Document: WT/DS341/R Page D-1 ANNEX D ORAL STATEMENTS, FIRST AND SECOND PANEL MEETINGS Contents Page Annex D-1 Executive Summary of the Oral Statement of the European Communities – First Meeting
Document codes: WT/DS341/R
Complainant: EU
Respondent: Mexico
Third parties: Canada, China, Japan, Norway, U.S.
Dispute stage: Panel
Agreements cited: Art. VI  GATT 1994Art. 1, 11, 12, 13, 14, 15, 16, 22  Subsidies and Countervailing Measures (SCM)Art. 13, 21.1  Agriculture

ANNEX D

ORAL STATEMENTS, FIRST AND SECOND PANEL MEETINGS

Contents Page
Annex D-1 Executive Summary of the Oral Statement of the
European Communities – First Meeting
D-2
Annex D-2 Executive Summary of the Oral Statement of Mexico – First
Meeting
D-8
Annex D-3 Executive Summary of the Oral Statement of the European
Communities – Second Meeting
D-14
Annex D-4 Executive Summary of the Closing Statement of the European
Communities – Second Meeting
D-20
Annex D-5 Oral Statement of Mexico – Second Meeting D-22

ANNEX D-1

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
OF THE EUROPEAN COMMUNITIES -
FIRST MEETING

(26 June 2007)

1. Mexico does not dispute that, under Article 13.1 of the SCM Agreement
, before the initiation
of the investigation the EC had to be invited to c onsultations and that an invitation was not made until
4 July 2003. However, the parties disagree over the da te of the 'initiation' of the investigation: the EC
says it was 2 July 2003, when the Minister signed the initiation measure, while for Mexico it was the
date of publication of the measure on 16 July 2003. Mexico reaches this conclusion on the basis of an
analysis of Mexican law regarding the entry into forc e of the instrument. The EC's contention is that
the legal system in which the analysis has to be ca rried out is not that of Mexico but of the WTO.
Footnote 37 to the SCM Agreement defines the word 'initiated' a "procedural action by which a
Member formally commences an investigation".

2. The signing by the Minister is a 'procedural action'. In contrast, the publication of the
instrument in the Diario Oficial may be procedural, but it cannot be considered as the first procedural
action in the Mexican investigation procedure.

3. Mexico cannot deny that the signing of the Resolution is a "formal" act, and, in relation to the
word 'commence', there can be no doubt that that action taken by the Minister is focused on
commencing the investigation: paragraph 122 of th e initiation Resolution affirms that "the Ministry
accepts the request from Fortuny […] and declares the initiation of an investigation".

4. Moreover, the EC's position is sustained by the objectives of that provision. Mexico's haste in
commencing the investigation did not provide a real and adequate opportunity for prior consultations
with the EC. The consultations were not able to cl arify the situation and to allow Mexico and the EC
to arrive at a mutually agr eed solution, which are the objectives of the consultations under
Article 13.1 of the SCM Agreement , as, in a similar situation although under the Safeguards
Agreement, the Appellate Body explained in US – Line Pipe.

5. The second of the EC's claims is that the Mexican investigation was not commenced
following an application made by or on behalf of the domestic industry.

6. Mexico claims that the EC's interpretation of Article 16.1 of the SCM Agreement would mean
that claims of injury in the form of material retardation of the establishment of a domestic industry
would never be possible. Such a claim is not correct. While an entity with no domestic production
would not be eligible for consideration as a domest ic industry, a firm that was producing but which
was having difficulties in developing because of dumped or subsidized im ports would have the
possibility of exploiting this option.

7. Mexico quotes from the panel report in Mexico – Corn Syrup in support of its argument that a
firm that has ceased production may yet qualify as a domestic industry. However, the extract does not

have the meaning given by Mexico, since it merely emphasizes the three different forms that injury
can take, and the significance that these forms have for the conduct of the investigation.

8. Mexico seeks to evade the terms of the SCM Agreement by arguing that Fortuny had the
means to produce olive oil even though there was no production during the investigation period.
However, the Agreement repeatedly emphasises the significance of production. This has also been
underlined by Norway it its third-party submissi on, which makes reference to the Appellate Body
report in US-Lamb.

9. Mexico invokes those cases where panels have considered the level of evidence that is
necessary to commence an investigation. Howeve r, these cases concerned the issues of dumping
(Guatemala – Cement II, Argentina – Poultry) and injury (Mexico – Corn Syrup), which are ones that
are also examined in depth during the course of th e investigation. On the contrary, the question
whether the application has been made by or on behalf of the domestic i ndustry will not be further
examined during the course of the investigation. Co nsequently, the examination of this issue carried
out prior to initiation must be a thorough one. It is this standard that the Mexican authorities have
failed to meet.

10. To justify that Mexican industry consisted solely of Fortuny, Mexico refers to an article in the
journal Claridades Agropecuarias. Although this article was referre d to in the Preliminary and Final
Resolutions, there is no record of its use in th e Initiation Resolution and it should therefore not be
permitted as a justification of that Resolution. Sec ondly, this article appear ed in June 2001, and it
mentioned that one other firm, Llanos de San Franci sco, was in an experimental phase of production.
Thirdly, contrary to what Mexico claims, from the article in Claridades it cannot be deduced that
Ybarra was the only company producing olive oil in Me xico: the article only declares that Ybarra was
the main olive oil producer in Mexico at that time. Finally, the article in Claridades refers to olive oil
production figures in Mexico that are much higher (1 000 tons in 2000) than Fortuny's production
(between 254 and 310 tons in 2001-02).

11. The sole items of supporting evidence that were cited by the Ministry in the Initiation
Resolution were some letters from the Agriculture Department of the state of Baja California.
However, they seem to refer only to the installed and productive capacity of Fortuny. In any event,
the statement was made by an authority of the stat e of Baja California, whereas Mexico admits that
there is also substantial olive production in the state of Sonora.

12. Finally, Mexico justifies the decision of the Minister regarding Fortuny's status as the sole
Mexican producer by saying that this was confirmed by the investigation. However, a later finding of
this kind is irrelevant to the question whether the original decision to initiate was justified as regards
the standing of Fortuny.

13. The third of the claims made by the EC concerned Article 13(b)(i) of the Agreement on
Agriculture. Mexico refers to the fact that the rule expired at the end of 2003. However, the EC
considers that it applied to all proceedings initiated before that date, and the fact that it was within
only a few months of expiry at the time of th e olive oil investigation was commenced was not a
reason for disregarding it.

14. Moreover, Mexico argues that, although the complaint invoked the notion of material
retardation, the investigation focused on that of material injury (which was not prohibited under
Article 13(b)(i)). However, such an approach cannot be reconciled with the terms of the Agreement
on Agriculture, under which Mexico should have rejected a complaint based on material retardation.

15. Mexico argues that the 'due restraint' requirement of Article 13(b)(i) was no more than an
obligation to respect a reasonable minimum standard . However, this presentation of that provision
adds nothing to the original, provided that what is reasonable is recognised to be an objective matter

and not one to be decided by each WTO Member for it self. If Mexico is arguing that the standard is
the same for agricultural and non-agricultural produc ts, such a reading would deprive Article 13(b)(i)
of utility, and clash with a principle of interpretation ( effet utile) that has been repeatedly confirmed
by WTO jurisprudence. The EC has noted the Mini stry's haste in commencing the investigation: its
failure to consult the EC in due time and in good fa ith, its inadequate consideration of the extent of
the domestic industry, and its treatment of the alleged form of injury. These are defects that could
have been cured by taking more time and/or givi ng a more thorough examination to the complaint.
They necessarily reflect a failure on the part of the Ministry to exercise 'due restraint'.

16. In relation to Article 12.4.1 of the SCM Agreement and the obligation to provide non-
confidential summaries of confidential information supplied to the investigating authorities, Mexico
argues that an access to the confidential file under a protective order was possible and was used. But
this line of defence has already been re jected by the report of the panel in US – Oil Country Tubular
Goods Sunset Reviews (Article 21.5 – Argentina) , confirmed by the report of the panel in Mexico –
Steel Pipes and Tubes.

17. Mexico also claims that the requirement to provide non-confidential summaries was satisfied
by the provision of versions of parties' submissions, with the confidential material blanked-out. But a
document with confidential material deleted is patently not a summary of the confidential material
that it contained. This was the conclusion of the panel in US – Oil Country Tubular Goods Sunset
Reviews (Article 21.5 – Argentina).

18. On the disclosure obligation in Article 12.8 of the SCM Agreement, Mexico contends that it
satisfied this disclosure obligation by issuing its Preliminary Resolution. However, the Ministry
should have informed the interested parties that the Resolution had this purpose. Moreover, following
the adoption of the Preliminary Resolution of 18 Ma y 2004, the Ministry engaged in a considerable
amount of fact finding. In some, if not all, of these steps the Ministry was explicitly obtaining factual
information from the interested parties.

19. Mexico seeks to defend itself against the accu sation that the Ministry exceeded the 18-month
time limit set by Article 11.11 of the SCM Agreement by invoking the complexity of the investigation
and the need to treat the parties fairly. Article 11.11 provides that 'in special circumstances'
investigations may exceed the one year limit, but this exception is explicitly limited by the rule that 'in
no case' may they last more than 18 months. Assuming, quod non, Mexico's arguments that the delay
was due to requests by interested parties for mo re time to respond to the Ministry's enquiries,
Mexico's defence is irrelevant. The drafters specified an absolute limit to the length of investigations
and Mexico had no option but to respect that limit.

20. Concerning the existence of subsidization and calculation of a 'benefit' , the EC has explained
the notion of 'subsidized import', which is not defined in the SCM Agreement . Mexico purports to
find confusion as to whether the 'offsetting' is direct ed at the subsidies or at the benefits of the
subsidies. Given that the rules clearly identify the benefit afforded by the subsidy as setting the
maximum level of countervailing duties, the EC does not find this a meaningful distinction. The
offsetting is directed at the subsidies, and its le vel is determined by calculating the benefit received
under the subsidy.

21. Mexico claims that its measures on olive oil were targeted at the injury rather than the
subsidy. However, the errors that the Ministry made in calculating the amount of the subsidy cannot
be disregarded simply because it then decided to set duties at lower levels, based on an injury
criterion.

22. A major element of the EC's criticism of the Ministry's determination concerns the argument
that the benefit of the subsidy was not 'passed-through' from the firms that had received it to affect the
products imported into Mexico. Mexico has entirely ignored the EC's arguments.

23. Another of the matters to which the EC took objection in the Ministry's finding of
subsidization was its failure to take account of the fact that some of the olive oil exported from the EC
to Mexico was actually made from olives bought from out side the EC, which had not been part of any
aid scheme. Mexico's attitude has been that, b ecause the companies could not prove what proportion
had come from this source, no adjustment could be made.

