases".995

991 United States first written submission, paras. 389-394.
992 United States first written submission, paras. 388 and 395-409; opening statement at the first
meeting of the Panel, para. 50 and 55; second written s ubmission, para. 208; response to Panel questions 75, 84
and 85 (first meeting). The United States also finds it not able that the inclusion in the GATT, in 1955, of the
second Ad Note to Article VI:1 (which recognizes that, in certain cases, surrogate pr ices would be used to
construct the normal value) was not accompanied by a broadening of Article VI:5. The United States indicates
that it was an NME Contracting Part y, Czechoslovakia, that proposed an amendment to the GATT 1947 which
resulted in the second Ad Note to Article VI. The United States notes that subsidies were not mentioned as one
of the reasons for the amendment; rather, the focus wa s on finding appropriate pr ice comparisons where the
internal prices and costs of an NME were unreliable due to the State fixing prices or to State monopolization.
(United States comments on China's response to Panel question 26(b)).
993 United States first written submission, paras. 403-409, citing to Appellate Body Report on US –
Underwear, pp. 14-15, DSR 1997:I, at 11.
994 United States second written submission, para. 218; response to Panel question 28 (second meeting),
referring to Articles 4.2 and 4.3 of the Tokyo Round Subsidies Code.
995 United States second written submission, paras. 177-179; opening statement at the second meeting
of the Panel, paras. 51-55.

14.89 Responding to China's argument that at the time of the Uruguay Round, the concurrent
application of anti-dumping and countervailing measures in respect of NMEs was no longer
"relevant", the United States argues that regardless of their specific reason for doing so, the fact
remains that Members did not include Article 15 of the Tokyo Round Subsidies Code in the SCM
Agreement.
996 The United States further indicates that Ch ina's accession was negotiated against the
backdrop of this provision, and that China's Prot ocol of Accession affirms Members' unqualified right
to apply anti-dumping and countervailing duties in th e context of domestic subsidies while treating
China as an NME.997
14.90 Turning to China's arguments in support of its claims of violation, the United States submits
that China's reliance on the privatization and pass-through jurisprudence is misplaced. The
United States notes China's argument that this ju risprudence concerned situations that the SCM
Agreement did not explicitly address, and that pa nels and the Appellate Body nevertheless recognized
the applicability of GATT and SCM provisions to those situations. By contrast, the United States
submits, the covered agreements are anything but silent on the issue before this Panel, that of the
concurrent application of countervailing duties a nd of anti-dumping duties determined under an NME
methodology.
998
14.91 The United States also notes that the provisions cited by China (primarily Articles 19.3 and
19.4 of the SCM Agreement) only impose disciplines with respect to countervailing duties and that
China does not claim that the c ountervailing duties imposed by the USDOC in the investigations at
issue exceeded the amounts of the subsidies found to exist or that the USDOC did not properly
calculate the subsidies amount. Rather, in the view of the United States, China's claim under
Article 19.4 is that the amount of the subsidy is exceeded by the sum of the anti-dumping duty in each
anti-dumping investigation and of the countervailin g duty in each corresponding countervailing duty
investigation, and as a result, China erroneously implies that an anti-dumping duty calculated under
the NME methodology must be understood to constitut e a countervailing duty within the meaning of
the SCM Agreement, whereas those anti-dumping duti es are not "levied for the purpose of offsetting
any subsidy".
999 According to the United States, the fact that part of the methodology used to
calculate the normal value rejects home market pr ices and costs due to broad distortions in a non-
market economy does not somehow transform the anti-dumping duty itself into a countervailing
duty.1000

996 United States opening statement at the first meeting of the Panel, para. 53; second written
submission, paras. 210-211; response to Panel questions 70 and 75 (first meeting).
997 United States opening statement at the first meeting of the Panel, para. 54; second written
submission, para. 212. The United St ates also notes that during the pe riod of China's accession negotiations,
imports from China were the subject of 30 anti-dumping investigations conducted under the NME methodology,
yet China's Protocol of Accession and Working Party Report do not reflect any concerns China may have had in
respect of that methodology, and in particular, any concerns China may have had that the methodology
addressed not only price discrimination, but also subsidization. The United States also infers from
paragraph 151(a) of the Working Party Report that China sought to ensure that Members that had not yet
developed NME methodologies would do so along the lines of the U.S. NME methodology. (United States
opening statement at the second meeting of the Panel, para. 58).
998 United States opening statement at the second meeting of the Panel, paras. 60-61.
999 United States opening statement at the first meet ing of the Panel, paras. 58 and 60-61; second
written submission, paras. 216-217.
1000 The United States also argues that if China's view that the NME methodology is designed to offset
subsidization is accepted, th en any anti-dumping duty calculated pursuant to the NME methodology would fall
squarely within the definition of "countervailing duty" contained in footnote 36 to the SCM Agreement. Thus,
the United States adds, as required by Article 10 of the SCM Agreement, such an anti-dumping duty could "only
be imposed pursuant to [an] investigation[] initiated a nd conducted in accordance with [the SCM Agreement]",
and that this would be the case whether or not a concurrent countervailing duty case were ongoing.
(United States opening statement at the second meeting of the Panel, para. 77).

14.92 The United States further argues that Article 19.4 is limited to the question of whether the
countervailing duties levied correspond to the am ount of the subsidy found to exist by the
investigating authority and does not govern whet her that amount was properly determined in
accordance with WTO rules (i.e., the amount that should have been found had the investigating
authority complied with other WTO rules). 1001 For similar reasons – because China does not contest
the fact that the duties imposed pursuant to the four countervailing duty investigations at issue in this
dispute do not exceed the amount of the subsidy bestowed upon each exporter – the United States
submits that China's claim under Article 19.3 ha s no merit. The United States argues that the
"appropriateness" of the amounts of counterva iling duties under Article 19.3 relates to the
subsidization rate calculated for each "source[] found to be subsidized and causing injury" and that
China does not allege that the countervailing dut y amounts are not those that the USDOC found for
"each source".1002
14.93 In addition to these arguments, the United States takes the view that the reference to "levy" in
Article VI:3 of the GATT and in Articles 19.3 and 19.4 of the SCM Agreement, in conjunction with
footnote 51 of the SCM Agreement, means that th ese provisions impose no disciplines with respect to
original investigations. This is because, in the view of the United States, under the U.S. retrospective
duty assessment system, duties are not actually collect ed until an administrative review is conducted
or the deadline for such review lapses.1003
14.94 Finally, the United States submits that the Opini on of the U.S. Court of International Trade in
GPX should have no bearing on the Panel's considerati on of this dispute because it is an opinion of a
U.S. court interpreting U.S. law, whereas this dispute concerns the interpretation of the WTO
agreements, including provisions from China's Protocol of Accession, that do not appear in U.S. law.
In addition, the United States notes that the Court's decision in GPX is still subject to appeal.1004
(b) Main arguments of the Third Parties
(i) Argentina
14.95 Argentina considers that Article VI:5 of th e GATT 1994, the sole WTO provision expressly
limiting the simultaneous imposition of both anti-dum ping and countervailing duties, is limited to
situations of "export subsidization", and that the concurrent application of both remedies in the case of
actionable subsidies is therefore WTO-consistent. In Argentina's view, had the drafters intended to
prohibit the simultaneous imposition of anti-dumping and countervailing duties for situations other
than export subsidization, they would have done so explicitly, as they did in Article VI:5. Argentina
also notes that China's Protocol of Accession r ecognizes not only the use of an NME methodology in
anti-dumping investigations involving imports of Chin ese origin but also that Chinese imports can be
subject to countervailing duty investigations, and submits that to exempt China from the simultaneous
imposition of anti-dumping and countervailing duties would give it preferential treatment compared to
other Members. Argentina considers that neither of the provisions on which China bases it claims,
Articles 19.3 and 19.4, address, directly or indir ectly, the issue of simultaneous imposition of anti-
dumping and countervailing duties or of double remedies. Argentina also notes that the wording of
Articles 19.4 is identical to the wording of Article 4.2 of the Tokyo Round Subsidies Code, and that
Article 19.3 is almost identical to Article 4.3 of the Tokyo Round Subsidies Code. Thus, Argentina

1001 See, e.g., United States response to Panel questions 86 and 87 (first meeting).
1002 United States first written submission, paras. 424-427; opening statement at the second meeting of
the Panel, paras. 64-65.
1003 See, e.g., United States second written submission, para. 215; response to Panel question 87 (first
meeting).
1004 See above, para.14.59, for the United States' argument to the effect that the GPX decision is in error
and that, even on its own terms, it does not support the position taken by China in the present dispute.

argues, had the Tokyo Round Subsidies Code prohib ited the concurrent imposition of anti-dumping
duties calculated under an NME methodology and of countervailing duties, Article 15.1 of the Tokyo
Round Code would have been devoid of meaning.
1005
(ii) Australia
14.96 Australia considers that anti-dumping and countervailing duties are two distinct trade
remedies and that nothing in Article VI of the GATT or elsewhere in the WTO Agreements prevents
concurrent anti-dumping and countervailing duty investigations of the same product; in fact, Australia
submits, the text of Article VI:5 reinforces the right of Members to do both. In Australia's view, the
calculation of the normal value in an anti-dumping inv estigation is an inquiry that is separate from
that the determination of the existence and amount of a subsidy in a countervailing duty investigation.
Australia also invites the Panel to clarify the mean ing of the terms "situation of export subsidization"
in Article VI:5, which it considers to be unclear. Australia argues that it cannot be assumed that these
terms agreed to in 1947 can be equated with any me aning attributed to the categories of subsidies as
agreed to in the SCM Agreement in 1994 and that it is therefore conceivable that the expression
"situation of export subsidisation" also cover cer tain situations in whic h a domestic subsidy is
provided to a good which is exported. Likewise, Au stralia submits that it is not clear whether the
terms "same situation" of dumping or export subsidi zation in Article VI:5 refer to the existence of
subsidization or dumping or to the injurious effects.1006
(iii) Brazil
14.97 Brazil argues that nothing in the AD and SC M Agreements suggests that parallel anti-
dumping and countervailing measures cannot be imposed , and notes that neither agreement contains
any cross-reference conditioning the imposition of one remedy on the satisfaction of requirements
established in relation to the other. Brazil consid ers that Article VI:5 of the GATT 1994 contains the
sole limitation on the concurrent application of an ti-dumping and countervailing measures. Further,
Brazil submits, this provision shows that Members were well aware that if they intended to impose
any restrictions or conditions on the parallel application of anti-dumping and countervailing measures,
they had to do so explicitly. Brazil considers that the existence of an explicit ban with respect to
export subsidies can be read contrario sensu to allow for the concomitant application of both duties in
all other situations. Brazil also considers that th e fact that Article 15 of the Tokyo Round Subsides
Code was not replicated in the SCM Agreement unde rscores the intention of its drafters not to
prohibit the combined imposition of anti-dumping and countervailing duties on imports from
Members, irrespective of their status as market or non-market economies. Brazil is of the view that
the legal permissibility for the parallel applica tion of anti-dumping and countervailing measures, and
its underlying logic, apply indistinctly to inves tigations conducted in relation to market economy
Members and non-market economy Members. Accepting the argument that methodological
challenges arising from price comparability diffi culties in non-market economy Members somehow
constrain the parallel application of anti-dumping and countervailing measures in relation to them
would result in discrimination against "market economy" Members.
1007
(iv) Canada
14.98 Canada agrees with the United States that th e concurrent use of the NME methodology and
countervailing duties is permissible under the SCM Ag reement. Canada's view is that when an
imported product is both dumpe d and subsidized, the importing Member may impose both anti-
dumping duties equal to the margin of dumping a nd countervailing duties equal to the amount of the

1005 Argentina third-party submission, paras. 8-29; third-party oral statement, paras. 3-5.
1006 Australia third-party submission, paras. 41-51; third-party response to Panel questions 19 and 23.
1007 Brazil third-party submission, paras. 14-18; third-party oral statement, paras. 8-9.

subsidy. Canada submits that th is right is confirmed – and circum scribed – by Article VI:5 of the
GATT 1994, such that (read a contrario ), this provision confirms the ability of WTO Members to
impose concurrent anti-dumping and countervaili ng duties in circumstances other than export
subsidization. Canada further argues that if WT O Members had intended to prohibit the concurrent
application of anti-dumping duties calculated on th e basis of subparagraph 15(a)(ii) of China's
Protocol of Accession and countervailing duties, they c ould have stated that intention in the Protocol
as they had done earlier in the Tokyo Round Subsidi es Code; instead, Sections 15(a) and 15(b) of
China's Protocol of Accession enable an impor ting WTO Member to impose anti-dumping duties
calculated on the basis of out-of-country prices or costs, and countervailing duties. Finally, Canada
rejects China's theory that the anti-dumping duty, by itself, compensates for both the dumping and the
subsidization. Canada considers that duties in the amount of the subsidy would not violate
Article 19.3 and 19.4 and that the amount of a concurrent anti-dumping duty has no bearing on the
amount of a countervailing duty, except as provided for in Article VI:5 , which is not the case here.1008
(v) European Communities
14.99 The European Communities considers that an ti-dumping and countervailing duties are two
separate remedies to counter two different types of unfair trade practices under two distinct WTO
agreements and that the only WTO provision expr essly limiting the right of Members to impose both
types of duty is Article VI:5 of GATT 1994. The European Commun ities agrees with the
United States that by choosing not to include a provision similar to Article 15 of the Tokyo Round
Subsidies Code in the SCM Agreement, WTO Memb ers recognised Article VI:5 as the only provision
limiting the simultaneous imposition of both types of remedies. The European Communities also
agrees with the United States that nothing in Chin a's Protocol of Accession expressly limits such a
simultaneous imposition. Further, the European Communities considers that there can be no breach
of Article 19.4 if the duty imposed does not exceed the amount of subsidy properly established under
the rules of the SCM Agreement and that just because a measure taken under another agreement (in
this case, an anti-dumping duty) may be alleged to in some way offset subsidisation does not create a
violation of Article 19.4. The European Communiti es further agrees with the United States that the
limited scope of Article VI:5 is explained by the fact that, where the normal value is based on sales, a
neutral subsidy may reasonably be considered to press down equally on both sides of the dumping
calculation, and therefore the dumping calculation w ould remain unaffected by the subsidy analysis.
Finally, the European Communiti es considers that the SCM Agreement does not require the showing
of any causal link between subsidies and exports a nd/or that subsidies have caused export prices to
decrease; the inquiry is limited to the effects of the subsidised imports on prices in the importing
country.
1009
(vi) India
14.100 India considers anti-dumping and countervailing duties to be two separate remedies to counter
two different types of situations of trade distortion. India considers that the provision which expressly
limits the right of WTO Members to impose both typ es of duty is Article VI:5 of GATT 1994. India
considers that the legal permissibility for the pa rallel application of an ti-dumping and countervailing
measures, and its underlying logic, apply to invest igations conducted both in relation to market
economy Members and non-market economy Members.1010

1008 Canada third-party submission, paras. 42-56; third-party response to Panel questions 12 and 14-16.
1009 European Communities third-party oral statemen t, paras. 2-10; third-party response to Panel
question 15.
1010 India third-party oral statement. (this statement contains no paragraph numbering).

(vii) Japan
14.101 Japan submits that although Article VI:5 of GATT 1994 does not prohibit the simultaneous
imposition of anti-dumping and countervailing duties in situations other than "export subsidization",
this provision is the expression of an underlying principle that an importing Member may not impose
a double remedy against the same subsidy, a princi ple to which Members should give due regard.
Japan submits that Article VI:5 provides no explicit requirement on the prohibition of double
remedies in situations other than export subsidization because a double remedy may or may not occur,
depending on the method used in the calculation of the margin of dumping in a given case. With
respect to the legal bases for China' s claims, Japan considers that Article 19.4 is irrelevant to how an
anti-dumping duty would be determined in the separate anti-dumping investigation in accordance with
the provisions of the AD Agreement. With respect to Article 19.3, Japan notes that this provision
accords the importing Member the discretion to impose a countervailing duty deemed as appropriate
to the extent that the duty does not exceed the am ount of the subsidy found to exist, and that no
further obligations are placed on the authorities' determination of the "appropriate amount".
1011
(viii) Mexico
14.102 Mexico takes the view that when counterva iling duties target domestic subsidies, the
simultaneous application of anti-dumping and counterva iling duties is consistent with the rules of the
WTO.1012 Mexico argues that when the negotiators of the WTO Agreements considered it necessary
to prohibit the simultaneous application of different mechanisms, they did so expressly. In this
respect, Mexico notes in particular that a provi sion similar to Article 15 of the Tokyo Round
Subsidies Code was not included in the SCM Agreement. Mexico also notes that Section 15 of
China's Protocol of Accession recognizes the su rrogate country methodology and acknowledges that
Chinese imports may be subject to countervailing duty i nvestigations. Mexico argues that if China, in
negotiating its accession, had succeeded in negotiati ng a prohibition on the si multaneous application
of anti-dumping and countervailing duties on its produc ts, this would have been specified in the
Protocol. Mexico considers that neither Article 19.3 nor Article 19.4 of the SCM Agreement provides
a basis for China's claim. Finally, Mexico argu es that exempting China from the parallel imposition
of anti-dumping duties and countervailing duties would give China preferential treatment relative to
all other Members.
1013
(ix) Norway
14.103 Norway considers that where the normal value is constructed on the basis of "non-distorted"
or "benchmark" prices (including prices from a su rrogate county) for the (otherwise subsidized)
inputs, then the effect of any subsidy is "exti nguished" in the constructed normal value calculation
and that in such cases, applying an anti-dumping duty up to the maximum permitted under the AD
Agreement will provide a remedy for the subsidization at the same time. Norway argues that applying
a countervailing duty in such cases will be neith er appropriate under Article 19.3 of the SCM
Agreement nor permissible under Article 19.4 of the SCM Agreement.1014

1011 Japan third-party submission, paras. 3-14; third-party oral statement, para. 5.
1012 Mexico considers that it is for interested parties to explain and demonstrate the reasons why a
"double remedy" could arise in contexts other than that of "export subsidies".
1013 Mexico third-party submission, paras. 12-31; third-party oral statement, paras. 2-5; third-party
response to Panel questions 19-21.
1014 Norway third-party submission, paras. 38-47. As noted above, para.14.66, Norway argues that in
the investigations at issue, the USDOC appears to have used a market-economy cost of production free from any
distortion and therefore that by applying the full anti-dump ing duty up to this third-country market benchmark,
all effects of the subsidization would have been extinguished, such that applying a countervailing duty in such

(c) Assessment by the Panel
(i) Introduction
14.104 We understand the essence of China's argument to be that the imposition of anti-dumping
duties calculated under the U.S. NME methodology in the four anti-dumping investigations at issue
effectively "offset" any subsidy provided in respect of the goods concerned, such that there remained
no subsidy left to countervail. Thus, China's argu ment goes, when the Unite d States simultaneously
imposed countervailing duties on the same products , it levied duties in excess of the amount of
subsidy "found to exist", contrary to Article 19.4 of the SCM Agreement, and acted inconsistently
with its obligation to levy duties "in the appropr iate amounts" pursuant to Article 19.3 of the SCM
Agreement. In addition, China cl aims that the USDOC failed to ta ke "all necessary steps" to ensure
that it imposed countervailing duties for the purpose of offsetting subsidies that continued to exist,
thereby acting inconsistently with the requirements of Article VI of the GATT 1994 and of Article 10
of the SCM Agreement.
14.105 The USDOC's treatment of the issue of double remedi es in the investigations at issue is not in
debate. The parties agree that where interested parties raised "double remedy" arguments in the
investigations at issue, the USDOC rejected them and that the USDOC did not take into consideration
the anti-dumping duties imposed on the same product s when it imposed countervailing duties in the
four countervailing duty investigations at issue: it imposed countervailing duties corresponding to the
full amount of subsidies found to have been conferred on each investigated producer.
1015
(ii) Claim under Article 19.4 of the SCM Agreement
14.106 We first consider China's claim under Article 19. 4 of the SCM Agreement. China's argument
in this respect is that the United States levied countervailing duties "in excess of the amount of
subsidy found to exist" as a result of each of the countervailing duty orders at issue because it had
already offset the subsidies at issue as a result of the concurrent imposition of anti-dumping duties
calculated under the U.S. NME methodology.
14.107 We begin our analysis by considering the text of Article 19.4 of the SCM Agreement:
"No countervailing duty shall be levied 51 on any imported product in excess of the
amount of the subsidy found to exist, calcula ted in terms of subs idization per unit of
the subsidized and exported product.

cases will be neither appropria te under Article 19.3 of the SCM Agreement, nor permissible under Article 19.4
of the SCM Agreement.
1015 See above, para.14.6, and corresponding footnotes for a summary of the USDOC's treatment of the
issue of double remedy in the anti-dumping and countervailing duty investigations at issue.
1016 Panel Report on US – Lead and Bismuth II, para. 6.52.

