Document: WT/DS379/R Page C-1 ANNEX C EXECUTIVE SUMMARIES OF SECOND WRITTEN SUBMISSIONS OF THE PARTIES Contents Page
Document codes: WT/DS379/R
Complainant: China
Respondent: U.S.
Third parties: Argentina, Australia, Bahrain, Brazil, Canada, EU, India, Japan, Kuwait, the State of, Mexico, Norway, Saudi Arabia, Taiwan, Turkey
Dispute stage: Appellate Body
Agreements cited: Art. I, VI  GATT 1994Art. 1, 2, 10, 12, 13, 14, 19, 32  Subsidies and Countervailing Measures (SCM)Art. 1, 2, 6, 9, 18, Annex II  Anti-dumpingArt. 15  Protocol of Accession

ANNEX C

EXECUTIVE SUMMARIES OF SECOND WRITTEN
SUBMISSIONS OF THE PARTIES

Contents Page
Annex C-1 Executive Summary of the Second Written Submission of China C-2
Annex C-2 Executive Summary of the Second Written Submission of the
United States
C-12

ANNEX C-1

EXECUTIVE SUMMARY OF THE SECOND
WRITTEN SUBMISSION OF CHINA

(24 August 2009)

I. INTRODUCTION

1. This submission presents China's rebuttal to the arguments advanced by the United States in
its first written submission and at the first mee ting of the Panel in defence of the measures under
challenge in this proceeding. This submis sion also incorporates China's comments on the
United States' answers to the questions posed by the Panel following the first meeting.
II. COMMERCE'S "PUBLIC BODY" FINDINGS IN THE FOUR CVD
INVESTIGATIONS UNDER CHALLENGE CANNOT BE RECONCILED WITH A
PROPER APPLICATION OF THE INTERPRETIVE PRINCIPLES OF THE VIENNA
CONVENTION TO ARTICLE 1.1(A)(1) OF THE SCM AGREEMENT

2. In its first submission, the United Stat es confirmed that Commerce applied a per se rule of
majority government ownership to determine whethe r SOEs were public bodies. It now offers the
same per se rationale to defend Commerce's treatment of SOCBs as public bodies, even though this
was not the rationale adopted by Commerce in the underlying investigations.
3. The first issue before the Panel with respect to the interpretation of the term "public body" is
whether the United States' per se rule can be sustained when the te rm "public body" is interpreted in
accordance with the principles set fo rth in Articles 31-33 of the Vienna Convention. China submits
that this is not a close question, as evidenced by the virtual absence of third-party support for the
United States' extreme position. As China has shown, the term "public body" must be interpreted to
mean an entity that exercises author ity that has been vested in it by the government for the purpose of
performing functions of a governmental character.
4. In its first written submission, China set fort h a number of definitions of the adjective
"public," the common theme of which was that wh en used with the noun "body," it conveyed the
meaning of acting on behalf of a nation or community as a whole, and under the authority of or
officially on behalf of the nation or community as a whole. However, the United States argues that
because one general definition of public is "the opposite of private," a nd one definition of "private" is
"provided or owned by an individual rather than the State or a public body", that "if an entity is owned
by the state … such entity can be 'a public body' under the SCM Agreement."
5. From this flawed syllogism, the United States th en makes the interpretative leap that because
a public body can be owned by the government, it " is an entity that is owned by the government."
Needless to say, the mere fact that the term "public body" may include within its scope an entity
owned by the government does not support the Unite d States' categorical rule that such entities
necessarily are public bodies in all circumstances.
6. The equally authentic Spanish and French text s of Article 1.1 also refute the ordinary
meaning interpretation advanced by the United Stat es and unequivocally support the one proposed by
China. In Article 1.1(a)(1) of the SCM Agreemen t, where the English text uses the term "public
body", the French text uses the term "organisme public," and the Spanish text uses the term

"organismo público." The French term "public " and the Spanish term "público" each carries a
connotation of "governmental".
7. It is instructive to consider the Appellate Body's interpretation of the term "government
agency" in Canada – Dairy. In this decision, the terms "org anismo público" and "organisme public"
are expressly equated with the English term " government agency," which the Appellate Body
interpreted to mean "an entity which exercises powers vested in it by a 'government' for the purpose of
performing functions of a 'governmental' character". It follows that when the identical terms –
"organismo público" and "organisme public" – are u sed in Article 1.1(a)(1) of the SCM Agreement,
they should be given the same meaning. A public body, like a government agency, therefore must be
"an entity which exercises powers vested in it by a 'government' for the purpose of performing
functions of a 'governmental character'".
8. The second issue before the Panel is the United Stat es' persistent rejection of the relevance of
the ILC Draft Articles. The United States is unable to explain away what it characterizes as the many
"unhelpful" cases endorsing the general proposition th at the ILC Draft Articles are an appropriate
interpretative tool when interpreting the covered agreements generally, or the Appellate Body's
express reliance on them when interpreting Article 1. 1(a)(1) of the SCM Agreement in particular.
Accordingly, the United States effectively has con ceded that the question before the Panel is not
whether the ILC Draft Articles should inform the Panel's interpretation of the term "public body", but
how they should do so. On this subject, the United States literally has had nothing to say.
9. In contrast, China has demonstrated that the a ttribution of financial contributions to Members
under Article 1.1 of the SCM Agreement when they are provided by (1) "a government", (2) any
"public body within the territory of a Member", or (3 ) a "private body" that is "entrusted or directed"
by government, closely parallels the three categories of attribution set forth in Articles 4, 5, and 8,
respectively, of the ILC Draft Articles. The only logical inference is that Article 1.1 of the SCM
Agreement was drafted against the normative backgr ound formed by the customary international law
rules on attribution known to all Members of th e WTO. The Appellate Body's reliance on the
Commentary to ILC Draft Article 8 when interpreting th e meaning of the term "entrusts or directs" in
Article 1.1(a)(1)(iv) of the SCM Agreement is an unambiguous confirmation of this reality.
10. The United States' interpretation of the term " public body" flies in the face of each of these
customary rules of international law codified in the ILC Draft Articles. Conversely, these provisions
unambiguously support the interpretation of the term "public body" advanced by China on the basis of
ordinary meaning, context and object and purpose.
11. China will not dwell on the final issue – Comme rce's input subsidy findings in respect of
purchases from private trading companies – because Commerce's unlawful conclusion that SOEs are
public bodies within the meaning of Article 1.1 of the SCM Agreement renders all of its input subsidy
determinations unlawful. China will just note two additional bases for c oncluding that Commerce's
findings with respect to purchases from private tr ading companies were inconsistent with the
United States' obligations under the covered agreemen ts. First, in the CWP and LWR investigations,
Commerce relied on "facts available" to determine the amount of HRS purchased from the private
trading companies that allegedly had been produ ced by SOEs, even though it did not seek such
information from the respondents in the investigati ons. The United States has essentially conceded
that in doing so, Commerce acted inconsistently w ith Articles 12.1 and 12.7 of the SCM Agreement.
Needless to say, subsidy findings predicated on an unlawful resort to facts available cannot stand.
12. Second, Commerce made no findings in the CWP, LWR or OTR investigations that the
private trading companies themselves had made a financial contribution within the meaning of
Article 1.1. As China previously has demonstrated , absent a finding of entrustment or direction, there
was no basis for Commerce to conclude that the producers under investigation purchased
"government-provided goods" when they acquired inputs from the trading companies.