24. The Agreement does not explicitly address the situati on where information necessary for the
completion of the investigation is not in the hand s of an interested party or Member. Mexico's
attitude appears to be that the investigating auth ority may demand such information from the party
whose interest it is likely to serve, and if the part y cannot provide it, to assume that such information
is completely unfavourable to that party. Such an attitude misunderstands the proper allocation of the
burden of obtaining evidence necessary for a counter vailing duty investigation. The Appellate Body
explained in US - Wheat Gluten that the word 'investigation' suggests a proper degree of activity on
the part of the competent authorities because authorities charged with conducting an inquiry or a study
must actively seek out pertinent information. Thus, the responsibility to obtain information lies on the
investigating authority. If the information is held by interested Members or parties the authority can
demand it from them. But, where the information lies elsewhere, the authority may not, as Mexico
sought to do, escape its own responsibility by giving an interested party the task of obtaining it, or of
suggesting how the problem might be overcome.

25. The same issue arose in respect of the inform ation regarding costs incurred in relation to the
olive oil after production of the oil. Again, there is a responsibility on an investigating authority to
obtain the information necessary for its findings, and the Ministry did not properly discharge it.

26. Moreover, even assuming, quod non, that the subsidy passed through from the olive growers
to the producers of olive oil, the Mexican aut horities failed to adequately explain the methodology
used to establish the countervailing duties and in pa rticular to justify the use of the ex-work export
price as basis for the calculation. Mexico calculate d for each company an ad valorem subsidy margin
in the provisional resolution and a specific duty in th e definitive resolution, but apparently using the
same methodology. The ex-work export price is an unsuitable basis for the calculation of a subsidy
margin in the case of a production subsidy, which benefits the total production and not only exports.

27. As regards the accusation that the Ministry fa iled to make an adequate investigation of the
extent of the domestic industry , Mexico reveals that a sample of Maprinsa's production was found to
consist of rapeseed oil (canola). However, given th at Maprinsa claimed to have used domestically
sourced oil, and provided the names of several tr aders from whom it had acquired it, the fact that a
sample of Maprinsa's output was found not to contain olive oil hardly seems a reason for abandoning
further enquiries. A further indication of the inade quacies of the Ministry's investigations is also
provided in the response by one of those bottlers, Oliv arera Tulyehualco, SA de CV, which refers to
two national producers of olive oil located in Baja Ca lifornia. The Ministry did nothing to investigate
their existence or extent.

28. Similar indications of inadequacy are found in relation to Aceites Navarra. Because the
exporters had identified this firm as one that only bottled olive oil, the Ministry chose not to make
further enquiries of it. However, the crucial issue was whether there were Mexican producers of olive
oil, a point on which this firm could have provided direct evidence. There is also no indication that
the Ministry sought information from Olivos de California, a company indicated by Maprinsa as a
producer of olive oil. The firm Llanos de San Fr ancisco was also dismissed by the Ministry because,
according to the article in Claridades Agropecuarias, it was only in an experimental stage. However,
the article was published in June 2001, and presuma bly relied on information gathered before that
date. Moreover, Llanos was operatin g at a sophisticated level, and it might well have been expected
in the intervening period to have moved to actual production. The inadequacy of the Ministry's

investigations is also reflected on the fact that fi rms merely bottling olive oil were not always clearly
asked to identify domestic sources of oil.

29. The Ministry contacted the national association of oil and edible fat industries, ANIAME.
However, the association did not provide informat ion on national olive oil producers, but merely
reported that Fortuny was the only such producer that was registered with it.

30. Among the official bodies that the Ministry contacted as part of its investigation was the
Mexican Institute of Industrial Property. Mexico ha s provided the letter that the Ministry wrote to the
Institute, but not the response. Finally, the Minist ry never wrote to the authorities of the States of
Baja California and Sonora, which are regions wher e the Final Resolution declares that olive tree
cultivation plays a very important economic and social role.

31. The indicia of injury listed in Article 15.4 cannot be applied in the situation of Fortuny
because it was not a producer during the investigati on period. To circumvent this problem Mexico
invents a new index of injury: the state of being una ble to restart operations. There is no such index
of injury in the Agreement, a fact which is directly linked to the definition of industry.

32. The third of the 'substantive' claims that the EC makes against Mexico concerns the
determination of injury
. The Ministry failed to establish injury in accordance with the criteria listed in
Article 15.4 of the SCM Agreement. First of all, the notion of prevention of restarting operations, that
Mexico identifies as the injury suffered by its domestic industry, is not one recognized by the
Agreement. It is not enough for Mexico merely to descr ibe it as a form of material injury; it must be
able to explain how that description is supported in the factors listed in Article 15.4. The fundamental
problem that Mexico faces is that there was no production, and if there was no production there can
have been no industry, and without an industry there can have been no material injury.

33. On the analysis of prices required by Article s 15.1 and 15.2, and despite the fact that in its
chosen investigation period there were no sales by Fortuny, the Ministry claims to have made
comparisons based on 'actual prices'. But the Fina l Resolution gave only undercutting margins for the
previous two years. However, the absence of price data for 2002 did not entitle the Ministry to use a
spurious indicator of price based on Fortuny's cost s. Any price resulting from such an exercise is
entirely artificial, and provides no indicator that can plausibly be used when applying Article 15.

34. Moreover, the usefulness of the price comparis ons carried out under Article 15.1 and 15.2 is
put in doubt by the bizarre pricing policy pursued by Fortuny. 2001 was a time when olive oil prices
were falling everywhere. Thus, the fall in prices of exports to Mexico was merely part of an
international trend. However, Fortuny's reaction to this development was actually to increase its
prices by 34 per cent. In addition, Fortuny's price information prior to the end of 2001 is all derived
from sales made by Fortuny's "predecessor", Formex Ybarra, to a company, Distribuidora Ybarra, to
which it was related. As such it cannot be regarded as a reliable basis on which to make comparisons
with the prices of imported olive oil.

35. The Ministry's examination of various indices of injury listed in Article 15.4 is constantly
undermined by its decision to use data from periods of nine months in successive years. Mexico tries
to justify the use of a nine-month investigation peri od by indicating that no distortion of information
resulted from using such a period. However, apart fro m the fact that this period was suggested by the
complainant, no explanation was provided for excluding data from several months of the year and, at
times, the Ministry felt compelled to support its conclusions by reference to figures from the complete
year.

36. Mexico says that the absence of an explicit provision in the Agreement means that a Member
is under no obligation regarding the choice of the le ngth of the investigation period. However, as
confirmed by the Appellate Body in US – Hot-Rolled Steel, the criterion of an 'objective examination'

stated in Article 15.1 governs all aspects of the injury determination. In Mexico – Anti-Dumping
Measures on Rice , the Appellate Body applied this princi ple to the selection of the investigation
period, found that the use of six-month periods did not provide an accurate and unbiased picture of
what was being examined. The recent panel report in Mexico – Steel Pipes and Tubes reinforces this
conclusion: the panel said that "absent any proper ju stification for doing so, such an examination on
the basis of an incomplete set of data proposed by an applicant cannot, in principle, be an objective
examination of positive evidence".

37. In its First Written Submission the EC identif ied a series of causation factors, known to the
Mexican authorities , which had not been investigated or ha d not been investigated adequately.
Mexico has stressed that the prices charged fo r imported EC oil were below even the cost of
production of Fortuny. However, it simply attributed this to the effects of subsidization on the prices
of EC exports.

38. In the light of Mexico's First Written Submis sion it is easier to understand the reasons for
Fortuny's high costs. The article in Claridades Agropecuarias explains that the greater part of the
olive harvest in Mexico is used in the production of table olives. Consequently, olive growers in
Mexico have a real choice of purchasers, and firms, such as Fortuny, which are considering olive oil
production, have an objective criterion for costing their basic raw material. Moreover, because the
olives are of varieties that are suitable for both u ses, they are not specialized for oil production and
their yield of oil (16 per cent) is relatively low. These considerations affecting cost remained
unexplored in the Ministry's investigation. Furthermore, it is not only the production costs that were
not addressed by the authorities, but also the impact of the high operating costs of Fortuny and Ybarra
was not taken into account.

39. The issue of cost also seems to be an el ement in other aspect of causation. Alongside the
dramatic fall in its sales, the main feature in Fortuny 's history in the period ex amined by the Ministry
is the break-up of its arrangements with Distribuidora Ybarra. This separation meant the loss not only
of the distribution network and the relations with re tailers, but also of the Ybarra trademark. As
regards the trademark, the Ministry seems to have gi ven very cursory attention to what seems to have
been a crucial factor. Thus, the Ministry made no reference to a significant study of the marketing of
olive oil in Mexico by the International Olive O il Council in 2001, which shows that the trademark
"Ybarra" has an extraordinary high rate of recognition in Mexico.

40. Mexico points out that Distribuidora Ybarra ceased to buy from Fortuny because olive oil
imported from the EC was cheaper. However, the Mi nistry's investigations did not reveal how the
prices of oil from Fortuny's "predecessor", Formex Ybarra, compared with those of oil imported from
the EC. It seems to have been presumed by the Mini stry that the price advantage of the imports was a
recent development that just happened to coincide with the splitting-off of Fortuny. However, the
only new fact that was clearly established was th e separation of Fortuny from its sole customer,
Distribuidora Ybarra. It is entirely possible that this development caused Distribuidora Ybarra to look
more closely at its costs, and to take a more hard-headed decision on its purchases. Moreover,
Fortuny chose the very moment, when it was losing its distributor and the valuable trademark, to
increase its prices by 34 per cent.

ANNEX D-2

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
OF MEXICO – FIRST MEETING

(26 June 2007)

1. As explained in Mexico's first written submi ssion, the anti-subsidy investigation began on the
day following publication of the initiation resolution in the Official Journal of 16 July 2003 and not on
2 July as indicated by the EC. Therefore, in sending the EC the invitation to hold consultations on
4 July (as the EC itself acknowledges), Mexico acted in conformity with the text of Article 13.1 of the
Agreement on Subsidies and Countervailing Measures (SCM Agreement). Thus, we consider the
EC's claim to be without foundation.

2. With regard to Mexico's alleged violations of Articles 11.4 and 16.1 of the SCM Agreement,
relating to the recognition of Fortuny as a domestic producer and the examination of the degree of
support from the domestic industry, we repeat that the Ministry treated Fortuny as a domestic
producer in a manner consistent with the SCM Agreem ent, since, in Mexico's opinion, there was no
valid reason to believe that there was no domestic producer simply because Fortuny had temporarily
suspended operations (a suspension which, moreove r, was linked with unfair imports), while having
sufficient production facilities to resume them, particul arly as there were no factual or legal elements
to suggest that it had disappeared as a legally reco gnized entity. We recall that, in accordance with
Mexico – Corn Syrup , the articles of an Agreement shoul d be interpreted reasonably and not
necessarily literally.