14.109 The parties disagree as to whether Article 19.4 is at all applicable to the situation before us:
The United States argues that, by virtue of the use in Article 19.4 of the term "levy" and of the
definition of this term in footnote 51 as "the de finitive or final legal asse ssment or collection of
duties", Article 19.4 imposes obligations only with r espect to the final collection of duties. The
United States notes that no such final collection of duties has taken place as a result of the
investigations at issue. China rejects this interp retation. The parties also disagree as to whether the
terms "found to exist" in Article 19.4 refer to the amount of subsidy calculated by the investigating
authority, regardless of whether that amount was cal culated consistently with the SCM Agreement.
The distinction is important because China does not argue that the countervailing duties imposed in
each of the investigations at issue, in and of themselves, exceeded the amount of the subsidy
calculated by the USDOC.
1017
14.110 But a more fundamental disagreement between the parties is whether a subsidy existed in the
first place, thereby allowing the USDOC to impos e countervailing duties. China argues that the
USDOC's use of its NME methodology in the paralle l anti-dumping investigations had the effect of
offsetting subsidies, such that there remained no subsidy to "o ffset" through the imposition of
countervailing duties.
14.111 China likens the concurrent imposition of an anti-dumping duty determined in accordance
with an NME methodology to the factual situations examined in prior panel and Appellate Body
reports in which it was found that a subsidy granted to a state-owned producer may be extinguished
by its arm's length acquisition for a fair market value in a context of privatization ( US –
Countervailing Measures on Certain EC Products )
1018; or in which it was found that the benefit of a
subsidy in respect of inputs may not "pass through" to producers of downstream products processed
from that input where the downstream producer purchases the input for a fair market value in an arms'
length transaction (US − Softwood Lumber IV ).1019 In each case, the Appellate Body found that these
situations called into question whether a subsidy ha d been received by the investigated producer.
Consequently, the Appellate Body found that the inve stigating authority had an obligation to establish
whether and in what amount a subsidy existed in respect of the imported product. China sees the
imposition of anti-dumping duties calculated under the U.S. NME methodology as a further situation
of extinction of subsidy that was not explicitly dealt with under the SCM Agreement.
14.112 On its face, the terms of Article 19.4 of the SCM Agreement establish a limit to the amount of
duties that may be "levied", and this limit is depe ndent only upon "the amount of the subsidy found to
exist". Thus, by its own terms, Article 19.4 of the SCM Agreement is oblivious to any potential
concurrent imposition of anti-dumping duties. He nce, that an anti-dumping duty calculated under a
methodology may have the effect of "offsetting" a subsidy in totality or in part has no effect on the
existence of the subsidy which, under Article 1 of the SCM Agreement, depends on the existence of a
financial contribution and of a benefit; nor would it have an effect on the amount of the subsidy
which, under Article 14 of the SCM Agreement, must be determined by reference to the
marketplace.
1020 In sum, the narrowly-crafted discipline contained in Article 19.4 of the SCM
Agreement does not address situations of "double remedies".

1017 China challenges the USDOC's benefit calculations, but these are separate claims of violations. See
Section X, supra.
1018 China second written submission, para. 233, citing to Appellate Body Report on US –
Countervailing Measures on Certain EC Products, para. 102.
1019 China response to Panel question 76, citing to Appellate Body Report on US – Softwood Lumber
IV, para. 141.
1020 Indeed, it is obvious that the mere issuance of an anti-dumping order cannot have the effect of
changing the position of the recipient in the marketplace.

14.113 Further, we do not consider that there is a pe rtinent analogy to be made between the facts of
the present dispute and those in the pass-through and privatization decisions cited by China. These
decisions recognize that certain events related to th e life of a subsidy may extinguish it or at least call
into question whether it benefits the manufacture, production or export of the investigated product.
By contrast, the arguments that China makes before us pertain to the effects of parallel anti-dumping
duties (i.e., remedies) that are imposed concurrently with the countervailing duties, which effects
derive from the calculations that lead to the imposition of these remedies. Again, we consider that the
fact that an anti-dumping duty calculated under a me thodology may have the effect of "offsetting" a
subsidy in totality or in part in no way means th at it extinguishes that subsidy. Likewise, China's
argument that the use of an NME methodology is tantamount to a "privatization" of the producer1021 is
inapposite. China's argument concerns a calculation, more specifically, the use by an investigating
authority of figures replicating the situation the pro ducer would be in but for government distortions,
in calculating a margin of dumping. This situat ion bears no analogy to the real world events
examined in the privatization jurisprudence cited by China.
14.114 It further appears that through its arguments , China seeks to draw an analogy between the
situation before us and a situation in which more than one countervailing duty is imposed with respect
to a given subsidy or group of subsidies. It may very well be that in such a situation of multiple
countervailing duty investigations on a given imported product, Artic le 19.4 of the SCM Agreement
would preclude the cumulative levying of duties in excess of the amount of the subsidy found to exist
in each of the investigations. But this is not the s ituation before us. By its terms, Article 19.4 only
imposes disciplines with respect to the levying of countervailing duties , which the covered
agreements define as special duties levied "for the purpose of offsetting" subsidies pursuant to
investigations initiated and conduc ted in accordance with the prov isions of the SCM Agreement. 1022
The facts that anti-dumping duties are calculated under an NME methodology and thus may be
affected by subsidization, and/or that, as a result, the duties may effectively "offset" subsidies granted
in respect of the product, change neither the purpose, nor the nature of these duties as anti-dumping,
as opposed to countervailing, duties.
14.115 In sum, notwithstanding China's efforts to demons trate otherwise, the terms of Article 19.4 of
the SCM Agreement do not provide the necessary le gal basis for its "double remedy" claim. Our
interpretation of Article 19.4 is confirmed by the c ontext to Article 19.4 provided by other relevant
provisions of the covered agreements. This context confirms that the common intention of the parties
to the SCM Agreement was not to address or prohi bit, in Article 19.4, the imposition of "double
remedies" in respect of domestic subsidies.
14.116 We note, first that the anti-dumping and count ervailing duty instruments are provided for and
addressed under two distinct agreements and are, with the notable exception of Article VI:5,
addressed under distinct paragraphs of Article VI of the GATT 1994. Article VI:5, which precisely
addresses the issue of double remedies, is the only provision under which any limitations are
explicitly imposed on the concurrent use of the two remedies. It reads:
"No product of the territory of any contracting party imported into the territory of any
other contracting party shall be subject to both anti-dumping and countervailing
duties to compensate for the same situation of dumping or export subsidization".
14.117 Thus, by its very terms, Article VI:5 of th e GATT 1994 is limited to "situation[s] of [...]
export subsidization". In our view, these terms ar e self-explanatory in their intention to limit the
scope of the prohibition in Article VI:5 to situations involving export subsidies, to the exclusion of
situations in which domestic subsidies are granted on exported goods. Such a narrow reading of the

1021 See, e.g., China second written submission, paras. 233-235.
1022 Article 10 and footnote 36 of the SCM Agreement; Article VI:3 of the GATT 1994.

terms "situation of [...] export s ubsidization" is supported by the context to Article VI:5, and in
particular by the distincti on made between domestic vs. export subsidies in Article VI:3 of the
GATT 1994, which deals with countervailing duties, and by the separate treatment accorded to export
subsidies under Article XVI of the GATT 1994. Th ese provisions demonstrate that the drafters
intended to make a distinction between subsidi es granted with respect to the production or
manufacture of goods (i.e., domestic subsidies) and subsidies granted in respect of the export of goods
(i.e., export subsidies). Further, we consider that this interpretation is confirmed by the principle of
effet utile: since only imported goods are subject to anti-dumping or countervailing duties, reading
Article VI:5 as encompassing situations in which domestic subsidies grante d to exported goods are
countervailed would effectively read the term "export" out of the relevant sentence of that provision.
Finally, we note the use of terms equivalent to the expression "export subsidies" in both the French
and the Spanish texts of Article VI:5.
1023
14.118 Not only is Article VI:5 limited to potential doubl e remedies in respect of export subsidies,
but the explicit terms in which the drafters addressed the issue in that provision makes it all the more
unlikely that they sought to prohibit the imposition of double remedies in respect of other types of
subsidies through Article 19.4 of the SCM Agreement given, again, that Article 19.4 on its face makes
no reference to that issue.1024
14.119 We also consider it significant that the pr edecessor to the SCM Agreement – the Tokyo
Round Subsidies Code – contained a provision that explicitly addressed the concurrent use of NME
methodologies in anti-dumping investigations, and of countervailing duties, in respect of imports from
NMEs. Where imports from non-market economies we re at issue, Article 15 of that Code imposed
upon the importing Member a choice between the use of anti-dumping measures or of countervailing
duties. At the very least 1025, the existence of a provision explicitly addressing the issue of the
concurrent imposition of anti-dumping and counterv ailing duties on NME imports in the predecessor
to the SCM Agreement would seem, once again, to lend support to our interpretation of Article 19.4
of the SCM Agreement as not addressing or encompassing the question of the permissibility of double
remedies.1026

1023 The French text reads "à une même situation résultant du dumping ou de subventions à
l'exportation", whereas the Spanish text reads: "una misma situación resultante del dumping o de las
subvenciones a la exportación" (our emphasis).
1024 This is a further difference between the present dispute and the privatization and pass-through
jurisprudence relied upon by China: neither of these two issues is addressed explicitly under any of the
provisions of the covered agreements.
1025 The parties have not identified any documentary evidence from the Uruguay Round negotiations
that would cast light on why Article 15 of the Tokyo Round Subsidies Code was not carried forward in the SCM
Agreement.
1026 We consider it likely that the rationale for the inclusion of Article 15 of the Tokyo Round Subsidies
Code was the potential for double remedies to result from the concurrent imposition of NME methodologies in
calculating anti-dumping duties and of countervailing duties, or at least the recognition that the use of an NME
methodology would capture price differences resulting fr om subsidies granted on the product subject to anti-
dumping duties. Furthermore, we note the argument of Argentina, Mexico and the United States that Article 15
of the Tokyo Round Subsidies Code would have been redundant had double remedies been prohibited under the
provisions of the Code imposing a limit on the amount of countervailing duties (i.e., the precursors to
Articles 19.3 and 19.4 of the SCM Agreement).

14.120 In sum, these two elements from the context 1027 to Article 19.4 of the SCM Agreement
suggest that the Contracting Parties to the GATT, now WTO Members, were aware of the fact that
certain difficulties, e.g. double remedies, could arise from the concurrent imposition of anti-dumping
and countervailing duties, and that where they wanted to address issues arising from the concurrent
imposition of anti-dumping and counterva iling duties, they did so in explicit terms. This makes it all
the more unlikely that the terms of Article 19.4 of the SCM Agreement reflect an implicit intent on
the part of the drafters to prohibit the impos ition of double remedies with respect to domestic
subsidies.
14.121 Finally we note that by contrast, China's Protocol of Accession contains no provision
explicitly addressing the issue of double remedies ev en though it appears to allow for the use of
countervailing duties while China remains an NME.
1028 We do not need to decide whether, as the
United States argues, China effectively seeks to impose a choice between the use of NME
methodologies and of countervailing duties where imports from NMEs are concerned. 1029 I n o u r
view, the relevant question is that of the drafters' intent, not the intent behind China's arguments. In
addition, the thrust of the United States' argu ments on double remedies would suggest that the
United States itself does not consider the issue to be so clear cut: the practical import of the
United States' arguments is that the existence of double remedies is an evidentiary one, and therefore
that the overlap between the two remedies may only be partial. In any event, we need not decide
whether the text of Section 15, viewed in isolati on, allows the concurrent imposition of anti-dumping
duties and countervailing duties in all circumstances without any limitation , thereby imposing no
constraint on the imposition of double remedies. Rather, we merely note the absence of any provision
addressing the question of "double remedy" in China's Protocol of Accession. In our view, such an
absence again suggests that the drafters of Arti cle 19.4 of the SCM Agreement did not intend this
provision to address the issue of double remedies.
14.122 Finally, we note China's argument that for a Member to obtain twice the remedy would
frustrate the object and purpose of the SCM Agreem ent which, the Appellate Body indicated, is "to
strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing
measures". We view China's argument as implyi ng that it is the object and purpose of the SCM
Agreement to impose disciplines not only with respect to the use of countervailing duties, but also of
anti-dumping duties. As explained above, we are of the view that the object and purpose of Part V of
the SCM Agreement is limited to imposition of disciplines with respect to the former.

1027 The fact that a provision addre ssing the issue in dispute was former ly in place but disappeared in a
successor agreement would seem to fall more properly un der the heading of "context " to the treaty provision
being interpreted (and therefore fall under Article 31 of the Vienna Convention) rath er than under the category
of "supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of
its conclusion". This is how the Appellate Body characterized the "prior existence and demise" of a provision of
a predecessor agreement in US – Underwear , where the Appellate Body charac terized this as an "another
element of the context" of the provision that it was interpreting. (Appellate Body Report on US – Underwear, p.
16 DSR 1997:I, at 11).
1028 China concedes that its Protocol of Accession permits the concurrent imposition of anti-dumping
duties calculated under an NME methodology and of countervailing duties. (China response to Panel
questions 77 and 85 (first meeting)).
1029 See United States opening statement at the first meeting of the Panel, para. 38:

"China said that it 'does not contend that the United States must 'choose' between the use of
countervailing duties and the use of an NME methodology,' only that when applying both, 'it must do so in a
manner that takes into account the fact that it offsets the same alleged subsidies through the manner in which it
calculates antidumping duties.' This is simply a distin ction without a difference. … the logic of China's
argument necessarily suggests th at the United States must choose between the use of countervailing duties and
the use of an NME methodology". (emphasis original).

14.123 For these reasons, we find that China has failed to establish that the USDOC's use of its NME
methodology in the anti-dumping determinations at i ssue, concurrently with its determination of
subsidization and the imposition of countervaili ng duties on the same products in the four
countervailing duty determinations at issue, wa s inconsistent with Article 19.4 of the SCM
Agreement. In light of this finding, we do not need to address the other arguments of the parties with
respect to the scope of application of Article 19. 4 of the SCM Agreement, notably the United States'
argument that this provision, as well as Articles VI:3 of the GATT 1994 and Article 19.3 of the SCM
Agreement, cannot form the basis of a claim with resp ect to the investigations at issue since no duties
were actually levied as a result of these investigations.
(iii) China's claim under Article 19.3 of the SCM Agreement
14.124 Article 19.3 of the SCM Agreement provides, in relevant parts:
"When a countervailing duty is imposed in respect of any product, such
countervailing duty shall be levied, in the appropriate amounts in each case , on a
non-discriminatory basis on imports of such product from all sources found to be
subsidized and causing injury, except as to imports from those sources which have
renounced any subsidies in question or fro m which undertakings under the terms of
this Agreement have been accepted. [...]". (emphasis added)
14.125 On its face, Article 19.3 of the SCM Agreement imposes upon the authorities of the importing
Member the obligation to levy duties (i) on a non-discriminatory basis on imports from all sources
found to be subsidized and causing injury and (ii) in "the appropriate amounts" in each case.
14.126 China's arguments raise the question of the m eaning to be given to the terms "appropriate
amounts" in this provision. Similar to its arguments under Article 19.4 of the SCM Agreement, China
submits that the imposition of anti-dumping du ties calculated under an NME methodology is a
relevant consideration in assessing the appropriateness of the amount of duties levied. China relies on
the interpretation of Article 19.3 by the panel in EC – Salmon (Norway) . Specifically, China notes
that the EC – Salmon (Norway) panel found that the "appropriate" amount of a duty is the amount that
is "proper" or "fitting" in light of the purpose of the duty.
1030 China argues, that, applying the same
reasoning, the "appropriate" amount of a counter vailing duty can be no greater than the amount
necessary to offset the subsidy 1031, such that the countervailing duty measures at issue are not "in the
appropriate amounts" because they offset alleged subsidies that the United States has also offset
through the manner in which it calculates anti-dumping duties under its NME methodology. 1032 China
also considers that it is not "appropriate" to of fset a subsidy that the investigating authority
simultaneously offsets through the manner in which it calculates anti-dumping duties in respect of the
same products".1033
14.127 The panel in EC – Salmon (Norway) considered a claim under Article 9.2 of the AD
Agreement – which, aside from its reference to anti-dumping duties rather than to countervailing
duties, is worded in terms that are virtually identical to those of Article 19.3 of the SCM

1030 China second written submission, para. 254, citing to Panel Report on EC – Salmon (Norway) ,
paras. 7.704-7.705.
1031 China argues, on the basis of Article VI:3 and foot note 36 to the SCM Agreement, that the purpose
of a countervailing duty is to "offset" the amount of any subsidy bestowed upon the product. (China first
written submission, para. 383).
1032 Id., paras. 380-384.