13. For all of these reasons, the Panel should find that the United States' per se rule of majority
government ownership is inconsiste nt with the proper interpretation of the term "public body".
Without a valid finding that the SOEs and SOCBs were public bodies, Commerce's financial
contribution findings in each of the four CVD invest igations with respect to the alleged provision of
inputs and loans are inconsistent with Article 1.1 of the SCM Agreement.
III. COMMERCE'S DETERMINATIONS OF "BENEFIT" IN THE FOUR CVD
INVESTIGATIONS UNDER CHALLENGE VIOLATE THE UNITED STATES'
OBLIGATIONS UNDER THE COVERED AGREEMENTS

14. The United States' statements at the first m eeting of the Panel and its answers to Panel
questions have usefully clarified the issues befo re the Panel with respect to whether Commerce's
benefit determinations in the four CVD investiga tions under challenge were consistent with the
covered agreements.
1
15. First, the United States' defence of Commerce' s input and land benefit calculations are
predicated on the remarkable assertion that an i nvestigating authority has no legal obligation under
Article 14(d) of the SCM Agreement to perform an analysis establishing that private prices are
distorted before resorting to out-of-country benchmarks.
16. This is tantamount to a frontal assault on one of the central tenets of the Appellate Body's
decision in US – Softwood Lumber IV. As the Appellate Body emphasized, the rejection of private
prices as potential benchmarks is permissible only "when it has been established that those private
prices are distorted, because of the predominant role of the government in the market as a provider of
the same or similar goods." That determination, in turn, "must be made on a case-by-case basis,
according to the particular facts underlying each countervailing duty investigation."
17. Second, consistent with its flawed legal interpre tation of Article 14(d), the United States now
concedes that Commerce relied on nothing more th an the purported predominance of SOEs as
suppliers of inputs – determined exclusively by reference to their rela tive share of Chinese production
– to reject Chinese private prices as benchmarks in the CWP, LWR and LWS investigations.
Similarly, the United States apparently seeks to defend Commerce's rejection of land-use prices as
potential benchmarks in China solely on the ground s that the Government of China is the ultimate
owner of all land in China. The United States' pos ition is fundamentally at odds with the Appellate
Body's ruling that the mere fact that the govern ment is the predominant supplier of goods for a
particular market "does not, in itself, establish that all prices for the good are distorted" so as to justify
rejection of private prices.
18. Third, the United States now concedes that it ma de no adjustments whatsoever to the
Thailand benchmark it used as a proxy for private land prices in China, let alone "all necessary
adjustments" the Appellate Body deemed required to ensure that a benchmark based on prices in one
country "relates or refers to, or is connected with , prevailing market conditions" in another country.
Thus, even if Commerce's decision to reject Ch inese land prices and resort to an out-of-country
benchmark were consistent with Ar ticle 14(d) (and it was not), its failure to make any adjustments
whatsoever to the land price it selected in Thailand establishes that its chosen benchmark does not
relate to prevailing market conditions in China, as Article 14(d) requires.

1 China wishes to note that the United States has now confirmed in its answers to the Panel's questions
that it seeks to defend Commerce's benefit calculations in these cases exclusively on the basis that they are
consistent with Article 14 of the SCM Agreement. In no instance does the United States ask the Panel to assess
the conformity of Commerce's determinations with Article 15 of China's Protocol of Accession. For this reason,
and for the reasons set forth in China's responses to the Panel's questions, Article 15 of China's protocol has no
relevance to this proceeding.

19. Fourth, with respect to loans, the United Stat es makes only a perfunctory (and incredible)
argument that the interest rate benchmark Co mmerce derived from its 33-country regression model
represented a "comparable commercial loan which the firm could actually obtain on the market," as
required by Article 14(b).
20. Fundamentally, Article 14(b) is about comparing in terest rates. Consistent with the definition
of "benefit", the Appellate Body has said that the purpose of making this comparison is to determine
whether the recipient of the government loan is "'be tter off' than it would otherwise have been" in the
absence of the government loan. In this context, a benchmark loan cannot be "comparable" if it is
denominated in a different currency than the cu rrency in which the government-provided loan is
denominated, because interest rates differ by curre ncy. As a consequence, comparing a loan
denominated in one currency to a loan denominat ed in another currency will necessarily measure the
factors that cause interest rates to be different in different currencies. This is not a measurement of
the extent to which the recipient of the government loan is "better off" as a result of the financial
contribution.
21. The United States' real defence of its fictitious benchmark is predicated on its contention that
Commerce was free to disregard the actual requirements of Article 14(b) based on its finding that
interest rates in China were "distorted" by govern ment "intervention". The United States' effort to
assimilate the Appellate Body's in terpretation of Article 14(d) in US – Softwood Lumber IV into the
entirely different benefit standard of Article 14(b) is misguided. But even accepting, arguendo, the
relevance of the Appellate Body's interpretation of Article 14(d) to the interpretation of the benefit
standard for loans under Article 14(b) , the Appellate Body's decision in US – Softwood Lumber IV
makes clear that any benchmark chosen by an inv estigating authority must conform to the relevant
standard under Article 14.
22. Further, China notes that the "benefit" that Commerce purported to measure for the alleged
"policy lending" subsidy – the difference between inter est rates in China and the interest rates that it
derived from its multi-country regression model – bears no relationship to the ex post "access to
credit" rationale that the United States has adva nced in these proceedings in support of Commerce's
"policy lending" determinations.
23. Finally, with respect to China's cl aim that Commerce was required to take into account those
transactions that were above the benchmark price when calculating the alleged "benefit" from rubber
inputs purchased by the respondent producers during the POI, the United States does not dispute the
facts presented by China in its first written submission. Rather, the U.S. argues that even though these
producers in the aggregate paid more than the benchmark price for inputs purchased from SOEs, this
fact is "irrelevant" when calculating the alleged "benefit" because Article 14(d) provides Commerce
with the "leeway" and "latitude" effectively to choose whatever methodology it wishes when
determining adequacy of remuneration.
24. In making this argument, the United States ignores the import of the text of Articles 10, 14(d),
19.1, 19.4, and 32.1 of the SCM Agreement, as well as Article VI:3 of the GATT 1994. Article 14(d)
itself says that "adequacy of remuneration shall be determined in relation to prevailing market
conditions for the good … in question". Where there are multip le transactions for the same "good",
adequacy of remuneration must be calculated on an aggregated basis over the entire period of
investigation, taking into account not just the tr ansactions involving the "good" that are below the
benchmark price, but those that are above it as well . This is nothing more than a straightforward
application of the plain text of Article 14(d).
25. China's interpretation of Article 14(d) is also the only one compatible with the definition of a
subsidy in Article 1.1 of the SCM Agreement. In Canada – Aircraft , the Appellate Body observed
that a benefit within the meaning of Article 1.1 ex ists if a government's fina ncial contribution "makes
the recipient 'better off' than it would otherwise ha ve been, absent that contribution." A producer is

not "better off" over a period of investigation if it ends up paying, on average, more than the market
price for any "good" that it purchases from the government.
26. Where an investigating authority imposes a counter vailing duty to offset an alleged "subsidy"
calculated using a benefit methodology that prod uces a purported "benefit" when none exists, as
Commerce did in OTR, it necessarily has acted inc onsistently with Article VI:3 of the GATT 1994
and Articles 10, 19.1, 19.4 and 32.1 of the SCM Agreement.
IV. COMMERCE'S SPECIFICITY DETERMINATIONS IN RESPECT OF "POLICY
LENDING" AND LAND-USE RIGHTS WERE NOT IN ACCORDANCE WITH THE
REQUIREMENTS OF ARTICLE 2 OF THE SCM AGREEMENT