3. We consider that the investigating authority (IA) is under no obligation to restrict itself to the
terms of the application. Thus, the fact that Fo rtuny requested initiation for material retardation does
not signify a violation of the SCM Agreement, si nce that Agreement does not impose any obligation
in this respect. In this connection, we refer to the argument set out in Mexico's first written
submission to the effect that when a WTO Agreement is silent on a particular point, there is a reason
for it; otherwise the negotiators would have expressly mentioned it in the Agreement. Mexico
decided to initiate on the basis of objective eviden ce of injury in the general sense as defined in
footnote 45 to the SCM Agreement. Then, during the investigation, the IA determined that the type of
injury suffered by the domestic industry was materi al injury. In fact, the European exporters
themselves agreed with the IA in pointing out that the situation of the domestic industry corresponded
more closely to material injury than to material retardation, since it was not a question of a new
industry.

4. With regard to the question of whether Fo rtuny represented the domestic industry and the
examination of the degree of support, it should again be pointed out that the Ministry had sufficient
data to conclude that Fortuny accounted for 100 per cent of the domestic production of goods
identical or similar to those investigated. Fort uny provided information concerning its status as a
producer and the domestic industry as a whole (data on production, installed capacity, employment,
etc.). The fact that it was producing 100 per cent of domestic output was corroborated by various
documents, such as a specialized publication issued by the Mexican Federal Government's Ministry of
Agriculture, Livestock, Rural Development, Fisher ies and Food, which is accepted as an authoritative
agricultural source, and by a statement from th e Ministry of Agricultural Promotion of the
Government of the State of Baja California conf irming that the applicant had installed production
capacity.

5. Thus, having determined that Fortuny was a domestic producer and having evidence that the
enterprise accounted for 100 per cent of olive oil production in Mexico, the Ministry correctly
concluded that Fortuny constituted the entire domest ic industry, so that it was representative and the
degree of support necessary to initiate a subsidy investigation was present.

6. Contrary to what the EC maintains, th e Mexican IA fulfilled its obligations under
Article 13(b)(i) of the Agreement on Agriculture. On the one hand, the due restraint mentioned in that
Article applied to the stage prior to the initiation of an investigation, so that the EC's claim is
unfounded. On the other hand, in accordance with Article 1(f) of the Agreement on Agriculture, the
due restraint clause expired on 31 December 2003, so th at as the rule was no longer in force when the
measures were imposed there was no possibility of its being violated.

7. This having been made clear, we consider that in initiating the investigation the Ministry
acted in a manner consistent with Article 13(b)(i ). Due restraint does not constitute a different
standard of initiation for agricultural products but an appropriate and reasonable standard, such as that
applied by the IA. Moreover, the Ministry request ed additional information from the applicant (by
issuing a prevención) before initiating the investigation, in an attempt to obtain more data.

8. Furthermore, we consider that initiating an i nvestigation promptly and efficiently can hardly
be a violation of Article 13(b)(i), and even if it were, we should point out that 4 months elapsed
between the application for initiation and the publicat ion of the commencement of the investigation, a
period which, to a considerable extent, was ta ken up by the above-mentioned efforts to obtain
additional information (prevención). Thus, we cannot see any evidence of the unusual hurry claimed
by the EC.

9. In relation to the imposition of definitive measures under the Agreement on Agriculture, we
recall that the countervailing measures were imposed on the basis of the existence of material injury
and not retardation, so that we fail to see the relevance of the EC's allegations in this respect.

10. We also disagree that the EC's assertions concer ning the alleged violations of Article 12 of the
SCM Agreement constitute a prima facie presumption of a violation on Mexico's part. In accordance
with the findings in Argentina – Ceramic Tiles , the purpose of Article 12.4.1 of the SCM Agreement
is to provide a mechanism which a llows interested parties to become acquainted with the confidential
information, while at the same time protecting the in terests of the parties providing it. In the olive oil
investigation, the parties were aware of this in formation and were therefore able to defend their
interests properly. Mexican law allows
 the legal representatives of the interested parties access to all
the confidential information. That alone is sufficient to achieve the above-mentioned objective, as the
panel found in the case Mexico – Steel Pipes and Tubes , recently circulated to Members.
Furthermore, there is evidence that the legal representatives of the exporters did in fact consult the
confidential version of the administrative file, so that there is no basis for any claim in this respect.

11. Moreover, the interested parties did provid e non-confidential summaries of the confidential
information they submitted , so that the EC's claim that ther e were no such summaries is equally
devoid of substance.

12. With regard to the EC's claim concerning Article 12.8 of the SCM Agreement, according to
the panel's findings in Argentina – Ceramic Tiles , there being no guidance with respect to how an
authority should comply with the obligation to ma ke known the essential facts, this can be done in a
number of ways. The Mexican IA disclosed the ess ential facts by presenting them to the interested
parties in the Preliminary Resolution, which is c onsistent with the above-mentioned case-law. Thus,
there is no basis for the EC's claim in this respect.

13. The EC argues that the duration of the inves tigation was incompatible with Article 11.11 of
the SCM Agreement. It also e ndeavours to excuse the lack of cooperation on its own part and on the
part of its exporters with unfounded assertions.

14. With regard to the duration of the investigation, it should be pointed out that the amount of
information involved placed a heavy burden on the inte rested parties, so that they all requested
numerous extensions during the proceedings. Almost all these requests were granted by the authority
with a view to gathering as much information as possible and enabling the parties to defend
themselves. Moreover, as a result of the informati on obtained at the public hearing, the authority had
to request further details from the parties. Likewise, the exporters requested the IA to carry out an on-
the-spot investigation at Fortuny, which it did on 19 January 2005. All this led to delays in the
proceedings. Thus, the IA was not inactive, part ial or negligent, quite the opposite. Given the
complexity of the case, there was nothing for it but to extend the time allowed in order to establish a
sound basis for a proper determination.

15. The EC admits not having provided the informa tion requested by the Ministry and, moreover,
maintains that it was not a valid request. There is no justification for this, since in no circumstances
could it have been considered exempt from providi ng the information requested of it. We disagree
with the EC when it says that "the only means of insisting on the importance of the rules of the SCM
Agreement" was to refrain from providing information. The same applies to its claim that to provide
this information would have been tantamount to "condoning" the actions of the Ministry. To accept
the claims of the EC would be equivalent to ceding control over the investigation to the parties, which
is unacceptable, since it would do significant harm to the multilateral system. Moreover, Article 12.7
of the SCM Agreement does not mention any exceptions to the obligation upon the parties to provide
information requested; therefore recourse was had to the "facts available", in accordance with that
Agreement.

16. Mexico gave an adequate a nd reasoned explanation of the existence of subsidization, its
calculation of the benefit conferred on the oliv e oil exporters and the method applied in each
particular case, in conformity with the SCM Agreement.

17. With regard to subsidization in general, we consider that the EC's argument has no basis in
the SCM Agreement, since that Agreement does not require the pass-through analysis claimed. In this
connection, as we have already pointed out, we cons ider that when a WTO Agreement is silent, there
is a reason for it. In addition, the subsidy programme has been notified to the Committee on
Agriculture as a subsidy-granting mechanism, and th e EC has not maintained that that programme
does not exist or was not in effect during the investig ation period. Thus, there can be no question that
the subsidy existed, was in effect and was being applied.

18. In this context, Regulation 136/66/EEC clearly indicates that the subsidy is intended to
promote the production of olive oil, so that the IA assumed that the subsidy is actually granted for
olive oil production. Thus, it had no reason to carry out a pass-through analysis.

19. With respect to the calculation of subsidy marg ins, we stress that even though the IA offered
the parties the opportunity to propose methodologies and present documentary evidence, the exporters
declined to provide the information necessary to enable the Ministry to make the adjustments that they
themselves had requested, so that their request was denied. Nevertheless, even though the exporters
failed to submit information or methodologies, the Mini stry decided to calculate an adjustment factor
that reflected the percentage of subsidized olive o il in the production cost structure for the oil, using
the facts available.

20. On the other hand, with regard to the comparison of the amount of the subsidy with the
exporters' ex-factory sales prices, it is important to point out that the Ministry established unit subsidy

margins (dollars/kg) and that when margins of this type are calculated the use of ex-factory or c.i.f.
export prices does not affect the result.

21. Regarding the dilemma allegedly faced by th e exporters in providing information requested
by the IA, and the claim that they did not provi de it because the time-limit for concluding the
investigation had expired, we repeat that we ca nnot see why this should constitute a valid reason for
not cooperating.

22. Concerning the determination that Fortuny was the only domestic producer, we consider it
important to point out that, as established in the Appellate Body report in United States – Softwood
Lumber VI (21.5) , the examination of the conclusions of the IA should be based on the information
contained in the record as well as on the consider ations contained in its resolutions. Thus, we
consider it important that the analysis of these asp ects should focus on the evidence contained in the
record and that the question of whether the IA c ould reasonably have arrive d at the conclusions it
notified should be decided on that basis. As the EC has not established a prima facie presumption of
violation on the part of Mexico, we request that its allegation be rejected. Moreover, the Ministry's
actions and the evidence in its possession show that Fortuny was the only domestic producer.

23. In the final resolution it is clearly explaine d why it was confirmed that Fortuny complied with
the requirements of representativeness and legitimacy to apply for an investigation. The resolution
also mentions the efforts made by the authority to investigate the existe nce of other domestic
producers.

24. Moreover, it is wrong to assert that the Mini stry dismissed artisan production because it was
not distributed through the same channels as imports. The Ministry did not
 dismiss artisan
production. What happened is that it could not establish the existence of producers other than
Fortuny, whether artisanal or not. It reached this conclusion after evaluating the replies to the
requests for information that the IA sent to various entities, requesting them to identify any domestic
producer of olive oil . The search was never restricted to manufacturers whose output was marketed
through the same channels as the imported product. Everything possible was done to gather data but,
nevertheless, the search was unsuccessful.

25. The EC submitted data from the Food and Ag riculture Organization of the United Nations
according to which Mexican production barely amount ed to 200 tonnes, a figure consistent with
Fortuny's production. Moreover, the world mark et information provided by the exporters'
associations ASOLIVA and ASSITOL does not menti on Mexico as an olive oil producing country.
All this also indirectly confirmed that the applicant was Mexico's only producer.