Agreement.1034 In light of dictionary definitions of the te rm "appropriate", the panel considered that it
was reasonable to interpret this term in Artic le 9.2 of the AD Agreement to mean that the
"appropriate" amount of the duty is one which is "proper" or "fitting" in the context of an anti-
dumping investigation, and that what is "proper" or "fitting" should be determined in relation to the
object and purpose of the collection and imposition of anti-dumping duties. Consequently, the panel,
in light of Article VI:2 of the GATT 1994 and of Article 9.1 of the AD Agreement, determined that
the "appropriate" amount of anti-dumping duty must be an amount that results in offsetting or
preventing dumping, when all other requirements for the imposition of anti-dumping duties have been
fulfilled. On this basis, and because dumping is de fined in the agreements as the introduction of a
product into the commerce of another country at a price which is "less than its normal value", the
panel found that an anti-dumping duty may only be collected when the price of the imported product
is less than its normal value, adding that "norma l value constitutes a point of reference for
determining when anti-dumping duties may or may not be imposed and collected".1035
14.128 We fail to see how the EC – Salmon (Norway) panel's interpretation of the terms "appropriate
amounts" could support China's claim under Article 19.3 of the SCM Agreement. We recall that
countervailing duties are special duties that are coll ected for the purpose of "offsetting" subsidies.
This suggests that, applying the reasoning of the EC – Salmon (Norway) panel, countervailing duties
are collected in the appropriate amounts insofar as the amount collected does not exceed the amount
of subsidy found to exist. We further recall our conclusions above that the manner in which the
dumping margin is calculated – through an NME methodology or otherwise – has no impact on the
existence of subsidies, which may be found to "exi st" in a parallel countervailing duty investigation;
and that the fact that a "double remedy" may result from the imposition of anti-dumping duties does
not transform these duties into countervailing duties under the covered agreements. For these reasons,
the imposition of anti-dumping duties calculated under an NME methodology has no impact on
whether the amount of the concurrent countervailing duty collected is "appropriate" or not.
14.129 Furthermore, we recall our conclusion that the context of Article 19.4 of the SCM Agreement
confirms our interpretation that that provision does not address the issue of double remedies. The
same considerations likewise suggest that it w as not the intention of the drafters to the SCM
Agreement to address the question of double remedies in Article 19.3 of the SCM Agreement.
14.130 We therefore find that China has failed to establish that the USDOC's use of its NME
methodology in the anti-dumping determinations at i ssue in this dispute, concurrently with its
determination of subsidization and the imposition of countervailing duties on the same products in the
four countervailing duty determinations at issue, was inconsistent with Article 19.3 of the SCM
Agreement. Given these findings, we need not addr ess the United States' argument that Article 19.3
of the SCM Agreement finds no application in th e present case given that no duties were actually
levied as a result of the determinations at issue.
(iv) China's claims under Article 10 of the SCM Agreement and Article VI:3 of the GATT 1994
14.131 China argues that the United States had, under Articles 10 of the SCM Agreement and VI:3 of
the GATT 1994, an affirmative legal obligation to (i) ensure that it did not impose countervailing
duties to offset subsidies that it simultaneously offset through the methods by which it calculated anti-
dumping duties; (ii) take "all necessary steps" to ensure that this did not occur; and (iii) ensure that the
USDOC investigated and made a determination as to the "precise amount of a subsidy attributed to
the imported products under investigation", taking into account that using simultaneously an anti-

1034 The one notable difference between the terms of Article 9.2 of the AD Agreement and those of
Article 19.3 of the SCM Agreement is that the former us es the term "collected" whereas the latter uses the term
"levied".
1035 Panel Report on EC – Salmon (Norway), paras. 7.704-7.705.

dumping methodology had the effect of offsetting the same subsidies.
1036 China considers that in the
investigations at issue, the USDOC failed to meet these obligations. Ch ina notes in particular that the
USDOC did not take any steps to determine "whether, and in what amount" the use of market-
determined costs of production in the parallel anti- dumping investigations had the effect of offsetting
the same subsidies that it identified in the countervailing duty investigations
1037, and therefore, did not
"ascertain the precise amount of a subsidy attributed to the imported products under investigation".1038
14.132 Article 10 of the SCM Agreement and footnote 36 thereto provide:
"Application of Article VI of GATT 1994
Members shall take all necessary steps to ensure that the imposition of a
countervailing duty36 on any product of the territory of any Member imported into the
territory of another Member is in accordance with the provisions of Article VI of
GATT 1994 and the terms of this Agreemen t. Countervailing duties may only be
imposed pursuant to investigations initi ated and conducted in accordance with the
provisions of this Agreement and the Ag reement on Agriculture. [footnotes omitted
in part]
GATT 1994".
14.133 Article VI: 3 of the GATT 1994 provides that:
"No countervailing duty shall be levied on any product of the territory of any
contracting party imported into the territory of another contracting party in excess of
an amount equal to the estimated bounty or s ubsidy determined to have been granted,
directly or indirectly, on the manufacture, production or export of such product in the
country of origin or exportation, including any special subsidy to the transportation of
a particular product. The term "counterva iling duty" shall be understood to mean 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."
14.134 China does not make clear whether it intends its claims to pertain to the collective operation
of Articles 10 of the SCM Agreement and VI:3 of the GATT 1994, and whether it intends them to be

1036 China second written submission, paras. 243-247, response to Panel question 76. China argues,
referring to the findings of the Appellate Body in US – Countervailing Measures on Certain EC Products and in
US – Softwood Lumber IV , that, collectively, Articles 10, 19.1, 19.3 , 19.4 of the SCM Agreement and 21.1 of
the SCM Agreement and Article VI:3 of the GATT 1994 impose upon investigating authorities an affirmative
legal obligation to take "all necessary steps" to ensure that they limit counterva iling duties to the amount and
duration of the subsidy.
1037 China notes that the USDOC stated unequivocally that "it has no authority under U.S. law to
examine in the context of a countervailing duty investigation whether the use of an NME methodology in a
parallel anti-dumping investigation has the effect of offsetting the same alleged subsidies".
1038 China second written submission, paras. 245 and 248-250; response to Panel question 76 (first
meeting). We address here China's claims as pres ented in its second written submission and subsequent
submissions. In its first written submission, China presented its claims under Articles VI:3 of the GATT and 10
of the SCM Agreement and under Article 32.1 of the SCM Agreement as purely consequential to its claims of
violation under Articles 19.3 and 19.4 of the SCM Agreement. (China first written submission, para. 385).

in the nature of consequential claims as one woul d expect to be the case for a claim under Article 10
of the SCM Agreement. In any case, implicit in Ch ina's arguments is a claim that the levying of
countervailing duties in an amount exceeding the amount of the subsidy "determined to have been
granted" is inconsistent with Article VI:3 of the GATT 1994. For this reason, we first consider
whether China has established a violation of Ar ticle VI:3 of the GATT 1994 before considering
whether China has established a violation of Article 10 of the SCM Agreement, taken in isolation, or a
violation of Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement collectively.
14.135 Of relevance to China's claims, Article VI:3 of the GATT 1994 provides that countervailing
duties are to be levied in amounts not exceeding th e "subsidy determined to have been granted".
Thus, the pertinent obligation under Article VI:3 is very similar to that under Article 19.4 of the SCM
Agreement. Similar to Article 19.4, Article VI:3 is limited in scope: it only establishes a limit with
respect to the imposition of countervailing duties.
14.136 For the same reasons that we have found that China has not established a violation of
Article 19.4 of the SCM Agreement, we also c onsider that China has not established that the
United States imposed duties in excess of the subs idy "determined to have been granted" in the
investigations at issue inconsistently with Article VI:3 of the GATT 1994.
14.137 Turning to the second provision cited by China, we note that Article 10 of the SCM
Agreement establishes that countervailing duti es may only be imposed in accordance with the
procedural and substantive obliga tions contained in the SCM Agreement, indicating that a claim of
violation of Article 10 of the SCM Agreement must necessarily be consequential to a claim of
violation of other provisions of the covered ag reements. We also note China's argument that
Article VI:3 of the GATT and Article 10 of the SCM Agreement imposed on the USDOC an
obligation to investigate the amount of subsidy that remained to be offset due to the concurrent
imposition of anti-dumping duties calculated under an NME methodology.1039
14.138 We have already concluded that China has fa iled to establish that the imposition of anti-
dumping duties calculated under an NME methodology is an event that affects the existence of a
subsidy or the amount of subsidy conferred on a product in the cont ext of a concurrent countervailing
duty investigation. As a consequence, we also find that the USDOC was under no obligation to
investigate whether the use of an NME methodolog y in a parallel anti-dumping investigation had the
"effect" of offsetting the same alleged subsidies. China advances no other argument in support of its
claims under Articles 10 of the SCM Agreement and VI:3 of the GATT. Hence, we find that China
has not demonstrated that the United States acted in consistently with Articles VI:3 of the GATT 1994
and 10 of the SCM Agreement as a result of the concurrent imposition of anti-dumping duties
calculated under the U.S. NME methodology and of countervailing duties in the investigations at
issue.
1040
(v) China's claim under Article 32.1 of the SCM Agreement
14.139 China makes it clear that its claim under Article 32.1 of the SCM Agreement is purely
consequential to its claims under Articles 10, 19.3 and 19.4 of the SCM Agreement and Article VI:3
of the GATT of the 1994. 1041 As we have found that China has failed to establish a violation of these
provisions, we also find that China failed to establis h that the United States acted inconsistently with
Article 32.1 of the SCM Agreement.

1039 China second written submission, paras. 248-250.
1040 Given these findings, we need not address the United States' argument that Article VI:3 does not
apply to the measures at issue given that no duties were actually levied as a result of these measures.

14.140 In addition, we note that our findings set forth in sections (ii)-(iv) concerning China's double
remedy claims of necessity are limited to the provisi ons cited by China in that regard. We have no
mandate to, and thus do not, consider whether a ny other provisions of the WTO Agreement might
prohibit any double remedies of the type referred to by China.
4. Claims under Articles 12.1 and 12.8 of the SCM Agreement
14.141 We now examine China's claims in respect of Articles 12.1 and 12.8 of the SCM Agreement.
We do so under the assumption that China intends these claims to be independent of its other claims
of violation.
(a) Main arguments of the Parties
(i) China
14.142 China claims that, in the investigations at issu e, the USDOC did not provide interested parties
with "notice of the information which [it] require [d]" to evaluate the existence of a double remedy,
and therefore acted inconsistently with its obliga tions under Article 12.1 of the SCM Agreement. In
support of this argument, China submits that the Un ited States, in response to certain Panel questions,
"appears to suggest that the USDOC might have ta ken steps to avoid imposing double remedies in the
investigations at issue, had the interested par ties presented supporting evidence that a double remedy
would occur". China further argues that the USDOC did not inform interested parties of the essential
facts under consideration that would "form the ba sis" for its determination in respect of double
remedies and, as a result, acted inconsistently with Article 12.8 of the SCM Agreement.
1042
(ii) United States
14.143 The United States argues that China's claims mu st fail because (i) they are premised on the
existence of an inherent double remedy in the co ncurrent application of countervailing duties and
NME anti-dumping duties; and (ii) even if a double re medy could be shown to exist, the USDOC did
not "require" information to "evaluate the exis tence of a double remedy" as China argues and such
information did not form part of the "essential facts under consideration" that the USDOC was
required to disclose. In addition, the United States argues that providing a continuing opportunity for
demonstration of an alleged double remedy is an a ppropriate position for an investigating authority,
even where there is no basis for the claim and the investigating authority does not consider and has
not found that such a double remedy exists. The Un ited States adds that it is for interested parties
who seek to alter the application of counterva iling and anti-dumping duties to explain, with
supporting evidence, why their proposed course of action is appropriate.1043
(b) Assessment by the Panel
14.144 Article 12.1 of the SCM Agreement provides:
"Interested Members and all interested pa rties in a countervailing duty investigation
shall be given notice of the information which the authorities require and ample
opportunity to present in writing all evidence which they consider relevant in respect
of the investigation in question".
14.145 Article 12.8 of the SCM Agreement provides:

1042 China second written submission, paras. 268-270.
1043 United States opening statement at the second meeting of the Panel, paras. 66-69.

"The authorities shall, before a final dete rmination is made, inform all interested
Members and interested parties of the essen tial facts under consideration which form
the basis for the decision whether to appl y definitive measures. Such disclosure
should take place in sufficient time for the parties to defend their interests".
14.146 China claims a violation of the obligation unde r Article 12.1 of the SCM Agreement for the
investigating authorities to give notice "of the information which the authorities require". (emphasis
added) Thus, to succeed in its claim, China must demonstrate that the USDOC "required" the
submission of certain evidence in order to demonstr ate that a double remedy existed. China's sole
allegation in this respect is that the United States, in response to certain Panel questions, "appears to
suggest that the USDOC might have taken st eps to avoid imposing double remedies in the
investigations at issue, had the interested par ties presented supporting evidence that a double remedy
would occur". China has not explained why th e responses provided by the delegation of the
importing Member to panel questions should be re levant in determining what information the
authority "required" in the investigation. 1044 Thus, we are not convinced that the USDOC " required"
the submission of any information with respect to double remedies in the investigations at issue.
14.147 In any event, it seems that China effectively seeks a finding that would require the USDOC to
adopt a set of criteria under which to assess the o ccurrence of double remedies, in the event that it
considered that it possesses the legal authority to take action to avoid such an occurrence. We recall
that we have already found that the USDOC is not, under the provisions cited by China, under a legal
obligation to avoid the imposition of double remedi es. While it is certainly desirable that
investigating authorities adopt clear positions on certain legal issues that have the potential to arise in
the investigations they conduct, we are not c onvinced that Article 12.1 of the SCM Agreement
requires them to do so with respect to any and all such issues. We have sympathy for the
United States' argument that it is for interested parties who seek to convince an investigating authority
to modify its application of its trade remedy laws (especially where that application has not been
shown to be WTO-inconsistent) to bring relevant evidence to the investigating authority.
14.148 Turning to Article 12.8 of the SCM Agreement, we note that this provision, on its face, relates
to the obligation for the investigating authority to ma ke a disclosure, prior to the issuance of a final
determination, "of the essential facts under consideration which form the basis for the decision
whether to apply definitive measures". (emphasis adde d) In other terms, Article 12.8 pertains to the
disclosure that an investigating authority must make prior to the issuance of its final determination, in
which it must set out the essential facts on which that determination is based. While China's treatment
of its Article 12.8 claim in its submissions is too succinct to achieve any certainty in this respect, it
seems that China's argument is not that the US DOC failed to disclose the evidence on which its
determinations were based, but ra ther that it failed to indicate what evidence the USDOC would have
accepted – if any – to establish the existence of a double remedy. Again, China seems to seek a
finding that pertains to the legal framework th at the USDOC would apply to the issue of double
remedies, but does not explain how the terms of Article 12.8 of the SCM Agreement can
accommodate such a claim.
14.149 For these reasons, we find that China has fail ed to establish that the United States acted
inconsistently with its obligations under Articles 12.1 and 12.8 of the SCM Agreement.
5. Claims under Article I:1 of the GATT 1994
14.150 The last claim of China in respect of "double remedies" is its claim under Article I:1 of the
GATT, which embodies the "most favoured-nation" (MFN) principle.

1044 China devotes less than half a page of its submissions (paras. 268-270 of its second written
submission) to its arguments in support of its Articles 12.1 and 12.8 claims.

(a) Main arguments of the Parties
(i) China
14.151 China claims that in the four sets of anti- dumping and countervailing dut y investigations at
issue, the United States denied imports from Ch ina MFN treatment under Article I:1 of the GATT
1994 by failing to extend to these imports the sa me unconditional entitlement to the avoidance of
double remedies that it extends to imports from market economy countries. In these investigations,
China argues, the USDOC either did not avoid the imposition of a double remedy, or imposed a
condition upon the avoidance of a double remedy th at it does not impose upon products originating in
the territory of other Members.
1045
14.152 China directs the Panel to a number of USDOC determinations and U.S. court decisions
which, it argues, demonstrate that the USDOC has re peatedly recognized that the manner in which it
calculates anti-dumping duties can offset subsidies (including domestic subsidies) and that in
circumstances where a potential for double remedies arose, the USDOC took steps to ensure that no
double remedy would occur.
14.153 China argues, first, citing to the USDOC determination in LEU from France, that the USDOC
refuses to deduct countervailing duties from the export price in calculating margins of dumping in
anti-dumping investigations involving market economy countries. China adds that the USDOC has
recognized that to make such a deduction wo uld impermissibly coll ect countervailing duties
twice.
1046, 1047
14.154 Second, China argues, since at least 1986 and its determination in Tool Steel from Germany ,
the USDOC has considered that it would be inappropr iate to add subsidies to producers' costs of
production (i.e., to the actual expenses recorded in producers' books and records) in calculating the
margin of dumping, because doing so would effectively collect countervailing duties twice, thereby
blurring the distinction between anti-dumping and countervailing duties. China argues that making
such an addition would be equiva lent to deducting subsidies from the export price and that from the
standpoint of a potential double remedy, the USDOC 's NME methodology has the same effect as
adding subsidies to a producer's costs in a market economy investigation: both approaches place the
producer in the position of having market-determined costs of production.
1048 China notes that in Tool
Steel from Germany , the USDOC decided that it would use the producer's actual costs, even if they
reflected the effect of subsidies. This determina tion was appealed to the U.S. Court of International
Trade in Al Tech Speciality Steel Corp . In this decision, China argu es, the Court found considerable
support in U.S. law for the plaintiff's argument that the costs used to determine constructed normal
value should be based on unsubsidized costs. Ch ina indicates that while the Court considered it a
close issue, it was ultimately persuaded by th e USDOC's argument that adding subsidies to the
producer's costs would improperly "blur[] the di stinction between anti dumping and countervailing
duty law". China adds that the USDOC has also recognized (in its determination in Certain Steel

1045 China first written submission, paras. 403-427.
1046 China first written submission, paras. 405-406; second written submission, para. 214; response to
Panel question 74 (first meeting). China also quotes the USDOC as saying, in LEU from France that "in the
most general terms, the [Tariff Act of 1930] stands for the proposition that dumping margins should not be
calculated so as to double-collect CVDs".
1047 Similarly, China submits, the USDOC has recognized that the deduction of safeguard duties from
the export price in anti-dumping investigations would re sult in an unwarranted double remedy. China cites to
the USDOC determination in Steel Wire Rod from Korea and the decision of the Federal Court of Appeals,
Federal Circuit, in Wheatland Tube Co. v United States. (China first written submission, footnote 332).
1048 Id., para. 409; second written submission, paras. 21 4 and 227; response to Panel question 74 (first
meeting).

Products from the Netherlands )1049, that using a producer's unsubsidized costs to determine
constructed normal value would have the effect of offsetting the subsidies through both anti-dumping
and countervailing duties, and that in numerous ot her anti-dumping investigations of imports from
market economy countries, the USDOC has allowe d respondents to deduct subsidies from their
reported costs of production, where these reported co sts did not accurately reflect the cost-reducing
effects of the subsidies ( Certain Pasta from Italy, Live Swine from Canada , Red Raspberries from
Canada).1050 China argues that in determining the constructed normal value based on costs that do not
reflect the subsidies found to be received by the producer, the USDOC's NME methodology is
indistinguishable from adding subsidies to the producer's costs in a market economy investigation, or
from using the producer's reported costs when those co sts do not reflect the subsidies received by the
producer.
1051
14.155 China submits that by, on the one hand, maintain ing a consistent set of policies and practices
to avoid the imposition of a double remedy when establishing margins of dumping for producers from
market economy countries, without precondition a nd without imposing any evidentiary burden on
respondents (i.e., "unconditionally") and, on the other hand, refusing to avoid imposing double
remedies and/or requiring that respondents dem onstrate the existence of a double remedy (e.g. by
showing that domestic subsidies pass through, pro rata, to export prices) when imports from China
were concerned, the United States acted incons istently with the MFN obligation contained in
Article I:1 of the GATT 1994. Referring to the terms of that provision, China argues that:
(i) anti-dumping and countervailing duties are "charges of any kind imposed on
or in connection with importation";
(ii) the methods by which the United States calculates such duties (including its
policies and practices to avoid the imposition of a double remedy, as well as
the assumptions and burdens of proofs a pplied in evaluating the issue) are
either "methods of levying such charges", "rules or formalities in connection
with importation", or both
1052;
(iii) the USDOC's policy of avoiding the imposition of a double remedy is an
"advantage, favour [or] privilege" that the United States extends to these
imports.1053
14.156 In response to an argument of the United St ates, China argues that it does not need to
establish that products from China are disadvantaged as compared to "like products" from other
Members in order to succeed in its "as applied" claims under Article I:1. China submits in this respect
that prior WTO panels have recognized that a vi olation of Article I:1 occurs when an importing
Member applies a discriminatory standard that rela tes only to the origin of the product at issue, and
not to its characteristics, without having to demonstrate the presence of "like products".
1054

1049 China second written submission, paras. 214 and 227; response to Panel question 74 (first meeting).
1050 China response to Panel question 74 (first meeting).
1051 China response to Panel question 26 (second meeting).
1052 China cites to the GATT panel in US – MFN Footwear , which considered that "the rules and
formalities applicable to countervailing duties [...] ar e rules and formalities imposed in connection with
importation, within the meaning of Article I:1". (China first written submission, footnote 337, citing to GATT
Panel Report on US – MFN Footwear, para. 6.8).
1053 See, generally, China first written submission, paras. 413-427; second written submission,
paras. 271-277.
1054 China response to Panel question 94, citing to Panel Reports on US – Certain EC Products ,

14.157 Finally, China rejects the United States' argume nt that the difference in treatment could be
justified by its Protocol of Accession since nothi ng in the Protocol allows Members to impose double
remedies.
1055 Likewise, China rejects the suggestion th at it is seeking "special treatment" from the
United States with respect to the concurrent imposition of anti- dumping and countervailing duties,
indicating that it is only asking the United States to apply to imports from China the same standard
that it has applied to imports from other Members in other circumstances in which the problem of
double remedies has had the potential to arise.1056
(ii) United States
14.158 The United States argues that the USDOC treats imports from China no differently than it
treats imports from other Members with respect to its refusal to deduct subsidies from the export price
and its refusal to add subsidies to costs of produc tion. The United States indicates that the USDOC
does not make such adjustments in investiga tions against Chinese products, including in the
investigations at issue. 1057 The United States considers that China has not demonstrated otherwise,
which in its view may explain why China formul ates its claim under Article I:1 more generally as
pertaining to the United States' "avoidance of the imposition of a double remedy". In any case, the
United States argues, referring to China's argu ment that the USDOC's NME methodology has the
same effect as adding subsidies to a producer's co st of production, having the "same effect" is
different from actually making the adjustment at issue.1058
14.159 The United States makes the following comment s with respect to the specific USDOC
determinations and U.S. court cases cited by China in support of its assertion that the USDOC avoids
imposing double remedies in anti-dumping investigati ons on imports from market economies: First,
the United States considers that the analogy draw n by China between the present dispute and the
USDOC determinations in LEU from France , Tool Steel from Germany and Certain Steel Products
from the Netherlands is inapposite, as these determinations were not based on subsidies being
captured by the normal value, but involved the lite ral counting of countervailing duties twice – once
in the actual levying of countervailing duties and once by either adding the countervailing duties to
cost or subtracting countervailing duties from export price. 1059 The United States argues that these
mathematical certainties cannot be compared to China's theoretical arguments about overlapping
economic distortions or overlapping rationales. Specifically, with respect to LEU from France , the
United States explains that the USDOC considered that subtracting the CVDs from the export price
had exactly the same effect as would have adding the same CVDs to the dumping margin after it had
been calculated. Therefore, the requested adju stment would have literally collected the CVDs
twice.1060 In Tool Steel from Germany, the USDOC refused to add subsidies to the normal value. Had
it added them, the dumping margin would have automatically increased by the amount of the
countervailable subsidies found in the compani on countervailing duty case, thus indisputably
collecting countervailing duties twice. The Unite d States argues that the crux of the USDOC's
determination in that case was that subsidies ar e not costs; the USDOC's determination does not
contain any discussion of the issue of double remedies. 1061 With respect to Certain Steel from the
Netherlands, the United States submits that the USDOC's determination was not based on assertions
about the alleged effects of subsidies on normal va lue, but was simply an instance in which the

1055 China second written submission, paras. 211 and 2 74; response to Panel questions 77 and 85 (first
meeting); oral statement at the second meeting of the Panel, para. 70.
1057 United States second written submission, paras. 219-220.
1058 United States first written submission, footnote 597.
1059 See, e.g., United States comments on China's response to Panel question 33.
1060 United States second written submission, footnote 350; response to Panel question 79; comments
on China's response to Panel question 32 (second meeting).
1061 United States second written submission, footnote 350; response to Panel question 79 (first
meeting).

