UNITED STATES – COUNTERVAILING MEASURES CONCERNING CERTAIN PRODUCTS FROM THE EUROPEAN COMMUNITIES
Document: Report of the Panel
Date: 31 July 2002
Document codes: WT/DS212/R
Complainant: EU
Respondent: U.S.
Third parties: Brazil, China, India, South Korea, Mexico
Dispute stage: Implementation & Compliance
Agreements cited: Art. 1, 10, 14, 21.1, 32.5  Subsidies and Countervailing Measures (SCM)Art. XVI:4  Agreement Establishing the World Trade OrganizationArt. 19.1, 19.3, 19.4, 21.2, 21.3  Subsidies and Countervailing Measures (SCM)Art. VI:3  GATT 1994

UNITED STATES – COUNTERVAILING MEASURES
CONCERNING CERTAIN PRODUCTS FROM THE
EUROPEAN COMMUNITIES
Report of the Panel
The report of the Panel on is being circulated to all Members, pursuant to the DSU. The report
is being circulated as an unrestricted document from 31 July 2002 pursuant to the Procedures for the
Circulation and Derestriction of WTO Documents (WT/L/452). Members are reminded that in
accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be
limited to issues of law covered in the Panel report and legal interpretations developed by the Panel.
There shall be no ex parte communications with the Panel or Appellate Body concerning matters
under consideration by the Panel or Appellate Body.
Note by the Secretariat : This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within
60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by
consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be
considered for adoption by the DSB until after the completion of the appeal. Information on the current status
of the Panel Report is available from the WTO Secretariat.

I. INTRODUCTION
1.1 On 10 November 2000, the European Communities requested consultations with the
United States under Article 4 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the "DSU"), Article XX II of the General Agreement on Tariffs and Trade
1994 (the "GATT 1994") and Article 30 of the Agreement on Subsidies and Countervailing Measures
(the "SCM Agreement"). The European Communities' request was related to the continued
application by the US Department of Commerce of countervailing duties based on its " change in
ownership" methodology which consisted of a presumption that non-recurring subsidies granted to a
former producer of goods, prior to a change in ownership, "pass through" to the current producer of
the goods following the change in ownership.
1
1.2 Consultations took place in Geneva on 7-8 December 2000, but the parties failed to reach a
mutually satisfactory solution. On 1 February 2001, the European Communities requested further
consultations with the United States.
2 Further consultations took place in Geneva on 3 April 2001,
but the parties did not reach a mutually satisfactory solution.
1.3 On 8 August 2001, the European Communities requested the Dispute Settlement Body (the
"DSB") to establish a panel, pursuant to Articl es 4 and 6 of the DSU, Article 30 of the SCM
Agreement and Article XXII of the GATT 1994 with respect to the practice by the United States of
imposing countervailing duties on certain products exported from the European Communities
"without establishing the existence of a financial contribution or a benefit to the producers under
investigation and hence the existence of a countervailable subsidy as defined in the SCM Agreement."
These duties had been imposed or maintained notwithstanding privatizations or changes of ownership
in reliance, inter alia, on Section 771(5)(F) of the Tariff Act 1930, as amended, (19 USC
Section 1677(5)(F)) and according to the European Communities were not based on an analysis of the
existence of a countervailable subsidy benefiting the producer concerned during the period of
investigation or review.3
1.4 At its meeting on 10 September 2001, the DSB established a panel in accordance with
Article 6 of the DSU. At that meeting, the parties agreed that the Panel should have standard terms of
reference. The terms of reference of the panel were, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the European Communities in document WT/DS212/4, the matter referred to the
DSB by the European Communities in that document, and to make such findings as
will assist the DSB in making the recommendations or in giving the rulings provided
for in those agreements."
4
1.5 On 25 October 2001, the European Communities requested the Director-General to determine
the composition of the panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph
provides:
"If there is no agreement on the panelists within 20 days after the date of the
establishment of a panel, at the request of either party, the Director-General, in
consultation with the Chairman of the DSB and the Chairman of the relevant Council

1 WT/DS212/1.
2 WT/DS212/1/Add.1.
3 Since the request for consultations, which included 14 countervailing duty determinations, one order
was terminated (Cold-Rolled Carbon Steel Flat Products from Sweden C-401-401) and another order was
limited to recurring subsidies, pursuant to an agreement between the exporter concerned and the US Department
of Commerce (Certain Pasta from Italy C-475-819). Therefore, the European Communities decided not to
include these two determinations in its request for the establishment of a Panel. WT/DS212/4, footnote 1.
4 WT/DS212/5.

or Committee, shall determine the composition of the panel by appointing the
panelists whom the Director-General considers most appropriate in accordance with
any relevant special or additional rules or procedures of the covered agreement or
covered agreements which are at issue in the dispute, after consulting with the parties
to the dispute. The Chairman of the DSB shall inform the Members of the
composition of the panel thus formed no later than 10 days after the date the
Chairman receives such a request."
1.6 On 5 November 2001, the Director-General accordingly composed the Panel as follows:
Chairman: Mr. Gilles Gauthier
Members: Ms. Marie-Gabrielle Ineichen-Fleisch
Mr. Michael Mulgrew
1.7 Brazil, India and Mexico reserved their rights to participate in the panel proceedings as third
parties.
1.8 The Panel met with the parties on 19-21 February 2002 and 20-21 March 2002. It met the
third parties on 20 February 2002. The Panel sent questions to the parties on 25 February 2002 and
provided additional questions to the parties during the second substantive meeting.
1.9 The Panel submitted its Interim Report to the parties on 13 May 2002. The Panel submitted
its Final Report to the parties on 19 June 2002.
II. FACTUAL ASPECTS
A. U
NITED STATES' COUNTERVAILING DUTY DETERMINATIONS COVERED BY THIS DISPUTE
2.1 The European Communities has requested the Panel to rule on the WTO-consistency of
12 countervailing duty determinations against imports of certain steel products originating in the
European Communities. The imposition of countervailing duties in these 12 determinations were
based on the application by the US Department of Commerce of two different methodologies (the
so-called "gamma" and "same person" methodologies) used to assess the impact of a change in
ownership, (in all 12 cases before the Panel) via privatization, in the determination of the existence of
subsidization in respect of the privatized producer; specifically whether non-recurring subsidies
bestowed prior to the change in ownership (priva tization) remained countervailable against imports
from the privatized producer. From these 12 determinations, six are original investigations Stainless
Sheet and Strip in Coils from France (C-427- 815) (Case No. 1); Certain Cut-to-Length Carbon
Quality Steel from France (C-427-817) (Case No. 2); Certain Stainless Steel Wire Rod from Italy (C-
475-821) (Case No. 3); Stainless Steel Plate in Coils from Italy (C-475-823) (Case No. 4); Stainless
Steel Sheet and Strip in Coils from Italy (C-475 -825) (Case No. 5); Certain Cut-to-Length Carbon-
Quality Steel Plate from Italy (C-475-827) (Case No. 6); two are administ rative reviews Cut-to-
Length Carbon Steel Plate from Sweden (C-401-804) (Case No. 7); Grain-oriented Electrical Steel
from Italy (C-475-812) (Case No. 12) and four are sunset reviews Cut-to-Length Carbon Steel Plate
from United Kingdom (C-412-815) (Case No. 8); Certain Corrosion-Resistant Carbon Steel Flat
Products from France (C-427-810) (Case No. 9); Cut-to-Length Carbon Steel Plate from Germany
(C-428-817) (Case No. 10); and Cut-to-Length Ca rbon Steel Plate from Spain (C-469-804) (Case
No. 11).
5 A table describing these determinations is included in Annex A.

5 The numbering of the cases from 1 to 12 was presented by the European Communities and seconded
by the United States.

2.2 In two out of these 12 cases, the Court of Inte rnational Trade (CIT), in prior court appeals,
expressly requested that the US Department of Commerce determine if the privatization at issue was
at arm's length and for fair market value. The companies involved were British Steel (Case No. 8,
Cut-to-Length Carbon Steel Plate from United Kingdom (C-412-815)) and Dillinger AG (Case
No. 10, Cut-to-Length Carbon Steel Plate from Germany (C-428-817)). In 1995, in the context of a
court remand, the US Department of Commerce determined that the British Steel privatization was at
arm's length, for fair market value and consistent with commercial considerations because British
Steel shares were offered to private investors world-wide (a) the offering price was based on
valuations by independent consultants; (b) private investors purchased nearly the entire share
offering; (c) similar findings were made for Dillinger.
6
2.3 Both parties agree that the changes in ownership relevant to this dispute only concern the
privatization of state-owned companies, i.e. the change in ownership from government to private
hands. All the privatizations concerned by this dispute involved a full change in ownership in the
sense that in all these 12 cases, governments had sold all, or substantially all, their ownership interests
and, clearly, had no longer any controlling interests over the privatized producers.7
2.4 The following factual information regarding these 12 countervailing duty determinations and
the relevant privatizations is based on evidence submitted by the European Communities commented
by the United States, including references from the twelve determinations submitted as exhibits by the
European Communities.
1. Original investigations
(a) Original investigations covered by this dispute
(i) United States Countervailing Duties on Imports of Stainless Steel Sheet and Strip in Coils
from France (Case No. 1)
2.5 This case concerns the imposition of countervailing duties on imports of stainless steel sheet
and strip in coils from France, produced and exported by Usinor -Sacilor S.A. (Usinor). The US case
number is C-427-815; (64 Fed. Reg. 30774 of 29 June 1999). On 8 June 1999, the US Department of
Commerce published its final determination imposing a countervailing duty rate of 5.38 per cent
ad valorem on imports produced by Ugine S.A., a wholly owned subsidiary of Usinor.
8
2.6 In July 1995 the privatization of Usinor began. Pursuant to the French privatization law,
Usinor Sacilor (and shares thereof) was valued for privatization purposes by the French Privatization
Commission (the "FPC"), an independent body ch arged with valuing companies designated for
privatization. The FPC's valuation analysis used three methods: (i) comparison to the stock market
values of other European steel producers; (ii) evaluation of net liquidity flows; and (iii) estimated
value of the company's net re-evaluated assets. Based on the FPC's valuation opinion, the French
Minister of Economy and Finance established share prices for the various Usinor share offerings. The
Commission's valuation of the company was consistent with the range of values for the company
established in a report prepared by Banque S.G. Warburg and Crédit Lyonnais.
9 At the same time,
Usinor Sacilor offered additional shares for sale in the form of a capital increase. All shares were sold
through a public offering of shares which consisted of a French public offering, an international
public offering, and an employee offering. In accordance with the French privatization law, a certain
portion of the shares were also sold to a group of so-called "stable shareholders", some of which were

6 See EC's and US' responses to question No. 16 posed by the Panel.
7 See EC's response to question No. 11 posed by the Panel.
8 See Stainless Steel Sheet and Strip in Coils from France 64 Fed. Reg. 30774 (Dep't Commerce 8 June
1999) (final countervailing duty determination), Exhibit EC–10 to the EC's first written submission.
9 See Annex to EC's responses to questions posed by the Panel (4 March 2002).

government-owned banks and other entities. 10 After the July 1995 public offering, the French
Government held 9.8 per cent of Usinor's shares while Crédit Lyonnais retained approximately
3 per cent.11
2.7 The privatization continued throughout the years 1996 and 1997. At the end of the
privatization, the stable shareholders held approximately 14 percent of Usinor's total shares,
10 per cent of which were held by government- owned or controlled entities.
12 During 1997 and 1998
the French Government divested itself of the remaining shares which it held.13
2.8 The margins found by the US Department of Commerce in its final determination were
attributable to non-recurring subsidies found to have been received by the state-owned Usinor Sacilor
(as Usinor was then known) in the 1980s. The US Department of Commerce found, on the basis of its
gamma methodology14, that these subsidies continued to benefit the company during the 1997 period
of investigation. Usinor claimed that it had been privatized in 1995 by means of an arm's length, fair
market value sale of shares.
15 Usinor further claimed that pre-privatization subsidies accounted for all
but 0.10 per cent of the subsidy margin.
2.9 On 1 October 2000 Usinor challenged aspects of the US Department of Commerce's final
determination, including its treatment of Usinor's pr ivatization, in the CIT. During the litigation, the
US Department of Commerce requested, and was granted, a remand to reconsider the effect of the US
Court of Appeals for the Federal Circuit's decision in Delverde Srl v. United States (Delverde III)
16
on the US Department of Commerce' s treatment of the effect of Usinor's privatization on prior non-
recurring subsidies. On 20 December 2000, the US Department of Commerce reported its final
remand redetermination to the CIT, which Usinor challenged. In its remand determination in the
ongoing appeal before the CIT, the US Depa rtment of Commerce applied the same person
methodology and focused on whether the change in ownership of Usinor resulted in a new legal
person.17 The US Department of Commerce found that Usinor had received a financial contribution
and a benefit notwithstanding the change in owne rship because Usinor was the same person before
and after the privatization. On 4 January 2002, the CIT issued a remand order in which it found the
same person methodology inconsistent with the US statute.18
(ii) United States Countervailing Duties on Imports of Certain Cut-to-Length Carbon Quality
Steel Plate from France (Case No. 2)
2.10 This case concerns the imposition of countervailing duties on imports of certain cut-to-length
carbon quality steel plate from France, produced and exported by Usinor Sollac S.A. (Usinor) and
GTS Industries S.A. (GTS). The US case number is C-427-817; (64 Fed. Reg. 73277 of 29 December
1999). On 29 December 1999, the US Department of Commerce published its final determination

10 Stainless Steel Sheet and Strip in Coils from France, supra, footnote 8, at 30776.
11 See Annex to the EC's responses to questions posed by the Panel (4 March 2002).
12 Stainless Steel Sheet and Strip in Coils from France, supra, footnote 8, at 30776
13 See Annex to EC's replies to questions posed by the Panel (4 March 2002). For details of the GOF
divestiture see Stainless Steel Sheet and Strip in Coils from France, supra, footnote 8, at 30776-30777.
14 See infra, Section B.1 for a description of this methodology.
15 Stainless Steel Sheet and Strip in Coils from France, supra, footnote 8, at 30776-30778.
16 Delverde Srl. v. United States ("Delverde III") 202 F.3rd 1360 (Fed Cir. Feb 2, 2000) rehg denied
(20 June 2000). Exhibit EC-5 to the EC's first written submission.
17 See, Final Results of Redetermination pursuant to Court Remand , Allegheny Ludlum Corp. et al. v
United States Court No. 99-09-00566, (Ct. Int'l Trade 13 December 2000) (unpublished) (" Allegheny
Ludlum I").
18 See, Allegheny Ludlum Corp. et al. v United States Court No. 99-09-00566 (Ct. Int'l Trade 4 January
2002). Exhibit EC–29 to the EC's second written submission. ("Allegheny Ludlum II").

imposing countervailing duties to Usinor and GTS of 5.56 per cent and 6.86 per cent ad valorem
respectively.19
2.11 As regards the margins found by the US Department of Commerce for Usinor in its
determination, these were mainly attributable to non-recurring subsidies found to have been received
by Usinor during State-ownership in the 1980s. Usinor claimed that it was privatized in 1995 by
means of an arm's length, fair market value sale of shares. The US Department of Commerce found,
on the basis of its gamma methodology 20, that these subsidies continued to benefit the company
during the 1998 period of investigation. Usinor claimed that these pre-privatization subsidies
accounted for all but 0.10 per cent of the subsidy margin.
2.12 In the same determination the US Department of Commerce imposed a countervailing duty
rate of 6.86 per cent on products exported by GT S Industries (GTS). The US Department of
Commerce assigned a countervailing duty rate of 6.86 per cent allocated pro rata to GTS based on
financial contributions that were given to the Usinor group of which GTS was a member. The US
Department of Commerce concluded that the conversion of the group's consolidated debts owed to the
French Government, denominated as "Loans with Special Characteristics" and of "Steel Intervention
Fund" bonds into shares of common stock constituted countervailable equity infusions, which were
treated as non-recurring grants. 21 The US Department of Commerce applied its gamma change in
ownership methodology.22 GTS, Usinor, the Government of France, and the European Communities
provided evidence that Usinor had been privatized in 1995 at arm's length and for fair market value,
but the US Department of Commerce never made any finding on whether the privatization was for
fair market value.
2.13 At the time of Usinor's privatization, GTS was owned 100 per cent by AG der Dillinger
Hüttenwerke (Dillinger), and Usinor held 70 per cent of Dillinger's parent company DHS – Dillinger
Hutte Saarstahl (DHS). In July 1995, the French Government sold 90.2 per cent of Usinor's shares in
a public offering on the French and International Stock Exchanges (described in Case No. 1 above).
In April 1996, Usinor reduced its interest in DHS to 48.75 per cent. As a result of this reduction, the
US Department of Commerce found in its final determination that GTS was no longer under the
control of Usinor but it continued to benefit from the subsidies previously granted to Usinorand thus
GTS' products were subject to countervailing duties.
2.14 On 7 April 2000, GTS filed a complaint with the US CIT On 24 August 2000, the CIT
remanded the case to the US Department of Commerce to determine whether the Delverde III
decision had any applicability on the GTS proceeding. In its remand determination in the ongoing
appeal before the CIT, the US Department of Commerce did not investigate further whether any of the
privatization transactions were at arm's length and for fair market value but focused exclusively on
whether the change in ownership of Usinor resulted in a new legal person. In this respect the US
Department of Commerce concluded that whether the owners of the newly privatized Usinor paid fair
market value for the company in an arm's-length transaction based upon commercial considerations
was not relevant to its analysis of previously-bestowed subsidies.
23 The US Department of Commerce
found that Usinor had received a financial contribution and a benefit notwithstanding the change in
ownership because Usinor was the same person before and after the privatization. On 4 January 2002,

19 See Certain Cut-to-Length Carbon-Quality Steel Plate from France 64 Fed. Reg. 73277 (Dep't
Commerce 29 December 1999) (final countervailing duty determination). Exhibit EC–11 to the EC's first
written submission.
20 Ibid., at 73279-73280.
21 Certain Cut-to-Length Carbon-Quality Steel Plate from France, supra, footnote 19, at 73281-73282
22 Ibid.
23 Allegheny Ludlum I, Court No. 99-09-00566, at 17.

the CIT issued its judgment on the remand redetermination in which it found the same person
methodology inconsistent with US statute24.
(iii) United States Countervailing Duties on Imports of Certain Stainless Steel Wire Rod from Italy
(Case No. 3)
2.15 This case concerns the imposition of countervailing duties on imports of Certain Stainless
Steel Wire Rod from Italy, produced and exported by Cogne Acciai Speciali S.r.l. (CAS) The US
case number is C-475-821; (63 Fed. Reg. 40474 of 29 July 1998). On 7 January 1998, the US
Department of Commerce published its final determination imposing a countervailing duty of 22.22
per cent ad valorem on imports of the product concerned from CAS.25
2.16 Until the early 1990s, the company was owned by the Italian State, at first directly by a
Government-owned holding company, Istituto per la Ricostruzione Industriale (IRI) and thereafter by
IRI subholding companies, Finsider S.p.A., Deltasider S.p.A. or ILVA S.p.A. On 31 December 1992
(CAS) came into being. All sh ares in CAS were owned by Co gne S.p.A., also a state-owned
company. From this date, CAS assumed the ongoing operations of the Cogne facility. As a part of
the privatization, a public offer for the sale of CAS was prepared. Notices were published in Italian
and foreign newspapers soliciting purchase offers. The result of this process was that expressions of
interest were received from ten private industrial or financial bidders. On 27 December 1993, an
agreement was signed between Cogne S.p.A. and GE .VAL. S.p.A. for the purchase of all shares of
CAS. The total price paid by GE.VAL. for CAS was higher than the amount that had been
independently determined as Cogne's value by an independent expert in 1992. Since the public sale
of the company, the Italian State has held no ownership interest of any kind in CAS.
2.17 The US Department of Commerce assigned a rate of 22.22 per cent ad valorem to CAS based
almost exclusively on pre-privatization financial contributions to the ILVA group that were conferred
before the creation of CAS. The US Department of Commerce applied its gamma change in
ownership methodology.
26 According to the US Department of Commerce's calculations provided to
CAS, at least 21.74 per cent of the total 22.22 per cent margin was composed of CAS' pro-rata share
of subsidies granted to the state-owned ILVA group.
(iv) United States Countervailing Duties on Imports of Stainless Steel Plate in Coils from Italy
(Case No. 4)
2.18 This case concerns the imposition of countervailing duties on imports of Stainless Steel Plate
in Coils from Italy, produced and exporte d by Acciai Specia li Terni S.p.A. (AST). 27 The US case
number is C-475-823; (64 Fed. Reg. 15508 of 31 March 1999). On 31 March 1999, the US
Department of Commerce published its final determination imposing a countervailing duty rate of
15.16 per cent ad valorem on products exported by AST.28
2.19 In September 1993, Istituto per la Ricostruzione Industriale (IRI) endorsed a plan for the
market privatization of ILVA's core businesses, and the ILVA's specialty steels division was

24 See GTS Industries v. United States Court No. 00-03-00118 (Ct. Int'l Trade 4 January 2002). Exhibit
EC–30 to the EC's second written submission.
25 See: Certain Stainless Steel Wire Rod from Italy 63 Fed. Reg. 809 (Dep't Commerce 7 January 1998)
(prelim. determination and alignment of countervailing duty and anti-dumping duty final determinations).
Exhibit EC–12 to the EC's first written submission.
26 Ibid., at 811-12.
27 ILVA S.p.A. (old, state-owned) was dissolved on 31 October 1993. Two new companies were
created: ILVA Laminati Piani S.r.l. (ILP) and Acciai Speciali Terni S.r.l. (AST). In December 1994, AST was
sold to KAI Italia S.r.l. A more detailed corporate history can be found in Annex A infra.
28 See Stainless Steel Plate in Coils from Italy 64 Fed. Reg. 15508 (Dep't Commerce 31 March 1999)
(final countervailing duty determination). Exhibit EC–13 to the EC's first written submission.

separately incorporated, first as a limited liability company (S.r.l.) and then as a stock company
(S.p.A.), with all shares in this stock company – AST S.p.A. – initially owned by IRI. IRI's
privatization plans were issued under the legal control of the European Commission, which set
important conditions for the sale in a binding decision of April 1994. IRI prepared a public offering
for the sale of AST. Notices were published in Italian and foreign newspapers soliciting purchase
offers. IRI appointed the international investment firm Barclays de Zoete Wedd (BZW) as its
financial adviser in the privatization process. It is reported that two other independent financial
advisers were retained to conduct financial appraisals of the likely fair market value of AST. The
result of this process was that expressions of interest were received from 19 private industrial or
financial bidders.
2.20 A binding offer of purchase was accepted by IRI on 30 June 1994. On 14 July 1994, a
purchase agreement was signed between IRI and KAI Italia S.r.l. (a holding company created by a
German-Italian consortium for this purpose) for the purchase of all shares of AST S.p.A. The total
price paid by KAI for AST was significantly greater than the amounts that had been independently
determined as AST's value by each of IRI's independent valuation experts and financial advisers to the
privatization.
2.21 The above duty is reported to be the result of the pro-rata allocation to AST of the
pre-privatization financial contributions to the state-owned ILVA group, of which AST was a
member. The determination was made on the basis of the gamma methodology.
29 T h e U S
Department of Commerce found irrelevant the evidence placed on the administrative record by AST,
the Government of Italy, and the European Comm unities that the company had been privatized in
1994 at arm's length for fair market value when sold at public auction by the Government of Italy to
the highest bidder, a private consortium le d by German steelmaker Krupp AG Hoesch-Krupp.
According to the US Department of Commerce's calculations provided to AST, at least 13.42 per cent
of the total 15.16 per cent margin was composed of AST's pro-rata share of the subsidies granted to
the state-owned ILVA group, of which AST was a member.
2.22 The US Department of Commerce's final determination in this investigation was challenged
by AST in the CIT on 10 June 1999.
30 On 14 August 2000, the CIT remanded AST's appeal back to
the US Department of Commerce in light of the Delverde III ruling. The US Department of
Commerce applied its new same person test in the remand proceeding and did not consider any
evidence regarding the arm's length and fair market value of the privatization of AST. 31 T h e
application of the new methodology resulted in an increase of the countervailing duty applicable to
AST from 15.16 per cent to 17.25 per cent ad valorem. AST disputed this remand redetermination
before the CIT. On 1 February 2002, the CIT rendered its opinion where it rejected the US
Department of Commerce's findings.
(v) United States Countervailing Duties on Imports of Stainless Steel Sheet and Strip in Coils
from Italy (Case No. 5)
2.23 This case concerns the imposition of countervailing duties on stainless steel sheet and strip in
coils from Italy, produced and exported by Acciai Specia li Terni S.p.A. (AST).
32 T h e U S c a s e
number is C-475-825; (64 Fed. Reg. 30624 of 8 J une 1999). The US Department of Commerce

29 See Stainless Steel Plate in Coils from Italy, supra, footnote 28, at 15509-15510.
30 Final Results of Redetermination pursuant to Court Remand, Acciai Speciali Terni ("AST") v. United
States Court No. 99-06-00364, (Ct. Int'l Trade 19 December 2000) (unpublished) (Stainless Steel Plate in Coils
from Italy) Exhibit EC–6 to the EC's first written submission.
31 Ibid.
32 Stainless Steel Sheet and Strip in Coils from Italy 64 Fed. Reg. 30624 (Dep't Commerce 8 June 1999)
(final countervailing duty determination), Exhibits EC–14 and EC–15 to the EC's first written submission.

published its final determination imposing a counte rvailing duty of 12.22 per cent on exports of AST
ad valorem.33
2.24 As in stainless steel plate in coils from Italy the countervailing duty is based in part on pre-
privatization financial contributions to the ILVA group, in part on pre-privatization financial
contributions to TAS/Terni, and in part on debt relief provided to AST itself during the process of
privatization.
34 The pre-privatization subsidies were analysed under the gamma methodology by US
Department of Commerce.35
2.25 The US Department of Commerce's final determination in this investigation was timely
challenged in the US courts by AST and is now before the CIT. 36 This appeal has been temporarily
stayed pending resolution of the parallel appeal of the US Department of Commerce determination
concerning Stainless Steel Plate in Coils from Italy (see paragraph 2.21 above.)
(vi) United States Countervailing Duties on Import s of Certain Cut-to-Length Carbon-Quality
Steel Plate from Italy (Case No. 6)
2.26 This case concerns the imposition of countervailing duties on certain cut-to-length carbon-
quality steel plate from Italy, produced and exported by ILVA S.p.A. 37 The US case number is
C-475-827; (64 Fed. Reg. 73244 of 29 December 1999). On 29 December 1999, the US Department
of Commerce published its final determination imposing a countervailing duty of 26.12 per cent on
exports of ILVA (ILP).
38 The US Department of Commerce assigned that duty of 26.12 per cent to
ILP. This was also based on the gamma methodology. 39 According to the US Department of
Commerce calculations provided to ILP, at least 22.68 per cent of the total 26.12 per cent margin was
composed of subsidies granted to ILVA during that company's period of State ownership.
2.27 As regards the privatization process, in September 1993, the IRI endorsed a plan for the
market privatization of ILVA's core businesses, and ILVA's carbon steel flat products division was
separately incorporated as a stock company (S.p.A.) , with all shares in this stock company – ILP
S.p.A. – initially owned by IRI. IRI's privatizati on plans were issued under the legal auspices of the
European Commission. The IRI prepared a public offering for the sale of ILP. Notices were
published in Italian and foreign newspapers soliciting purchase offers. IRI appointed the Italian Bank
IMI S.p.A. as its financial adviser in the privatiz ation process. It was reported that two other
independent financial advisers (Pasfin Servizi Finanziari S.p.A. and Samuel Montagu Ltd.) were
retained to conduct financial appraisals of the likely fair market value of ILP. Expressions of interest

33 See Stainless Steel Sheet and Strip in Coils from the Republic of Korea 64 Fed. Reg. 42943 (Dep't
Commerce 6 August 1999) (final determination); and Stainless Steel Sheet and Strip in Coils from France, Italy,
and the Republic of Korea 64 Fed. Reg. 42943 (Dep't Commerce 6 August 1999) (notice of countervailing duty
orders); and Stainless Steel Sheet and Strip in Coils from Italy, supra, footnote 32.
34 Stainless Steel Sheet and Strip in Coils from Italy (C-475-825) supra, footnote 32, at 30626, which
refers to the examination of the AST change in ownership by the Department of Commerce in Stainless Steel
Plate in Coils From Italy, supra, footnote 28 (Case No. 4 supra).
35 Stainless Steel Plate in Coils from Italy, supra, footnote 28,. at 15509-15510.
36 See EC's first written submission, para. 99.
37 ILVA S.p.A. (old, state-owned) was dissolved on 31 October 1993. Two new companies were
created: ILVA Laminati Piani S.r.l. (ILP) and Acciai Speciali Terni S.r.l. (AST). On 16 March 1995, ILP was
sold to a consortium of investors led by Riva Acciaio S.p.A. On 1 January 1997, ILP was renamed ILVA S.p.A.
(new). For practical reasons, the only name mentioned in this request for consultations is ILVA S.p.A., even
when we make reference to the (old) ILVA or to ILP. A more detailed corporate history can be found in Annex
A, infra.
38 See Certain Cut-to-Length Carbon-Q uality Steel Plate from Italy 64 Fed. Reg. 73324 (Dep't
Commerce 29 December 1999) (final countervailing duty determination). Exhibit EC–16 to the EC's first
written submission.
39 Ibid., at 73246.

were received from 11 private industrial or financial bidders. On 16 March 1995, a purchase
agreement was signed between IRI and Riva Acciaio S.p.A.
2.28 The US Department of Commerce's final determination in this investigation was challenged
in the US courts by ILP and is now before the CIT. 40 The US Department of Commerce has
conducted a remand redetermination in which it has applied the same person methodology.41
(b) The US Department of Commerce's practice in original investigations
2.29 The United States does not dispute that the original investigations before the Panel are
WTO-inconsistent to the extent that they were based on the gamma methodology and that the
underlying determinations did not fully examine whether the pre- and post-change in ownership
entities involved were the same legal persons.42
2. Administrative reviews
(a) Administrative reviews covered by this dispute
(i) United States Countervailing Duties on Imports of Certain Cut-to-length Carbon Steel Plate
from Sweden (Case No. 7)
2.30 This case concerns the definitive results of an administrative review which led to the
imposition of countervailing duties on certain carbon steel products from Sweden, produced and
exported by SSAB Svenskt Stal AB (SSAB), on 7 April 1997. The US case number is C-401-804;
(62 Fed. Reg. 16551 of 7 April 1997). On 7 Apr il 1997, the US Department of Commerce published
its final determination which led to the imposition of the countervailing measures of 1.91 per cent
ad valorem.43 This duty was imposed on the basis of [alleged] subsidies which derived from financial
contributions made by the Government of Sweden to the State-owned Swedish steel industry prior to
the privatization of SSAB, which began in 1987 and was completed on 15 February 1994. In making
this determination, the US Department of Commerce based its findings on the gamma methodology.
44
The US Department of Commerce admits that the administrative review was WTO-inconsistent to the
extent that the review was based on the gamma methodology and that, therefore, the underlying
determination did not fully examine whether the pr e- and post-change in ownership entity was the
same legal person.
45
2.31 SSAB was privatized in three stages, in 1987, 1989 and 1992. The first stage took place in
1987 when the Government of Sweden which by then was the sole owner of SSAB sold one-third of
its shares to a consortium of six institutional investors. The second step took place in 1989, when the
Government of Sweden and the international investors sold part of their shares in a public offer. After
this offer, the Government of Sweden held 47.8 per cent of the company's shares. Shortly afterwards,
SSAB's shares were introduced on the stock exchange. In 1992, in the framework of a general
privatization programme, the Government of Swed en floated bonds to which were attached warrants

40 Final Results of Redetermination pursuant to Court Remand, ILVA Lamiere e Tubi S.p.A. v. United
States Court No. 00-03-00127, (Ct. Int'l Trade 28 December 2000) (unpublished) (Certain Cut-to-Length
Carbon-Quality Steel Plate from Italy), Remand Order (Ct. Int'l Trade August 30, 2000).
41 Ibid.
42 US' first written submission, para. 85. For a detailed description of US practice in original
investigations see Countervailing Duties; Final Rule 19 C.F.R. § 351(1998). (Selected pages contained in
Exhibit EC–32 to the EC's second written submission).
43 See Certain Cut-to-Length Carbon Steel Plate from Sweden 62 Fed. Reg. 16551 (Dep't Commerce
7 April 1997) (final admin. review) (hereinafter Sweden Admin. Review ). Exhibit EC–17 to the EC's first
written submission.
44 Sweden Admin. Review, supra, footnote 43, at 16552.

to purchase the remaining shares retained by the Swedish Government. All warrants were exercised
by 16 February 1994, thereby completing the SSAB privatization. As a result of the SSAB
privatization, the company's shares were distributed to more than 30,000 small shareholders. The sale
price of the company was determined in 1987 through negotiations with private institutional investors;
share prices were based on estimated average profit levels before tax, at a level considered normal on
the Swedish stock market at that time for companies with similar profiles. In 1989, the price of shares
was determined by two reportedly independent investment banks appointed by the Government. In
1992, the sale price of the remaining shares was determined with reference to the stock market and
resulted in a price slightly higher than the six previous months average price. In the administrative
review the United States determined that during the review period, SSAB was completely
privatized.
46
(ii) Grain-Oriented Electrical Steel from Italy (Case No. 12)
2.32 This case concerns the preliminary results of an administrative review which led to the
continued imposition of countervailing duties on grai n-oriented electrical steel from Italy, produced
and exported by Acciai Speciali Terni S.p.A. (A ST). The US case number is C-475-812; (65 Fed.
Reg. 41950 of 7 July 2000). On 12 January 2001, the US Department of Commerce published the
final results of the administrative review imposing a countervailing duty rate of 14.25 per cent
ad valorem on exports of Acciai Speciali Terni S.p.A. (AST)
47. This duty is reported to have been
based in part on pre-privatization financial contributions to the state-owned ILVA group (allocated
pro-rata to a group of producers, including AST) , in part on pre-privatization contributions to
TAS/Terni, and in part on debt relief provided to AST itself during the process of privatization.
2.33 The US Department of Commerce applied its same person change in ownership
methodology48. In this regard, the US Department of Commerce indeed concluded that AST was the
same person because the specialty steel factories in Terni still sold specialty steels, still employed the
same workers, still had the same or similar suppliers, and still marketed their products to the same or
similar consumers. The US Department of Commerce's final determination in the administrative
review of Grain-Oriented Electrical Steel from Italy was challenged in court by AST. 49
(b) The US Department of Commerce's practice in administrative reviews
2.34 Under United States law 50, the US Department of Commerce may initiate an administrative
review on its own initiative or further to the written request of a domestic interested party, a foreign
government, an exporter or producer covered by an order or an importer of the merchandise. 51 The
US Department of Commerce may rescind an administrative review, in whole or only with respect to

46 Sweden Admin. Review, supra, footnote 43 at 1655116552.
47 Grain-Oriented Electrical Steel from Italy 66 Fed. Reg. 2885 (Dep't Commerce 12 January 2001)
(final admin. review) (hereinafter GOES Admin. Review) Exhibit EC–7 to the EC's first written submission. The
original final countervailing duty determination was published in Grain Oriented Electrical Steel from Italy 59
Fed. Reg. 183357 (Dep't Commerce 18 April 1994) (final countervailing duty determination) (hereinafter GOES
Final Determination).
48GOES Admin. Review , supra, footnote 47, at 2886, which refers to the Issues and Decision
Memorandum for the Administrative Review of the Counterva iling Duty Order in Grain Oriented Electrical
Steel from Italy for the period January 1, 1998 to December 31, 1998 (unpublished) attached as Exhibit EC-7 to
the EC's first written submission , where the relevant discussion can be found on pages 3, 4, and 16-27.
49 The original 1994 countervailing duty order on grai n-oriented electrical steel from Italy was the
subject of US sunset review, which was initiated on 1 December 1999. Grain-Oriented Electrical Steel from
Italy 65 Fed. Reg. 65295 (Dep't Commerce 1 November 2000) (full sunset review).
50 Detailed procedures for administrative reviews can be found in Countervailing Duties; Final Rule ,
19 C.F.R. § 351.213 (1998).
51 Countervailing Duties; Final Rule, 19 C.F.R. § 351.213 (1998), p. 203.

a particular exporter or producer, if it concludes that during the period covered by the review, there
were no entries, exports, or sales of the subject merchandise, as the case may be. 52
2.35 Pursuant to US Department of Commerce's practice, the appropriate venue for introducing
evidence of a privatization as a basis for a change in the countervailable duty is in an administrative
review.53
3. Sunset reviews
(a) Sunset reviews covered by this dispute
(i) United States Countervailing Duties on Imports of Cut-to-Length Carbon Steel Plate from the
United Kingdom (Case No. 8)
2.36 This case concerns the definitive results of a sunset review which led to the continuation of
the countervailing measures imposed on cut-to-length carbon steel plate from the United Kingdom,
produced and exported by British Steel plc. The US case number is C-412-815; (65 Fed. Reg. 18309
of 7 April 2000). On 7 April 2000, the US Department of Commerce published its final determination
which led to the continuation of the countervailing measures at a rate of 12.00 per cent, the applicable
rate of duty at the time and the same as that found in the original investigation.
54 This countervailing
duty was originally imposed in 1993, on the basis of subsidies which derived from financial
contributions made by the Government of the United Kingdom to the State-owned British Steel
Corporation.
55 This was prior to the transformation of British Steel Corporation into British Steel plc
(BS plc) and its privatization in 1988. In making the above sunset determination, the US Department
of Commerce determined on the basis of its gamma methodology that these subsidies continued to
benefit British Steel after its privatization. 56 The subsidies originally received by British Steel
Corporation in this case are the same as those involved in the US – Lead and Bismuth II WTO
dispute. However, the US – Lead and Bismuth II WTO dispute covered countervailing duties on
imports by UES whereas this dispute involves imports from British Steel plc., a different sucessor to
British Steel Corporation.
2.37 Prior to 1988, British Steel Corporation (BSC) was a Crown corporation without shares which
was wholly-owned by the United Kingdom Government. On 26 July 1988, it was reincorporated as a
public limited company named British Steel plc (BS plc). All the shares were owned by the United
Kingdom Government.
2.38 The second step in the privatization was the actual public offering of the shares of BS plc.
Following a competitive process, the Secretary of State for Trade and Industry appointed a number of
independent firms to provide advice on the sale. Two billion ordinary shares of BS plc were offered at
a fixed price on 23 November 1988. The final price of £1.25, was determined based upon a

52 Countervailing Duties; Final Rule, 19 C.F.R. § 351.213 (1998), p. 204.
53 See US first written submission, para. 77.
54 See, Cut-to-Length Carbon Steel Plate from the United Kingdom 65 Fed. Reg. 18309 (Dep't
Commerce 7 April 2000) (exp. sunset review). See also Issues and Decision Memorandum for the Expedited
Sunset Review of the Countervailing Duty Order on Cut-to-Length Carbon Steel Plate from the United
Kingdom; Final Results 29 March 2000 (unpublished) Exhibit EC–18 to the EC's first written submission.
Note that while the Government of the United Kingdom and the European Communities did provide
information to the US Department of Commerce to the ef fect that the order should be terminated because pre-
privatization subsidies to BSC did not continue to benefit the production of BS plc after the fair market value
privatization in 1988, Corus itself did not cooperate with the US Department of Commerce's investigation.
55 See Cut-to-Length Carbon Steel Plate from the United Kingdom 58 Fed. Reg. 37393 (Dep't
Commerce 9 July 1993) (final countervailing duty determination).
56 See Issues and Decision Memorandum for the Expe dited Sunset Review of the Countervailing Duty
Order on Cut-to-Length Carbon Steel Plate from the United Kingdom; Final Results, supra, footnote 54, at 7.

