EUROPEAN UNION – COUNTERVAILING MEASURES ON CERTAIN POLYETHYLENE TEREPHTHALATE FROM PAKISTAN (WT/DS486) REPORT OF THE PANEL
Document: Addendum BCI deleted, as indicated [***]
Date: 6 July 2017
Document codes: WT/DS486/R/Add.1; WT/DS486/R.
Complainant: Pakistan
Respondent: EU
Third parties: China, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. 1.1(a)(1)(i), 1.1(a)(1)(ii), 3.1(a), Annex I, Annex II, Annex III  Subsidies and Countervailing Measures (SCM)Art. VI  GATT 1994Art. 1, 3, 14, 19, 1.1(a)(1), 1.1(b), 14, 14(b), 19.3, 15.5, 12.6, 12.8, Annex VI, 22.3, 22.4, 10, 19.1, 32  Subsidies and Countervailing Measures (SCM)

EUROPEAN UNION – COUNTERVAILING MEASURES ON CERTAIN POLYETHYLENE
TEREPHTHALATE FROM PAKISTAN
(WT/DS486)
REPORT OF THE PANEL
Addendum
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This addendum contains Annexes A to E to the Report of the Panel to be found in document

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LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Additional Working Procedures on Business Confidential Information A-7
ANNEX B
ARGUMENTS OF THE EUROPEAN UNION
Contents Page
Annex B-1 First Integrated Executive Summary of the European Union B-2
Annex B-2 Second Integrated Executive Summary of the European Union B-12
ANNEX C
ARGUMENTS OF PAKISTAN
Contents Page
Annex C-1 First Integrated Executive Summary of Pakistan C-2
Annex C-2 Second Integrated Executive Summary of Pakistan C-18
ANNEX D
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex D-1 Third Party Oral Statement of China D-2
Annex D-2 Executive Summary of United States Third Party written submission D-4
ANNEX E
INTERIM REVIEW
Contents Page
Annex E-1 Interim Review E-2

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ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Additional Working Procedures on Business Confidential Information A-7

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ANNEX A-1
EUROPEAN UNION – COUNTERVAILING MEASURES ON CERTAIN POLYETHYLENE
TEREPHTHALATE FROM PAKISTAN (WT/DS486)
WORKING PROCEDURES OF THE PANEL
ADOPTED ON 15 MARCH 2016
1. In its proceedings, the Panel shall follow the relevant prov isions of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU). In addition, the following
Working Procedures shall apply.

General

2. The deliberations of the Panel and the documents submitted to it shall be kept confident ial.
Nothing in the DSU or in these Working Procedures shall preclude a party to the dispute (hereafter
"party") from disclosing statements of its own positions to the public. Members shall treat as
confidential information submitted to the Panel by anothe r Member which the submitting Member
has designated as confidential. Where a party submits a confidential version of its written
submissions to the Panel, it shall also, upon request of a Member, provide a non -confidential
summary of the information contained in its submissions that could be disclosed to the public.

3. The parties and third parties shall treat business confidential information in accordance with
the procedures set forth in the Additional Working Procedures of the Panel Concerning Business
Confidential Information adopted by the Panel.

4. The Panel shall meet in closed session. The parties, and Members having notified their
interest in the dispute to the Dispute Settlement Body in accordance with Article 10 of the DSU
(hereafter "third part ies"), shall be present at the meetings only when invited by the Panel to
appear before it.

5. Each party and third party has the right to determine the composition of its own delegation
when meeting with the Panel. Each party and third party shall have t he responsibility for all
members of its own delegation and shall ensure that each member of such delegation acts in
accordance with the DSU and these Working Procedures, particularly with regard to the
confidentiality of the proceedings.

Submissions

6. Before the first substantive meeting of the Panel with the parties, each party shall submit a
written submission in which it presents the facts of the case and its arguments, in accordance with
the timetable adopted by the Panel. Each party shall also subm it to the Panel, prior to the second
substantive meeting of the Panel, a written rebuttal, in accordance with the timetable adopted by
the Panel.

7. A party shall submit any request for a preliminary ruling at the earliest possible opportunity
and in any event no later than in its first written submission to the Panel. If Pakistan requests such
a ruling, the European Union shall submit its response to the request in its first written submission.
If the European Union requests such a ruling, Pakistan shall submit its response to the request
prior to the first substantive meeting of the Panel, at a time to be determined by the Panel in light
of the request. Exceptions to this procedure shall be granted upon a showing of good cause. The
Panel notes that one re quest for a preliminary ruling has already been filed in this dispute, and
appropriate procedures have been put in place for addressing that request. Unless the Panel
decides otherwise, any further requests for a preliminary ruling should follow the proced ures in
this paragraph.

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8. Each party shall submit all factual evidence to the Panel no later than during the first
substantive meeting, except with respect to evidence necessary for purposes of rebuttal, answers
to questions or comments on answers provid ed by the other party. Exceptions to this procedure
shall be granted upon a showing of good cause. Where such an exception has been granted, the
Panel shall accord the other party a period of time for comment, as appropriate, on any new
factual evidence submitted after the first substantive meeting.

9. Where the original language of exhibits is not a WTO working language, the submitting party
or third party shall submit a translation into the WTO working language of the submission at the
same time. The Panel may grant reasonable extensions of time for the translation of such exhibits
upon a showing of good cause. Any objection as to the accuracy of a translation should be raised
promptly in writing, no later than the next filing or meeting (whichever occur s earlier) following
the submission which contains the translation in question. The Panel may grant exceptions to this
procedure upon a showing of good cause. Any objection shall be accompanied by a detailed
explanation of the grounds of objection and an a lternative translation. Should a party be aware of
any inaccuracies in the translations of the exhibits submitted by that party, it shall inform the
Panel and the other party promptly, and provide a new translation.

10. Each party and third party is invit ed to make its submissions in accordance with the WTO
Editorial Guide for Panel Submissions to the extent that it is practical to do so.

11. To facilitate the maintenance of the record of the dispute and maximize the clarity of
submissions, each party an d third party shall sequentially number its exhibits throughout the
course of the dispute. For example, exhibits submitted by Pakistan could be numbered PAK -1,
PAK-2, etc. If the last exhibit in connection with the first submission was numbered PAK -5, the
first exhibit of the next submission thus would be numbered PAK-6.

Questions

12. The Panel may at any time pose questions to the parties and third parties, orally or in
writing, including prior to each substantive meeting.

Substantive meetings

13. Each party shall provide to the Panel the list of members of its delegation in advance of each
meeting with the Panel and no later than 5.00 p.m. the previous working day.

14. The first substantive meeting of the Panel with the parties shall be conducted as follows:

a. The Panel shall invite Pakistan to make an opening statement to present its case first.
Subsequently, the Panel shall invite the European Union to present its point of view.
Before each party takes the floor, it shall provide the Panel and othe r participants at the
meeting with a provisional written version of its statement. In the event that
interpretation is needed, each party shall provide additional copies for the interpreters,
through the Panel Secretary. Each party shall make available to the Panel and the other
party the final version of its opening statement as well as its closing statement, if any,
preferably at the end of the meeting, and in any event no later than 5.00 p.m. on the
first working day following the meeting.
b. After the conclusion of the statements, the Panel shall give each party the opportunity to
ask each other questions or make comments, through the Panel. Each party shall then
have an opportunity to answer these questions orally. Each party shall send in writing,
within a timeframe to be determined by the Panel, any questions to the other party to
which it wishes to receive a response in writing. Each party shall be invited to respond in
writing to the other party's written questions within a deadline to be determined by the
Panel.
c. The Panel may subsequently pose questions to the parties. Each party shall then have an
opportunity to answer these questions orally. The Panel shall send in writing, within a
timeframe to be determined by it, any questions to the parties to whi ch it wishes to
receive a response in writing. Each party shall be invited to respond in writing to such
questions within a deadline to be determined by the Panel.

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d. Once the questioning has concluded, the Panel shall afford each party an opportunity to
present a brief closing statement, with Pakistan presenting its statement first.
15. The second substantive meeting of the Panel with the parties shall be conducted as follows:

a. The Panel shall ask the European Union if it wishes to avail itself of the right to present
its case first. If so, the Panel shall invite the European Union to present its opening
statement, followed by Pakistan. If the European Union chooses not to avail itself of that
right, the Panel shall invite Pakistan to present its opening stat ement first. Before each
party takes the floor, it shall provide the Panel and other participants at the meeting
with a provisional written version of its statement. In the event that interpretation is
needed, each party shall provide additional copies for the interpreters, through the Panel
Secretary. Each party shall make available to the Panel and the other party the final
version of its opening statement as well as its closing statement, if any, preferably at the
end of the meeting, and in any event no later than 5.00 p.m. of the first working day
following the meeting.
b. After the conclusion of the statements, the Panel shall give each party the opportunity to
ask each other questions or make comments, through the Panel. Each party shall then
have an oppo rtunity to answer these questions orally. Each party shall send in writing,
within a timeframe to be determined by the Panel, any questions to the other party to
which it wishes to receive a response in writing. Each party shall be invited to respond in
writing to the other party's written questions within a deadline to be determined by the
Panel.
c. The Panel may subsequently pose questions to the parties. Each party shall then have an
opportunity to answer these questions orally. The Panel shall send in writ ing, within a
timeframe to be determined by it, any questions to the parties to which it wishes to
receive a response in writing. Each party shall be invited to respond in writing to such
questions within a deadline to be determined by the Panel.
d. Once the questioning has concluded, the Panel shall afford each party an opportunity to
present a brief closing statement, with the party that presented its opening statement
first, presenting its closing statement first.
Third parties

16. The Panel shall invite each third party to transmit to the Panel a written submission prior to
the first substantive meeting of the Panel with the parties, in accordance with the timetable
adopted by the Panel.