USDOC reduced the respondent's cost of capital by the amount of capital received from the
government as a grant. Thus, the producer's ac tual cost of capital was the reduced amount. 1062
Further, the United States argues that the USDOC de termination cited to by China is a preliminary
determination – the anti-dumping a nd countervailing duty investigations were terminated before the
USDOC issued a final determination – and therefor e cannot be considered a final opinion on the
matter.1063
14.160 The United States finally notes that in Live Swine from Canada , the USDOC included
government grants as offsets to respondents' reporte d general and administrative (G&A) costs. The
United States argues that rather than being d esigned to "deduct subsidies from cost" to avoid
offsetting any advantage from subsidization, th is approach reflects the USDOC's long-standing
practice of treating as an offset to cost any income that is received as a result of producing the subject
merchandise, irrespective of source, and that is duly recorded in the respondents' books. The
United States adds that the USDOC routinely ap plies similar offsets to both G&A expenses and
financial expenses and that this is merely an aspect of the calculation of the dumping margin, rather
than a tool to "deduct subsidies from cost" to avoi d offsetting any advantage from subsidization, as is
evidenced by the fact that the US DOC applies such offsets independently of whether there is a
parallel countervailing duty investiga tion or, in event of such parallel investigation, even if this
investigation does not result in the imposition of countervailing duties.1064
14.161 The United States also notes that a number of WTO rules explicitly recognize that, in the
context of anti-dumping and countervailing duty proceedings, a Member may – and in some
circumstances must – accord differential treatme nt to products from certain Members. Such
differential treatment takes the form , for example, of the level of duties, the method of calculating
normal value in anti-dumping investigations, or the method of determining the benefit in
countervailing duty investigations. 1065 The United States argues that given the explicit authorization
for such actions, where they conform to the require ments of these other WTO provisions, they are not
inconsistent with Article I:1 of the GATT 1994, as any other approach would render every application
of certain provisions of the covered agreements or of China's Protocol of Accession an MFN
violation. The United States also submits that, because of the nature of China's economy,
investigations involving Chinese products pose methodological challenges which do not arise with
respect to market economies, and which require i nvestigating authorities to develop mechanisms to
allow them to make the necessary determinations, as recognized in China's Protocol of Accession.
1066
In any case, the United States argues that Article I: 1 is inapposite because of the explicit recognition
of Members' right to use the NME methodology in r espect of China in its Protocol of Accession, with
no corresponding prohibition on the concurrent a pplication of countervailing duties, which the
United States reads as reflecting the judgment of Members that no double remedy results from the
application of that methodology in conjunction with countervailing duties. 1067 I n s u m , f o r t h e
United States, China's MFN complaint focuses on th e application of the NME methodology, yet the

1062 United States second written submission, footnote 350.
1063 United States comments on China's response to Panel question 33 (second meeting).
1064 Id. The United States notes that Live Swine from Canada is an example of an investigation where
the USDOC applied such an offset to costs even where the fina l determination in the corresponding
countervailing duty investigation was negative.
1065 The United States refers the following provisions as examples: Articles VI:2 and VI:3 of the
GATT 1994; the second Ad Note to Article VI:1 of the GATT 1994; Ar ticle 2.2 of the AD Agreement; Article
14(d) of the SCM Agreement; Article 27.10 of the SCM Agreement; paragraphs 15 (a) and (b) of China's
Protocol of Accession.
1066 United States first written submission, paras. 438-442.
1067 Id., paras. 443-444.

application of that methodology is expressly author ized by paragraph 15(a) of China's Protocol of
Accession and hence, does not violate Article I:1 of the GATT 1994.
1068
14.162 Finally, the United States considers that Chin a has failed to substantiate its claim of
inconsistency with Article I:1 of the GATT because it does not identify the "like products" to which
the alleged advantage is applied.1069
(b) Main arguments of the Third Parties
(i) Canada
14.163 Canada considers that neither the use of th e NME methodology nor the concurrent imposition
of anti-dumping duties calculated using that methodology and of countervailing duties on Chinese
products is inconsistent with Article I:1 of the GATT 1994. Like the United States, Canada notes that
the calculation of the normal value using the NME methodology is specifically allowed under China's
Protocol of Accession.
1070
(c) Assessment by the Panel
14.164 We now consider whether, notwithstanding our findings above that China has not established
the inconsistency of the determinations at issue with Article VI:3 of the GATT 1994 and Articles 10,
12.1, 12.8, 19.3, 19.4 and 32.1 of the SCM Ag reement, those determinations contravened the
obligations of the United States under Article I:1 of the GATT.1071
14.165 Article I:1 of the GATT 1994 embodies the "Most-Favoured Nation" (MFN) principle, "a
cornerstone of the GATT and [...] one of the pillars of the WTO trading system". 1072 The object and
purpose of Article I:1 is, inter alia, "to prohibit discrimination among li ke products originating in or
destined for different countries".1073 Article I:1 of the GATT provides as follows:
"With respect to customs duties and charges of any kind imposed on or in connection
with importation or exportation or imposed on the international transfer of payments
for imports or exports, and with respect to the method of levying such duties and
charges, and with respect to all rules a nd formalities in connection with importation
and exportation, and with respect to all matte rs referred to in pa ragraphs 2 and 4 of
Article III, any advantage, favour, privilege or immunity granted by any contracting
party to any product originating in or destined for any other country shall be accorded
immediately and unconditionally to the like pr oduct originating in or destined for the
territories of all other contracting parties".

1068 United States opening statement at the first meeting of the Panel, para. 59; second written
submission, para. 219.
1069 United States first written submission, para. 431. The United States notes in this respect that the
panel in US – MFN Footwear did not consider Brazil's "as applied" claims in that case since Brazil had not
established the "like products" condition. (United States response to Panel question 94 (first meeting), citing to
GATT Panel Report on US – MFN Footwear, paras. 6.11-6.12).
1070 Canada third-party oral statement, paras. 29-30.
1071 China claims a violation of Article I:1 of the GA TT 1994 "separate and apart" from the violations
of the covered agreements discussed above. (China first written submission, para. 403).
1072 Appellate Body Report on Canada – Autos, para. 69.
1073 Id., para. 84.

14.166 By its terms, three elements must be demonstrated to establish a violation of Article I:1: there
must be an "advantage ", (of the type covered by that provisi on) which is not accorded to all "like
products" of all WTO Members, "unconditionally".1074
14.167 Thus, to succeed in its Article I:1 claim, China n eeds to establish, first, that the United States
grants an "advantage, favour, privilege or immuni ty" of the type covered by Article I:1 of the
GATT 1994 to products originating in other Members which it did not accord to the investigated
products from China in the investigations at issu e. The scope of Article I:1 of the GATT 1994 has
been interpreted broadly by GATT panels as well as by the Appellate Body and WTO panels. Of
particular relevance to the present dispute, the GATT panel in US – MFN Footwear considered that
rules and formalities applicable in the context of countervailing duty investigations were "rules and
formalities in connection with importation", within the meaning of Article I:1. At issue in US − MFN
Footwear were certain procedural advantages pertai ning to the revocation of countervailing duty
orders conferred upon certain cat egories of imported products. 1075 Before us, the United States does
not contest that advantages pertaining to the admini stration of countervailing duty laws fall within the
scope of Article I:1 of the GATT 1994, and we see no reason to depart from the approach adopted by
the US − MFN Footwear GATT panel. Further, for the same reasons, we determine that rules and
formalities applicable in the context of anti-dumpi ng investigations also fall within the scope of
Article I:1 of the GATT 1994.
14.168 In the present dispute, China identifies as th e relevant "advantage" under Article I:1 the
USDOC "policies and practices to avoid the impos ition of a double remedy for the same act of
subsidisation" whenever "there is a risk that th e calculation of an anti-dumping margin could result in
the imposition of [such] a double remedy". 1076 China argues that it is likewise an "advantage, favour
[or] privilege" to permit investigated market economy producers to avoid the potential imposition of a
double remedy without any requirement to produce "evidence" concerning the existence or extent of a
double remedy in general, or in a particular instance. 1077 China argues that in the four sets of anti-
dumping and countervailing duty investigations at issue (i) the USDOC did not take any steps to
avoid the imposition of double remedies and that it do es not in any event have the authority to take
such steps, or (ii) alternatively, that the US DOC imposed a condition – the presentation of evidence
demonstrating the existence of a double remedy and in particular, evidence that the subsidies at issue
had the effect of reducing the export price – upon the avoidance of a double remedy for the same
alleged acts of subsidization that it does not impose upon products originating in the territory of other
Members.
1078
14.169 As support for its argument, China refers to a number of USDOC determinations (and U.S.
court decisions reviewing these determinations) in which the USDOC made or refused to make
certain adjustments. China argues that in th ese determinations in which a potential double remedy
arose, the USDOC did not consider the existence of a double remedy to be "theoretical" or to require
any evidence or presumptions about the effects of subsidies on a producer's costs or prices. 1079
Rather, China argues, in each of these circum stances, the USDOC took all necessary steps to

1074 Panel Report on Indonesia – Autos , para. 14.138, citing to Appellate Body Report on EC –
Bananas III.
1075 GATT Panel Report, US – MFN Footwear, para. 6.9.
1076 For instance, in its first written submission, China states: "In every circumstance in which the issue
has arisen the United States has consistently taken th e position that it will avoid the imposition of a double
remedy through the manner in which it calculates anti-dumping and countervailing duties". (China first written
1077 Id., para. 420. (emphasis added).
1078 Id., para. 427.
1079 For some of the prior determinations, China also argues that with respect to the imposition of
double remedies, making (or not making) the adjustments at issue "has the same eff ect" as the calculation of a
dumping margin under the NME methodology.

investigate and ensure that the manner in whic h it calculated anti-dumping duties did not have the
effect of offsetting subsidies that it simultaneous ly offset through the imposition of countervailing
duties.
1080
14.170 The first step in our analysis is to examin e the USDOC determinations and court decisions
cited by China to determine whether they support these allegations.1081
14.171 First, China cites to the USDOC determination in LEU from France, an administrative review
in an anti-dumping investigation. In LEU from France, U.S. interested parties requested the USDOC,
in calculating the margin of dumping, to deduct from the export price an amount corresponding to
countervailing duties that had already been imposed on the same product. The USDOC, consistent
with its established practice, rejected this request. The USDOC reasoned that (i) countervailing duties
are neither "import duties" nor "selling expenses" under the U.S. Tariff Act, such that the Act does not
require that they be deducted from the export price, and (ii) that deducting countervailing duties from
the export price "effectively would collect the CVDs a second time". The USDOC added in this
respect that "in the most general terms, the US Tariff Act stands for the proposition that dumping
margins should not be calculated so as to double-collect CVDs".
1082 We note that in Steel Wire Rod
from Korea , also cited by China, the USDOC examined the similar question of whether U.S. anti-
dumping law requires the deduction of safeguard duti es from the export price, and reached the same
conclusion, i.e., that it does not.1083
14.172 China also refers us to Tool Steel from Germany , a 1986 USDOC anti-dumping
determination.1084 In this determination, the USDOC rejected a request of U.S. interested parties that
in computing the cost of production and constructed value of an investigated producer, it include an
amount for subsidies which the producer had received from the German federal and state
governments. The USDOC took the position that it woul d be inappropriate to add the subsidies to the
producer's actual expenses, in other words, that it was appropriate to calculate the costs of production
on the basis of producers' reported costs of produc tion, even if those costs reflected the subsidies
received. The USDOC's determination makes no refe rence to the issue of double remedy: the sole
rationale provided for the USDOC's decision is that "the purpose of [U.S. anti-dumping law] is to
determine whether a company is selling at less than the cost of production, based on actual costs".
The USDOC determination in Tool Steel was appealed to the U.S. Court of International Trade ( Al

1081 In certain instances, China submitted only excerpts from the relevant determinations and we had to
retrieve the full text of the relevant decisions in order to properly understand the context in which the USDOC
decisions or statements cited by China were made. We re call that China bears the burd en of proof in respect of
factual assertions it makes, and therefor e that it is, in the first place, Chin a's responsibility to provide the Panel
with sufficient explanations and evidence to allow the Panel to make the required factual findings.
1082 The USDOC seems to have derived this "rationale" from the amendments the U.S. Congress made
to the Tariff Act to prevent the imposition of double remedi es with respect to export su bsidies in the context of
concurrent anti-dumping and countervailing duty investigations. The USDOC also noted prior U.S. court
decisions that relied on the same rationale for not deducting countervailing duties from U.S. prices in calculating
margins of dumping.
1083 Stainless Steel Wire Rod from the Republic of Korea: Final Results of Antidumping Duty
Administrative Review ("Steel Wire Rod from Korea"), Exhibit CHI-125, p. 19160. The Court of Appeals for
the Federal Circuit upheld the USDOC's interpretation of the statute as not requiring the deduction of safeguard
duties from the export price in Wheatland Tube Co. v United States . In its findings, the Court, inter alia, finds
"reasonable" the USDOC's conclusion that deducting safeguard duties from the export price would improperly
lead it to collect a double remedy. ( Wheatland Tube Company and Allied Rube & Counduit Corporation. v
United States ("Wheatland Tube"), Exhibit CHI-126, p. 1366). China's discussion of these two decisions is
limited to a sentence in footnote 332 of its first written submission.
1084 Tool Steel From the Federal Republic of Ge rmany; Correction to Early Determination of
Antidumping Duty, Exhibit CHI-127, pp. 10071-10072.

Tech Specialty Steel Corp. v. US )1085, which upheld it. The Court found that the USDOC's
interpretation of the U.S. Tariff Act was not unr easonable: the Court noted that administrative
practice and judicial precedent were inconsistent on th e issue but ultimately, it considered that to add
subsidies to a producer's costs of production woul d improperly blur the distinction between anti-
dumping and countervailing duty remedies by allo wing the USDOC to counteract subsidization
without complying with the requirements of the countervailing duty statute.1086
14.173 China also cites to the USDOC's preliminary determination in Certain Steel Products from
the Netherlands .1087 In this determination, "to avoid possible double-counting", the USDOC
subtracted from a respondent's production cost s the amount of subsidies received from the
government in the form of a grant, which had been preliminarily determined to be a subsidy in a
parallel countervailing duty case. The USDOC added that it considered this result to be consistent
with past practice and with a prior ruling of the U.S. Court of International Trade (in Connors Steel),
but provided no further explanations in this resp ect. The USDOC invited comments on its treatment
of this issue, but ultimately, the investigations were rescinded prior to the issuance of the USDOC's
final determination. 1088 Finally, China refers to the USDOC determinations in Certain Pasta from
Italy, Live Swine from Canada , and Red Raspberries from Canada 1089, as examples of instances in
which the USDOC allowed investigated producers to reduce their reported costs of production by the
amount of subsidies received. The USDOC's de terminations in these three cases contain no
discussion of the issue of double remedies; rather, the adjustments were seemingly made in
application of the USDOC's normal practice of allowing, as offsets to producers' G&A costs,
deduction of subsidies "attributable directly" to the production of the subject merchandise.
14.174 China characterizes these different cases as all pertaining to a single situation or issue, the
avoidance of a double remedy in respect of a particular act of subsidization. We disagree. We see the
determinations cited by China as pertaining to three distinct factual situations, and we do not consider
that they stand for the proposition that as a factual matter the United States takes all necessary steps to
avoid the imposition of double remedies in situations in which such double remedies are likely to
arise, or that it maintains a policy or practice of taking such steps.
14.175 The first situation, that in LEU from France a nd Steel Wire Rod from Korea, pertains to the
adjustments that should be made to the export price to arrive at an ex-factory price as a basis from
which to calculate a dumping margin. Specifically , in these investigations, the USDOC considered
whether other trade remedies (countervailing duties and safeguards, respectively) that already applied
to the product at issue were normal "customs duti es" (which would be deducted from the export price
in the course of the ex-factory calculation) or othe rwise were relevant to the determination of the
export price. The USDOC's conclusion was that making a deduction for these remedies would not be
appropriate as it would result directly and literally in collecting those other trade remedies twice. That
these past investigations do not pertain at all to th e issue of double remedies raised by China in this
claim is confirmed by the fact that the USDOC applied the same approach to the deduction of

1085 Al Tech Specialty Steel Corp. v. US ("Al Tech"), 651 F. Supp. 1421 (Ct. Int’l Trade, 1986) (no
exhibit provided by China).
1086 U.S. interested parties had argued that not taking subsidies into account would allow foreign
producers to evade anti-dumping disciplines.
1087 Preliminary Determination of Sales Not Less Than Fair Value: Certain Steel Products from the
Netherlands, Exhibit CHI-156.
1088 Certain Steel Products From Belgium, France, the Federal Republic of Germany, Italy,
Luxembourg, the Netherlands and the United Kingdom; Termination of Countervailing Duty and Antidumping
Investigations, Exhibit US-177, p. 49059.
1089 Notice of Final Determination of Sales at Less Than Fair Value: Certain Pasta from Italy , Exhibit
CHI-157; Issues and Decision Memorandum for the Final De termination in the Antiduping Duty Investigation
of Live Swine from Canada, Exhibit CHI-158; and Red Raspberries from Canada; Final Determination of Sales
at less Than Fair Value, Exhibit CHI-159.

safeguard duties as it did with respect to countervail ing duties. Instead, the determinations cited by
China stand for the narrower proposition that in performing dumping calculations, the USDOC does
not deduct existing countervailing duties or safeguard duties from export price. Further, we note that
China does not allege that the USDOC made de ductions for existing duties in the anti-dumping
investigations at issue in this dispute and thus treated imports from China differently than it treats
imports from market economies.
14.176 The other determinations cited by China pert ain to the question of the basis upon which the
USDOC calculates costs of production in anti-dumpi ng investigations on market economy imports:
The concern of the Court in Al Tech and – to the extent that it can be discerned from its determination
– that of USDOC in Tool Steel from Germany , seems to have been primarily that a producer's actual
costs should serve as the basis of dumping calculations – even if they reflect subsidization – and that
any subsidization allegations should be addressed not by an anti-dumping investigation but rather by a
countervailing duty investigation. Not only is the issue of double remedy per se not raised, but the
Court's concerns about the nature of the remedi es at issue and the need to avoid using the anti-
dumping statute to address questions of subsidization would be equally applicable in the absence of a
parallel countervailing duty investigation; in fact, there is no reference in either decision to the
USDOC conducting a concurrent countervailing duty inv estigation in that case, or to a countervailing
duty measure already being in place.
14.177 The remaining determinations address the same issue, on the basis of the same underlying
premise (the calculation of the normal value on the basis of actual costs), as in the USDOC
determination in Tool Steel and the court decision in Al Tech , but pertain to a different factual
situation, i.e., where a producer's reported costs of production do not reflect the subsidies that it has
received. The only case in which avoidance of a double remedy was mentioned by the USDOC,
Certain Steel Products from the Netherlands , is a preliminary determina tion and never resulted in the
imposition of a measure or collection of any duties.
1090 In the other cases (in which measures were
imposed) referred to by China in which deductions of subsidies from costs were allowed, those
allowances were treated as "offsets", a type of ad justment used in certain instances in U.S. anti-
dumping calculations. China has not demonstrated that this type of adjustment, pertaining to a known
amount of subsidy received by an investigated firm , is related to the question of avoidance of double
remedies. Hence, we conclude from these determinations that where the USDOC has allowed the
deduction of subsidies received by a firm from its reported costs of production, and imposed measures
on the basis of a methodology that allowed such de ductions, it did so on another basis than to avoid
the imposition of a double remedy.
14.178 In sum, the USDOC determina tions and court decisions in Tool Steel from Germany/Al Tech,
Certain Steel Products from the Netherlands , Certain Pasta from Italy, Live Swine from Canada , and
Red Raspberries from Canada are all instances of application, in two different factual circumstances,
of a USDOC policy to use a producer's actual costs in the calculation of costs of production and of
constructed normal values in anti-dumping investig ations of market economy imports. A similar
situation does not present itself in the context of USDOC anti-dumping investigations involving
imports from China: For imports from China, the USDOC uses surrogate costs which, by definition,
are not the producer's actual costs. Hence, the issue of adjusting reported costs to ensure that they
represent actual costs simply does not arise. Further, the USDOC methodology follows, in this
respect, the second Ad Note to Article VI:1 of the GATT 1994 (incorporated by reference in the AD
Agreement through Article 2.7) and Section 15(a) of China's Protocol of Accession, which recognize
that market-economy and NME imports are in diffe rent factual situations and for this reason,
explicitly allow the use of different methodologies – based on surrogate costs and prices – to calculate
dumping margins in respect of NME imports.