recommendation by the main financial adviser for the transaction and produced a total sale price to
the United Kingdom Government of 2.5 billion pounds sterling. In determining the sale price, the
main financial adviser took into account the forecast dividend yield, the company's forecasted profits,
the market conditions and the anticipated level of demand in the UK and overseas.
2.39 In this case, the US Department of Commerce was expressly requested by a US domestic
court to determine if the privatization of British Steel was at arm's length and for fair market value. In
1995, in the context of this court remand, the US Department of Commerce confirmed that the British
Steel privatization was at arm's length, for fair market value and consistent with commercial
considerations because British Steel shares were of fered to private investors world-wide, the offering
price was based on valuations by independent consultants, and private investors purchased nearly the
entire share offering57.
(ii) United States Countervailing Duties on Imports of Certain Corrosion-Resistant Carbon Steel
Flat Products from France (Case No. 9)
2.40 This case concerns the definitive determination of a sunset review which led to the
continuation of the countervailing measures imposed on certain corrosion-resistant carbon steel flat
products from France, produced and exported by Usinor SA (Usinor). The US case number is C-427-
810; (65 Fed. Reg. 18307 of 7 April 2000). On 7 April 2000, the US Department of Commerce
published its final determination which led to the continuation of the countervailing measures
imposed on corrosion-resistant carbon steel flat products from France, produced and exported by
Usinor S.A.58 The rate of countervailing duty for Usinor was 15.13 per cent ad valorem; the same as
that found in the original investigation, because Usinor had never sought an administrative review.
2.41 The above countervailing duty was originally imposed in 1993, on the basis of the subsidies
which derived from financial contributions made by the French Government to the State owned
Usinor SA. 59 This was prior to the privatization of Usinor in 1995. 60 In making this sunset
determination, the US Department of Commerce concluded that these subsidies continued to benefit
Usinor after privatization.61
(iii) United States Countervailing Duties on Imports of Cut-to-Length Carbon Steel Plate from
Germany (Case No. 10)
2.42 This case concerns the final determination of a sunset review which led to the continuation of
the countervailing measures imposed on cut-to-length carbon steel plate from Germany, produced and
exported by AG Dillinger Hüttenwerke Saarstahl (Dillinger). The US case number is C-428-817;
(65 Fed. Reg. 47407 of 2 August 2000). On 2 Au gust 2000, the US Department of Commerce
published its final determination leading to the continuation of the countervailing measures imposed

57 See Final results of redetermination pursuant to Court remand on general issues on privatization
(British Steel plc v United States ) Consol. Court No. 93-09-00550 (Ct. Int'l Trade 17 July 1995), at 18-20.
Exhibit EC–19 to the EC's first written submission.
58 See Corrosion-Resistant Carbon Steel Flat Products from France 65 Fed. Reg. 18063 (Dep't Commerce
7 April 2000) (exp. sunset review) See also Issues and Decision Memorandum for the Sunset Review of the
Countervailing Duty Order on Certain Corrosion-Resist ant Carbon Steel Flat Pr oducts from France; Final
Results 29 March 2000 (unpublished). Exhibit EC–20 to the EC's first written submission. Note, that while the
Government of France and the European Communities did communicate to the US Department of Commerce
that Usinor had been privatized for fair market value, the company itself did not cooperate with US Department
of Commerce's investigation.
59 Certain Steel Products from France , 58 Fed. Reg. 37304 (Dep't Commerce 9 July 1993) (final
countervailing duty determination, as amended).
60 For details on Usinor's privatization, see Case No. 1 supra.
61 See Issues and Decision Memorandum for the Sunset Review of the Countervailing Duty Order on
Certain Corrosion-Resistant Carbon Steel Flat Products from France; Final Results, supra, footnote 58.

on Cut-to-Length Carbon Steel Plate from Germany, produced and exported by Dillinger. 62 The rate
of countervailing duty for these products exported by Dillinger is 14.84 per cent ad valorem. This
countervailing duty was originally imposed in 1993, on the basis of the subsidies which derived from
financial contributions made by the German Government and the Regional Government of Saarland to
Dillinger Hütte Saarstahl and attributed in part to Dillinger.63
2.43 At the beginning of April 1989, Saarstahl Völkingen GmbH was owned 76 per cent by the
Government of Saarland (a German land) a nd 24 per cent by Arbed Luxembourg though its
subsidiary, Arbed-Finanz Deut schland GmbH. On 20 April 1989, Saarland and Arbed reached an
agreement with Usinor Sacilor to combine Saar stahl Völkingen GmbH with Dillinger, another
Saarland steel producer owned by Usinor Sacilor, under a holding company (DHS). The parties
engaged two independent accounting firms (Treuarb eit and KPMG) to appraise the relative values
each party would contribute to the combined entity, in order to calculate each party's per centage
ownership. On 15 June 1989, after the change in ownership transaction, Usinor Sacilor owned 70 per
cent of DHS's shares, Saarland owned 27.5 per cent of DHS's shares and the remaining 2.5 per cent
was owned by Arbed. The main subsidy came in the form of debt relief provided to DHS in
connection with its creation in 1989.
2.44 On 30 June 1989, DHS transferred the assets and liabilities of the former Saarstahl Völkingen
GmbH into the newly created subsidiary, Saarstahl. Thus DHS became a holding company with two
operating subsidiaries, Saarstahl and Dillinger.
2.45 In the court remand mentioned in Case No . 8, the US Department of Commerce was
requested to analyse the change in ownership of certain companies including Dillinger. As a result of
this exercise, the US Department of Commerce confirmed that the Dillinger transaction was at arm's
length, for fair market value, and consistent with commercial considerations because it occurred
between two unrelated parties and each party's per centage shareholding in DHS/Dillinger was based
on appraisals performed by two independent accounting firms which took into account the forgiveness
of the debt.
64
2.46 The US Department of Commerce determined that it was "not appropriate" to address the
privatization issue in the sunset review, the focus of which is on whether subsidization is likely to
continue or recur. 65 The US Department of Commerce ci ted the "complexity and fact-intensive
nature" of this issue in support of its finding that the sunset review schedule did not allow time for it
to analyze the privatization and other changes in law. When this determination was challenged before
the CIT, it was pointed out that the statute allows the US Department of Commerce to extend the
period for issuing final results by up to 90 days. For this and other reasons, the CIT later remanded
the sunset review to the US Department of Commer ce for redetermination, taking into account all the
evidence submitted by the parties, including that on privatization.66

62 Certain Corrosion-Resistant Carbon Steel Flat Products; Cold-Rolled Carbon Steel Flat Products;
and Cut-to-Length Carbon Steel Plate Products from Germany . 65 Fed. Reg. 47407 (Dep't Commerce 2 August
2000) (full sunset reviews). See also Issues and Decision Memorandum for the Sunset Reviews of the
Countervailing Duty Orders on Certain Corrosion-Resistant Carbon Steel Flat Products; Cold-Rolled Carbon
Steel Flat Products; and Cut-to-Length Carbon Steel Plate Products from Germany; Final Results 27 July 2000
(unpublished). Exhibit EC–21 to the EC's first written submission.
63 Certain Corrosion-Resistant Carbon Steel Flat Products; Cold-Rolled Carbon Steel Flat Products;
and Cut to- Length Carbon Steel Plate Products from Germany 58 Fed. Reg. 37315 (Dep't Commerce 9 July
1993) (final countervailing duty determination).
64 See Final results of redetermination pursuant to Court remand on general issues on privatization
(British Steel plc v United States) Consol. Court No. 93-09-00550, at 22-34.
65 AG Dillinger Huttenwerke et al v United States ("Dillinger"); Court No. 00-09-00437 (Ct. Int'l Trade
28 February 2002), at 62. Exhibit EC-34 to the EC's second written submission.
66 Ibid. at 67.

(iv) United States Countervailing Duties on Imports of Cut-to-Length Carbon Steel Plate from
Spain (Case No. 11)
2.47 This case concerns the definitive results of a sunset review which led to the continuation of
the countervailing measures imposed on cut-to-length carbon steel plate from Spain, produced and
exported by Aceralia SA. The US case number is C-469-804; (65 Fed. Reg. 18307 of 7 April 2000).
On 7 April 2000, the US Department of Commerce published its final determination continuing the
countervailing measures imposed on cut-to-length carbon steel plate from Spain, produced and
exported by Aceralia S.A.67 The rate of countervailing duty was set at 36.86 per cent ad valorem, the
same rate of duty as found in the original investigation. The above countervailing duty was originally
imposed in 1993, on the basis of the alleged subsidies which derived from financial contributions
made by the Spanish Government to CSI Corporación Siderúrgica. 68 This was prior to the
privatization of CSI in 1997.
2.48 CSI was privatized through a three-step process by its State-controlled owner AIE (Agencia
Industrial del Estado). Phase one involved the selection of a "technological partner" to purchase a 35
per cent share of the company. Phase two involved the selection of a " supporting partner " to
purchase between 10 per cent and 25 per cent of the co mpany's shares. In phase three, the remaining
shares were sold by an international subscription open to private investors. Prior to its privatization,
CSI was valued by experts from the University of Oviedo and Carlos III of Madrid and from the
international audit firm of Ernst & Young. Furthermore, a Spanish bank, Banco Central Hispano-
Americano, was requested to monitor the privatization in order to ensure that every step was properly
carried out. During the process other independent auditors such as Coopers & Lybrand were required
to certify the correctness of the privatization. After a fully transparent evaluation process, on 1
August 1997 the Luxembourg company Arbed was finally chosen as the technological partner of CSI.
The supporting partner was also selected through an open bid. The only two companies which
expressed an interest were Corporacion J.M. Aristrain and Gestamp SL which respectively purchased
shares amounting to 11 per cent and 1 per cent of the company's capital (17 October 1997). The
privatization was completed by the sale through a public subscription of the remaining shares owned
by the Spanish State (March 1998).
2.49 In its sunset review, the US Department of Commerce determined that the above financial
contributions continued to benefit Aceralia.
69
(b) The US Department of Commerce's practice in sunset reviews
2.50 Under United States law, the US Department of Commerce automatically initiates a sunset
review on its own initiative within five years of the date of publication of a countervailing duty
order.70 The US Department of Commerce conducts these reviews pursuant to published

67 Cut-to-Length Carbon Steel Plate from Spain (C-469-804) 65 Fed. Reg. 18307 (Dep't Commerce
7 April 2000) (exp. sunset review). See also Issues and Decision Memorandum for the Expedited Sunset Review
of the Countervailing Duty Order on Cut-to-Le ngth Carbon Steel Plate fr om Spain; Final Results 29 March
2000 (unpublished). Exhibit EC–22 to the EC's first written submission.
While the Government of Spain and the European Communities did communicate to US Department of
Commerce that CSI had been privatized to create Aceralia, Aceralia itself, did not cooperate with the US
Department of Commerce's investigation. According to the US Department of Commerce's practice, Aceralia
was not entitled to request any administrative review since it had stopped exporting to the United States when
the order became effective in 1993.
68 Cut-to-Length Carbon Steel Plate from Spain 58 Fed. Reg. 37374 (Dep't Commerce 9 July 1993)
(final countervailing duty determination). Exhibit EC-22 to the EC's first written submission.
69 See also Issues and Decision Memorandum for the Expe dited Sunset Review of the Countervailing
Duty Order on Cut-to-Length Carbon Steel Plate from Spain; Final Results, supra, footnote 67.
70 Sections 751(c)(1) and (2) of the Tariff Act of 1930, as amended, see also Countervailing Duties;
Final Rule, 19 C.F.R. § 351.218(c)(1) (1998).

regulations.71 In the sunset review, the US Department of Commerce has the responsibility of
determining whether revocation of a countervailing duty order would be likely to lead to continuation
or recurrence of subsidization. If the US Department of Commerce's determination is negative, it
must revoke the order. However, if the US Department of Commerce's determination is affirmative, it
transmits its determination to the U.S. International Trade Commission ("USITC"), along with a
determination regarding the magnitude of the net countervailable subsidy that is likely to prevail if the
order is revoked. The USITC has the option of considering the magnitude of the net countervailable
subsidy when it analyses the likelihood of continuation or recurrence of injury.
 72
2.51 The US Department of Commerce informs exporting Members and firms of the initiation of a
sunset review in at least four ways. The US Department of Commerce publishes in the Federal
Register a sunset review initiation schedule to provide for monthly initiations of so-called "transition
orders." In addition, in the month preceding the scheduled initiation date of a sunset review, the US
Department of Commerce notifies representatives of the foreign government, the foreign producers,
and the domestic producers, by mail, that the sunset review of a particular countervailing duty order
will be initiated on or about the first of the following month. The US Department of Commerce
subsequently publishes the notice of initiation of the sunset review in the Federal Register. Finally,
information concerning, inter alia, the initiation of a sunset review, including the scheduled initiation
date, the parties on the service list, and the merchandise covered by the scope of the order is available
on the US Department of Commerce's website.
73
2.52 When the US Department of Commerce initiates sunset reviews it requests that any interested
parties who wish to participate in the review submit such a request and comments on the likelihood of
continuation or recurrence of subsidization. 74 T h e Sunset Regulations set forth, inter alia , the
information to be provided by parties participating in a sunset review and the deadlines for required
submissions.75 When the exporting producers subject to the countervailing duties do not submit
comments, the US Department of Commerce conducts an expedited sunset review. The evidence
used in sunset reviews is that already on the record at the US Department of Commerce. The US
Department of Commerce position is that unless during the five-year period of the countervailing duty
the US Department of Commerce has conducted an administrative review, the only evidence in a
sunset review on the likelihood of continuation or recurrence of subsidization will be that coming
from the original investigation.
76 The United States maintains that the US Department of Commerce
is under no obligation, pursuant to Article 21.3 of the SCM Agreement, to convert sunset reviews into
full-blown administrative reviews of the respective countervailing duties.
2.53 While the European Communities does not dispute the accuracy of the US Department of
Commerce's description of its practices, the European Communities maintains that the practice is
incompatible with Article 21.3 of the SCM Agreem ent. The European Communities argues that the
US Department of Commerce's practice of conducting an expedited review and not taking into
account comments submitted by interested parties if the exporting producer does not submit
comments is inconsistent with Article 21 of the SCM Agreement.
2.54 The European Communities notes a distinction between the United States and the European
Communities as to the facts. The US Department of Commerce maintains that "in three of the four
sunset reviews, the US Department of Commerce received no comments from the European steel

71 For a detailed description of procedures, the United States refers to Procedures for Conducting Five-
year ("Sunset") Reviews of Antidumping and Counte rvailing Duty Orders ("Sunset Regulations") 19 C.F.R. §
351(1998).
72 US' response to question No. 20 posed by the Panel, para 2.
73 Ibid, para 1.
74 See US' first written submission, para 89.
75 The US refers to Procedures for Conducting Five-year ("Sunset") Reviews of Antidumping and
Countervailing Duty Orders ("Sunset Regulations"), 19 C.F.R. § 351(1998).
76 See footnote 53.

companies involved. Accordingly, in those cases and pursuant to its procedures, the US Department
of Commerce conducted expedited reviews." 77 Both the United States and the European
Communities agree that in Countervailing Duties on Imports of Cut-to-Length Carbon Steel Plate
from Germany (Case No. 10) the exporting company did participate and a full review was conducted.
However, the European Communities asserts that in Countervailing Duties on Imports of Cut-to-
Length Carbon Steel Plate from the United Kingdom (Case No. 8), Countervailing Duties on Imports
of Certain Corrosion-Resistant Carbon Steel Flat Products from France (Case No. 9) and
Countervailing Duties on Imports of Cut-to-Length Carbon Steel Plate from Spain (Case No. 11), the
US Department of Commerce deliberately ignored comments submitted by the Governments of the
United Kingdom, France and Spain as well as by the European Communities.
78
B. UNITED STATES' CHANGE IN OWNERSHIP METHODOLOGIES COVERED BY THIS DISPUTE
2.55 This dispute covers two methodologies used by the US Department of Commerce in order to
assess the impact of a change in ownership in the determination of subsidization in respect of
privatized companies. These methodologies are the so-called gamma methodology and the same
person methodology. In this regard, of the 12 determinations challenged by the European
Communities, 11 were initially based on the gamma methodology. In Case No. 12 ( Grain-Oriented
Electrical Steel from Italy "GOES" ) the US Department of Commerce used the same person
methodology. The same person methodology was first applied in the Final Results of the
Administrative Review in this case which was published on 12 January 2001. 79 This methodology
had earlier also been applied in various remand determinations ordered by CIT within appeal
proceedings in four of the above 11 determinations. 80 The same person methodology has been
challenged before the CIT in all of these remand redeterminations 81, and also in the GOES
determination.82
2.56 The United States has admitted that seven (Case Nos. 1 to 7) of these 12 determinations are
inconsistent with its WTO obligations to the extent that the US Department of Commerce did not
fully examine whether the pre- and post-change in ownership entities were the same legal persons
change in ownership.83 These were based on the gamma methodology.
1. The gamma methodology
2.57 In July 1993, the US Department of Commerce introduced the gamma methodology. 84
According to this methodology, after assessing the existence of pre-privatization subsidies, the US
Department of Commerce determines to what extent (if any) the privatization transaction price repaid

77 See US' first written submission, para. 89.
78 See EC's first written submission, para. 109 and footnote 102 to para. 115; and Issues and Decision
Memorandum for the Sunset Review of the Counterva iling Duty Order on Certain Corrosion-Resistant Carbon
Steel Flat Products from France; Final Results, supra, footnote 58, at 5.
79 See EC's first written submission, para. 124.
80 Stainless Sheet and Strip in Coils from France (C-427-815) (Case No. 1); Certain Cut-to-Length
Carbon Quality Steel from France (C-427-817) (Case No. 2) (with respect to GTS); Stainless Steel Plate in Coils
from Italy (C-475-823) (Case No. 4) and Certain Cut-to-Length Carbon-Quality Steel Plate from Italy
(C-475-827) (Case No. 6).
81 The United States claims that since "the EC has not challenged the four remand determinations in
this forum ... the Panel's review is limited to the six original determinations in which US Department of
Commerce applied its old methodology." US' first written submission, para. 85.
82 See EC's first written submission, para. 124.
83 See US' first written submission, para. 85.
84 The methodology was set out in a "General Issues Appendix" annexed to Certain Steel Products
from Austria , 58 Fed. Reg. 37217 (Dep't Commerce 9 July 1993) (final countervailing duty determination)
(hereinafter, General Issues Appendix ). The relevant discussion of privatization is found at 37259-65. Exhibit
EC–2 to the EC's first written submission.

unamortized subsidies, and countervails the remainder (if any). Unlike the pass-through methodology
where the totality of prior subsidies passed through, the application of the gamma methodology could,
depending on the facts, result in a finding that all, some, or none of the unamortized portion of the
pre-privatization subsidies remains countervailable after privatization.
2.58 The gamma methodology was the methodology applied in the three administrative reviews of
countervailing duty determinations covered by the United States – Imposition of Countervailing
Duties on Certain Hot Rolled Lead an Bismuth Carbon Steel Products Originating in the United
Kingdom ("US – Lead and Bismuth II ") dispute and which the Panel and Appellate Body found to be
inconsistent with the SCM Agreement.85
2. The same person Methodology
2.59 In Grain-Oriented Electrical Steel from Italy , the US Department of Commerce applied for
the first time the same person methodology which it had developed on remand after the Delverde III
judgment. This methodology had first been set out in the draft and then final results of a
redetermination pursuant to a court remand in Acciai Speciali Terni v United States.86
2.60 The same person methodology provides for a two-step test. The first step consists in an
analysis of whether the post-privatization entity is the same legal person that received the original
subsidies before privatization. For this purpose, the US Department of Commerce examines the
following non-exhaustive criteria: (i) continuity of general business operations; (ii) continuity of
production facilities; (iii) continuity of assets and liabilities; and (iv) retention of personnel.
87 If, as a
consequence of the application of these criteria, the US Department of Commerce concludes that the
post-privatization entity is a new legal person, distinct from the entity that received the prior
subsidies, the US Department of Commerce would not impose duties on goods produced after
privatization on account of the pre-privatization subsidies. The US Department of Commerce would,
however, proceed to examine in such an event, whether any subsidy had been bestowed upon the
post-privatization entity as a result of the change in ownership (by assessing whether the sale was for
fair market value and at arm's-length). If as the result of the application of the above criteria the US
Department of Commerce concludes that no new or distinct legal person was created, all the subsidy
is found to continue to reside in the post-privatization producer and the US Department of Commerce
will not assess whether the privatization was at arm's-length and for fair market value.
88
C. SECTION 771(5)(F) OF THE US T ARIFF ACT OF 1930, A S AMENDED, (19 U.S.C.
SECTION 1677(5)(F))
2.61 Section 771(5)(F) of the US Tariff Act of 1930, as amended, (19 U.S.C. Section 1677(5)(F)),
hereinafter "Section 1677(5)(F)", reads as follows:
"a change in ownership of all or part of a foreign enterprise or the productive assets of
a foreign enterprise does not by itself require a determination by the administering
authority that a past countervailable subsidy received by the enterprise no longer

85 See Appellate Body Report, United States – Imposition of C ountervailing Duties on Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth
II"), WT/DS138/AB/R, adopted 7 June 2000. As further discussed, the United States in its first written
submission stated "the panel and the Appellate Body rejected the gamma methodology as inconsistent with the
SCM Agreement." US' first written submission, para. 12.
86 Acciai Speciali Terni ("AST") Court No. 99-06-00364.
87 Acciai Speciali Terni ("AST") Court No. 99-06-00364, at 13.
88 Ibid., at 7.

continues to be countervailable, even if the change in ownership is accomplished
through an arm's-length transaction."89
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 The European Communities claims that the old change in ownership methodology applied
by the United States in the 12 countervailing duty orders listed in Section IIabove, and the new
change in ownership methodology applied, inter alia, in the administrative review in Grain Oriented
Electrical Steel from Italy, and more generally the refusal of the United States to correctly apply the
SCM Agreement, as interpreted by the Panel and Appellate Body in US – Lead and Bismuth II, are
inconsistent with the United States' obligations under the WTO Agreement. In particular, but not
necessarily exclusively, the European Communities requests the Panel to examine the consistency of
these measures with the following provisions:
– Articles 1.1, 10, 14(d) of the SCM Agreement insofar as these Articles require an
authority to establish the existence of a financial contribution and benefit (and hence
a countervailable subsidy);
– Footnote 36 to Article 10 of the SCM Agreement which provides that countervailing
duties may only be imposed in order to offset a subsidy bestowed upon the
manufacture, production or export of any merchandise, as provided for in
Article VI:3 of GATT 1994;
– Article 19.1 of the SCM Agreement which in particular provides that a countervailing
duty may only be imposed if the existence of a subsidy has first been determined ;
– Article 19.3 of the SCM Agreement which in particular requires investigating
authorities promptly to establish an individual countervailing duty rate for new
exporters who were not subject to the original investigation;
90
– Article 19.4 of the SCM Agreement, which provides that no countervailing duty shall
be levied on any imported product in excess of the amount of the subsidy found to
exist calculated in terms of subsidization per unit of the subsidized and exported
product;
– Article 21.1 of the SCM Agreement, which provides that a countervailing duty shall
remain in force only as long as and to the extent necessary to counteract
subsidization;
– Article 21.2 of the SCM Agreement, which in particular requires investigating
authorities to determine whether there is a continuing need for the application of
countervailing duties in the light of the information before it;
– Article 21.3 of the SCM Agreement, which in particular provides that countervailing
duties are to expire after five years unless it is determined that the expiry of the duty
would lead to continuation or recurrence of subsidization and injury;

89 Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994); 19 U.S.C.
§ 1677(5)(F). Exhibit EC–4 to the EC's first written submission.
90 The Panel notes that although this claim was initially raised by the European Communities, it did not
present arguments on this issue during the proceedings.

– Article 32.5 of the SCM Agreement which requires Members to ensure the
conformity of their laws, regulations and administrative procedures with the
provisions of the SCM Agreement; and
– Article XVI.4 of the WTO Agreement, which requires Members to ensure the
conformity of their laws, regulations and administrative procedures with their
obligations as provided in the annexed Agreements. 91.
3.2 In addition, the European Communities believes that Section 1677(5)(F) is inconsistent with
the SCM Agreement and the WTO Agreement to the ex tent that it prevents the United States from
implementing its WTO obligations such that where a privatization takes place for fair market value
and at arm's length, no benefit passes through to the post-privatization entity.92
3.3 In its first written submission 93, and with reference to the Panel's competence under Article
19.1 of the DSU, the European Communities requests the Panel to suggest possible means of
implementation on the grounds that the United States has demonstrated a lack of good faith with
respect to the previous WTO dispute settlement proceeding. In this regard, the European
Communities would like that the Panel suggests the following implementation actions:
– The United States should bring Section 1677(5)(F) into conformity with its WTO
obligations;
– The United States should immediately revoke the sunset determinations in Cut-to-
Length Carbon Steel Plate from United Kingdom (C-412-815) (Case No. 8) and Cut-
to-Length Carbon Steel Plate from Germany (C-428-817) (Case No.10); and,
– The United States should immediately review or amend the remaining determinations
brought before the Panel in the present dispute. In doing so, it should apply in good
faith the findings of the Panel. If the privatization transactions which are the subject
of this dispute have taken place for fair market value and at arm's length, then no
more countervailing duties should be levied. In the event that the United States
should find that the privatization transactions are not at fair market value and arm's
length, the United States should determine that the subsidy amount is the difference
between the price actually paid and the fair market value.
94
3.4 In its first oral statement 95, the European Communities indicates that, in order to prevent
further dispute over this issue, the Panel should issue a clear and unambiguous explanation of the
correct interpretation of the relevant provisions of the SCM Agreement. The European Communities
also asks the Panel to consider making a suggestion on implementation to assist in resolving this
dispute and suggests that one possibility could be:
"The Panel suggests that the US abandon its "same-person methodology" and replace
it with another that involves (1) an examination of whether an exporter is in fact
benefiting from a financial contribution and (2) provides that a sale of a state-owned
company for fair market value and at arm's length means that the privatized company
cannot be considered to benefit from any prior financial contribution to the
State-owned company."

91 See EC's first written submission, para. 160.
92 See EC's first written submission, para. 16.
93 See EC's first written submission, para. 161.
94 See EC's first written submission, para. 57.
95 See EC's statement at the first substantive meeting, para. 64.

3.5 In its second written submission96, the European Communities respectfully requests that the
Panel to reach the findings contained in the European Communities first written submission, and to
adopt the suggestions on implementation which th e European Communities suggested in its first
written submission and in its opening statement to the Panel at the first substantive meeting. In its
second oral statement97, the European Communities asks the Panel to make the findings requested in
its first written submission, and to issue suggestions for implementation of its Report set out in the
conclusion to the oral statement of the European Communities to the first meeting of the Panel.
3.6 The United States requests that the Panel make the following findings:
– by not self-initiating reviews to reconsider change in ownership situations in light of
the Appellate Body's report in US – Lead and Bismuth II , the United States has not
acted inconsistently with its obligations under the SCM Agreement;
– the seven US Department of Commerce determinations (six investigations and one
administrative review (Case Nos. 1-7) are inconsistent with the United States'
obligations under the SCM Agreement only to the extent that US Department of
Commerce did not fully examine whether the pre- and post-change in ownership
entities involved were the same legal persons;
– the four US Department of Commerce sunset determinations (Case Nos. 8-11) are not
inconsistent with the United States' obligations under the SCM Agreement;
– the GOES from Italy administrative review (Case No. 12) is not inconsistent with the
United States' obligations under the SCM Agreement;
– the US change in ownership provision, Sect ion 1677(5)(F) is not inconsistent with the
United States' obligations under the SCM Agreement and the WTO Agreement; and
– the European Communities' claims regarding the expedited sunset review of the
countervailing duty order on cut-to-length steel plate from Sweden are not within the
Panel's terms of reference.98
IV. ARGUMENTS OF THE PARTIES
4.1 This Section includes a summary of the main arguments of the parties which are of relevance
to the findings of the Panel.
A. WTO-COMPATIBILITY OF THE UNITED STATES' SAME PERSON METHODOLOGY
4.2 The European Communities submits that the same person methodology is inconsistent with
the requirement under Article 1.1(b) of the SCM Agreement to determine the existence of a benefit to
the post-transaction entity before countervailing duties can be imposed. For that reason, any
countervailing duties imposed on the basis of this methodology will be inconsistent with Articles 1,
10, 14, 19.4 and either 19.1 or 21.1, 21.2 or 21.3 (depending whether a review or original
investigation is at issue).
99
4.3 The European Communities claims that, in applying the methodology, the US Department
of Commerce disregards the instructions set down in Article 14 of the SCM Agreement that any

96 See EC's second written submission, para. 83.
97 See EC's statement at the second substantive meeting, para. 20.
98 See US' first written submission, para. 99.
99 See EC's first written submission, para. 126.

benefit must be calculated with respect to the advantage obtained over what was available in the
market. It argues that the factors examined by the US Department of Commerce in determining
whether the firm under investigation is the same person as the pre-transaction subsidy recipient bear
no relation to the benefit analysis required under the SCM Agreement. The "same person
methodology", in not taking into account the price paid by the purchaser of the privatized company
and thus failing to analyse the existence of a benefit to the post-transaction entity, is inconsistent with
Articles 1.1(b), 10, 14, 19.4 and either 19.1 or 21.1 (depending on the circumstances) of the SCM
Agreement. Thus, it concludes, Case 12, Grain-Oriented Electrical Steel from Italy (C-475-812)
100,
based on the same person methodology involves the imposition of countervailing duties inconsistently
with Articles 1.1(b), 10, 14, 19.4, 21.1 and 21.2 of the SCM Agreement.101
1. Whether privatization triggers the need for a re-examination of the existence of benefit
4.4 The European Communities submits that privatization is a fundamental change in
ownership that a fortiori requires a new benefit analysis. It explains that since the government – or a
government body – is the owner of any state-owned company, all financial contributions of the State
towards a state-owned company must be assessed on the basis of the equity investor standard of
Article 14 of the SCM Agreement. This is because in terms of analysis, the European Communities
believes there is no meaningful distinction between an equity investment and other forms of financial
contribution, such as, for example a cash grant. Whether the government had provided money for the
purchase of a factory, or had injected capital, the result is the same; there is an increase in the value of
the equity held by the government. Thus, it argues, all subsidies granted by the government to a
state-owned company can be analysed on the basis of the private equity investor standard of
Article 14(a). The European Communities further argues that this is not the case for subsidies to
private companies, because the government may not have the choice as to the form its subsidization
might take; i.e. it may not have the option to purchase equity in the company. It explains that when
this equity is sold the basis for the original bene fit analysis changes, because the government's equity
interest will be re-valued on market terms and in fact repaid.
102
4.5 In its second written submission, the United States indicates that there has never been any
dispute before this Panel concerning the fact that a change in ownership triggers an obligation to
re-examine the existence of a subsidy.103 In the view of the United States however, their examination
(with regard to previously bestowed subsidies) is complete once an authority concludes that the
current producer is the same legal entity that rece ived the earlier financial contribution and benefit.
The United States, in the second substantive meeting, also disputed the European Communities' belief
that all subsidies granted by the government to a state-owned company can be analysed on the basis of
the private equity investor standard..
2. Who is the recipient of the benefit in case of privatization?
(a) Concept of benefit under the SCM Agreement
4.6 The European Communities points out that Article 1.1 of the SCM Agreement provides that
a subsidy will only exist if there is a financial contribution which confers a benefit. The European
Communities asserts that the findings by the Appellate Body in Canada – Measures Affecting the
Export of Civilian Aircraft (" Canada – Aircraft ") clearly state that the focus of the enquiry under
Article 1.1(b) is on the recipient, not the government granting the subsidy. 104 The European
Communities also refers to the Appellate Body decision in Canada – Aircraft to support its contention

100 GOES Admin. Review, supra, footnote 47.
101 See EC's first written submission, para. 132.
102 See EC's second written submission, para.26.
103 See US' second written submission, para. 11.
104 See EC's first written submission, para. 42.

that a benefit can only "be said to arise if a person, natural or legal, or a group of persons, has in fact
received something."105 The European Communities argues that the Appellate Body's interpretation
of Article 1.1 of the SCM Agreement in Canada – Aircraft makes it clear that the analysis of the
existence of a benefit should be on the value to the recipient, not on the cost to the granting authority.
4.7 The United States contends that the nature of countervailable benefits is made plain by
Articles 1 and 14 of the SCM Agreement. It explains that a countervailable benefit is that part of a
financial contribution that is obtained on terms more generous than those the recipient could have
obtained commercially. In its view, there is no requirement to analyse the competitive advantage
derived by the recipient from the benefit, or the extent to which the recipient succeeds in enjoying the
benefit since these concepts are not found in the SCM Agreement. Countervailable benefits are, in
essence, simply fixed sums of money, which (in the case of non-recurring benefits) are amortized over
time.106
4.8 The European Communities agrees with the United States that the benchmark for making a
calculation of the value of the benefit to the recipient is through comparison to the marketplace. The
European Communities refers to the text of the various provisions of Article 14 of the SCM
Agreement, which refer to "comparable commercial" practices.107
4.9 Where the European Communities differs with the United States is in the evaluation of the
effect of a change in ownership on the existence of a countervailable benefit. The European
Communities argues that any benefit, and hence any benefit stream from non-recurring subsidies,
must be viewed from the perspective of a natural or legal person. The benefit does not "attach" to the
productive assets. Thus, when the exported product is no longer produced by the same natural or
legal person as received the financial contribution and benefit, one must ask whether the current
producer also enjoys the same benefit stream.
108 This new benefit analysis must be made on the basis
of a comparison with a market benchmark in accordance with Article 14 of the SCM Agreement. In
US – Lead and Bismuth II the Appellate Body concluded that because UES and BS plc/BSES had
paid:
"fair market value for all the productive assets, goodwill, etc., they acquired from
BSC and subsequently used in the production of leaded bars imported into the United
States in 1994, 1995, and 1996. We, therefore see no error in the panel's conclusion
that, in the specific circumstances of this case, the "financial contribution" bestowed
on BSC between 1977 and 1986 could not be deemed to confer a "benefit" on UES
and BS plc/BSES."109
4.10 The United States maintains that, because countervailable benefits, once identified and
valued, are, essentially, amounts of money, the method by which they may be terminated is

105 Appellate Body Report, Canada – Measures Affecting th e Export of Civilian Aircraft ("Canada –
Aircraft"), WT/DS70/AB/R, adopted 20 August 1999, at para. 154, cited in EC's first written submission,
para. 42.
106 See US' second written submission, para. 4.
107 See EC's first written submission, para. 44. The European Communities specifically refers to
Article 14(d) of the SCM Agreement as a useful analogy for the present case. Article 14(d) states:
"the provision of goods by a government shall not be considered as conferring a benefit unless
the provision is made for less than adequate remuneration, or the purchase is made for more
than adequate remuneration. The adequacy of the remuneration shall be determined in
relation to prevailing market conditions for the good or service in question in the country of
provision or purchase (including price, quality, availability, marketability, transportation and
other conditions of purchase or sale)."
108 See EC's first written submission, para. 49.
109 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 68, cited in EC's first
written submission, para. 52.

straightforward — that amount of money is amortized over time, unless the recipient pays back the
remaining unamortized amount. The United States agrees that such a repayment could occur in
conjunction with a change in ownership and, under its new methodology, investigates any claim that
such a repayment has occurred (or that the subjec t merchandise is being produced by a different
person than the recipient). However, it adds, the SCM Agreement provides no basis for concluding
that a change in the ownership of a subsidy recipient, for fair market value or otherwise, automatically
eliminates the benefit conferred on the company. The United States argues that if a corporation has
received a subsidy — a financial contribution that confers a benefit — the simple transfer of that
corporation from one owner to another does not m ean that the corporation no longer has the subsidy.
Neither the financial contribution nor the benefit has changed, and the corporation is still the same
person.
110
4.11 The European Communities argues that since benefits do not reside in the assets themselves
a benefit does not continue to flow from untied, non-recurring financial contributions even after
changes of ownership. The European Communities believes that the only way to support a finding
that the benefit passes through to the new owners would be "if fair market value was not paid for all
such productive assets."111
4.12 The United States submits that the European Communities has not sufficiently explained
how "fair market value extinguishes subsidies" nor has it shown where there is any basis for this
conclusion in the SCM Agreement. 112 The United States maintains that the European Communities
has not sufficiently explained how and why the payment of fair market value by the new owner of the
subsidy recipient extracts the benefit from the subsidy recipient itself.113
4.13 The United States' reasoning is based on its interpretation of the Appellate Body's finding in
US – Lead and Bismuth II that subsidies are bestowed on legal persons. The United States believes
that this means that subsidies continue to reside in the recipient legal person unless they are taken out
of that person, or the person is dissolved.114
4.14 The European Communities disputes the United States notion that subsidies must be "taken
out" or "extracted" from a legal person. To the European Communities, it appears that the United
States is talking about the extraction of subsidization from productive operations – whether they be
workers with enhanced skills, or steel mills which have been built with the help of subsidies. The
United States points out that the workers remain the same after privatization, that the steel mills do
not change. The Appellate Body in United States – Lead and Bismuth II clearly found that subsidies
do not accrue to productive operations, but rather to legal persons. The European Communities relies
on the Appellate Body where it rejected the United States' view that benefit should be considered as
accruing to productive operations.
115:
4.15 The United States does not dispute that a change in ownership triggers an obligation to re-
examine the existence of a subsidy. 116 However, it maintains that its current methodology is
consistent with the SCM Agreement. Based on its understanding of the fact that subsidies reside in
the recipient legal person, the United States believes that what must be considered after a change in
ownership has occurred, is whether prior subsidies have been wholly or partly paid back, and whether

110 See US second written submission, para. 5.
111 Panel Report, United States – Imposition of Countervaili ng Duties on Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth II "),
WT/DS138/R and Corr. 2, adopted 7 June 2000 as upheld by the Appellate Body Report, at para. 6.81, cited in
EC's first written submission, para. 53.
112 See US' second written submission, para. 7.
113 See US' second written submission, para. 8.
114 See US' second written submission, para. 16.
115 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 58.
116 See US' second written submission, para. 11.

the change in ownership has created a new producer of the subject merchandise to which no portion of
any previously bestowed subsidies can be said to accrue. 117 Thus, the US Department of Commerce,
following a change in ownership, examines whethe r the current producer has a financial contribution
and a benefit, or whether in conjunction with the change in ownership the contribution or benefit has
been repaid or cut off.118
(b) United States' "distinct legal person" concept
4.16 The United States maintains that the US Department of Commerce's revised change in
ownership methodology, i.e. the same person methodology, is consistent with the SCM Agreement,
particularly as interpreted by the Appellate Body in United States – Lead and Bismuth II . In this
regard, the United States explains that, in its report, the Appellate Body agreed with the Panel (based
upon the Appellate Body's own findings in Canada – Aircraft) that a subsidy must be received by the
natural or legal person that produced or exported the subject merchandise. The United States alleges
that the Appellate Body also accepted the Panel's finding that the privatized company concerned,
UES, was a distinct new legal person entitled to an independent subsidy determination (which it had
not received from the US Department of Commer ce). In addition, it argues, because UES' new
owners had paid fair market value for UES, th e Appellate Body found no error in the Panel's
conclusion that the financial contributions bestowed upon BSC could not be deemed to confer a
benefit upon UES. In its view, although the Appellate Body accepted the Panel's conclusion that BSC
and UES were distinct legal persons, it did not adopt the Panel's reason for reaching this conclusion.
The United States explains that, whereas the Pa nel found that BSC and UES were distinct legal
persons purely because of the change in ownership, the Appellate Body simply stated that, given the
changes in ownership leading to the creation of UES, the US Department of Commerce was required
to determine whether UES, had itself received a financial contribution and benefit.
 119 The United
States further contends that the Appellate Body did not identify the specific factors dictating that UES
must be treated as a distinct legal person, and twice stated that its determination was based on "the
particular circumstances of this case."120
4.17 The United States points out that where the Panel emphasized that the changes in ownership
leading to the creation of new legal persons had involved the payment of consideration, the Appellate
Body simply stated that, given the creation of these new legal persons (who were, in fact the
producers of the subject merchandise) the US Department of Commerce was required to determine
whether these new legal persons had received a benefit. In its view, the notion that the Appellate
Body simply forgot to cite the payment of fair ma rket value as the reason that the prior subsidies did
not transfer to the newly-created companies is further contradicted by the fact that the payment of fair
market value was no minor issue – it was one of the EC's central arguments in the proceeding. The
United States considers that the Appellate Body did not address this issue explicitly because it
understood that the issue had not been fully explored or explained. The United States contends the
Appellate Body, having a narrower basis upon which to dispose of the appeal, therefore, did the
sensible thing – it decided the case on the narrower basis, without touching upon the more difficult
and ill-defined issue.
121
4.18 The European Communities contended that the principle whereby it is the change in
ownership which reverses the presumption that a benefit stream continues over the average life of the
assets, has been explicitly endorsed by the panel and Appellate Body in US – Lead and Bismuth II .122

117 See US' second written submission, paras. 15-16.
118 See US' second written submission, para. 11.
119 See US' first written submission, paras. 39-40.
120 See US' first written submission, para. 40 citing Appellate Body Report, US – Lead and Bismuth II,
121 See US' response to question No. 4 posed by the Panel.
122 See EC's second written submission, paras. 23 to 25.