26. Thus, the Ministry obtained information from the interested parties, government agencies and
numerous entities not party to the investigation, and from all these data it was unable to deduce the
existence of other domestic producers. All the ev idence led it to believe that the domestic industry
consisted of Fortuny. Consequently, the IA based its conclusions on an objective examination of the
available facts, acting in a manner consistent with Article 15 of the SCM Agreement. The IA did not
concentrate on determining what happened to Fortuny prior to the investigation period. The material
injury consisted in the fact that the subsidized imports prevented it from resuming its operations.

27. Finally, concerning the relevance of the pr oduction element for determining whether or not a
producer exists, we refer to the considerations set out in our first written submission, where the
reasons why Fortuny was in fact a domestic producer are explained.

28. At the same time, with resp ect to the determination concerning the existence of injury, we
note that the discussion falls under three heads: (a) the nature and existence of the alleged injury;
(b) the examination of volumes and prices; and (c) the determination of material injury.

29. With regard to the nature and existence of the alleged injury, we first of all refer to our
previous argument to the effect that the investigation began with the definition of injury in the general
sense as set out in footnote 45 to the SCM Agreement, which in our opinion is perfectly valid.

30. We repeat that, with respect to both the pr ovisional and the definitive measure, the IA made
its determinations on the basis of an analysis of material injury, because it was not a question of a new
industry but of one that had already existed for se veral decades and had suspended its activities, and
then found itself unable to resume them because of the subsidized imports. As already noted, the
exporters themselves argued that the situation of the domestic industry corresponded more closely to
material injury than to retardation.

31. It would appear that in sugg esting that the injury occurred before the investigation period the
EC is assuming that the injury caused to the dom estic industry was the suspension of Fortuny's
activities, which, we stress, is incorrect. The Mini stry determined that the injury consisted in the
prevention of the resumption of operations by the domestic industry. The suspension of production
was something that happened in the period examined for effects of injury, and was relevant to the
material injury analysis; however, contrary to what the EC says, this does not mean that the IA had
determined the existence of material retardation. In fact, the Ministry never issued a simultaneous
determination of material injury and retardation.

32. With regard to the examination of volumes a nd prices, we consider it important to point out
that the EC does not make any claim as such c oncerning import volumes and therefore does not offer
a prima facie presumption of violation.

33. Concerning the examination of prices, the Mexican IA found that the prices of the subsidized
product decreased during the first two years of the period examined for effects of injury, only to
increase once Fortuny had suspended its production activity. An objective examination, based on
positive evidence, of the effect of the subsidized imports on prices was carried out and it was found
that the prices of those imports were even lower than domestic production costs, all this on the basis
of relevant information. The subsidy largely explains the differential with respect to the real domestic
costs and prices recorded during the examination period.

34. In addition, the IA obtained information from the real prices reported by Fortuny, which were
confirmed by data provided by Distribuidora Ybarra , Fortuny's main customer. Distribuidora Ybarra
stated that it had stopped buying from the domestic producer for price reasons, thus confirming the
evidence on price undercutting.

35. As regards the determination of material inju ry, the IA's examination by which it determined
its existence covered three years, which included the pe riod investigated for the effects of the subsidy.
The analysis of the trends and behaviour of the relevant factors was based on monthly and annual data
in order to establish the situation more precisely and, in accordance with Article 15.4 of the SCM
Agreement, the actual and potential effects of the imports on domestic production were also
examined.

36. The trends in domestic production must be assessed comprehensively and not merely by
comparing one year with another. Thus, we note that there was a steady d ecline in the applicant's
production indicators, which confirmed that the s ubsidized imports from the EC had adversely
affected the situation of the domestic industry to the extent of forcing it to interrupt its operations and
preventing it from resuming them.

37. With respect to the use of nine months of successive years in the exam ination of injury, the
EC has failed to offer a prima facie presumption of vi olation on the part of Mexico, confining itself to
asserting that this undermined the objectiveness of the ex amination of injury. In this connection, the
SCM Agreement does not lay down any guidelines c oncerning the time interval that should be

considered in carrying out the analysis, and we th erefore consider that there cannot have been any
violation of the SCM Agreement.

38. It should be made clear that it is incorrect that the IA only analyzed the information for
9 months of each year. The Ministry evaluated the data on trends at a monthly or annual level, from
January 2000 to November 2003 and even beyond. In our opinion, this in no way affected the
objectivity of the injury analysis.

39. With respect to the analysis of non-attribution of injury, it is sufficient to glance at the final
resolution to confirm that reasons of a quantitative a nd qualitative nature were considered in order to
determine that other factors were not causing the in jury suffered by the domestic industry, so that the
EC's arguments do not constitute a prima facie presumption of violation on Mexico's part.

40. At the same time, the importer Distribuidora Ybarra provided the Ministry with material to
enable it to determine whether any of the factors me ntioned by the EC were a cause of injury to the
domestic producer. Specifically, it indicated that it had stopped buying Fortuny's product for price
reasons. Thus, the problem was not the alleged loss of a distribution network or difficulties relating to
the supply or quality of the product, but the low prices of European oil.

41. With regard to the loss of the Spanish br and Ybarra, both the impor ters and the exporters
submitted a " marketing study" as proof of their claim. After examining it, the Ministry determined
that it was not sufficient to show that the loss of the trademark was a cause of injury, since it only
reflected the level of identification of the mark by the consuming public and not whether or not they
preferred it to other brands. Moreover, preference fo r the Ybarra brand would also have affected the
market share of the other European brands, whic h was not the case. Consequently, the Ministry
rejected the claim of these interested parties.

42. With respect to the consumer's alleged mistru st of the Fortuny product, considering that the
reason given by Distribuidora Ybarra for stopping buying Fortuny oil concerned price and not
consumer preference, it was clear that this was not a cause of injury for the ap plicant either. As for
Fortuny's allegedly high costs, the Ministry not on ly analyzed them but also considered several
additional factors. The final resolution describes ho w the production costs were taken into account in
order to determine whether the resumption of opera tions was economically feasible. The conclusion
reached at the end of the feasibility study was that the subsidized imports from the EC were being
sold to Mexico at low prices and it was that wh ich was preventing Fortuny from resuming operations,
which is consistent with the above-mentioned information from Distribuidora Ybarra.

43. Thus, the IA not only analyzed the factors me ntioned by the EC, but also examined all the
aspects that it considered might affect the state of the domestic industry, so that the EC's argument has
no validity.

ANNEX D-3

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
OF THE EUROPEAN COMMUNITIES –
SECOND MEETING

(13 October 2007)

1. The EC will concentrate its Second Oral Statement to respond to the evasive defence
presented by Mexico in its Second Written Submission.

2. In relation to the claim concerning Article 13.1 of the SCM Agreement
, contrary to Mexico's
suggestion, the EC does not imply that the Agreement should be interpreted in a way that would allow
an exporting Member to block an investigation by refusing to participate in consultations. The
reference to expeditiousness in Article 13.3 makes an y such interpretation impossible. In any case,
the EC did not refuse to participate in pre-initiation consultations on olive oil. On the contrary, it
accepted quite swiftly, only three days after having received the invitation from Economía.

3. As regards the date of initia tion of the investigation, Mexico accuses the EC of basing its
arguments on mere assertion. However, in footnote 37, the SCM Agreement provides a definition of
the term 'initiated', and its First Oral Statement the EC has given a detailed explanation of why the
action in the Mexican procedures that most closely matches that definition is the Minister's signature.

4. Finally, Mexico argues that according to the EC's interpretation an investigation would be
initiated as soon as the investigation authority carri es out any activity. However, the relationship
between any ancillary administrative action con cerning the complaint and the initiation of the
investigation is not an issue that is relevant to the present dispute. In our case, the initiation was
decided by the Minister, who is the highest post in Economía, when he signed it on 2 July 2003.

5. The EC's second claim is that Economía failed to determine that the application
 by Fortuny
was made "by or on behalf of the domestic industry", contrary to Article 11.4 of the SCM Agreement.

6. The EC notes that Mexico continues to conf use the meaning of article 11.4 (standing test at
initiation stage), which is relevant under this claim, and Article 16. 1 (definition of domestic industry).
As a result of this confusion, Mexico states that the term domestic industry has two "meanings" and
that there are two ways of meeting the obligati on to examine the domestic industry. But this
interpretation is wrong since Article 11.4 clearly requires that the investigating authority has to
determine the degree of support of the domestic industry before initiation. The investigating authority
cannot solely rely on information provided in th e application of the domestic industry, as done by
Economía in this case. The analysis described in Mexico's Second Written Submission refers to the
investigation period and thus cannot make good failings at the initiation stage of the investigation.

7. Mexico continues to criticize the EC's contentio n that production and output are at the heart of
the notion of 'industry' in the Agreement. Far from being mere assertion, as alleged by Mexico, the
contention has been supported by a careful analysis of the terms of the Agreement.

8. Mexico attempts to use the notion of materi al retardation as a means of attacking the EC's
contentions, while acknowledging that the case under analys is relates to material injury. In particular,
Mexico argues that the notion of establishment implies the starting up of an undertaking rather than its
setting up on a secure basis. Mexico gives a definiti on of the Spanish term 'establecer' (establish) in
support of its view. However, the EC's interpreta tion is also supported by an authoritative Spanish
dictionary, the "María Moliner", which defines 'est ablecer' as 'dejar puesta una cosa en un sitio para
que permanezca y realice su función en él' (to put something in a place to remain and fulfil its
function there). Moreover, the term "establecimiento " (establishment) is defined as "local en que se
desarrolla una actividad […] industrial" (premises wh ere an industrial activity takes place). Both
terms, "establecer" and "establecimiento", derive from the Latin word 'stabilire', which is linked to the
notion of stability, something which is quite difficult to find in Fortuny's activities.

9. The fact that there may be difficulties in applying the notion to situations were an industry
undergoes temporary closures in no way undermines th e validity of the concept proposed by the EC.
Borderline situations are an everyday legal occu rrence. They would also arise in applying the
criterion proposed by Mexico.

10. Mexico asserts that, as interpreted by the EC, the SCM Agreement would provide no remedy
for companies in the situation of Fortuny. This argument does not take into account the possibility
provided by the SCM Agreement to initiate an "ex officio" investigation.

11. The third of the claims made by th e EC concerns Article 13(b)(i) of the Agreement on
Agriculture.

12. The EC claims, firstly, that Mexico should not have entertained a complaint based on the
notion of material retardation. Mexico's respon se is that, although Fort uny based its claim on an
allegation of material retardation, Economía did not define which of the three kinds of injury it was
relying on when initiating the investigation. Ho wever, Economía was obliged not to commence an
investigation unless it had sufficient evidence of injury. It must not be allowed to invoke its own
breaches of the rules in order to avoid other obligati ons, and must therefore be taken to have initiated
the investigation on whatever basi s it was requested, which in this case material retardation. Mexico
says that the findings of an investigating authority are not limited to the particular kind of injury
specified by the complainant. That, however, is not the issue in the present instance. Rather the issue
is the connection between the type of injury identif ied in the complaint and that given as the basis for
commencing the investigation.