17. Each third party shall also be invited to present its views or ally during a session of this first
substantive meeting, set aside for that purpose. Each third party shall provide to the Panel the list
of members of its delegation in advance of this session and no later than 5.00 p.m. the previous
working day.

18. The third-party session shall be conducted as follows:

a. All third parties may be present during the entirety of this session.
b. The Panel shall first hear the arguments of the third parties in alphabetical order. Third
parties present at the third -party session and intending to present their views orally at
that session, shall provide the Panel, the parties and other third -parties with provisional
written versions of their statements before they take the floor. Third parties shall make
available to the Panel, t he parties and other third parties the final versions of their
statements, preferably at the end of the session, and in any event no later than
5.00 p.m. of the first working day following the session.

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c. After the third parties have made their statements, t he parties may be given the
opportunity, through the Panel, to ask the third parties questions for clarification on any
matter raised in the third parties' submissions or statements. Each party shall send in
writing, within a timeframe to be determined by the Panel, any questions to a third party
to which it wishes to receive a response in writing.
d. The Panel may subsequently pose questions to the third parties. Each third party shall
then have an opportunity to answer these questions orally. The Panel shal l send in
writing, within a timeframe to be determined by it, any questions to the third parties to
which it wishes to receive a response in writing. Each third party shall be invited to
respond in writing to such questions within a deadline to be determined by the Panel.
Descriptive part

19. The description of the arguments of the parties and third parties in the descriptive part of
the Panel report shall consist of executive summaries provided by the parties and third parties,
which shall be annexed as addenda to the report. These executive summaries shall not in any way
serve as a substitute for the submissions of the parties and third parties in the Panel's examination
of the case.

20. Each party shall submit an integrated executive summary of the fact s and arguments as
presented to the Panel in its first written submissions, first opening and closing oral statements
and responses to questions following the first substantive meeting, and a separate integrated
executive summary of its written rebuttal, s econd opening and closing oral statements and
responses to questions following the second substantive meeting, in accordance with the timetable
adopted by the Panel. Each integrated executive summary shall be limited to no more than 15
pages. The Panel wil l not summarize in a separate part of its report, or annex to its report, the
parties' responses to questions.

21. Each third party shall submit an integrated executive summary of its arguments as
presented in its written submission and statement in accordance with the timetable adopted by the
Panel. This integrated executive summary may also include a summary of responses to questions,
if relevant. The executive summary to be provided by each third party shall not exceed 6 pages.

22. The Panel reserves the right to request the parties and third parties to provide executive
summaries of facts and arguments presented by a party or a third party in any other submissions
to the Panel for which a deadline may not be specified in the timetable.

Interim review

23. Following issuance of the interim report, each party may submit a written request to review
precise aspects of the interim report and request a further meeting with the Panel, in accordance
with the timetable adopted by the Panel. The right to request such a meeting shall be exercised no
later than at the time the written request for review is submitted.

24. In the event that no further meeting with the Panel is requested, each party may submit
written comments on the other party's written request for review, in accordance with the timetable
adopted by the Panel. Such comments shall be limited to commenting on the other party's written
request for review.

25. The interim report, as well as the final report prior to its official circulation, shall b e kept
strictly confidential and shall not be disclosed.

Service of documents

26. The following procedures regarding service of documents shall apply:

a. Each party and third party shall submit all documents to the Panel by filing them with
the DS Registry (office No. 2047).
b. Each party and third party shall file 2 paper copies of all documents it submits to the
Panel. The DS Registrar shall stamp the documents with the date and time of the filing.

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The paper version shall constitute the official version for the purposes of the record of
the dispute.
c. Each party and third party shall also provide an electronic copy of all documents it
submits to the Panel at the same time as the paper versions, preferably in Microsoft
Word format, either on a CD -ROM, a DVD or as an e -mail attachment. If the electronic
copy is provided by e -mail, it should be addressed to DSRegistry@wto.org, with a copy
to geoffrey.carlson@wto.org and lina.somait@wto.org. If a CD -ROM or DVD is provided,
it shall be filed with the DS Registry.
d. Each party shall serve any document submitted to the Panel directly on the other party.
Each party shall, in addition, serve on all third parties its written submissions in advance
of the first substantive meeting with the Panel. Each third party shall serv e any
document submitted to the Panel directly on the parties and all other third parties. Each
party and third party shall confirm, in writing, that copies have been served as required
at the time it provides each document to the Panel.
e. Each party and third party shall file its documents with the DS Registry and serve copies
on the other party (and third parties where appropriate) by 5.00 p.m. (Geneva time) on
the due dates established by the Panel. A party or third party may submit its documents
to another party or third party in electronic format only, subject to the recipient party or
third party's prior written approval and provided that the Panel Secretary is notified.
f. The Panel shall provide the parties with an electronic version of the descriptive pa rt, the
interim report and the final report, as well as of other documents as appropriate. When
the Panel transmits to the parties or third parties both paper and electronic versions of a
document, the paper version shall constitute the official version fo r the purposes of the
record of the dispute.
27. The Panel reserves the right to modify these procedures as necessary, after consultation
with the parties.

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ANNEX A-2
EUROPEAN UNION – COUNTERVAILING MEASURES ON CERTAIN POLYETHYLENE
TEREPHTHALATE FROM PAKISTAN (WT/DS486)
ADDITIONAL WORKING PROCEDURES ON BUSINESS CONFIDENTIAL INFORMATION
ADOPTED ON 14 APRIL 2016
The following procedures apply to any business confidential information (BCI) submitted in the
course of the Panel proceedings in DS486.
1. For the purposes of these Panel proceedings, BCI includes

a. any information designated as such by the party submitting it that was previously
treated as confidential by the investigating authority in the countervailing duty
investigation at issue in this dispute unle ss the Panel decides it should not be treated as
BCI for purposes of these Panel proceedings based on an objection by a party pursuant
to paragraph 3 below.
b. any other information designated as such by the party submitting it, unless the Panel
decides it should not be treated as BCI for purposes of these Panel proceedings based on
an objection by a party pursuant to paragraph 3 below.
2. Any information that is available in the public domain may not be designated as BCI. In
addition, information previously treated as confidential by the investigating authority in the
countervailing duty investigation at issue in this dispute may not be designated as BCI if the
person who provided the information in the course of that investigation agrees in writing to make
the information publicly available.

3. If a party or third party considers that information submitted by the other party or a third
party should have been designated as BCI and objects to its submission without such designation,
it shall forthwith bring th is objection to the attention of the Panel, the other party, and, where
relevant, the third parties, together with the reasons for the objection. Similarly, if a party or third
party considers that the other party or a third party designated information as BCI which should
not be so designated, it shall forthwith bring this objection to the attention of the Panel, the other
party, and, where relevant, the third parties, together with the reasons for the objection. The
Panel, in deciding whether information subject to an objection should be treated as BCI for
purposes of these Panel proceedings, will consider whether disclosure of the information in
question could cause serious harm to the interests of the originator(s) of the information.

4. No person may have access to BCI except a member of the Secretariat or the Panel, an
employee of a party or third party, or an outside advisor to a party or third party for the purposes
of this dispute.

5. A party or third party having access to BCI in these Panel proc eedings shall not disclose that
information other than to persons authorized to have access to it pursuant to these procedures.
Any information designated as BCI under these procedures shall only be used for the purposes of
this dispute. Each party and thi rd party is responsible for ensuring that its employees and/or
outside advisors comply with these procedures to protect BCI.

6. An outside advisor of a party or third party is not permitted access to BCI if that advisor is
an officer or employee of an ent erprise engaged in the production, sale, export, or import of the
product(s) that was/were the subject of the investigation at issue in this dispute, or an officer or
employee of an association of such enterprises. All third party access to BCI shall be su bject to the
terms of these working procedures.

7. The party submitting BCI shall mark the cover and/or first page of the document containing
BCI, and each page of the document, to indicate the presence of such information. The specific

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information in que stion shall be placed between double brackets, as follows: [[xx,xxx.xx]]. The
first page or cover of the document shall state "Contains Business Confidential Information", and
each page of the document shall contain the notice "Contains Business Confidential Information" at
the top of the page.

8. Any BCI that is submitted in binary -encoded form shall be clearly marked with the
statement "Business Confidential Information" on a label of the storage medium, and clearly
marked with the statement "Business Confidential Information" in the binary-encoded files.

9. In the case of an oral statement containing BCI, the party or third party making such a
statement shall inform the Panel before making it that the statement will contain BCI, and the
Panel will ensure that only persons authorized to have access to BCI pursuant to these procedures
are in the room to hear that statement. The written versions of such oral statements submitted to
the Panel shall be marked as provided for in paragraph 7.

10. Any person authorized to have access to BCI under the terms of these procedures shall store
all documents containing BCI in such a manner as to prevent unauthorized access to such
information.

11. The Panel will not disclose BCI, in its report or in any other way, to persons not authorized
under these procedures to have access to BCI. The Panel may, however, make statements of
conclusion drawn from such information. Before the Panel circulates its final report to the
Members, the Panel will give each party an opportuni ty to review the report to ensure that it does
not contain any information that the party has designated as BCI.

12. Submissions containing BCI will be included in the record forwarded to the Appellate Body in
the event of an appeal of the Panel's Report.