For the European Communities, it is quite clear that the Appellate Body considers the change in
ownership the crucial factor bringing about the need to reconsider the continuing existence of the
benefit stream. The Appellate Body in the same paragraph also quotes approvingly the Panel's
statement that:
"the changes in ownership leading to the creation of UES and BS plc/BSES should
have caused the US Department of Commerce to examine whether the production of
leaded bars by UES and BS plc/BSES respectively, and not BSC, was subsidized." 123
(emphasis added)
4.19 The European Communities considers, therefore, that it was the change in ownership which
triggered the need to examine benefit from the perspective of the post-transaction entity. It considers
that this conclusion is reinforced by the fact that the Appellate Body repeated the factual findings of
the Panel that British Steel Corporation ceased to exist and British Steel plc was created before the
actual privatization transaction.
124 In other words, at that point, before the privatization had taken
place, the legal person exporting the product under investigation was different from the legal person
which had received a subsidy. 125 It argues that, if the United States were correct in its assertion, this
simple change in legal person would have been enough to trigger the need to revisit the subsidy
determination. Quite apart from the fact that such an assertion would leave the door wide open for
circumvention, this fact was clearly not considered dispositive by either the panel or Appellate Body.
The European Communities concludes that what was considered dispositive was the change in
ownership, as is evidenced by the clear references to this factual element in the findings of the Panel
and the Appellate Body.
4.20 The United States argues that the European Communities portrays the US Department of
Commerce as drawing its new privatization methodology on a blank slate following US – Lead and
Bismuth II (and Delverde III). In its view, however, the inquiry into whether the producer in question
is the same person that received the subsidy follows directly from the Appellate Body's conclusion
that the producer of the subject merchandise in that case (UES) was not the same person that received
the subsidy (BSC). The United States notes that the European Communities itself has accepted that,
"the Appellate Body agreed that where the change in ownership had lead to the creation of a different
legal person from the subsidy recipient any benefit must be assessed from the perspective of the post-
transaction entity."
126 The United States argues that the US Department of Commerce's new
approach simply inquires into the acknowledged premise of the Appellate Body report in US – Lead
and Bismuth II – whether the change in ownership has led to "the creation of a different legal person."
It contends that, where that basic premise is missing – that is, where a change in ownership has not led
to "the creation of a different legal person" – the Appellate Body's reasoning in US – Lead and
Bismuth II does not require US Department of Commerce to find that the subsidies were eliminated.127
4.21 The United States submits that a change in the ownership of a company does not
automatically create a distinct new legal person. It argues that the European Communities in GOES

123 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 62.
124 Ibid., at para. 2.
125 See EC's second written submission, para. 54 where the European Communities notes that during
the first substantive meeting with the Panel, the Unite d States stated that BSC and BS plc would probably be
regarded as the same person under the "same person methodology". The European Communities refers to US'
response to question No. 7 posed by the European Communities during the Panel proceedings, where the United
States refuses to explain whether BSC and BS plc co uld be regarded as the same person under its new
methodology. The European Communities believes that applying its new methodology US Department of
Commerce would find that BSC and BS plc were the same person and thus that subsidization passed through the
privatization.
126 See US' first written submission, para. 41 (quoting EC 's first written submission, para. 51 (emphasis
added)).
127 See US' first written submission, para. 42.

from Italy claims that the subsidy determination, which originally was conducted for the subsidy
recipient itself (AST), must, purely as a result of the change in ownership, now be conducted anew,
not for the subsidy recipient (still AST) but for the new owners of that recipient (KAI). It is as if,
suddenly, KAI, rather than AST, were the respondent company in the countervailing duty
investigation and the producer of the Italian steel products subject to investigation. The United States
notes that the European Communities itself has acknowledged that a subsidy "resides with the natural
or legal person which originally received the subsidy", not the owner of that person.128
4.22 The United States also submits that in US – Lead and Bismuth II , the Appellate Body found
that the presumption that benefits are allocated over time could never be irrebuttable, so that
administering authorities were required to demonstrate that the current producer received a benefit
under the SCM Agreement. 129 The United States believes that its new same person methodology is
entirely consistent with this finding. Under this new methodology, it explains that following a change
in ownership, the United States examines whether the current producer benefits from a subsidy, or
whether that change in ownership has either terminated the subsidy or created a new legal person
entitled to its own subsidy analysis.
130 To make this determination, the United States considers
evidence put forward by respondents that the fina ncial contribution has been repaid or withdrawn
and/or that the benefit no longer accrues.
4.23 The European Communities alleges that the United States intertwines its misinterpretation
of the SCM Agreement with a manipulation and dist ortion of various legal concepts under municipal
law. It considers that the assimilation of "ownership changes" to the entirely different concept of the
creation of "a new legal entity" is the basis for the United States' misunderstanding of the Appellate
Body Report in US – Lead and Bismuth II, which the United States claims is based on a finding of
"distinct legal persons". The European Communities maintains that the Appellate Body did not
equate the natural or legal person which receives a benefit with the exporting producer subject to
investigation.131 Neither the US – Lead and Bismuth II nor the Canada – Aircraft Appellate Body
reports addressed the issue of what is meant by "person". The European Communities explains that in
Canada – Aircraft the Appellate Body was asked what was the standard for the calculation of benefit
– was it cost to the government or benefit to the recipient 132; in US – Lead and Bismuth II , the Panel
and Appellate Body were examining the question of whether benefit could accrue to productive
assets. Thus, in the European Communities' view, neither report supports the United States' assertion
that the only natural or legal person relevant to an examination of subsidization is the exporting
producer. Thus, it concludes, the United States equation of "natural or legal person" and the exporting
producer under investigation is unwarranted. 133
(c) Corporate law principles in the interpretation and application of the SCM Agreement
(i) The relevance of the distinction between a company and its owners for the purposes of
assessing the benefit
4.24 The United States invokes corporate law principles to provide logical support for its use of a
"distinct legal person" test for its determination of the continuation of a countervailable benefit. The
United States contends that the distinction between owners and companies is real and may not be
ignored. The United States further submits that it has demonstrated (and the European Communities
does not dispute) that the distinction between companies and owners is fundamental in most

128 The United States refers to EC's first written submission, para. 12.
129 The United States refers to Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at
para. 62.
130 See US' second written submission, para. 16.
131 See EC's second written submission, paras. 31-35.
132 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at para. 154.
133 See EC's second written submission, paras.36-38.

jurisdictions, including the European Communities. In its view, given this fact, it is not possible to
interpret the SCM Agreement as if this distinction did not exist, or as if the WTO Members
disavowed it in drafting the SCM Agreement, withou t giving the slightest indication that they were
doing so. The United States contends that not only is the distinction between owners and companies
unavoidable, the Appellate Body has confirmed that subsidies are received by legal persons134, not the
owners of those persons or "economic entities." It further submits that the European Communities
itself has acknowledged that subsidies "reside" in the legal persons that receive them, not in their
owners or some all-encompassing "economic entity".135
4.25 The United States interprets the Appellate Body findings in US – Lead and Bismuth II that
subsidies are bestowed on legal persons as meaning that subsidies continue to reside in that person
unless they are taken out of that person, or the person is dissolved. The United States asserts that a
change in ownership, per se, does neither.136 The United States argues that the only obligation under
the SCM Agreement created by a change in ownership is that the investigating authorities should
inquire whether, in conjunction with the change in ownership, the subsidies have been paid back or
not transferred to the new producer of the subject merchandise (if one has been created). The United
States maintains that this position is entirely consistent with the Appellate Body Report in US – Lead
and Bismuth II.137
4.26 The European Communities argues that the United States' suggestion to the effect that a
distinction be drawn between the company produc ing the exported goods and its ownership is
contrary to the Panel findings in United States – Lead and Bismuth II. It recalls that the Panel found
that such a distinction "elevate[d] form over substance", and had been rejected itself by the US
Department of Commerce. 138 Moreover, the European Communities does not consider, for the
purpose of analysing the existence of subsidizati on, that a distinction between the company and its
owners is appropriate.139 The European Communities goes on to note140 that the distinction which the
United States attempts to make between the company and its owners, for the purposes of the
application of countervailing duties, is the cornerstone of the United States' argument. While the
European Communities accepts that a distinction can be drawn for general purposes of corporate or
commercial law, the distinction between owners and the company is not relevant for the imposition of
countervailing duties. It is the economic entity which is the subject of the benefit analysis, not simply
the exporting producer subject to investigation. This is the analysis used by the United States in
general. This analysis flows from the principle, one of the central principles of countervailing duty
law, that money is fungible.
4.27 The United States submits that the European Communities' assertion that no distinction can
be made between companies and their owners flouts the corporation laws of both the United States
and the European Communities, laws which have as their very cornerstone the concept that companies
are legal persons distinct from their owners. It further submits that, although the United States – Lead
and Bismuth II Panel arguably endorsed this position, the Appellate Body did not say that no
distinction could be drawn betw een companies and their owners.
141 The United States affirms that,

134 The United States refers to Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at
para. 58.
135 The United States refers to the EC's first written submission, para. 12; See US' second written
submission, paras. 13-14.
136 Ibid., para. 15.
138 See EC's first written submission, para. 62.
139 EC's response to question No. 9 posed by the Panel.
140 EC's second written submission, paras. 39 to 43.
141 The United States compares the Panel Report, US – Lead and Bismuth II, WT/DS138/R , at para.
6.82 with Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at paras. 62-64. The United
States contends that, at the same time, the Appellate Body did, in this context, confirm that: (1) an authority
may allocate subsidy benefits to particular post-bestowal years and countervail those benefits without analysing

even if one were to accept, arguendo, that a privatized company and its new owner must be
considered together, it is easy to see why, as a matter of economics, privatization does not extinguish
previously bestowed subsidies. What goes into the company initially (say a $3 billion subsidy) yields
an artificial competitive advantage. When the company is later sold (say, for $2 billion) what the new
owner/company parts with ($2 billion cash) is pr ecisely balanced by something worth $2 billion
coming in (stock – an expected earning stream with a net present value of $2 billion). It is no more
defensible to find extinguishment of the $3 billi on subsidy here than if the owner/company, after
receiving the $3 billion, pays the government $2 billion in exchange for $2 billion worth of coal. The
coal purchase, a fair market value transaction, obviously does not "repay" $2 billion of prior
government aid. Like the stock transaction, it is an exchange of value for equal value.142
4.28 The European Communities submits that the United States has attempted to suggest that
WTO Members did not decide silently to reject the company/owner distinction in the SCM
Agreement given that it is a central concept of corporate law. The European Communities, however,
believes that the truth is the opposite. In that regard, it explains that it has been well known for many
years, and broadly accepted by WTO Members, that subsidies granted to an owner may be attributed
to a subsidiary. It explains that the fact that a parent and wholly owned subsidiary may be considered
together was accepted by the Appellate Body when it assimilated BS plc and its subsidiary BSES in
the statement in its Report in US – Lead and Bismuth II. The European Communities further explains
that it has been the practice of the United States to treat parent and wholly-owned subsidiary as one
for countervailing duty purposes for a long period of time. In fact, it adds, the United States
concluded, when adopting the previous gamma methodology, that the distinction between owners and
the company was irrelevant for countervailing duties purposes.
143
4.29 The European Communities contends that, while methodologies might have changed, the
basic principles of countervailing duty laws under the SCM Agreement have not. It therefore
concludes that the United States has invented the centrality of its company/owner distinction only for
the purposes of its same person methodology since it did not apply to its previous change in
ownership methodology, nor does the United States currently apply this distinction when it is
attributing subsidies.144
4.30 The United States submits that, because the European Communities cannot explain how the
payment of fair market value by the new owner of a subsidized company extracts subsidies from that
company, it now asserts that the admitted distinction between owners and companies 145 should be
disregarded for the purpose of analysing the existence of subsidies because subsidies are received by
"economic entities."146 It argues that, although the European Communities has not explained just
what it means by "economic entity," the concept presumably is broad enough to encompass both
owners and companies — investors and producers. The United States submits that the European
Communities wants the Panel to embrace this new concept so that the Panel will treat money taken
out of an owner's pocket as having been taken out of the company, potentially eliminating subsidies
that reside in the company. If the subsidy is received by an "economic entity"(company/owner unit)

whether the recipient continues to enjoy a demonstrable co mpetitive advantage; and (2) the burden rests upon a
respondent in a countervailing duty proceeding to demonstrate in the context of a review, that such a subsidy has
been rescinded if it wishes to have its countervailing duties lifted or adjusted. Had any mere change in
ownership been adequate to satisfy this requirement, this entire discussion by the Appellate Body would have
been surplusage.
142 See US' first written submission, para. 68.
143 See EC's statement at the second substantive meeting, paras. 11-13.
144 See EC's statement at the second substantive meeting, paras. 14-16.
145 The United States refers to EC's response to question No. 11 posed by the United States during the
Panel proceedings.
146 The United States refers to EC's response to question No. 9 posed by the Panel, para. 13.

instead of the company, it may be repaid by th at same "economic entity" (company/owner unit),
instead of the owner.147
4.31 The European Communities considers that countervailing duties are applied without
reference to the corporate law distinction between owners and the company; this follows both from
the SCM Agreement and US practice. In support of this view, the European Communities quotes the
US Department of Commerce's statement in proceedings before the US Court of Appeals for the
Federal Circuit; in the case British Steel plc v United States as follows:
"The flaw in the lower court's analysis, plainly stated, is that the CVD law is not
based upon principles of corporate law or property law. [T]he CVD law imposes two
requirements before Commerce may countervail subsidies: (1) provision of a subsidy
with respect to the manufacture, production, or exportation of a class or kind of
merchandise; and (2) injury to the relevant US industry by imports of that class or
kind of merchandise".
148
(ii) Whether countervailing duties are comparable to liabilities for regulatory or tortious
(delictual) acts
4.32 The United States claims that its "same person methodology" is based on the principles of
corporate successorship.149 It argues that its same person methodology is the only approach consistent
with the principles of corporate successorship – principles of such long standing and so widely
accepted that the drafters of the SCM Agreement would never have abrogated them without clearly so
indicating. According to the United States there is nothing in the SCM Agreement which requires an
authority to treat potential countervailing duty liability differently from other potential regulatory
liabilities and tort liabilities. It also argues that there is no legal or economic distinction between
potential countervailing duty liability and other potential burdens on the earnings of a company whose
outstanding stock changes hands.
4.33 The European Communities disputes the relevance of the above concepts to countervailing
duty determinations. According to the European Communities, whereas regulatory and tortious
liability may vest at the time of the act, and liab ility for environmental damage arises as of the date
the action causing the damage was taken, liability for countervailing duties does not arise on the day
that the subsidy was granted, but only at the time of importation. Thus, it concludes, a company may
choose whether or not to export and thereby incur liability for countervailing duties.
150
4.34 The United States considers that the above argument reveals a thorough misunderstanding of
the nature of potential liabilities, i.e. potential burdens on a company's earnings stream. In its view,
once a company pollutes, the potential for envir onmental liability exists and may materialize if
someone sues. Alternatively, it explains, the company can take steps to cure the harm by voluntarily
undertaking a clean-up. Likewise, once a company receives an amortizable subsidy, the potential for
countervailing duties exists. The United States contends that that potential liability may materialize if
someone (an injured industry in an importing country) files a countervailing duty petition.
Alternatively, it adds, the company can take steps to cure the harm by voluntarily repaying the
subsidy or stopping its injurious exports. The United States submits that there is simply no basis for
the European Communities' extraordinary suggestio n that the normal rules of corporate law and
successorship cease to apply when the liability in question involves exposure to countervailing duties.

147 See US' second written submission, para. 12.
148 See, Brief for Defendant-Appellant, United States Court of Appeals for the Federal Circuit; British
Steel plc v United States, 23 October 1996, pages 21 and 22.
149 See US' first written submission, paras. 15-17, 72.
150 See EC's statement at the first substantive meeting, paras. 76-77.

It adds that the European Communities' argument is particularly vacuous with regard to Usinor, which
was actually subject to countervailing duty orders at the time of its privatization.151
4.35 In response to the Panel's question No. 6 on whether there are any international standards or
rules regarding the creation of a new legal entity further to a change in ownership, the United States
stated that corporate laws on successor liability (and on what kinds of ownership changes create a new
legal entity) are applied in a generally consistent manner although they have not been harmonized
internationally.
152
4.36 The European Communities considered, in its response to question No. 6, that the
determination of a change in ownership is largely a question of fact, to be determined in accordance
with applicable domestic law. It argues that is not aware of any relevant international rules on change
in ownership although it pointed out that Article XXVIII (n) of the General Agreement on Trade in
Services defines "ownership" and "control" for the purposes of determining which obligations are
owed under GATS.
153
4.37 The European Communities agrees that potential countervailing duties do act as a restriction
on an exporting producer. It explains that, if an exporting producer is aware that its products might be
subject to countervailing duties, an exporting producer might think twice about exporting to a country
imposing countervailing duties (such as the United States). However, it adds, as is beyond dispute,
simple subsidization is not enough to bring about the imposition of countervailing duties. Moreover,
it argues and as distinct from liability for damages caused by pollution, an exporting producer has a
choice whether to subject its products to countervailing duties since it can decide whether or not to
export. The European Communities explains that a countervailing duty is equivalent to customs
duties and submits that it is patently ridiculous to say that liability for customs duties is akin to
liability for environmental pollution, and that a corporate successorship test is applicable.
154
4.38 The United States claims that the European Communities argues that, because countervailing
duty liabilities do not operate in exactly the same manner as potential tort liabilities, they are not
potential liabilities at all. 155 The United States contends that the truth is that countervailing duty
exposure is very much like potential tort liabilities – they are both potential burdens upon the earnings
of the company that a prospective purchaser would take into account just as surely as it would take
account of potential tort liabilities. In any ev ent, it argues, the European Communities' attempt to
distinguish potential countervailing duty liabilities is not persuasive since both liabilities will become
actual only if injured parties in the affected country bring some kind of legal action. Moreover, the
United States affirms, just as a subsidized steel producer could avoid countervailing duties by
disgorging the subsidies or by ceasing to export to countries with countervailing duty orders, a
producer that has caused environmental damage in another country could well escape that potential
liability by repairing that damage or by ceasing certain operations in that country. Finally, it argues,
countervailing duties are very specific to the subsidized producer, i.e. the amount of the duty is
calculated by dividing the subsidy to that producer for the year in which the merchandise is produced
by that producer's total production during that year.
156
4.39 The European Communities considers the United States' example of environmental
pollution to be erroneous.157 In the example of tortious or delictual liability, liability attaches as of the
act causing the damage. The "potentiality" of the liability lies entirely in the hands of the person

151 See US' response to question No. 6 posed by the Panel.
152 Ibid., para. 21.
153 See EC's response to question No. 6 posed by the Panel.
154 See EC's second written submission, paras. 45-46.
155 The United States refers to EC's second written submission, paras. 44-46.
156 See US' statement at the second substantive meeting, paras. 31-33.
157 See EC's second written submission, para. 46.

suffering damages – they have the choice whether to sue. For countervailing duties, the potentiality is
entirely in the hands of the exporting producer; it has the choice whether to export, pay back the
subsidies or to request that an investigating authority properly examine whether it is receiving a
benefit.
(d) "Same person" versus "same activity"
4.40 The European Communities maintains that the designation given to the United States' new
change in ownership methodology, i.e. same person methodology is misleading. It states this because
it considers that the term "same person" is a disguise for "same activity". Thus, it argues, this
methodology, like the gamma methodology, treats as irrelevant the terms of the sale. In its view, this
methodology perpetuates the United States incorrect conception that benefit somehow resides in the
assets by examining, not whether the current producer has received any benefit, and hence a
countervailable subsidy, but rather whether the assets and business operations of the company can be
regarded as the same both before, and after, the transaction. The European Communities considers
that this presumption, which could only be rebutted if the post-transaction entity disposed of all of its
assets, and started production on another site, with another workforce, and under another brand name,
does not involve any examination of the existence of a countervailable benefit. It therefore concludes
that the same person methodology is, consequently, as WTO-inconsistent a presumption, as the
presumption the United States adopted in the gamma methodology. The European Communities
points out that, in determining the existence of a benefit, the US Department of Commerce treats as
irrelevant the nature of the transaction. US Department of Commerce is, in order to avoid such a
benefit examination, equating the word "person" with the notion of "productive assets". The
European Communities considers that the panel and Appellate Body
158 have already rejected the
notion that two entities might be the same person simply by virtue of their operations remaining the
same.159
4.41 In reference to the statement by the European Communities to the effect that the US
Department of Commerce's same person test is a "same activity" test, which can only be satisfied if
"the post-transaction entity disposed of all of its assets, and started production on another site, with
another workforce, and under another brand name,"
160 the United States considers that this is a
distortion of the US Department of Commerce's actual methodology, which is firmly grounded in
sound economics and in the principles of corporate successorship that apply in both the United States
and the European Communities. Under that test, it explains, one corporate entity may be considered
to be the successor of another if, in substance, it is the same person. As the US Department of
Commerce explained, the various factors that go into the determination of whether a nominally
different company should be treated, in substance, as the same person are just that – factors. The
United States claims that there is no basis for asserting that all of the factors must weigh in favour of
finding that a new corporate entity was created before such a finding may be made. The United States
contends that in US – Lead and Bismuth II , neither the Panel nor the A ppellate Body said that two
different companies cannot be treated as the same person "simply by virtue of their operations
remaining the same"
161, as claimed by the European Communities. The United States submits that,
faced with the very particular and complex facts of that case, the Panel simply stated (without
explanation) that it "had no doubt" that BSC and UES were different companies and the Appellate
Body merely stated that "given the changes of ownership leading to the creation of UES, the [US
Department of Commerce] was required …. to examine, on the basis of the information before it
relating to these changes, whether a "benefit" accrued to UES ... ." It concludes that there is no
indication that the Appellate Body would have required a new subsidy determination had it been

158 The European Communities refers to , Panel Report, US – Lead and Bismuth II, WT/DS138/R, at
para. 6.70 and Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 62.
159 See EC's first written submission, para. 125.
160 See US' first written submission, para. 74 (quoting EC's first written submission, para. 130).
161 The United States refers to EC's first written submission, para. 125.

confronted with a determination involving the ve ry same corporate entity accompanied by a fully-
developed record demonstrating the continuity of that legal person.162
4.42 The European Communities submits that there can be no doubt that it was the change in
ownership which the Appellate Body considered in US – Lead and Bismuth II , triggered the need to
examine anew the benefit analysis and that, by ignoring the change in ownership transaction, and
focusing on the existence of "same persons", the United States fails to make the benefit determination
which is required by Article 1 of the SCM Agreement. It simply assumes that the benefit passes
through the transaction, despite the fact that ther e has been a change in ownership recasting the
economic entity, and consideration has been paid for advantages previously received for free. The
European Communities considers that the factors examined, which focus on continuity of business
activities, do not involve an examination, in any form, of the existence of benefit to the post-
privatization entity, they ignore the change in ownership, and the payment of consideration. The
European Communities points out that the United States admits that it has never found a pre-
privatization and post-privatization entity to be different persons.
163 The European Communities
believes that the same person methodology focuses on continuity of business activities, including
maintenance of assets and liabilities, workforce etc, and is therefore no more than an extended and
enlarged focus on continuity of assets, which formed the core of the gamma methodology discredited
by the Appellate Body in US – Lead and Bismuth II and by the US Court of Appeals for the Federal
Circuit in Delverde III.
164
4.43 The United States asserts that it has not said that subsidies reside in assets. In fact, it argues,
it has repeatedly stressed quite the opposite, i.e. that subsidies reside in legal persons. The United
States explains that if a subsidy recipient simply transfers its productive assets to a different legal
person, the subsidies do not transfer to the person that buys the assets. The United States considers
that the European Communities' assertion is astonish ing in light of the United States' answer to the
European Communities' question 10 that "a sale of bare assets is treated differently from a stock sale.
Assuming that the assets are sold to a different person than the person that originally received
subsidies, the DOC will not find that the producer that operates the purchased assets is subject to
countervailing duties".
165
4.44 The European Communities argues that the use of the same person methodology shows that
the United States remains convinced that subsidies reside in productive assets. It considers that the
United States finds the methodology economically rational only because of its belief that a company
"pumped up" with subsidies cannot be "deflated". The European Communities submits that, even
accepting, for the sake of argument, the United States' contention that the Appellate Body based its
finding on the fact that the subsidy recipient and the exporting producer were distinct legal persons,
the same person methodology is still WTO-inconsistent. In this regard, it argues that there can be
little doubt that an application of the "same person methodology" to the British Steel privatization
would indeed find that the companies involved are the same person since all the factors which the
United States examines in its same person methodology are present. Thus, it concludes, even on the
United States' interpretation of the Panel and Appellate Body's reports, the same person methodology
would not be consistent with the WTO because it is not a methodology which can properly distinguish
between distinct legal persons.
166

162 See US' first written submission , para. 74.
163 The European Communities refers to the US' response to question No. 13 posed by the Panel.
164 The European Communities refers to the US' response to question No. 11 posed by the European
Communities during the Panel proceedings, para. 21.
165 See US' statement at the second substantive meeting, para. 22.
166 See EC's second written submission, paras. 54-55.

(e) European Communities' "economic entity" concept
4.45 In its second written submission, the European Communities refined its arguments by
developing the concept of an "economic entity" as the recipient of the benefit. In this regard, the
European Communities argues that the essential issue in this dispute is whether a change in ownership
at arm's length and for fair market value, such as a privatization, can bring into question the continued
relevance of a "benefit stream" presumed to exist as a result of a non-recurring subsidy. In the
European Communities' view, the concept of "benefit stream" is simply an expression of the
presumption that a non-recurring financial contribut ion provides a benefit over an extended period of
time. The European Communities considers that a total change in ownership (i.e. where control
passes from one entity to another) 167 must bring any benefit analysis based on the old group into
question for two reasons: first, the benefit must be examined from the perspective of the new
economic entity, and, second, what had been received for free has now been paid for.168
4.46 The European Communities maintains that the appropriate object of a benefit analysis is the
economic entity of which the producer of the goods in question forms a part. It explains that this may
be a large corporation with a very complex structure or be simply a single company and its controlling
owner. According to the European Communities , the economic entity is the object of analysis
because subsidies from throughout the economic entity may be attributed to the producer under
investigation, and because a subsidy provided to one part of the entity permits resources to be used for
other purposes in the economic entity; i.e. money is fungible.
169 The European Communities alleges
that this is explicitly permitted by the SCM Agreement and is the practice of investigating authorities,
specifically the United States, but also the European Communities and others. The European
Communities explains that, in the event of a change in ownership, this economic entity changes and
thus the "benefit stream" may no longer be presumed to continue.
170
4.47 According to the European Communities , the benefit must "accrue" to the exporting
producer. The European Communities explains that this follows from the principle that money is
fungible, i.e. that money granted to one part of an economic entity will free up resources for another
part of the economic entity. The European Communities further explains that no investigating
authority is required to impose countervailing duties on subsidies bestowed on parts of an economic
entity which are not responsible for the production of the products under investigation. However, the
European Communities adds, GATT Article VI.3 clearly envisages that it would be possible to
countervail such subsidies. It contends that this is also clear from the references in Article VI.3 to
subsidies which may be bestowed in both the coun try of origin or of exportation, and also the
possibility that a countervailable subsidy could be granted for the "transportation of a particular
product". The European Communities claims that this has also been recognized by the Appellate
Body in Canada – Aircraft where it stated: "Logically, a 'benefit' can only be said to arise if a person,
natural or legal, or a group of persons, has in fact received something."
171
4.48 The United States, in response to the above argument of the European Communities to the
effect that the distinction between owners and companies should be disregarded because money is
fungible within "economic entities," 172 concedes that, generally speaking, money is fungible.
However, it argues, fungibility operates only within groups of entities that may be collapsed and
treated as one. It submits that this does not include investors and producers. In its view, to treat
money as being fungible between investors and producers, for example, would imply that, if one of

167 Ibid., para. 3.
168 Ibid., para. 12.
169 See EC's second written submission, para. 29.
170 See EC's second written submission para. 12.
171 See Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, cited in EC's second written
submission, para. 15.
172 The United States refers to EC's second written submission, para. 13.

the Panel members were to buy shares of IBM, IBM's creditors could attach that Panel member's
assets to satisfy a debt of IBM. The fungibility of money does not extend this far.173
4.49 The United States maintains that the European Communities' new "economic entity"
approach suffers from two fundamental defects. First, as the Appellate Body has stated , the recipient
of a subsidy "must be a natural or legal person".174 The United States argues that, while the European
Communities has not explained what an "economic entity" is, it is clearly intended to be broader than
the legal person that received the subsidy. S econd, the "economic entity" approach leads to one
logical absurdity after another. According to the United States, the European Communities' new
economic entity approach results in a situation where: (i) a government gives a subsidy to an
"economic entity," consisting of both itself and the legal person to whom the subsidy was given;
(ii) the government then sells a portion of the "economic entity" (formerly known as the company) to
a new owner. This creates a new "economic entity" consisting of a portion of the pre-privatization
entity and the new owner
175; and (iii) when the new owner writes the check, it is distinct from the
legal person that received the subsidy (otherwise, the subsidy recipient would be buying itself from
itself). The instant the transaction is complete, however, the subsidy recipient is merged with the new
owner into a new post-transaction "economic entity," which has never received a subsidy.176
4.50 The European Communities argues that the existence of a subsidy is not, as the United
States claims, something that can be irrebutably presumed until it is demonstrably "extracted" from
the assets of the "legal person" in which the US Department of Commerce has deemed it to "reside".
It is something that has to be determined to exist in the light of all the circumstances. Since the actual
ownership of a company and the fact that it is government-owned are circumstances that influence the
existence of a subsidy, the European Communities argues, this needs to be re-assessed when these
circumstances change.
4.51 The United States considers that the European Communities has coined the new term
"economic entity" to obscure the simple fact that a privatization consists of a sale by a government of
a subsidy recipient to a new owner. It argues that the fact that the sale is not a sale of some other
entity is demonstrated by the price paid – the fair market value of the legal person that received the
subsidy; it is not the fair market value of some other, larger "economic entity." The United States
submits that calling the subsidy recipient different "economic entities" before and after the sale,
cannot change this simple fact: the legal person that received the subsidy does not necessarily change
simply as the result of the sale.
177
4.52 The European Communities submits that the United States itself explicitly uses the
economic entity approach. In this regard, they refer to § 351.525(b)(6) of the US Department of
Commerce's Countervailing Duties; Final Rule which sets out a number of methods for allocating
subsidies granted to one part of a group to other parts of the group. 178 The European Communities
contends that this allocation of subsidies depends on relationships of control; i.e. can one company
control the use of assets of the other. The European Communities argues that these principles become
entirely irrelevant where the United States insists on the need to analyse whether the "legal person"
before the privatization is the same as the "legal person" after the privatization. The European
Communities considers that, when ownership changes, the economic entity of which the exporting
producer formed a part cannot continue to be subject to countervailing measures on the same basis

173 See US statement at the second substantive meeting, para. 30.
174 See US statement at the second substantive meeting, para. 13 ( quoting the Appellate Body Report,
US – Lead and Bismuth II, WT/DS138/AB/R, at para. 58).
175 See US' statement at the second substantive meeting, para. 15 citing Exhibit US – 13 to the US'
statement at the second substantive meeting.
176 See US' statement at the second substantive meeting, paras. 13-15.
177 Ibid., para. 16.
178 The European Communities refers to Countervailing Duties; Final rule , 19 C.F.R. § 351 (1998).
Selected pages contained in Exhibit EC–32 to the EC's second written submission.

and that it must be determined, in an investigation, whether benefits which accrued to or were
attributed to the exporting producer under investigation, can still be attributed in the same manner.
The European Communities further notes that in its response to part (e) of its question 12, the United
States explains that if the parent company then acquired a new company, the United States could
impose countervailing duties on imports from that company as well, on the same basis as it had
attributed them, to pre-existing subsidiaries. Thus, the European Communities concludes that, for the
United States, the existence of ownership is relevant when it may wish to increase the possibilities of
imposing countervailing duties, but is not relevant when it might require a renewed examination of
the existence of subsidization.
179 In its view, the US Department of Commerce ignores the distinction
between companies and owners, so that, in effect, it applies an "economic entity" approach itself.180
4.53 The United States contends that the above statement by the European Communities is a gross
misstatement.181 It submits that an accurate description of the US Department of Commerce's practice
is that, as a general rule, the US Department of Commerce treats companies and owners as completely
distinct, but that it sometimes allocates subsidies to different producers within the same corporate
group. As regards the general rule, the US Department of Commerce does not allocate to producers,
subsidies that are given to investors; nor does it allocate to investors, subsidies that are given to
producers. It adds that the US Department of Commerce also necessarily distinguishes between
owners and companies each time it finds that a government has provided a subsidy to a government-
owned company – not to do so would be to imply that the government subsidized itself. As regards
the exceptions, the United States points out that the very existence of carefully crafted exceptions to
the rule that legal persons are treated as distinct entities itself demonstrates the existence of the
general rule. It explains that the most obvious exception is where subsidies are nominally granted to a
holding company that simply acts as a conduit for subsidies to one or more of its producing
subsidiaries.
182 If the subsidies were allocated strictly within the holding company, they would never
apply to the production in question, negating the remedy that countervailing duty regimes are intended
to provide. In spite of this, the United States indicates, the allocation of subsidies to the members of
the group does not imply that there is no distinction between the various legal persons – it implies
that, in giving the subsidy to the holding company, the government was making an indirect grant to
the various operating units.
183 The United States explains that where the US Department of
Commerce does allocate subsidies across the combined production of a closely related corporate
group, it is because the various members of that group are all engaged in production of similar
merchandise and essentially, function as one entity 184, or, if the firm that received an untied financial
contribution is a holding company, including a parent corporation with its own production, then the
US Department of Commerce would attribute the subsidy to the consolidated sales of the holding
company and its subsidiaries.
185 The United States clarifies that when there is an insufficient identity
of interests between the parent and the subsidiary to warrant treating the entities as one, the US
Department of Commerce follows its general rule and does not allocate subsidies to the entire
group.186
3. Whether the benefit passes through when the privatization transaction takes place for
fair market value and at arm's length
4.54 The European Communities maintains that where the change in ownership has taken place
for fair market value and at arm's length, the entity will not have any benefit and hence any subsidy.

179 See EC's second written submission, paras. 16-20.
180 Ibid.
181 The United States refers to the EC's second written submission, paras. 16-20.
182 Countervailing Duties; Final rule, 19 C.F.R. § 351.525(b)(6)(iii)
183 Countervailing Duties; Final rule, 19 C.F.R. § 351.525(b)(4).
184 Countervailing Duties; Final rule, 19 C.F.R. § 351.525(b)(6)(ii).
185 Countervailing Duties; Final rule, 19 C.F.R. § 351.525(b)(6)(iii).
186 See US' statement at the second substantive meeting, para. 29 citing Ferrosilicon From Venezuela ,
58 Fed. Reg. 27539, 27542 (Dep't Commerce 10 May 1993) (final countervailing duty determination).

Consequently, it argues, it is only if the company has received subsidies after the transaction (by
virtue of attribution), either through membership of a different economic entity or through a
privatization taking place at an undervalue that the exports of the post-transaction entity can be
subject to countervailing duties.187
4.55 The European Communities considers that these two concepts are also facets of the
economic entity analysis. In its view, a change in ownership transaction will not involve two different
economic entities, if the parties to the change in ownership transaction are not at arm's length. In a
similar sense, it adds, one would intuitively expect two different economic entities to negotiate, in
order to arrive at the fair market value of the object of sale. If a transaction did not take place at fair
market value then there must be a supposition that the two parties are related or are not at arm's
length.188
4.56 The European Communities argues that the concept of the economic entity is also relevant
for establishing whether value has been paid for that which had previously been received for free.
The European Communities argues that a subsidy of fered to a company also has an effect on the
owner of the company. In its view, rather than invest in the company, the owners' financial resources
are free for other investments. This is because money is fungible. The European Communities
explains that when a company is sold, the value wh ich the subsidies have brought is incorporated in
the value of the company. A new owner buying at fair market value will not have received a benefit,
because it has received nothing for free. That is, the economic entity which produces the goods after
the change in ownership has not received anything for free; rather all assets which it is in a position
to control have been fully paid for.189 The European Communities claims that its understanding that it
is the change in ownership which reverses the pres umption that a benefit stream continues over the
average life of the assets, has been explicitly endorsed by the panel and Appellate Body in US – Lead
and Bismuth II ..190 The European Communities claims that this conclusion is reinforced by the fact
that the Appellate Body repeated the factual findings of the panel that British Steel Corporation
ceased to exist and British Steel plc. was created before the actual privatization transaction. 191 I n
other words, the European Communities argues, at that point, before the privatization had taken place,
the legal person exporting the product under investigation was different from the legal person which
had received a subsidy.
192 Were the United States correct in its assertion, this simple change in legal
person would have been enough to trigger the need to revisit the subsidy determination. The
European Communities contends that this fact was clearly not considered dispositive by either the
Panel or Appellate Body. It submits that what was considered dispositive was the change in
ownership, as is evidenced by the clear references to this factual element in the findings of the Panel
and the Appellate Body.193
4.57 The European Communities explains that it has referred to the "pass through" of a benefit
rather than whether that benefit is "extinguished" or "survives" the privatization. It clarifies that this
is because a benefit does not necessarily simply "disappear"; it resides with the natural or legal person
which originally received the subsidy. In its view, a privatization transaction will only lead to the

187 See EC's second written submission, para. 27.
188 Ibid., para. 28.
189 See EC's second written submission, paras. 21-22.
190 The European Communities refers to Appellate Body Report, US – Lead and Bismuth II,
191 Ibid., at para. 2.
192 See EC's second written submission, para. 54 where the European Communities notes that during
the first substantive meeting with the Panel the United States stated that BSC and BS plc would probably be
regarded as the same person under the "same person methodology".
193 See EC's second written submission, paras.23-25.