13. Secondly, Mexico critics the EC for failing to provide a comprehensive definition of 'due
restraint'. 'Due restraint' was the expression used by the drafters and presuma bly they thought it was
an adequate expression, or they would have added a definition (as they did, for example, regarding the
notion of injury). The New Shorter Oxford Dictionary defines "restraint" by reference to the verb "to
restrain", which means "hold back or prevent from some course of action" or "restrict, limit".

14. Mexico repeats that 'due restraint' is the sa me standard that applies to the initiation of all
investigations. The EC has already made referen ce to the doctrine of 'effet utile', and Mexico has
given no explanation of why that doctrine should not apply in this context. There must be some
circumstances in which 'due restraint' could have th e effect of prohibiting an investigation that might
otherwise have been initiated. Mexico does not attempt to show how its decision to initiate reflected a
standard of due restraint.

15. Finally, Mexico appears to argue that the failu re to respect the due restraint standard had no
effect on the investigation as a whole. This at complete variance with WTO law and practice, as
demonstrated by such cases as Guatemala – Cement II , and Argentina – Poultry Anti-Dumping
Duties, where the panels condemned anti-dumping dete rminations because of infringements of the
rules regarding initiation.

16. The claims under the fourth of the EC's headi ngs also fall into two parts. The first of the
claims concerns Article 12.4.1 and Mexico's failure to provide non-confidential summaries of
confidential information supplied to the investigating authorities.

17. Although Mexico reproduces ten paragraphs from the report in Mexico – Steel Pipes and
Tubes to support its arguments, paragraph 7.398 of the report refutes its contention that allowing
access to the confidential file serves to satisfy the obligation in Article 12.4.1. Mexico has finally
admitted this in its Second Written Submission.

18. Mexico's summation of the panel rulings in Mexico – Steel Pipes omits the vital fact that the
panel had found that the non-confidential summaries satisfied the Agreement because sufficient
reasons had been given for excluding summaries of the confidential information. No such reasons
were given in the present investigation. The EC is not claiming that Economía wrongly accorded
confidential treatment. Rather the EC contends th at, in according such treatment, Economía failed to
provide non-confidential summaries. The issues of access to non-confidential information and to
confidential information are quite separate. Moreov er, contrary to the impression that Mexico seeks
to create, the panel in Mexico – Steel Pipes and Tubes said nothing to suggest that access to
confidential information would compensate for failu re to provide non-confidential summaries (or to
explain why they could not be provided). Furthe rmore, contrary to Mexico's assertion, very
substantial amounts of information are blanked out in the non-confidential versions made available by
Economía.

19. The real issue is not how the interested parties submitted information, but whether Economía
ensured proper provision of non-confidential summari es, and Economía completely failed in this
respect. Where Mexico has provided non-confidential versions of documents, they do not satisfy the
requirement of Article 12.4.1 because they do no t contain non-confidential summaries of the
confidential information.

20. Mexico's arguments in its Second Wr itten Submission regarding Article 12.8
 merely repeat
what it has said previously, so the EC will not add anything to its own previous remarks.

21. The fifth of the EC's 'procedural' claims concerns the breach of the 18-month time limit set by
Article 11.11 of the SCM Agreement . Mexico's Second Written Submission adds nothing to its
previous observations on this issue, except to accuse the EC of trying to find excuses for not
cooperating with the investigation, and thereby a void the application of 'facts available' by the
investigating authority. But the EC has not chosen to make a claim against Mexico regarding the use
of 'facts available'.

22. The first of the claims on the substantive rules of the SCM Agreement concerns the existence
of subsidization and the calculation of the be nefit supposedly received by the imported olive oil

Once again, Mexico's treatment of this subject is a repetition of its earlier observations. As regards
the purpose of the subsidy, the EC will emphasize once more the futility of trying to determine
whether the original subsidy was given to olives or to olive oil. The crucial issue is whether the
imported olive oil was a subsidized import. The EC has already shown that given the transformation
in the product and the arm's-length transfers invol ved in its movement from olive tree to import,
Economía was not justified in assuming a pass thr ough of the subsidy and s hould have carried out a
proper investigation of the issue.

23. Mexico challenges the EC's invocation of Articles 1 and 14 of the SCM Agreement as the
basis for its claims. The EC has fully explained its choice in answer to the Panel's Question 46.

24. Mexico seeks to confuse the issues by means of shallow debating points concerning the
calculation of the subsidy and the calculation of the benefit, as mentioned in Article 14. The EC

claims that Economía failed to explain how it calc ulated the benefit conferred on the recipient,
contrary to the obligation in Article 14. Howeve r, in accordance with the practice of WTO dispute
bodies where an allegation of substantive infringement is coupled with one of failing to explain or
publicize the point in question, the EC has concentr ated on the substantive infringement, which is the
failure to examine the issue of pass-through wh en calculating the amount (if any) by which the
imported olive oil is subsidized.

25. Finally, Mexico complains that the EC has not explained in what way Economía did not make
appropriate adjustments. However, the EC fully addressed this issue in its First Written Submission.

26. As regards the issue of the domestic industry
, Mexico makes an attempt to justify Economía's
finding that Fortuny constituted the whole of the Me xican olive oil producing industry. The EC has
shown that Economía failed to take steps that c ould reasonably be expected of it to determine the
extent of the domestic industry, and in particular disregarded evidence of the existence of producers
other than Fortuny.

27. Thus, Mexico tries to justify Economía's investigation of Mapr insa and its suppliers.
Economía asked Bufete Químico to test a sample of just one of Maprinsa's two supposed olive oil
products and found it was in fact rapeseed oil. Fr om this it concluded that Maprinsa did not market
olive oil, although one of Maprinsa's suppliers, Oliv arera Tulyehualco, had informed Economía that it
obtained olive oil from Baja California. Economía entirely disregarded this information. Mexico
states that Olivarera Tulyehualco supplied rapeseed oil to Maprinsa. This is a completely new
assertion, because in the Final Resolution Economía said that Olivarera Tulyehualco informed that it
was not an olive oil producer and that it bottled th e product under investigation, which is olive oil not
rapeseed oil.

28. Regarding the firm Llanos de San Francisco, it was negligent of Economía not to have made
enquiries regarding its activities during the invest igation period. Mexico cites the periodical
Claridades Agropecuarias as though its pronouncements were always irrefutable. However, it is
evident that much of the information in the article is anecdotal, and at times it seems implausible.

29. As regards to the question of registration with the producers' organisation ANIAME, where
only Fortuny was listed in respect of olive oil, Econ omía took this as evidence of the existence of a
producer, but Economía did not enquire into the take-up among producers of registration with
ANIAME, so Mexico's statement that any olive oil producer would have registered is mere assertion.

30. Mexico does not deny that Economía did not approach the authorities in Sonora, one of the
two major olive producing states. However, in basi ng its assertion of low produ ction on the article in
Claridades Agropecuarias Mexico chooses to overlook the table on page 11 of that article, which
shows that the level of olive production in Sonora regularly rivalled that of Baja California (4,930
tons and 4,127 tons, respectively, in 1999). Mexi co argues that production in Sonora is not used for
making olive oil, but the extract from Claridades on which it bases this assertion states just the
contrary: according to Claridades, less than 5 per cent of the oliv es is processed as table olives in
Caborca, the main region producing olives in Sonora.

31. The EC has shown that, contrary to Mexico 's assertions, Economía had clear indications of
olive oil production in Mexico apart from Fortuny. Such evidence was ava ilable to Economía and
was not pursued. The responsibility of the investiga ting authority is not merely to reach a reasonable
decision on the basis of the file, but to make sure th at the file contains sufficient supporting evidence.
Mexico is not entitled to assume that Fortuny, which it admits had zero output during the investigation
period, would completely overshadow any such producers that might exist.

32. Mexico shifts from the individual steps that were or were not taken to the legal framework
that applied to them. It proposes to equate the 'm ajor proportion' criterion of Article 16.4 with the 'by

or on behalf of' standard of Article 11.4. Howeve r, it provides no reasoning or authority to support
taking such a step.

33. Finally, Mexico seeks to retrospectively ju stify Economía's exclusive reliance on Fortuny by
saying that the figure for total Mexican production of olive oil in 2000 was very similar to that of
Fortuny. In fact the figure given by Fortuny is 742 tonnes, while that for total production is given as
1,000 tonnes. Those data alone should have give n Economía reason to doubt that Fortuny was the
sole producer. The figure of 1 000 tonnes is given in the Claridades article but it is not provided, as
one would have expected, as part of a table showi ng annual production figures and citing a source. It
is worth recalling that the Interna tional Olive Oil statistics refer to an olive oil production in Mexico
of 1,500 tonnes in 2000/2001, 2,000 tonnes in 2001/2002 and 2,500 tonnes in 2002/2003.

34. Mexico's Second Written Submission has little to add to its previous responses to the EC's
claim that, without output, Fortuny cannot constitute a domestic industry. It is not the EC's position
that companies must have output throughout the subsidy investigation period in order to count
towards the domestic industry. Rather, it is that a company with no production whatsoever during the
period cannot qualify. The EC does not deny the rele vance of trends over the period leading up to the
investigation period. Nevertheless, the only veri fied evidence of subsidization available to the
investigating authority will be that from the inv estigation period and unless the domestic companies
concerned have output in that period, no injury can be demonstrated.

35. The third of the 'substantive' claims concerns the determination of injury
. Mexico's latest
contentions on this topic reflect the confused basis on which Economía de veloped its arguments.
Thus, Mexico appears to argue that, since the notion of 'decline in output', is one of the factors of
injury listed in Article 15.4 of the SCM Agreement , therefore zero output should be taken into
account. However, the EC's point is that if output is zero there can be no industry within the terms of
the Agreement.

36. Mexico calls for 'potential' injury to be c onsidered, but does not explain how that notion is
relevant to the present case. Neither Mexico is entitled to complete the investigation now, because
Economía made no findings of potential injury in respect of the factors listed in Article 15.4.

37. Mexico's explanation of the ruling at paragraph 7.77 of the Mexico – Corn Syrup panel report
is not easy to understand. The point at issue was th e extent to which, as regards threat of material
injury, projections of injury should be examined. However, the issue had arisen in regard to the
contents of the application for an investigation rath er than to the scope of the investigation itself.
Mexico says that the panel ruling did not purport to confine the use of projections to cases of threat of
injury. However, the panel did emphasize the importance of past experience as the source of evidence
for future developments, and it evidently had in mind the use of data from the investigation period. In
that respect the panel's ruling is clearly at odds with the approach adopted by Economía.