A. POLICY LENDING

27. In its first written submission, China demons trated that Commerce had failed to clearly
substantiate, on the basis of positive evidence, that the alleged "policy lending" subsidy was
"explicitly limit[ed]" to "certain enterprises" w ithin the meaning of Article 2.1(a) of the SCM
Agreement. Apparently unable to rebut China's arguments, the United States found it necessary to
invent an entirely new rationale for Commerce's sp ecificity determination. Notwithstanding the fact
that Commerce unmistakably considered the "s ubsidy" to involve the provision of loans at
"preferential, non-commercial" rates of inter est, and notwithstanding the fact that Commerce
measured the "benefit" of the a lleged subsidy on this basis, the United States now contends that
interest rates have nothing to do with the alleged "policy lending" programme.
28. Under the new U.S. theory, which China will ca ll the "access to credit" theory, the alleged
"policy lending" subsidy involves the "allocation" or "availability" of credit at ordinary commercial
interest rates. The United States apparently considers that the "preference" or "non-commerciality" of
these "policy loans" arises merely from the fact of obtaining a loan, at any interest rate. Surprisingly,
though, the ex post "access to credit" rationale did nothing to improve the conformity of Commerce's
"policy lending" determination with the requirements of Article 2.1(a) of the SCM Agreement.
29. The U.S. has made clear in its answer to Question 61 from the Panel that it intends to stand by
its assertion that the 539 "encouraged" industries listed in the Guiding Catalogue of Industrial
Restructuring, which are organized into 26 broad economic sectors, collectively constitute "certain
enterprises" within the meaning of Article 2. Ch ina has explained in response to Panel Question 54
why this assertion is wholly untenable and, indeed, not even credible.
30. The U.S. argument on specificity now comes dow n to the notion that the alleged "access to
credit" subsidy is "explicitly limited to certain enterprises" because China's economic planning
documents "prohibit" various types of enterprises from receiving the alleged "subsidy". The U.S.
reasoning, it seems, is that because the economic planning documents purport to prohibit lending to
one group of enterprises or industries, it follows that the category of "encouraged" industries must
constitute "certain enterprises" within the meaning of Article 2.
31. It is beyond any reasonable dispute that the 539 "encouraged" industries in 26 broad
economic sectors represent more than a "discrete segment" of the Chinese economy, and therefore do
not constitute "certain enterprises" within the mean ing of Article 2. The purported existence of a
"prohibited" group of industries does nothing to alter this conclusion. Moreover, the United States
has effectively conceded that the alleged "policy le nding" subsidy was not specific, because the U.S.
now admits that "Commerce did not make any particular findings in the OTR Tires CVD
investigation regarding the rates paid by borrowers from SOCBs as compared to the rates paid by
borrowers from other banks in China."

32. Article 14(b) of the SCM Agreement provides that "a loan by a government shall not be
considered as conferring a benefit " unless there is a "difference" be tween the interest rate that the
company pays on a loan from the government and the interest rate that it would pay on a "comparable
commercial loan which the firm could actually obtain on the market". Thus, a government loan can
only confer a benefit under Article 14(b) to the extent that there is a difference in interest rates. It
follows, by definition, that "access to credit" at or dinary commercial interest rates is not, by itself, a
"subsidy" that can be specific under Article 2.
B. LAND-USE RIGHTS

33. There is little left to say concerning Commerce's determination that the alleged land-use rights
subsidy that it identified in the LWS investigation was "regionally specific" under Article 2.2 of the
SCM Agreement. The United States has effectivel y conceded that compan ies paid the same (or
lower) prices for land-use rights whether or not they were located within the New Century Industrial
Park, which Commerce considered to be a "designate d geographical region". There is no conceivable
interpretation of Article 2.2 under wh ich this alleged subsidy could be "limited to certain enterprises
located within a designated geographical region within the jurisdiction of the granting authority".
34. In the underlying investigations, Commerce found that "the provision of land-use rights [is]
specific because the provision of land-use rights in an industrial park within the county's jurisdiction
is limited to an enterprise or industry or group thereof lo cated within a designated geographical region
…", but Article 2.2 requires the investigating authority to determine that the subsidy is specific to
certain enterprises located within a designated geogra phical region. If the investigating authority has
found only that the financial contribution was limited to certain ente rprises located within the
designated geographical region, it has not found that the subsidy is specific under Article 2.2.
35. The subsidy that Commerce determined to be countervailable in the LWS investigation was
the "government provision of land for less than adequate remuneration." While the United States now
claims that this subsidy was "unique" and "only ava ilable to enterprises investing within the park", it
fails to identify a single aspect of this alleged subsidy that was " only available" to companies located
within the New Century Industrial Park. The subs idy that Commerce identified was the provision of
land by the government at a price that Commer ce considered to represent less than adequate
remuneration. The same government – Huantai County – provided land to enterprises located outside
of the "designated geographical region" at the same or lower prices. The subsidy that Commerce
identified was therefore not "unique" or "only av ailable" to companies located within the New
Century Industrial Park, as the United States now claims.
36. For these reasons, the Panel should find that Co mmerce's determination of specificity in
respect of the alleged land-use rights subsidy in the LWS investigation was not in accordance with the
requirements of Article 2 of the SCM Agreement.
V. THE UNITED STATES ACTS INCONSISTENTLY WITH THE COVERED
AGREEMENTS BY IMPOSING COUNTERVAILING DUTIES WITHOUT
ESTABLISHING WHETHER THERE REMAINS A SUBSIDY TO OFFSET
FOLLOWING THE USE OF ITS NME METHODOLOGY TO CALCULATE ANTI-
DUMPING DUTIES

37.
The U.S. position on the issue of double reme dies remains as impenetrable and internally
contradictory as ever. On the one hand, the United States does not dispute that the methods by which
an investigating authority calcula tes anti-dumping duties can have the effect of offsetting subsidies,
both domestic and export. Nor does the United Stat es dispute that, when Commerce has encountered
these situations in the past, it has taken all necessary steps to ensure that it does not offset the same
subsidies through the imposition of two different duties. The United States does not even contradict
Commerce's own acknowledgement that the use of an NME methodology to determine normal value

is a circumstance in which the method of calculating anti-dumping duties can have the effect of
offsetting subsidies – an outcome that Commerce once proclaimed it was "determined to prevent".
38. In its answers to Panel questions, however, the United States now makes the remarkable
claim that Members are under no legal obligation to ensure that they do not offset the same domestic
subsidies twice. The United States asserts that "WTO rules do not contemplate the existence of, or an
adjustment for double remedies in the context of do mestic subsidies." This is a breathtaking assertion
– that nothing in the covered agreements preven ts a Member from offsetting a domestic subsidy
through the manner in which it calculates anti-dumpi ng duties, and then offsetting the same domestic
subsidy again through the imposition of countervailing duties. The Un ited States appears to suggest
that, when Commerce has taken steps to avoid double remedies in the past, it has done so as an act of
altruism in the exercise of its benign discretion.
39. The United States maintains that China's argument in respect of double remedies is that a
WTO Member "must choose between using the AD remedy and using the CVD remedy" if it
designates China as a non-market economy. This is a caricature of China's argument that the
United States invented in its first written submis sion as a litigation tactic to avoid addressing the
arguments that China actually made. China's contention, which the United States has either
misunderstood or mischaracterized, is that the Un ited States acts inconsistently with the covered
agreements by imposing anti-dumping duties determin ed under its NME methodology simultaneously
with the imposition of countervailing duties on the same imported products, without accounting for
the fact that it thereby offsets the same subsidies twice.
40. China has explained why the use of the U.S. NME methodology to determine normal value in
an anti-dumping investigation has the effect of offsetting the benefit of any subsidies that the producer
in the NME country may have received. Fundamental ly, this is because the effect of the U.S. NME
methodology is to place the producer in the position of having market-determined costs of production.
Having brought the producer's costs of production "t o the market", and having calculated a duty on
this basis, the United States necessar ily offsets any benefit or advantage that the producer obtained by
receiving financial contributions from the government on terms more favourable than those available
in the market. China considers that this circumst ance is broadly similar to the privatization of a
subsidized enterprise in an arm's-length transaction fo r fair market value, or the sale of subsidized
inputs to an unrelated downstream producer.
41. The U.S. continues to assert th at China "has failed to provide the Panel with any evidence"
that the effect of the U.S. NME methodology is to offset the same subsidies that are the subject of
countervailing duties. China does not believe that th e existence of a double remedy is an "evidentiary
question." That said, it is undisputed that China has, in fact, provided the Panel with evidence, in both
its first written submission and at the first meeting of the Panel, demonstrating conclusively that "the
effect of the U.S. NME methodology is to offset the same subsidies that are the subject of
countervailing duties."
A. THE UNITED STATES IS LEGALLY OBLIGATED TO AVOID OFFSETTING THE
SAME SUBSIDIES TWICE THROUGH TH E APPLICATION OF TWO DIFFERENT
DUTIES