"extinction" of a countervailable subsidy where the pre-transaction subsidy beneficiary no longer
exists.194
4.58 The United States maintains that the European Communities fails to explain how the
payment of fair market value for a company extracts a subsidy from that company. It submits that the
European Communities should admit that it has not made out even a prima facie case that a payment
for fair market value extracts subsidies from a company, and it should admit that the only
consequence of such a payment is that the purchasers themselves have not obtained a separate, new
benefit.
195 In reference to the European Communities' argument that the purchaser for fair market
value and at arm's length of previously subsidized production does not personally obtain any benefit,
the United States submits that there is no dispute about this proposition since all parties agree that new
owners who pay fair market value (for anything, including a subsidized company) personally obtain
no benefit. The new owners give equal value for what they obtain, and so do not personally receive
any benefit – their financial circumstances are unchanged. It further submits that there is no new
subsidy in such a case, since the purchasers simply become the owners of the entity or "person" in
which the subsidy has always resided, and continues to reside. The United States considers that what
the European Communities is really suggesting with this argument is that, somehow, when the new
owners pay fair market value for a company, not only they do not personally obtain a benefit, but the
benefit from any previous subsidies is somehow extracted from the company. The United States
considers that there are two problems with this approach: First, it is inconsistent with the European
Communities' main explanation that the "post privatization entity" is a new and distinct person from
the recipient of the subsidy. If that is so, then the original subsidy is not there to be extracted from the
"post-transaction" entity by its owners. Second, it argues, the European Communities' theory is based
on pure speculation since there is no basis whatsoever on either the record before the US Department
of Commerce or before this Panel, for assuming that AST's new owners will extract some extra
margin of profit from the company. The United States argues that prices are set by supply and
demand and, therefore, the new owners cannot simply increase the price of the goods; nor can they
simply increase production without further pushing prices downward. Put simply, no matter how
profit-minded they are, they can extract no more from the company than could the prior owners. It
mentions that this is particularly true in the steel industry, which is plagued with chronic overcapacity
that frustrates the efforts of even the most ravenous investor to realize a reasonable profit.
196
4.59 The United States claims that, since the Appellate Body found in US – Lead and Bismuth II
that subsidies are bestowed on legal persons (i.e., the company producing subject merchandise), these
continue to reside in that person unless they are taken out of that person, or the person is dissolved. It
submits that a change in ownership, per se, does neither. Accordingly, the United States requests that
the Panel find that changes in ownership of subsidized companies do not automatically extract the
subsidies from those companies, but that investigating authorities should simply inquire whether, in
conjunction with the change in ownership, the subsidie s have been paid back or not transferred to the
new producer of the subject merchandise.197
4.60 The European Communities argues that when the United States uses the word "extract", it
appears to be talking about the extraction of subsidization from productive operations – whether they
be workers with enhanced skills, or steel mills whic h have been built with the help of subsidies. In
the European Communities' view, the Appellate Body in US – Lead and Bismuth II clearly found that
subsidies do not accrue to productive operations, but rather to legal persons. 198 The European
Communities submits that the United States misrepresents and manipulates the Appellate Body

194 See EC's first written submission, para. 12.
195 See US' statement at the second substantive meeting, paras. 18-19.
196 See US' first written submission, paras. 53-56.
197 See US' second written submission para. 15.
198 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 58 (footnotes
omitted).

findings with its new same person methodology since an analysis of the factors used in this same
person methodology, shows that it is in reality an examination of continuation of productive
operations.199 The European Communities therefore considers that the focus on continuity of business
activities, including maintenance of assets and liabilit ies, workforce etc, is no more than an extended
and enlarged focus on continuity of assets, in which, it seems, the United States is convinced
subsidization resides
200. It argues that this is clearly contrary to the Appellate Body's findings firstly,
that a benefit is calculated with respect to a natural or legal person, and secondly, that a change in
ownership accomplished at fair market value and arm's length means no subsidization passes
through.201
B. US DEPARTMENT OF COMMERCE'S PRACTICE IN ADMINISTRATIVE REVIEWS
4.61 The European Communities does not challenge the procedures in administrative reviews in
Countervailing Duties on Imports of Certain Car bon Steel Products from Sweden (Case No. 7) or
Grain-Oriented Electrical Steel from Italy (C ase No. 12), but rather the methodology applied.
However, the European Communities points out a problem of circular logic in the US Department of
Commerce's practice whereby the appropriate venue for introducing evidence of a privatization as a
basis for a change in the countervailing duty is in an administrative review. The European
Communities contends that exporting companies often do not participate in the US Department of
Commerce's investigations because of the "prohibitive costs of co-operating and [the] awareness that
US Department of Commerce's applicable change in ownership methodology would mean that the
privatization would not be taken into account."
202 It also submits that in both Cut-to-Length Carbon
Steel Plate from Germany (Case No. 10) and Cut-to-Length Carbon Steel Plate from Spain (Case No.
11) the exporting producers were "precluded from asking it because the US Department of Commerce
prohibits the review of an order if a foreign manufacturer has made no shipments to the United States
during the relevant period of review."
203
4.62 The United States maintains that, with respect to each of the 12 measures the European
Communities has challenged, it has given each responding steel company, for each of the countries
and products involved, every opportunity to request an administrative review of the pertinent
countervailing duty order, where the jurisdictional grounds to do so exist as a matter of domestic
law.
204 The United States disputes the assertion by the European Communities that companies do not
participate because the process is lengthy and expens ive. The United States points out that three
European steel companies have requested reviews, one of which is completed and two of which are
ongoing. The United States feels that the European Communities' assertion is "pure speculation,
unsupported by evidence on any administrative record."205
C. OBLIGATIONS OF THE MEMBERS IN SUNSET REVIEW INVESTIGATIONS
4.63 The European Communities claims that the US Department of Commerce's practice as
regards sunset reviews is inconsistent with the SC M Agreement to the extent that the US Department
of Commerce fails to examine the existence of a benefit after a change in ownership on the basis that

199 See EC's statement at the second substantive meeting, paras. 8-9.
200 Although the United States does not explain why the same logic does not apply in the case of
bankruptcy, where the assets, workforce etc also remain essentially the same. See the US' response to question
No. 11 posed by the European Communities during the Panel proceedings, para. 21.
201 See EC's second written submission, para. 51.
202 See EC's first written submission, footnote 102 to para. 116.
203 See EC's first written submission, footnote 101 to para. 115.
204 See US' first written submission, para. 77.
205 See US' first written submission, footnote 84 to para. 77.

it is not required to take into account evidence befo re it, other than from the original investigation,
where there have been no administrative reviews since the original investigation.206
1. Scope of the obligations of Members under Article 21.3 of the SCM Agreement
4.64 The European Communities argues that Articles 21.1 and 21.3 of the SCM Agreement read
together clearly create a presumption that countervailing duties should be terminated five years after
the imposition of the original duty unless the investigating authority first initiates a review and
second, determines, in that review, that there is a likelihood of continuation or recurrence of
subsidization and injury. In its view, the general rule embodied in Article 21.1 is given concrete
expression in Article 21.3.
207 The European Communities contends that, because Article 21.1 of the
SCM Agreement requires a countervailing duty to be levied only for as long as, and to the extent
which injurious subsidization exists, Article 21.3 of the SCM Agreement must be interpreted as
requiring an investigating authority to examine the existence of subsidization, as part of its
determination of the likelihood of continuation or recurrence of subsidization.
4.65 The European Communities submits that an investigating authority cannot determine
whether there is a likelihood of continuation or recurrence of subsidization without considering
whether, and the extent to which, a benefit continues to accrue and that this requires it to carry out a
new, detailed investigation, in which it determines, on the basis of positive evidence, the likelihood of
continuation or recurrence.
208 The European Communities explains that in all four of the sunset
reviews included in this dispute, the US Department of Commerce based its decision to continue the
countervailing duty orders just on information from the original investigation. 209 In its view, the
investigating authority cannot simply presume such a likelihood just because certain interested parties
have not responded to a notice of initiation.210
4.66 The United States considers that an investigat ing authority need not revisit ex officio its
subsidy determination, in a sunset review under Arti cle 21.3 of the SCM Agreement. In its view, the
determination in a sunset review under Article 21.3 concerns future behaviour, i.e. the likelihood of
continuation or recurrence of subsidization _ not whether, or to what extent subsidization currently
exists. In its final results of the sunset review in Case No. 10, the US Department of Commerce stated
that:
"a sunset review is not the appropriate proceeding in which to examine a complicated
privatization transaction and to consider new privatization methodology. In light of
the complexity and fact-intensive nature of this issue, it is imperative that the issues
be fully developed on the record."211

206 While the European Communities considers that th e automatic self-initiation of sunset reviews by
the US Department of Commerce is inconsistent with the SCM Agreement , its arguments in the present dispute
are founded on the basis that the United States is levying countervailing duties without having determined the
existence of subsidization (and in particular benefit). This is so because the scope of the investigating
authority's duties under a sunset review procedure is the subject of parallel panel proceedings also initiated at
the request of the European Communities (WT/DS213 – United States – Corrosion-Resistant Carbon Steel Flat
Products from Germany). See EC's second written submission, paras. 62 and 66.
207 See EC's second written submission, paras. 63-65.
208See EC's second written submission, paras. 71-72.
209 Ibid., para. 76.
210 Ibid., paras. 71-72.
211 See, Issues and Decision Memorandum for the Sunset Reviews of the Countervailing Duty Orders
on Certain Corrosion-Resistant Carbon Steel Flat Products; Cold-Rolled Carbon Steel Flat Products; and Cut-
to-Length Carbon Steel Plate Products from Germany; Final Results, supra , footnote 62.

4.67 The United States points out that nothing in the SCM Agreement requires consideration of
the magnitude of subsidization in determining the likelihood of continuation or recurrence. 212
Furthermore, the United States considers that where there have been no administrative reviews of a
countervailing duty order, the only evidence which an investigating authority can take into account is
evidence from the original investigation. The United States submits that in the four sunset reviews
covered by this dispute, the US Department of Commerce was under no obligation, pursuant to
Article 21.3, to convert its sunset reviews into fu ll-blown administrative reviews of the respective
countervailing duty orders.
213
4.68 The European Communities disagrees with the United States' position. It contends that
administrative reviews, under Article 21.2 of the SCM Agreement are facultative; interested parties
may, or may not, choose to request reviews, and investigating authorities may, or may not, consider it
justified to initiate an investigation. Under Arti cle 21.2, it is for the interested party to provide
substantiated information, which the investigating authority is, according to the Appellate Body,
obliged to fully examine. The European Communities argues that, under Article 21.3, it is for the
investigating authority to make a determination of continuing injurious subsidization. In this regard,
it indicates that to premise examination of evidence in a determination under Article 21.3 on the
evidence having been examined in a review under Article 21.2 is a pure invention, not founded on any
provision of the SCM Agreement. The European Communities points out that the CIT reached the
same conclusion in the Dillinger case when it found that the US Department of Commerce is not
entitled to base its findings in sunset reviews only on evidence gathered in the initial investigation.
214
The CIT also pointed out to the US Department of Commerce that in the case of "extraordinarily
complicated" sunset reviews the Secretary of Commerce may extend the period for issuing final
results by up to 90 days.
215
2. Obligation of examination
4.69 For the European Communities , it is for the importing Member to re-examine whether
countervailing duties are still justified and considers this requires it to carry out a new, detailed
investigation, in which it determines, on the basis of positive evidence, the likelihood of continuation
or recurrence.
216 The European Communities contends that, if no existing subsidization can be
identified, an investigating authority must be under an obligation to adduce positive evidence
supporting its determination of the likelihood of recurring subsidization. It further indicates that, in a

212 See US' response to question No. 19 posed by the Panel.
213 See US' first written submission, para. 89.
214 Dillinger Court No. 00-09-00437, at.12–14, 18, 19. The CIT in Dillinger held that:
"even in an "expedited review based on the facts available," Commerce is to rely on
information from prior determinations as well as from submissions by the parties in the sunset
proceedings. . . It stands to reason, that, than in a "full review," Commerce must engage in
analysis that is at least somewhat more searching than simply continuing to apply the
countervailing duty rate determined in the original investigation for particular subsidies
without considering evidence proffered by the parties that would support making adjustments
thereto."
Dillinger, Court No. 00-09-00437, at 20-22. (Note that in the version attached as Exhibit EC–34 the quoted
material appears on page 14). See also EC's second written submission, para. 72.
215 The CIT also stated:
"If Commerce deemed the issues raised by the Plaintiffs to warrant a more thorough analysis
or more extensive fact gathering, it could have sought additional time, but did not do so.
Commerce cannot justify its decision not to addre ss the issues raised by the parties simply on
the basis that the issues arise in the context of a sunset review and the stringent time limits
involved, especially when Commerce does not ava il itself of the mechanisms provided for by
its own regulations."
Dillinger, Court No. 00-09-00437, at 63 (Note that in the version attached as Exhibit EC–34 the quoted material
appears on page 38).
216 See EC's second written submission, para. 76.

sunset review under Article 21.3, it is for the authorities to determine, and not for the respondent to
disprove, that there is a likelihood of continuation or recurrence. 217 The European Communities
submits that the fact that in three of the review s the exporting producers did not respond to the notice
of initiation, cannot be used by the United States as an excuse for reversing the burden of proof in a
sunset review. The investigating authority cannot just simply presume that there is a likelihood of
continuation or recurrence of injurious subsidization because certain interested parties have not
responded to a notice of initiation. According to the European Communities, this reversal of the
burden of proof is inconsistent with Article 21.3 of the SCM Agreement.
218
4.70 The United States contests the nature of the sunset review obligation. The United States
feels, that absent an administrative review, the only evidence it is required to evaluate in order to
determine the likelihood of continuation or recurrence of the countervailable subsidies is that
contained in the original investigation. The United States maintains, insofar as benefits streams from
amortizable subsidies addressed in the original investigation are concerned, that sunset reviews are
not the appropriate place to evaluate new evidence.
4.71 The European Communities points to the CIT ruling in Dillinger where the Court held that:
"The statute, however, does not charge any interested party with the ultimate burden
of persuasion, or otherwise create a presumption that a countervailable subsidy is or
is not likely to continue or recur if the order is revoked. …. Because there is no
presumption as to the likelihood of continuation or recurrence it follows that there is
no presumption that the countervailable subsidies will continue at the specific rate
determined in the original investigation."
219
4.72 The European Communities submits that the United States, through its practice of limiting
evidence in sunset reviews, absent an administrative review, to the evidence in the original
investigation, has created an irrebuttable presumption of continuation or recurrence at the specific rate
determined in the original investigation.
D. ARGUMENTS RELATING TO THE WTO C OMPATIBILITY OF SECTION 771(5)(F) OF THE US
TARIFF ACT OF 1930, AS AMENDED, (19 U.S.C. 1677(5)(F))
4.73 The European Communities maintains that Section 1677(5)(F) prevents the US Department
of Commerce from adopting the principle laid down in the SCM Agreement, and confirmed by the
Panel and Appellate Body in US – Lead and Bismuth II, that a benefit must be assessed with respect
to the market benchmark and that consequently a fair market value, arm's-length transaction means
that any pre-transaction benefit stream is not enjoyed by the post-transaction entity. The European
Communities considers that Section 1677(5)(F) is thus inconsistent with Articles 1.1(b), 10, 14 and
32.5 of the SCM Agreement in addition to Article XVI.4 of the WTO Agreement.220
4.74 For the European Communities , Section 771(5)(F) of the Tariff Act 1930, as amended,
(19 U.S.C. Section 1677(5)(F)) (hereinafter Section 1677(5)(F)), as interpreted by the US Court of
Appeals for the Federal Circuit, prevents the United States recognizzing the principle that an arm's
length, fair market value transaction does not pass through any benefits from pre-transaction financial
contributions to the post-transaction entity. The European Communities is of the view that, Section
1677(5)(F) was specifically designed to prevent the US Department of Commerce applying a "rule"
that a benefit stream does not survive a fair market value, arm's-length transaction. The European

217 See EC's second written submission, paras. 70 and 72.
218 See EC's second written submission, para. 76.
219 Dillinger, Court No. 00-09-00437, at 16 (Note that in the version attached as Exhibit EC–34 the
quoted material appears on pages 11 and 12).
220 See EC's first written submission, para. 139.

Communities argues that the wording and legislative history of Section 1677(5)(F) and the intent to
overrule the identical principle as developed by the CIT in the Saarstahl I decision, prove that it was
designed so as to ensure that in situations of fa ir market value change in ownership, benefits of the
subsidies are never considered not to have been passed to the new owner. 221 It quotes the US
Department of Commerce in its findings in the Court remand redetermination in the Delverde case:
"Section 771(5)(F) only acts to preserve the ability of the Department to exercise its
discretion, and it accomplishes this goal by overturning the approach ordered in
Saarstahl I, which had mandated that the Department find that an arm's-length
transaction, in and of itself, precludes any pass-through to the purchaser."222
4.75 The United States contends that Section 1677(5)(F) does not mandate an either/or approach
to the question of whether pre-privatization subsidies benefit a post-privatization entity. 223 O n t h e
contrary, it argues, the plain language of Section 1677(5)(F) demonstrates its discretionary nature. In
this regard, the United States contends that the text of Section 1677(5)(F) clearly provides that a
change in ownership does not by itself means that a past countervailable subsidy is no longer
countervailable, nor does it mean that it is countervailable. The United States argues that the statute
leaves the investigating authority discretion to make its decision.
 It further argues that the Statement
of Administrative Action ("SAA") also supports the view that Section 1677(5)(F) is discretionary and
not mandatory. In this regard, the SAA states that the purpose of Section 1677(5)(F) is to clarify that
"the sale of a firm at arm's length does not automatically, and in all cases, extinguish any prior
subsidies conferred", and that it is the Administration's intent that "Commerce retains the discretion to
determine whether, and to what extent ... previously conferred countervailable subsidies" are
eliminated,
224
4.76 The European Communities alleges that it is unable to determine whether the US
Department of Commerce requires this discretion as a finder of fact – to determine whether a
transaction has taken place at fair market value and arm's length, or whether the US Department of
Commerce requires this discretion to allow it to determine that, even after a fair market value, arm's-
length transaction, the "benefit stream" from pre-transaction non-recurring subsidization might
continue to flow. The European Communities indicate that it can accept that a privatization
transaction is often very complex and might require detailed examination. However, the European
Communities cannot accept that an investigating authority might require discretion to determine that
benefit from pre-transaction subsidization passes through an arm's length, fair market value
transaction. In the view of the European Communities, such discretion would clearly be inconsistent
with Article 1.1 of the SCM Agreement which requires the existence of benefit for subsidization to be
found and countervailing duties imposed, and permits no exception.
225
4.77 In its response to question No. 18 from the European Communities, the United States
indicates that if an evaluation of all the facts and circumstances of a particular privatization or a
change in ownership warrants a finding that as a result of an arm's length, fair market value
privatization, the post-sale company does not enjoy a benefit from past subsidies, then such a finding
can be made. In the United States' view, there is nothing in the language of the change in ownership
provision, or in the legislative history of that provision which would prevent the US Department of
Commerce from making such a finding.

221 See EC's first written submission, para. 157.
222 Final Results of Redetermination pursuant to Court Remand, Delverde Srl. v United States Consol.
Ct. No. 96-08-01997 (Ct. Int'l Trade 2 December 1997), at 33. Exhibit EC–28 to the EC's first written
submission (Note that in the version of this Remand Redetermination supplied to the Panel, the quoted text can
be found on page 16.)
223 See US' first written submission, para. 91.
224 See US' first written submission, paras. 94-96.
225 See EC's second written submission, para. 79.

4.78 The European Communities interprets the above statement as meaning that the United
States is saying that, even if the "legal person" after the transaction is not a different "legal person"
from the subsidy recipient under its "same person methodology", Section 1677(5)(F) would allow the
US Department of Commerce to find that where it had determined, as a matter of fact, that the change
in ownership had taken place at arm's length and for fair market value, it could conclude that no
benefit passes through. The European Communities however claims that the United States has not
explained whether the US Department of Commerce could apply the logic of this statement to every
change in ownership transaction with which it is faced, issue methodology setting out this intention,
and still act consistently with Section 1677(5)(F).
226
V. ARGUMENTS OF THE THIRD PARTIES
5.1 From the three third-parties to this proceeding, i.e. Brazil, India and Mexico, only Brazil filed
its comments within the 28 January 2002 deadline. Brazil and Mexico presented oral statements
during the third-party session. India reserved its rights to participate as a third-party in eventual
appeal proceedings.
A. B
RAZIL
1. Arguments relating to the United States change in ownership methodology
(a) The existence of a benefit in the post-privatization entity
5.2 Brazil argues that the existence and value of countervailable benefits can change as a result of
events that occur after the initial financial contribution. Brazil also notes that in US – Lead and
Bismuth II the Appellate Body determined that a change in ownership necessarily triggers an
examination of whether a benefit received prior to the change in ownership continues to benefit the
new owners. The Appellate Body also concluded in US – Lead and Bismuth II that whether a
financial contribution confers a benefit depends on "whether the recipient has received a financial
contribution on terms more favourable than those available to the recipient in the market." 227 Brazil
contends that under the United States' same pe rson methodology, the price paid by the new post-
privatization owners is irrelevant to the determination of whether the post-privatization entity
continues to enjoy the benefits of the pre-privatization subsidies. Brazil contends that this is contrary
to the finding in US – Lead and Bismuth II, which made clear that the essential determination of
whether a post-privatization entity continues to enjoy the benefits of the pre-privatization entity is
whether or not the new owners paid fair market value in the transaction transferring ownership.
Brazil maintains that theUnited States' same person methodology does not address the issue of
whether the transaction transferring ownership was at fair market value, but rather only inquires
whether the pre-privatization and post-privatization entities are the same. While Brazil concedes that
the Panel and the Appellate Body in US – Lead and Bismuth II found there must be a "recipient" of a
subsidy benefit and, therefore, that subsidy benefits can only reside in natural or legal persons, it
argues that this finding "does not mean either that subsidy benefits cannot be transferred from one
legal entity to another or that the entity originally receiving the subsidy retains the benefit for as long
as it remains the same legal entity."
228 Rather, Brazil interprets US – Lead and Bismuth II to mean
that the relevant question is not whether the entity originally receiving the subsidy is the same legal
person as the post-privatization entity, but whether the "benefit" has been transferred in the sale to
new owners. Thus, Brazil argues that the central issue to be examined according to US – Lead and
Bismuth II is the nature of the transaction transferring ownership.

226 See EC's second written submission, para. 81.
227 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 67, citing Appellate
Body Report, Canada – Aircraft, WT/DS70/AB/R.
228 Brazil's statement at the first substantive meeting, para. 11.

(b) Determination of countervailability under Article 14 of the SCM Agreement
5.3 Brazil argues that a financial contribution can only confer a countervailable "benefit" if the
financial contribution received is "on terms that are more favorable to the recipient than the terms
available in the market." 229 Brazil also contends that such contributions only remain countervailable
so long as they are provided on terms more favorable than those available in the market. Brazil
maintains that Article 14 of the SCM Agreement makes clear that the "existence and magnitude of
countervailable subsidies are always determined by reference to "commercial" or "market" criteria"
230
and that the same criteria apply in determining the existence of "benefits" from the provision of
capital.
5.4 Brazil argues that "countervailable subsidies can change over time, both in terms of their
existence and their magnitude."
231 Brazil holds that market factors are the criteria for determining
whether provisions of capital, such as loans and equity are financial contributions that confer a
subsidy benefit. For a loan, Brazil contends that the measure is whether the interest charged for the
loan capital is consistent with the interest charged in the market; for equity, the measure is whether
the equity is valued properly based on the expectations that the recipient entity will generate adequate
returns. Brazil argues that the existence of a benefit is based on the terms on which the capital is
provided and will change if those terms change.
5.5 Citing Article 14(a) of the SCM Agreement, Brazil states that equity capital can be a
financial contribution which confers a benefit only if the provision of that equity capital is on terms
"inconsistent with the usual investment practice of private investors." Brazil argues that in a financial
contribution to an non equity-worthy recipient on terms inconsistent with usual investment practices
of private investors ceases to be a countervailable benefit when the capital is no longer available on
terms inconsistent with usual investment practices of private investors. Therefore, Brazil concludes
that in the case of equity, the transaction governing the sale of equity is the key event which must be
analysed to determine whether or not the equity, continues to be provided on terms inconsistent with
market terms. Brazil contends that the United States' methodology ignores the question of whether
there are changes to the terms of capital provision resulting from a sale of the equity. Brazil
maintains that once the equity has been transferred to a private party in an arm's-length transaction at
market value, the expectation (and, therefore, the terms of its provision) is that the equity will
maintain or increase in value and earn a return for the investors or the company will no longer be able
to raise equity capital.
(c) Resource misallocation and countervailing duties
5.6 Brazil believes that the true objective of the United States' same person methodology is to
ensure that events which take place after the initial financial contribution are not allowed to affect the
ability of the United States to impose countervailing duties on the original financial contribution and
the benefits conferred by that original financial contribution. Brazil notes that the United States
argues that even if an arm's-length transaction does not confer a benefit to the new owners and the
new company, a market distortion remains and must be redressed. Brazil argues that the logic of the
United States' argument is that any methodology that does not allow Members to address the
supposed macroeconomic effects of a subsidy, is not consistent with the object and purpose of the
SCM Agreement. However, Brazil notes that the SCM Agreement does not provide Members with a
broad-based authorization to redress all actions that the Member feels distort the market. Brazil
contends that the SCM Agreement requires a financial contribution which confers a benefit as a
condition for imposing countervailing duties, nothing more, nothing less.

229 Brazil refers to the citation of the Panel Report in Canada – Aircraft by the Appellate Body in US –
Lead and Bismuth II, WT/DS138/AB/R, at para. 67.
230 Brazil's statement at the first substantive meeting, para. 12.
231 Ibid., at para. 14.

2. Arguments relating to Section 1677(5)(F)
5.7 Brazil contends that the United States law prevents the adoption of a methodology to
determine the existence of post-privatization benefits which would be consistent with the Panel and
Appellate Body reports in US – Lead and Bismuth II . Brazil argues that Section 1677(5)(F) renders
the consideration of whether the transfer in ownership was an arm's-length transaction at fair market
value irrelevant to the determination of whethe r the new owners continued to enjoy the subsidy
benefit. As an illustration, Brazil claims that not a single factor in the "totality of circumstances" test
applied in the United States' same person methodolo gy looks at whether the transaction is an arm's-
length transaction for fair market value. While Brazil recognizes that under the new methodology, the
benefits are no longer determined to adhere only to the physical assets of the privatized entity, one of
the rationales for the gamma methodology which led to the Panel and Appellate Body rejection of that
methodology in US – Lead and Bismuth II, they now adhere, in effect, to a more broadly defined set
of assets which include the name, the personnel, the customers, the management, and the business
relationships of the entity. Thus, the new same person methodology is only a variation of the rejected
gamma methodology and still fails to consider the effects of a change in ownership as required by US
– Lead and Bismuth II.
5.8 Brazil believes that, in light of the United States' failure to implement the US – Lead and
Bismuth II determinations, the Panel should, in addition to finding that the United States actions
inconsistent with its WTO obligations, suggest how the substantive standard addressing privatization
should be implemented and that the United States should initiate and conduct reviews of all existing
countervailing measures.
B. M
EXICO
1. Arguments relating to the United States change in ownership methodology
5.9 Mexico submits that the revised US Department of Commerce same person methodology is
used by the United States in its latest attempt to continue applying countervailing duties on goods
produced by privatized firms, while avoiding the determination of whether a previously bestowed
subsidy continues to confer a benefit. Mexico claims that the SCM Agreement and the GATT 1994
require two essential prerequisites to be fulfilled for the imposition of countervailing duties, as was
made clear in US – Lead and Bismuth II, which is a direct precedent for this dispute. First,
demonstration of the existence of a subsidy is required. In accordance with Articles 19.1, 19.4 and 21
of the SCM Agreement and Article VI:3 of the GATT 1994, an investigating authority may not
impose or maintain countervailing duties on an imported product without determining the existence of
a subsidy bestowed, directly or indirectly, upon the manufacture, production or export of any
merchandise. Second, determination of the existence of a "benefit" by reference to a market
benchmark. As shown by the Panels and the Appellate Body in Canada – Aircraft
232 and US – Lead
and Bismuth II 233 , a "benefit" is determined by reference to the terms on which a "financial
contribution" would have been made available to the recipient in the marketplace. In addition, in
accordance with Article 1.1 (and Article 21) of the SCM Agreement, "the investigating authority must
establish the existence of a 'financial contribut ion' and 'benefit' during the relevant period of
investigation or review".
5.10 Mexico submits that the US Department of Commerce same person methodology is
inconsistent with the United States' obligations as a WTO Member. Under the new US Department of

232 See Panel Report, Canada – Measures Affecting th e Export of Civilian Aircraft ("Canada –
Aircraft"), WT/DS70/R, adopted 20 August 1999 as upheld by Appellate Body Report, Canada – Aircraft,
WT/DS70/AB/R, at para. 9.112; and Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at paras. 154,
157.
233 See Panel Report, US – Lead and Bismuth II, WT/DS138/R, at para. 6.66 (including footnote 78).

Commerce methodology, if the privatized compan y has been determined as remaining the same
person as the firm on which the subsidy was originally bestowed, it is unduly assumed t h a t t h e
benefit conferred by that subsidy has passed through to that company. Mexico contends that such an
assumption, without a concrete determination on the continued existence of a benefit, cannot be
regarded as valid under the SCM Agreement as interpreted in US – Lead and Bismuth II. Moreover,
the same person methodology, like US Department of Commerce preceding methodologies, is entirely
unrelated to the market benchmarks referred to by the panels and the Appellate Body, since according
to the US Department of Commerce criteria, practically any privatized company would be found to be
the same person. Mexico argues that under no economic logic would it be reasonable to expect that a
private investor who buys a public enterprise ( e.g. a steel company), to have to change its name,
facilities, line of production, customers, etc. and to fire hundreds of qualified workers, just to avoid
the imposition of antidumping duties. In this context, Mexico contends that this US Department of
Commerce criteria used to assume the transfer of the subsidies granted prior to the privatization, may
respond to the United States' corporate law principles, but not to the United States' obligations as a
WTO Member to make an adequate determination of the continued existence of a "benefit" by
reference to a market benchmark, and hence, due demonstration that a countervailable subsidy has
been bestowed, directly or indirectly, on the production of goods by the privatized company.
5.11 Mexico contends that, in the case of a change in ownership involving the payment of
consideration, a distinction must be drawn betwee n the pre-privatization company that originally
received the subsidy and the post-privatization enti ty, for the purpose of reviewing continuity of the
benefit conferred by a subsidy. Mexico claims that this has also been recognized by the Panel in US –
Lead and Bismuth II.
234 According to Mexico, it is the change in ownership and the ensuing payment
of consideration for the productive assets that calls for a new determination of benefit conferred by a
subsidy. Thus, Mexico considers that the SCM disciplines do not release the United States from the
obligation to determine the continued existence of a benefit to a privatized company, on the sole
grounds that it deems the new firm to be "not distinct" from the original firm. Thus, Mexico contends
that the same person methodology and the investigations and reviews based on that methodology are
not consistent with Article VI:3 of the GATT 1994 and Articles 14, 19.1, 19.4 and 21 of the SCM
Agreement.
2. Arguments relating to Section 1677(5)(F)
5.12 Mexico maintains that a concrete determination of the continued existence of a benefit is
necessary in all cases involving a change in ownership accomplished through an arm's-length
transaction. A change in ownership through an arm's- length transaction is an event of such relevance
as to require, by itself, a concrete finding regarding the continuation of the benefit conferred by the
subsidy granted to the privatized firm before the privatization. Mexico claims that Section 1677(5)(F)
directly contravenes this requirement, since it clea rly fails to stipulate the need for such a benefit
determination. Therefore, this Section violates the United States' obligations under Articles 1, 10, 19,
21 and 32.5 of the SCM Agreement and Article XVI:4 of the WTO Agreement.
VI. INTERIM REVIEW
235
6.1 On 8 April 2002, pursuant to Article 15.1 of the DSU, the Panel issued the draft descriptive
part of its Report. As agreed, on 18 April 2002 both parties commented on the draft descriptive part.
The Panel issued its Interim Report on 13 May 2002. On 27 May 2002, pursuant to Article 15.2 of
the DSU, the United States and the European Communities provided comments and requested the
revision and clarification of certain aspects of the Interim Report. None of the parties requested that

234 See Panel Report US – Lead and Bismuth II, WT/DS138/R, at para. 6.70.
235 Pursuant to Article 15.3 of the DSU, "The findings of the final panel report shall include a
discussion of the arguments made at the interim review stage". The following section entitled "interim review"
therefore forms part of the findings.

the Panel hold a further meeting with the parties. In the absence of a meeting and further to
paragraph 16 of the Panel's Working Procedures236, the parties were given until 5 June 2002 to submit
further written comments on the other party's Interim Review's comments. Both parties filed further
comments on that date.
6.2 Following the comments of the parties, the Panel has reviewed the claims, arguments and
evidence submitted by the parties during the panel process. Where it considered it appropriate to
ensure clarity and avoid misunderstandings, the Panel revised its findings, including the correction of
typographical and editorial mistakes. The Panel has addressed the following concerns raised by the
parties.
6.3 Generally, the United States' allegations concern the factual description of the Panel Report.
The United States makes a point of repeating that the Panel did not include several of its 18 April
requests to amend the descriptive part of the Panel Report. The United States' comments seem to
want to give the impression that the Panel intentionally, or without due diligence, refused to accept or
refer to evidence or arguments that the United States submitted to the Panel during the panel process.
Before it addresses any specific allegation, the Panel notes that most of the United States' requests and
comments made in its 18 April communication were accepted by the Panel and were reflected in the
Interim Report. In its 18 April comments, the United States often did not point to submissions or
communications where the concerned factual or lega l allegations could be located. The Panel notes,
however, that the present dispute is generally not concerned with factual matters but rather with the
legal consequences of privatizations, which occurred in all 12 cases before it. This is the factual basis
upon which the Panel's findings and conclusions are made. Nonetheless, where factual allegations
were made by the European Communities, it was for the United States to refute them.
237 On occasion,
the Panel has explicitly invited the United States to comment on the European Communities'
description of the twelve determinations 238; the United States did not respond fully to the Panel's
questions. However, because it wants to take into account the United States' concerns to the extent
permitted by WTO law, the Panel has reviewed the record for the facts that the United States requests
be added to the descriptive part of the Panel Report. To the extent possible, and with a view to favour
transparency of the circumstances of those cases, the Panel has revised some of the paragraphs of the
Panel Report to include references to data contained in the actual 12 determinations submitted by the
European Communities as exhibits. As noted later, these additional factual data, are not necessarily
relevant to the limited terms of reference of this Panel, including those relating to allocation and
attribution of subsidies. In all cases, the Panel has refused to amend the descriptive part of its Report
where it would involve the introduction of new evidence or new arguments not submitted during the
panel process.
6.4 The United States makes some general remarks regarding what it considers as "errors of
particular significance"; namely: (1) "that the Panel considers that all sizable subsidies at issue in the
challenged cases were pre-privatization subsidies (some were not); (2) "that in all cases disregarding
the pre-privatization subsidies would have left only a de minimis benefit (for several cases this is not
true)"; (3) " that all of the privatizations were full privatizations (some were not) "; (4) " that all of
them at issue occurred at fair market value (som e likely did not and others have not been sufficiently

236 Paragraph 16 of the Panel's Working Procedures reads as follows: "Following issuance of the
interim report, the parties shall have no less than 7 days to submit written requests to review precise aspects of
the interim report and to request a further meeting with the Panel. The right to request such a meeting must be
exercised no later than at that time. Following recei pt of any written requests for review, in cases where no
further meeting with the Panel is requested, the parties shall have the opportunity within a time-period to be
specified by the Panel to submit written comments on the other parties' written requests for review. Such
comments shall be strictly limited to referencing the other parties' written requests for review."
237 The Panel recalls that the Appellate Body has made clear that a prima facie case is one which in the
absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of
the complaining party presenting the prima facie case.
238 See for instance the US replies to question No. 11 posed by the Panel.

investigated to permit a finding one way or the other) "; and (5) " that the EC’s factual
characterizations reproduced in sections II-IV were “not rebutted” by the United States (many were
vigorously rebutted)".239
6.5 As regards the United States' allegations Nos. (1) and (2), the Panel fails to understand why
the United States considers that the Panel has ignored that, in some of the determinations affected by
this Panel, the US Department of Commerce may have countervailed post-privatization subsidies. We
have never, contrary to what the United States has claimed, made such statements or assumptions in
our Panel Report. What the Panel has done is to delimit the scope of its ruling according to its
mandate; namely to assess the WTO-compatibility of the US change-in-ownership methodologies
which allow non-recurring pre-privatization subsidies to be countervailed after privatization has taken
place without any prior WTO-compatible determination of benefit vis-à-vis the privatized producer, as
applied in the 12 countervailing duty determinations before it. In this regard, the Panel recalls its
findings in paragraph 7.39 (6.39 of the Interim Report).
6.6 Paragraph 7.39 does not exclude the possibility of post-privatization subsidies or even
recurring pre-privatization subsidies. These are not, however, relevant to our analysis. Our analysis
only focuses on the treatment of pre-privatization non-recurring subsidies under the SCM Agreement
following a change in ownership, more specifically on the effect of such treatment on the privatized
producer.
6.7 The Panel understands that its request for the termination of the countervailing duty orders
may not have been sufficiently clear and may have led the United States to believe that the Panel had
wanted to ignore the possible existence of post-privatization subsidies in some of the 12
determinations which, the Panel believes, is not an issue before it. Accordingly, the Panel has
amended paragraphs 7.87, 7.100, 7.116 and 7.117 to improve the clarity of the Panel's
recommendations.
6.8 As regards the United States' allegation No. (3) that the 12 determinations did not concern full
privatizations, the United States alleges that in the case of Usinor, the subsidy recipient in the three
French cases, the Government of France continued to maintain a "substantial level" of government
ownership. The Panel notes that the Government of France divested itself of the remaining shares in
Usinor in 1997-1998, that is before the countervailing duty order was issued in the three cases.
240 As
the US Department of Commerce's own record reflects after privatization, so-called "stable
shareholders" held approximately 14 per cent of Usinor's total shares; 10 per cent of these stable
shareholders were claimed by the United States to be government-owned or controlled entities. 241 To
accommodate the United States, the Panel has added this information from the United States Federal
Register into the factual description of the releva nt French cases. The Panel uses the term "full
privatization" to refer to a change in ownership wh ere the government has divested itself of all, or
substantially all, of its ownership interest in the privatized company, and clearly could no longer
exert a controlling interest On the basis of the evidence submitted by the parties by the close of the
second substantive meeting, the Panel still consider s that in the 12 determinations before it, the
governments had severed their control over the state-owned producers upon privatization and the
privatized producers could no longer rely on govern ment financing for their operations and could no
longer receive things for free. For the Panel these are full privatizations. In order to facilitate the
understanding, the Panel has expanded its discussion on what it understands as (full) privatization for
the purpose of these panel proceedings. To take into account the United States' concern, the Panel has
deleted the term "full", as this does not affect the Panel's considerations and reasoning applicable to

239 See US Comments to the Interim Report, paras. 2-3.
240 These cases are: Case No. 1 (original investiga tion) where the final determination was published on
8 June 1999; Case No. 2 (original investigation) where the final determination was published on 29 December
1999; and Case No. 9 (sunset review) where the final determination was published on 7 April 2000.
241 Stainless Steel Sheet and Strip in Coils from France, supra, footnote 8, at 30776.