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ANNEX B
ARGUMENTS OF THE EUROPEAN UNION
Contents Page
Annex B-1 First Integrated Executive Summary of the European Union B-2
Annex B-2 Second Integrated Executive Summary of the European Union B-12

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ANNEX B-1
FIRST INTEGRATED EXECUTIVE SUMMARY OF THE EUROPEAN UNION
1 INTRODUCTION
1. In this integrated executive summary, the European Union summarizes the facts and
arguments presented to the Panel in its first written submission, its opening oral statement at the
first substantive meeting and its responses to the Panel's questions.
2 THE MEASURES AT ISSUE AND FACTUAL BACKGROUND
2. The measures at issue in this dispute as contained in Pakistan's Panel Request are the
provisional and definitive countervailing duties imposed by the E uropean Union on imports of
certain polyethylene terephthalate ("PET") from Pakistan, as well as certain aspects of the
underlying investigation and determinations related thereto, as set forth in the following
instruments:

 Commission Regulation (EU) No 4 73/2010 of 31 May 2010, imposing a provisional
countervailing duty on imports of certain polyethylene terephthalate originating in Iran,
Pakistan and the United Arab Emirates, OJ L134/25.
 Council Implementing Regulation (EU) 857/2010 of 27 September 2010 , imposing a
definitive countervailing duty and collecting definitively the provisional duty imposed on
imports of certain polyethylene terephthalate originating in Iran, Pakistan and the
United Arab Emirates, OJ L254/10.
3. The European Union refers to the description of the facts set out in Regulations No 473/2010
("provisional determination") and No 857/2010 ("definitive determination").

2.1 Original investigation
4. Pursuant to Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against
subsidised imports from countries not members of the European Community (the "Basic CVD
Regulation"), an anti-subsidy proceeding was initiated by the European Union concerning certain
PET originating, inter alia , in Pakistan on 3 September 2009 following a complaint lodged on
20 July 2009 by the Polyethylene Terephthalate Committee of Plastics Europe (the "complainant").
The European Commission (the "Commission") imposed a provisional countervailing duty on
31 May 2010 in Regulation No 473/2010.

5. On 27 S eptember 2010, the Council imposed, by Regulation No 857/2010, definitive
countervailing duties on imports of certain PET having a viscosity number of 78 ml/g or higher,
according to ISO Standard 1628-5, originating inter alia in Pakistan.

6. The subsidy investigation period was 1 July 2008 to 30 June 2009 ("the period of
investigation" or "POI") and the examination of trends relevant for the assessment of injury
covered the period from 1 January 2006 to the end of the POI ( "the period considered"). While
seven measures were investigated by the European Union, only the determinations in relation to
two measures, the MBS programme and the LTF -EOP programme, are questioned by Pakistan in
this dispute.

2.2 Legal challenge and amendment of the countervailing duty amounts
7. On 6 December 2010, Novatex lodged an application at the General Court seeking the
annulment of Regulation No 857/2010 in so far as it applied to Novatex, on the ground that the
FTR is not a subsidy within the meaning of the Basic CVD Regulation and that the calculation of the
subsidy amount granted under the LTF-EOP programme was erroneous.

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8. The General Court in its judgment in case T -556/10 of 11 October 2012 ("the General Court
judgment") found that the European Commission and the Co uncil failed to take account of certain
information as regards the FTR, and that the error resulting therefrom affected the legality of
Article 1 of Regulation No 857/2010 in so far as the definitive countervailing duty fixed by the
Council exceeded the du ty applicable in the absence of that error. Therefore, the General Court
annulled Article 1 of Regulation No 857/2010 in so far as it concerned Novatex and in so far as the
definitive countervailing duty exceeded that applicable in the absence of the error . The General
Court dismissed Novatex's claim as regards the LTF -EOP programme. Novatex did not appeal the
General Court judgment.

9. Following the General Court judgment, the Commission initiated on 17 May 2013, a partial
reopening of the anti -subsidy pr oceeding with regard to imports of certain PET originating,
inter alia, in Pakistan. On 25 September 2013, the Council adopted Implementing Regulation (EU)
No 917/2013 in order to reduce the countervailing duty rate applicable to Novatex in accordance
with the General Court judgment. The revised duty rate was applied retroactively as of
2 June 2010.

2.3 Termination of the countervailing duties
10. On 26 September 2015, the European Union published in its Official Journal the Notice of the
expiry of the cou ntervailing duties imposed on certain PET from Pakistan pursuant to Regulation
No 857/2010. Pursuant to that Notice, the European Union stopped imposing the countervailing
duties at issue as of 30 September 2015.
3 LEGAL ARGUMENT
3.1 Claims relating to the MBS programme
11. The MBS programme permits the import of duty -free input material under the condition that
it is used for subsequent exports. The Commission found that the MBS constituted a subsidy in the
form of revenue forgone by the government which c onfers a benefit upon the recipient company
and was specific. The subsidy rate established in respect of this scheme during the POI for the co-
operating exporting producer in Pakistan, namely Novatex Limited ("Novatex"), amounted
to 2.57%.

3.1.1 Pakistan failed to raise specific claims in its Panel Request regarding an alleged
incorrect determination of the amount of subsidisation in this case
12. Pakistan appears to agree that the MBS programme amounted to a countervailable subsidy,
even in view of Annexes II and III of the SCM Agreement. Indeed, Pakistan agrees that during the
period of investigation Novatex obtained a refund of imported duties on raw materials "in excess
of" those actually borne by Novatex. Thus, Pakistan's argument entirely boils down t o a
disagreement on the amount of subsidisation granted to Novatex during the period of
investigation.

13. However, Pakistan has not raised any claims in its Panel Request concerning an alleged
violation by the Commission when calculating the amount of subsidisation in the present case (e.g.
under Article 1.1(b) or 14 of the SCM Agreement, unlike its claims under the LFT -EOP
programme). As a result, the European Union considers that the Panel does not have authority to
examine whether the Commission's det ermination (that the full amount of import duties foregone
as opposed to merely the excess amount conceded by Pakistan should be countervailed) was
inconsistent with the SCM Agreement. In this respect, the European Union considers that
Pakistan's claims un der Articles 10, 32.1 and 19.1 of the SCM Agreement cannot serve to make
rulings by the Panel on an alleged incorrect amount of subsidisation found. Those claims are
clearly consequential. Pakistan has not developed its claims under those provisions in its first
written submission either, other than consequential breaches of the alleged incorrect
determination by the Commission.

14. Therefore, the European Union requests the Panel to refrain from examining the legal
arguments and facts brought by Pakistan in view of the uncontested facts that (i) neither of the
parties discuss that the MBS programme amounted to a countervailable subsidy in view of
Articles 1.1, 3.1(a), 3.2 and Annex I(i) of the SCM Agreement; and (2) since Pakistan has not

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raised any claim s under Articles 1.1(b) or 14 of the SCM Agreement concerning an alleged
violation of the obligations when determining the amount of subsidisation, the Panel should reject
Pakistan's claim.

3.1.2 Pakistan's interpretation of the relevant provisions of the SCM Agreement is
incorrect
15. Pakistan's view appears to be that the obligation to countervail only the excess of duties
rebated or refunded is already contained in Annexes I to III of the SCM Agreement and, hence, in
situations where an alleged duty dra wback system is being investigated, the investigating
authority can only countervail the amounts provided in excess in order to comply with its
obligation under those Annexes. However, an examination of Annexes I to III shows that this is
not the case.

16. To begin with, Article 1 of the SCM Agreement is a definitional provision of what type of
measures fall under the disciplines of the SCM Agreement and footnote 1 contains a carve -out or
scope provision: the exemption of an exported product from duties or taxes borne by the like
product when destined for domestic consumption, or the remission of such duties or taxes in
amounts not in excess of those which have accrued "shall not be deemed to be a subsidy", i.e.
should not be subject to the disciplines of t he SCM Agreement. The reference to the Ad Note to
GATT Article XVI in footnote 1 is merely repetitive, as it contains the same reference to the carve -
out. However, footnote 1 further specifies that for the carve -out to apply, those exemptions and
remissions of duties must take place "[i]n accordance with the provisions of (…) Annexes I
through III of this Agreement". The use of the terms "in accordance with" has an exhortative
meaning, and usually refers to a set of conditions or rules that need to be complied with.

17. Annex I(i) of the SCM Agreement provides for situations where certain types of subsidies
would be deemed as prohibited. This provision alone does not speak about how to determine
whether the remission of import duties was in excess of those levied on imported inputs. It merely
confirms a situation leading to a prohibited subsidy. In turn, this provision states that "[t]his item
shall be interpreted in accordance with the guidelines on consumption of inputs in the production
process contained in Annex II and the guidelines in the determination of substitution drawback
systems as export subsidies contained in Annex III".

18. Annex II of the SCM Agreement contains "guidelines on consumption of inputs in the
production process". Paragraphs 1 and 2 in the first part of Annex II merely recalls footnote 1 and
Annex I(i) of the SCM Agreement. Again, this provision does not speak about how to calculate the
amount of subsidisation in those cases. It only contains the consequence of having determined
that the measure in question amounts to a duty drawback system in accordance with Annexes II
and III.

19. The second part of Annex II contains certain rules or steps that investigating authorities
should take in order to determine the inputs that are consum ed or incorporated into the exported
product. However, those provisions do not establish what happens if the investigating authority
cannot determine on a reliable basis which inputs are consumed in the production of the exported
product and in what amounts.

20. In a situation where there is no system to control and confirm the inputs consumed or
incorporated into the exported product, and where it is clear that the duty drawback scheme is
totally unreliable, absent reliable evidence on the actual amounts of inputs incorporated into the
exported product, the European Union considers that, in view of the guiding principles contained
under Article 14 of the SCM Agreement, an investigating authority is entitled to countervail the full
amount refunded. Indeed, Article 14 of the SCM Agreement specifically deals with the calculation
of the amount of a subsidy in terms of the benefit to the recipient.