42. The United States has an affirmative legal oblig ation under the covered agreements to ensure
that it imposes countervailing duties solely for the pur pose of offsetting subsidies that exist in respect
of imported products.
43. Article 10 of the SCM Agreement provides that "Members shall take
all necessary steps to
ensure that the imposition of a countervailing dut y … is in accordance wi th the provisions of
Article VI of the GATT 1994 and the terms of this Agreement." Article VI:3 of the GATT 1994,
referenced in Article 10, provides that Me mbers shall not levy a countervailing duty " in excess of an

amount equal to the estimated bounty or subsidy dete rmined to have been granted, directly or
indirectly, on the manufacture, production or expor t" of the product under investigation. In
accordance with these Articles, the Appellate Body has said that "investigating authorities, before
imposing countervailing duties, must ascertain the precise amount of a subsidy attributed to the
imported products under investigati on." As China noted in respon se to Question 76 from the Panel,
this obligation is further reinforced by Articles 19.3 and 19.4 of the SCM Agreement.
44. As they pertain to the issue of double reme dies for domestic subsidies, these provisions
establish: (1) that Members may not impose CVDs to offset subsidies that they simultaneously offset
through the methods by which they calculate anti-dum ping duties; (2) that Members must take "all
necessary steps" to ensure that this does not occur; and (3) that investigating authorities must
investigate and make a determination as to the "preci se amount of a subsidy attributed to the imported
products under investigation", taking into account the simultaneous use of an anti-dumping
methodology that has the effect of offsetting the same subsidies.
45. By its own admission, Commerce did not take any steps, let alone "all necessary steps", to
ensure that it imposed countervailing duties for the purpose of offsetting a subsidy that continued to
exist in respect of the imported products. We know this because Commerce stated, unequivocally,
that it has no authority under U.S. law to examine in the context of a countervailing duty investigation
whether the use of an NME methodology in a parallel anti-dumping investigation has the effect of
offsetting the same alleged subsidies.
46. Commerce therefore proceeded to impose countervailing duties in all four investigations
without any examination of whether the amount of the countervailing duties would be in excess of the
amount of the subsidies that accrued to the impor ted products, taking into account the simultaneous
imposition of anti-dumping duties calculated under a met hodology that had the effect of offsetting the
same subsidies. Commerce did not "ascertain the precise amount of a subsidy attributed to the
imported products under investigation", as it took no steps to determine "whether, and in what
amount" the use of market-determined costs of pro duction in the parallel anti-dumping investigations
had the effect of offsetting the same subsid ies that it identified in the countervailing duty
investigations.
47. Commerce's failure to investigate and a void the imposition of double remedies in the
determinations at issue was incons istent with the obligations of th e United States under Article 10 of
the SCM Agreement, Article VI:3 of the GATT 19 94, Article 19.3 of the SCM Agreement, and
Article 19.4 of the SCM Agreement. As a conseque nce, the "specific action against a subsidy" taken
by the United States in these investigations w as not "in accordance with the provisions of GATT
1994, as interpreted by the [SCM] Agreement", in contravention of Article 32.1 of the SCM
Agreement.
48. The foregoing violations are both "as applied" and "as such". As detailed in response to
Question 90 from the Panel, China has clearly de monstrated the precise nexus between Commerce's
lack of legal authority to avoid the imposition of double remedies in parallel AD/CVD investigations
of imports from NME countries (which the United States has effectively admitted in response to
Question 78), and how this absence of legal authority is the source of the impairment of benefits that
China has claimed in this dispute.
49. By effectively confirming Commerce's lack of legal authority to avoid double remedies in
NME investigations, the United States has also confir med the "as such" violation of Article I:1 of the
GATT 1994. As China has demons trated, Commerce has consistent ly avoided offsetting domestic
subsidies through the application of two different duti es, whether or not it had a legal obligation to do
so. This is, undoubtedly, an "advantage, favour, pr ivilege or immunity" that the United States has
granted to imports from other countries with respect to the "methods of levying" charges imposed "on
or in connection with importation", as well as a "rule or formalit[y] in connection with importation".

By refusing to take steps to avoid offsetting the same subsidies twice in connection with imports from
countries that Commerce designates as NMEs, and by conditioning the avoidance of a double remedy
upon the presentation of "evidence" that it has never required in any other circumstance, the
United States has acted inconsistently with Article I:1 of the GATT 1994.
B. EVEN UNDER THE ALTERNATIVE THEORIES ADVANCED BY THE
UNITED STATES AS TO WHEN A DOUBLE REMEDY WILL OCCUR, THE
MEASURES AT ISSUE ARE INCONSISTENT WITH THE COVERED AGREEMENTS

50. The United States has presented various theori es as to why the use of an NME methodology
may "not constitute a complete remedy" for subsidies, or will "not necessarily capture the full amount"
of any subsidies. The United States has alterna tively argued that the ex istence of a double remedy
depends on (1) whether there is "eviden ce" that "domestic subsidies pass through, pro rata, to U.S.
prices"; (2) whether the normal value determined pursuant to the NME methodology is greater than or
equal to the producer's actual (subsidized) cost of production plus the amount of any subsidies that the
producer is determined to have received; or (3 ) whether the NME AD margin is greater than the
corresponding CVD margin.
51. Theses theories do not detract from the fundamental point that Commerce uses its NME
methodology to place the producer in the position of having market-determined costs of production,
thereby offsetting the benefit of any subsidies that the producer might have received. Nonetheless, the
U.S. theories all point in the direction of several important conclusions: (1) that the United States does
not deny the existence of the double remedy problem (as, in fact, Commerce had already
acknowledged); (2) that the United States appears to consider the existence of a double remedy to be a
question of degree that depends on certain "factua l circumstances"; and (3) that Commerce undertook
no investigation whatsoever based on the theories that the United States now advances as to when a
double remedy could occur.
52. For these reasons, the determinations at issue we re inconsistent with the obligations of the
United States under the covered agreements, even accepting the various U.S. theories.
VI. ARTICLE 12.1.1 OF THE SCM AGREEMENT ENTITLED CHINA AND
RESPONDENT PRODUCERS AT LEAST 30 DAYS TO RESPOND TO ALL
QUESTIONNAIRES ISSUED IN THE CVD INVESTIGATIONS

53. The plain language of Article 12.1.1 presents an insurmountable obstacle to the United States'
position that Article 12.1.1 of the SCM Agreement onl y imposed an obligation to provide 30 days to
respond to the initial questionnaire Commerce issued in the four CVD investigations, and not to the
multiple subsequent ones Commerce issued in each case. Article 12.1.1. does not distinguish between
the first questionnaire issued in a counterva iling duty investigation, and any subsequent
questionnaires.
54. Even under the United States' flawed interpreta tion, it is difficult to understand how the New
Allegations Questionnaires provided by the U.S. in response to Panel Question 104 do not qualify as
the "initial" questionnaire in these newly-initiated "investigations." In each instance, Commerce
informs the relevant interested party that Commerce is "initiating an investigation" into one or more
"new" programmes, and requests the party to submit its responses to the attached "New Allegations
Questionnaire" within a certain period, ranging from 7 days to 14 days. Further, in virtually every
case, the New Allegations Questionnaires contain, as Appendix 1, a list of "Standard Questions" for
respondents to answer about the newly initiated pr ogrammes. This is the same Appendix that
respondents must fill out with respect to the s ubsidy programmes initiated at the outset of the
investigation.