all 12 determinations before it, as in all the twelve determinations, the governments had, upon
privatization, severed all, or substantially all, their ownership interests over the state-owned
enterprises in favour of the privatized producers and their shareholders.
6.9 As regards the United States allegation No. (4), the Panel is surprised at this comment since it
has never stated that all 12 privatizations have taken place for fair market value. On the contrary, the
Panel has specified that only as regards two determinations (Case Nos. 8 and 10) had the US
Department of Commerce itself found that the privatizations at issue taken place for fair market value.
The Panel would like to refer to paragraph 2.2 of the Report which is very clear on this matter. The
Panel's findings do not assume that all privatizations were for fair market value. Although the
European Communities has made allegations to this effect, the Panel does not prejudge those
privatizations where the US Department of Commerce has not actually found that the privatization
was done for fair market value,. The Panel does consider, however, that the US Department of
Commerce's practice, not to examine whether a privatization took place for fair market value and at
arm's length in its change in ownership methodo logy , unless the privatized producer is a distinct
legal person from the state-owned producer, is contrary to the SCM Agreement. Except for Case Nos.
8 and 10, whether the specific privatizations were for fair market value is of no relevant to this Panel
as long as the US Department of Commerce fails to undertake the examination itself.
6.10 As regards the United States' allegation (5), the Panel does not agree with the United States'
statement to the effect that it has vigorously rebutted the factual characterization by the European
Communities reproduced in Sections II to IV of the Panel Report. Up to the interim review stage, the
United States has scarcely contested the factual data provided by the European Communities. For
example, the United States did not rebut the factual data provided by the European Communities in its
Annex to question No. 11 of the Panel where it describes the various privatizations. Only at the
review stage of the descriptive part (in its communication of 18 April), has the United States
attempted to contest these facts generally, often without pointing to any specific evidence on the
record which the Panel may have ignored.
6.11 The United States argues that in paragraph 2.1 of its Report, the Panel had inaccurately
described the question before the Panel, by implying that any subsidy existing after a privatization,
must arise out of the privatization itself. The Panel recalls that its terms of reference are limited to the
issues raised by the European Communities in its request for the establishment of a panel. In
particular, the European Communities' claims concern the legal consequences of a change in
ownership from wholly-owned state enterprises to privatized producers and whether the imports from
the privatized producers in the 12 determinations can continue to be countervailed for subsidies
bestowed to state-owned producers prior to the privatizations. In any event, the Panel has clarified the
wording of paragraph 2.1 in the hope that it will leave no doubt as to the Panel's mandate and intent.
6.12 The United States considers that paragraph 2.3 inaccurately states that all of the privatizations
before the Panel involved a full change in ownership; because, in fact, the French privatization
featured in 3 out of the 12 cases involved a 'substantial level of continued government ownership'
through GOF-owned "stable shareholders". The European Communities in its 5 June 2002 comments
suggests that the Panel change the word "ownership" to "control". The Panel refers to its statement in
paragraph 6.8 above. Yet, even if the United States is correct in stating that the French Government
maintained a minority indirect ownership interest in Usinor, the Panel is of the view that all the
determinations before it, including the three French cases, involved changes in ownership leading to a
privatization of the state-owned enterprises, in the sense that the government had divested itself of all,
or substantially all its ownership interest and clearly no longer had any controlling interest in the
privatized companies. After privatization, the privatized producers could no longer rely on
government financing for its operations and could no longer receive things for free. The Panel
believes that under its definition, Usinor's privatization qualifies as a full privatization. Nonetheless,
the Panel has revised the text of paragraph 2.6 to reflect the findings regarding "stable shareholders"
made by the US Department of Commerce in Final Affirmative Countervailing Duty Determination:

Stainless Steel Sheet and Strip in Coils from France ..242 The Panel believes that this change responds
to both the United States' comments of 27 May 2002 and the European Communities' comments of
5 June 2002.
6.13 With regard to paragraph 2.6, in its comments of 18 April, the United States was not able to
point to any evidence it had submitted to the Panel during the panel proceedings and which the Panel
had ignored, set aside or misinterpreted. Yet the Panel has attempted to clarify further its point.
6.14 In paragraph 2.10, the United States disagrees with the use of the term "judgment" to refer to
the remand redetermination from the CIT in the AST case, as no final judgment has been issued. The
European Communities, in its 5 June comments, suggests using the word "decision" for judgment.
The Panel has replaced substituted the word "judgment" with the word "order".
6.15 The United States claims that paragraph 2.13 still fails to state that the US Department of
Commerce's pro rata allocation of the Usinor group's subsidies to all group producers, including GTS,
has not been challenged (either by the European Communities in the present dispute or by the
respondents during the US Department of Commerce investigation). The United States considers that,
as written, paragraph 2.11 implies that whether GTS "received" a portion of the original French
Government subsidies is a subject of dispute. The Panel has no evidence before it of whether the
allocation concerned was challenged or not. The Panel agrees with the European Communities'
comments of 5 June 2002 that the issue of attribution is not within the terms of reference of the Panel.
In order to accommodate the United States' concerns, the Panel has revised the relevant paragraph to
reflect the limited terms of reference of this Panel.
6.16 As regards paragraph 2.14, the United States claims that it does not correctly describe the
facts of Usinor's evolving ownership interest in GTS, nor does it correctly describe the US
Department of Commerce's analysis of those f acts. Further to the United States comments on
18 April, the Panel did change the wording of its old paragraph 2.12 but did not agree with the United
States' characterization of its determination and preferred its own language. The Panel recalls that the
pro-rata allocation of subsidies and related percentage of countervailing duties is not a matter before
this Panel. The United States claims that paragraph 2.13 continues to inaccurately describe the US
Department of Commerce's remand investigation and redetermination. The United States alleges that
it was at GTS' request that the US Department of Commerce focused its analysis on changes in
Usinor's (as opposed to GTS') ownership. The Panel did not accept the United States' comment
because it had not been presented with any evidence to support the United States' assertion that GTS
requested such an analysis. Moreover the Panel does not see how this is relevant to the present
dispute.
6.17 The United States considers that paragraph 2.18 contains errors in the description of the
subsidy bestowal, the change in ownership tran saction, and the US Department of Commerce's
analysis regarding ILVA and CAS and refers to its comments of 18 April. The Panel has reviewed
the evidence within the United States Federal Register, submitted by the European Communities. In
particular, Federal Register (63 Fed. Reg. 810) indicates that "[i]n 1989, the Aosta operations were
transferred to ILVA. In December 1989, Cogne S.r.l. was created as a wholly-owned subsidiary of
ILVA S.p.A., which held the Aosta operations. Cogn e S.r.l. was later named Cogne Acciai Speciali
S.p.A. (Cogne S.p.A.)." (emphasis added). Therefore, the Panel stands by its previous decision not to
accept the United States' request. However, the Panel has amended the text of this paragraph to show
more fully the evidence in the Federal Register.
6.18 The United States considers that in paragraph 2.20, the statements concerning maximization
of revenue in selling AST and the independence of the financial advisers should be deleted since they
are not factual findings by the US Department of Commerce. The Panel notes that this evidence

242 Stainless Steel Sheet and Strip in Coils from France, supra footnote 8, at 30776.

submitted by the European Communities was never contested by the United States before the interim
review stage. The Panel has reviewed the evidence presented to it and has therefore deleted the phrase
on maximizing revenue and maintained the phrase on the reported independence of the financial
advisers. The Panel is of the view that these factual allegations are not relevant for its legal analysis.
6.19 The United States maintains that paragraphs 2.22, 2.23, and 2.25 do not accurately describe
the subsidies in Stainless Steel from Italy and that paragraphs 2.32 and 2.33 do not accurately describe
the facts of Case No. 12 regarding GOES from Italy, because they do not contain details relating to
the pro-rata allocation of subsidies among the relevant corporate groups. The Panel, with a view to
clarifying its Report, has decided to adjust the text of paragraph 2.22 according to the relevant Federal
Register; adjust the text of paragraph 2.23, and accept the United states comments on paragraph 2.25.
The European Communities points out that the allocations made by the US Department of Commerce
have been contested in domestic proceedings in the United States and argues that therefore the
changes requested by the United States should not be made. The Panel is merely correcting its
statement to reflect more accurately what the US Department of Commerce concluded in this case.
The Panel does not take any position on the validity of the US Department of Commerce's
determinations on such pro-rata allocation and their relevance, if any, as this is for another forum, and
constitutes a matter outside the terms of reference of this Panel.
6.20 As regards paragraph 2.31, the United States also claims that the Panel did not accept all its
suggestions. The Panel did accept most of the United States suggestions of 18 April and has changed
the word "findings" for "review" to respond to any remaining concerns by the United States.
6.21 As regards former paragraphs 2.33, 2.34 and 2.35, the United States would like the Panel to
delete them since they do not deal with factual aspects, but instead reflect the arguments of the parties.
The Panel has reviewed its previous position and has moved the relevant paragraphs to a new
section IV.B ("US Department of Commerce's practice in administrative reviews") in the arguments
part. The Panel has substituted the relevant paragraphs in the factual part (now 2.34 and 2.35) with
some summarized information regarding the US Department of Commerce's relevant practice
available in the "Countervailing Duties; Final Rule" quoted in footnote 50.
6.22 The United States considers that paragraph 2.37 (now 2.36) does not reflect the United States'
comments of 18 April. The Panel amended the text to make clear that the Panel is aware that UES
was the actual exporter in the US – Lead and Bismuth II case, but that the subsidies provided to
British Steel are the same ones at issue in the case from the United Kingdom before this Panel. The
Panel hopes that this addresses both the United States' concerns of 27 May 2002 and the European
Communities' concerns of 5 June 2002.
6.23 The United States claims that paragraph 2.42 (now 2.41) does not reflect the changes
proposed by the United States in its 18 April co mmunication. With a view to avoiding including
arguments into the factual descriptive part of the Panel Report, the Panel has revised the text to delete
any reference to how the US Department of Commerce arrived at its conclusion that the non-recurring
pre-privatization subsidies continued to benefit Usinor after privatization.
6.24 The United States considers that the assertions by the European Communities as to why
exporters did not request administrative reviews should be deleted from paragraph 2.48 (now 2.47),
footnote 64 (now 67). The Panel has already responded to the United States' comments of 18 April by
amending the text of the footnote in question (now footnote 67) and sees no need to further amend the
text; what is stated there is factually correct and was not challenged by any party.
6.25 The United States claims that paragraph 2.59 (now 2.57) contains an inaccurate description of
the gamma methodology and its results. The Panel already responded to the United states' comments
of 18 April by amending the text of the paragraph in question. To take into account the United States'

concern, while noting that the United States had admitted that the gamma methodology was
inconsistent with the SCM Agreement, the Panel has revised the text accordingly.
6.26 The United States refers to paragraph 2.60 (now 2.58) and claims that it inaccurately
describes the panel and Appellate Body decisions in US – Lead and Bismuth II. According to the
United States, these decisions found three particular countervailing duty determinations, rather than
the gamma methodology itself, to be WTO-inconsistent. The Panel directs the United States to
paragraph 12 of its first written submission where it states that, in US – Lead and Bismuth II "the
panel and the Appellate Body rejected the gamma methodology as inconsistent with the SCM
Agreement."
243 The Panel also notes that in other parts of this proceeding, the United States has
stated that it accepted that its gamma methodol ogy was inconsistent with the SCM Agreement,
because it did not establish that the requirements of the SCM Agreement had been satisfied with
respect to the current (privatized) producer. 244 To take into account the United States' concern, the
Panel has revised its text.
6.27 The United States claims that paragraph 2.61 (now 2.60) mistakenly states that under the
same person methodology, prior subsidies are "presu med" to "pass through" to the post change-in-
ownership producer. The Panel has reconsidered the United States' concerns and has changed the text
of the relevant paragraph to read "found to continue to reside in".
6.28 The United States claims that in paragraph 4.5, the Report omits its principal rebuttal to the
European Communities's arguments on the subject of whether privatization triggers the need for a re-
examination of the existence of benefit. The Panel recalls that the United States has admitted that a
change in ownership triggers the obligation to re view the conditions of application of the SCM
Agreement. The Panel has stated on numerous occasions the United States' argument and has added
another reference to it following the United States request of 18 April. The United States also
requires that we introduce a new argument regarding its belief that no distinction should be made
between privatization and any other change in ownership.
245 In the Panel's view, the United States
wants to introduce a new argument at this late stage in the panel process which does not add to its
main claims and arguments. The United States has not been able to point to any communications
during the panel process where it would have argued that privatizations were not distinct from any
other change in ownership for the reasons mentioned in its communication of 14 May. The Panel is
also well aware of the United States' argument that only a change of legal personality of the producer
(not any change in ownership or privatization) extinguishes the benefit vis-à-vis the privatized
producer or, to put it differently, that unless the privatized producer is a distinct legal person from the
state-owned enterprise, a countervailable subsidy continues to reside in the person upon whom it was
originally bestowed.
6.29 The United States considers that paragraph 4.22 inaccurately summarizes the United States'
position on subsidies and changes in ownership and its interpretation of US – Lead and Bismuth II .
The Panel has added to its description to take into account the United States' concerns.

243 See US' first written submission, para. 12.
244 See US' first written submission, para. 69.
245 In its 18 April communication the United states requested the Panel to introduce the following
argument which the Panel was not able to identify in any of the US communications to the Panel:
"For purposes of this analysis, moreover, the United States considers that privatizations do not
merit special treatment different from other changes in ownership simply because the
purchase price is being paid to a government and government owners are being replaced by
private ones. Adopting such a distinction would imply that government ownership per se
(rather than non-commercial financial contributions) had constituted the original subsidy, and
that the original subsidies were limited to the cost incurred by the subsidizing government
rather than the full benefit conferred to the recipient enterprise."

6.30 As regards the United States comments on paragraph 4.32, the Panel has considered the
United States' proposal and revised the text as suggested by the United States.
6.31 The United States comments on paragraph 6.6 (now 7.6) to the effect that the US Department
of Commerce examines the "circumstances of the privatization," including all terms of the transaction,
in determining whether the person under investigation or review is the same legal person that received
the subsidy. The Panel recognizes the United States' point and has revised the description of the
United States' argument. The Panel maintains, how ever, that the US Department of Commerce does
not look to the issue of whether the privatization took place at arm's length and for fair market value,
in making its analysis of whether the privatized producer has received a benefit from the subsidy
bestowed to the state-owned producer, unless that privatized producer is a distinct legal person from
the state-owned producer.
6.32 As regards the United States' claim that paragraph 6.14 (now 7.14) contains an inaccurate
description of the US Department of Commerce's test, the Panel has reconsidered the United States'
concerns and has changed the text of the relevant paragraph to read "found to continue to reside in".
6.33 The United States points out some errors in the chart attached to the Interim Report as
Annex A. The Panel has updated the chart to reflect the United States' comments on the data included
for Case Nos. 7 and 10 and the French cases. The Panel has also considered the United States'
comments regarding the use of the % symbol rather than the term "percentage points" in the column
concerning alleged countervailable subsidies in Annex A. The Panel notes that this was not raised in
the United States' 18 April comments on the draft descriptive part, which contained Annex A. The
Panel is unclear as to the value of using the te rm "percentage points" rather than the percentage
symbol. The reason the Panel used the % symbol was to reduce the amount of text in Annex A.
However, in an effort to respond to the United States' concerns the Panel has amended the text of the
column in question to duplicate the text in the corresponding portions of the descriptive part, to which
the United States has not raised any objections.
6.34 With regard to paragraph 6.90 (now 7.90), the Panel has adjusted the text to reflect the Panel's
terms of reference.
6.35 The United States argues that the Panel's statement that the sunset reviews in question "should
be terminated" reflects several errors of law and fact. The Panel does not necessarily agree with the
United States' comments. However, to accommodate the United States' concerns, the text of
paragraphs 6.117 and 6.118 (now 7.116 and 7.117) have been amended to clarify that the Panel was
referring only to the termination or removal of the (share of the) countervailing duty order which
derived from non-recurring pre-privatization subsidies, for which no WTO-compatible determination
of benefit has taken place vis-à-vis the privatized producer. The Panel makes no findings on recurring
subsidies or post-privatization subsidies and their countervailability, as these are not within the terms
of reference of the Panel.
6.36 The European Communities suggested that paragraph 6.130 (now 7.129) be revised by
changing the word "purchaser" in the first line to "producer." The Panel agrees with the United States'
comment of 5 June that this change would make the sentence incomprehensible and therefore has
maintained the original version.
6.37 The United States notes that in three separate places, the Panel states that the United States
took the position that Case No. 7 (the administra tive review involving steel from Sweden) was not
within the Panel's terms of reference because it was finalized prior to the Appellate Body Report in
US – Lead and Bismuth II (paras. 6.5, 6.27, and 6.99 of the Interim Report). The United States claims
that it never put forward this argument and that any reference to it should be struck from the report.
The Panel points out that in paragraph 99 of its first written submission the United States contents:
"[t]he European Communities' claims regarding the expedited sunset review of the CVD order on cut-

to-length plate from Sweden are not within the Panel's terms of reference." 246 Since the Panel is now
aware that the inclusion of this claim was an error, the Panel will therefore delete the requested
passages.
6.38 The United States makes a variety of arguments against the Panel's factual findings regarding
Section 1677(5)(F). First, the United States claims that the Panel erred in attempting to establish the
meaning of the legislation, as a factual element, by examining the "internal elements" relevant to the
construction of the statute – its legislative and judicial history. The Panel repeats its discussion
contained in its findings. The Appellate Body Report in India – Patents stated that: where the alleged
violation at issue is domestic legislation, an examin ation of the relevant aspects of municipal law is
essential to determining whether a Member has complied with its obligations. 247 The panel in US –
Section 301 Trade Act provided guidance for panels interpreting domestic law when it stated that: "a
Panel should not interpret the law "as such", bu t rather establish the meaning of the disputed
legislation as a factual element and determine whether the factual element constitutes conduct by the
respondent Member contrary to its WTO obligations." 248 The Panel also feels that it was appropriate
to use the legislative and judicial history of Section 1677(5)(F) in establishing the meaning of the
legislation. The panel – upheld by the Appellate Body – in US – 1916 Act, stated that even if the text
of the law in question were clear on its face, it was necessary to examine the domestic application of
that law, its historical context and legislative history and subsequent declarations of US authorities in
order to asses its compatibility with WTO law.
249 Based on the jurisprudence, the Panel maintains
that it was correct for it to examine the relevant aspects of the United States' law and to establish the
meaning of the legislation as a factual element.
6.39 The United States specifically argues that the Panel made erroneous assumptions about what
the US Court of Appeals for the Federal Circuit meant when it discussed the concept of "arm's-length"
in its decision in the Delverde III case. However, we note that the US Court of Appeals for the
Federal Circuit relied specifically on the legislative history to determine the Congressional intent in
promulgating the statute. The definition of "arm 's-length transaction" contained in the SAA 250, which
the Panel relied upon, is identical to the wording in the House of Representatives Report cited by the
US Court of Appeals for the Federal Circuit as the basis for its interpretation of the meaning of the
statute.
251 The Panel also notes that throughout its discussion of both the Delverde III case and the
Saarstahl II case, the Court seems to use the two terms interchangeably. When we requested that the
United States explain the meaning of arm's length in United States law and its difference from fair
market value, the representative of the United States said there was a great deal of confusion about
those terms in the United States and that he was not in a position to reply. 252 Therefore, based on the
definition of arm's length provided by Congress, the interchangeable use of the terms arm's length and
fair market value by the US Court of Appeals for the Federal Circuit, and the United States' inability

246 See US' first written submission, para. 99
247 Appellate Body Report, India – Patents (US), WT/DS50/AB/R, at para. 66.
248 Panel Report, US – Section 301 Trade Act, WT/DS152/R, at para. 7.18 citing Appellate Body
Report, India – Patents (US), WT/DS50/AB/R,, at para. 66 (emphasis added)
249 Panel Report, US – 1916 Act (EC) , WT/DS136/R, at para. 6.48. See a lso Panel Report, United
States – Section 337 of the Tariff Act of 1930 ("US – Section 337"), adopted 7 November 1989, BISD 36S/345.
250 "For purposes of section 771(5)(F), the term "arm's-length transaction" means a transaction
negotiated between unrelated parties, each acting in its own interest, or between related parties
such that the terms of the transaction are those that would exist if the transaction had been
negotiated between unrelated parties." SAA 1994 U.S.C.C.A.N 3773, 4241 Exhibit EC–25 to
EC's first written submission.
251 The Panel recognizes that the House of Representatives Report is not, as such, in the record.
However, it is cited by the US Court of Appeals for the Federal Circuit in Delverde III. The Panel has decided
to look at the full document in order to respond to the United States' comments in the US' Request for Interim
Review. The Panel also notes that the Federal Circuit stated that the Senate Report was "nearly identical" to the
House Report it cited. Delverde III 202 F.3d. 1360, at 1366-67.
252 See US response to question No. 15 posed by the Panel.

14, 19.1, 19.4, 21.1, 21.2, 21.3 and 32.5 of the SCM Agreement and Article XVI:4 of the WTO
Agreement. In particular, the Panel agrees with the United States that stricto sensu, Article 1 being a
definitional provision, cannot be violated as such. The Panel understands the concerns of the United
States and has therefore expanded its explanation and conclusion, of the reasoning behind each of the
various violations.
6.43 In its interim review submission on 27 May 2002, the European Communities submits that it
would like that the Panel to explain why it did not consider it necessary to adopt the suggestions or
adopt suggestions of its own. Article 19.1 of the Understanding on Rules and Procedures Governing
the Settlement of Disputes ("DSU"), simply states that a panel "may" suggest ways in which the
Member concerned could implement the recommendations. This discretion is reserved to the Panel,
and the Panel is under no obligation to take up suggestions of the complaining party. The Panel is of
the view that its findings and conclusions are sufficiently clear and that the Members have discretion
in how to bring a measure found to be WTO-inconsistent into conformity with WTO obligations.
6.44 The Panel notes that, on 4 June 2002, the CIT ruled on AST's challenge to the US Department
of Commerce's final determination of the administrative review in GOES from Italy (Case No. 12).
257
In its opinion, the Court upheld the same person methodology as being consistent with
Section 1677(5)(F), in particular with the US Cour t of Appeals for the Federal Circuit's decision in
Delverde III. Since this CIT decision was issued after the interim review stage, the Panel has not
taken it into account within the descriptive part or the findings. Nevertheless, the Panel wishes to
comment on the paragraphs of this Report on which the decision by the CIT might have some bearing.
6.45 In particular, paragraph 2.33, which indicates th at AST has challenged the US Department of
Commerce's final determination of the administrative review in GOES from Italy 258, could be
completed by adding the following text:
"… On 4 June 2002, the CIT ruled on AST's challenge to the US Department of
Commerce's final determination of the administrative review. The Court remanded
the case to the US Department of Commerce to 'further explain whether post-sale
AST or KAI [the purchaser] become legally responsible for all of pre-sale AST's
assets and liabilities.'
259 The Court upheld the same person methodology as being
consistent with Section 1677(5)(F), in particular with the US Court of Appeals for the
Federal Circuit's decision in Delverde III."
6.46 Paragraph 7.79 quotes a 4 January 2002 decision of the CIT260 which concluded that the same
person methodology was inconsistent with Section 1677(5)(F). This paragraph could be expanded to
completely cover the current CIT jurisprudence on the same person methodology by noting that in the
4 June 2002 CIT decision261, the Court concluded that the same person methodology is consistent with
Delverde III and Section 1677(5)(F).262 While the Panel accepts that, in the 4 June 2002 case, the CIT

257 Acciai Speciali Terni v. United States of America Court No. 01-00051, at p. 29.
258 The corresponding box of the table included in Annex A would also be affected.
259 Ibid.
260 GTS Industries v. United States Court No. 00-03-00118 (Ct. Int'l Trade 4 January 2002), at 14-18.
Exhibit EC–30 to the EC's second written submission. See also, Final Results of Redetermination pursuant to
Court Remand , Allegheny Ludlum Corp. et al. v United States Court No. 99-09-00566, (Ct. Int'l Trade 13
December 2000) (unpublished) ("Allegheny Ludlum I").
261 Acciai Speciali Terni v. United States of America Court No. 01-00051, at p. 29.
262 In particular, the CIT considered that:
"The mere payment of more or less for the purchase of shares of stock would seem to have no
impact by itself upon the amount of countervailable duty liability any more than such payment
would have on the amount of a mortgage liability that was the responsibility of AST. It would
simply mean the purchaser of stock paid more or less for its shares. Such payment by itself
would not extinguish liabilities to third parties".

administrative reviews270, and four others in the context of sunset reviews271, as further detailed in that
paragraph.
7.2 The European Communities claims generally that the United States has not respected its
obligations pursuant to the SCM Agreement in the 12 listed determinations and that the countervailing
duties in place are, therefore, inconsistent with the United States' obligations pursuant to the SCM
Agreement and the Marrakesh Agreement Establishing the World Trade Organization (the WTO
Agreement).
272 According to the European Communities, a change in ownership, such as a
privatization, creates a mandatory obligation on the investigating authority to examine the conditions
of the change in ownership transaction in order to determine whether any benefit accrues to the new
economic entity.273 The European Communities argues that when a privatization takes place at arm's
length and for fair market value 274, the benefit of the subsidy to the previous state-owned producer
does not continue to accrue to the post-privatization economic entity. The European Communities
asserts that the investigating authority's obligation to examine whether the benefit continues to accrue
to the privatized producer exists for all types of countervailing duty proceedings, regardless of
whether they are original investigations, administrative reviews, or sunset reviews. The European
Communities claims that with both the gamma methodology and the same person methodology, the
US Department of Commerce does not examine the conditions of the transaction and thus fails to
determine whether a benefit continues to accrue to the current producer contrary to the requirements
of Articles 1, 10, 14, 19, and 21 of the SCM Agreement.
7.3 The European Communities also claims that Section 771(5)(F) of the US Tariff Act of 1930,
as amended (19 U.S.C. §1677(5)(F)) ("Section1677(5)(F)") "as such" prohibits the US Department of
Commerce from systematically assessing benefit in cases of privatizations in a manner consistent with
the SCM Agreement and it is, thus, also inconsistent with Article XVI:4 of the WTO Agreement.
7.4 The United States replies that the primary issue to examine when a change in ownership
occurs is not whether the transaction was at arm's length and for fair market value, but whether it

(C-475-821) (Case No. 3); Stainless Steel Plate in Coils from Italy (C-475-823) (Case No. 4); Stainless Steel
Sheet and Strip in Coils from Italy (C-475-825) (Case No. 5); Certain Cut-to-Length Carbon-Quality Steel Plate
from Italy (C-475-827) (Case No. 6).
270 Cut-to-Length Carbon Steel Plate from Sweden (C-401-804) (Case No. 7); Grain-Oriented
Electrical Steel from Italy (C-475-812) (Case No. 12).
271 Cut-to-Length Carbon Steel Plate from United Kingdom (C-412-815) (Case No. 8); Certain
Corrosion-Resistant Carbon Steel Flat Products from France (C-427-810) (Case No. 9); Cut-to-Length Carbon
Steel Plate from Germany (C-428-817) (Case No. 10); and Cut-to-Length Carbon Steel Plate from Spain
(C-469-804) (Case No. 11).
272 Marrakesh Agreement Establishing the World Trade Organization (hereinafter WTO Agreement)
including Annexes 1, 2, 3, and 4 in the Final Act Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations, 15 April 1994, Legal Instruments – Results of the Uruguay Round vol. 1 (1994); 33 I.L.M.
1125 (1994).
273 In this dispute, parties had to make reference to enterprises before and after privatization. Parties
have referred to pre-privatization company, pre-priva tization producer, pre-privati zation (economic) entity and
other similar expressions. With a view to consistency, the Panel, when referring to the wholly-owned state
enterprise before the privatization, will use the term "state-owned producer". Parties have also referred to the
post-privatization company, post-privatization producer, post-privatization (economic) entity and other similar
expressions. With a view to consistency, the Panel, when referring to the privately-owned enterprise after the
privatization, will use the term "privatized producer".
274 Initially, and then sporadically, the European Communities argued that, in case of any change of
ownership at fair market value and for arm's-length, the benefit from a subsidy bestowed to the previous
producer would not pass through to the new producer. The European Communities referred to concepts of
"control" as a criteria to determine which change of ownership calls for such re-examination of the conditions
of applications of the SCM Agreement. In its second written submission, and during the second substantive
meeting, the European Communities limited its argumentation to privatization, as the 12 challenged
determinations involved privatizations.

resulted in a change of the legal personality of the producer, i.e. whether the privatized producer is a
"distinct legal person" from the pre-privatization state-owned producer. The United States maintains
that a change in ownership or privatization does not necessarily result in a change of the legal
personality of the producer and as such, should not change any prior determination of benefit assessed
when the subsidy was bestowed to the state-owne d producer, since the subsidy resides in the same
legal person as before the privatization. For the United States, unless the post-privatization producer
has become a new distinct legal person after the privatization, the importing Member can attribute the
non-amortized part of a non-recurring subsidy provid ed to the state-owned producer to the privatized
producer. Therefore, in its view, exports from the privatized producer can be countervailed or
continue to be countervailed after the privatization pursuant to the SCM Agreement.
7.5 The United States admits that in Case Nos. 1 to 7, where the gamma methodology was
applied, its determinations are WTO-inconsistent but only to the extent that it did not reconsider them
under its new "same person" methodology.
7.6 The United States maintains that its same person methodology, which is a two-step process
looking first to whether the post-privatization producer is a new distinct legal person and only making
a benefit assessment after a determination that the post-privatization producer is a new legal person, is
consistent with its WTO obligations. The United States asserts that if the post-privatization producer
is not a new legal person, the benefit attributed to the state-owned producer automatically accrues to
the privatized producer. The United States also states that arms length's transactions for fair market
value do not necessarily result in no benefit accruing to the post-privatization producer. In addition,
the United States argues that sunset reviews are an inappropriate forum for analysing complex
privatization transactions. The United States believes that it is not obligated, in a sunset review, to
examine any evidence regarding subsidization that is not already on the record. In its view, in the
absence of an administrative review, the only evidence of subsidization to be examined in a sunset
review, will be that of the original investigation.
7.7 As to the WTO-compatibility of Section 1677(5)(F), the United States argues that
Section 1677(5)(F) only maintains the US Department of Commerce's discretion to determine whether
or not the benefit continues to reside in the company even after a change in ownership (privatization)
at arm's length and for fair market value. The United States maintains that the SCM Agreement
provides no basis for concluding that a change in the ownership of a subsidy recipient, for fair market
value or otherwise, automatically eliminates the benefit conferred on the company. Therefore
Section 1677(5)(F) is WTO-compatible.
B. T
HE MEASURES AT ISSUE
1. Evolution of change in ownership methodologies applied by the US Department of
Commerce
7.8 It is reported that the issue of the effect of a change in ownership as a consequence of
privatization for fair market value and at arm's length was first addressed by the US Department of
Commerce in the administrative review of the countervailing duty order on Lime from Mexico in
1989.275 It is also reported that in that review, the US Department of Commerce determined first,
whether an actual sale took place, and second, whether subsidies paid to the government-owned
company continued to provide benefits to the owners of the privatized company. 276 H a v i n g
determined that there was an actual sale, the US Department of Commerce came to the conclusion
that the price paid for the privatized company reflected its market value and that "therefore no benefits

275Lime from Mexico, 54 Fed. Reg. 1753, 1754-55 (Dep't Commerce 17 January 1989) (prelim. admin.
review). See EC's first written submission, at para. 19.
276 Ibid., at 1754.

to [the government-owned company] passed through to [the privatized company]". 277 In 1992, in a
preliminary determination in the US – Lead and Bismuth II investigation, the US Department of
Commerce followed the approach taken in Lime from Mexico finding that a fair market value
privatization did not provide any benefit to the post-privatization entity. 278 However, in the Final
Determination of 27 January 1993 in that case, the US Department of Commerce used the
"pass-through" methodology to conclude that all pre-privatization countervailable subsidies passed
through to the privatized company and can continue to be countervailed.
279 This pass-through
methodology was replaced first by the so-called "gamma methodology" and then by the so-called
"same person methodology", both of which are challenged in this dispute.
2. Change in ownership methodologies challenged in this dispute
7.9 This dispute covers two methodologies used by the US Department of Commerce in order to
assess the impact of privatization in the determination of subsidization vis-à-vis the post-privatization
companies. These methodologies are the gamma methodology and the same person methodology. In
this regard, of the 12 determinations challenged by the European Communities, 11 were initially
based on the gamma methodology. In Case No. 12 ( Grain-Oriented Electrical Steel from Italy
"GOES"280) the US Department of Commerce used the same person methodology. The same person
methodology was first applied in the final results of the administrative review in this case which were
published on 12 January 2001. 281 This methodology had been applied earlier in various remand
determinations ordered by the CIT within appeal proceedings in four of the above 11
determinations.282 The same person methodology has been challenged before the CIT in all of these
remand redeterminations283, (and also in the GOES determination).284 The United States has admitted
that seven (Case Nos. 1 to 7) of these 12 determinations are inconsistent with its WTO obligations to
the extent that the gamma methodology was used in the determination and that the US Department of
Commerce did not fully examine whether the pre- and post- change in ownership entities were the
same legal persons.
285
(a) The gamma methodology
7.10 In July 1993, the US Department of Commerce introduced the gamma methodology. 286
According to this methodology, after assessing the existence of pre-privatization subsidies, the US
Department of Commerce determines to what extent (if any) the privatization transaction price repaid
unamortized subsidies, and countervails the remainder (if any). Thus, unlike the pass-through

277 Ibid., at 1755.
278 Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom 57 Fed.
Reg. 42974 (Dep't Commerce 17 September 1992) (prelim. determination).
279 Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom, 58 Fed.
Reg. 6237 (Dep't Commerce 27 January 1993). (final countervailing duty determination).
280 GOES Admin. Review, supra, footnote 47. The original final countervailing duty determination was
published in GOES Final Determination, supra, footnote 47.
281 See EC's first written submission, para. 124, not contested by the United States.
282 Stainless Sheet and Strip in Coils from France (C-427-815) (Case No. 1); Certain Cut-to-Length
Carbon Quality Steel from France (C-427-817) (Case No. 2) (with respect to GTS); Stainless Steel Plate in Coils
from Italy (C-475-823) (Case No. 4) and Certain Cut-to-Length Carbon-Quality Steel Plate from Italy
(C-475-827) (Case No. 6); see Annex A to this Panel Report.
283 The United States claims that since "the EC has not challenged the four remand determinations in
this forum ... the Panel's review is limited to the six original determinations in which US Department of
Commerce applied its old methodology." US' first written submission, para. 85.
284 See EC's first written submission, para. 124.
285 See US' first written submission, para. 85.
286 The methodology was set out in a General Issues Appendix , supra, footnote 84, the relevant
discussion of privatization is found at 37259-65.

methodology where the totality of prior subsidies passed through, in the gamma methodology only a
portion of such subsidies may pass through.
7.11 In 2000, the US Court of Appeals for the Federal Circuit found that the gamma methodology
was inconsistent with Section 1677(5)(F). 287 The Court found that the gamma methodology, in
presuming that some benefit passed through, m eant that the US Department of Commerce had
adopted a per se rule that a pre-privatization subsidy would always pass through despite an arm's-
length, fair market value transaction. 288 The Court found that Section 1677(5)(F) prevents the
adoption of a per se rule either that a subsidy continues to be countervailable despite an arm's-length
transaction or that the subsidy is no longer countervailable as a result of a such a transaction.289
7.12 The gamma methodology was the methodology applied in the three administrative reviews
covered by the US – Lead and Bismuth II dispute and which the Panel and Appellate Body found to
be inconsistent with the SCM Agreement.290
(b) The same person methodology
7.13 In GOES from Italy 291, the US Department of Commerce applied for the first time the same
person methodology, which it had developed on remand after the Delverde III judgment. This
methodology had first been set out in the prelimin ary and then final results of a redetermination
pursuant to a court remand in Acciai Speciali Terni v United States.292
7.14 The same person methodology provides for a two-step test. The first step consists of an
analysis of whether or not the state-owned producer and privatized producer are distinct legal persons.
For this purpose, the US Department of Commer ce examines the following non-exhaustive criteria:
(i) continuity of general business operations; (ii) continuity of production facilities; (iii) continuity of
assets and liabilities; and (iv) retention of personnel. If, as a consequence of the application of these
criteria, the US Department of Commerce concludes that the post-privatization entity is a new legal
person, distinct from the entity that received the pr ior subsidies, the benefit of a prior subsidy would
not be found to continue to reside in the post-privatization producer and the US Department of
Commerce would proceed to examine whether any new subsidy has accrued to the privatized
producer as a result of this change in ownership (and it would do so by assessing whether the sale was
at arm's length and for fair market value). If, as the result of the application of the above criteria, the
US Department of Commerce concludes that no ne w or distinct legal person was created, all the
subsidy is found to continue to reside in the po st-privatization producer and the US Department of
Commerce will not assess whether the privatization was at arm's length and for fair market value.
7.15 In response to Panel question No. 13
293, the United States informed the Panel that, until now,
there have been no cases where the application of the same person methodology in the context of a

287 Delverde Srl. v. United States ("Delverde III") 202 F.3rd 1360 (Fed Cir. Feb 2, 2000) rehg denied
(20 June 2000). Exhibit EC-5 to the EC's first written submission
288 Ibid., at 12.
289 Ibid., at 10.
290 See Appellate Body Report, United States – Imposition of C ountervailing Duties on Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth
II"), WT/DS138/AB/R, adopted 7 June 2000.
291 GOES Admin. Review, supra, footnote 47.
292 Final Results of Redetermination pursuant to Court Remand, Acciai Speciali Terni ("AST") v.
United States Court No. 99-06-00364, (Ct. Int'l Trade 19 December 2000) (unpublished) (Stainless Steel Plate in
Coils from Italy) Exhibit EC–6 to the EC's first written submission
293 "Could the United States provide examples where the application of the same person methodology
in the context of a given privatization has resulted in US Department of Commerce finding that there was no
benefit to the privatized entity?"

given privatization has resulted in the US Department of Commerce finding that no benefit continued
to accrue to the privatized producer.
(c) Section 1677(5)(F)
7.16 The European Communities also requests the Panel to find Section 1677(5)(F) of Title 19 of
the US Code inconsistent with the United States' WTO obligations. Section 1677(5)(F) reads as
follows:
"a change in ownership of all or part of a foreign enterprise or the productive assets of
a foreign enterprise does not by itself require a determination by the administering
authority that a past countervailable subsidy received by the enterprise no longer
continues to be countervailable, even if the change in ownership is accomplished
through an arm's-length transaction."
294
7.17 The legislative history of this statute is discussed hereafter in Section F.
C. THE IMPACT OF PRIVATIZATION ON THE DETERMINATION OF SUBSIDIZATION AND RELATED
COUNTERVAILING DUTIES
1. Parties' claims and arguments
(a) The European Communities' claims and arguments
(i) The gamma methodology
7.18 The European Communities claims that the gamma methodology applied by the United States
in 11 of the countervailing duty determinations before the Panel, and the same person methodology
applied, inter alia, in the administrative review in GOES from Italy , are inconsistent with the SCM
Agreement. For the European Communities, the United States refuses to correctly apply the SCM
Agreement as interpreted by the Panel and Appellate Body in US – Lead and Bismuth II . Since the
United States admits that the gamma methodology is WTO-inconsistent, the European Communities
focused its argumentation on the WTO-compatibility of the same person methodology.
(ii) The same person methodology
7.19 The European Communities submits that the same person methodology is inconsistent with
Article 1.1(b) of the SCM Agreement which requires a determination of the existence of a benefit
before countervailing duties can be imposed.
295 The European Communities claims that this
methodology disregards criteria set down in Articl e 14 of the SCM Agreement that any benefit must
be calculated with respect to the advantage obtained over what was available in the market.
7.20 For the European Communities, when a change in ownership takes place at arm's length and
for fair market value, the benefit attributed to the prior financial contributions (subsidization) does not
continue to accrue to the new economic entity. The European Communities submits that privatization
is a fundamental change in ownership that a fortiori requires a new benefit analysis.296 The European
Communities believes that the standard for determining whether a countervailable benefit continues to
accrue after privatization is not whether the new entity is the "same legal person" as before, but rather

294 Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994); 19 U.S.C. §
1677(5)(F). Exhibit EC–4 to the EC's first written submission.
295 The European Communities believes that any countervailing duties imposed on the basis of this
methodology will be inconsistent with Articles 1.1(b), 10, 14, 19.4, and either 19.1 or 21.1, 21.2, or 21.3
(depending on whether an original or review investigation is at issue). EC's first written submission, para. 126.
296 See EC's first written submission., para. 26.

whether the transaction took place at arm's length and for fair market value. Basing its argument on
the reasoning of the Panel and the Appellate Body reports in US – Lead and Bismuth II, the European
Communities contends that since the benefit does not reside in the assets themselves, a benefit does
not continue to flow from untied, non-recurring financial contributions after a change in ownership for
fair market value at arm's length. The European Communities submits that the only way to support a
finding that the benefit passes through to the new economic entity would be "if fair market value was
not paid for all such productive assets."(emphasis added)
297
"Benefit" under the SCM Agreement
7.21 The European Communities asserts that, contrary to the ruling of the Panel in US – Lead and
Bismuth II, as upheld by the Appellate Body, the United States, through its methodology, is creating a
nearly irrebuttable presumption that the benefit of non-recurring countervailable subsidies resulting
from financial contribution to the state-owned enterprise always passes through to the post-
privatization economic entity. The European Communities believes that this United States'
presumption could only be rebutted if the post-transaction entity disposed of all of its assets, and
started production on another site, with another workforce, and under another brand name. The
European Communities claims that the same person test does not involve any examination of the
existence of a countervailable benefit: therefore it is as WTO-inconsistent as the gamma
methodology.
298
7.22 In response to the United States' argument that a change in ownership or privatization does
not "extract" the subsidy or the benefit from th e company, the European Communities argues that
when the United States uses the word "extract", it appears to be talking about the extraction of
subsidization from productive operations – whether they be workers with enhanced skills, or steel
mills which have been built with the help of subsidies. In its view, the Appellate Body in US – Lead
and Bismuth II clearly found that subsidies do not accrue to productive operations, but rather to legal
persons.
299
Distinct legal persons
7.23 The European Communities considers that the term same person is a disguise for "same
activity". The European Communities argues that this new methodology continues to treat as
irrelevant the terms of the sale, just as the gamma methodology did. The European Communities
believes that the United States is persisting in applying its misconception that the benefit somehow
resides in the assets by examining, not whether the current producer has received any benefit, and
hence a countervailable subsidy, but rather whether the assets and business operations of the company
can be regarded as the same before and after the transaction.
Corporate law principles
7.24 The European Communities rejects the parallel s with corporate law and the distinction
between owners and company invoked by the United States to maintain its position that only when the
subsidy is paid back by the company recipient itself and not by its owners (shareholders) can it
consider that the benefit has been extinguished. For the European Communities, countervailing duties
are applied without reference to the corporate law distinction between owners and the company; this
follows both from the SCM Agreement and the United States' practice. While the European

297 Panel Report, United States – Imposition of Countervaili ng Duties on Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products Originating in the United Kingdom ("US – Lead and Bismuth II "),
WT/DS138/R, as upheld by Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at
298 See EC's first written submission, para. 125.
299 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 58 (footnotes
omitted).