21. In this respect, contrary to what Pakistan alleges, the European Union does not consider
that, absent a veri fication system or the demonstration by the exporting Member that no excess
amounts were rebated or refunded, there is an automatic presumption that the entire amount of
the import duties foregone or refunded can be countervailed. If the conditions under A nnexes II
and III are not met, the carve -out in footnote 1 (and Annex I(i)) simply is not met either, since
those provisions stipulate that should be read "in accordance with" Annexes II and III. Annexes I
to III contain rules which must be complied with i n order to avoid qualifying a remission or

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exemption from duties as a subsidy. Then, each case has to be examined on its own merits and in
view of the guiding principles established under Article 14 of the SCM Agreement to calculate the
amount of subsidisation.

22. Finally, with respect to Annex III of the SCM Agreement , the European Union observes that
this Annex provides guidelines in the determination of substitution drawback systems as export
subsidies Quite tellingly again, Annex III does not speak ab out how to determine the amount of
subsidisation in cases of substitution drawback systems. Annex III merely provides that, if an
investigating authority is satisfied with the procedures to verify and demonstrate that the quantity
of inputs for which drawback is claimed does not exceed the quantity of similar products exported,
in whatever form, and that there is no drawback of import charges in excess of those originally
levied on the imported inputs in question, "no subsidy should be presumed to exist". Absent such a
system of verification, if the exporting Member fails to show whether excess payment occurred on
the basis of actual transactions, the investigating authority may conclude legitimately that such an
excess amount took place. Then, the principle s to determine the amount of benefit under
Article 14 of the SCM Agreement would apply.

23. In sum, the European Union considers that Pakistan is reading too much into the provisions
in question. Contrary to what Pakistan alleges, nothing in footnote 1, or Annexes I to III require
investigating authorities to only countervail the excess of duties refunded in all cases, thereby
imposing an active obligation upon them to estimate in each and every case the amount of import
duties paid on inputs that were co nsumed and incorporated into the exported products and the
amounts of refunds granted upon exportation. Annexes II and III contain the rules or the
necessary steps that must be taken to determine whether an alleged duty drawback system
results in a prohibi ted subsidy by reason of over rebate or excess drawback of import duties on
inputs consumed in the production of the exported product. If there is no system or no proper
application of a system or procedure to confirm which inputs are consumed in the produ ction of
the exported product and in what amounts, and the exporting Member fails to show that the
quantity of inputs for which drawback is claimed does not exceed the amounts rebated or refunded
upon exportation of the products incorporating those inputs, then the only conclusion can be that
the alleged subsidy scheme does not fall under the carve -out in footnote 1 (or Annex(i)) of the
SCM Agreement . Thus, the general principles governing the calculation of benefit apply to that
measure. If it is found tha t there are no reliable information provided by the exporting Member
about the actual amounts of imported materials incorporated into the exported products for which
a rebate or refund was granted, the investigating authority is entitled to consider the fu ll amount
as the basis for calculating the subsidisation.

3.1.3 Pakistan's wrongly applies its incorrect interpretation of the law to the facts of the
PET investigation
24. In its first written submission, Pakistan employs an incorrect interpretation of the relevant
provisions of the SCM Agreement to create an obligation for the investigating authorities to
calculate precisely the amount of duties that were refunded in excess of those paid with respect to
imported inputs consumed and incorporated into the exported products. There is no such
obligation and, consequently, Pakistan's claims should be rejected. In any event, in the
investigation at hand, the Commission complied with the relevant rules foreseen in Annexes II
and III of the SCM Agreement.

25. Pakistan wrongly asserts that the Commission's view was that the "absence of an adequate
monitoring process – including sufficient review by the exporting government" was sufficient to
justify the deeming of the full amount of drawn -back duties to be the am ount of the subsidy, and
that "the Commission's approach converts the enquiry into a simple binary question – does an
adequate mechanism exist or not?". However, it is not the EU's position that an absence of an
adequate control mechanism implies that the full amount rebated or refunded must be
countervailed. If there is no such a reliable system or procedure of control in place, the exporting
Member can still show that no excess amounts were rebated or refunded, something that Pakistan
failed to show in this case on the basis of the actual transactions.

26. Pakistan also wrongly argues that the Commission failed to provide Pakistan with the
opportunity to assist the Commission's determination of the excess amount. To recall, according to
Annexes II and III, in cases where the investigating authority finds that there is no reliable system
or procedure in place, it is for the exporting Member to show that there was no excess amounts

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rebated or refunded. As can be seen from paragraph 76 of the provisional det ermination, Pakistan
was sufficiently informed of the Commission's conclusions at that stage of the investigation.

27. Further, Pakistan wrongly considers that it was for the Commission to ask Pakistan to
provide evidence that no excess amounts were reba ted or refunded through its duty drawback
system. The European Union disagrees. Paragraph 2 of the second part in Annex II (similar to
paragraph 3 of the second part in Annex III) does not specify when the exporting Member has to
further examine the actual transactions to show that no excess amounts were rebated or refunded.
It could well happen after an investigating authority reaches its preliminary conclusions as to the
countervailability of a particular subsidy programme.

28. Moreover, in making its w rong allegations, Pakistan insinuates that the Commission could
have estimated the amount of benefit conferred in this case on the basis of information provided
by Novatex and in the record of the investigation. However, Novatex's argument in reality
amounted to a repetition of its main argument that the duty drawback system was reliable. While
Novatex provided a list of around 500 transactions relating to the importation of inputs during the
period of investigation, it was impossible for the Commission on the basis of the information
provided by Novatex to confirm the amounts incorporated into the exported products, in a
situation where, moreover, Novatex was selling both domestically and for export. And even more
so when the Commission also found that an e ffective control done by the Government based on a
correctly kept actual consumption register did not take place, and where the Pakistani Government
did not carry out a further examination based on actual inputs involved. Thus, the Commission's
determination to countervail the entire amount of import duties refunded to Novatex was reasoned
and reasonable in view of the specific circumstances of the case.

29. Finally, Pakistan alleges that the Commission failed to investigate whether the duty
drawback verification mechanisms were based on "generally accepted commercial practices in the
country of export". The European Union disagrees. Whereas paragraph 1 of the second part in
Annex II lists the elements that the investigating authority should examine to satisfy itself with the
reliability of the verification system (i.e. all the elements, in view of the term "and"), paragraph 2
of the second part in Annex II is phrased in an alternative manner ("or"), thereby indicating that a
further examination by the expor ting Member is required when the investigating authority finds
that the system or procedure in place is "not reasonable, or where it is instituted and considered
reasonable but is found not to be applied or not to be applied effectively". The Commission di d not
need to examine whether Pakistan's system was based on "generally accepted commercial
practices in the country of export" since it already found that system as not reasonable and was
not applied effectively.

3.2 Claims relating to the LTF-EOP programme
30. With respect to the LTF -EOP programme, Pakistan essentially argues that the Commission
failed, under the chapeau of Article 14, to explain, as provided by its municipal law, the
methodology it used in the investigation at issue to calculate the amo unt of benefit to Novatex.
The Commission also miscalculated the amount of benefit conferred to Novatex through the LTF -
EOP programme in violation of Article 14(b).

31. The LTF-EOP programme was a financing mechanism set up by the State Bank of Pakistan in
2004. It enabled eligible financial institutions to grant financing facilities to borrowers for up to
7.5 years on attractive terms and conditions for the import of machinery, plant, equipment and
accessories thereof. It is only available to companies t hat export, directly or indirectly, at least
50% of their annual production.

32. The key features of the LTF -EOP programme, as found during the investigation, were the
following: first, an eligible company could contract financing in a specific amount un der the
programme. However, it did not have to draw the entire amount at the time it contracted (as
would be the case e.g. for a standard mortgage loan). Instead, it could draw down tranches when
and if it needed them. Thus, the LTF -EOP programme is compar able to a line of credit. A "line of
credit" is not an ex ante agreement about the disbursement of specific funding amounts at a pre -
determined moment in the future, but rather a lending facility in the form of a promise on the part
of a lender to make fun ding available (in possibly one or more instalments) to a borrower in the
event it is requested. The interest rates that the company had to pay for any financing under the
scheme were fixed at a maximum of up to 3% over and above the rates notified by the State Bank

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of Pakistan ("SBP"), and benchmarked against the weighted average yields of 12 months Treasury
Bills and three and five years Pakistan Investment Bonds, depending on the period of financing.
The actual interest payable, therefore, was determined only at the moment the company draws
down any money under the regime. It was therefore a very flexible system of financing,
comparable with a line of credit, which allowed companies fulfilling the conditions in order to
benefit from it to raise funds if and when they needed them to finance the importation of machines
and other equipment.

3.2.1 Pakistan's claims under the chapeau of Article 14 of the SCM Agreement have no
merit
33. Pakistan claims that the European Union failed to adequately explain the ap plication of its
method in the light of its own rules for the calculation of the amount of subsidy in countervailing
duty investigations. Pakistan alleges that the Commission did not follow its own methodology to
establish "the difference between the amoun t of interest paid on the government loan and the
interest normally payable on a comparable commercial loan during the investigation period" and,
hence, the method was not adequately explained in the Commission's determinations. Pakistan
claims that the Commission failed to correctly describe the characteristics of Novatex's loan and to
explain which type of commercial loan available on the market would be comparable to Novatex's
loan agreement. According to Pakistan, the Commission disregarded the loans su bmitted by
Novatex as comparable and did not attempt to identify a comparable loan. The Commission also
failed to take into account the multi -tranche character of the LTF -EOP programme and proceeded
on the incorrect basis that the entire amount under the L TF-EOP programme had been drawn
down during the IP.

34. The Appellate Body previously found that under the chapeau of Article 14 any method used
to calculate the benefit shall be provided for in national legislation or implementing regulations of
the Member concerned, that method in each particular case shall be transparent and adequately
explained and it shall be consistent with the guidelines in paragraphs (a)-(d) of Article 14.