38. Mexico accuses the EC of contradicting itself in denying the existence of injury when Fortuny
has ceased production. This is to misrepresent the EC's case, which is that if there is no production
there is no industry, and if there is no industry ther e can be no material inju ry. Mexico also asserts
that its output of olive oil fell because of subsid ized imports, but Economía failed to establish this
causal link.

39. The last claim concerns the Ministry's consideration of causation by 'other factors'
, and
Mexico alleges that the EC changed its accusation regarding the examination of known factors from
saying that there had been no examination to say ing that the examination was inadequate. The
criticism is of no significance but it is in any case wrong. The EC has from its first submission
focused on the issue of inadequacy.

40. Finally, Mexico argues that the 'other known factors' identified by the EC had no effect on the
domestic industry. This criticism reflects a lack of understanding of the nature of these proceedings,
whose function is to review the decision taken by Me xico, not to retake that decision. Consequently,
the EC merely seeks to establish that the factors th at it has identified are ones that should have been
properly examined, and that Economía, in so far as it looked at them at all, did so inadequately, so that
the resulting determination constituted an infringement of Article 15.5.

ANNEX D-4

EXECUTIVE SUMMARY OF THE CLOSING STATEMENT
OF THE EUROPEAN COMMUNITIES –
SECOND MEETING

(13 October 2007)

1. Mexico should have never in itiated this investigation since no standing test was performed,
no due restraint was exercised and no pre-initiati on consultations were held. Also during the
investigation, besides the blatant exceeding of th e 18-month deadline, Economía did not comply with
its WTO obligations as regards the determination of pass-through, injury and casual link.

2. The EC will not to rehearse the arguments th at have already been presented to the Panel.
What the EC intends to do is pick out a handful of issues that we think call for special attention, and
but which we think have not been adequately ventilated in these proceedings.

3. First, the Panel will by now be well aware of the somewhat curious path which was taken by
Mexico's investigation of olive oil. Fortuny launc hed its complaint on the basis of an allegation of
injury taking the form of material retardation of the establishment of domestic industry. The
investigating authority began the investigation with out any clear idea of whether what was at issue
was material retardation or material injury. It was onl y in the course of the investigation, in particular
in the Provisional Resolution, that the authority fo rmed the view that what had occurred amounted to
material injury rather than material retardation. It is clear that, in order to achieve or avoid a
particular result, an authority is impeded from redefining that result in the course of the proceedings.

4. Mexico seeks to pass off its actions as a matter of administrative discretion or convenience.
However, what might be convenient for the inves tigating authority and for the complainant Fortuny
was not convenient for other interested parties or Members. The exporters and the EC sought to
defend their interests on the reasonable understandi ng that what was at issue was a question of
material retardation, only to discover in the Provi sional Resolution, that the nature of the injury
identified by the investigating authority was quite different. Of course they had the opportunity to
address the issue following the publication of the Pr ovisional Resolution, but by that time they had
devoted considerable efforts to pursuing what proved to be an irrelevancy.

5. The EC is not trying to slip into these pro ceedings a claim based on failure to give parties a
fair hearing during Economía´s investigation. We have deliberately chosen to concentrate our claims
on particular issues in order to simplify the proceed ings. Nevertheless, the negative consequences for
interested parties of the investigating authority's act ions give further emphasis to the EC's claim that
Mexico has not properly initiated th e investigation because it did not ma ke an adequate determination
of injury in accordance with Article 15.4 of the SCM Agreement.

6. The EC would also like to add that the conf usion by Economía between material injury and
material retardation has been maintained by Mexico all through the Panel proceedings.

7. The second point that the EC would like to bring to your attention in this Closing Statement
concerns the documentation supplied by Mexico
 to defend this action. Mexico has shown a

regrettable tendency to make arguments on the basis of documents that it does not produce. It was
only in response to the specific request of the Panel that many relevant documents were produced.

8. Unfortunately, when they were produced, the manner in which they were presented made the
task of the EC, and that of the Panel, extremely difficult. Although Mexico produced what it says is
the list of documents in the administrative file, the si gnificance of many of the elements in that list is
obscure. The problem was compounded by Mexico's failure to make any connection between the
individual documents included in the list and the exhibits that it presented to the Panel.

9. Furthermore, some of the exhibits appear to be almost miscellaneous collections of
documents, whose precise nature was sometimes very difficult to determine and, indeed, in some
cases continues to elude us. We do not accuse Mexico of deliberately trying to create confusion, but
we have to say that this was sometimes the result of its actions.

10. Confusion is also an aspect of the third topic th at we wish to bring to the Panel's attention. In
making its claims the EC has clearly distinguished between those errors that were committed by the
investigating authority in the initiation of the investigation, a nd those that arose in the course of the
investigation. Thus, the EC has made separate claims concerning the notion of industry when the
decision to initiate is being made, whic h is addressed in Article 11.4 of the SCM Agreement, and to
the determination of injury to industry made in the s ubstantive findings of the investigating authority.
Unfortunately, Mexico has moved back and forth be tween the topics as and when it appeared to best
serve its interests. This distinction between initia tion and substantive investigation also applies to
other aspects of the EC's claims. Thus, in regard to the failure to provide summaries of confidential
information or give an explanation for this failure the EC has laid special emphasis on the
communications made to the investigating authority by Fortuny prior to initiation. The obligations in
Article 12.4 apply as much to such communications as they do to those made in the course of the
investigation.

11. Finally, the European Communities would like to thank the Panel, the Secretariat and the
interpreters for so thoroughly and efficiently carrying out your responsibilities.

12. The EC would also like to thank Mexico's de legation for its efforts to defend such a difficult
case for them. The EC considers Economia's inves tigation to be peculiar, confuse, unfounded and,
most importantly, irreconcilable with the WTO Agreements. For these reasons and because the
system of EC production aid in the olive sector was replaced at the beginning of 2006 by an entirely
different system, the EC has requested the Panel to suggest to Mexico the complete repeal of the
measure against olive oil.

ANNEX D-5

ORAL STATEMENT OF MEXICO -
SECOND MEETING

(2-3 October 2007)

 Representatives of the European Communities (EC) and of the third parties in these
proceedings, Members of the Panel and officials of WTO Secretariat, good morning and thank you for
the opportunity to present, orally, our country's position in this dispute.

 Rather than running through our arguments once again, in this oral submission we shall be
emphasizing the essential points that we think the Panel should take into account.

1. Regarding the EC argument concerning the oblig ation to hold consultations prior to initiation,
it appears that under the EC system an applica tion is accepted when submitted by the applicant and
received by the Investigating Authority (IA), while the formal action initiating the investigation is
publication in the Official Journal of the European Union, from which moment presumably the
investigation clock begins to run.

2. In Mexico, the applicant files his applicati on and the IA merely receives it and stamps it to
acknowledge receipt, which does not imply that it has been accepted, only received for examination.
In other words, receipt of the document does not imply acceptance. Once th e IA has analysed the
information, it determines whether or not to dr aw up a draft acceptance of the document. If the
application is satisfactory, the IA sends this draf t to the Minister of the Economy, who can decide
whether or not to accept the application. If the Minister accepts the application, he signs the
document which is then sent to the Official Jour nal (DOF) for publication. Up until that moment,
what has happened is that the application has been submitted and accepted, but nobody knows that the
application exists. The investigation has not begun.

3. Consequently, if for some reason the document is not published, it will have no legal force
whatsoever. In fact, the investigation clock does not begin to run until the day following publication,
clearly because by then, the interest ed parties know that an investig ation has been initiated. The
Minister's signature does not mean the initiation of the investigation. If this were the case, the periods
would have to run at that date, which simply ca nnot happen, since apart from the applicant, nobody
knows that an application has been filed.

4. Footnote 37 of the SCM Agreement states that initiation is the formal action by which an
investigation is commenced, but it gives no indicati on as to what requirements must be met for that
action to take place. A "formal action" is an action which meets the legal requirements for being
considered as valid. Clearly, each domestic legal sy stem establishes what those requirements are. If
the negotiators had intended that all Members should use only one particular action or type of action
to consider an investigation as ha ving been initiated, they would at least have established the specific
requirements for that "formal action" . Given that this is not the case, we assume that each Member
has to define the legal act by which the investiga tion is initiated. We do not understand why the EC
maintains that such questions cannot be left to the legal systems of each country.

5. The EC merely repeated that the signatu re of the Mexican Minister of the Economy
constitutes the formal act of initiation without explai ning why this is the case. Taken to the extreme,
its argument would mean that the pre-initiation actions taken by the IA to determine whether or not an

application is appropriate would have to be treated as part of th e investigation, and that consequently,
the formal act of initiation would simply be recei pt of the application, which is unacceptable.
Consequently, regarding its reply to question 6, th ere can be no confusion as to whether the Mexican
or the WTO legal system should be used, since th e SCM Agreement does not establish what the act of
commencement is; and as there are not two sets of rules applicable, there can be no conflict.

6. During the first hearing, the EC stated that the obligation in Article 13.1 of the
SCM Agreement was to invite a Member to hold cons ultations before initiating the investigation.
However, in its replies it maintains that there is an obligation to hold the consultations prior to
initiation. This new interpretation would mean that a Member invited to hold consultations could
decline or ignore the invitation, and afterwards clai m before a panel that the Member invited violated
the SCM Agreement because the consultations did not take place prior to initiation. This is
unacceptable. In fact, Article 13.3 of the SCM Agreement states that the consultations are not
intended to prevent the expeditious initiation of an investigation, which confirms that there cannot be
any obligation to hold consultations before initiation, since that would obstruct initiation.

7. The EC insists that the term "domestic industr y" alludes exclusively to the producer that is
producing at the time its application is filed. Mexi co takes the view that the EC's interpretation of
Articles 11 and 16 of the SCM Agreement would have unacceptable consequences. The fact that
Fortuny was not producing at the time of initiation has no effect on whether it can be regarded as a
domestic producer, for reasons which have already been mentioned in this dispute. Fortuny had to
suspend production because of the subsidized imports from the EC, and the injury inflicted, for the
purposes of an investigation, was that it was being prevented from resuming production.