Communities accepts that a distinction between owners and the company can be drawn for general
purposes of corporate or commercial law, this distinction is not relevant for the imposition of
countervailing duties since it is the economic entity which is the subject of the benefit analysis, not
simply the exporting producer subject to investigation.
7.25 In response to the United States's analogy between corporate liability and potential liability
for countervailing duties, the European Communities argues that unlike regulatory and tort law where
liability may vest at the time of the act and liability for environmental damage which arises as of the
date of the action causing the damage, liability for countervailing duties does not arise on the day that
the subsidy was granted but only arises at the time of importation. A subsidized producer may decide
not to export and avoid countervailing duties, while a company cannot simply avoid liability once the
act has been committed. The European Communities explains that a countervailing duty is equivalent
to customs duty and submits that it is inappropriate to say that liability for customs duties is akin to
liability for environmental pollution, or that a corporate successorship test is applicable.
(b) The United States' claims and arguments
7.26 The United States claims that its same person methodology is consistent with the SCM
Agreement and the WTO Agreement and that nothing in the SCM Agreement provides that upon a
change in ownership at arm's length and for fair market value, the benefit accruing to the state-owned
producer when it was provided with a subsidy does not continue to accrue to the new owner(s).
(i) The gamma methodology
7.27 The United States admits that, based on the ruling of the Appellate Body in US – Lead and
Bismuth II and the ruling of the US Court of Appeals for the Federal Circuit in Delverde III, the
gamma methodology was not consistent with either the SCM Agreement or with the United States'
law. Therefore, the United States agrees that the original six investigations and one administrative
review (Case Nos. 1-7), to the extent that the underlying determinations did not fully examine whether
the pre- and post-change in ownership entities involved were the same legal person, are inconsistent
with its WTO obligations. The United States claims to be prepared to bring these determinations into
conformity, to the extent that it has not already done so. The United States points out that all six of
the original investigations challenged by the Eu ropean Communities that were determined under the
gamma methodology are currently in litigation before the CIT.
300 The US Department of Commerce
adds that although it was not obligated to do so by the Appellate Body in US –Lead and Bismuth II, it
has, in the context of the domestic litigation, revised its determinations in the four cases (Case Nos 1,
2, 4 and 6) which are proceeding, applying its new same person methodology. Since the United
States claims that the European Communities ha s not challenged the four remand determinations
before the WTO Panel, it asserts that the Panel's review is limited to the six original determinations in
which the US Department of Commerce applied its old methodology.301
(ii) The same person methodology
7.28 The United States submits that its new same person methodology is consistent with the SCM
Agreement and was specifically designed to take into account the Panel and Appellate Body rulings in
US – Lead and Bismuth II and the US Court of Appeals for the Federal Circuit ruling in Delverde III.
The United States reminds the Panel that the only case before it where the same person methodology
was applied by the US Department of Commerce is G from Italy (Case No. 12).

300 Case Nos. 3 and 5 are stayed; the other four (Case Nos. 1, 2, 4 and 6) have been briefed and are in
various stages before the respective judges. See EC's first written submission, paras. 84-101.
301 See US' first written submission, para. 85.

7.29 The United States maintains that the same person methodology is firmly grounded in sound
economics and in the principles of corporate successorship that apply in both the United States and
the European Communities. Pursuant to the methodology, one corporate entity may be considered to
be the successor of another if, in substance, it is the same legal person. As the US Department of
Commerce explained, the various criteria that go into the determination of whether a nominally
different company should be treated, in substance, as the same person, are just "factors" (which
include: (i) continuity of general business operations; (ii) continuity of production facilities;
(iii) continuity of assets and liabilities; and (iv) retention of personnel). The United States claims
there is no basis for asserting that all of the criteria must weigh in favour of finding that no new
corporate entity was created before such a finding is actually made.
7.30 The United States finds support for its same person methodology in the wording of the SCM
Agreement, the Appellate Body ruling in US – Lead and Bismuth II , in corporate law principles and
draws parallels with corporate liabilities.
"Benefit" in the SCM Agreement
7.31 The United States contends that the nature of countervailable benefits is made plain by
Articles 1 and 14 of the SCM Agreement. It explains that a countervailable benefit is that part of a
financial contribution that is obtained on terms more generous than those the recipient could have
obtained commercially. In its view, countervailable benefits are, in essence, simply fixed sums of
money, which (in the case of non-recurring benefits) are amortized over time.
302
7.32 The United States maintains that, because countervailable benefits, once identified, and
valued, are essentially, amounts of money, the method by which they may be terminated is
straightforward: that amount of money is amortized over time, unless the recipient pays back the
remaining non-amortized amount. The United States agrees that such a repayment could occur in
conjunction with a change in ownership and, und er its new methodology, it would investigate any
claim that such a repayment has occurred. However, it adds, the SCM Agreement provides no basis
for concluding that an arm's length and fair ma rket value change in the ownership of a subsidy
recipient, automatically eliminates or extracts the benefit conferred on the company.
7.33 The United States submits that the European Communities has not sufficiently explained how
"fair market value extinguishes subsidies", nor has it shown where there is any basis for this
conclusion in the SCM Agreement.
303 The United States' reasoning is based on its interpretation of
the Appellate Body's finding in US – Lead and Bismuth II that subsidies are bestowed on legal
persons. The United States believes that this means that subsidies continue to reside in the recipient
legal person unless they are taken out of that person, or the person is dissolved. 304 The United States
notes that the European Communities itself has acknowledged that a subsidy "resides with the natural
or legal person which originally received the subsidy," not the owner of that person.
305 Based on its
understanding of the fact that subsidies reside in the recipient legal person, the United States believes
that what must be determined after a change in ownership has occurred is whether the subsidies have
been paid back or not transferred to the new producer of the subject merchandise. The United States
maintains that its current methodology examines just that; it is therefore consistent with the SCM
Agreement.306

302 See US' second written submission, para. 4.
303 See US' second written submission, para. 7.
304 See US' second written submission, para. 16.
305 The United States refers to the EC's first written submission, para. 12.
306 See US' second written submission, paras. 11 and 16.

"Distinct legal person"
7.34 The United States maintains that the US Department of Commerce's revised change in
ownership methodology, i.e. the same person methodology, is consistent with the SCM Agreement,
particularly as interpreted by the Appellate Body in US – Lead and Bismuth II . In this regard the
United States explains that, in its report, the Appellate Body agreed with the Panel (based on the
Appellate Body's own findings in Canada – Aircraft) that a subsidy must be received by the natural or
legal person that produced or exported the subject merchandise. The United States notes that the
European Communities itself has accepted that, "the Appellate Body agreed that where the change in
ownership has lead to the creation of a different legal person from the subsidy recipient any benefit
must be assessed from the perspective of the post-transaction entity."
307 The United States contends
that, where that basic premise is missing – that is, where a change in ownership has not led to "the
creation of a different legal person" – the Appellate Body's reasoning in US – Lead and Bismuth II
does not require the US Department of Commerce to find that the subsidies were eliminated. 308 The
United States contends, that in reaching the conclusion that the conditions of application of the SCM
Agreement had to be re-examined, the Appellate Body has put more emphasis on the fact that the
privatized producers were distinct legal persons from the state-owned producer, than on the fact that
there was a change in ownership for consideration. In particular, the United States insists on the fact
that the Appellate Body, when quoting and upholding the Panel's conclusion, did not make any
reference to change in ownership "for consideration". For the United States, this is evidence that the
change in ownership for fair market value was no t the dispositive criteria for the Appellate Body's
reasoning.
Corporate law principles
7.35 The United States invokes corporate law principl es to provide logical support for its use of a
"distinct legal person" test and its consideration that fair market value payment by the shareholders
(the owners) of the privatized company for the pu rchase of the state-owned enterprise does not
extinguish a prior benefit attributed to that state-owned enterprise. The United States contends that
the distinction between owners and companies is real and cannot be ignored. The United States
further submits that it has demonstrated (and the European Communities does not dispute) that the
distinction between a company and its owners is fundamental in most jurisdictions, including the
European Communities. In its view, given this fact, it is not possible to interpret the SCM Agreement
as if this distinction does not exist, or as if the WTO Members disavowed it in drafting the SCM
Agreement, without giving the slightest indication that they were doing so.
7.36 For the United States, the distinction between owners and companies is unavoidable, and this
is confirmed by the fact that the Appellate Body has established that subsidies are received by legal
persons, not by the owners of those persons or "economic entities".
309 The United States submits that
the European Communities' assertion that no distinction can be made between companies and their
owners flouts the corporation laws of both the United States and the European Communities, which
have as their very cornerstone the concept that companies are legal persons distinct from their owners.
It further submits that while the Panel in US – Lead and Bismuth II may have endorsed the European
Communities' position, the Appellate Body did not say that no distinction could ever be drawn
between companies and their owners.310

307 The United States refers to the EC's first written submission, para. 50 (emphasis added).
308 See US' first written submission, para. 42.
309 The United States refers to Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at
para. 58.
310 The United States compares the Panel Report, US – Lead and Bismuth II, WT/DS138/R, at para.
6.82 with the Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at paras. 62-64.

7.37 The United States submits that, because the European Communities cannot explain how the
payment of fair market value by the new owner of a subsidized company extracts subsidies from that
company, it now asserts that the admitted distinction between owners and companies should be
disregarded for the purpose of analysing the existence of subsidies, because subsidies are received by
"economic entities."311 The United States submits that the European Communities wants the Panel to
embrace this new concept so that the Panel will treat money taken out of an owner's pocket as having
been taken out of the company, potentially eliminating subsidies that reside in that company.
7.38 The United States contends that countervailing duty exposure is very much like potential tort
liabilities – both are potential burdens upon the earnings of the company that a prospective purchaser
would take into account just as surely as it would take account of potential tort liabilities. As with
other corporate liabilities, the United States argues that once a company receives a non-recurring
subsidy, the potential for countervailing duties exists. The United States contends that that potential
liability may materialize if someone (an injured industry in an importing Member) files a
countervailing duty petition. Alternatively, it adds, the company can take steps to cure the harm by
voluntarily repaying the subsidy or stopping its injurious exports. Moreover, the United States
affirms, just as a producer that has caused environmental damage in another country could well
escape that potential liability by repairing that damage or by ceasing certain operations in that
country, a subsidized steel producer could avoid countervailing duties by disgorging the subsidies or
by ceasing to export to countries with countervailing duty orders..
312
2. Evaluation by the Panel
7.39 The main issue before the Panel is to assess the legal consequences, under the SCM
Agreement, of a change in ownership leading to the privatization of state-owned producers. More
precisely, the 12 countervailing duty determinations being contested all relate to a change in
ownership from wholly-owned state enterprises to private producers – i.e., privatization . In all these
cases, a countervailable non-recurring subsidy had been granted prior to the privatization. The non-
recurring subsidy had been allocated over time (e.g., 12 years) and the privatization took place before
the non-recurring subsidy had been fully amortized. In short, the question before us is whether an
arm's-length privatization for fair market value can extinguish an otherwise countervailable subsidy,
and if so, what are the implications for the 12 determinations at issue.
7.40 We should therefore begin our examination by reviewing the object and purpose of the SCM
Agreement, and in particular the conditions of application of countervailing duties. The core legal
question before us is the determination of the existence of "benefit" within the meaning of the SCM
Agreement following a change in ownership through privatization.
313 In particular, the Panel will
have to determine to whom the benefit accrues – more specifically whether a distinction must be

311 The United States refers to the EC's response to question No. 9 posed by the Panel, para. 13.
312 US' statement at the second substantive meeting, paras. 31-34.
313 Throughout this dispute and in this Panel Report, parties and the Panel have referred to the "pass-
though or continuation of benefits" from the state-owned producer to the privatized producer, or the "pass-
though or continuation of a benefit from a prior subsidy or subsidization" or the "pass-through or continuation of
a prior subsidy or subsidization". As further discussed hereafter, a subsidy or subsidization exists if there is a
financial contribution and a benefit. Absent any benefit, there cannot be any subsidy or any subsidization.
Hence the benefit resulting from (prior) financial contribution, or benefit from prior subsidy or subsidization
refers to the "benefit" component of the subsidy provided to the state-owned producer, In this dispute we deal
with original investigations as well as with administrative and sunset review investigations and our reasoning
applies to all three types of determination. In the case of original investigations, it may be more accurate to
refer to "benefit from prior financial contribution" while in the case of review determinations, it may be more
accurate to refer to "benefit from prior subsidies". We note that the European Communities does not contest
before this Panel that subsidization was provided to state-owned enterprises. The issue is rather whether the
benefit component of this subsidization continues to accrue to the privatized producer.

made between the "benefit to the owners" of the co mpany and the "benefit to the company itself" –
and how the existence of a benefit must be established when privatization has taken place.
(a) Objective and conditions for applying countervailing duties under the SCM Agreement.
7.41 In the WTO, subsidies are regulated, and so is the use of countervailing duties imposed to
offset the impact of subsidization. Article VI of GATT 1994 and footnote 36 of Article 10 of the
SCM Agreement314, specify the purpose of countervailing duties. In particular, Article VI.3 states:
"The term 'countervailing duty' shall be understood to mean a special duty levied for
the purpose of offsetting any bounty or subsidy bestowed, directly or indirectly, upon
the manufacture, production or export of any merchandise."
7.42 We note at the outset that countervailing duties are not designed to counteract all market
distortions or resource misallocations which might have been caused by subsidization.
7.43 Article 10 provides that countervailing duties may only be imposed consistently with the
SCM Agreement, and, in particular, specifies that a countervailing duty may be imposed to offset any
subsidy bestowed. The SCM Agreement provides that countervailing duties may be imposed on
imported goods provided that three basic conditions are fulfilled, namely: (i) imported products are
subsidized; (ii) there is injury to the domestic industry producing the like products; and (iii) there is a
causal link between the subsidized imports and the injury. The focus of this dispute is mainly
concerned with the fulfilment of the first condition, i.e. the determination of subsidization and in
particular that of a "benefit".
(b) The existence of a "benefit"
7.44 Article 1.1 of the SCM Agreement provides that a subsidy will exist only if there is a
financial contribution by a government which confers a benefit.315 This determination of a benefit (as
a component of subsidization) must be made before countervailing duties can be imposed, and permits
a calculation of the extent of subsidization, as required under Articles 19.4 and 21.1.
7.45 However, the SCM Agreement does not define "benefit". In its Canada – Aircraft Report
the Appellate Body held that benefit should be understood as a benefit to a "recipient", i.e. a natural or
legal person:
"A 'benefit' does not exist in the abstract, but must be received and enjoyed by a
beneficiary or a recipient. Logically, a 'benefit' can be said to arise only if a person,
natural or legal, or a group of persons, has in fact received something. The term
"benefit", therefore, implies that there must be a recipient."316
7.46 As the Appellate Body has found, any "benefit", and hence the benefit stream from non-
recurring subsidies, must be viewed from the perspective of a natural or legal person. The benefit is

314 Footnote 36 to Article 10 of the SCM Agreement, which provides: "The term "countervailing duty"
shall be understood to mean a special duty levied for the purpose of offsetting any subsidy bestowed directly or
indirectly upon the manufacture, production or export of any merchandise, as provided for in paragraph 3 of
Article VI GATT 1994."
315 Article 1.1 of the SCM Agreement states: "For the purpose of this Agreement, a subsidy shall be
deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within the territory
of a Member (referred to in this Agreement as 'government'), … and
(b) a benefit is thereby conferred."
316 Appellate Body Report, Canada – Measures Affecting th e Export of Civilian Aircraft ("Canada –
Aircraft"), WT/DS70/AB/R, at para.154.

not to be determined with reference to "cost to government" 317 and does not reside in or attach to the
productive assets:
"The United States argues, on the basis of footnote 36 to Article 10 of the SCM
Agreement and Article VI:3 of the GATT 1994, that the relevant "benefit" is a
benefit to a company's productive operations, rather than, as the Panel held, a benefit
to legal or natural persons . It is true, as the United States emphasizes, that
footnote 36 to Article 10 of the SCM Agreement and Article VI:3 of the GATT 1994
both refer to subsidies bestowed or granted directly or indirectly "upon the
manufacture, production or export of any merchandise". In our view, however, it
does not necessarily follow from this wording that the "benefit" referred to in
Article 1.1(b) of the SCM Agreement is a benefit to productive operations."318
7.47 Indeed, in US - Lead and Bismuth II the Appellate Body rejected the United States' argument
that the subsidy "resides" in the productive operati ons of the company. The benefit determination is
concerned with the advantage319 to the producer exporting the goods subject to a countervailing duty
investigation or order. This provides textual suppor t for the view that the focus of the inquiry under
Article 1.1(b) should be on the recipient and not on the granting authority. 320 We believe that the
enquiry should be on the benefit to a natural or legal person, and not on the "productive operations or
the products".
321
(i) Who is the recipient of the benefit in the case of a change in ownership?
7.48 The "benefit" in Articles 1.1 and 14 of the SCM Agreement is concerned with the "benefit to
the recipient". In the present dispute which involves a change in ownership, the issue is to identify
the relevant entity for the purpose of determining the recipient of a benefit. We agree with the United
States that a subsidy is "paid" or "given" to a legal person, to a company and not directly to the
owners or the shareholders themselves.
7.49 In terms of identifying the relevant legal or natural person for the purpose of determining the
existence of a benefit and its recipient, the United States makes a distinction between the owners
(shareholders) and the company itself. It claims that the financial contribution and, the benefit
therefrom, "reside" in the legal person or company and continue to accrue to the same legal person,
even when the ownership changes. The United Stat es submits that if the company itself is the same
legal person as before the privatization, that company may still benefit from the prior financial
contributions. For the United States, privatization does not automatically result in a change of the
legal personality of the producer. If the state-owned producer and privatized producer are the same
legal person, the financial contribution and benefit therefrom, provided to the state-owned producer
"resides", per se, that legal person or company and continues to accrue to the legal person now owned
by the shareholders of the privatized producer. For the United States, the change in ownership itself
does not affect the determination of the existe nce of benefit which remains in the company.
322 That
same company, that same legal person, is the recipient of the benefit. The United States argues that
the Panel should not treat money taken out of an owner's pocket as having been taken out of the
company, potentially eliminating subsidies that reside in the company.

317 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at para.153.
318 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 56 (footnote
omitted).
319 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at para.153.
320 Ibid., at para. 154.
321 Ibid., at paras. 154–155 . See also Appellate Body Report, Brazil – Export Financing Programme
for Aircraft ("Brazil – Aircraft ") WT/DS46/AB/R, adopted 20 August 1999, para. 157; and Appellate Body
Report, US – Lead and Bismuth II, WT/DS138/AB/R, at paras. 56-58. Note that benefit is also a concept
distinct from that of the "costs" to the government granting the subsidy.
322 See supra, para. 4.59.

7.50 We are of the view that the distinction between a company and its shareholders as used by the
United States is not appropriate in the context of the SCM Agreement. We agree that for the purpose
of the national corporate law of the United States and many other WTO Members, a distinction may
be drawn between shareholders and the company. However the SCM Agreement does not make any
reference or any distinction between shareholders and the company when it discusses the need to
establish the benefit. Articles 1, 10 and 14 of the SCM Agreement make references only to
"recipient" (or "benefit to recipient") and to "producer". The concept of benefit is independent of the
legal business structure established pursuant to national corporate law. This is so because the SCM
Agreement is concerned with identified adverse trade effects of subsidization on the domestic industry
producing the like product. The production and export of goods is done by a producer for the purpose
of generating an economic benefit to its owners. When the existence of a subsidy improves the ability
of a producer to produce and export a good, it necessarily impacts on its profitability, and, therefore,
on the rate of return to shareholders.
7.51 In fact, in a market-based economy, the value of a company depends on its ability to generate
returns for its shareholders. Where this ability has been improved by the subsidization, the value of
the benefit conferred by a financial contribution should be reflected in the overall market value of the
company which received it. When someone purchases a company for fair market value, the purchase
price includes the value of the benefit conferred to that company. For the purpose of benefit
determination based on market criteria (an element which we develop further below), there should be
no distinction between the advantage or benefit conferred by the financial contribution to the
company or to the shareholders, i.e. the owners of the company.
7.52 We note that the Panel in US – Lead and Bismuth II reached the same conclusion with regard
to UES and BS plc/BSES companies and its owners:
"In our view, it is irrelevant that the aforementioned fair market value was paid by the
(new) owners of UES and BS plc/BSES respectively, rather than those companies
themselves. Any approach requiring that fair market value be paid by the company
itself, rather than its owners, would elevate form over substance. In the context of
privatizations negotiated at arm's-length, for fair market value, and consistent with
commercial principles, the distinction between a company and its owners is
redundant for the purpose of establishing "benefit". Following privatization at arm's-
length, for fair market value, and consistent with commercial principles, the owners
of the privatized company will be profit-maximizers, set on obtaining a market return
on the entirety of their investment in the privatized company. Ultimately, therefore,
the owners' investment in the privatized company will be recouped through the
privatized company providing its owners a market return on the full amount of their
investment. In such circumstances, it would be misleading in the extreme to suggest
that the price paid by the owners of the privatized company is not ultimately paid by
the privatized company itself."
323
7.53 The Panel also notes that in 1993 the US Department of Commerce expressed this same view
very clearly:
"Merely because a company has been incorporated to protect its owners from the
company's legal liabilities or for beneficial tax and accounting purposes (or both), it
does not follow that the financial condition of the owners is irrelevant to the financial
position of the firm. The form in which new owners purchase the government
company creates no appreciable difference in how that company will be operated
overall. The fact that the owners are shareholders and raise capital to purchase the
government-owned company through new share issuings, rather than the company

323 Panel Report, US – Lead and Bismuth II, WT/DS138/R, at para. 6.82.

itself taking on debt, does not mean that the owners can be indifferent to the profit
margin the company generates, as petitioners assert. Rather, in the real-world
marketplace, the owner-shareholders' expectations of a return on their investment
cannot be separated from the profitability of the newly privatized company. (…) The
owners will seek to extract a rate of return from their company at least equal to that of
alternative investments of similar risk. There is, then, no appreciable difference, as
reflected in the marketplace, between the profit-making ability of the company and
the owners' realization of a profitable return on their investment in that firm (…) To
adopt the petitioners' rationale that only a full repayment by the new company can
extinguish past subsidies would create a te st that would elevate form over substance
and produce incentives for foreign governments merely to alter the form of the
privatization to satisfy this artificial distinction."324
7.54 We conclude that, for the purpose of the benefit determination under the SCM Agreement, no
distinction should be made between a company and its shareholders, as together they constitute a
producer, a natural or legal person that may be the "recipient" of the benefit to be assessed. Any
artificial distinction between owners (shareholder s) and company ignores the relationship between a
company and its owners, and it is this relationshi p that changes upon privatization. When the SCM
Agreement refers to the recipient of a benefit it means the company and its shareholders together,
being the producer of the exported goods subject to the countervailing investigation (order).
7.55 We note that the criteria used in the United States' same person methodology: (i) continuity
of general business operations; (ii) continuity of productive facilities; (iii) continuity of assets and
liabilities; and (iv) retention of personnel, all relate to the production assets of the concerned
enterprises. The continuous reference by the United States to the fact that privatization would not
"extract" subsidization from the company, appears to link the subsidization and the benefit accrued to
the productive operations and assets.
325 The United States maintains that, because countervailable
benefits, once identified and valued are essentially amounts of money, the only methods by which
they may be terminated are: amortization over time or the reimbursement of the non-amortized
amount by the recipient company. In doing so, the United States seems to be "attaching" the benefit
to the productive operation and neglecting the fundamental purpose of productive operations in a
market-based economy which is to generate returns on someone's investment. The Panel recalls that
benefit does not accrue to productive operations, but rather to legal persons, as the Appellate Body
made clear in Canada – Aircraft
326 and in US – Lead and Bismuth II.327
7.56 The Panel is of the view that in a countervailing duty investigation the focus should be on the
producer (company and its owners) exporting the pro ducts alleged to be subsidized with a view to
assessing whether it is the recipient of a benefit pursuant to the SCM Agreement.
(ii) How the benefit should be assessed: Against the market
7.57 The term "benefit" effectively represents the "f inancial advantage" that, by reference to a
market benchmark, the recipient gets for "free". This financial advantage is what the recipient has not
"paid for". In the case of a "benefit" conferred by untied, non-recurring "financial contributions", the
United States seems to presume that such a "benefit" is used to the advantage of future production

324 The full statement of the US Department of Commerce can be found in General Issues Appendix ,
supra, footnote 84, at 37262.
325 Note that the United States admits that a benefit resides with the natural or legal person which
originally received the subsidy. See US' first written submission, para. 50.
326 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at paras. 154-156.
327 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 56.

through investment in productive assets. In th is sense, the beneficiary of untied, non-recurring
"financial contributions" is deemed to have acquired productive assets for "free".328
7.58 We are of the view that the word "benefit", as used in Article 1.1(b), implies a comparison
which we believe is market-based. Indeed, in Article 14, all the benchmark comparisons relate to
market conditions: "usual investment practice" in 14(a); "comparable commercial loan … on the
market" in 14(b); "comparable commercial loan absent the government guarantee" in 14(c); "adequate
remuneration … in prevailing market conditions" in 14(d).
7.59 In Canada – Aircraft the Appellate Body confirmed this view that the "benefit" analysis
implies a comparison, and that the comparison should be made with the marketplace:
"This must be so, for there can be no "benefit" to the recipient unless the "financial
contribution" makes the recipient "better off" than it would otherwise have been,
absent that contribution. In our view, the marketplace provides an appropriate basis
for comparison in determining whether a "ben efit" has been "conferred", in the sense
of determining whether the recipient has received a "financial contribution" on terms
more favourable than those available to the recipient in the market.
329
(c) The particular circumstances of privatization
(i) A particular change in ownership
7.60 Privatization is a very particular and complex change in ownership. It involves a fundamental
transformation of a government-owned and controlled entity into a privately-owned, market-oriented
company. Following privatization and consistent with commercial principles, the owners of the
privatized company should be profit-maximizers, set on obtaining a market return on the entirety of
their investment in the privatized company. Ultim ately, therefore, the owners' investment in the
privatized company will be recouped through the privatized company providing its owners a market
return on the full amount of their investment.
7.61 We note again that the US Department of Commerce statement in this regard is most relevant:
"Rather, in the real-world marketplace, the owner-shareholders' expectations of a
return on their investment cannot be separated from the profitability of the newly
privatized company. Privatized companies (and their assets) are now owned and
controlled by private parties who are profit-maximizers. Unlike the former company,
which did not need to earn a return on capital when owned and controlled by the
government (i.e., when the government is 100 percent owner there is no necessity of
paying dividends to itself), the privatized firm now faces the same capital market as
its competitors. … Put another way, the privatized company now has an obligation to
provide to its private owners a market return on the company's full value."'
330
7.62 In their arguments before the Panel, both parties referred to the issue of change in ownership
per se , and developed a distinction between a partial and a complete change in ownership. The
European Communities initially argued that any change in ownership would necessitate a re-
evaluation of the benefit. The United States argued that since ownership of publicly traded companies
and their market value change every day, a re-evaluation at every change in ownership would be
impracticable. The European Communities responded that the change in ownership must be of a
sufficient magnitude so as to change the control of the enterprise and thus trigger a re-evaluation of

328 Panel Report, US – Lead and Bismuth II, WT/DS138/R, at footnote 80.
329 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, at para. 157.
330 General Issues Appendix, supra, footnote 84, at 37262.

the conditions of application of the SCM Agreement. We have not considered it necessary to address
all those situations, as we have before us 12 determinations where the relevant government had sold
all, or substantially all, its ownership interest and clearly no longer had any controlling interest in the
privatized producer. state-owned.
(ii) Whether privatization triggers the obligation to (re-)examine the conditions of application of
the SCM Agreement
7.63 The European Communities claims, and the United States admits, that in case of a change in
ownership (including privatization), the investigating Member is under the obligation to (re)consider
the conditions of application of the SCM Agreement. 331 The dispute arises over a difference in what
examination fulfils that obligation. The European Communities claims that the investigating authority
must determine whether the privatization took place at arm's-length and for fair market value. The
United States maintains that the investigating aut hority need only look into the nature of the
privatization transaction if the post-privatization entity is a "distinct legal person" from the original
state-owned producer.332
7.64 The Panel is of the view that the SCM Agreement requires that when a Member is informed
of a privatization of a state-owned producer whose exports are subject to a countervailing duty order
or investigation, the importing Member must (re)ex amine the conditions of application of the SCM
Agreement vis-à-vis the new privatized producer. There is a fundamental reason for that requirement.
7.65 As we mentioned before, after the privatization, a new privatized producer is exporting the
products which are the object of the countervailing duty investigation. In the 12 cases before us the
governments had severed their control over the state-owned producers upon privatization. The
privatized producers could no longer rely on govern ment financing for their operations and could no
longer receive things for free. Indeed, it is reasonable to assume that the act of privatization has
involved a payment for the assets and the shares of the state-owned producer. A payment for
consideration necessarily implies that the privatized producer may not have received anything for
free. In fact, as we explain in greater detail hereafter, if this payment for consideration reflects fair
market value in an arm's-length transaction, the privatized producer will not have received any
benefit.
333 Therefore, after a privatization, the conditions of the SCM Agreement should be
(re-)examined vis-à-vis the privatized producer, since it is possible that the advantage, the benefit
from the prior financial contribution (subsidization), has been extinguished vis-à-vis the privatized
producer.
7.66 For the United States, in case of a change in ownership, the focus of this benefit
determination is only the company/producer, which, the United States claims, may not have changed
into a distinct legal person when privatized; since the benefit resides in the company, so long as the
company remains the same legal person, the benefit continues to accrue to the privatized producer.

331 See EC's second written submission, para. 26; and US's second written submission, para. 11.
332 The United States has admitted that in a situation where a person purchased 100 per cent of the
shares of a producer at fair market value, the new ow ner does not receive any benefit from the transaction. See
US' first written submission, para. 53; US' second written submission, para. 9; and US' statement at the second
substantive meeting, para. 19.
333 The economic reasoning behind this is that the subsidy bestowed to the state-owned producer will
necessarily be reflected in the balance sheet of the state-owned producer. Following privatization (where
ownership shifts from the public to private sector), the sale price paid for the assets and shares of the state-
owned producer will include a valuation of the advantage brought by the financial contribution, i.e. the benefit
pursuant to the SCM Agreement. As we will elaborate further below, when this valuation reflects market
conditions, the benefit would be extinguished, since it has been fully paid for.

7.67 The Appellate Body in US – Lead and Bismuth II 334, has recognized that following the
privatization of the state-owned producer BSC, the US Department of Commerce should have
re-examined and reconsidered the continuing existence of the benefit stream for the new privatized
producers, UES and BS plc/BSES.
"We agree with the panel that … the changes in ownership leading to the creation of
UES and BS plc/BSES should have cause d the USUS Department of Commerce to
examine whether the production of leaded bars by UES and BS plc/BSES
respectively, and not BSC, was subsidized."335 (emphasis added)
7.68 From our reading of the Panel and the Appellate Body reports in US – Lead and Bismuth II ,
the Appellate Body does not seem to have based any of its findings on the premise that BSC and, UES
and BS plc/BSES were two distinct legal person s or that UES and BS plc/BSES were engaged in
commercial and industrial activities that were distinct from that of BSC, as suggested by the United
States. The parties seem to have accepted that the operations of BSC were the same as those of UES
and BS plc/BSES.
336 To us, it seems that the privatization of BSC that led to the creation of UES and
BS plc/BSES did not appear to have led to distinct legal persons using the criteria applied by the
United States in the same person methodology (i.e. continuity of general business operations,
continuity of production facilities, continuity of assets and liabilities, and retention of personnel).
Still, the Appellate Body concluded that the focus of the benefit determination was to be the
privatized producer and not the state-owned producer, the company, or the productive operations.
7.69 The United States also insists on the fact that, in its view, the Appellate Body's conclusion in
US – Lead and Bismuth II – that the condition of application of the SCM had to be re-examined vis-à-
vis the privatized producer – was based on the assumption that the privatized producers was a distinct
legal person from the state-owned producer, and not on the fact that there had been a change in
ownership for consideration. In particular, the Un ited States insists that the Appellate Body, when
quoting and upholding the Panel's conclusion, did not make any reference to change in ownership "for
consideration". For the United States, this is evidence that the change in ownership at arm's-length
and for a fair market value was not relevant to the Appellate Body's reasoning.
7.70 We disagree with the United States' reading of the Appellate Body Report in US – Lead and
Bismuth II. In our view, when the Appellate Body wanted to express disagreement with the Panel
report, it did so quite explicitly (as it did with regard to the nature of the examination process under
administrative review
337). In addition, since the parties had admitted that the privatization had taken
place at fair market value, it would follow that full consideration was paid; therefore the Appellate
Body did not have to address the issue of consideration. We note also that the Appellate Body upheld
the Panel's conclusion that it was the change in ownership leading to the creation of the privatized
producers that triggered the obligation to re-examine the conditions of application of the SCM
Agreement.
338 Since the US Department of Commerce's finding of the continuing countervailable
"benefit" to the privatized producer was effectively based on the old state-owned company acquiring
productive assets etc. for free, a privatization for consideration raises the possibility that the original
"benefit" determination in respect of the state- owned producer is no longer valid for the new

334 In that case the change of ownership was invoked in the context of an administrative review.
335 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 62.
336 See the Panel Report, US – Lead and Bismuth II, WT/DS138/R, at para. 6.70 referring to the US'
responses to that Panel's questions where the United Stat es itself argued that the state-owned producer and the
privatized producers were conducting the same operations.
337 See Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 63.
338 "In this case, given the changes in ownership l eading to the creation of UES and BS plc/BSES, the
US Department of Commerce was required under Article 21.2 to examine, on the basis of the information
before it relating to these changes, whether a "benefit" accrued to UES and BS plc/BSES." Appellate Body
Report US – Lead and Bismuth II, WT/DS138/AB/R, at para. 62.

privatized producer (the company and/or its owners). This is even more so when there is an allegation
of a fair market value transaction at arm's-length.
7.71 The Panel concludes, therefore, that when informed of the privatization in each of the
12 determinations at issue, the United States should have examined whether each privatized producer
"was subsidized", namely whether it had received any benefit from the prior financial contribution
(subsidization) to the state-owned producer.
(iii) Did the privatized producer get any "benefit" from the prior financial contribution?
7.72 When a state-owned company/producer receives subsidies from the government, the
advantage conferred by the subsidy should be reflected in the fair market value (sale price) of the
state-owned enterprise to be privatized. Thus, if upon privatization, fair market value is paid for all
productive assets, goodwill, etc. employed by the state-owned producer, the Panel fails to see how the
subsidies bestowed to the state-owned producer could subsequently be considered to still confer a
"benefit" on the privatized producer (in the sense of the company together with its owners) who has
paid fair market value for all the shares and assets, reflecting, we must assume, the value of past
subsidization. The privatized producer will not have received a benefit or any advantage, because it
has received nothing for free: all assets which it has acquired, further to the privatization transaction,
have been fully paid for under normal market conditions, and it is those market conditions that serve
as a benchmark for assessing the benefit to the privatized producer, as envisaged in Article 14 of the
SCM Agreement. Furthermore, since the fair market value paid to the state-owned producer is
deemed to include ( de facto ) the value of the advantage or benefit already received, the Panel
considers that the privatization transaction for fa ir market value includes the repayment to the
government of the subsidy as valued by the market at the time of privatization.
339
7.73 The United States admits that the owners of the privatized producer have not received any
new benefit from the transaction, since they paid fair market value for what they purchased and have
not received anything for free. The United States claims, however, that the benefit from prior
financial contributions (subsidization) to the state-owned producer remains in the privatized
company/producer, because the United States makes a distinction between the owners and the post-
privatization company itself. It claims that privatization does not automatically result in a change of
the legal personality of the producer; hence the state-owned producer and privatized producer being
the same, the financial contribution and benefit therefrom, provided to the state-owned producer
"reside" in the legal person or company and continues to accrue to the legal person now owned by the
privatized producer.
7.74 To the argument that the new owners have paid for everything they got upon the privatization,
the United States replies that the owners may not have received any new benefit if the transaction was
made at arm's-length and for fair market value, but the company itself, the producer – if it is still the
same legal person as before the privatization, may still benefit from the prior financial contributions.
The United States argues that the Panel should not treat money taken out of an owner's pocket as
having been taken out of the company, potentially eliminating subsidies that reside in the company. It
adds that if the company (not the owners) producing the goods subject to countervailing duties, itself
pays back the subsidy, or if the assets of the state-owned producer are sold to a new and distinct legal
person producing the same goods, then the benefit (and thus subsidization) may be extinguished. The
United States insists that a distinction must be drawn between the shareholders and the company; that
the subsidy "resides" in the company and remains ther e; and that payment of fair market value by the

339 This does not suggest a "cost-to-government" approach to a determination of benefit. The nominal
cost of the financial contribution may have little to do with the price sold, which will be dictated by the market,
not by the government past financing situation. What this clearly entails is that there has been a market
assessment of the value of the benefit bestowed to the state-owned producer and that that benefit has now been
fully paid for.

owners of the producer does not extinguish the benefit to that same pre/post privatization producer.
Therefore, it considers that it is obliged to examine the conditions of the transaction – and whether the
change in ownership took place at arm's-length and for fair market value – only when the privatized
producer is determined to be a distinct legal person from the state-owned producer which received the
prior financial contribution.
7.75 In the Panel's view, the United States' methodology does not recognize that privatization by
itself can change the benefit determination under the SCM Agreement; the United States attempts to
identify the recipient of the benefit determination with reference to the initial recipient of the financial
contribution. The Panel understands that it is a normal and accepted practice (including both in the
United States and the European Communities), for the importing Member to presume that a
non-recurring subsidy will provide a benefit over a period of time, which is normally presumed to be
the average useful life of assets in the relevant industry. We note that nothing in Article 1.1 nor
Article 14 of the SCM Agreement explicitly provides for such a possibility. This practice is based on
the fact that a non-recurring financial contribution will not be treated by a company as attributable
solely to the current period but will be considered as providing a lasting benefit over an extended
period of time. The investigating authority normally assumes that this extended period of time will be
the amortization period used in the relevant sector.
340
7.76 In our view, a privatization at arm's-length and for fair market value extinguishes the benefit
to the privatized producer, which benefit the market has valued when assessing the fair market price
which the privatized producer has fully paid for upon the privatization. This is to say that a
privatization at arm's-length and for fair-market value reverses the presumption that the benefit of a
non-recurring financial contribution which has been allocated within a given period of time will
continue to accrue to a recipient during the allocated period. Therefore, if it wants (to continue) to
apply countervailing duties, the importing Member must demonstrate, based on its examination of the
conditions of the privatization, that the privatized producer (still) benefits from the prior financial
contribution (subsidization).
7.77 In the Panel's view, the United States' same person methodology, as such, prohibits the
examination of the conditions of the privatization-transaction when the privatized producer is not a
distinct legal person based on criteria relating mainly to the industrial activities of the producers
concerned. In applying its methodology the US Department of Commer ce does not assess whether
the privatized producer has received any benefit from prior financial contributions. In fact the United
States twice admitted that the new owner(s) of the privatized company do not get any new benefit
from the prior financial contribution when it/they paid fair market value for the assets and the shares
of the state-owned producer. But the United States argues that the company continues to "carry" the
benefit stream allocated over the lifetime of certain productive assets. We disagree. We believe that
privatization calls for a (re)determination of the existence of a benefit to the privatized producer, and
that fair market value payment by the privatized producer (and its owners) extinguishes the benefit
resulting from the prior financial contribution (subsidization) bestowed upon the state-owned
producer, because no advantage or benefit accrued to that privatized producer over and above what
market conditions dictate pursuant to Article 14 of the SCM Agreement.
7.78 The United States admitted that when the new privatized producer is not a distinct legal
person (based on the activities, productive assets, management, staff) from the previous state-owned
producer, it considers that the benefit attributed to the state-owned producer can be automatically
attributed to the privatized producer without any examination of the condition of the transaction. We
are of the view that with the same person methodology (as it did with the gamma methodology), the
US Department of Commerce, in failing to examine the conditions of the privatizations, does not
focuss its analysis on the relevant issues: it does not determine whether subsidization (and in
particular benefit) exists for the privatized producer under investigation.