35. In the present case, the Commission undertook to identify a comparable commercial loan -
and the related benchmark interest rate - which Novatex could actually obtain on the market with
respect to the amount under the LTF-EOP programme that Novatex had drawn down during the IP.
This is exactly what EU law (and Article 14(b) SCM) requires of the investigating authority in case
of loans (a line of credit is a type of loan, even if it is to be treated differently than a standard
commercial loan). This benchmark interest rate was found by the Commission to be SBP's average
interest rate as regards outstanding loans during the IP. The SBP's rate had been actively and
repeatedly proposed by Novatex and Pakistan (even if the SBP's rate was proposed for a different
year than the IP).

36. In the process of identifying this interest r ate proxy the Commission discarded other loans
(and rates) which Novatex had presented because they were not comparable. The Commission
explained in the provisional disclosure of 1 June 2010 that the comparable benchmark interest
used was the interest rate of 14.44% applied by the SBP during the IP. The Commission in the
final disclosure and determinations also explained that it had rejected the other loans submitted by
Novatex because they did not relate to the IP.

37. The Commission made clear in its det erminations that it was treating the LTF -EOP
programme as a line of credit and not as a standard loan and hence took into account the multi -
layered nature of this scheme. This follows for example from paragraphs 121 ("credit
provided"), 122 ("interest rate s for financing under the LTF -EOP scheme are benchmarked…,
depending on the period of financing") and 126 ("long-term loans at preferential interest rates") in
the provisional determinations. This also follows from Annex II of the provisional and final
company specific disclosure ("line of credit utilisation"). In the final determination the Commission
referred to the fact that "the financing negotiated in 2004/2005 was drawn down in tranches."

38. The Commission also properly explained its methodology of using a proxy prevailing during
the IP with respect to the amounts outstanding under the LTF-EOP during the IP (i.e., the amounts
effectively used or enjoyed by Novatex during the IP). The file also shows that Novatex had clearly
understood the Commission 's methodology of using a proxy for the IP and of countervailing the
entire amount outstanding during the IP.

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3.2.2 Pakistan's erroneous claims under Article 14(b) of the SCM Agreement
39. First, Pakistan considers that the Commission failed to identify a proper benchmark loan and
hence used an improper benchmark interest rate. Second, Pakistan claims that the Commission
ignored factual evidence concerning other available loans for Novatex. Third, Pakistan argues that
the Commission improperly applied the commercial interest rate proxy from the IP; the
Commission should have used a benchmark from the period 2004 -2005 or should have taken
different benchmarks depending on when the respective tranches were drawn down.

40. The European recalls that a benchmar k loan under Article 14(b) must be a loan that is
"comparable" to the investigated government loan and should have as many elements as possible
in common with the investigated loan to be comparable. The Appellate Body acknowledged that
the existence of such an ideal benchmark loan would be extremely rare and hence a comparison is
also possible with other loans that present a lesser degree of similarity or with a proxy.

41. The Commission in the present case carefully assessed the information provided by No vatex
about comparable private loans. The Commission found that the loans submitted were not
comparable with the special financing mechanism under the LTF -EOP programme, which was more
akin to a line of credit. The loans and interest rates submitted by Nov atex were also not for the
correct reference period as they dated from the period 2004 -2005 whereas the Commission
applied as proxy a rate from the IP, i.e. 2008 -2009. Pakistan and Novatex repeatedly advocated
and even "requested" the use of the SBP rate a s benchmark. The SBP rate was the proxy that the
Commission eventually used, even if for a different year than argued by Pakistan and Novatex. It
was therefore perfectly reasonable for the Commission to rely on a proxy promoted by the
investigated company rather than using non comparable private loans for an incorrect reference
period.

42. The Commission was also reasonable in light of the principles contained in Article 14(b) to
use the SBP rate (KIBOR) in 2008 -2009 as a market benchmark. First, the Commi ssion only
countervailed the amount that was "effectively used" or enjoyed by Novatex in 2008 -2009 and,
hence, it was appropriate to also apply a benchmark for that same period. Second, amounts under
the LTF -EOP programme continued to be drawn down during the IP which further confirms the
close nexus between the benchmark chosen by the Commission and the LTF -EOP programme.
Third, Novatex had not provided any information about the start dates of the respective tranches
and the Commission therefore had no mea ns of calculating the respective benchmarks as now
requested by Pakistan. Fourth, using different benchmark interest rates for each tranche would
have disregarded the character of the LTF-EOP mechanism as a single financing scheme and would
in fact have treated the tranches as separate individual loans which would not reflect the reality of
the financing scheme. The European Union also notes that the EU General Court agreed that the
Commission was justified to use the KIBOR in 2008 -2009 as a benchmark, and Novatex did not
appeal this finding before the EU Court of Justice.

43. In fact, the Commission was reasonable in taking the SBP rate suggested by Pakistan and
Novatex, which was an average of various rates having short -term durations (from one day, one
week, on month, one year and three years), whereas the repayment terms of the LTF -EOP
mechanism were in principle 7.5 years. Obviously, a short -term rate is lower than a longer -term
rate because of the higher risk of non -payment involved. The Commission wa s all the more
reasonable as it also did not take into account the benefit for Novatex resulting from the flexibility
under the LTF-EOP, namely the availability of the money for Novatex at any time, nor did it take
into account the generous grace period for repayments under the LTF-EOP programme.

3.3 Claims relating to causation (Article 15.5 of the SCM Agreement)
3.3.1 Pakistan's erroneous claim concerning the nature of the obligation to examine
other known factors
44. Pakistan argues that Article 15.5 re quires investigating authorities not only to separate and
distinguish the effects of other known factors from those of the subsidised imports, but more
specifically to perform this analysis in a particular order. According to Pakistan, the effects of other
factors must be assessed as a "first step", which would then be followed by an analysis of the
effects of the subsidised imports. At least, Pakistan argues, the injurious effects of other factors
and of the subsidized imports must be assessed at the same time. Pakistan contends that the

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Commission's method of analysing first whether the subsidized imports caused the injury and only
to assess, in a second step, if the other factors break the causal link, is not in conformity with
Article 15.5.

45. None of the case -law cited by Pakistan supports such an interpretation. Contrary to
Pakistan's assertion, the Appellate Body does not prescribe any particular order of analysis.
According to the Appellate Body the injurious effects of other known factors must be separated
and distinguished from those of the subsidised imports. Quite to the contrary, the Appellate Body
in fact emphasized that no particular method is prescribed for this assessment. And even Pakistan
acknowledges that authorities enjoy "a degree of d iscretion" to carry out the non -attribution
analysis. The method applied by the Commission in the present case is also supported by the
wording of Article 15.5. Article 15.5 requires investigating authorities, in the first sentence, to
demonstrate that the subsidised imports caused injury through their effects and only
subsequently, in the third sentence, to "also examine other factors".

46. What follows from the case -law on non -attribution is that there is no particular method of
analysis and that such a nalysis will depend on the facts of the case. There is no obligation to
quantify the amount of injury caused by the subsidised imports and by other factors, respectively.
Investigating authorities have an obligation to provide a satisfactory explanation of the nature and
extent of the injurious effects of other known factors. If adequately reasoned, a qualitative
explanation is sufficient. The proper standard remains whether the EU properly established the
facts with respect to the other "known factors" and evaluated the evidence in an objective and
unbiased manner.

47. In the investigation at hand, the Commission first examined whether subsidised imports
caused injury to domestic producers, and concluded that they did. Then, it carefully examined
whether the effects of any of the other known factors are such as to affect that preliminary
conclusion, i.e. to "break the causal link". It concluded that they did not. In doing so, the
Commission fulfilled its obligation to separate and distinguish the effects o f subsidised imports
from the effects of other known factors.

3.3.2 Pakistan's erroneous claim regarding the Commission's analysis of specific known
factors
48. Pakistan claims that the European Union acted inconsistently with Article 15.5
SCM Agreement b ecause it allegedly improperly assessed the role of other factors which, in
Pakistan's view, broke the causal link between the subsidy and the injury. The other factors
challenged by Pakistan are (i) the Korean imports, (ii) the economic downturn, (iii) no n-
cooperating domestic producers and (iv) oil prices.

49. First, regarding the Korean imports the EU recalls that the Commission separated and
distinguished their effects and recognised that they may have contributed to injury. In the process
the Commission carried out an extensive analysis of prices, market shares and volumes of Korean,
subsidised and domestic producers. The Commission reasoned that prices of Korean imports were
higher than the subsidised imports and only slightly below prices of domestic producers and hence
their contribution would only be limited. This type of qualitative explanation is exactly what the
case-law requires. No precise quantification of the injury is required under Article 15.5.

50. Second, with respect to the economic dow nturn, the Commission acknowledged that it
contributed to the injury but concluded that it did not break the causal link. Pakistan claims that
the Commission did not sufficiently distinguish and separate this element as it failed to assess the
"nature and extent of the hurt". Pakistan errs about the legal standard which is not about the
precise quantification of injury. The Commission clearly explained that the downturn only started
in the last quarter of 2008 and that it had a global character, which meant that it similarly affected
domestic and importing producers. More is not needed. The role of Korean imports and non -
cooperating domestic producers did not have to be re-assessed in this context as these factors had
been analysed by the Commission separate ly. Pakistan's claim that the Commission made no
separate finding of injury for the period prior to the last quarter of 2008 is misguided. The key
finding of the Commission was that the economic downturn only contributed to the injury as of the
last quarte r of 2008, i.e. the impact was limited in time and the downturn had no impact
whatsoever on the third quarter of 2008 during the IP. The Commission's data cover the entire

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period of 2006 to 2009 and establish injury notably for the period of investigation. More is not
needed.