55. Because the new subsidy allegations questionna ires and the supplemental questionnaires are
"questionnaires" under 12.1.1, the United States has failed to comply with its obligation to give
respondents a minimum of thirty days to reply to all "questionnaires used in a countervailing duty
investigation."
VII. CONCLUSION

56. China respectfully requests that the Panel recommend that the United States bring the
challenged measures into conformity with its obligations under the relevant covered agreements.

ANNEX C-2

EXECUTIVE SUMMARY OF THE SECOND WRITTEN
SUBMISSION OF THE UNITED STATES

(24 August 2009)

I. REQUEST FOR PRELIMINARY RULINGS

1. The United States has demonstrated that China's "as such" claims are not within the Panel's
terms of reference because China failed to consult on the "measure" at issue, as required by the DSU.
The United States has explained how China's reliance on the Appellate Body Report in US -
Continued Zeroing is misplaced. The United States has observed, moreover, that contrary to China's
understanding, nothing in any Appellate Body or panel report, or, more importantly, the DSU,
suggests that a Member may forego the prerequisite of consultations if the Member deems the new
measure to be "sufficiently related" to the measures identified in the consultations request.
2. The United States has also demonstrated that the "measure" China seeks to challenge "as
such" does not constitute an "omission" cogni zable for purposes of WTO dispute settlement
proceedings because it has not been connected to a ny affirmative WTO obligation to take a particular
action. Furthermore, by avoiding any reference to specific aspects of U.S. law that result in the
double remedies giving rise to the alleged WTO-incons istency at issue, China has failed to "identify
the specific measures at issue in this dispute," as re quired by Article 6.2 of the DSU. Rather than
supporting China's argument under Article 6.2, the Appellate Body Report in EC - Selected Customs
Matters highlights the inadequacy of China's panel request.
II. COMMERCE'S FINANCIAL CONTRIBUTION DETERMINATIONS ARE
CONSISTENT WITH THE SCM AGREEMENT

3. An analysis of the ordinary meaning of the term "any public body," in its context and in light
of the object and purpose of the SCM Agreem ent, demonstrates that Commerce's financial
contribution determinati ons were consistent with the SCM Agreement. The U.S. First Written
Submission discussed why the term "public" means th at a "public body" can be an entity that is
owned or controlled by the government. In addition, the use of the term "any" before "public"
indicates that there can be different kinds of public bodies. Contrary to China's argument, not all
public bodies must be vested with governmental authority to entrust or direct a private body.
4. China is incorrect that the SCM Agreement's reference to "a government" or "any public
body" collectively as "government" means the two separ ate terms must possess similar characteristics
and should be functional e quivalents. To interpret the term " public body" to refer to entities that
"possess characteristics similar to those that define a government" would be to reduce the term "public
body" to redundancy or inutility.
5. China argues that Article 1.1(a)(1)(iv) of the SCM Agreement requires that an entity
responsible for entrusting or directing a private body must itself be vested with government authority.
The SCM Agreement, however, defines the term " government" as "government or any public body,"
so Article 1.1(a)(1)(iv) does not relate strictly to "governmental authority." China also wrongly
conflates the standard under Article 1.1(a)(1)(iv) wi th the question of whether an entity is a "public
body." An entrustment or direction analysis involve s an analysis of the actions of the government or

public body and the actions of the private body or bodies at issue. A public body analysis, on the
other hand, involves an analysis of the nature of the entity or entities at issue.
6. The term "public body" is pr operly understood as an entity owned or controlled by the
government, but not necessarily authorized by the government to perform government functions. The
Korea – Commercial Vessels panel adopted this approach, reject ing an argument by Korea that was
substantially similar to China's. That panel also rejected the contextual argument China makes here,
which is based upon the definition of "public entity" in the GATS Annex on Financial Services. That
definition, which applies only for purposes of the Anne x on Financial Services, is not relevant to an
interpretation of "public body" in the SCM Agreement. An analysis of similar terms in other covered
agreements cannot outweigh the ordinary meaning and immediate context of a term in the SCM
Agreement.
7. China's arguments related to the Spanish and French versions of the Agreement on
Agriculture are unavailing. The issue here is th e interpretation of the term "public body," or
"organismo publico," or "organisme public" in the SC M Agreement. There is no need to look to the
Agreement on Agriculture to determine the meaning of this term, and there is no discrepancy between
the English and Spanish versions of the SCM Agreement.
8. An interpretation of Article 1 of the SCM Ag reement that treats the government-owned entity
as a public body ensures that governments will not be ab le to hide behind their ownership interests to
escape the disciplines of the SCM Agreement. Such a reading of Article 1 is consistent with the
object and purpose of the SCM Agreement.
9. The Working Party Report on China's Accession fu rther confirms the correctness of the U.S.
interpretation with respect to the en tities at issue in this dispute. Paragraph 172 of the Working Party
Report reflects that the representative of China did not dispute the understanding of some Members
that "when state owned enterprises (including banks ) provided a financial contribution, they were
doing so as government actors within the scope of Article 1.1(a) of the SCM Agreement." China thus
indicated its own recognition that its state owne d enterprises and state owned commercial banks are
"public bodies."
10. China incorrectly argues that the Draft Articl es on Responsibility of States for Internationally
Wrongful Acts are relevant rules of international law that should be used to interpret the term "public
body," and that the Appellate Body in US – DRAMS endorsed the use of the Draft Articles in
interpreting Article 1 of the SCM Agreement. In US – DRAMS , the issue was whether the Korean
government had entrusted or directed private bodies w ithin the meaning of Article 1.1(a)(1)(iv) of the
SCM Agreement. The issue in this dispute is the interpretation of the term "public body" in
Article 1.1(a)(1) of the SCM Agreement. The Appellate Body did not decide in US – DRAMS that
government-owned entities cannot be "public bodies."
11. The Draft Articles are not relevant rules of in ternational law applicable in the relations
between the parties in this dispute, within the mean ing of Article 31(3)(c) of the Vienna Convention.
The threshold question is whether the Draft Articl es, and particularly the attribution guidelines in
Chapter II of Part One of those articles, are relevant and applicable. They are not relevant and not
applicable, and the Panel is not required to rely upon them. The Draft Articles concern "the
secondary rules" of state responsibility, and the "g eneral conditions under international law for the
State to be considered responsible for wrongful actions or omissions, and the legal consequences
which flow therefrom." The Draft Articles say nothing about whether a breach occurred.
12. The question of whether goods or loans were provided by the "government or any public
body" in China is not one of attribution of wrongful acts to China. That is, it is not a "secondary rule"
question of attribution. It relate s to the substantive conditions for something to be a subsidy, which,
even if it is, is not prohibited as such. China is tr ying to graft secondary rules of general international

law (limited to wrongful conduct) onto one of several conditions unde r primary rules of international
law that do not even define wrongful conduct.
13. Additionally, Article 55 of the Draft Articles contains a lex specialis clause. The SCM
Agreement is a "special rule of international law" that supersedes the Draft Articles. Contrary to
China's argument, the Draft Articles are not parallel to, or "fully aligned" with, the SCM Agreement
and it is not clear that the detailed distinctions in those articles are "applicable in the relations between
the parties" as customary international law. The panel in Korea – Commercial Vessels declined to
read the Draft Articles into an interpretation of the term "public body."
14. With respect to sales through trading compani es, Commerce concluded that the public bodies
made financial contributions to the trading compan ies, and these financial contributions conferred
benefits to the respondent subject merchandise produ cers. This was a proper application of the SCM
Agreement. No entrustment or direction analysis was required.
III. COMMERCE'S DETERMINATIONS TO RELY UPON OUT OF COUNTRY
BENCHMARKS WERE CONSISTENT WI TH ARTICLE 14 OF THE SCM
AGREEMENT