8. The EC has not explained how the concept of "production" could be used as a factor to be
analysed, when the injury suffered by the domes tic industry is the material retardation of its
establishment. We do not agree with the EC's inte rpretation of the scope of the term "establishment"
("material retardation of the establishment of such an industry") in the English version of footnote 45
to the SCM Agreement. Even supposing, for the sake of argument, that – as the EC claims – "to
establish" means "to achieve a level of maturity", we do not see how a company that produced olive
oil for decades could not be regarded as being matu re, and being a mature company, it could not be
assumed to be a new industry. Nor is it clear to us how a company that is producing could be
regarded as not being established. The concept of "maturity" is not contemplated in the SCM
Agreement, and therefore its use could give rise to unfortunate interpretations. If that were the main
concept in the case of material retardation, then investigation for material retardation could be
initiated even if the industry were already producin g, since it may not have reached "maturity", which
is untenable.

9. Moreover, both the Spanish and French versions of the SCM Agreement state, in footnote 45,
that a cause of injury is materi al retardation in the creation
 of an industry. In other words, those two
versions of the SCM Agreement do not support the EC's interpretation that the term implies "to
achieve a level of maturity".

10. The EC points out that regardless of whether an investigation is initiated as a result of an
application or ex officio, domestic production must n ecessarily exist. We insist that according to its
interpretation, there would be no possibility of a new domestic industry being established, which is
contrary to the concept of "creation" of a domestic industry. If the EC's claim were valid, there would
be no need for the material retardation requirement – material injury would suffice. The EC has not
explained what treatment would have to be give n to those cases where production is temporarily
suspended for planned or unforeseen stoppages, or to a cyclical or seasonal industry, to cite a few
examples.

11. Judging from the EC's reply to question 20, both Members appear to agree that the due
restraint clause applies only to the period prior to the initiation of the investigation and not to the
imposition of countervailing duties.

12. Nor do we believe that there is any foundati on for the assertion that the imports were exempt
from the imposition of countervailing measures. We can find no support in the SCM Agreement or in
the Agreement on Agriculture for such an interpretation.

13. The IA considered that it was not possible to initiate an investigation for material retardation
with respect to a company which, as already mentio ned in this dispute, had existed since the 1940s,
was producing olive oil, had all the production fac ilities it needed to operate and had never been
involved in any proceedings that might imply its being shut down or could affect its operations
(liquidation or insolvency proceedings, re-registratio n, change of corporate purpose, etc). Thus, the
IA determined that the most appropriate course of action would be to initiate the investigation without
specifying the particular mode of injury suffered by the applicant. Consequently, there is no violation
whatsoever of the SCM Agreement or the Agreement on Agriculture.

14. In its reply to question 22, the EC refuses to say what is meant by due restraint under the
Agreement on Agriculture and merely argues that the actions of the IA lacked restraint. We do not
understand how the EC can refuse to explain a concept and then claim that the IA acted in a manner
contrary to that unexplained concept. At the same time, the EC argues that due restraint is "clearly"
an additional obligation for Members, but, it should be emphasized, does not explain why it
constitutes an obligation additional to that of mainta ining a reasonable standard. It seems to us that
these assertions do not constitute a prima facie presum ption of a violation on the part of Mexico, and
we therefore request that they be dismissed.

15. We repeat that, in our opinion, due restraint is a concept that relates to an appropriate and
reasonable standard for allowing an investigation to be initiated. It does not involve doing anything
differently in cases of agricultural, as compared w ith non-agricultural, products. Furthermore, the IA
took measures which demonstrate the application of a reasonable standard (such as sending the
applicant a request for information, so-called "prevención", before initiating the investigation).

16. In its reply to question 25 the EC states that if an investigation was initiated prior to the
expiry of the implementation period, then Article 13(b)(i) of the Agreement on Agriculture applies to
any determination, in the course of that investig ation. Once again, we can find no support for this
claim. The due restraint was only applicable to the initiation because Article 13(b)(i) so provides and
because after that it was no longer in effect. As re gards initiation for retardation, we repeat that the
investigation was not initiated for this mode of injury. Accordingly, we cannot see why the due
restraint clause would have to be applied to the determinations
 issued during the olive oil
investigation.

17. Regarding the EC complaint that Mexico's argument concerning systematic access to all the
confidential information was rejected in two panel reports, we do not agree.

18. With respect to United States – OCTG (Article 21.5 – Argentina) , unlike what happens in the
US system, under the Mexican system the parties do have access to confidential information, so that
in the olive oil investigation, the impairment of due process for the parties which the Panel examined
in the mentioned case did not exist.

19. Regarding the panel report Mexico – Steel Pipes and Tubes , as we discussed in our rebuttal,
the Panel's findings concerned two different aspects : first, whether or not the non-confidential
summaries permit a reasonable understanding of the c onfidential data; and second, the standard of
review applicable to the decisions of the IA c oncerning the granting of confidential treatment to

specific information, as well as whether or not that information could be summarized and the way in
which the IA should have communicated these decisions.

20. The Panel determined that the non-confiden tial summaries were inadequate, but as Mexico
had acted in a manner consistent with Article 6.5 and 6.5.1 of the AD Agreement as regards the
evaluation and granting of confid ential treatment, and by maintaining a system of access to
confidential information that permitted the effective legal representation of an interested party and
could serve as a supplement to fulfilment of the prov isions of Article 6.5 of the AD Agreement, there
had been no violation by Mexico of the AD Ag reement. Mexico considers that the Panel's
determinations are not applicable to this dispute in the way that the EC suggests. In any case it seems
to us that the report supports Mexico's position in this dispute.

21. At the same time, the EC claims that the IA did not evaluate whether "good cause" had been
demonstrated for certain information to be considered confidential. In Mexico – Steel Pipes and
Tubes, the Panel determined that this claim was unfounded because there was no provision (in this
case in the SCM Agreement) establishing what process the IA should follow when it considered that a
request for confidential treatment was justified.

22. On the other hand, the exporters did in fact ex amine the confidential information. In the case
of the EC, even though it had the right to examin e that information, for reasons unknown to us, it
refrained from exercising that right. This cannot be attributed to the IA. We cannot see what this
alleged impairment of its rights of defence consists of.

23. On the matter of the non-confidential summaries, the EC maintains that its claim relates to the
non-existence of such summaries, and not to their inadequacy. Regarding the non-existence of the
summaries, Exhibit MEX-38, which contains the index of the record, shows that there are non-
confidential summaries of every one of the documents to which confidential treatment was accorded.
The fact that the non-confidential summaries did not take the form requested by the EC does not mean
that they do not exist. The summa ries are there, and if there is any problem with them, it clearly
cannot be their non-existence as the EC claims.

24. We further recall that the SCM Agreement offe rs no guidance with regard to the form which a
non-confidential summary should take. In any case, if the summaries do not satisfy the condition of
permitting a reasonable understanding of the confidentia l information, the problem would be one of
sufficiency and not of existence.

25. Moreover, the EC failed to demonstrate that the PR was insufficient to acquaint the parties
with the essential facts considered during the inves tigation. It only stated that a provisional measure
could hardly acquaint the parties with the essential f acts. Consequently, it has not established a prima
facie presumption of violation by Mexico.

26. With regard to the exceeding of the 18-month limit under the SCM Agreement, in our
submissions we explain the reasons why – and th e documents that support our assertions – the IA
decided to extend the period for the investigation, by giving priority to the need to gather more
information and afford the parties an adequate oppor tunity to defend themselves. Thus, the granting
of the extensions requested by the parties, the ve rification visit to the applicant's premises and the
actions taken by the IA in response to the questions raised by the parties themselves were the cause of
the delay in the proceedings. The EC's claim is not based on any specific and genuine impairment of
its rights of defence or those of its exporters. It is merely an invalid excuse for not supplying the
information that the IA requested of it.

27. The EC continues to admit not having provide d the information requested by the IA and,
moreover, maintains that it was not a valid request. There is no justification for this, since in no
circumstances could it have been considered exempt from providing the information requested of it.

We disagree with the EC when it says that "the onl y means of insisting on the importance of the rules
of the SCM Agreement" was to refrain from providing information. The same applies to its claim that
to provide this information would have been tant amount to "condoning" the actions of the IA. To
accept the claims of the EC would be equivalent to ceding control over the investigation to the parties,
which is unacceptable, since it would do significan t harm to the multilateral system. Moreover,
Article 12.7 of the SCM Agreement does not mention any exceptions to the obligation upon the
parties to provide information requested; therefor e recourse was had to the "facts available", in
accordance with that Agreement. We fail to unders tand the nature of the EC's alleged "dilemma" in
responding to these requests by the IA.

28. We request the Panel to take these circumstan ces into consideration in its analysis, since the
delay was due not to negligence on the part of the IA but to a desire to obtain the best information
possible, as requested by the interested parties themselves.

29. The EC states that the recipient of the be nefit under the subsidies programme is the olive
grower and that this is consistent with Article 5 of Council Regulation (EC) No. 1638/98, amending
Regulation No. 136/66/EEC. It also claims that in the FR in this investigation, part of that Article was
deliberately omitted.

30. We do not think that there was any omission in the FR. The FR never referred to Article 5 of
Council Regulation (EC) No. 1638/98, but to Artic le 5 of Regulation No. 136/66/EEC, and did not
omit any substantive part thereof. In any case, we do not detect any element in Article 5 of Council
Regulation No. 1638/98 that could be used to suppor t the claim that the subsidization programme was
not directed at olive oil. On the contrary, that Article also indicates that it is a subsidized good.

31. As stated earlier, the EC's subsidi zation programme is covered by Regulation
No. 136/66/EEC, and was notified by the EC to the WTO's Committee on Agriculture as a
subsidization mechanism. Consequently, it is a s ubsidy whose existence, va lidity and application are
not open to question. Moreover, it is directed, in Article 5 of both Regulations, towards encouraging
the production of olive oil. Both regulations are categ orical in this respect. It was therefore assumed
that the subsidy was given for the production of oliv e oil. In that connection, paragraphs 126 to 178
of the FR set out the methodology used to determine both the amount of the subsidy and its effect on
olive oil prices and the resulting benefit.

32. Likewise, in its reply to question 54, the EC does not explain why it considers that the
necessary adjustments to the amount of the subsidy granted were not made. Consequently, we cannot
give any further details in this respect.

33. The EC claims that Mexico did not identif y its domestic industry on the basis of positive
evidence and thereby violated Article 15.1 of the SCM Agreement. However, the EC does not
indicate what concrete action should have been taken by the IA during the investigation into the
domestic industry. Moreover, it states that its claim in paragraph 173 of its FWS was made to
"illustrate the consequences of the non-existence of the domestic industry, rather than as an attempt to
claim an inadequate inquiry into the extent of the domestic industry".

34. In other words, the EC sets aside its claim re garding an alleged inade quate enquiry into the
extent of the domestic industry and instead adopts the position that the domestic industry did not exist.
Consequently, it is enough to show that the domestic industry did exist in order to invalidate its claim.