51. Third, regarding the market shares of non-cooperating domestic producers Pakistan errs
when it contends that the Commission should have carried out a more in -depth trend analysis
rather than focusing on a point -to-point assessment. The Commission did not carry out a simple
point-to-point assessment but analysed the market shares in each year. As set forth in the
Commission's determinations, the subsidised imports increased their market share by around
500% from 2.1% to 10.2% betwee n 2006 and 2009 whereas the non -cooperating domestic
producers lost around 20% of their market share in the same period (i.e. a decrease in market
share from 20.5% to 16%). Under these circumstances, it was perfectly reasonable for the
Commission to conclude that non-cooperating producers did not break the casual link, irrespective
of whether they managed to increase their market share by a few percentage points between 2008
and the investigation period (i.e. from 12.4% to 16%). A more detailed trend analys is would not
have made any difference in the Commission's assessment. In addition, one of companies
concerned stopped production during the IP and two others shortly after the IP, further confirming
that these producers could not break the causal link.

52. Fourth, Pakistan's challenge regarding the Commission's assessment of crude oil prices is
without merit. The Commission stated in its determinations that crude oil prices were volatile at a
worldwide level. A factor that equally or similarly affects both subsidised imports and domestic
producers by definition cannot break the causal link. Even if crude oil prices and hence PET prices
may have been low at times, subsidised imports could be priced even lower as a result of the
subsidies and were priced lower as established by the Commission.

3.4 Claims relating to verification visits (Articles 12.6 and 12.8 of the SCM Agreement)
53. Pakistan claims that the Commission acted inconsistently with Article 12.6 of the SCM
Agreement because it failed to disclose the "results" of the Commission's verification visit. Pakistan
argues that the Commission complied neither with the first alternative set out in Article 12.6,
namely to make the results of the verification visit available separately, nor with the second
alternative of Article 12.6, namely to disclose the results of the verification visit as part of the
disclosure of essential facts. Pakistan contends that – with the exception of the MBS – the
Commission failed to communicate anything even remotely resemblin g the "results" of the
verification visit. According to Pakistan, "results" of verification visits include "adequate information
regarding all aspects of the verification, including a description of the information which was not
verified as well as of information which was verified successfully". The Commission did not provide
information of what occurred during the verification visit, which additional documents were
collected, which information was corrected and which topics, other than the MBS, the Commis sion
discussed with the investigated company.

3.4.1 Legal standard under Article 12.6 of the SCM Agreement
54. Article 12.6 of the SCM Agreement provides for the possibility of verification visits and lays
out the general obligations that apply to investi gating authorities if they undertake such a
procedure. There is no obligation on the part of investigating authorities to carry out verification
visits. Regarding the disclosure of the results of the verification visit to the verified firms,
Article 12.6 allows for two methods: the investigating authority either "shall make the results of
any such investigations available", or "shall provide disclosure thereof pursuant to paragraph 8, to
the firms to which they pertain". The results "may" be made available to the applicants, but there
is no obligation to do so. The ordinary meaning of the term "results" is "the effect, consequence,
issue, or outcome of some action, process or design" and suggests that what needs to be made
available is not the process as suc h but rather the "outcome" of that process. The context of
Article 12.6 as well as its direct cross -reference to Article 12.8 of the SCM Agreement confirm that
the term "results" is information that is closely related to the essential facts. Article 12.6 t herefore
does not require a full report on everything that happened during the verification visit, i.e. lengthy
minutes.

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3.4.2 Factual Background
55. The on -the-spot investigation of Novatex took place from 15 -17 December 2009 at
Novatex's premises in Karachi in the presence of Novatex's legal counsel. On 23-24 February 2010
a hearing and consultations with the government of Pakistan took place. By provisional disclosure
of 1 June 2010 the Commission disclosed to Novatex "the essential facts" including the provisional
determinations and the company -specific subsidy calculations. Novatex provided its observations
to the provisional disclosure by way of a written submission on 1 July 2010. Consultations with
Pakistan took place on 12 July 2010. At the request of Novatex, a hearing took place on
14 July 2010. The definitive disclosure by the Commission took place by letter of 26 July 2010. In
this final disclosure the Commission informed Novatex of the essential facts which included
inter alia a specific company disclosure document. Both Pakistan and Novatex provided extensive
comments during the entire procedure.

3.4.3 The European Union's Rebuttal of Pakistan's claims
56. In the European Union 's view, the results or outcome of a verification visit is the "yes " or
"no" answer to the fact that certain information was checked (in the sense of reviewed and
verified) during the verification visit by the investigating authority (and, by implication, that other
information was not checked). In exceptional circumstanc es, the results of the verification visit
may also include limited additional information (e.g. in case of the use of facts available the fact
that the investigating authority requested information during the verification visit and that it was
not provided ). This interpretation of "results" follows from the close textual and thematic
relationship between Article 12.6 on verification visits and Article 12.8 on the disclosure of
essential facts. The purpose of Article 12.8 is to allow interested parties and i nterested Members
"to defend their interests" by disclosing the essential facts and it is against this background that
the obligation of Article 12.6 should be interpreted.

57. The European Union takes the position that the term "result" does not include information,
for example, about whether the Commission requested additional documents, whether Novatex
provided requested documents or whether the Commission asked questions during the verification
visit. This is because such actions do not constitute "res ults" or an outcome of the verification visit
but form part of the "process" of the verification visit. Nor does the term result comprise
information about whether the Commission could or could not verify the accuracy of the
information on the spot or whether the Commission corrected certain information as a result of the
verification visit. This is because such information does not concern the result of the verification
visit within the meaning of Annex VI(7) but concerns the overall result of the Commissi on's
investigation which will be disclosed, to the extent relevant, as essential facts.

58. In the present case, the Commission established a log of exhibits which listed all documents
that were collected and checked during the verification visit at Novat ex. The European Union also
recalls that Novatex (and its lawyer) was present during the entire verification visit. The
Commission can only verify information during the verification visit that is actively provided by the
company investigated. The Commissi on cannot choose to verify documents at its discretion but
depends on the cooperation of the company investigated in this respect. Novatex was therefore
fully aware of what was verified during the verification visit. In addition, Novatex has not claimed
that any information about the verification visit that is indispensable for its due process rights was
not made available.
4 CONCLUSIONS
59. In view of the foregoing, the European Union requests the Panel to reject Pakistan's claims
in their entirety.

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ANNEX B-2
SECOND INTEGRATED EXECUTIVE SUMMARY OF THE EUROPEAN UNION
1. INTRODUCTION

1. In this integrated executive summary, the European Union ("EU") summarizes the facts and
arguments presented to the Panel in its second written submission, its opening ora l statement at
the second substantive meeting and its responses to the Panel's questions.

2. LEGAL ARGUMENTS

2.1. ARTICLE 6.2 DSU / TERMS OF REFERENCE ISSUES

2. The EU has raised important jurisdictional issues in a preliminary ruling request. The EU
reiterates its stance that the function and role of a panel is to adjudicate disputes (in the sense of
Article 3.3. of the DSU) for the purposes set out in Articles 3.4 and 3.7 of the DSU. In light of the
withdrawal of the contested measure without any linge ring effect or a possibility of reintroduction,
there is no dispute between the parties in the sense of Article 3.3 of the DSU. For this reason and
not contesting the Panel's jurisdiction, the dispute settlement system should not be used for
"advisory opinions". Therefore, the Panel should refrain from taking a formal and final position on
a given interpretation of the relevant provisions at stake and from making findings on the
consistency of the Commission's determination. The Panel should limit its repor t to the views of
the parties and the uncontested facts, without making findings.

3. Annex I(i) of the SCM Agreement provides an example of prohibited export subsidies falling
under Article 3.1(a) of the SCM Agreement and creates rights and obligations fo r WTO Members.
The scope of the examples illustrated should be determined pursuant to the requirements of
Annex I(i), and Annexes II and III by reference. These requirements in their totality apply to
panels and WTO Members. In light of Pakistan's agreemen t of the link between Annex I(i) and
Annexes II and III, the EU argues that the wording in footnote 1 of the SCM Agreement should
also be read to incorporate the requirements of Annexes I to III and its carve -out should apply
only pursuant to steps explicitly foreseen in these Annexes.

4. With regard to the limits of Article 6.2 of the DSU, Pakistan should not be allowed to
repurpose its arguments under its now withdrawn Annexes II(II)(4) -(5) claims, to fall under
Annex I(i) and/or Annex II(II)(2), thus ci rcumventing Article 6.2 of the DSU and its own Panel
Request. Similarly, Pakistan in its first written submission focused only on one of two allegations
with respect to the MBS programme – on the amount countervailed rather than on the finding of a
subsidy. It is not possible that both pleas were raised as part of the same analysis due to the
different obligations applicable to them. Footnote 1 and Annexes I to III are not applicable to the
issue of the correct amount to be countervailed, however SCM provis ions regarding "benefit", not
properly raised by Pakistan, would have been relevant. Due to the MBS programme not fulfilling
the requirements to constitute a proper duty drawback system, this footnote 1 does not apply at
all.

5. The EU considers that the certain claims, not included in the Panel Request should not be
accepted by the Panel. These claims are entirely consequential to its main argument on the exact
calculation of the amount foregone. A party should not be allowed to expand the scope of the
dispute through its written submissions. Furthermore, Pakistan has itself confirmed in its
responses that some of its claims are entirely consequential and, should, therefore be dropped.

6. Finally, through its claim of a violation of Annexes II(II) and III (II) "as a whole", Pakistan is
seeking an advisory opinion from the Panel. Accordingly, this claim should be rejected.