1090 See, e.g., Exhibit CHI-156, p.3.

14.179 For the foregoing reasons, we consider that none of the cases cited by China establishes as a
factual matter that the USDOC takes all necessary steps to avoid the risk of imposing a double remedy
in respect of a single act of subsidization whenever such a risk exists, or that the United States
maintains a policy or practice of taking such steps. Rather, as explained above, these determinations
establish narrower points: that in calculating dumping margins: (i) the USDOC does not deduct
countervailing duties or safeguard duties from the export price; and (ii) in the case of market economy
investigations, the USDOC constructs normal value and calculates costs of production on the basis of
a producer's actual costs of production.
14.180 Further, even if the determinations cited by China were considered relevant in establishing the
existence of the policy or practice alleged by China, it is significant that in all of the instances cited by
China, the existence of double remedies was a matte r of mathematical equivalency. In those
investigations, there was no question as to the amounts of subsidies received by the investigated firms.
That is, there was clear, verified record evidence of those amounts. By contrast, while we have found
above that the use of a surrogate value in principle reflects the use of unsubsidized costs, we also have
indicated that the precise extent to which the NME calculation captures any subsidization is a factual
issue which it could be difficult to ascertain. Fo r these reasons, we consider misleading China's
characterization of one aspect of the alleged "advantage" at issue as being that the USDOC does not,
in the case of investigations on imports from market economies, require any evidence of the existence
of a double remedy.
14.181 For the foregoing reasons, we consider that China fails to establish as a factual matter that, in
the context of certain anti-dumping investigations of market economy imports, the USDOC has taken
steps to ensure that it does not offset, through the calculation of anti-dumping duties, the same
subsidies that it simultaneously offsets through th e imposition of countervailing duties, or that the
USDOC has done so without requiring evidence of the existence of a double remedy. As a
consequence, China also fails to establish that the USDOC maintains a consistent "policy" or
"practice" of taking all necessary steps to avoid the imposition of double remedies in circumstances in
which there is a risk that one would arise. T hus, we find that China has failed to establish the
existence of the "advantage, favour, privilege, or immunity" which it alleges.
1091
14.182 The foregoing reasons suffice, in our view, to find that China has not established that the
United States acted inconsistently with the MFN obligation contained in Article I:1 of the GATT 1994
when, as a result of the investigations at issue, it concurrently imposed anti-dumping duties calculated
under the U.S. NME methodology and countervailing duties.1092

1091 In addition, we note that the "advantage" alleged by China is not the specific course of action (e.g.
adjustment or non-adjustment) taken by the USDOC in a specific instance. That is, China is asserting
discrimination in terms of the effects of certain behaviours (making adjustment "x" in anti-dumping calculation
results in a double remedy), rather than asserting discrimination in respect of the behaviours themselves
(USDOC makes adjustment "x" in market-economy calculations but not in NME calculations). In this sense,
China's claim would seem to depart from the typical claim of violation under Article I:1 of the GATT. In light
of our findings above, we need not determine whether the terms of Article I:1 of the GATT 1994 are broad
enough to allow a claim of this nature.
1092 Given these findings, we do not consider whether China had to demonstrate discrimination as
between "like products" in the context of its "as applied" claims under Article I:1 of the GATT 1994.

XV. CHINA'S CLAIM PERTAINING TO THE USDOC'S FAILURE TO PROVIDE AT
LEAST 30 DAYS TO REPLY TO THE NEW ALLEGATIONS AND
SUPPLEMENTAL QUESTIONNAIRES
A. C
LAIM OF CHINA
15.1 China claims that the USDOC failed to give China and other interested parties at least 30 days
to respond to the "supplemental" and "new allega tions" questionnaires issued by the USDOC in the
four countervailing duty investigations at issue, contrary to Article 12.1.1 of the SCM Agreement.1093
B. MAIN ARGUMENTS OF THE PARTIES
1. China
15.2 China submits that the term "questionnaires" in Article 12.1.1 of the SCM Agreement refers
not only to the first questionnaire issued in a countervailing duty investigation, but to "all"
questionnaires, without qualification. Therefore, China claims, the United St ates acted inconsistently
with this provision by failing to give China and inv estigated producers at least 30 days to reply to the
"supplemental" and "new allegations" questionnaires i ssued by the USDOC in the four investigations
at issue.1094
15.3 China considers its interpretation of Article 12. 1.1 to be the only one consistent with the
ordinary meaning of that provision, read in the c ontext of Article 12 as a whole. China submits that
the ordinary meaning of the word "questionnaire" is "[a] formulated serie s of questions by which
information is sought from a selected group, usually for statistical analysis; a document containing
these", and asserts that both the "supplemental" and "new allegations" questionnaires qualify as
"questionnaires" under the ordinary meaning of this term. 1095 China adds that the term
"questionnaires" in the plural form in Article 12. 1.1 should be given its ordinary meaning. If the
drafters had intended to refer to the issuance of a single questionnaire, they would have so indicated
explicitly by using phrases such as "a questionnaire" or "the initial questionnaire". China therefore
contends that the minimum 30 days for reply appli es to all questionnaires used in an investigation. 1096
China further considers that read in context, Ar ticle 12.1.1 gives content to the "ample opportunity"
requirement in Article 12.1 by requiring that interest ed parties be given at least 30 days to reply to
questionnaires, and that given that it has no caveats, this entitlement applies to all questionnaires used
in a countervailing duty investigation. This right , China argues, constitutes one of the due process
rights in Article 12 of the SCM Agreement that the Appellate Body has held "are enjoyed by
interested parties throughout an investigation".1097
15.4 On this basis, China submits that the reasoning of the unappealed panel report in Egypt – Steel
Rebar, which concluded that in anti-dumping investiga tions the only questionnaire to which the 30-

1093 Paragraph B.1(g)(ii) of the "as applied" claims in China request for establishment of the Panel;
China first written submission, para. 468 (m); second written submission, para. 315 (m).
1094 China first written submission, paras. 444 and 447.
1095 Id., para. 445. China argues that "questionnaires" in Article 12.1.1 should be interpreted in
accordance with this ordinary meaning su ch that if a document represents "a formulated series of questions by
which information is sought", then it is a questionnaire, and if it is used in a countervailing duty investigation,
then the 30-day requirement under Article 12.1.1 must be provided. China submits that the inquiry under
Article 12.1.1 is whether (i ) the document received by an interested party is a questionnaire; and (ii) whether
this questionnaire was used in a countervailing duty inves tigation. (China response to Panel question 107 (first
meeting) and question 36 (second meeting)).
1097 Id., paras. 448-449, citing to Appellate Body Report on Mexico – Anti Dumping Measures on Rice,
para. 292.

day requirement applies is the initial questionnaire, is not persuasive and therefore should not be
followed in the present dispute. More specifically, China argues, inter alia, that that panel did not
have the benefit of the Appellate Body's decisi ons which collectively have emphasized that the
procedural and due process obliga tions under Article 12 apply "through out an investigation", and that
the panel's interpretation disregarded the ordinary meaning of the term "questionnaires", as well as the
balance that the AD and SCM Agreements seek to achieve.1098
15.5 According to China, its interpretation of Ar ticle 12.1.1 of the SCM Agreement is also
consistent with the balance that Article 12 of the SCM Agreement strikes between, on the one hand,
the due process rights of interested parties and, on th e other hand, the right of investigating authorities
to proceed expeditiously. A different interpretati on of Article 12.1.1, Chin a alleges, would give
investigating authorities an "unfettered discretion" as, inter alia , in the name of completing their
investigations expeditiously, they could issue any number of extensive questionnaires with short
periods for reply, for example, the far less than 30 days granted by the USDOC for replies to the
various supplemental and new allegatio ns questionnaires issued in the investigations at issue in the
present dispute. 1099 In China's view, the 30-day period to respond to all questionnaires used in an
investigation ensures that investigating authoriti es comply with their deadlines for completing the
investigations without imposing unrealistic and inappropriate burdens on questionnaire recipients.1100
15.6 China submits that even accepting arguendo that the 30-day requirement in Article 12.1.1
applies only to the "full initial questionnaire", the US DOC failed to give at least 30 days to respond to
the "first" new allegations questionnaires issued in the investigations. China argues that the "first"
new allegation questionnaires issued by the USDOC in the investigations at issue qualify as the first
questionnaire in the newly initiated "investigations " with respect to new subsidy allegations.
According to China, the USDOC opens up an entirel y new avenue of inquiry when it initiates an
investigation into new subsidy allegations, and the questionnaires it uses neither supplement a
previous inquiry nor are related in any way to prio r questionnaires. China explains that therefore
"new allegations questionnair es" are indistinguishable fro m "full initial questionnaires". 1101 C h i n a
adds that the similarity between those questionnaires lies in the nature of the questions and the level of
detail required from respondents.1102
2. United States
15.7 The United States considers that there is no obligation under Article 12.1.1 of the SCM
Agreement to provide the minimum 30-day period for reply to supplemental and new allegations

1098 China first written submission, para. 451; response to Panel question 107 (first meeting).
1099 China first written submission, paras. 450 and 452 . China points, in particular, to the LWS and
OTR countervailing duty investigations, where the new allegations questionnaires issued by the USDOC
contained questions about twelve and ten new subsidy programmes, respectively. As regards supplemental
questionnaires, China indicates that these were not only quite extensive but also did not include mere "follow-
up" inquiries. (China first written submission, paras. 453-456).
1100 Id., paras. 450. According to China, providing the minimum 30-day period for reply to all
questionnaires would not prevent investigating authorities from finishing their investigations within the
timeframes allowed under the SCM Agreement, but rather, doing so would ensure that investigating authorities
consider carefully the information th ey require and draft their questionnaires accordingly. For instance, if
allowing 30 days for reply to new allegations questionnaires would impede the USDOC's completion of its
investigations, the United States should reconsider its policy of allowing petitioners to file new subsidy
allegations during the course of the investigations. (Id.; response to Panel question 36 (second meeting)).
1101 For example, China submits that in virtually every case, the new allegations questionnaires
included the so called Appendix 1, i.e., a list of "Stand ard Questions", which respondents must fill out with
respect to the subsidy programmes initiated at the outset of the investigation. (China first written submission,
footnote 364; second written submission, paras. 311-313).
1102 China response to Panel question 105 (first meeting).

questionnaires. According to the United States, "questionnaires" in Article 12.1.1, for which
investigating authorities must provide at least 30 days for reply, refers to the questionnaire issued at
the outset of an investigation, and not to subsequent requests for information.
1103
15.8 First, the United States submits that the ordinary meaning of the word "questionnaire" is "[a]
formulated series of questions by which informatio n is sought from a selected group, usu[ally] for
statistical analysis", and that this meaning enco mpasses only "formal requests for information" by an
investigating authority in the form of a "series of questions". Second, the Un ited States argues that
the context of Article 12.1.1, namely paragraphs 6 and 7 of Annex VI to the SCM Agreement,
clarifies that a "questionnaire" in the sense of Artic le 12.1.1 only refers to the questionnaire issued at
the outset of an investigation, and not to every s ubsequent request for information by investigating
authorities, even if such subsequent requests take th e form of a "series of questions". According to
the United States, paragraphs 6 and 7 of Annex VI cl early show that not every request for information
constitutes a "questionnaire" to which the minimum 30-day requirement for response applies, and that
by referring to the term "the questionnaire" in th e singular in Annex VI, Members contemplated the
existence of only one document to be consider ed "the questionnaire" for purposes of the SCM
Agreement.1104 According to the United States, the exp licit reference to "the questionnaire" in
Annex VI further supports its view that the term " questionnaires" in the plural form in Article 12.1.1
refers to the recipients in the plural; that is, Me mbers, foreign producers, exporters. While it agrees
with China that Members could have used words lik e "the initial questionnaire" instead of the term
"questionnaires", it further argues that had the draf ters of the Agreement intended the interpretation
advanced by China, they could have done so by sa ying "[a]ny exporter, foreign producer or interested
Member receiving questionnaires".1105
15.9 In the view of the United States, the single doc ument referred to in Annex VI could only be
the questionnaire issued at the outset of an investig ation. Given that this questionnaire requires more
extensive information than subsequent requests for information, it is thus logical that the 30-day
requirement for reply in Article 12.1.1 only refers to the questionnaire issued at the outset of the
investigation.1106 The United States also notes that if all re quests for information were subject to the
30-day requirement under Article 12.1.1, investig ating authorities would be prevented from seeking
supplemental information from interested parties 1107; from completing investigations within the
timeframes established in Article 11.11 1108; and/or from granting any extensions of time for replies as
encouraged by Article 12.1.1.1109

1103 United States first written submission, paras. 47 5 and 482; second written submission, para. 226;
response to Panel question 36 (second meeting). The Un ited States argues that the Government of China and
respondents were given at least 30 days to reply to the questionnaire that the USDOC issued at the outset of the
investigations at issue, and ther efore, the USDOC complied with Article 12.1.1 of the SCM Agreement.
(United States first written submission, para. 484).
1104 Id., paras. 476-478; response to Panel question 36 (second meeting).
1105 United States first written submission, para. 486.
1106 Id., para. 479. The United States notes in this rega rd that in each of the investigations at issue, the
questionnaire issued by the USDOC at the outset of the investigations posed far more questions than any
subsequent request for information. (Id., footnote 632).
1107 In particular, the United States observes that subsequent requests for information are (i) one means
by which investigating authorities "give notice of the information" that they require and (ii) a mechanism by
which interested parties are provided with the "opportun ity" to submit evidence, and that China's interpretation
would therefore prevent investigating authorities from ma king such requests for information, thereby denying
interested parties some of the very "notice" and "oppor tunity" mandated in Article 12.1 of the SCM Agreement.
(Id., paras. 475 and 488).
1108 According to the United States, meeting the ti meframes imposed by the SCM Agreement becomes
even more difficult when a re spondent fails to answer questions posed in the initial questionnaire; for instance,
if a 30-day period would have been required for each of the follow-up requests for additional information made

15.10 The United States also considers that China's interpretation of Article 12.1.1 ignores the other
provisions of the SCM Agreement that ensure th e due process rights of interested parties in
proceedings before investigating authorities. In particular, the United States observes that
Article 12.1, which provides that interested par ties "be given notice of the information which the
authorities require and ample opportunity to present in writing all evidence which they consider
relevant", ensures that subsequent requests fo r information are not subject to unreasonable time
constraints that would prevent interested par ties from adequately defending their interests. 1110 T h e
United States argues that in light of this, its interpretation of Article 12.1.1 would not give
investigating authorities some sort of "unfettered discretion" as China contends, but rather, would give
interested parties a meaningful amount of time to reply to the most comprehensive questionnaire
issued in an investigation, i.e., the questionnaire at the outset of the investigation, while providing
interested parties with sufficient opportunities to be informed of the additional information needed in
an investigation and therefore to be better positioned to provide relevant evidence.1111
15.11 Lastly, the United States rejects China's argument that new allegations questionnaires are
indistinguishable from initial questionnaires. Ac cording to the United St ates, China's contention
overlooks the conceptual difference between the two types of questionnaires, i.e., an initial
questionnaire is issued at the outset of an inves tigation and includes not only questions about specific
programmes but also general (non-programme specific) questions, while a new allegation
questionnaire is issued in the course of an investig ation and includes questions only with respect to a
specific programme (or programmes). In any case, the United States contends that China has not
demonstrated that these questionnaires are indistinguishable.1112
C. MAIN ARGUMENTS OF THE THIRD PARTIES
1. Argentina
15.12 Argentina agrees with China that the minimum 30-day period for reply in Article 12.1.1 of the
SCM Agreement applies to all "questionnaires" i ssued in an investigation, including the "new
allegation" questionnaires. According to Argentina, this interpretation is consistent with the due
process principle of "ample opportunity" in Article 12.1 of the Agreement.1113

in the course of the investigations at issue, the USDOC would have required between 240 and 540 days only for
the collection of most of the relevant factual information with respect to subsidization. In this light, China's
interpretation of Article 12.1.1 would compel investigatin g authorities to resort to facts available, rather than
giving interested parties multiple opportunities to provide information that they have failed to submit in previous
questionnaires. (United States first written submission, paras. 480-481; response to Panel question 36 (second
meeting); comments on China's response to Panel question 36 (second meeting)).
1109 United States first written submission, para. 484. The United States finds support for its
interpretation in the Panel Report in the Egypt –Steel Rebar case in which the panel arrived at the same
conclusion with regard to the term "questionnaires" in Article 6.1.1 of the AD Agreement by noting, inter alia,
the use of the term "the questionnaire" in Annex I to the AD Agreement and the practical difficulties that would
result if Article 6.1.1 were to cover requests for information other than the questionnaire issued at the outset of
an investigation. (Id., para. 483, citing to Panel Report on Egypt – Steel Rebar, paras. 7.276-7.277).
1110 According to the United States, had China considered that it was denied such an opportunity in
respect of the new allegations questionnaires, it could have raised that claim.
1111 United States first written submission, para. 489; second written submission paras. 234-235;
comments on China's response to Panel question 36 (second meeting).
1112 In particular, the United States argues that China's reliance on questions from only two of the four
investigations at issue as well as its narrow focus on the "nature" and "level of detail" of questions do not show
that new allegations and initial questionnaires are indis tinguishable. (United States first written submission,
footnote 633; second written submission paras. 228-233; comments on China's response to Panel question 36
(second meeting)).
1113 Argentina third-party submission, paras. 63-64.