340 See US' and EC's responses to question No. 6 posed by the Panel.

7.79 We note that this was one of the base for the reasoning of the CIT 341 when it concluded that
the same person methodology was inconsistent with US Section 1677(5)(F):
"… the new statute required two actions from Commerce: one, that the terms of the
sale must be examined, and must include analysis of the entire transaction to
determine if the subsidy (not the corporate entity) passed through to a person now
under investigation. … In addition, such examination must focus on the new owner.
… Commerce … must look at facts and circumstances of the TRANSACTION, to
determine whether the PURCHASER, received a subsidy, directly or indirectly, for
which it did not PAY ADEQUATE COMPENSATION."
7.80 We would like to address an additional matter. The United States seems to be "attaching" the
benefit to the production activity, which may not have changed with privatization, even though the
privatized producer must now compete according to market rules and can no longer take advantage of
the below-market cost benefits to which the state-owned producer had access. Although the United
States declares that the SCM Agreement does not require investigating authorities to investigate
whether a subsidy recipient derives any competitive advantage from a subsidy
342, it seems to complain
about the fact that prior subsidization may have distorted the market and may have artificially
maintained producers that would not otherwise be there. Indeed, the United States developed its
arguments using hypothetical examples of companies that would not be in the market, absent
subsidization.
343 We understand the concerns of the United States. However, as indicated in
paragraph 7.42, countervailing duties are not designed to counteract all market distortions or resource
misallocations which might have been caused by subsidization. For the purpose of determining the
existence of a benefit under the SCM Agreement, it is irrelevant whether or not any potential market
distortions resulting from the prior subsidy remain after the privatization at arm's-length and for fair
market value.
344 The existence of a benefit should be determined only with reference to the terms on
which a financial contribution could be obtained by the recipient on the market.345
7.81 For the reasons mentioned above, we conclude that the same person methodology – applied in
Case No. 12 – is inconsistent with the SCM Agreement, as interpreted by the Panel and the Appellate
Body reports in US – Lead and Bismuth II and this Panel, because it does not require that in all cases
of privatization, the US Department of Commerce examine the conditions of such privatization with a
view to determining whether the benefit resulting from the financial contribution received by the
state-owned producer continues to accrue to the privatized producer. The same person methodology
is inconsistent with the SCM Agreement because in si tuations of privatization at arm's-length and for

341 GTS Industries v. United States Court No. 00-03-00118 (Ct. Int'l Trade 4 January 2002), at 14-18.
Exhibit EC–30 to the EC's second written submission. See also, Final Results of Redetermination pursuant to
Court Remand , Allegheny Ludlum Corp. et al. v United States Court No. 99-09-00566, (Ct. Int'l Trade
13 December 2000) (unpublished) ("Allegheny Ludlum I").
342 See US' response to question No. 14 posed by the Panel.
343 See for instance, US' first written submission, paras 62-63.
344 Panel Report, US – Lead and Bismuth II , WT/DS138/R, at footnote 95 to para. 6.81. We recall that
in dispute settlement and in their recommendations, panels are prohibited from adding or diminishing rights and
obligations of Members under the covered agreements, Article 3.2 and 19.2 of the DSU.
345 It is interesting to note that in Saarstahl I , the CIT concluded that the US Department of
Commerce's interpretation "[would] impose a heavy burden on commercial transactions as it effectively requires
buyers to value the potential liability of purchasing productive units which previously received a subsidy. A
purchaser could no longer value a business based on market considerations; he would have to investigate
whether there had been previous subsidies that were being, or possibly might be, countervailed in the future.
The burden would be especially onerous where a productive unit which had received subsidies and never
exported to the US under prior ownership begins such exportation." Saarstahl AG v. United States 858 F. Supp.
187 (Ct. Int'l Trade 1994) (hereinafter Saarstahl I), at para. 9. Note that this decision was overturned by the US
Court of Appeals for the Federal Circuit based on the interpretation of US legislation prior to the pre–URAA
implementing Act.

fair market value, the US Department of Commerce is prohibited from reaching the systematic
conclusion that the privatized producer has not received any benefit, thus rebutting the presumption, if
any, that the benefit from prior financial contributi ons (or subsidization) continues to accrue to the
privatized producer, unless it finds that the privatized producer is a person legally distinct from the
state-owned producer based on the criteria used in the same person methodology.
7.82 In our view, in privatization situations, the importing Member must always examine the
conditions of the privatization to determine whether the privatized producer has received any benefit
from a prior financial contribution bestowed on th e state-owned producer, independently of whether
the privatized producer is a distinct legal person from the state-owned producer. Privatizations at
arm's-length and for fair market value must lead to the conclusion that the privatized producer paid for
what he got and thus did not get any benefit or advantage from the prior financial contribution
bestowed upon the state-owned producer. While Members may maintain a rebuttable presumption
that the benefit from prior financial contributions (or subsidization) continues to accrue to the
privatized producer, privatizations at arm's-length and for fair market value is sufficient to rebut such
a presumption. Furthermore, since the fair market value paid for the state-owned producer is deemed
to include the market value of the benefit rece ived, the Panel considers that the privatization
transaction for fair market value includes the repayment to the government, as the shareholder of the
state-owned producer, of the subsidy as valued by the market at the time of privatization.
7.83 As mentioned before, the United States' same person methodology was applied in Case
No. 12, in the context of an administrative review . Members' specific obligations in administrative
reviews are discussed in the following section of this report and we shall complete our examination of
the application of the same person methodology in the administrative review of Case No. 12 in
Section D below.
7.84 In all the other cases before us, the determinations were performed using the gamma
methodology which has already been condemned by the Panel and Appellate Body reports in US –
Lead and Bismuth II . The United States admits that in the original investigation of Case Nos. 1 to 6
and in the administrative review in Case No. 7, it must re-examine its benefit determinations since
they were based on the gamma methodology; the United States notes that pursuant to domestic court
orders, these six cases have been remanded for redetermination.
7.85 We do not need to examine fully all the aspects of the gamma methodology, as it has already
been condemned by the Panel and Appellate Body in US – Lead and Bismuth II .
346 We recall the
Appellate Body's findings that when it applied the gamma methodology in the determination against
UES and BS plc/BSES, it found that the United States had violated the SCM Agreement:
"On the basis of the above reasoning, we uphold the Panel's finding that, in the
particular circumstances of this case, the USUS Department of Commerce should
have examined in its 1995, 1996 and 1997 administrative reviews whether a 'benefit'
accrued to UES and BS plc/BSES following the changes in ownership; as well as the
Panel's finding that, on the facts of this case, no 'benefit' was conferred on UES or BS
plc/BSES as a result of the 'financial contributions' made to BSC."347
7.86 In light of the European Communities' claims and our terms of reference, the Panel concludes
that the original investigations' determinations in Case Nos. 1, 2, 3, 4, 5 and 6, based on the gamma

346 The Appellate Body made clear in United States – Import Prohibition of Certain Shrimp and Shrimp
Products – Recourse to Article 21.5 of the DSU by Malaysia (" US – Shrimp (Article 21.5 – Malaysia )"),
(WT/DS58/AB/RW, adopted 21 November 2001, that the interpretations and findings by the Appellate Body
create legitimate expectations among WTO Members, and, therefore, should be taken into account where they
are relevant to any dispute; at paras. 108-109.
347 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 74.

methodology, are inconsistent with Articles 10, 14 and 19.1 and 19.4 of the SCM Agreement. In
failing to examine the conditions of the concerned privatizations, namely whether they occurred at
arm's-length and for fair market value, the United States had not first determined whether the
privatized producers had received any benefit, pursuant to the SCM Agreement, from the prior
financial contribution (subsidization).
7.87 The SCM Agreement only allows countervailing duties to be imposed when an importing
Member has determined that the producer under exam ination – that is the company and its owners –
have received an unfair benefit. Thus, in Case Nos. 1, 2, 3, 4, 5 and 6, the United States was not
entitled to impose duties to countervail pre-privatization non-recurring subsidies as it did. Since these
countervailing duties were imposed without legal basis pursuant to the SCM Agreement they should
be removed accordingly.
7.88 The gamma methodology was also used in the context of the administrative review in
Case No. 7. We examine further the determination in Case No. 7 in Section D hereafter.
7.89 The gamma methodology was used as well in the four sunset reviews (Case Nos. 8, 9, 10 and
11). The United States raises specific arguments and defences regarding its sunset review obligations,
which we examine in Section E hereafter, where we complete our examination of those
determinations.
7.90 The United States proposes to reconduct these determinations on the basis of the same person
methodology and argues that these remand redeterminations, which have not been concluded, are not
part of the terms of reference of the Panel. The Panel agrees with the United States that these remand
redeterminations are not part of the terms of reference of the Panel, stricto sensu. The Panel notes,
however, that the same person methodology is itsel f inconsistent with the SCM Agreement for the
reasons mentioned above.
7.91 We now proceed to examine the application of the above findings on the consequence of
privatization pursuant to the SCM Agreement, when the issue is raised in administrative reviews and
sunset reviews.
D. EXAMINATION OF PRIVATIZATIONS IN ADMINISTRATIVE REVIEWS
1. Claims and arguments of the parties
7.92 The European Communities claims that in the context of the administrative review of Case
No. 7 348, the US Department of Commerce has applied the gamma methodology in a manner
inconsistent with Articles 21.1 and 21.2 of the SCM Agreement. The United States has admitted that
its determination in Case No. 7 is inconsistent with its WTO obligations to the extent that it was not
made using the same person methodology. The United States does not make such a similar admission
for Case No. 12 349, whose administrative review determination was based on the same person
methodology and which is also challenged by the European Communities as being inconsistent with
Articles 21.1 and 21.2 of the SCM Agreement.
2. Evaluation by the Panel
7.93 We must determine whether and how the United States is obliged to examine and take into
account privatizations when so requested under the administrative review procedure.

348 Sweden Admin. Review, supra, footnote 43.
349 GOES Admin. Review, supra, footnote 47.

7.94 Article 21.1 of the SCM Agreement provides that a countervailing duty shall remain in force
only as long as, and to the extent necessary, to counteract subsidization. Article 21.2 states that the
authorities shall review the need for the continued imposition of the duty, where warranted, on their
own initiative or, provided that a reasonable period of time has elapsed since the imposition of the
definitive countervailing duty, upon request by any interested party which submits positive
information substantiating the need for a review.
7.95 In US – Lead and Bismuth II , the Appellate Body made clear that the importing Member
cannot simply ignore facts that may reveal that no benefit, and thus no subsidization, exist vis-à-vis
the privatized producer. The Appellate Body stated
"on the basis of its assessment of the information presented to it by interested parties,
as well as of other evidence before it relating to the period of review, the
investigating authority must determine whether there is a continuing need for the
application of countervailing duties . The investigating authority is not free to ignore
such information. If it were free to ignore this information, the review mechanism
under Article 21.2 would have no purpose."
350 (emphasis added)
7.96 The Appellate Body added that it was of the view that the privatization of BSC – the change
in ownership leading to the creation of UES and BS plc/BSES – was such as to require the United
States to re-examine, in the context of that administrative review, whether the privatization had
occurred at fair market value so that if there was no benefit to the new privatized producer, it should
terminate its countervailing duties orders.
"In this case, given the changes in ownership leading to the creation of UES and BS
plc/BSES, the USDOC was required under Article 21.2 to examine, on the basis of
the information before it relating to these changes, whether a 'benefit' accrued to
UES and BS plc/BSES." (emphasis added)351
7.97 We recall also that "in order to establish the continued need for countervailing duties, an
investigating authority will have to make a finding on subsidization, i.e., whether or not the subsidy
continues to exist. If there is no longer a subsidy, there would no longer be any need for a
countervailing duty."352 As discussed in Part C above, in order to conclude that subsidization existed
in these Case Nos. 7 and 12, the US Department of Commerce was obliged to examine the conditions
of the privatization with a view to assessing whether benefit to the prior state-owned producer
continued to accrue to the privatized producer. Without such prior determination of benefit (and
therefore subsidization) no countervailing duty orders could be maintained.
7.98 Although the investigation performed under an administrative review differs from that under
an original investigation353, we are of the view that in the context of the administrative review of Case
Nos. 7 and 12, the United States, which had been informed of the privatizations by the interested
producers and by the European Communities (and its member States concerned), was obligated to re-
examine the conditions of application of the SCM Agreement vis-à-vis the privatized producer. In

350 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 61.
351 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 62.
352 Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 54.
353 See Appellate Body Report, US – Lead and Bismuth II, WT/DS138/AB/R, at para. 63:
"… We believe that it is important to distinguish between the original investigation leading to
the imposition of countervailing duties and the administrative review. In an original
investigation, the investigating authority must establish that all conditions set out in the
SCM Agreement for the imposition of countervailing duties are fulfilled. In an
administrative review, however, the investigating authority must address those issues which
have been raised before it by the interested parties or, in the case of an investigation conducted
on its own initiative, those issues which warranted the examination."

particular, being informed of the privatization of a state-owned producer, the United States was
obliged to determine whether the privatized producer continued to receive any benefit from the prior
subsidization, before it could reach any conclusion that countervailing duties should be continued. If
such privatization was at arm's-length and for fair market value, the United States was obliged to
conclude that the privatized producer no longer obtained any benefit from the prior subsidization to
the state-owned producer. In refusing to examine the conditions of such privatizations, the United
States acted inconsistently with Article 21.1 and 21.2 of the SCM Agreement.
7.99 The Panel is rather of the view, that while the United States is correct in stating that US –
Lead and Bismuth II did not require the US Department of Commerce to retroactively change closed
countervailing duty orders and that WTO remedies ar e generally prospective, it did not preclude the
European Communities from challenging other orders determined under the gamma methodology
simply because they occurred prior to the Appellate Body ruling in US –Lead and Bismuth II . The
Panel and Appellate Body rulings in US – Lead and Bismuth II were that, in the case of BSC
privatization, countervailing duty orders against BSC should be terminated because benefit to UES
and BS plc/BSES pursuant to the SCM Agreement had not been established. The European
Communities, and other WTO Members, remain free to request that the United States bring any other
allegedly WTO-inconsistent (ongoing) countervailin g duty measures into conformity with the WTO
Agreement, even if the implementation of the present Panel report will be prospective.
7.100 In sum, in its administrative review determinations in Case Nos. 7 and 12, the United States
acted inconsistently with Articles 10, 14, 19.4, 21.1 and 21.2 of the SCM Agreement since the US
Department of Commerce did not take into account the privatizations that occurred after the original
investigation and did not re-examine the conditions of application of the SCM vis-à-vis the privatized
producers. In failing to examine the conditions of the said privatizations (whether they were at arm's-
length and for fair market value) the US Department of Commerce did not determine whether the
privatized producers continued to receive any benefit from any prior financial contribution
(subsidization). Therefore, in Case Nos. 7 and 12, the United States was not entitled to continue to
impose duties to countervail pre-privatization, non-recurring subsidies as it did. Since these
countervailing duties were imposed without legal basis pursuant to the SCM Agreement they should
be removed accordingly.
E.
EXAMINATION OF PRIVATIZATIONS IN SUNSET REVIEWS
1. Claims and arguments of the parties
7.101 The European Communities claims that the application of the US sunset review procedures in
Case Nos. 8, 9, 10 and 11 is inconsistent with Article 21.1 and 21.3 of the SCM Agreement. The
United States contests this claim.
7.102 The European Communities submits that an investigating authority cannot determine whether
there is a likelihood of continuation or recurrence of subsidization without considering whether, and
the extent to which, a benefit continues to accrue and that this requires the authority to carry out a
new, detailed investigation, in which it determines, on the basis of positive evidence, the likelihood of
continuation or recurrence.354 The European Communities argues that, under Article 21.3 of the SCM
Agreement, it is for the investigating authority to make a determination of continuing injurious
subsidization. In this regard, it indicates that to premise examination of evidence in a determination
under Article 21.3 on the evidence having been examined in a review under Article 21.2 is
inconsistent with the SCM Agreement, especially in the case of non-exporting producers which under
the United States' regulation are precluded from requesting an Article 21.2 administrative review.
The European Communities points out that the CIT reached the same conclusion in the Dillinger case

354 See EC's second written submission, paras. 71-72.

when it found that the US Department of Commerce was not entitled to base its findings in sunset
reviews only on evidence gathered in the initial investigation.355
7.103 The European Communities also argues that the United States inappropriately reverses the
burden of proof in sunset reviews to the exporting producers when they do not respond to the notice
of initiation of the sunset review. The European Communities argues that the investigating authority
cannot just presume that there is a likelihood of continuation or recurrence of injurious subsidization
merely because certain interested parties have not responded to a notice of initiation. The European
Communities believes that under Article 21.3 of the SCM Agreement it is for the authorities to
determine, and not for the respondent to disprove that there is a likelihood of continuation or
recurrence.356 Therefore, the European Communities concludes that this reversal of the burden of
proof is inconsistent with Article 21.3 of the SCM Agreement.357
7.104 The United States considers that an investigating authority need not revisit ex officio its
subsidy determination in a sunset review under Article 21.3 of the SCM Agreement. The United
States considers that where there have been no administrative reviews of a countervailing duty order,
the only evidence of subsidization which an investigating authority need take into account is evidence
from the original investigation. The United States submits that in the four sunset reviews covered by
this dispute, the US Department of Commerce was under no obligation, pursuant to Article 21.3, to
convert its sunset reviews into full-blown administrative reviews of the respective countervailing duty
orders.
358
7.105 The United States does not seem to contest the issue of the burden of proof as such, but rather
the nature of the sunset review obligation. The United States believes that, absent an administrative
review, the only evidence of subsidization it is required to evaluate in a sunset review, in order to
determine the likelihood of continuation or recurrence of the countervailable subsidies, is that
contained in the original investigation. The United States maintains that sunset reviews are not the
appropriate proceedings to evaluate new and complex evidence of subsidization.
2. Evaluation by the Panel
7.106 The parties have made frequent references to the ongoing dispute in United States –
Corrosion Resistant Carbon Steel Flat Products from Germany (WT/DS213) where the European
Communities is claiming that the United States' sunset review legislation, administrative rules and
practice are contrary to the United States' obligations under the SCM Agreement and the WTO
Agreement. In the present dispute the Euro pean Communities is limiting its claims on the
WTO-compatibility of the "application" of this sunset review practice in Cases No. 8, 9, 10 and 11.
7.107 As mentioned before, Article 21.1 of the SCM Agreement sets out a general rule:
"A countervailing duty shall remain in force only as long as and to the extent
necessary to counteract subsidization which is causing injury."
7.108 The first sentence of Article 21.3 seems to provide a specific application of the general rule in
Article 21.1 when it states:
"Any definitive countervailing duty shall be terminated on a date not later than five
years from its imposition (or from the date of the most recent review under

355 AG Dillinger Huttenwerke et al v United States ("Dillinger"); Court No. 00-09-00437 (Ct. Int'l
Trade 28 February 2002), at 14. Exhibit EC-34 to the EC's second written submission.
356 See EC's second written submission, paras. 70 and 72.
357 See EC's second written submission, para. 76.
358 See US' first written submission, para. 89.

paragraph 2 if that review has covered both subsidization and injury, or under this
paragraph), unless the authorities determine, in a review initiated before that date on
their initiative or upon a duly substantiated request made by or on behalf of the
domestic industry within a reasonable period of time prior to that date, that the expiry
of the duty would be likely to lead to con tinuation or recurrence of subsidization and
injury."
7.109 The Panel reads these provisions as imposing a presumption that a countervailing duty will be
terminated after five years unless the inve stigating authority initiates a review ( ex officio or upon a
request from the domestic industry) and determines, in that review, that there is a likelihood of
continuation or recurrence of subsidization and injury. Both parties in fact admit that it is for the
importing Member to "determine", at the expiry of the first five-year application period, that there is a
likelihood of continuation or recurrence of subsidization and injury upon expiry of the countervailing
duty.
7.110 The parties disagree, however, on the extent of this obligation to "determine" the likelihood of
continuation or recurrence of injurious subsidization and whether this obligation requires
consideration of the "magnitude" of subsidization. The parties also disagree on whether
developments taking place since the initial investigation should be taken into account when
determining whether injurious subsidization is lik ely to continue or recur. Given our terms of
reference, we are of the view that we need to resp ond to this claim only to the extent that the sunset
reviews involve privatizations.
7.111 The United States considers that when there have been no administrative reviews of a
countervailing duty order, the only evidence of subs idization which an investigating authority need
take into account in a sunset review is evidence from the original investigation. We disagree with
this contention. The object of a sunset review is to determine, in light of developments that have
occurred since the original investigation, whether subsidization and injury will continue or recur.
Article 21.3 provides clearly that the importing state must determine whether subsidization "is likely
to lead to continuation or recurrence". To ignore any such development and to limit the evidence that
the importing Member is to examine only to that in cluded in the original investigation renders the
sunset review a mere formality. We are of the view that the sunset review is a mechanism distinct
from the administrative review which, pursuant to Article 21.2 of the SCM Agreement, can be
requested by any interested party provided that a reasonable period of time has elapsed since the
imposition of the duties. To subject the operationalization of the sunset review to prior administrative
review procedures would effectively nullify the presumption that countervailing duties must terminate
after five years unless the importing Member determines that subsidization and injury are likely to
continue or recur.
7.112 During the second hearing the representative of the United States stated that the privatization
of a company whose exports are subject to a countervailing duty order following the original
imposition of a countervailing duty may be a fact that the US Department of Commerce would
examine in a sunset review, providing that the exporting company or the exporting Member brings
evidence that the subsidy was, for instance, paid back on the occasion of privatization. As discussed
above, the United States is of the view that an arm' s-length privatization at fair market value, as such,
cannot serve to demonstrate the absence of benefit relevant to the sunset review countervailing
determination. The United States maintains that evidence of arm's-length and fair market value
privatization could not automatically alter its prior decision to amortize a subsidy for a period
extending after the privatization.
7.113 The Panel is of the view that privatization of the state-owned producer (of the goods subject
to countervailing orders), is a fact that the importing Member is obliged to consider and examine in
the context of a sunset review- as it may yield evidence that subsidization does not exist which in

itself is relevant to assessing the likelihood of continuation or recurrence of subsidization and injury,
as mandated by Article 21.3 of the SCM Agreement.
7.114 We consider that in a sunset review investigation the importing Member is obliged to
examine at least all the evidence provided by any interested party, not just the importing producer,
and relating to the existence or removal of the subsidization forming the basis for the countervailing
measures; only then can the investigating Member be able to conclude whether subsidization exists
and is likely to continue or recur.
359 Privatization is a fact that the importing Member "cannot simply
ignore", as it may bring evidence that subsidization was terminated. As further discussed in
paragraphs 7.60-7.89above, if privatization at arm's-length and for fair market value has taken place,
the benefit resulting from a prior subsidization bestowed upon the state-owned producer no longer
accrues to the privatized producer under investigation. In the absence of any benefit there cannot be
any subsidization. Without subsidization, a Member cannot impose countervailing duties. Although
speaking about the administrative review procedure, the Appellate Body made clear that "in order to
establish the continued need for countervailing duties, an investigating authorit y will have to make a
finding on subsidization, i.e., whether or not the subsidy continues to exist. If there is no longer a
subsidy, there would no longer be any need for a countervailing duty".
360
7.115 In the present dispute, the United States argues that in Case Nos. 8, 9, and 11, the exporting
firms did not cooperate with th e US Department of Commerce. 361 There is evidence that, for the
sunset reviews in Case Nos. 8 362, 9363 and 11 364, the European Communities (and its member States)
had informed the US Department of Commerce of the said privatizations and offered further
information on the fair market value and arm's-length conditions of such transactions. The United
States does not deny this fact. To the extent that the United States was informed of such
privatizations and there is evidence that the European Communities offered further information on the
conditions of the privatization transactions, the Panel considers that the US Department of Commerce,
in failing to take into account such privatizat ions and to examine the conditions of the said
privatization, chose to ignore relevant evidence and therefore its conduct in the sunset reviews at issue
was inconsistent with Article 21.1 and 21.3 of the SCM Agreement.
7.116 Since the sunset reviews in Case Nos 8, 9, 10, and 11 were conducted on the basis of the
gamma methodology, the Panel finds that the United States failed to examine the conditions of such
privatizations and to determine whether the privatized producers received any benefit from the prior
subsidization to the state-owned producers, in vi olation of Articles 10, 14, 19.4 and 21.1 and 21.3 of
the SCM Agreement. In those Cases, the United States was not entitled to continue to countervail
pre-privatization, non-recurring subsidies as it did. Since these countervailing duties were therefore
maintained without legal basis pursuant to the SCM Agreement, they should be removed accordingly.

359 We note that the CIT reached a similar conclusion when it found that the US Department of
Commerce's practices in sunset reviews are inconsistent with the US legislation, as "[b]y its nature, then, a
sunset review is designed to account for changes in law that have a bearing on whether countervailable subsidies
will continue or recur." We note also that the US Court rejected the US Department of Commerce's arguments
that it was not appropriate to reach the privatization is sue in a sunset review or that an interested party
participating in a sunset review must have first requested and completed an administrative review. Dillinger,
Court No. 00-09-00437, at 32.
360 Appellate Body Report in US – Lead and Bismuth II, WT/DS138/AB/R, at para. 54.
361 Case No.10 is the Dillinger dispute, and the exporting producer participated in all the investigations
and reviews.
362 Cut-to-Length Carbon Steel Plate from the United Kingdom (exp. sunset review), supra, footnote 51
In this case the Department Of Commerce determined that the submissions by the GOUK and the European
Communities were "inadequate for purposes of conducting a full sunset review." Ibid.
363 Corrosion-Resistant Carbon Steel Flat Products from France, footnote 58, at 18063.
364 Cut-to-Length Carbon Steel Plate from Spain, supra, footnote 67, at 18308.

7.117 We note that in Case Nos. 8 and 10, the United States admits that the privatizations took place
at arm's-length and for fair market value.365 Therefore, the US Department of Commerce should have
concluded that the privatization at arm's length and for fair market value rebutted the presumption, if
any, that the benefit from the prior subsidizati on bestowed upon the state-owned producer continued
to accrue to the privatized producer under investigation since the latter had paid full market value for
the assets and shares of the state-owned producer. The sunset review determinations in Case Nos. 8
and 10 are, therefore, inconsistent with Articles 10, 14, 19.4, 21.1 and 21.3 of the SCM Agreement.
The United States was therefore not entitled to impose duties to countervail pre-privatization non-
recurring subsidies since no benefit accrued to those privatized producers. These countervailing
duties were therefore maintained contrary to the SCM Agreement and should therefore be removed
accordingly.
F. T
HE WTO COMPATIBILITY OF US SECTION 1677(5)(F)
1. Claims and arguments of the parties
7.118 The European Communities claims that Section 1677(5)(F), as interpreted by the US Court of
Appeals for the Federal Circuit, prevents the Unit ed States from systematically recognizing the
principle that an arm's-length, fair market value transaction precludes the pass through of any benefits
from pre-transaction financial contributions to the post-transaction entity. The European
Communities is of the view that Section 1677(5)(F) was specifically designed to prevent the US
Department of Commerce from applying a " per se rule" that a benefit stream does not survive a fair
market value arm's-length transaction.
366 The European Communities asserts that Section 1677(5)(F),
to the extent that it allows the US Department of Commerce to impose countervailing duties without
assessing the existence of countervailable subsidization after a privatization or change in ownership,
is inconsistent with Articles 1.1(b), 10, 14, 19 and 32.5 of the SCM Agreement and with
Article XVI.4 of the WTO Agreement.
7.119 The United States contends that Section 1677(5)(F) does not mandate an either/or approach to
the question of whether pre-privatization subsidies benefit a post-privatization entity.
367 The United
States argues that the plain language of Section 1677(5)(F) demonstrates its discretionary nature. In
this regard, the United States contends that the text of Section 1677(5)(F) clearly provides that a
change in ownership does not by itself mean that a past countervailable subsidy is no longer
countervailable, nor does it mean that it continues to be countervailable. The United States argues
that the statute leaves the investigating authority discretion to make its decision. It further argues that
the SAA also supports the view that Section 1677(5)(F) is discretionary and not mandatory. The SAA
states that the purpose of Section 1677(5)(F) is to clarify that "the sale of a firm at arm's-length does
not automatically, and in all cases, extinguish an y prior subsidies conferred," and that it is the
Administration's intent that "Commerce retains th e discretion to determine whether, and to what
extent…previously conferred countervailable subsidies" are eliminated."
368

365 See the admission from the United States infra, paras. 2.39 and 2.45.
366 To support its view the European Communities refers to Final Results of Redetermination pursuant
to Court Remand, Delverde Srl. v. United States Consol. Ct. No. 96-08-01997 (Ct. Int'l Trade 2 December
1997), at 33. Exhibit EC–28 to the EC's first written submission. (In the version of this Remand
Redetermination supplied to the Panel, the relevant text can be found on page 16).
367 See US' first written submission, para. 91.
368 See US' first written submission, paras. 94-96.

2. Evaluation by the panel
(a) Possibility to challenge a legislation as such - mandatory/discretionary distinction
7.120 Under GATT and WTO dispute settlement procedures, a measure can be challenged if it is
binding and not discretionary, even if it is not yet applied or in force. 369 Only legislation that
"requires" a violation of GATT/WTO rules can be found to be inconsistent with WTO rules. 370 The
Appellate Body in US – 1916 Act confirmed that:
"the concept of mandatory as distinguished from discretionary legislation was
developed by a number of GATT panels as a threshold consideration in determining
when legislation as such – rather than a specific application of that legislation – was
inconsistent with a Contracting Party's GATT 1947 obligations. 371 The practice of
GATT panels was summed up in United States – Tobacco
372 as follows:
… panels had consistently ruled that legislation which mandated action
inconsistent with the General Agreement could be challenged as such,
whereas legislation which merely gave the discretion to the executive
authority of a contracting party to act inconsistently with the General
Agreement could not be challenged as such; only the actual application
of such legislation inconsistent with the General Agreement could be
subject to challenge.
373 (emphasis added) 374

369 Panel Report, United States - Taxes on Petroleum and Certain Imported Substances ("Superfund"),
adopted 17 June 1987, BISD 34S/136, paras 5.26-5.29.
370 See Panel Report, United States – Anti-Dumping Act of 1916 – Complaint by the European
Communities ("US – 1916 Act (EC) "), WT/DS136/R and United States – Anti-Dumping Act of 1916 –
Complaint by Japan ("US – 1916 Act (Japan) "), WT/DS162/R and WT/DS162/Add.1, adopted 26 September
2000, as upheld by the Appellate Body Report, United States Anti-Dumping Act of 1916 ("US – 1916 Act ")
WT/DS136/AB/R,WT/DS162/AB/R; Panel Report, United States – Measures Affecting the Importation,
Internal Sale, and Use of Tobacco , adopted 4 October 1994, BISD 41S/131; Panel Report, Thailand –
Restrictions on Importation of and Internal Taxes on Cigarettes , Report of the Panel, adopted
7 November 1990, BISD 37S/200; Panel Report, European Economic Community – Regulation on Imports of
Parts and Components, adopted 16 May 1990, BISD 37S/132; and Panel Report, Superfund, BISD 34S/136.
371 [Original footnote] Panel Report, US – Superfund, BISD 34S/136 - The reason it must be possible to
find legislation as such to be inconsistent with a Contracting Party's GATT 1947 obligations was explained as
follows: [the provisions of the GATT 1947] are not only to protect current trade but also to create the
predictability needed to plan future trade. That objec tive could not be attained if contracting parties could not
challenge existing legislation mandating actions at variance with the General Agreement until the administrative
acts implementing it had actually been applied to their trade.
372 [Original footnote] Appellate Body Report, US – 1916 Act, WT/DS136/AB/R, WT/DS162/AB/R
quoting: Panel Report, United States – Measures Affecting the Importation, Internal Sale, and Use of Tobacco ,
adopted 4 October 1994, BISD 41S/131.
373 [Original footnote] Appellate Body Report at para. 118 Ibid., para. 118, referring in footnote to: Panel
Report, United States - Superfund, BISD 34S/136, p. 160; Panel Report, EEC - Parts and Components , supra,
footnote 20, pp. 198-199; Panel Report, Thailand - Cigarettes, supra, footnote 34, pp. 227-228; Panel Report,
United States - Malt Beverages , supra, footnote 34, pp. 281-282 and 289-290; Panel Report, United States -
Denial of Most-Favoured Nation Treatment as to Non-Rubber Footwear from Brazil , adopted 19 June 1992,
BISD 39S/128, p. 152.
374 Appellate Body Report, US – 1916 Act, WT/DS136/AB/R, WT/DS162/AB/R, at para. 88. See also
at footnote 45 to para. 88:
"The reason it must be possible to find legislation as such to be inconsistent with a
Contracting Party's GATT 1947 obligations was explained as follows: [the provisions of the
GATT 1947] are not only to protect current trade but also to create the predictability needed to
plan future trade. That objective could not be attained if contracting parties could not

"Thus, the relevant discretion, for purposes of distinguishing between mandatory and
discretionary legislation, is a discretion vested in the executive branch of the
government".375
7.121 Three recent panel reports provided that legislation "as such" is considered mandatory if it
cannot be applied in a manner consistent with the SCM Agreement. In these three cases, the panels
concluded that although it was possible to conceive that the laws would be applied in a manner
incompatible with WTO rules, the relevant comp etent authorities had the discretion to apply them
consistently with such rules. Therefore, the said laws did not necessarily violate the SCM
Agreement.
376
7.122 In sum, a piece of legislation would not violate the WTO if it can be applied by the executive
authority of the WTO Member in a manner consistent with the WTO Agreement; WTO Members are
presumed to administer their national laws in conformity with their WTO obligations.377
7.123 While only legislation that mandates a violation of WTO obligations can be
WTO-inconsistent, we are of the view that the existence of some form of executive discretion alone is
not enough for a law to be prima facie WTO-consistent, what is important is whether the government
has an effective discretion to interpret and apply its legislation in a WTO-consistent manner. 378
(b) The examination by the Panel of national laws and other domestic legal instruments.
7.124 Where the alleged violation at issue is domestic legislation, an examination of the relevant
aspects of municipal law is essential to determining whether a Member has complied with its
obligations.379 It is a well-established practice of legal interpretation in international jurisprudence

challenge existing legislation mandating actions at variance with the General Agreement until
the administrative acts implementing it had actually been applied to their trade. Panel Report,
United States – Superfund, BISD 34S/136, footnote 34, para. 5.2.2."
375 See Appellate Body Report, US – 1916 Act, WT/DS136/AB/R, WT/DS162/AB/R, at para. 89.
376 See Panel Report, United States – Measures Treating Export Restraints as Subsidies ("US – Export
Restraints"), WT/DS194/R, adopted 23 August 2001, paras. 8.126–8.132; Panel Report, Brazil – Export
Financing Programme for Aircraft – Second Recourse by Canada to Article 21.5 of the DSU ("Brazil – Aircraft
(Article 21.5 – Canada II ")), WT/DS46/RW/2, adopted 23 August 2001, paras. 5.11-5.13, 5.43, 5.48, 5.5, 5.55,
5.126, 5.142; and Panel Report, Canada – Export Credits and Loan Guarantees for Regional Aircraft ("Canada
– Aircraft Credits and Guarantees") WT/DS222/R, adopted 19 February 2002, paras. 7.56–7.62.
377 Article 26 of the Vienna Convention on the Law of Treaties. Done in Vienna, 23 May 1969,
1155 U.N.T.S. 331. The Panel in US – Section 301 Trade Act also accepted the US submission that: "In US
law, it is an elementary principle of statutory construction that 'an act of Congress ought never to be construed to
violate the law of nations if any other possible construction remains.' Murray v. Schooner Charming Betsy, 6
U.S. (2 Cranch) 64, 118 (1804). While international obligations cannot override inconsistent requirements of
domestic law, 'ambiguous statutory provisions. . . [should] be construed, where possible to be consistent with
international obligations of the United States.' Footwear Distributors and Retailers of America v. United States ,
825 F. Supp. 1078, 1088 (Ct. Int'l Trade), appeal dismissed, 43 F. 3d 1486 (Fed. Cir. 1994) citing DeBartolo
Corp. v. Florida Gulf Coast Building and Trades Council , 485 U.S. 568 (1988)." Panel Report, United States –
Sections 301 – 310 of the Trade Act of 1974 ("US – Section 301 Trade Act "), WT/DS152/R, adopted 27 January
2000, at footnote 681 to para. 7.108. Members are also presumed not to contravene their mandatory legislation
in order to administer their WTO obligations. Appellate Body Report, India – Patents (US) , WT/DS50/AB/R ,
adopted 16 January 1998, at paras. 69-70.
378 Panel Report, US – Section 301 Trade Act , WT/DS152/R, at paras. 7.53-7.54 concludes, while
discussing claims under Article 23 of the DSU, that legislation that maintains executive discretion may also
violate WTO obligation if such discretion is prohibited by the relevant WTO agreement.
379 Appellate Body Report, India – Patents (US), WT/DS50/AB/R, at para. 66.

that "where the determination of a question of munici pal law is essential to the Court's decision in a
case, the Court will have to weigh the jurisprudence of the municipal courts."380
7.125 When analysing municipal law, a Panel should not interpret the law "as such", but rather
establish the meaning of the disputed legislation as a factual element and determine whether the
factual element constitutes conduct by the respondent Member contrary to its WTO obligations. 381 In
India – Patents (US), the Appellate Body said:
"There was simply no way for the Panel to make this determination without engaging
in an examination of Indian law. But, … in this case, the Panel was not interpreting
Indian law "as such"; rather, the Panel was examining Indian law solely for the
purpose of determining whether India had met its obligations under the TRIPS
Agreement." 382
7.126 In US – 1916 Act (EC), the panel – upheld by the Appellate Body, stated that even if the text
of the law in question were clear on its face, it was necessary to examine the domestic application of
that law, its historical context and legislative history and subsequent declarations of the United States'
authorities in order to asses its compatibility with WTO law.383
7.127 In US – Section 301 Trade Act, while examining claims of violation of Article 23 of the DSU,
the panel concluded that in cases where the violation is legislation as such, "internal elements legally
relevant to the construction of the legislation should be determinative."
384 That panel also concluded
that the elements of national laws are often inseparable and "should not be read independently from
each other when evaluating the overall conformity of the law with WTO obligations." 385 In addition,
the panel noted that US Government action includes not only the legislature and executive, but the
judiciary as well.386
7.128 The Panel considers that in its examination of the compatibility of Section 1677(5)(F), it
should consider the United States' internal elements, legally relevant to the construction of the
legislation under examination, to see whether the US Department of Commerce has the effective
discretion to apply Section 1677(5)(F) consistently with the WTO Agreement.
(c) Can US Section 1677(5)(F) be effectively applied in a WTO-consistent manner?
7.129 As we developed in paragraphs 7.60 to 7.89above, if the purchaser (the company and the
shareholders of the privatized producer) of the state-owned producer pays fair market value, it has
paid for the advantage conferred by a prior financial contribution (subsidization). Thus the privatized
producer has not received any countervailable benefit under the SCM Agreement. When informed of
such a change in ownership for consideration, th e importing Member is obliged to examine the
conditions of the privatization transaction since it is possible that the benefit may cease to accrue to
the privatized producer. Where the privatization takes place at arm's-length and for fair market value,
the importing Member must reach the conclusion that no benefit accrued to the privatized producer.