2.2. CLAIMS RELATING TO THE MBS PROGRAMME

7. In the view of the EU, footnote 1 of the SCM Agreement is a "scope" provision, similar to
Ad Note to Article XVI of the GATT 1994, rather than an "exception" provision. Furthermore,

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footnote 1 does not expand or compliment the definition of "financial contribution" in cases of duty
drawbacks. Such systems could fall either under Article 1.1(a) (1)(i) or (ii), but it rather informs
the entire Article 1 by specifying a situation of a remission or refund that does not amount to a
subsidy and does not fall under the disciplines of the SCM Agreement. If the situation described in
footnote 1 is found to exist, "in accordance with" the provisions in Annexes I to III of the
SCM Agreement, the disciplines of the SCM Agreement will not apply to it. However, any
remissions or refunds in excess of the import duties paid on import inputs used on the productio n
of exported products would be considered an export subsidy, pursuant to Annex I(i) and
Annexes II and III. Although being entitled "guidelines", Annexes II and III should be construed as
binding upon WTO Members, similar to other "principles or "guidelines" in the Agreement.

8. In connection with Pakistan's claims as to the amount to be countervailed, the determination
of a "financial contribution" in Article 1.1(a)(1)(ii) of the SCM Agreement should be distinguished
from any "benefit" granted as a separate determination. The "financial contribution" is the revenue
foregone by the state, owed "but for" the MBS program. The determination of the existence of
"benefit" is a different, further step. In a case not fulfilling the requirements of footnote 1 and
where there is an excess remission or refund, the benefit countervailable would only be that
excess remission, provided that the necessary information to calculate it is available and reliable.
Footnote 1 does not contain an obligation for an investigating authority to establish in each case
whether an excess amount was drawn back.

9. Annexes II(II) and III(II) contain the elements necessary to determine whether there has
been an excess remission or not, a requirement for the existence of the situation under footnote 1.
First, an exporting Member must have a verification system or procedure, allowing the tracing of
inputs consumed and their quantity in the production of exports. Second, the system or procedure
should be reasonable, effective and based on ge nerally accepted commercial practices. In this
regard, the Commission's determination that Pakistan's verification system was inadequate has
remained unchallenged. Its reasoning for this finding is set out below. Third, if there is no
(adequate) verification system or procedure, a further examination by the exporting Member of
the actual inputs used in export production must be carried out, so as to determine whether
excess remission has occurred. Annexes II and III are silent on further steps when no such
"further examination" takes place. Since footnote 1 refers specifically to them, no other provisions
of the SCM Agreement apply in this regard.

10. As to the question of who is responsible for the "further examination", Annexes I to III do
not contain any obligation for investigating authorities to request the results of any "further
examination" from the exporting Member, nevertheless, the Commission has never showed any
unwillingness to allow such further examinations. In its provisional determination, t he Commission
clearly signalled that Pakistan had failed to conduct a "further examination", alerting it of its
obligations under Annex II(II)(2) and allowing it multiple occasions to provide it. The list of issues,
which Pakistan alleges it had to receive from the Commission to aid it in this task, is not provided
for in Annex II(II)(2). After the finding of inadequacy of the verification system, the obligation to
conduct a "further examination" falls only on the exporting Member, as it is the one benefitt ing
under footnote 1, and no obligation on Members to "give notice" is envisioned.

11. With regard to additional evidence, evidence on the record should be considered even when
a "further examination" is not provided and, therefore, footnote 1 is found t o be inapplicable. The
remaining disciplines of the SCM Agreement apply to the measure at issue, resulting in an
obligation on investigating authorities to conduct a normal assessment of whether the contested
measure amounts to a subsidy and its amount. Al l foregone or refunded import duties could be
considered a countervailable subsidy. The determination of the appropriate amount to countervail
should be judged in view of other obligations of the SCM Agreement (such as Article 14 or 19.4),
and in light of the totality of the evidence and information available in each case. Absent an
adequate verification system or a further examination by the exporting Member, as well as no
other reliable information, investigating authorities should be permitted to conclud e, on the basis
of the information available, to countervail the entire amount.

12. In this regard, the EU's position and practice has been that when an inadequate verification
system exists, companies' records may be relied on, if they clearly show what imported inputs
were used for the production of exports. In the present case, this was not possible, as (1) Novatex
was not subject to regular customs supervision, (2) was sourcing inputs both locally and from
abroad, the majority of one of its main raw ma terials being of local origin, (3) did not provide for

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any traceability of the use of differently sourced inputs, and (4) was selling both locally as well as
on foreign markets. These findings were confirmed through a verification visit. Nevertheless, the
Commission accepted Nocatex's cost of production and the duty drawback amounts for its
calculations, however, remained unable to conclude that Novatex was only using imported raw
materials in the production of exported products. Thus, the Commission could not rely on the
information.

13. The Commission could not rely on the information of the MBS programme either, due to its
(1) reliance on company -provided "theoretical" information, (2) lack of verification aside from
documents provided by the companies t hemselves, (3) lack of regular checks and follow -ups and
(4) lack of traceability of the uses of domestic and imported raw materials into final products, but
rather a blind assumption that exported products were entirely produced from imported inputs. A
systemic risk was identified by the European Union. The exporting Member could not show that no
excess remissions occurred in its duty drawback scheme. A differing degree of "adequacy" of the
system due to deference to the company's own data, lacking governm ent verification or
monitoring, cannot be acceptable for the purposes of footnote 1. Having examined the
requirement of traceability in a duty drawback system, the Commission did not have to examine
the element of "generally accepted commercial practices", another independent reason or finding
the verification system inadequate.

14. For the foregoing reasons, the Commission reasonably concluded that the subsidy amount
for Novatex should be calculated on the basis of import duties foregone on the imported m aterial
under the MBS programme, used for the product concerned during the investigation period.

15. Pakistan's contention that there was ample evidence on the record to permit the
Commission to determine the exact excess remission is wrong. Even Pakista n could not provide
examples of such evidence. In any event, footnote 1 (together with Annex I to III) does not place
a burden of showing that excess remissions occurred on investigating authorities. Such obligation
relates to the determination of the amount to be countervailed and is laid down in other provisions
of the SCM Agreement, which were not cited by Pakistan in this dispute.

2.3. CLAIMS RELATING TO THE LTF-EOP PROGRAMME

2.3.1. Pakistan's claim under the chapeau of Article 14 SCM Agreement

16. The relevant legal standard under the chapeau of Article 14 is whether the Commission
adequately explained its methodology for calculating the benefit in accordance with its municipal
law. The legal standard is not whether the Commission's determinations s et forth in sufficient
detail the material findings and conclusions reached on issues of fact and law (e.g. whether the
Commission set out in its determinations why it rejected the loans proposed by Novatex as non -
comparable). Such a standard only applies to claims under Article 22.3 which Pakistan decided not
to pursue in the present case.

17. The Commission's methodology for calculating benefit in the present case is set forth in
Article 6(b) of the Basic CVD Regulation. Just like Article 14(b) of the S CM Agreement, Article 6(b)
requires the Commission to calculate the benefit on the basis of the difference between the
interest paid by the investigated company for the government loan and the interest that would be
due under a comparable commercial loan. The Commission explicitly referred to Article 6(b) and
therefore to its calculation method in the provisional determinations.

18. Under the chapeau of Article 14 the investigating authority has to adequately explain the
methodology used to calculate bene fit. In the present case the Commission indeed adequately
explained all the basic parameters of its calculation method:

 It was clear from the determinations and other evidence that the Commission treated
the preferential credit mechanism as a line of cred it. The Commission explicitly used the
term "line of credit" in its company specific disclosures and described the LTF -EOP as a
line of credit in its provisional and final determinations. Irrespective of the Commission's
legal or factual qualification of t he preferential credit mechanism as a line of credit in its
determinations, the Commission clearly explained its method for calculating the benefit
for the LTF -EOP programme, namely the applicable legal provision as well as which
comparable benchmark rate, which benchmark year and which amounts it would use

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(see the following bullet points). This is all that matters under the chapeau of Article 14.
It should be recalled once again that Pakistan did not make a claim under Article 22.3.
 The Commission explain ed in recital 131 of the provisional determinations that the
calculation of benefit for the preferential line of credit mechanism was to be carried out
under Article 6(b) of the Basic CVD Regulation, the applicable municipal law. Article 6(b)
provides for a calculation of benefit based on a comparison of the interest rate paid by
the investigated company under the investigated government loan and the rate that the
company would have paid under a comparable commercial loan.
 The Commission in the same recita l also explained that the benefit would be calculated
by comparing the interest rate under the LTF -EOP programme with an "applicable
commercial credit rate", in line with Article 6(b). This was clearly understood by Novatex
and Pakistan which submitted comparable loans and interest rates to the Commission.
 The Commission also explained in the provisional and final disclosure that the proxy
interest rate applied by the Commission was the SBP rate, i.e. the KIBOR rate. This was
explicitly so stated in the pro visional company-specific disclosure, in the final company -
specific disclosure, in the General Disclosure Document and in the final determinations.
In fact, it was Pakistan and Novatex that submitted the KIBOR rates to the Commission.
Novatex and Pakistan therefore clearly understood that the Commission was going to
use the KIBOR for the IP and both supported the use of the KIBOR rate as a matter of
principle (while arguing for a different year).
 The Commission further explained that the relevant benchmark year for the comparable
rate was the IP. This was explicitly so stated in the provisional company -specific
disclosure, in the final company -specific disclosure, in the General Disclosure Document
as well as in the final determinations. This was clearly un derstood by Novatex and
Pakistan which both disagreed with the Commission's choice and repeatedly insisted on
the use of a different benchmark year.
 Finally, the Commission explained that it was using the amounts effectively used during
the IP under the LT F-EOP (including both outstanding amounts and amounts drawn
down during the IP) to calculate the benefit. This clearly follows from the calculations
and calculation sheets which were provided by the Commission to Novatex in the
provisional and final disclo sure. These calculation sheets show that the Commission
compared the interest rate actually paid by Novatex with the interest rate proxy on the
basis of the respective outstanding amounts during the IP. The Commission in the
General Disclosure Document als o stated that it used for its calculation "the amount of
credit for the IP, as reported by Novatex". This was also clearly understood by Novatex
which explicitly acknowledged that the benchmark rate would "be applied to the
outstanding amount in the IP."
19. Contrary to Pakistan's claims it was also clear from the determinations and other evidence
that the Commission treated the preferential credit mechanism as a line of credit. The Commission
explicitly used the term "line of credit" in its company specif ic disclosures and described the
LTF-EOP as a line of credit in its provisional and final determinations. Irrespective of the
Commission's legal or factual qualification of the preferential credit mechanism as a line of credit in
its determinations, the Co mmission clearly explained its method for calculating the benefit for the
LTF-EOP programme, namely the applicable legal provision as well as which comparable
benchmark rate, which benchmark year and which amounts it would use (see the following bullet
points). This is all that matters under the chapeau of Article 14. It should be recalled once again
that Pakistan did not make a claim under Article 22.3.