2. Canada
15.13 Canada, recalling the findings of the panel in Egypt – Steel Rebar , considers that the 30-day
requirement in Article 12.1.1 of the SCM Agreement only applies to the initial questionnaire issued in
an investigation. Canada considers that this inte rpretation is supported by the context of Articles 12.1
and 12.1.1 of the Agreement. Canada notes, inter alia, the implications for respondents of a broader
interpretation of Article 12.1.1: investigating au thorities required to respect the timeframes imposed
by Articles 11.11 and 12.12 might refrain from ask ing follow-up questions or pursuing new lines of
questioning, and rely instead on facts available. Ca nada is also of the view that while the "ample
opportunity" requirement in Article 12.1 applies throughout the course of an investigation,
Article 12.1.1 deals only with one particular instan ce during the investigation (i.e., the issuance of the
initial questionnaire) where "ample" means at least 30 days, and that other questions arising during
the investigation are subject to the general "ample opportunity" requirement.
1114
3. European Communities
15.14 The European Communities considers that Artic le 12.1.1 of the SCM Agreement should be
interpreted in light of the chapeau provided by Ar ticle 12.1, and notes, in this regard, that the
Appellate Body has highlighted that interested parties must be afforded "ample opportunity" for
presentation of evidence, but that it does not imply that interested parties have "indefinite" rights so as
enable them to submit relevant evidence as and when they choose. Therefore, the European
Communities is of the view that Article 12.1 requir es an "adequate balance" between the rights given
to interested parties, on the one hand, and the obligation for the authorities to conclude their
investigations in a timely manner, on the other ha nd. According to the Eu ropean Communities, this
analysis should be made on a case-by-case basis a nd on reasonable grounds, i.e., deadlines to reply to
questions should be proportionate to the amount and complexity of the information requested.1115
D. ASSESSMENT BY THE PANEL
15.15 This claim by China raises two main issues. The first is the meaning of the term
"questionnaires" in Article 12.1.1, to which the 30-day minimum period for reply applies. The second
is whether the "supplemental" and/or "new allegation" questionnaires issued in the four countervailing
duty investigations before the Panel are "questionn aires" in the sense of Article 12.1.1, and thus
should have been subject to that provision's 30-day minimum reply period. We take these issues up in
turn.
1. Interpretation of the term "questionnai res" in Article 12.1.1 of the SCM Agreement
15.16 Concerning the meaning of the term "ques tionnaires" in Article 12.1.1 of the SCM
Agreement, we note at the outset that China does not dispute that the United States complied with its
obligation under Article12.1.1 to give to the Govern ment of China and investigated producers at least
30 days to respond to the initial questionnair es used in the investigations at issue. 1116 Rather, what
China challenges is that the United States failed to provide China and investigated producers at least
30 days to reply to the so-called "supplemental" and "new allegation" questionnaires issued during the
course of the investigations.
15.17 For the purpose of this dispute, we understand the parties to be referring to the following
terms in accordance with the following meanings: (i) "initial " questionnaire or "questionnaire issued
at the outset of an investigation" as the firs t comprehensive questionnaire issued once the

1114 Canada third-party submission, paras. 65-70.
1115 European Communities third-party submission, paras. 65-69.

investigation has been initiated; (ii) "supplemental " questionnaire as a questionnaire containing
follow-up inquiries to questions posed in a pr ior questionnaire; and (iii) "new allegation "
questionnaire as the first questionnaire issued in respect of each new subsidy allegation filed during
the course of an investigation.1117
15.18 For China the term "questionnaires", and thus the 30-day rule, in Article 12.1.1 applies not
only to the initial questionnaire issued at the outset of an investigation, but to "all" questionnaires,
including supplemental and new alle gations questionnaires. For the United States, on the other hand,
the 30-day rule applies only to the comprehensive questionnaire issued at the outset of an
investigation and not to any subsequent requests for information, even if these are in the form of a
formulated series of questions.
15.19 We first consider the relevant text of Article 12.1 of the SCM Agreement:
"12.1 Interested Members and all inte rested parties in a countervailing duty
investigation shall be given notice of the information which the authorities require
and ample opportunity to present in writing a ll evidence which they consider relevant
in respect of the investigation in question.
12.1.1 Exporters, foreign producers or interested Members
receiving questionnaires used in a co untervailing duty investigation
shall be given at least 30 days for reply.
40 Due consideration should
be given to any request for an extension of the 30-day period and,
upon cause shown, such an extension should be granted whenever
practicable".
Agreement mean that not every "formal request for information in the form of a series of questions" is
a "questionnaire" in the sense of Article 12.1.1.

1117 We note that under U.S. law, the applicant or other domestic interested party in a countervailing
duty investigation may file a "new subsidy allegation" no later than 40 days before the scheduled date of the
preliminary determination. (Exhibit CHI-130).
1118 The parties refer to The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press,
1993), Vol. II, p. 2447. (Exhibits CHI-134 and US-95).

15.22 We note that the above dictionary definitio n of "questionnaire" contains no limits or
qualifications, such that on its face it would encompass any
 request for information in the form of a
formulated series of questions. This definition on its own thus w ould not exclude "supplemental" and
"new allegation" questionnaires. In our view, howeve r, this definition by itself is not sufficient to
ascertain the meaning of "questionnaires" as used in Article 12.1.1 of the SCM Agreement. In
general, we consider that dictionary definitions, while useful, are not dispositive of the meaning of
terms that appear in the WTO Agreements. 1119 Rather, the meaning of such terms can only be
discerned by reference to their context and in the light of the object and purpose of the agreement in
question.
1120 We thus now turn to this further analysis.
15.23 A number of provisions of the SCM Agreement, starting with Article 12 including its overall
structure, provide relevant context for interpreting the term "questionnaires" in Article 12.1.1 of the
SCM Agreement. In the first place, Article 12, en titled "Evidence", contains a series of evidentiary
rules, including as to the requesting, receipt and ha ndling of evidence by investigating authorities, the
particular subject of Article 12.1 of the SCM Agreem ent. In this regard, the chapeau of Article 12.1
establishes two overarching re quirements: that interested Member s and parties be given (i) "notice"
of the information required of them by the auth orities; and (ii) "ample opportunity to present in
writing all evidence which they consider relevant". Neither of these requirements is circumscribed in
any way, in terms of form or time period. In particular, the notice requirement places no limits on
how, precisely, an investigating authority must requ est the information it requires, and thus seems to
envisage different possible types of information requests. The ample opportunity requirement also
contains no specific limits, and indeed extends beyond responses to requests from investigating
authorities, to encompass the provision of informati on by an interested Member or party at its own
initiative. Where an information request from an inv estigating authority is concerned, in our view the
word "ample" must be understood to mean "ample" in the light of the specific nature and scope of that
request, something that by its very nature can only be determined on a case-by-case basis.
15.24 Turning to Article 12.1.1, in our view, the te rm "questionnaires" in that provision represents
one specific case within the overarching "notice" re quirement in the chapeau. Similarly, the 30-day
rule for response to questionnaires represents one specific case within the overarching "ample
opportunity" requirement. That is, in the particular case of "questionnaires" the "ample opportunity"
is explicitly defined as the "minimum of 30 days", with an additional mandatory period of one week
for questionnaires to exporters, per footnote 40, accompanied by a general encouragement for the
granting of extensions of these periods upon cause show n. Thus, while the chapeau of Article 12.1 in
conjunction with Article 12.1.1 do not directly address the meaning of the term "questionnaires" in
Article 12.1.1, in our view the fact that the " questionnaires" subject to the specific 30-day "ample
opportunity" rule are only one of the possible means of providing notice to interested parties of the
information required suggests that not every re quest for information falls within the term
"questionnaires" in Article 12.1.1 of the SCM Agreement.
15.25 Footnote 40 to Article 12.1.1 of the SCM Agre ement provides further indications in this
direction. As noted, this footnote lengthens the 30-day rule by one week for questionnaires to
exporters, providing generally th at "the time-limit for exporters
 shall be counted from the date of
receipt of the questionnaire, which for this purpose shall be deemed to have been received one week

1119 See, e.g., Appellate Body Report on US – Offset Act (Byrd Amendment) , para. 248; cited with
approval in Appellate Body Report on China – Publications and Audiovisual Products, para. 348.
1120 We recall that Article 31(1) of the Vienna Convention provides in relevant part that:

"A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of its object and purpose".

See also Appellate Body Report on China – Publications and Audiovisual Products, para. 348.

from the date on which it was sent to the respondent". Most relevant to our inquiry is the formulation
in the singular of the reference to "the questionnaire" for "exporters". That is, this provision seems to
envisage one particular kind of questionnaire destined to all of the exporters. The formulation in
Article 12.1.1 of "exporters, foreign producers or interested Members receiving questionnaires" seems
to be an extended version of the formulation in fo otnote 40, suggesting that the term "questionnaires"
(plural) in this Article refers to the different ki nds of questionnaires sent to the different kinds of
recipients referred to (exporters, foreign producers, and interested Members). In other words, this
phrase in Article 12.1.1 could be seen as a collective reference to the questionnaire for the exporters,
the questionnaire for the foreign producers, and th e questionnaire for the interested Members. This
view finds further support in the use of the definite article "the" before "questionnaire" in footnote 40.
Had the drafters intended the term "questionnair es" in Article 12.1.1 to refer to any and all
information requests in the form of a series of qu estions, one might more naturally expect either a
plural formulation, or an indefinite formulation such as "any" or "a" "questionnaire", in footnote 40.
15.26 The same singular, definite formulation ("the qu estionnaire") appears in the other references
to "questionnaire" in the provisions of the SC M Agreement pertaining to countervailing measures 1121,
i.e., paragraphs 6 and 7 of Annex VI. In particular, paragraph 6 re fers to "[v]isits to explain the
questionnaire". Paragraph 7 provides that a veri fication visit "should be carried out after the response
to the questionnaire has been received". These provisions do not refer to the term "questionnaire" as
"a questionnaire" or "any questionnaire" or "ques tionnaires" in the abstract, although any of these
formulations would have been grammatically correct.
15.27 To us, these contextual elements suggest that the term "questionnaires" in Article 12.1.1 refers
to one kind of document in an investigation th at constitutes "the" questionnaire for each kind of
questionnaire recipient referred to (exporters, foreign producers, and interested Members). This, in
turn, suggests that not every formulated series of questions from an investigating authority during the
course of an investigation is subject to the 30-day minimum period for reply required by
Article 12.1.1 of the Agreement.
15.28 We now consider which particular documents constitute the "questionnaires" to which the 30-
day rule applies. In our view, the same contextu al elements discussed above aid in answering this
question. In particular, the reference in para graph 6 of Annex VI to "visits to explain the
questionnaire" suggests that such a questionnaire is a substantial information request (to warrant a
possible on-the-spot visit by the investigating author ity to a foreign country purely for the purpose of
explaining it). This provision further suggests that the questionnaire is sent to the respondent entity
relatively early in the investigation (logically, an explanatory visit would only take place upon or after
receipt of the questionnaire, and to be useful pr esumably it would need to take place well in advance
of the due date for the response, and well in adva nce of any verification visit as referred to in
paragraph 7). The provision in pa ragraph 7 of Annex VI that, because the main purpose of the on-the
spot investigation is to "verify information provi ded or obtain further details" normally that visit
should take place "after the
 response to the questionnaire has been received", provides a further
indication both that "the questionnaire" is a substa ntial and significant enough information request to
warrant a verification visit, and that it is sent ear ly in the investigation. The reference to the
verification visit in the singular ("the on-the-spot investigation"), and the advance notice and
agreement requirements related to such a visit, refe rred to in Article 12.6 of the SCM Agreement, and
paragraphs 2, 3, 4, 5, and 7 of Annex VI, indicat e, similarly, that the verification visit itself is
substantial and significant, not something that can be done lightly, or that is likely to occur frequently

1121 The "questionnaire" referred to in Article 25 of the SCM Agreement is the "questionnaire on
subsidies" to be used by Members to notify their subs idies to the SCM Committee, and thus is not related to
countervailing measures.

over the course of an investigation.
1122 These textual signals of the weightiness of a verification visit
provide a further indication that "the response to the questionnaire" which paragraph 7 identifies as a
main focus of the visit also is substantial and si gnificant, as otherwise such a visit would not be
warranted.
15.29 While the SCM Agreement does not explicitly indicate which document constitutes the
substantial and significant information request referred to in the SCM Agreement as "the
questionnaire", we consider that the above elements taken together suggest that this is the initial
comprehensive countervailing duty questionnaire issued to an interested Member and each of the
different kinds of interested parties by an inves tigating authority at or following the initiation of an
investigation, which questionnaire seeks information as to all relevant issues pertaining to the main
questions that will need to be decided (subsidizati on of the product, injury and causation). Of course,
as discussed above, the Agreement recognizes th at there will be variations in the initial
comprehensive questionnaires sent to the different kinds of questionnaire recipients (including
exporters, foreign producers, and interested Member s), reflecting these parties' different natures,
activities and roles. Furthermore, depending on how a Member organizes its own conduct of
countervailing duty investigations, there may be separate initial comp rehensive questionnaires
covering the subsidy-related issues and the injury and causation-related issues, and we consider that
the initial comprehensive document or set of docum ents covering all of these issues are encompassed
by the term "questionnaires" in Article 12.1.1.
1123
15.30 Furthermore, we recall that Members are require d under the chapeau of Article 12.1 to give
interested parties notice of the information required for the conduct of the investigation, and Members
also are generally required (as set forth in the va rious provisions of the SC M Agreement) to conduct
their investigations and reach their determinations on the basis of verified "evidence", and within a
maximum overall timeframe. The amount and comple xity of the information needed to conduct a
countervailing duty investigation in accordance with the multilateral rules, and the need for that
information ultimately to be subject to some sort of verification process (through a visit or otherwise)
before it can be relied upon 1124, implies the use of a comprehensive questionnaire (or set of such
questionnaires for the different kinds of questionnaire respondents)1125 at the outset of an investigation
as the basis for gathering the necessary information.1126

1122 We do not mean to imply that the SCM Agreement prohibits multiple verification visits to a given
entity during the course of an investig ation, but rather to emphasize that due to the weightiness of the exercise
an investigating authority would be unlikely to conduct multiple visits.
1123 This would likely be the case, for example, where separate agencies are responsible for the
subsidization and injury/causation sides of an investigation.
1124 While the SCM Agreement does not require verification visits as such, Article 12.5 requires that
investigating authorities "shall during the course of an in vestigation satisfy themselves as to the accuracy of the
information supplied by interested Members or interested parties upon which their findings are based".
1125 We emphasize that it is the comprehensive nature of the questionnaire(s) issued at the outset of an
investigation and not necessarily its exact timing that we find determina tive here. In particular, different
Members may circulate other kinds of "questionnaires" with a very narrow focus (aimed, for example, at
determining whether sampling will be necessary) at the very outset of an investigation. Such narrow requests
for information would not, in our view, fall within the meaning of the term "questionnaires" in Article 12.1.1.
1126 We note that the use of a questionnaire at the very outset of an investigation is more explicitly
provided for in the AD Agreement (in paragraph 1 of Annex II, concerning "Best Information Available"): "As
soon as possible after the initiation of the investigation, the investigating authorities should specify in detail the
information required from any interested party and the manner in which that information should be structured by
the interested party in its response". We recognize th at the SCM Agreement contains no analog to Annex II of
the AD Agreement, but recall the statement by the Appellate Body in Mexico – Anti Dumping Measures on Rice
that conditions relative to the use of facts available si milar to those in Annex II to the AD Agreement apply
under the SCM Agreement. While the issue decided by the Appellate Body was different from the one before
us, we consider the general indication in Annex II of th e AD Agreement that at the very outset the investigating

15.31 Our reading of the term "questionnaires" based on the text and context of Article 12.1.1 is
identical to that reached by the panel in Egypt – Steel Rebar in respect of the same term,
"questionnaires", in Article 6.1.1 of the AD Agr eement (the analog to Article 12.1.1 of the SCM
Agreement).1127 In that case, the panel rejected Turkey's claim that follow-up questions to the original
questionnaire responses and requests for new inform ation constituted "questionnaires" within the
meaning of Article 6.1.1 of the AD Agreement. The panel found strong contextual support in
paragraphs 6 and 7 of Annex I of the AD Agreement for concluding that the term "questionnaires" in
Article 6.1.1 refers only to the original questionnair e sent to interested parties at the outset of an
investigation.1128 The panel also noted that if only some, but not all, other requests for information
were considered "questionnaires", investigating authorities would be unable to determine which of
their further requests for information were subject to the 30-day rule in Article 6.1.1. On the other
hand, the panel considered that if all requests for information were to be considered "questionnaires"
in the sense of Article 6.1.1, it could be impossible for an investigation to be completed within the
maximum time limits imposed by the Agreement.1129
15.32 We consider that the last two points made by the panel in Egypt – Steel Rebar (with which we
agree) speak to the object and purpose of the provision, and more generally, of the countervailing duty
rules (the counterpart to the anti-dumping rules that were the subject of that dispute). Starting with
the first point, we note that the SCM Agreement c ontains no guidance as to how to determine which
requests for information other than the initial comp rehensive questionnaire or set of questionnaires
would be subject to the 30-day rule in Article 12.1. 1 of the SCM Agreement. Thus, to treat some but
not all such further requests for information (i.e., other than the initial comprehensive questionnaire or
set of questionnaires) as subject to the 30-day rule in Article 12.1.1 would introduce enormous
procedural uncertainty for both investigating author ities and interested parties and Members. This
would be inconsistent with the Agreement's ge neral emphasis on due process, in Article 12 and
elsewhere.
1130 As for the second point, if all requests for information by investigating authorities were

authority should present to interest parties its deta iled request for information is equally pertinent to
countervailing duty investigations, and is important for due process. (Appellate Body Report on Mexico – Anti
Dumping Measures on Rice , paras. 290-295).
1127 In light of the almost identical wording of Article 6.1.1 of the AD Agreement with Article 12.1.1 of
the SCM Agreement, we consider that the Egypt – Steel Rebar panel's reasoning is fully applicable to the issue
before us.
1128 Panel Report on Egypt – Steel Rebar, paras. 7.275-7.276.
1129 The Egypt – Steel Rebar panel stated:

"If any requests for information other than the initial questionnaire were to be considered
'questionnaires' in the sense of Article 6.1.1, a number of operational and logistical problems
would arise in respect of other obligations under the AD Agreement. First, there is no basis in
the AD Agreement on which to determine that so me, but not all, information requests other
than the initial questionnaire also would constitute 'questionnaires'. Thus, even if an
investigating authority was not obligated to provide the minimum time-period in Article 6.1.1
in respect of every request for information, it would not be able to determine from the
Agreement which of its requests were and were not subject to that time-period. On the other
hand, if all requests for information in an inves tigation were 'questionnaires' in the sense of
Article 6.1.1, this could make it impossible for an investigation to be completed within the
maximum one year (or exceptionally, 18 months) allowed by the AD Agreement in
Article 5.10. Moreover, a 30- or 37-day deadline for requests for information made in the
context of an on-the-spot verification -- i.e., the 'obtain[ing of] further details' explicitly
referred to in Article 6.7 [...] as one of the purposes of such verifications -- obviously would
be completely illogical as well as unworkable." (Id., at para. 7.277).

1130 See, for example, Appellate Body Report in Mexico – Anti Dumping Measures on Rice : "[...]
Article 12 of the SCM Agreement as a whole 'set[s] out evidentiary rules that apply throughout the course of the

"questionnaires" within the meaning of Article 12.1.1, and thus subject to the 30-day minimum
response period, investigating authorities often would find themselves having to choose between
seeking the most accurate and complete informat ion, so as to ensure a sound basis for their
determinations at the risk of exceeding the allo wed timeframe in Article 11.11 for completing their
investigations, on the one hand, or completing their investigations within the allowed timeframe, but
on the basis of poor quality and/or incomplete in formation, on the other hand. Neither alternative
would be in the interest of investigating authorities or interested Members and parties.
1131
15.33 In this regard, we recall that in consider ing similar questions, the Appellate Body has
consistently taken into account the balance of the du e process rights of interested parties contained in
Article 12 of the SCM Agreement against the need of investigating authorities to control the conduct
of the investigation and to carry out the multiple steps required to reach a timely completion of the
investigation. For example, in Mexico – Anti-dumping Measures on Rice, the Appellate Body stated
that:
"[T]he due process rights in Article 6 of the AD Agreement [the analogous provision
to Article 12 of the SCM Agreement]—which include the right to 30 days for reply to
a questionnaire—'cannot extend indefin itely' but, instead, are limited by the
investigating authority's need 'to 'control th e conduct' of its inquiry and to 'carry out
the multiple steps' required to reach a timely completion' of the proceeding".1132
15.34 We note the specific elements of the balance stru ck in Article 12 in this regard. From the
point of view of the investigating authority, first, an interpretation of the term "questionnaires" in
Article 12.1.1 as going beyond the initial comprehensive questionnaire or set of questionnaires in an
investigation is difficult to reconcile with the ex tension requirement under the second sentence of that
provision.1133 In particular, if a minimum 30-day period applied to all requests for information, any
extensions of this time-limit pursuant to Article 12.1.1 would compromise the possibility to complete
an investigation within the required timeframes. Si milarly, as noted, pursuant to Article 12.5 of the
SCM Agreement investigating authorities must " satisfy themselves as to the accuracy of the
information supplied" upon whic h their findings will be based. One means by which investigating
authorities may satisfy this "accuracy" requirement is by requesting clarifications and/or additional
information. If all such requests were questionnair es within the meaning of Article 12.1.1, and thus
subject to the 30-day rule, this again would impede the timely completion of the investigation.
Furthermore, applying the 30-day rule to all re quests for information would be at odds with
Article 12.12 of the SCM Agreement, which gene rally provides that the procedures set out in
Article 12 are not intended to prevent investiga ting authorities from "proceeding expeditiously" to
reach a preliminary or final determination.