380 Brazilian Loans, PCIJ, Series A, Nos. 20/21, p.124 cited in Elettronica Sicula S.p.A. (ELSI) ,
381 Panel Report, US – Section 301 Trade Act, WT/DS152/R, at para. 7.18 citing Appellate Body
Report, India – Patents (US), WT/DS50/AB/R, adopted 16 January 1998, at para. 66.
382 Appellate Body Report, India – Patents (US), WT/DS50/AB/R, para. 66.
383 Panel Report, US – 1916 Act (EC) , WT/DS136/R, at para. 6.48. See a lso Panel Report, United
States – Section 337 of the Tariff Act of 1930, adopted 7 November 1989, BISD 36S/345.
384 Panel Report, US – Section 301 Trade Act, WT/DS152/R, at para. 7.114.
385 Panel Report, US – Section 301 Trade Act, WT/DS152/R, at para. 7.27.
386 Ibid., at footnote 700 to para. 7.136 (emphasis added).

7.130 We note at the outset that Section 1677(5)(F) only refers to transactions at arm's-length and
no reference is made to "fair market value". When we requested that the United States explain the
meaning of arm's-length in the United States' la w and its difference from fair market value, the
representative of the United States said there was a great deal of confusion about those terms in the
United States and that he was not in a position to reply. 387 We also note that the SAA, in interpreting
Section 1677(5)(F), makes it clear that an arm's-length transaction is presumed to be a transaction in
normal market conditions, i.e. a transaction at fair market value. This is especially so as it includes in
its definition of arm's-length transactions, transactions between related parties when the terms of the
transactions are as if the parties were not related, i.e. subject to full and normal market conditions:
"For purposes of section 771(5)(F), the term 'arm's-length transaction' means a
transaction negotiated between unrelated parties, each acting in its own interest, or
between related parties such that the terms of the transaction are those that would
exist if the transaction had been negotiated between unrelated parties."
388
7.131 So for the purpose of these findings, we shall consider the definition of "arm's-length
transaction" in Section 1677(5)(F) as to include the concept of "fair market value" as well.
7.132 The Panel is asked whether Section 1677(5)(F) would allow the United States to
systematically conclude that in cases of arm's-length and fair market value privatizations, no benefit
initially determined for the state-owned producer co ntinues to accrue to the privatized producer and
thus, no countervailing duty can be imposed or maintained against products exported by the privatized
producer.
7.133 Section 1677(5)(F) provides that:
"A change in ownership of all or part of a foreign enterprise or the productive assets
of a foreign enterprise does not by itself require a determination by the administering
authority that a past countervailable subsidy received by the enterprise no longer
continues to be countervailable, even if the change in ownership is accomplished
through an arm's-length transaction."
389
7.134 We note that Section 1677(5)(F) does not expressly mandate the same person methodology.
In fact, it does not prescribe any specific methodology for determining whether a change in ownership
extinguishes the benefit from a prior financial contribution. What it does, however, is to make it clear
that a change in ownership at arm's-length cannot, in and of itself, be dispositive of the determination
of the existence of benefit. As the United States explained before the Panel, the legislation provides
the US Department of Commerce with a degree of discretion to assess the impact of the change in
ownership on the continued existence of a benefit and that the US Department of Commerce chose to
exercise such discretion in developing its same person methodology.
7.135 The Panel acknowledges that privatizations are very complex matters and the assessment of
the conditions under which the privatization takes place – i.e., whether it was at 'arm's-length and for
fair market value – are also complex. Thus, in situations of allegations of privatization for
consideration, the importing Member must be able to determine whether the transaction was at 'arm's-
length and for fair market value.

387 See US' response to question No. 15 posed by the Panel.
388 SAA 1994 U.S.C.C.A.N 3773, 4241. Exhibit EC–25 to EC's first written submission. (Note that in
the version supplied to the Panel the quoted text appears on page 928.)
389 Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994); 19 U.S.C. §
1677(5)(F). Exhibit EC–4 to the EC's first written submission.

7.136 In our view, once it has determined that the privatization took place at 'arm's-length and for
fair market value, the importing Member must conc lude, pursuant to the SCM Agreement, that the
benefit from prior financial contribution (subsidization) to the state-owned producer does not continue
to accrue to the privatized producer.390
7.137 The issue before us is whether, in situations of arm's-length privatizations for fair market
value, Section 1677(5)(F) can be applied without violating the SCM Agreement, as interpreted by the
Panel and the Appellate Body report in US – Lead and Bismuth II and by this Panel. In other words,
the issue is whether, in situations of arm's-length privatizations for fair market value, the application
of Section 1677(5)(F) will necessarily violate the SCM Agreement.
7.138 The Panel believes that if, and to the extent that, the US Department of Commerce could
exercise its own executive discretion in a manner compatible with the WTO - that is to reach
systematic conclusions that in cases of an arm's-length privatization for fair market value, no benefit
accrues to the privatized producer from the prior financial contribution (subsidization) bestowed to the
state-owned producer – it could be concluded that the plain wording of Section 1677(5)(F) does not
require the United States to violate the WTO Agreement. Although it is possible to conceive that
Section 1677(5)(F) would be applied in a manner incompatible with WTO rules, the statutory
language alone indicates that the competent authority could have the discretion to implement Section
1677(5)(F) consistently with WTO law. As such, the legislation alone could not be said to be
inconsistent with the SCM Agreement.
7.139 We are of the view, however, that when examinin g internal legislation, a Panel must look to
all the elements that establish its meaning, not just the statutory language. Therefore, it is also
necessary to look at other domestic interpretive tools such as the legislative history, the SAA, and
relevant judicial interpretations to the extent that they form part of the effective operationalization of
the legislation.
391
7.140 As we discuss hereafter, in the particular circumstances of this case, it seems that the
aggregate impact of the object and purpose of Section 1677(5)(F), its legislative history, its
interpretation by the US Court of Appeals for the Federal Circuit and the SAA, are such as to prohibit
the United States from exercising its executive discretion so that it can systematically conclude that
in cases of 'arm's-length privatization for fair market value, no benefit accrues to the privatized
producer from prior financial contribution bestowed to the state-owned producers, as provided for by
our findings in paragraphs 7.60 to 7.89 above. We proceed to examine these potentially legally
relevant internal elements.
(i) The legislative history of US Section 1677(5)(F)
7.141 The origins of Section 1677(5)(F) lie in the pre-Uruguay Round litigation in the United States
courts over the US Department of Commerce's ch ange in ownership methodology. The European
Communities claims, and the United States has not contested, that Section 1677(5)(F) was designed to
reverse the decisions of the CIT in Saarstahl I392 and Inland Steel393 and therefore neutralize the effect

390 The Panel recalls that: "if it is found that specific WTO obligations prohibit a certain type of
legislative discretion, the existence of such discretion in the statutory language would presumptively preclude
WTO consistency". Panel Report, US – Section 301 Trade Act, WT/DS152/R, at para. 7.54.
391 Panel Report, US – Section 301 Trade Act, WT/DS152/R, at paras. 7.25 - 7.27. The Appellate
Body seemed to endorse this principle in, Appellate Body Report, India – Patents (US) , WT/DS50/AB/R, at
paras. 60-63 when it examined the relative importance of various administrative and legislative actions taken by
India to fulfill its obligations under Article 70.8(a) of the TRIPS Agreement.
392 Saarstahl I, 858 F. Supp. 187.
393 Inland Steel Bar co. v. United States 858 F. Supp. 179 (Ct. Int'l Trade 1994).

of the CIT's rulings in Saarstahl I and Inland Steel declaring the gamma methodology contrary to US
law.394
7.142 In the Delverde III case, the US Department of Commerce argued before the US Court of
Appeals for the Federal Circuit that Section 1677(5) (F) had been adopted in order to overrule the
decisions in Inland Steel and Saarstahl I 395 that had concluded that "[b]ecause the countervailable
benefit does not survive the arm's-length transaction, there is no benefit conferred to the purchaser
and, therefore, no countervailable subsidy within the meaning of the [the US CVD statute]".396
(ii) The US SAA's interpretation of Section 1677(5)(F)
7.143 This understanding is confirmed by the United States itself. The SAA points out that:
"Section771(5)(F) provides that a change in the ownership of 'all or part of a foreign'
enterprise" (i.e. a firm or a division of a firm) or the productive assets of a firm, even
if accomplished through an arm's-length transaction, does not by itself require
Commerce to find that past countervailable subsidies received by the firm no longer
continue to be countervailable. For purposes of section 771(5)(F), the term 'arm's-
length transaction' means a transaction negotiated between unrelated parties, each
acting in its own interest, or between related parties such that the terms of the
transaction are those that would exist if the transaction had been negotiated between
unrelated parties.
Section 771(5)(F) is being added to clarify that the sale of a firm at arm's-length does
not automatically, and in all cases, extinguish any prior subsidies conferred. Absent
this clarification, some might argue that a ll that would be required to eliminate any
countervailing duty would be to sell subsidized productive assets to an unrelated
party. Consequently, it is imperative that the implementing bill correct and prevent
such an extreme interpretation."
397
7.144 The SAA refers to itself as "an authoritative expression of the Administration's views
regarding the interpretation of the Uruguay Round agreements and the United States' obligations in
implementing them, including under domestic law, as agreed between the Administration and
Congress". The same Panel (US – Export Restraints) considered:
398

394 The European Communities refers to David Codevilla, Discouraging the practice of what we
preach, Saarstahl I, Inland Steel and the implementation of the Uruguay Round of GATT 1994 3 Geo. Mason
Independent L. Rev. 435 The European Communities explains that the author was a key Congressional staffer
associated with the drafting of § 1677(5)(F) and the URAA more generally. LEXIS-NEXIS version attached as
Exhibit EC–23 to EC's first written submission.
395 See Delverde III, 202 F.3 rd 1360 where the US Court of Appeals for the Federal Circuit noted, in
footnote 3: "Both parties tell us that the Change of Ownership provision was intended to overrule the decision
of the Court of International Trade in Saarstahl AG v. United States , 858 F. Supp. 187 (Ct. Int'l Trade 1994)
("Saarstahl I")."
396 The following excerpt explains the gist of the Saarstahl I Court judgment: "Where a determination
is made that a given transaction is at arm's-length, one must conclude that the buyer and the seller have
negotiated in their respective self-interests, the buyer ha s taken into consideration all relevant facts, and the
buyer has paid an amount which represents the market va lue of all it is to receive. Because the countervailable
benefit does not survive the arm's-length transaction, there is no benefit conferred to the purchaser and,
therefore, no countervailable subsidy within the meaning of the [the US countervailing duty statute]. The
purchaser, thus, will not realize any competitive countervailable benefit and any countervailable duty assigned
to it amounts to a penalty […] Taken from the EC first written submission, para. 140.
397 SAA 1994 U.S.C.C.A.N 3773, 4241 Exhibit EC–25 to EC's first written submission.
398 Panel Report, US – Export Restraints , WT/DS194/R, at para. 8.95. The Panel in US – Section 301
Trade Act , explained the importance of the SAA as follows: "The SAA thus contains the view of the

"Accordingly, we consider that the SAA constitutes authoritative interpretive
guidance in respect of the statute. As such, given its unique authority as interpretive
guidance, the SAA is of fundamental importan ce in this dispute, in the sense that the
statute cannot be properly interpreted without reference to the SAA."399
(iii) Object and purpose of the legislation.
7.145 We note that the SAA states that "it is impe rative that the implementing bill correct and
prevent such an extreme interpretation" (referring to the ruling in Saarstahl I). We understand that
the object and purpose of Section 1677(5)(F) is to prohibit the US Department of Commerce from
doing what we believe the SCM Agreement, as interpreted by the Appellate Body and Panel Reports
in US – Lead and Bismuth II and this Report, requires the US Department of Commerce to do; i.e. to
reach systematic conclusions that in cases of arm's-length privatizations for fair market value, the
exporting Member has rebutted the presumption, if any, that the benefit from prior financial
contributions (or subsidization) continues to accrue to the privatized producer. The SAA qualifies as
an "extreme interpretation to be corrected", what we believe to be the correct interpretation of the
SCM Agreement.
7.146 It seems clear to this Panel, and the United States admits as much, that Section 1677(5)(F)
was designed so as to ensure that in situations of arm's-length change in ownership for fair market
value, benefit from prior subsidy is never automa tically considered to have passed to the new
privatized producer. The United States, in the course of the Delverde III litigation quoted the US
Department of Commerce in one of its findings:
"Section 771(5)(F) only acts to preserve the ability of the Department to exercise its
discretion, and it accomplishes this goal by overturning the approach ordered in
Saarstahl I , which had mandated that the Department find that an arm's-length
transaction, in and of itself, precludes any pass-through to the purchaser."
400
(iv) The US judicial interpretation of Section 1677(5)(F)
7.147 While the legislative history and the SAA are relevant, the decision of the US Court of
Appeals for the Federal Circuit in the Delverde III case is determinative in establishing the meaning
of Section 1677(5)(F) in the United States. In the context of its examination of the gamma
methodology, the US Court of Appeals for the Federal Circuit in Delverde III discussed and analysed
Section 1677(5)(F) and interpreted it as preventing the adoption of a per se (i.e. systematic) rule on
the effect of a change in ownership transaction. The US Court of Appeals for the Federal Circuit
stated:
"This provision [§1677(5)(F)] clearly states that a subsidy cannot be concluded to
have been extinguished solely by an arm's-length change in ownership. However, it
is also clear that Congress did not intend the opposite, that a change in ownership
always requires a determination that a past countervailable subsidy continues to be
countervailable, regardless whether the change in ownership is accomplished through
an arm's-length transaction or not. If that had been Congress's intent, the statute

Administration, submitted by the President to Congress and receiving its imprimatur, concerning both
interpretation and application and containing commitments, to be followed also by future Administrations, on
which domestic as well as international actors can rely."
 Panel Report, US – Section 301 Trade Act ,
WT/DS152/R, at para. 7.111. The Panel also concluded that the SAA is "an important interpretive element in
the construction of the statutory language." Ibid., at 7.133.
399 Panel Report, US – Export Restraints, WT/DS194/R, at para. 8.100.
400 Final Results of Redetermination pursuant to Court Remand, Delverde Srl. v United States Consol.
Ct. No. 96-08-01997. (Note that in the version of this Remand Redetermination supplied to the Panel, the
quoted text can be found on page 16.)

7.151 We are of the view that benefit and thus subsidization are extinguished vis-à-vis the privatized
producer solely by an arm's-length and fair market value privatization. While Section 1677(5)(F)
prohibits a per se rule that benefit and thus subsidization are extinguished vis-à-vis the privatized
producer solely by an arm's-length and fair market value privatization, the SCM Agreement, as
interpreted by the panel and the Appellate Body in US – Lead and Bismuth II and this Panel, requires
that the domestic laws and regulations and practices mandate the authorities to find that in all cases of
arm's-length fair market value privatization, no benefit from prior financial contributions
(subsidization) to the state-owned producer continues to accrue to the privatized producer.
7.152 Since the United States itself has argued that the Delverde III ruling clearly precludes per se
rules, including one that would automatically treat the change in ownership as extinguishing prior
subsidies406, the Panel believes that the current interpretation of Section 1677(5)(F) by the US Court
of Appeals for the Federal Circuit, which is binding upon the Court of International Trade and the US
Department of Commerce, would prevent the United States from applying Section 1677(5)(F) in a
manner consistent with the SCM Agreement.
7.153 We would like to note that a distinction must be drawn with the conclusion of the Appellate
Body in US – 1916 Act on the relevance of judicial opinion as discretionary governmental action
under WTO law. In US – 1916 Act, the Appellate Body stated:
"Lastly, we note that, before the Panel and before us, the United States invoked the
distinction between mandatory and discretionary legislation to argue that the 1916
Act cannot be mandatory legislation because United States' courts have interpreted or
may interpret the 1916 Act in ways that would make it consistent with the WTO
obligations of the United States. As we have seen, in the case law developed under
the GATT 1947, the distinction between mandatory and discretionary legislation
turns on whether there is relevant discretion vested in the executive branch of
government. The United States, however, does not rely upon the discretion of the
executive branch of the United States' government, but on the interpretation of the
1916 Act by the United States' courts. In our view, this argument does not relate to
the distinction between mandatory and discretionary legislation."
407
7.154 In this Report, we examine the US Court of Appeals for the Federal Circuit, not as the
"exerciser" of governmental discretion but rather in its role as establishing a determinative meaning of
Section 1677(5)(F) for the United States. 408 Both the US – 1916 Act dispute and the current dispute
are concerned with the relationship between the Executive and Judicial Branches of the United States.
The Appellate Body in US – 1916 Act recognized that the Executive Branch cannot instruct the
Judiciary, and therefore the United States could not rely on the Judiciary's exercise of discretion in a
manner compatible with the WTO.
 409 However, it is known that in the United States' law, the
Judiciary can make binding determinations. Therefore, we can rely on judicial interpretations as an
indicator of how the US Department of Commerce is required to apply Section 1677(5)(F).

406 Ibid.
407 See Appellate Body Report, US – 1916 Act, WT/DS136/AB/R, WT/DS162/AB/R, at para. 100.
408 There is a well established principle of jurispruden ce in the United States that "It is emphatically the
province and duty of the judicial department to say what the law is." Marbury v. Madison 5 U.S. (1 Cranch)
137, 177 (1804). See also Panel Report, US – 1916 Act (EC), WT/DS136/R, para. 2.14 and footnote 21.
409 The Appellate Body in India – Patents (US) , WT/DS50/AB/R, also concluded that conformity with
WTO obligations cannot be obtained by an administrative promise to disregard its own binding internal
legislation, i.e. by an administrative undertaking to act illegally. Appellate Body Report, India – Patents (US), at
paras. 69-71. We are of the view that this principle extends to any binding law, independently from the source.

(v) Does Section 1677(5)(F) mandate a violation of the WTO Agreement?
7.155 During the second hearing the Panel asked the representative of the United States whether
Section 1677(5)(F) would allow it to reach systematic conclusions that in cases of fair market value
privatization, no benefit initially determined for th e state-owned producer continued to accrue to the
privatized producer and thus, no countervailing duty can be imposed or maintained. The answer
provided by the representative of the United States was that even if the Panel was to reach the
conclusion that there was such a rule, the United States' legislation did not have to be amended, as the
US Department of Commerce could comply with such findings within the parameters of the existing
Section 1677(5)(F). The United States' representative did not discuss the impact of the SAA or the
US Court of Appeals for the Federal Circuit judgment on this discretion.
7.156 In our view, the plain wording of Section 1677(5)(F), in maintaining the US Department of
Commerce's discretion, does not require a violati on of the SCM Agreement. However, the SAA
(which is an authoritative interpretation of the obligations contained in Section 1677 (5)(F)) and the
US Court of Appeals of the Federal Circuit's decision in Delverde III (which constitutes a binding
determination of what Section 1677(5)(F) actually means in the United States' law and what the
legislation requires from the United States' authorities) clearly demonstrate that the United States is
bound to a non-compliant application of Section 1677(5)(F). In sum, we are of the view that together
with the other provisions of the SCM Agreement, Article 32.5 as well as Article XVI.4 of the WTO
Agreement require the United States to maintain a legislation, regulations and practices that guarantee
that in cases of fair market value privatization at arm's-length no benefit vis-à-vis the privatized
producer is determined to continue from prior subsidization or financial contributions bestowed on a
state-owned producer. In the United States' legal system, Section 1677(5)(F) prohibits de facto the
US Department of Commerce from recognizing that in all cases where an 'arm's-length privatization
for fair market value takes place, no benefit from prior financial contributions (subsidization) to the
state-owned producer can continue to accrue to th e privatized producer. We fail to see how the US
Department of Commerce could exercise its alleged executive discretion under 1677(5)(F) in a
WTO-compatible manner when it is prohibited by its Courts (and the SAA) from systematically
concluding that in cases of 'arm's-length privatization for fair market value, no benefit continues to
accrue to the privatized producer from prior financial contributions (or subsidization) to the state-
owned producer, as provided for by our findings in paragraphs 7.60 to 7.89 above.
7.157 Article 32.5 of the SCM Agreement and Article XVI.4 of the WTO Agreement require that
a Member ensure the conformity of its legislation with the SCM Agreement and the covered
agreements respectively. The Panel concludes that the aggregate effect of the legislative history,
object and purpose of Section 1677(5)(F), the SAA, and the determinative interpretation of that
legislation by the US Court of Appeals for the Fe deral Circuit, is to mandate an application of
Section 1677(5)(F) that will be inconsistent wi th Articles 10, 14, 19, and 21 of the SCM Agreement
since it prohibits the relevant authority from adopting a general rule that in all situations of arm's-
length privatizations for fair market value, no benefit from prior financial contributions (or
subsidization) to the state-owned producer continues to accrue to the privatized producer, even though
Section 1677(5)(F)'s statutory language alone woul d not mandate a violation of the SCM Agreement
and the WTO Agreement.
 410
7.158 As Section 1677(5)(F) is found to be inconsistent with the SCM Agreement, the United
States has failed to ensure conformity with the SCM Agreement as required by Article 32.5 of the

410 We would like to recall that our conclusions and findings are limited to cases of full privatization
and for consideration at fair market value and we have not examined the broader issue of whether any change of
ownership triggers the obligation to re-examine the conditions of application of the SCM Agreement vis-à-vis
the new owner(s). We note that Section 1677(5)(F) deals with all and any such change of ownership and
therefore also addresses situations, other than situations involving full privatization as those covered by the
present Panel Report.

SCM Agreement and Article XVI.4 of the WTO Agr eement. In maintaining such WTO-incompatible
laws, regulations and practices, the Panel concludes that the United States is also acting in a manner
inconsistent with Article 32.5 of the SCM Agreement and with Article XVI.4 of the WTO Agreement.
VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 Therefore, pursuant to the findings above, the Panel concludes that:
(a) The six determinations in the original investigations, based on the gamma
methodology, are inconsistent with the SCM Agreement, since the US Department of
Commerce did not examine whether the privatizations were at arm's-length and for
fair market value; thus the United States failed to determine whether the new
privatized producer received any benefit from prior financial contributions previously
bestowed to state-owned producers. By failing to determine the existence of a benefit
prior to imposing countervailing duties the United States has violated Articles 14,
19.1, and 19.4 of the SCM Agreement, which prohibit the imposition of
countervailing duties where there has been no subsidization or in excess of any
existing subsidization. Since the United States has imposed countervailing duties that
are inconsistent with Articles 14, 19.1 and 19.4 the United States has also violated
Article 10 which requires that countervailing duties be imposed consistently with the
SCM Agreement.
Therefore the countervailing orders in:
– Stainless Sheet and Strip in Coils from France (C-427-815) (Case No. 1);
– Certain Cut-to-Length Carbon Quality Steel from France (C-427-817)
(Case No. 2);
– Certain Stainless Steel Wire Rod from Italy (C-475-821) (Case No. 3);
–S tainless Steel Plate in Coils from Italy (C-475-823) (Case No. 4);
– Stainless Steel Sheet and Strip in Coils from Italy (C-475-825) (Case No. 5);
– Certain Cut-to-Length Carbon-Quality Steel Plate from Italy (C-475-827)
(Case No.6).
are inconsistent with Articles 10, 14, 19.1 and 19.4 of the SCM Agreement.
(b) The two determinations made in the context of administrative reviews and based on
the gamma methodology (Case No. 7) and on the same person methodology (Case
No. 12), are inconsistent with the SCM Agreement since the US Department of
Commerce did not examine whether the privatization that occurred after the original
imposition of countervailing duties, was at arm's-length and for fair market value;
thus the United States failed to determine whether the privatized producers received
any benefit from the financial contributions previously bestowed to the state-owned
producers. By failing to determine the continued existence of a benefit, prior to its
decision to maintain countervailing duties, the United States has violated Articles 14,
19.4, 21.1 and 21.2 of the SCM Agreement, which prohibit a Member pursuant to an
administrative review from maintaining countervailing duties where there has not
been any determination of continued subsidization and thus of a continued need for
countervailing duties. Since the United States has maintained countervailing duties
that are inconsistent with Articles 14, 19.4, 21.1 and 21.2 the United States has also
violated Article 10 which requires that countervailing duties be imposed and thus
maintain consistently with the SCM Agreement.

Therefore the countervailing duty orders in
– Cut-to-Length Carbon Steel Plate from Sweden (C-401-804) (Case No. 7);
and
– Grain-Oriented Electrical Steel from Italy (C-475-812) (Case No. 12).
are inconsistent with Articles 10, 14, 19.4, 21.1 and 21.2 of the SCM Agreement.
(c) The four determinations made in the context of sunset reviews and based on the
gamma methodology are inconsistent with the SCM Agreement, since the US
Department of Commerce did not examine whether the privatizations, that occurred
after the original imposition of countervailing duties, were at arm's-length and for fair
market value. Thus the United States failed to determine whether the privatized
producers received any benefit from the financial contributions previously bestowed
to the state-owned producers. By failing to determine the likelihood of continuation
or recurrence of a subsidization, prior to its decision to maintain countervailing
duties, the United States has violated Articles 14, 19.4, 21.1 and 21.3 of the SCM
Agreement, which prohibit a Member, pursuant to a sunset review, from maintaining
countervailing duties where there has not been any determination of likelihood of
continuation or recurrence of subsidization and thus of a continued need for
countervailing duties. Since the United States has maintained countervailing duties
that are inconsistent with Articles 14, 19.4, 21.1 and 21.3 the United States has also
violated Article 10 which requires that countervailing duties be imposed or
maintained consistently with the SCM Agreement.
Therefore, the countervailing duty orders in
– Cut-to-Length Carbon Steel Plate from United Kingdom (C-412-815)
(Case No. 8);
– Certain Corrosion-Resistant Carbon Steel Flat Products from France
(C-427-810) (Case No. 9);
– Cut-to-Length Carbon Steel Plate from Germany (C-428-817) (Case No. 10);
and
– Cut-to-Length Carbon Steel Plate from Spain (C-469-804) (Case No. 11).
are inconsistent with Articles 10, 14, 19.4, 21.1 and 21.3 of the SCM Agreement.
Moreover, since the United States has admitted that the privatizations in Case Nos. 8
and 10 were at arm's-length and for fair market value, no benefit accrued to the
privatized producers from the prior financial contribution to the state-owned
producer. In maintaining countervailing duties in response to pre-privatization non-
recurring subsidies, notwithstanding the absence of any benefit to the privatized
producer, the United States violated Articles 10, 14, 19.4, 21.1 and 21.3 of the SCM
Agreement.
(d) Once an importing Member has determined that a privatization has taken place at
arm's-length and for fair market value, it must reach the conclusion that no benefit
resulting from the prior financial contributi on (or subsidization) continues to accrue
to the privatized producer. To the extent that Section 1677(5)(F), as interpreted by
the US Court of Appeals for the Federal Circuit and the SAA, requires the US
Department of Commerce to apply a methodology where the benefit from a prior

financial contribution is not systematically found to no longer accrue to the privatized
producer solely by virtue of an arm's-length for fair market value privatization, is
preventing the United States from exercising a WTO-compatible discretion.
Therefore, Section 1677(5)(F) is inconsistent with Articles 10, 14, 19 and 21 of the
SCM, as interpreted by the Panel and the Appellate Body Reports in US – Lead and
Bismuth II and this Panel. As Section 1677(5)(F) is found to be inconsistent with the
SCM Agreement, the United States has failed to ensure conformity with Article 32.5
of the SCM Agreement and Article XVI.4 of the WTO Agreement respectively.
8.2 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. The United States did not provide any evidence to rebut
this presumption. Accordingly, the Panel concludes that, to the extent the United States has acted
inconsistently with the provisions of the SCM Agreement and of the WTO Agreement, it has nullified
or impaired benefits accruing to the European Communities under these Agreements.
8.3 The Panel recommends that the Dispute Settlement Body request the United States to bring its
measures into conformity with its obligations under the SCM Agreement and the WTO Agreement.

ANNEX A
Case
No. Product/Company
Type of
investigation/Date/
rate of imposition of
CVD
Alleged countervailable subsidies
(contributions made prior to
privatization)
Privatization Methodology Status of the case
1 Stainless Sheet and
Strip in Coils from
France
C-427-815
Usinor-Sollac
original investigation
8.6.99 – CVD: 5.38%
Loans with special characteristics;
shareholders advances
Steel intervention fund.
(accounts for bulk of CVD
imposed).
Pre-July 1995: French Gov't [GOF]
90.2%;
Public offering – July 1995
§§Post-July 1995: GOF 9.8%, "stable
shareholders" 14% (of these 10% were
GOF controlled banks or entities),
By 22 Oct. 1997: GOF 1%
1998: GOF 0%
gamma methodology
NB: Court remand
investigation (same
person methodology)
Appeal before US CIT
Judgment rendered on
4 January 2002,
condemning same
person methodology –
(Exhibit EC-29).
2 Certain Cut-to-Length
Carbon Quality Steel
from France
C-427-817
Usinor-Sollac; GTS
Industries
original investigation
29.12 99 – CVD: 5.56%
(Usinor); 6.86% (GTS)
Equity infusion as a result of
conversion of Loans with Special
Characteristics and Steel
Intervention Fund bonds into shares
of common stock, and shareholders
advances.
(accounts for all of countervailing
duties imposed)
Subsidies in question granted to
Usinor group, and allocated pro-rata
to GTS (a member of the group).
GTS – pre-1992: Dillinger 10.27%
Change in ownership – 28 Dec 1992
1992 – 1995:
GTS: Dillinger 100%
Dillinger: DHS 95.3%
DHS: Usinor 70%
Usinor: see supra
post-1996:
DHS: Usinor 48.75%
gamma methodology
NB: Court remand
investigation (same
person methodology)
Appeal before US CIT.
Judgment rendered on
4 January 2002,
condemning same
person methodology –
(Exhibit EC-30)
3 Certain Stainless Steel
Wire Rod from Italy
C-475-821
Cogne Acciai Speciali
 original investigation
29.7.98 – CVD: 22.22%
Equity infusions to Finsider and
ILVA
Pre-privatization Assistance
Debt forgiveness
(accounts for at least 21.74 per cent
of the CVD rate).
Early 1990's:
Instituto per la Riconstruzione
Industriale (IRI) (Italian Gov't): 100%,
thereafter by IRI subholding
companies, Finsider S.p.A., Deltasider
S.p.A. or ILVA S.p.A. 31 Dec. 1992
(CAS) created:
CAS: 100% Cogne S.p.A., also a state-
owned company.
27 Dec. 1993:
CAS: 100% GE.VAL. S.p.A.
gamma methodology Final determination
7.1.98

Page 100Case
No. Product/Company
Type of
investigation/Date/
rate of imposition of
CVD
Alleged countervailable subsidies
(contributions made prior to
privatization)
Privatization Methodology Status of the case
4 Stainless Steel Plate in
Coils from Italy
C-475-823
Acciai Speciali Terni
original investigation
31.3.99 – CVD: 15.16%
Equity infusions to Terni, TAS and
ILVA
Benefits from 1988-90 restructuring
of Finsider
Debt forgiveness of ILVA to AST
(accounts for at least 13.42 per cent
of the CVD rate)
Sept. 1993
ILVA speciality steels division was
spun-off to create Acciai Speciali Terni
(AST) first as a limited liability
company and then as a stock company.
AST: 100% IRI
14 July 1994:
AST: 100% KAI (holding company of a
private investor consortium)
gamma methodology
NB: Court remand
investigation ("same
person" methodology)
Appeal before US CIT.
Judgment rendered on
1 February 2002,
condemning same
person methodology –
(Exhibit EC-31)
5 Stainless Steel Sheet
and Strip in Coils from
Italy
C-475-825
Acciai Speciali Terni
original investigation
8.6.99 – CVD: 12.22%
see supra
(accounts for 10.49 per cent of the
CVD rate)
see supra gamma methodology Appeal before US CIT
(suspended pending
resolution in appeal in
case 4).
6 Certain Cut-to-Length
Carbon-Quality Steel
Plate from Italy
C-475-827
ILVA
original investigation
29.12.99 – CVD:
26.12%
Equity infusions to Nuova Italsider
and (old) ILVA
Debt forgiveness
Capital grants to Nuova Italsider
under law 675/77
(accounts for 22.68 per cent of
CVD rate)
Sept. 1993:
ILVA's (old) carbon steel flat products
division was spun-off to create
Laminati Piani (ILP), incorporated as a
stock company (S.p.A.),
ILP: 100% IRI
March. 1995: privatization
ILP: 100% Riva Acciaio S.p.A
January 1997
ILP renamed ILVA (new).
gamma methodology
NB: Court remand
investigation ("same
person" methodology)
Appeal before US CIT

Case
No. Product/Company
Type of
investigation/Date/
rate of imposition of
CVD
Alleged countervailable subsidies
(contributions made prior to
privatization)
Privatization Methodology Status of the case
7 Cut-to-Length Carbon
Steel Plate from
Sweden
C-401-804
SSAB Sventskt Stal
administrative review
7.4.97 – CVD: 1.91%
Equity infusions .51% ad valorem
Structural Loans .26% ad vlaorem
Forgiven Reconstruction Loans
1.14% ad valorem
CVD measures imposed of 1.91
per cent ad valorem 7 April 1997.
SSAB was privatized in three stages:
Pre privatization:
SSAB: 100% Gov't of Sweden (GOS)
Stage 1: 1987
SSAB: 66% GOS. GOS sold one third
of its shares to a consortium of
international investors.
Stage 2: 1989
SSAB: 47.8% GOS. GOS and the
investors sold part of their remaining
shares. Shortly afterwards SSAB's
shares were introduced on the stock
exchange.
Stage 3: 1992:
GOS floated bonds to which were
attached warrants to purchase the
remaining GOS shares.
By Feb. 1994 all warrants were
exercised
SSAB now held by more than 30,000
small shareholders.
gamma methodology
Final determination
7.04.1997
Never challenged in the
US Courts.
8 Cut-to-Length Carbon
Steel Plate from UK
C-412-815
British Steel plc
sunset review
7.4.00 – CVD: 12.00%
(original duty imposed
1993)
Government equity infusions
Cancelled NLF debt
(accounts for bulk of CVD rate)
Pre-1988, British Steel Corporation
(BSC) 100%.owned by UK Gov't, no
shares.
26 July 1988: a Public Limited
Company named British Steel plc (BS
plc) was incorporated. UK Gov't: 100%
shares
23 Nov. 1988: public offering of 2
billion ordinary shares
gamma methodology Final determination on
7.4.00.
9 Certain Corrosion-
Resistant Carbon Steel
Plate Products from
France
C-427-810
Usinor
sunset review
6.4.00 – CVD: 15.13%
(original duty imposed
1993)
Equity infusions as a result of the
conversion of Loans with Special
Characteristics Shareholders and
Steel Intervention Fund bonds into
shares of common stock;
shareholders advances
(accounts for bulk of CVD rate)
see supra Usinor history. gamma methodology Final determination on
7.4.00.

Page 102Case
No. Product/Company
Type of
investigation/Date/
rate of imposition of
CVD
Alleged countervailable subsidies
(contributions made prior to
privatization)
Privatization Methodology Status of the case
10 Cut-to-Length Carbon
Steel Plate from
Germany
C-428-817
Dillinger Huttenwerke
Saarstahl
sunset review
2.8.00- CVD: 14.84%
(original duty imposed
1993)
Structural improvement aids
Subsidies in form of debt relief
provided to DHS in connection with
its creation in 1989
(accounts for full amount of CVD
rate)
Pre-1989:
Saarstahl Völkingen GmbH: 76 % by
Gov't of Saarland (a German lander)
and 24 % by, Arbed-Finanz
Deutschland GmbH, a subsidiary of
Arbed Luxembourg
15 June 1989: merger of Saarstahl
Völkingen GmbH with Dillinger
(owned by Usinor Sacilor) into a
holding company (DHS). After the
merger
DHS: 70% Usinor Sacilor, 27.5%
Saarland, 2.5 %
On 30 June 1989, DHS transferred the
assets and liabilities of the former
Saarstahl Völkingen GmbH into the
newly created subsidiary, Saarstahl.
Thus DHS became a holding company
with two operating subsidiaries,
Saarstahl and Dillinger.
1993 –DHS sold its 100% interest in
Saarstahl to Gov't of Saarland.
1997 – Gov't of Saarland transfers
majority of shareholdings in Saarstahl
to third parties pursuant to plan of
reorganization

"gamma" methodology in
original investigation
Appeal before the CIT.
Judgment rendered on
28 February 2002
finding various aspects
of the US Department
of Commerce's sunset
practice inconsistent
with the US statute.
(Exhibit EC-34).
11 Cut-to-Length Carbon
Steel Plate from Spain
C-469-804
Aceralia
sunset review
7.4.2000 – CVD:
36.86%
(original duty imposed
1993)
law 60/78 (loans and infusions)
Royal decree 878/81 (Loans, grants
and infusions)
1984 council of ministers meeting
(infusions, loan guarantees and
grants)
1987 government delegated
commission on economic affairs
(loans, grants and retirement
benefits) (accounts for bulk of
CVD)
Three phase privatization:
CSI – Corporacion Siderurgica
(predecessor of Aceralie)
Phase one Arbed purchased 35% of
shares and became the "technological
partner" (1 Aug. 1997)
Phase two: Corporacion JM. Aristrain
purchased 11% and Gestamp SL
purchased 1% and became "supporting
partners" (17 Oct. 1997)
Phase three: the remaining shares were
sold by an international subscription
open to private investors. (March
1998).
gamma methodology The US Department of
Commerce published its
final determination on
7.4.00.

Case
No. Product/Company
Type of
investigation/Date/
rate of imposition of
CVD
Alleged countervailable subsidies
(contributions made prior to
privatization)
Privatization Methodology Status of the case
12 Grain-Oriented
Electrical Steel from
Italy
C-475-812
Acciai Speciali Terni
administrative review
7.7.00 – CVD: 14.25%
sunset review
1.11.00 – CVD:
maintenance of original
CVD imposed 1994
Equity infusions to Terni, TAS and
ILVA
Benefits from 1988-90 restructuring
of Finsider
Debt forgiveness of ILVA to AST
Pre-privatization benefits under law
451/94 for ILVA Residua (accounts
for 11.50 per cent of CVD)
Acciai Speciali Terni privatized Dec
1994 (see Case No. 4 supra).
same person
methodology
On appeal before US
CIT.