35. We repeat that the FR sets out the reasons why the IA confirmed that Fortuny did meet the
requirements of representativeness and legitimacy in order to request and proceed with the
investigation, in accordance with Articles 11.4 and 16 of the SCM Agreement. This section describes
the efforts that were made by the authority to determine whether there were other domestic producers.

36. Now, with respect to certain comments by the EC concerning some other possible additional
inquiries, we repeat that these do not suffice to disr egard the authority's evaluation of the extent of
the domestic industry. The IA's findings in this re gard are based on the information contained in the
record taken as a whole.

37. Our submissions reflect the complexity of the inquiries and the proactive and unbiased
attitude of the IA. In most cases, these inquiries were indeed carried out (for example Maprinsa and
its suppliers, although they did not produce olive oil), while in other cases there were sufficient
reasons and evidence in the record to suggest th at the inquiries were not necessary (according to
official data, Llanos de San Francisco was still at the experimental stage; Aceites Navarra, according
to the exporters themselves, did not produce olive o il; and according to official data, the State of
Sonora does not produce olive oil). Moreover, attention was drawn to the relevance of the reply by
the ANIAME and to the IA's evaluation of the repli es given by the different authorities, replies which
confirmed the presumption that Fortuny was representative of the domestic industry as a whole.

38. Added to all of this is the requests that we re sent to the non-participating enterprises. Thus,
far from having acted negligently, the IA undertook all possible inquiries. We do not consider that the
fact that suppliers of canola oil were not investigat ed or that requests for information were not sent to
a State whose production was non-existent according to official data and other evidence are sufficient
grounds for determining that Mexico acted incons istently with the SCM Agreement. We repeat,
moreover, that the IA did not only have the inform ation collected, but also took into account the fact
that no other company came forward as a domestic producer.

39. In addition – according to th e evidence in the r ecord – assuming, for the sake of argument,
that there was another domestic producer, it would not be likely either that its level of production was
such that it nullified Fortuny's legitimate status as the entity which acted for or on behalf of the
domestic industry or had a decisive impact on the examination of injury caused by the subsidized
import. The EC itself, in its reply to question 65, stated that by representing 100 per cent of domestic
production, there was in fact no need to examine the concept of "collective output".

40. At the same time, we recall that, acco rding to the data in the article in " Claridades
Agropecuarias", information also submitted by the EC, Mexico's total annual output of olive oil was
estimated at around 1,000 tonnes in 2000, and accord ing to the correction submitted in our reply to
question 18 and the corresponding explanations, Fortuny produced a similar amount in 1999 and 2000
(specifically, according to the data supplied by Fortuny, it produced 1,306 tonnes in 1999 and 742
tonnes in 2000, or an average of 1,024 tonnes per yea r). We note that in the course of this hearing,
Mexico is ready to provide any clarifications th at could be helpful concerning the production data
mentioned in its written submissions and its replies to the Panel.

41. The EC has stated that under its procedures, if a domestic industry ceased to produce during
an investigation, the investigation would conclude without the imposition of measures. For Mexico,
the rigid application of such a criterion could m ean that even where domestic producers had suffered
the maximum degree of injury during the investigati on and because of this had ceased to produce, the
domestic industry would end up by disappearing. Imports that are the subject of unfair practices
would then have destroyed the domestic producers' market.

42. Contrary to what is stated by the EC, th e important point regarding the existence of a
domestic industry is not simply to determine whethe r in fact it is producing or not or if it produced
before the investigation was initiated or once it ha d commenced. The point is to determine, on the
basis of various factors, whether the domestic indus try exists or not and once it has been determined
that it does exist to examine whether the suspension of production is the result of the injury suffered
because of imports of products that are the subject of an unfair practice.

43. We agree with the EC's final indication to th e effect that the process cannot be automatic but
that the merits of each case should be taken into account. In the investigation into olive oil it was
shown that the reason why the domestic industry could not resume
 operations was the presence of
subsidized imports. Consequently, according to the me rits of this case, it was considered that, even
though there was no output during the period inv estigated, there was a domestic industry – a
determination that was reached after various factor s had been analysed, as stated on several occasions
during this dispute.

44. We consider that a domestic producer does not necessarily have to be producing at the time of
submitting an application or during the investigation because in trade a producer may possibly have to
suspend production of the article in question temporarily without this meaning that it loses its status as
a domestic producer.

45. The EC would appear to contend that when production reaches zero this cannot be considered
a decline in that production. In our view, the wo rd "decline" implies that an indicator has moved
downward over a lapse of time. It is not possible va lidly to contend that if this decrease reaches zero,
it should be excluded as a "decline", and the EC does not explain how such a situation could be
considered. To accept the EC's interpretation woul d be tantamount to awarding a premium for unfair
imports because the maximum degree of injury h as been achieved (inciting the domestic industry to
cease production).

46. Furthermore, in our view the EC's argumen ts are contradictory for the following reasons:
(1) it claims that the decline in output to zero is not r eally a decline; it has al so stated that a domestic
industry that is not producing simply does not exis t; (2) nevertheless, in its reply to question 80 it
states that provisional suspension of a domestic industry may be considered as an injury factor; (3) if
it claims that decline in output to zero is not properly speaking a decline, then it is not clear to us how
such decline could be analysed as an injury factor; (4) if it claims that a domestic industry that is not
producing does not exist, then we do not understand how it could be considered as a factor in the
decline in output to zero since, according to what the EC has claimed, this industry does not exist.

47. In our opinion, the decline in output means a decrease over time, and if such decrease reaches
zero, this simply means that the in jury factor has reached its maximum level. It is indisputable that
once it has been determined that a domestic industry exists and that it has scaled down or suspended
operations as a result of the unfair practice, this constitutes a highly relevant factor in the injury
analysis.

48. At the same time, we recall that the materi al injury consisted of the impediment to the
domestic producers' resuming operations, making it necess ary to examine the trend in production. It
is thus obvious that the decline in Fortuny's output had to be taken into accoun t in this examination.
On the other hand, regarding its argument that production was suspended months prior to the
submission of the application, the EC does not take into account various steps that Fortuny had to
undertake before requesting an investigation. In pr actice, the lapse of time between the suspension of
operations, where applicable, and the submission of an application for initiation may be as much as
one year or even more.

49. In its reply to question 81, the EC indicates th at the word "potential" in Article 15.4 of the
SCM Agreement does not have great significance, at l east as regards investigations that are based on
an allegation of material injury. Mexico considers that an investigation into material injury should
take into consideration the potential situation of the industry in the immediate future in order to
examine whether the unfair practice could persist and continue to cause injury, and to assess the future
situation of the domestic industry, as well as to dete rmine what would be the alternative situation if
there were no subsidized imports. Article 15.4 of the SCM Agreement clearly indicates that there
should be an examination of "actual and potential decline" of the factors enumerated therein and
makes no distinction as to whether the potential examination only applies to cases of threat of injury.

50. Moreover, Article 15.2 of the SCM Agreement provi des that, in order to consider the effect of
the subsidized imports on prices, the authority shou ld consider whether there is price undercutting,
prices are depressed or price increases prevented. In a situation where price increases are prevented,
we do not see how the relevant analysis can be made without potential aspects and the EC has not
explained this. Moreover, the injury suffered by a domestic industry at the present time does not
produce all its effects immediately. As it is usuall y a question of trends, these effects can occur in the
future and can serve to carry out a proper examina tion of injury. We do not therefore accept that the
word "potential" is of marginal or no importance in Article 15.4 of the SCM Agreement, and despite
what the EC contends, in a proper examination, we do not see how injury could be double counted.

51. Likewise, we consider that paragraph 7.77 of the Panel report in the Mexico – Corn Syrup
dispute does not support the EC's statement. This paragraph merely indicates that in cases of threat of
injury it is relevant to include projections in th e application, but failure to include them does not
suffice to reject the application. The Panel's finding did not refer to the material injury examination
but to the application for initiation in which the threat of material injury is claimed. It is therefore
important to include projections in the application
 regarding threat of in jury because the injury
claimed implies future developments; but this does not mean that potential data should only be
considered in the case of applications regarding threat of injury.

52. With regard to the EC's assertions concerni ng models, we note that any model or estimate is
by nature an approximation of something, inasmuch as the results of its application are not real data
but information that reflects the "possible reality" to a greater or lesser degree of accuracy. In fact, the
exactitude of any model can be verified a posteriori once its greater or lesser accuracy in predicting
the future has been proven. We do not, ther efore, understand how one can advocate the use of
models, projections or estimates and then question them.

53. At the same time, it is incongruous for the EC to maintain that there is no information on
injury and in the next line to indicate that this is because the Mexican industry had ceased to produce,
when what is being claimed is that the Mexican industry's production fell to zero as a result of the
practice of exporting subsidized products from Europe. It is also important, as indicated in Mexico's
replies concerning the price undercutting under which the imports from th e EC entered, that the Panel
should bear in mind that this examination was not only made in relation to the costs estimated by
Fortuny in its business plan, but also the real -historical costs incurred by Formex, Fortuny's
predecessor. In any event, the prices of the subs idized imports from the EC were also well below
Fortuny's production costs.

54. As mentioned in our FWS, the EC originally claimed that various factors (loss of the
distribution network, loss of the Ybarra brand, high costs, etc.) were specifi c reasons for the injury
suffered by the applicant, and that the IA had failed to carry out a proper analysis of these factors. In
contradiction to the foregoing, the EC claims that th ese factors were not examined by the IA and that
this is inconsistent with the SCM Agreement. In other words, the EC first asserts that the analysis
was not proper and then claims that there was no analysis at all.

55. Regarding the alleged absence of analysis, we already stated in our FWS that this statement
would be invalidated if it were shown that these factor s were in fact analysed. We also explained in
our FWS what was involved in that analysis.

56. Regarding the alleged lack of a proper analys is, we reiterate what is stated in our FWS,
namely that these (and other) factors were properly analysed. Our FWS clearly shows what was
involved in the aforementioned analysis and the re asons why the Ministry made the determinations
contained in the FR.

57. In addition, the EC has provided no evidence that these factors explained the state of decline
of the domestic industry, still less that the evidence sufficed for this purpose, or to break or even
undermine the causal link between the subsidized impor ts and the injury to the domestic industry (as
expressly acknowledged in its reply to question 92). As we have already stated, simple assertions
cannot constitute a prima facie presumption of violation on Mexico's part.

58. We repeat that the IA did not only properly analyse the factors indicated by the EC but, in
addition, also examined all those aspects which it considered might affect the situation of the
domestic industry, therefore, the EC's argument is without substance.

59. Finally, Mexico would like to note that owing to the inherent complexity of this procedure
and for practical reasons (e.g. translation into Sp anish of certain documents), our remarks may at
times lack precision, and we would be glad to provide any clarifications that may be needed.