15. The United States and China appear to agree, a lthough for different reasons, that it will not be
necessary for this Panel to make any findings with respect to paragraph 15(b) of China's Accession
Protocol. However, the United States notes th at China incorrectly ar gues that Commerce was
required to reference paragraph 15( b) of the Accession Protocol in its CVD determinations. The
Appellate Body has explained that proceedings before a national authority, such as the CVD
investigations at issue in this dispute, may proper ly focus solely on "the requirements of the national
law, regulations and procedures."
16. Contrary to China's mischaracterization of the U.S. position, the United States underscores
that the Accession Protocol sets forth additional terms and conditions to which China agreed as a
condition for its accession to the WTO. Paragraph 15(b) was included in China's Accession Protocol
because the "special difficulties" associated with the transitional nature of China's economy may
justify the use of out-of-country benchmarks. Th e text of paragraph 15(b) does not impose on
Members any obligation to make any particular factual findings or determinations, and does not
impose restrictions on the use of out-of-country be nchmarks beyond those contained in Article 14 of
the SCM Agreement. Additionally, because the meth odologies the United States used to identify and
measure a benefit under paragraph 15(b) are the same as those used under Article 14, and are
provided for under the laws and regulations the United States has already notified to the SCM
Committee, the United States is in full complia nce with paragraph 15(c) of China's Accession
Protocol.
17. Contrary to China's argument, neither the text of Article 14 nor the Appellate Body report in
US – Softwood Lumber CVD Final require a separate price distortion analysis before a Member may
rely upon an out-of-country benchmark. The Appellate Body's analysis in US – Softwood Lumber
CVD Final reflects the economic theory commonly referred to as the "Dominant Firm Model."
Consistent with this theory, the Appellate Body noted that "[w]hen private prices are distorted
because the government's participation in the market as a provider of the same or similar goods is so
predominant that private suppliers will align their prices with those of the government provided
goods, it will not be possible to calculate benefit having regard exclusively to such prices." The
Appellate Body concluded that where an investig ating authority has determined that a government
plays such a predominant role, the investigatin g authority does not act inconsistently with
Article 14(d) of the SCM Agreement by using an out-of-country benchmark.
18. In the investigations China challenges, Comme rce applied the Appellate Body's reasoning in
US – Softwood Lumber CVD Final to the facts before it. Comme rce determined, based on record

evidence, in the case of the markets for hot-rolled steel and BOPP, that "prices stemming from private
transactions within China cannot give rise to a price that is sufficiently free from the effects of the
GOC's distortions, and therefore cannot be cons idered to meet the statutory and regulatory
requirement for the use of market determined pr ices to measure the adequacy of remuneration."
Likewise, for loans and land-use rights, based on the evidence on the administrative record,
Commerce determined that, due to the government's predominant role, it was necessary to use out-of-
country benchmarks to measure the benefit.
19. In addition to the market distortion inherent in the fact that the government was the
predominant supplier in the markets, Commerc e also found evidence of direct government
intervention in the lending and la nd-use rights markets that would further impact prices, rendering
those prices inappropriate for determining the amount of the benefit. China incorrectly argues that the
Appellate Body found in US – Softwood Lumber CVD Final that "the possibility of rejecting private
prices was deemed to exist only when the ‘government 's role in providing the financial contribution'
was predominant." The Appellate Body did not address and, consequently, did not exclude the
possibility that other types of government intervention would also distort the market and render prices
unreliable.
20. Available evidence showed that China owned 96 per cent of the producers in the hot-rolled
steel market and at least 90 per cent of the producers in the BOPP market. Thus, private suppliers
consisted of only a small portion of the sales in t hose markets. Despite complaining that Commerce
applied a per se rule, China does not explain what other factors Commerce should have addressed in
determining whether the government had a predomin ant role and which relevant record evidence was
not assessed. Also, during the inves tigation, China declined numerous requests to provide additional
information. Thus, Commerce determined that Ch ina had a predominant role in the hot-rolled steel
and BOPP markets and, therefore, used out-of coun try benchmarks to measure the benefit conferred
by government-provided inputs. Commerce reac hed its determination by assessing all record
evidence, not simply government ownership of domestic production.
21. In the CWP, OTR Tires, and LWS CVD i nvestigations, Commerce relied upon record
evidence that indicated that not only did China have a predominant role as an owner of the majority of
the banks in China, it also directly controlled in terest rates through its regulation of the market.
Commerce did not "sit in judgment upon [China's] mone tary policies. . . ." Commerce's concern with
China's direct control over interest rates was that it created distortion in the lending market.
Commerce properly evaluated the extent to which China's invasive control over interest rates distorted
the lending market, such that it was inappropriate to rely upon any in-country interest rates as
benchmarks.
22. For RMB-denominated loans, the regression an alysis Commerce used is based upon actual
interest rates available to borrowers in China. A regression analysis is essentially an average of
interest rates that takes more factors into account th an a simple average, and Article 14(b) of the SCM
Agreement does not state a preference for the use of one interest rate rather than an average of interest
rates. Commerce calculated comparison interest rates that were tailored to approximate a
"comparable commercial loan which the firm c ould actually obtain on the market." For dollar-
denominated loans, Commerce used a yearly average LIBOR rate rath er than a daily LIBOR rate to
measure the benefit. Article 14(b) of the SCM Ag reement contains no preference for a daily rate over
a yearly average.
23.
In the OTR Tires and LWS CVD investigati ons, Commerce found that China "exercises
control over the supply side of the land market in China as a whole so as to distort prices in the
primary and secondary markets." Commerce found China not only owns all of the land, but retains
and exercises significant control over the supply of land-use rights for private industrial use, and can
therefore influence price. China essentially argues that Members should ne ver be able to resort to an

out-of-country benchmark when determining the be nefit for land-use rights. China's position is
incompatible with the Appellate Body's findings in US – Softwood Lumber CVD Final.
24. Because prices for land-use rights within China were inappropriate for use as benchmarks,
Commerce compared the prices respondents paid for la nd-use rights to the sales of certain industrial
land in Thailand. In arriving at th is determination, Commerce evaluated several criteria to ensure that
the comparison prices would "relate or refer to or be connected with" China's prevailing market
conditions, consistent with Article 14(d) of the SCM Agreement.
IV. CHINA HAS FAILED TO DEMONSTR ATE THAT COMMERCE WAS REQUIRED
TO PROVIDE A CREDIT IN THE BENEFIT CALCULATIONS FOR INSTANCES
IN WHICH CHINA PROVIDED RUBBER INPUTS FOR ADEQUATE
REMUNERATION IN THE OTR TIRES CVD INVESTIGATION