[...] investigation, and provide[s] also for due process rights that are enjoyed by 'interested parties' throughout
[...] an investigation'". (Appellate Body Report on Mexico – Anti Dumping Measures on Rice, para. 292).
1131 The United States emphasises this point, arguing that meeting the timeframes imposed by
Article 11.11 becomes even more difficult where respondents fail to answer questions posed in the initial
questionnaire; for instance, if the 30-day rule would have applied to each of the follow-up requests for
additional information made in the investigations at issue, the USDOC would have required between 240 and
540 days only for the collection of most of the relevant factual information with respect to subsidization, and
given the subsequent phases of the proceeding, the USDOC w ould have been unlikely to meet the timeframes
established in Article 11.11. (United States first wr itten submission, paras. 480-481) China does not contest
this.
1132 Appellate Body Report on Mexico – Antidumping Measures on Rice , para. 282 (quoting Appellate
Body Report on US – Oil Country Tubular Goods Sunset Reviews , para. 242, in turn quoting Appellate Body
Report on US – Hot Rolled Steel, para. 73., in turn quoting Panel Report on US – Hot Rolled Steel, para. 7.54).
1133 The second sentence of Article 12.1.1 states, "Due consideration should be given to any request for
an extension of the 30-day period and, upon cause shown, such an extension should be granted whenever
practicable".

15.35 On the other hand, we do not see that interpreti ng the term "questionnaires" in Article 12.1.1,
as the initial comprehensive (set of) questionnaire(s) in an investigation, would leave the interested
Members and parties with inadequate due pro cess protections against unreasonable and overly
burdensome information requests with unduly short dead lines, and the resultant risk of resort to facts
available, as China argues. In particular, the pro cedural rules for collecting and handling evidence in
Article 12 contain a number of provisions preventin g investigating authorities from behaving in such
a manner. First, Article 12.7 of the SCM Agr eement, governing the use of "facts available" by
investigating authorities, addresses China's con cern by precluding investigating authorities from
resorting to facts available where, inter alia , information is provided "w ithin a reasonable period".
Thus, even if information is submitted after a dead line, but within a reasonable period, investigating
authorities are not entitled to apply facts available. 1134 In addition, the "ample opportunity"
requirement in Article 12.1 of the Agreement ensu res that requests for information that are not
questionnaires, and thus are not subject to th e 30-day rule, nevertheless are protected from
unreasonable deadlines that would prevent the s ubmitters of the information from adequately
defending their interests. 1135 Furthermore, we note that pursuant to Article 12.11 of the Agreement,
investigating authorities are required to take " due account" of any difficulties experienced by
interested parties in supplying information requested . Therefore, we do not see that an interpretation
of "questionnaires" in Article 12.1.1 as the initial comprehensive questionnaire or set of
questionnaires in an investigation would deprive respondents of due process rights or would give
investigating authorities unfettered license in regard to information requests. More generally, as
noted, it is in the ultimate due process interests of respondent parties in countervailing duty
investigations that the investigating authorities ha ve the possibility, within the timeframes and other
constraints imposed by the SCM Agreement, to obt ain the information necessary for them to render
well-founded determinations.
15.36 Thus, in our view, interpreting the term " questionnaires" in Article 12.1.1 of the SCM
Agreement as referring only to the comprehensive (set of) questionnaire(s) issued at the outset of the
investigation is supported by the object and purpose of the countervailing duty provisions, in that it
effectively strikes the balance that Article 12 requires between, on the one hand, the due process
rights of interested parties and, on the other hand , the right of investigating authorities to obtain the
information they need to conduct their inves tigations in the manner prescribed in the SCM
Agreement.
15.37 For the foregoing reasons, we conclude that the term "questionnaires", as used in
Article 12.1.1 of the SCM Agreement, refers to the initial comprehensive questionnaire (or set of
questionnaires)1136 issued by an investigating authorit y at or following the initiation of a

1134 In this regard, we note that the Appellate Body in US – Hot-Rolled Steel held that while
investigating authorities may impose deadlines for the submission of information in order to allow the timely
completion of the investigations, investigating authorities are not entitled, under Article 6.8 of the AD
Agreement (the analogous provision of Article 12.7 of the SCM Agreement), to reject information provided by
interested parties for the "sole reason" that it was submitted beyond the deadlines for responses to
questionnaires. According to the Appellate Body, investigating authorities must consider whether, in light of all
the facts and circumstances of the cas e, the information was however submi tted within a reasonable period of
time. The Appellate Body went on to explain that the determination of whether information is submitted within
a reasonable period of time must be defined on a case-by -case basis, "consistently with the notions of flexibility
and balance that are inherent in the concept of 'r easonableness'" and in light of the specific facts and
circumstances of each case. (Appellate Body Report on US – Hot-Rolled Steel, paras. 84 and 89).
1135 We recall that China has made no claim pursuant to Article 12.1 that the USDOC failed to give it
"ample opportunity" to provide its responses to the supplemental and new allegations questionnaires that are the
subject of this claim.
1136 Whether in one or several documents, as issued to each interested Member, and to each kind of
interested party. We note here the definition of "inter ested parties" in Article 12.9 : an exporter or foreign
producer or the importer of a product subject to investigation, or a trade or business association a majority of the

countervailing duty investigation covering the spectrum of issues on which the investigating authority
will have to make determinations in relation to subsidization of the investigated product, injury and
causation.
2. The questionnaires and subsequent requests for information issued by the USDOC
1137
15.38 Having interpreted the term "questionnair es" in Article 12.1.1 as referring to the
comprehensive questionnaire(s) issued at or followi ng the initiation of the investigation, the question
becomes whether any or all of the "supplemental" or "new allegation" questionnaires issued by the
USDOC in the investigations at issue before us c onstituted "questionnaires" of this type. We thus
now examine the evidence concerning the nature of these questionnaires.
15.39 We recall that the "supplemental" and "n ew allegation" questionnaires are the only
information requests subject to this claim, i.e., that there is no claim concerning the amount of time
allowed for responses to the initial questionnaires issued at the outset of each investigation, or in
respect of any other information requests that may ha ve been made. We also note that the parties do
not disagree that the USDOC allowed less than 30 da ys for responses to all of the "supplemental" and
"new allegation" questionnaires.
15.40 In all of the investigations at issue, the questionnaire issued to the Government of China by
the USDOC at the outset of the investigations included the following questions: (i) "general
questions" including on the tariff classification of the products concerned, and their official
descriptions, as well as requests for Annual reports of the People's Bank of China; (ii) "program-
specific questions", requesting specific informati on with respect to individual alleged subsidy
programmes; (iii) "Appendix 1", containing a standard series of questions to be answered for each
alleged subsidy programme, incl uding: description, purpose and date of establishment of the
programme; identification of authorities administerin g the programme; relevant laws, regulations and
reports; application process and eligibility criteria; id entification of applicants and beneficiaries; and
(iv) "Appendix 2", containing a standard informat ion request to be answered for each programme
involving "grants", including the date of approval and disbursement of the grant(s) and the amount of
the grant(s) approved and actually authorized.
1138
15.41 The questionnaires issued to the exporters and/or producers ("Chinese respondents") by the
USDOC at the outset of the investigations incl uded the following requests for information: (i)
"Affiliated Companies", requesting information on affiliations among firms in the industry;
(ii) "general questions", requesting information on, inter alia, ownership, legal structure and financial
data of the firm(s) concerned; process of produc tion of the product(s) concerned, marketing and

members of which are producers, exporters or importers of such product; and a producer of the like product in
the importing Member or a trade and bu siness association a majority of th e members of which produce the like
product in the territory of the importing Member.
1137 We note here that in U.S. countervailing duty investigations, the USDOC's questionnaires address
only the issues related to subsidization, and do not addres s injury or causation. These latter issues are handled
by a separate agency which issues its own questionnai res on these matters. China has raised no claims
concerning injury or causation in respect of any of the investigations before us.
1138 CWP Initial Questionnaire to the Government of China; Initial Questionnaire to Respondent
Producers; First Supplemental Questionnaire to the Government of China; and First Supplemental Questionnaire
to Kingland (Exhibit US-104); LWS Initial Counterva iling Duty Questionnaire to the Government of China;
Initial Questionnaire to Respondent Producers; and First Supplemental Questionnaire to the Government of
China (Exhibit US-105); LW R Initial Questionnaire to the Government of China; Initial Questionnaire to
Respondent Producers; First Supplemental Questionnaire to the Government of China; and First Supplemental
Questionnaire to Aifudi (Exhibit US-106); OTR Initial Questionnaire to the Government of China; Initial
Questionnaire to Respondent Producers; First Supplement al Questionnaire to the Go vernment of China; and
First Supplemental Questionnaire to TUTRIC (Exhibit US-107).

channels of distribution; sales and export data; ( iii) "program-specific questions", requesting specific
information with respect to individual alleged subsidy programmes; (iv) "Appendix 1", containing a
standard series of questions to be answered for each alleged subsidy programme, including:
application and approval process; eligibility criteria; benefits received; identification of merchandise
benefited; and (v) "Appendix 2", containing a standa rd information request to be answered for each
programme involving "grants", including the am ount authorized and received from all grants
authorized, date of approval and receipt of the grant.1139
15.42 In each investigation, in addition to these initial questionnaires, the USDOC issued both
"supplemental" questionnaires and "new allegation" questionnaires. Concerning the supplemental
questionnaires issued to the Government of Ch ina and the Chinese respondents in all of the
investigations1140, the record evidence shows that the questions they contained were in the nature of
follow-up to the initial questionnaire responses, i.e ., requests for additional information related to
questions previously posed, clarifications, e xplanations, details, conf irmations, provision of
documentation and/or translations, responses to qu estions that had not been answered or been
answered incompletely, and sources for the information provided.1141
15.43 Concerning the new allegation questionnaires, we note that these mainly contained the same
standard information requests as in Appendices 1 and/ or 2 of the questionnaires issued at the outset of
the investigations. 1142 For a limited number of subsidy programmes, however, the new allegation
questionnaires omitted the Appendix 1 and 2 information requests and contained only questions
related to the specific programmes concerned.1143
15.44 We recall our finding above that the term "qu estionnaires" to which the 30-day rule applies
pursuant to Article 12.1.1 of the SCM Agreement refers to the (set of) initial comprehensive
questionnaire(s) issued by an investigating author ity at or following the initiation of a countervailing
duty investigation. As discussed, the fact that su ch initial questionnaires by nature are comprehensive
is a main reason why, in our view, the SCM Ag reement establishes a specified minimum period to
respond to them.
15.45 Considering the "supplemental" questionnaires from this perspective, in our view, the record
evidence demonstrates that these were not compre hensive questionnaires covering the spectrum of
issues on which the USDOC needed information, but instead were requests for information generated
by and directly related to the responses provided by the various interested parties to the initial
questionnaires including, in a number of instances, restatements of questions not answered or only

1139 Exhibits US-104-107.
1140 In each investigation, the USDOC issued a series of three to five supplemental questionnaires.
Before us, the parties have provided evidence only in respect of the first supplemental questionnaire in each
investigation. The United States submits, and China does not contest, that the second and subsequent
supplemental questionnaires contained considerably fewer questions and covered fewer programmes than did
the first.
1141 Exhibits US-104-107.
1142 See, e.g., CWP First New Allegations Questionnaire to the Government of China (Exhibit US-130);
CWP First New Allegations Questionnaire to King land (Exhibit US-131); CWP First New Allegations
Questionnaire to Shuangjie (Exhibit US-132); CWP Se cond New Allegations Questionnaire to East Pipe
(Exhibit US-133); CWP Second New Allegations Questionn aire to the Government of China (Exhibit US-134);
LWR First New Allegations Questionnaire to the Government of China (Exhibit US-136); LWR First New
Allegations Questionnaire to East Pipe (Exhibit US-1 37); LWS First New Allegations Questionnaire to the
Government of China (Exhibit US-139); LWS First Ne w Allegations Questionnaire to SSJ (Exhibit US-141);
LWS First New Allegations Questionnaire to Aifudi (Exhibit US-143); OTR First New Allegations
Questionnaire to GTC (Exhibit US-144); OTR First Ne w Allegations Questionnaire to TUTRIC (Exhibit US-
145); OTR First New Allegations Questionnaire to the Government of China (Exhibit US-146).
1143 See, e.g., CWP Second New Allegations Questionnaire to Kingland (Exhibit US-135).

partially answered in the initial questionnaire respon se. Thus, we find that none of the supplemental
questionnaires was a "questionnaire" in the sense of Article 12.1.1 subject to the 30-day rule for
response.
15.46 Concerning the "new allegation" questionna ires, China argues that even accepting, arguendo,
that the 30-day rule in Article 12.1.1 applies only to the "full initial questionnaire", the "first" round of
new allegation questionnaires issued by the USDOC in the investigations at issue qualifies as the
initial questionnaire in the newly initiated "investiga tions" with respect to new subsidy allegations.
China submits in this regard that the "first new allegation questi onnaires" are indistinguishable from
the "full initial questionnaires" issued at the outset of the investigation, because they neither
supplement nor are related in any way to the initia l questionnaires or other prior questionnaires; and
because the nature of the questions and the le vel of detail requested in the new allegation
questionnaires are similar to those of the questions in the initial questionnaires.
1144
15.47 In our view this is a closer question than that in respect of the supplemental questionnaires.
As the parties both recognize, the new allegation questionnaires concern newly-alleged subsidies,
which were not referred to in the application for the investigation or in the initial questionnaires. As
such, the kinds of information requested in the ne w allegation questionnaires, regarding these alleged
subsidies, is essentially the same as that regarding the alleged subsidies referred to in the initial
questionnaires. In other words, the kinds of in formation requested concerning the alleged subsidy
programmes are indistinguishable as between the initial and new allegation questionnaires.1145
15.48 That said, the new allegation questionnaires did not include the full range of questions
contained in the initial questionnaires (i.e., they contained no questions about the product under
investigation, about company aff iliations, ownership, legal struct ure and financial data, production
processes, marketing, channels of distribution, sal es and export data, etc.). To the contrary, the
questions were limited to standardized informa tion requests and/or programme-specific questions
concerning the newly-alleged subsidies.1146 While these newly-alleged subsidies were unrelated to the
alleged subsidies covered by the initial questionnaires, all of the newly-alleged subsidies, like those
covered by the initial questionnaires, were alleged to be benefiting the same products that were the
subjects of the ongoing investigations. This indicates to us that these questionnaires, which pertained

1144 See, e.g., China first written submission, footnote 364; second written submission, paras. 311-313;
response to Panel question 105 (first meeting).
1145 In fact, as we noted in para. 15.43, supra, the majority of "new allegation" questionnaires mainly
contained the same standard information requests as in Appendix 1 and/or Appendix 2 of the questionnaires
issued by the USDOC at the outset of the investigations.
1146 Furthermore, our examination of the evidence on the record in dicates that the new allegation
questionnaires were far less extensive than the questionnaire issued by the USDOC at the outset of the
investigations. For instance, the United States submits, and China does not argue to the contrary, that: (i) in the
CWP investigation, the initial questionnaire covered 28 su bsidy programmes, containing at least 93 questions
for the Government of China and at least 85 questions for the respondent producer, while the first new allegation
questionnaire issued to these respondents covered only 1 subsidy programme and contained fewer questions
than the initial questionnaire; (ii) in the LWR investigation, the initial questionnaire covered 27 subsidy
programmes, containing at least 81 questions for the Government of China and 87 questions for the respondent
concerned, while the new allegation questionnaire issued to all these respondents covered only 1 programme
and contained fewer questions than the initial questio nnaire; (iii) in the LWS investigation, the initial
questionnaire covered 23 subsidy programmes, containing 66 questions for the Government of China and 63
questions for the respondent concerned, while the new allegation questionnaire issued to all these respondents
covered between 7-12 subsidy programmes and contained fewer questions than the initial questionnaire; and (iv)
in the OTR investigation, the initial questionnaire covered 21 subsidy programmes, containing 76 questions for
the Government of China and 81 questions for the respondent concerned, while the first new allegation
questionnaire issued to all these respondents covered 8-10 programmes and contained fewer questions than the
initial questionnaires. (United States first written s ubmission, footnote 632; second written submission,
footnotes 411 and 413-415).

to the same allegedly subsidized products as, but whose scope was considerably more limited than,
the initial questionnaires, did not pertain to entirel y new countervailing duty inv estigations, but rather
to the ongoing investigations, and thus did not consti tute "questionnaires" to which the 30-day rule of
Article 12.1.1 applies. We note in this regard th at China raises no claim, and we make no finding, as
to the WTO-consistency of adding new subsidy allegations to an investigation subsequent to initiation
and the issuance of the initial (set of) questionnaire(s).
15.49 For the foregoing reasons, we find that China has not established that the USDOC acted
inconsistently with the obligations of the United States under Article 12.1.1 of the SCM Agreement in
providing less than 30 days for responses to the "s upplemental" questionnaires and "new allegation"
questionnaires in the four countervailing duty investigations at issue in the present dispute.
XVI. CHINA'S CLAIM PERTAINING TO THE USDOC'S APPLICATION OF "FACTS
AVAILABLE"
A. CLAIMS OF CHINA
16.1 In respect of the provision of goods (HRS) thr ough transactions involving trading companies,
China claims that the USDOC's use of facts available in the LWR and CWP countervailing duty
investigations to determine the be nefit allegedly conferre d on investigated producers with respect to
these transactions was inconsistent with Articles 12.1 and 12.7 of the SCM Agreement.1147
B. MAIN ARGUMENTS OF THE PARTIES
1. China
16.2 China argues that the USDOC failed to give inv estigated producers notice of the information
that was necessary for the subsidy calculations at i ssue, because it did not ask investigated producers
about the amount and origin of the HRS they pu rchased from trading companies that had been
produced by SOEs. Moreover, China contends, th e USDOC did not give the investigated producers
the opportunity to present any evidence that they would have considered relevant to the investigations,
in particular, the opportunity to demonstrate that they had purchased greater percentages of privately-
produced HRS from trading companies than the per centages determined by the USDOC. Therefore,
China submits, the USDOC failed to comply with the "procedural and due process obligations" under
Article 12.1 of the SCM Agreement. China furthe r submits that the USDOC's failure to request
investigated producers to provide such information, and the USDOC's resort instead to facts available
and adverse inferences, unfairly penalized investigated producers, contrary to Article 12.1 of the SCM
Agreement.1148
16.3 China also considers that the United States' us e of facts available was inconsistent with
Article 12.7 of the SCM Agreement. According to China, this provision limits the use of facts
available to situations in which a party "refuses access to, or otherwise does not provide" necessary
information and, as observed by previous panels, in vestigating authorities are required to request the
"necessary information" before resorting to facts available. 1149 China submits that the investigated

1147 Paragraph B.1(g)(viii) of the "as applied" claims in China request for establishment of the Panel;
China first written submission, para. 468 (n); second written submission, para. 315 (n).
1148 China first written submission, paras. 461-463, citing to Panel Report on Argentina – Ceramic
Titles, para. 6.54.
1149 Id., para. 464, citing to Panel Report on EC – Countervailing Measures on DRAM Chips ,

producers neither refused access to nor otherwise failed to provide information pertaining to the origin
of the HRS they purchased from trading companies.
1150
16.4 In China's view, the United States has essentia lly conceded that the USDOC's use of facts
available was, in fact, inconsistent with Articles 12.1 and 12.7 of the SCM Agreement.1151
2. United States
16.5 The United States submits that the USDOC resort ed to the use of facts available because,
until a very late stage of the investigations, the USDOC was not presented evidence that indicated the
need for information about the amount of HRS produced by SOEs that investigated producers had
purchased from trading companies.
1152 Thus, in order to determin e the benefit conferred on the
investigated producers with respect to these tran sactions, the USDOC relied on evidence from the
records of the underlying investigations; specifica lly, the USDOC relied on information submitted by
China. The United States adds that, before any de finitive countervailing duty is levied, investigated
producers would be provided the opportunity, in an assessment review, to present evidence with
respect to the amount of the HRS they purchased from trading companies that was produced by SOEs.
In response to questioning from the Panel, the Unite d States clarified that it does not claim that the
alleged violations of Articles 12.1 and 12.7 of the SCM Agreement would be "cured" by this
subsequent collection of additional information. Rather, the United States indicates, should the Panel
find that it acted inconsistently with Articles 12.1 and 12.7 of the SCM Agreement, it "would
determine during implementation how to bring its m easures into conformity with those obligations
and take any appropriate action accordingly".1153
C. ASSESSMENT BY THE PANEL
16.6 The United States does not explicitly assert that th e USDOC's resort to facts available in the
investigations at issue was WTO-consistent. Nor does the United States directly contest China's claim
that the USDOC's use of facts available was inc onsistent with Articles 12.1 and 12.7 of the SCM
Agreement. Rather, the United States indicates, the USDOC's basis to rely on facts available was that
the USDOC "was not presented eviden ce that indicated the need for information about the amount of
[HRS] purchased through trading companies that ca me from SOEs until a very late stage of the
investigations".1154
16.7 We start our consideration of this claim by recalling that "a prima facie case is one which, in
the absence of effective refutation by the defending part y, requires a panel, as a matter of law, to rule
in favour of the complaining party presenting the prima facie case". 1155 Thus, notwithstanding the
fact that the United States appears not to contest China's claims, we must, consistent with the
approach adopted by previous panels, satis fy ourselves that China has established a prima facie case

1150 China first written submission, paras. 464-466. China also argues that Article 6.8 of the AD
Agreement provides further context for interpreting Article 12.7 of the SCM Agreement.
1152 The United States further indicates that given the time-limits for completing the investigations, the
USDOC could not request investigated producers to provide additional clarifying information with respect to
this issue. (United States response to Panel question 109 (first meeting)).
1153 United States first written submission, paras. 493-494; response to Panel questions 108 and 109
(first meeting).
1154 See, e.g., United States response to Panel question 109 (first meeting).
1155 Appellate Body Report on EC − Hormones, para. 104 (quoting Appellate Body Report on US –
Wool Shirts and Blouses , p. 14). In order to establish a prima facie case, a complaining party must adduce
evidence sufficient to raise a presumption that what is claimed is true. However, precisely how much and
precisely what kind of evidence will be required to estab lish a presumption that a claim is valid will necessarily
vary from case to case. (Appellate Body Report on US – Wool Shirts and Blouses, p. 14, DSR 1997:I, at 323).

of violation.1156 We will therefore examine the arguments and evidence presented by China, in order
to determine whether it has established a prima facie case of inconsistency with Articles 12.1 and 12.7
of the SCM Agreement.
16.8 We first examine China's claim concerning the in consistency of the United States' use of facts
available with Article 12.7 of the SCM Agreement, which governs the use of facts available by an
investigating authority in a countervailing duty investigation, and provides as follows:
"In cases in which any interested Member or interested party refuses access to, or
otherwise does not provide, necessary info rmation within a reasonable period or
significantly impedes the investigation, preliminary and final determinations,
affirmative or negative, may be made on the basis of the facts available".
16.9 Thus, pursuant to the plain language of Article 12.7 of the SCM Agreement, recourse to facts
available is permissible only under the limited circumstances where an interested Member or
interested party: (i) refuses access to necessary info rmation within a reasonable period; (ii) otherwise
fails to provide such information within a reaso nable period; or (iii) significantly impedes the
investigation. Both parties agree with our reading of Article 12.7 of the SCM Agreement. 1157 Our
interpretation is also consistent with that of prior panels and Appellate Body that have considered this
provision.1158
16.10 China argues that, in the LWR and CWP countervailing duty investigations, investigated
producers neither refused access to nor otherwise failed to provide information regarding the origin of
the HRS they purchased from trading companies, and therefore, the United States' resort to facts
available was inconsistent with Article 12.7 of the SCM Agreement.
16.11 Before addressing China's claim, we will examin e the relevant facts relating to the USDOC's
resort to facts available in the underlying investigations, as set forth in the USDOC's
determinations.1159
16.12 In its Issues and Decision Memoranda in both in vestigations, the USDOC explained that, in a
"change" from its preliminary determination, it decided to treat purchases of HRS from privately-
owned trading companies that in turn purchased HRS from state-owned producers/suppliers as
countervailable subsidies. The USDOC also indicated that it did not, during the course of the
investigation, seek information from the responde nts regarding the amount of the HRS they had
purchased from trading company suppliers that was produced by SOEs, and therefore that it examined
the information on the record "t o determine what information [was ] available to calculate this
amount".
1160 In addition, in the LWR investigation, the USDOC added that it would seek this
information in any future administrative review in the event that the investigation resulted in a
countervailing duty order.1161
16.13 In both investigations, the USDOC relied on in formation submitted by the Government of
China with respect to the production of HRS by SOE members of China Iron Steel Association

1156 See, e.g., Panel Reports on US – Shrimp (Ecuador) , para. 7.11; US – Stainless Steel (Mexico) ,
para. 7.52; and US – Anti-Dumping Measures on PET Bags (Thailand), para. 7.7.
1157 See, e.g., United States response to Panel question 108 (first meeting); China first written
submission, para. 464.
1158 Appellate Body Reports on Japan – DRAMs (Korea) , para. 235 and Mexico – Anti-Dumping
Measures on Rice, para. 291; Panel Reports on Japan – DRAMs (Korea) , para. 7.383 and EC – Countervailing
1159 We note that the parties do not dispute the facts on the record.
1160 Exhibits CHI-1, p. 10 and CHI-2, pp. 8-9.
1161 Exhibit CHI-2, p. 9.

("CISA") to determine the amount of the HRS pur chased by investigated producers through trading
companies. In the CWP countervailing duty investig ation, the USDOC noted that the Government of
China had reported that SOE members of CISA accounted for approximately 71 per cent of HRS
production in China in 2006. In the LWR counter vailing duty investigation, China's ownership
information was updated at verification: The Government of China reported that CISA members
accounted for 70.81 per cent of HRS production in China in 2006. Subsequently, however, the
USDOC determined that the ownership categorizati on of HRS producers reported by the Government
of China had been developed by China's legal c ounsel through public sources and not collected by
CISA itself as the Government of China had reported. On this basis, the USDOC considered that the
Government of China had not properly disclosed how the reported ownership structures of CISA
members were obtained, and as a consequence, the USDOC determined that the Government of China
did not act to the best of its ability. Thus, the US DOC drew an adverse inference with respect to the
ownership of HRS producers in China, and concl uded on that basis that 96.1 per cent of HRS
production in China was by SOEs.
1162
16.14 In the CWP investigation, the USDOC relied on this figure to determine the amount of SOE-
sourced HRS that investigated producers had purchased from private trading companies, and
therefore, to calculate the benefit investigat ed producers received from these transactions. 1163, 1164 In
the LWR investigation, however, the USDOC deci ded to use the production figure reported by the
Government of China – that is, 70.81 per cent – to calculate the benef it allegedly conferred on
investigated producers from such trading company transactions.1165, 1166

1162 In both investigations, the USDOC, rather than relying on the ownership characterization of CISA's
producers provided by the Government of China, instead categorized HRS producers as state-owned where (i)
the evidence on the record in dicated that the producer was state-owned or (ii) where the Government of China
had failed to provide factual evidence supporting the classification of the company.
1163 Exhibit CHI-1, p. 11; and Final Determination Calculation Memorandum for Zhejiang Kingland
Pipeline and Technologies Co., Ltd.; Kingland Group Co., Ltd., Beijing Kingland Century Technologies Co.;
Zhejiang Kingland Pipeline Industry Co., Ltd.; and Shanxi Kingland Pipeline Co., Ltd., Exhibit US-75, p. 3.
1164 The record indicates that, in both investigations, the USDOC also relied on this figure to determine
the appropriate benchmark for establishing whether the government provision of HRS conferred a benefit. (See,
e.g., Exhibits CHI-1, p. 65 and CHI-2, p. 4). We note, however, that China is not challenging this particular use
of facts available by the USDOC. As we understand it, China is only challenging the USDOC's resort to facts
available in order to calculate the proportion of the pr oducers' purchases of HRS from trading companies that
originated from SOEs.
1165 Exhibit CHI-2, pp. 9 and 25-26; Final Determination Calculation Memorandum for Kunshan Lets
Win Steel Machinery Co., Ltd ., Exhibit US-76, p. 3; and Final Determination Calculation Memorandum for
Zhangjiagang Zhongyuan Pipe Making Co., Ltd.; Jiangsu Qiyuan Group Co., Ltd.; Jiangsu Zhongjia Steel Co.,
Ltd.; Zhangjiagang Zhongxin Steel Product Co., Ltd.; and Zhangjiagang Baoshuiqu Jiaqi International
Business Co., Ltd., Exhibit US-77, p. 5.
1166 In its determination, the USDOC stated as follows:

"[...] we agree with the GOC and GWSP that we never asked the respondent companies to
report these amounts. Thus, the respondents have not failed to provide requested information
and no adverse inference is warranted [...] Similarly, [...] we do not find that ZZ Pipe withheld
information [...] Nonetheless, in light of our decision that purchases of SOE-produced HRS
from trading companies provide a countervailable subsidy, we need to quantify the amount of
such HRS [...] As explained above, we are not applying [adverse facts available] to the
respondent companies for their purchases through trading companies because we did not ask
them to report such information. Instead, we have reviewed other non-adverse information on
the record to use as a basis for determining the amount of HRS purchased from trading
companies that was produced by SOEs. [Thus] we are relying on the GOC reported SOE
production figure for CISA memb ers (i.e., 70.81 per cent). Because the GOC supplied this
information, we do not believe that using this amount is adverse to the respondent
companies." (Exhibit CHI-2, pp. 25-26).

16.15 Thus, our analysis of the evidence indicates th at the USDOC's basis for resorting to facts
available in both investigations was the same: th e USDOC applied facts available for the sole reason
that, during the course of the investigations, it did not request information from the investigated
producers regarding the amount of SOE-sourced HRS they purchased from trading companies.
Nothing on the record indi cates that the investigated producers re fused access to or failed to provide
information about the amount of the HRS they had purchased from trading companies that was
produced by SOEs. To the contrary, it is clear to us that, notwithstanding the fact that this
information was deemed "necessary" to determine th e benefit that investigated producers allegedly
received from such trading company transactions
1167, the USDOC never requested investigated
producers to provide the information. Furthermore, there is no indication on the record, nor does the
United States argue, that the USDOC considered that investigated producers "significantly impede[d]"
the investigations at issue.
16.16 We have determined above that Article 12.7 of the SCM Agreement limits the circumstances
under which an investigating authority may resort to facts available to those where an interested party
"refuses access to, or otherwise does not provide, necessary information within a reasonable period or
significantly impedes the investigation". The SC M Agreement contemplates no other possibilities;
for instance, where an investigating authority, until a very late stage of the investigation, learns the
need for information which it did not request duri ng the course of the investigation and that is
necessary to its final subsidization or injury de terminations. As the USDOC's reliance on facts
available in the present instance does not fall within the situations contemplated in Article 12.7, we
find that the USDOC's use of facts available in the CWP and LWR investiga tions was inconsistent
with Article 12.7 of the SCM Agreement.
16.17 For the reasons set forth above, we conclude th at the USDOC acted inconsistently with the
obligations of the United States under Article 12.7 of the SCM Agreement in applying facts available
to determine the amount of the HRS investigated producers purchased from trading companies that
originated from SOEs.
16.18 In the light of our findings under Article 12.7, it would not be necessary to examine, or to
make additional findings concerning, China's allega tion that the USDOC also acted inconsistently
with the obligations of the United States under Ar ticle 12.1 of the SCM Agreement by failing to
request information on the amount of HRS purch ased by investigated producers from trading
companies that originated from SOEs, were such a cl aim properly before us. We do not consider this
to be the case, however, as the only references to Article 12.1 in Ch ina's request for establishment of

 We observe that there is no explanation on the record as to why, in contrast to the
LWR investigation, the USDOC in the CWP investigation calculated the amount of SOE-
sourced HRS purchased from trading companies by using the figure of HRS production it
derived from the adverse inference it drew with respect to the ownership of HRS in China. In
any event, whether the USDOC merely relied on facts available or, in addition, drew adverse
inferences is not germane to our resolution of China's claim. The e ssence of China's claim
concerns the USDOC's application of facts available itself and not which information from the
record the USDOC actually selected as "facts available".

1167 It is undisputed that the information regarding the amount of HRS that investigated producers
purchased from trading companies that was produced by SOEs was deemed "necessary" for purposes of
determining the benefits at issue. For instance, in the LWR investigation, the USDOC stated that: "[…] in light
of our decision that purchases of SOE-produced HRS fr om trading companies provide a countervailing subsidy,
we need to quantify the amount of such HRS ". (Exhibit CHI-2, p. 25). (emphasis added) In its first written
submission, the United States also confirmed that "such information was necessary to determine the existence of
a benefit conferred on producers of the product subj ect to investigation." (United States first written
submission, para. 493. (emphasis added)).

the Panel concern (i) the alleged "failure to provide notice to interested parties of the information
which the US authorities required to make a determin ation with respect to whether certain entities are
'public bodies'", an entirely separate issue, which Ch ina did not pursue in this dispute; and (ii) the
alleged "failure to provide notice to interested parties of the information which the US authorities
required to determine whether the simultaneous a pplication of anti-dumping and countervailing duties
results in a double remedy", addressed supra, at Section XIV.C.4.
XVII. CONCLUSIONS AND RECOMMENDATIONS
17.1 For the reasons set out above, we conclude:
(a) in respect of China's claims concerni ng the USDOC's determin ations of financial
contributions in the countervailing duty investigations at issue, that:
 (i) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 1.1(a)(1) of the SCM
Agreement in determining in the relevant investigations at issue that SOEs
and SOCBs constituted "public bodies";
 (ii) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 1.1 of the SCM Agreement by
failing to determine, in the LWR, CWP, and OTR investigations, that trading
companies were "entrusted" or "directed" by the government to make
financial contributions to producers of the investigated products, in the form
of the provision of goods;
(b) in respect of China's claims concerning the USDOC's specificity
 determinations in the
countervailing duty investigations at issue, that:
(i) China did not establish that the US DOC acted inconsistently with the
obligations of the United States under Article 2.1(a) of the SCM Agreement
by determining in the OTR investigation that lending by SOCBs to the OTR
tire industry was de jure specific;
(ii) The USDOC acted inconsistently with the obligations of the United States
under Article 2 of the SCM Agreement by determining that the government
provision of land-use rights, in the LWS investigation, was regionally-
specific;
(c) in respect of China's claims concerning the USDOC's benefit
 determinations in the
countervailing duty investigations at issue, that:
(i) China did not establish that the US DOC acted inconsistently with the
obligations of the United States under Articles 10, 14, 19.1, 19.4 or 32.1 of
the SCM Agreement or Article VI:3 of the GATT 1994 by failing to conduct
a pass-through analysis in the OTR inv estigation to determine whether any
subsidy benefits received by tradi ng companies selling rubber inputs were
passed through to the OTR producers purchasing those inputs;
(ii) The USDOC acted inconsistently with the obligations of the United States
under Articles 1.1 and 14 of the SCM Agre ement by failing to ensure in the
OTR investigation that the methodology it used to establish the existence and
amount of benefit to tire producers from their purchases of SOE-produced

inputs from trading companies did not calculate a benefit amount in excess of
that conferred by the government provision of those inputs;
(iii) In the light of our findings in respect of China's claims on facts available
(paragraph 17.1(f)(ii), infra), we apply judicial economy in respect of China's
claims concerning the USDOC's benefit determinations in the LWR and CWP
investigations regarding the provision of HRS by trading companies;
(iv) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 14(d) of the SCM Agreement
by not "offsetting" positive benefit amo unts with "negative" benefit amounts,
either across different kinds of rubber or across different months of the period
of investigation, in the OTR investiga tion; and that China thus also did not
establish that the United States also th ereby acted inconsistently with its
obligations under Articles 10, 19.1, 19.4, or 32.1 of the SCM Agreement, or
Article VI:3 of the GATT 1994;
(v) China's claims in respect of the be nchmarks actually used by the USDOC to
calculate the benefit from the provision of loans and land-use rights by China
in the LWS, OTR and CWP investigations , respectively, fall within our terms
of reference;
(vi) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 14(d) of the SCM Agreement
by rejecting in-country private prices in China as benchmarks for HRS in the
CWP and LWR investigations and for BOPP in the LWS investigation;
(vii) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 14(b) of the SCM Agreement
by rejecting interest rates in China as benchmarks for calculating the benefit
from RMB-denominated loans from SOCBs, in the CWP, LWS and OTR
investigations, or that the benchmarks actually used in respect of the RMB-
denominated loans were inconsistent with those obligations;
(viii) The USDOC acted inconsistently with the obligations of the United States
under Article 14(b) of the SCM Agreem ent by using average annual interest
rates as benchmarks for GTC's U.S. do llar-denominated loans from SOCBs in
the OTR investigation;
(ix) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Article 14(d) of the SCM Agreement
by rejecting land-use prices in China as benchmarks for government-provided
land-use rights in the LWS and OTR inv estigations, or that the benchmarks
actually used were inconsistent with those obligations;
(d) In respect of China's claims of consequential violations
 of Articles 10 and 32.1 of the
SCM Agreement and Article VI:3 of the GATT 1994 in connection with its claims
referred to at paragraphs 17.1 (a)(i) and (ii), (b)(i) and (ii), and (c)(ii), (iv), (vi), (vii),
(viii) and (ix): as indicated at paragraph 13.1, we apply judicial economy.
(e) in respect of China's double remedy claims, that:

(i) The "omission" challenged by China as part of its "as such" claims with
respect to double remedies falls outside our terms of reference; consequently,
we also find that China's "as such" claims under Articles 10, 19.3, 19.4 and
32.1 of the SCM Agreement and Articles VI and I:1 of the GATT 1994
equally fall outside our terms of reference;
(ii) China did not establish that the United States acted inconsistently with its
obligations under Articles 10, 19.3, 19.4, and 32.1 of the SCM Agreement or
under Article VI:3 of GATT 1994 by reason of the USDOC's use of its NME
methodology in the four anti-dumping investigations at issue and the
imposition of anti-dumping duties on that basis concurrently with the
imposition of countervailing duties on the same products in the four
countervailing duty investigations at issue;
(iii) China did not establish that the USDOC acted inconsistently with the
obligations of the United States under Articles 12.1 and 12.8 of the SCM
Agreement by failing to give the Govern ment of China and interested parties
"notice" of the information it required to evaluate the existence of a double
remedy, and to inform them of the essential facts under consideration that
would "form the basis" for its determination in respect of double remedies, in
the four countervailing duty investigations at issue;
(iv) China did not establish that the United States acted inconsistently with its
obligations under Article I:1 of GATT 1994 when, as a result of the
investigations at issue, it concurrently imposed anti-dumping duties calculated
under the U.S. NME methodology and countervailing duties;
(f) in respect of China's claims of procedural
 violations in the countervailing duty
investigations at issue, that:
(i) China did not establish that the US DOC acted inconsistently with the
obligations of the United States under Article 12.1.1 of the SCM Agreement
by failing to provide the Government of China and investigated producers at
least 30 days to respond to the "supplemental" questionnaires and "new
allegation" questionnaires used in the four countervailing duty investigations
at issue;
(ii) The USDOC acted inconsistently with the obligations of the United States
under Article 12.7 of the SCM Agreement by applying facts available in the
LWR and CWP investigations to determ ine the amount of HRS investigated
producers purchased from trading companies that originated from SOEs; and
(iii) China's claim of violation of Article 12.1 is outside our te rms of reference as
it is not included in China's request for establishment of the Panel.
17.2 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to cons titute a case of nullification or
impairment of benefits under that agreement. Acco rdingly, we conclude that to the extent that the
United States has acted inconsistently with certa in provisions of the SCM Agreement and of the
GATT 1994, it has nullified or impaired benefits accruing to China under these agreements.

17.3 Pursuant to Article 19.1 of the DSU, having found that the United States has acted
inconsistently with provisions of the SCM Ag reement and of the GATT 1994 as set out above, we
recommend that the United States bring its measures in to conformity with its obligations under those
Agreements.