25. China has shifted away from its contextual argu ment based on the term "product" in various
provisions of the SCM Agreement and the GATT 1994 other than Article 14 of the SCM Agreement,
and now posits a new and different "textual" basis for its invented credit/offset obligation, suggesting
that the use of the term "good" in Article 14(d) of the SCM Agreement establishes the obligation and
limits its application to situations under Article 14(d) . This is a complete shift in China's position.
Moreover, contrary to China's argument, the mere use of the "singular term ‘good'" in Article 14(d)
cannot establish an obligation to aggregate the benef its of all transactions during the entire period of
investigation involving the provision of a good and provide credit in such an aggregate benefit
calculation for transactions in which the good was sold for more than the established benchmark, and
also limit this obligation to the unique situation of government-provided goo ds or services. China's
argument is simply not credible.
26. The correct, and far more plausible, reading of the text of Article 14(d) of the SCM
Agreement is that term "good" is in the singular, and associated with the terms "in question," because,
while a government may provide a variety of good s and services, to determine the adequacy of
remuneration for a particular good provided by the government, Members must look at the "prevailing
terms and conditions" for that good, and not some other good. Fu rthermore, the prevailing terms and
conditions would be expected to vary over time; in many cases, they would be unique to each given
transaction. In such cases, each transaction would have to be analyzed independently to determine
whether any benefit is conferred as a result of that transaction, and consequently if a subsidy exists.
27. The context of the SCM Agreement supports an alyzing the benefit to the recipient on a
disaggregated basis. The SCM Agreement define s a subsidy in the singular form, supporting the
conclusion that investigating authorities have the option of analyzing each subsidy on a transaction by
transaction basis. However, the ab ility of a Member to investigate mo re than one subsidy in a single
proceeding is not disputed. When analyzing multip le subsidies, though, there is no obligation to
provide a credit in that analysis when an investig ating authority determines that a granting authority
did not provide a subsidy.
28. While China's Answers to First Panel Questions appear to abandon the concept of "product as
a whole" in favor of an entirely new textual argument based on the term "good" in Article 14(d) of the
SCM Agreement, China nevertheless continues to em phasize the flawed analogy it attempts to make
to the Appellate Body's reports on zeroing. As the United States has explained, however, the
Appellate Body's zeroing reports examine the calculation of margins of dumping under the AD
Agreement and certain provisions of the GATT 1994 that relate solely to AD proceedings. There are
no provisions in the SCM Agreement, nor in the CVD provisions of the GATT 1994, that are
analogous to the provisions relied upon by the Appella te Body in its zeroing reports, and there is
certainly no analogous text in Article 14(d), which Ch ina now argues is the source of the obligation it
proposes.

29. Additionally, there is simply no analytical c onnection between the calculation of margins of
dumping and the calculation of a subsidy benefit that would justify extending the Appellate Body's
reasoning in the zeroing reports to this dispute. In the CVD context, benefit and the existence of a
subsidy can be calculated at the level of an indivi dual transaction. An individual transaction, which
itself is a financial contribution by the government, can confer a benefit and a subsidy would therefore
be determined to exist as a result of that transac tion. In addition, aggregation in the CVD context
occurs after the benefit has been measured and the exis tence of a subsidy or subsidies has been
determined.
30. China has not explained how the United States acted inconsistently with any of the provisions
to which China makes reference. A string citation is not a substitute for a legal argument. China has
failed to establish that the United States acted inc onsistently with any of provision of any covered
agreement.
31. Furthermore, with respect to Article 19.4 of the SCM Agreement and Article VI:3 of the
GATT 1994, because the SCM Agreement defines "levy" as "the definitive or final legal assessment
or collection of a duty or tax," and the United States does not levy duties in a CVD investigation,
there is simply no basis for China to claim a vi olation of these provisions based on the challenged
CVD investigations. While China cites to the Appellate Body and panel reports in US –
Countervailing Measures in support of its argument, neither the Appellate Body nor the panel in that
dispute addressed the textual argument the United States has raised in this dispute. To be clear, the
United States is not arguing that the obligations found in these provisions are inapplicable to the
United States. Rather, the United States is expl aining that these obligations are only applicable when
the United States actually levies duties . Here, China's claims under Article 19.4 of the SCM
Agreement and Article VI:3 of the GATT 1994 are premature and must be rejected.
V. COMMERCE'S SPECIFICITY DETERMINATIONS IN THE OTR TIRES AND LWS
CVD INVESTIGATIONS WERE CONSISTENT WITH ARTICLE 2 OF THE SCM
AGREEMENT

32. Commerce's specificity determinations for the policy lending subsidy and land-use rights
subsidy were clearly substantiated by positive ev idence and otherwise in accordance with the covered
agreements. China argues that Commerce was required to determine that the benefits of these subsidy
programmes, rather than the subsidy programmes th emselves, were specific. China's reading of
Article 2 of the SCM Agreement is not supported by the text or structure of the SCM Agreement, and
must be rejected by this Panel. Neither Article 2.1(a) nor Article 2.2 requires an investigating
authority to revisit the benefit determination to determine specificity. Prior WTO panels have
recognized the separate and independent nature of a specificity determina tion. This is reflected in the
structure of Article 1 of the SCM Agreement, wh ich identifies three criteria for a countervailable
subsidy: financial contribution, benefit, and specificity.
33. With respect to the OTR Tires CVD investigati on, China complains that the legislation on
which Commerce relied for its specificity determin ation does not "define[] the elements of the
subsidy." But this is not required by the SCM Agreement. Instead, Article 2.1(a) of the SCM
Agreement requires an investigating authority to determine only whether legislation explicitly limits
access to the subsidy to certain enterprises. Here, na tional, provincial, and municipal legislation and
policy documents, viewed as a whole, explicitly li mited access to the polic y lending subsidy to a
group of industries including the tire industry.
34. Contrary to China's argument, the United St ates has not offered the Panel an ex post
rationalization for Commerce's specificity determin ation for the policy lending subsidy. The U.S.
rationale in this dispute and in the OTR Tires CV D Final Determination is that Chinese policies "call
upon the banks to make credit available to tire compani es, and the policies instruct agencies to direct
or allocate that credit to the tire producers."

35. Additionally, China argues that the legislation on which Commerce relied for specificity
listed such a broad range of industries as encourag ed that policy lending must have been generally
available and not specific. However, the polic y documents on which Commerce relied were very
specific, naming, for example, an investigated prod ucer and its tire production facilities as a priority.
Furthermore, lending was expressly prohibited to partic ular categories of industries. Thus, the policy
lending subsidy was specific and not generally available. China's references to U.S. statements in the
Large Civil Aircraft dispute ("the Boeing Dispute") and US – Upland Cotton are merely a distraction.
China mischaracterizes the U.S. statements in those disputes and the U.S. position here.
36. With respect to the LWS CVD investigation, China argues that Article 2.2 of the SCM
Agreement requires that a regional subsidy be limited to a subset of enterprises or industries within a
designated geographical region. China's interpretation would require that, in order for a subsidy to be
specific under Article 2.2, it would also have to be specific under Article 2.1 – limited to certain
enterprises. China's interpretation renders Article 2.2 redundant with Article 2.1. This is contrary to
customary international law rules of treaty interpretation.
37. China cites to the 1990 Dunkel draft of the SCM Agreement in support of its argument.
However, recourse to such supplementary means is permissible only in limited circumstances. In this
case, interpretation of Article 2.2 of the SCM Agreement in its context and in light of the object and
purpose of the agreement does not lead to a manife stly absurd or unreasonable result or leave the
meaning of Article 2.2 ambiguous or obscure. Conse quently, there is no need to have recourse to the
material that China has proffered. In any event, however, a much more reasonable explanation for the
change in the text identified by China supports the U.S. understanding of regional specificity. That is,
a subsidy that goes to every enterprise or industry in a region is regionally specific, but Article 2.2
does not require that all enterprises in the region receive the subsidy to fi nd the subsidy regionally
specific.
38. China argues that the land-use rights subsid y in the LWS CVD investigation was not
regionally specific because enterprises both inside a nd outside the Park paid the same price for land-
use rights. China conflates the benefit and specifi city analyses. The text of Article 2 makes no
reference to a subsidy benefit and the structur e of Article 1 demonstrates that a specificity
determination is separate and independent from a bene fit determination. In addition, China's theory
that a benefit must also be specific to find a subs idy regionally specific must be rejected because it
would allow a granting authority to circumvent the disciplines of Article 2.2 simply by ensuring that
at least one enterprise outside the region receives a similar benefit.
VI. THE UNITED STATES DID NOT ACT INCONSISTENTLY WITH THE SCM
AGREEMENT OR THE GATT 1994 BY CONCURRENTLY APPLYING CVD AND
AD MEASURES TO CERTAIN PRODUCTS FROM CHINA

39. The real locus of China's challenge is the c oncurrent application of AD and CVD measures.
China's attempts to suggest that concurrent application would still be permissible where the
investigating authority takes "steps" to ensure th at the same subsidies are not offset twice are
unavailing. Under China's own theory, the "steps" that an investigating authority would have to take
would necessarily result in being required to choose between imposing AD duties on the basis of an
NME methodology and imposing CVDs.
40. China's theory as to the existence of a so-calle d double remedy is premised on its view of the
"overlapping rationales" of an NME methodology and the imposition of CVDs. China argues that a
double remedy is created because the NME normal value "necessarily captures any trade-distorting
effects of alleged subsidies." This theory contains multiple flaws.
41. Incorrect Rationales for NME Methodology and CVDs
: China incorrectly asserts that
subsidization is among the market distortions that the NME methodology is "meant to counteract."

The use of an NME methodology, however, is meant to replace unreliable costs and prices in the
NME with surrogate values from a market economy, in order to calculate normal value to assess
whether price discrimination exists. Commerce de termines whether a country should be considered
an NME based on a number of statutory criteria, none of which concerns subsidization. China relies
on a statement by the U.S. Congress in support of its view that Commerce generally does not use
factor values that may be subsidized. However, rath er than ensuring that subsidized factor values are
not used, Commerce considers subsidization only in a limited set of circumstances, as evidenced by
the determinations in the investigations at issue.
42. China also asserts that the purpose of impos ing CVDs is to offset any "competitive
advantage" a firm may receive by virtue of a subs idy, or to correct any economic "distortions" that
result from that subsidy, and in so doing, also err oneously suggests that the level of CVDs imposed is
connected to and somehow reflective of the degree of "competitive advantage" or "distortions." The
SCM Agreement, however, does not require any dem onstration by an investigating authority, when
considering the level at which CVDs may be imposed, that subsidies confer a "competitive
advantage" upon their recipients or create economic "distortion." Article VI:3 of the GATT 1994 and
Article 19.2 of the SCM Agreement make plain that CVDs may be imposed to offset the full amount
of subsidies.
43. Normal Value is Not a "Remedy" : China's theory obscures the basic point that the remedies
at issue are AD duties and CVDs, while China's argument addresses NME normal values. Normal
values, of course, are not in and of themselves AD duties. China's exclusiv e focus on normal value
explains why China errs in emphasizing the similari ty between some of the factor values selected by
Commerce in determining normal value in the AD in vestigations, and the benchmarks that Commerce
used to value subsidies in the concurrent CVD invest igations. According to China, this demonstrates
that the resulting AD duties and CV Ds address the same economic "dis tortion," and, therefore, that
the AD duties remedy subsidies. China, however, fails to actually compare the two remedies at issue,
basing its conclusion instead on the antecedent determination of normal value.
44. Faulty Economic Logic
: Even assuming, arguendo, that normal values, by themselves, could
create a double remedy, China's theory about NME normal values is unsound because it is based on
the assumption that NME normal values are completely un affected by subsidies. This is simply not
true. First, put simply, NME subsidies may easily affect the quantity of factors consumed by the
NME producer, which, when multiplied by the surrogate factor values, results in lower normal values
and, hence, lower dumping margins. Second, in determining normal value in NME cases, Commerce
may use factor values based on the prices of inputs imported into China from market economy
countries, which inputs may well be priced lower as the result of competing with subsidized products
in China. Finally, in at least some cases where in creased NME exports of the product account for a
large enough share of the world market to lower worl d prices, these lower prices would reduce profits
for producers selling in these markets, which woul d then reduce profit rates Commerce derives from
their financial statements to add to normal value.
45. GATT Article VI:5 prohibits such concurrent application only in the circumstance where
imposing both remedies would "compensate fo r the same situation of dumping or export
subsidization." No other provisions of the covered agreements preclude the concurrent application of
AD and CVD measures under any other circumstances. That other rules did not so preclude the
concurrent application is confir med by the adoption and ultimate elimination of Article 15 of the
Tokyo Round Subsidies Code, which imposed upon Signatories the obligation to choose between AD
investigations and CVD investigations when examini ng allegations of injury caused by imports from
an NME country. Members did not include this re quirement when they adopted the SCM Agreement,
which contains no provision similar to Article 15 on concurrent application of AD and CVD
measures. Nor did Members include in China's Protocol any limitation on a Member's right to
concurrently apply CVDs and AD duties calculated on the basis of an NME methodology. Therefore,

the covered agreements do not contain the prohib ition on concurrent application that China seeks to
have this Panel effectively create.
46. Articles 19.3 and 19.4 of the SCM Agreement
: China's claims under Articles 19.3 and 19.4
must be based on a CVD that has been "levied." However, no CVDs have been "levied" yet under the
U.S. retrospective system. Furthermore, China erroneously asserts that the AD duty calculated under
the NME methodology must be understood to someho w constitute a CVD within the meaning of the
SCM Agreement. Moreover, because China considers such an AD duty to also be a CVD, a Member
must first make the requisite findings of a CVD i nvestigation. Accepting Ch ina's theory would mean
that imposition of such an AD duty, without c onducting a CVD investigation, would necessarily
violate the SCM Agreement.
47. GATT Article I:1 : The United States has explained th at China's MFN complaint centers on
the application of the NME methodology, and that because such application is expressly authorized by
paragraph 15(a) of China's Protocol, it does not cont ravene Article I:1. With respect to China's "as
applied" claims under Article I:1, the United Stat es has noted China's failure to identify how the
United States did not accord to products from Ch ina the same "advantage" accorded "like products"
from market economies. The sole basis for China's conclusion that Commerce has accorded certain
treatment to "like products" is mere speculation.
48. "As Such" Claims : China has failed to meet its burden as a threshold matter of establishing
the existence of the "absence of legal authority" th at it seeks to challenge "as such." None of the
sources cited by China supports the conclusion China would need to establish, namely, that no legal
authority exists for Commerce to take whatever (unde fined) actions China considers necessary to
"avoid a double remedy." Furthermore, because Ch ina does not challenge a "measure" that mandates
any WTO-inconsistent action, but challenges how Commerce chooses to exercise its discretion, the
so-called "absence of legal authority" is not in consistent with U.S. obligations under the WTO
Agreement.
VII. PROCEDURAL CLAIMS UNDER THE SCM AGREEMENT

49. In its written responses to the Panel's questions about its claim under Article 13.1 of the SCM
Agreement, China states that, in the light of the U. S. confirmation that it would continue to afford a
reasonable opportunity for consultations throughout an investigation, as required by Article 13.2,
China "does not believe the Panel needs to address this issue further." The United States agrees that it
is unnecessary for the Panel to make any findings on this claim.
50. With respect to China's claim under Article 12.1.1 of the SCM Agreement, the United States
has explained that the thirty-day requirement in th at provision applies only to the questionnaire issued
at the outset of each investigation. China disput es this view, arguing that initial questionnaires and
new subsidy allegation questionnaires are "indistinguishable."
51. China's argument ignores the conceptual diffe rence between the initial questionnaire and
subsequent requests for information, including ne w subsidy allegation questionnaires. The initial
questionnaire, by its very nature, asks not only abou t specific programmes, but also general questions
on a variety of other relevant issues. A new s ubsidy allegation questionn aire tends to include
questions only on a specific programme and does not include general questions that have already been
asked in the initial questionnaire. This critical differe nce, overlooked by China, is reflected in the full
range of questionnaires issued to all interested parties, including respondent companies, in all four
CVD investigations at issue.
52. The United States disagrees with China's assertion that reading Article 12.1.1 to apply only to
initial questionnaires would provide investigating authorities "unfettered discretion" and would place
interested Members and parties "entirely at the me rcy of the demands of investigating authorities."

This hyperbolic concern ignores the other provisions of the SCM Agreement, in particular, the other
sub-paragraphs of Article 12, which collectively ensu re that interested Members and parties are given
rights in proceedings before investigating authorities.