20. Therefore, all the essential parameters of the Commission's methodology to calculate benefit
were clearly explained in the Commission's determinations and were fully understood by Novatex
and Pakistan. There is no violation of the transparency requirements of the chapeau of Article 14
as alleged by Pakistan.

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2.3.2. Pakistan's claims under Article 14(b) of the SCM Agreement

21. The EU recalls that Article 14(b) contains "guidelines" and that investigating authorities have
a considerable amount of flexibility and discretion when calculating benefit. Article 14(b) requires a
comparison with a benchmark lo an, comparable to the investigated government loan, with "as
many elements as possible in common". Where a similar commercial loan to the same borrower
does not exist, other similar loans may be used, including proxies. The individual calculation
method is a matter of case -by-case analysis. The question is whether in the present the
Commission's methodology to calculate benefit was reasonable and appropriate in light of all
relevant circumstances.

22. The EU also notes that Pakistan's claims under Article 14(b) - that the Commission's search
for a comparable commercial loan and the rejection of the loans submitted by Novatex are not
sufficiently reflected in the Commission's determinations – must be rejected as these aspects are
sufficiently reflected in th e determinations and, in any event, these claims can only be brought
under Article 22.3 and not under Article 14(b).

23. Progressive search. The EU has shown that the Commission did carry out a search for a
comparable loan that was appropriate under the circumstances of the case. The Commission in the
questionnaire asked Novatex to provide comparable commercial loans. The Commission ultimately
did not use the loans submitted by Novatex for its calculation of benefit (i) because the loans were
standard commercial loans and hence not comparable to a preferential line of credit mechanism
like the LTF-EOP programme, (ii) because they dated from the years 2004 and 2005 and not from
the IP and (iii) because they displayed different characteristics with respect to duration, amounts
etc. The Commission instead used the KIBOR rate because this rate reflected the average lending
rate of all companies in Pakistan. The KIBOR rate was also actively and repeatedly promoted by
Pakistan and Novatex as the record amply shows . For example, already in November 2009,
Novatex submitted to the Commission a loan, said to be comparable, that was tied to the
KIBOR/SBP rate. During the investigation, Novatex requested, for example, that the benchmark
rate should "in any event not be m ore than the SBP website rate" and Pakistan claimed that "it is
just plain logic" to compare the rate under the LTF -EOP to the KIBOR rate. Therefore, under these
circumstances, where the investigating authority and the parties agreed on an appropriate
benchmark rate as a matter of principle, there was no reason for the Commission to search further
for a comparable loan.

24. Use of KIBOR rate in IP . The EU considers that the moment of drawdown of certain
amounts, which was the subject of some discussion, is irrelevant for the legal question whether
the Commission could use the KIBOR rate during the IP. The EU recalls that it has consistently
maintained the position that the Commission, at the time of the investigation, had to assume that
the amounts indicate d on the excel spreadsheets under the heading "Opening" were disbursed in
July 2008, i.e. during the IP because of the way in which the spreadsheets were provided and
presented by Novatex. Furthermore, it was also clearly understood by Novatex and Pakistan which
amounts the Commission had taken into account in its calculation of benefit, namely the amounts
outstanding during the IP as reported by Novatex. At no point during the investigation did Novatex
or Pakistan contest the amounts taken into account by the Commission in its calculations. In any
event, Pakistan also agrees that the exact moment of drawdown of the amounts in question is in
fact irrelevant for the legal assessment in this case because it is undisputed that the amounts used
for the calculati on of benefit were outstanding during the IP. The decisive question is therefore
whether the Commission was correct to use the IP for the determination of the benchmark proxy
or was legally required to use a previous year of a "mix" of different years. Thi s question depends
on the characteristics of the financial instrument under investigation.

25. The LTF-EOP programme was a flexible financing instrument akin to a line of credit, and not
a typical standard loan with a fixed rate. A previous panel has conf irmed that a line of credit is to
be distinguished from a standard loan. There are many differences between a standard loan and
the preferential line of credit mechanism granted to Novatex.

26. Under a standard loan, the entire amount would have been disb ursed in 2005. Under the
preferential line of credit mechanism, the amounts were disbursed to Novatex during an extended
period, between 2005 and 2009. Novatex therefore had flexibility as to when to withdraw the
amounts. The banks had to hold the respecti ve amounts in reserve. Under a standard loan, the
repayment obligation would have started immediately after conclusion of the contract in

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June 2005. Under the preferential credit mechanism, the repayment obligation for Novatex
regarding the principal only started more than two years later, in July 2007. Under a standard
loan, the interest rate would have been fixed for the entire repayment period and for the entire
amount. Under the preferential line of credit mechanism, the interest rate depended on the
moment of withdrawal by Novatex. The EU does not contest that the interest rates were fixed for a
specific tranche once that tranche was drawn down. However, Novatex could decide when to draw
down the money and hence could in principle influence the interest rate which is very different
from a standard commercial loan. The fact that ultimately only one single interest rate applied for
the different tranches was only decided ex post in view of the market circumstances, in order to
ensure that Novatex would mai ntain the advantageous financial mechanism, no matter how high
the market rates would be.

27. Moreover, nothing prevented Novatex from seeking financing from the market if the market
conditions changed in a more favourable manner than the LTF -EOP mechanism. Indeed, under a
standard loan, the borrower decides to get all the necessary financing at a given moment in time.
In contrast, through the LTF-EOP mechanism, Novatex could decide whether to draw down further
instalments if and when it needed the money, and it could also decide to borrow the money from
other sources, market conditions so permitting, without the need to renegotiate the original
preferential credit mechanism and without incurring any penalties.

28. It is in light of the above consideratio ns, that the alternative calculation methods presented
by Pakistan and the Commission's calculation method should be assessed.

29. First, the Commission was not obliged to use the year 2005 for the KIBOR rate as requested
by Pakistan and Novatex during t he investigation. The interest rate under the preferential line of
credit mechanism was not determined or fixed in 2005 but depended on the moment of drawdown.
The repayment obligation by Novatex on the principal did not start in 2005 but only in July 2007 .
The credit amount was not disbursed in 2005 but over a 4-year period.

30. Second, the Commission was not obliged to use a mix of different years for the
determination of the benchmark as requested by Pakistan before the Panel. The Commission would
have needed very detailed information about each disbursement by each individual bank to
Novatex prior to the IP under the LTF -EOP. It is undisputed that Novatex did not provide this
information during the investigation. Pakistan did not even provide this info rmation when asked by
the Panel. Hence, the Commission was simply unable to perform such a calculation, even leaving
aside the practical difficulties of such a calculation. In addition, neither Pakistan nor Novatex ever
raised this particular – and very co mplex - calculation method during the investigation. Both
Pakistan and Novatex consistently and exclusively requested a calculation based on the benchmark
year of 2005. Such a scientific approach is not legally required and would not only put an
enormous burden on parties, investigating authorities and the respective review bodies but would
also significantly increase the risk of arithmetical errors and hence of legal challenges. Finally,
using several benchmark years would also treat the LTF -EOP programme as separate mini
standard loans and hence would disregard the flexibility of this preferential financing instrument
and its nature as being akin to a line of credit.

31. Third, it was perfectly legitimate for the Commission to use the IP as the KIBOR benc hmark
year since the IP provided a good "snapshot" of the LTF -EOP line of credit facility for several
reasons: Novatex continued repaying outstanding amounts under the LTF -EOP during the IP.
Disbursements under the preferential credit mechanism also contin ued during the IP. And Novatex
benefited from the respective amounts that were outstanding during the IP. All these elements
render the IP a perfectly suitable period for the determination of the benchmark rate proxy. The
Commission certainly complied with the standard of reasonableness that permeates the guidelines
under Article 14. This applies all the more so as the Commission acted in the favour of Novatex by
using the shorter term KIBOR rate for a long -term credit mechanism and by not taking into
account the 2-year grace period for the repayment of the principal in its benefit calculation.

32. Therefore, the EU maintains its request that the Panel should reject Pakistan's claims against
the Commission's determination regarding the preferential credit mechanism in their entirety.

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2.4. CLAIMS RELATING TO CAUSATION (ARTICLE 15.5 OF THE SCM AGREEMENT)

2.4.1. The Commission's method in the causation analysis

33. Under Article 15.5 of the SCM Agreement investigating authorities must "separate and
distinguish" the injurious effects of other known factors from those of the alleged subsidised
imports. When both subsidised imports and other factors potentially causing injury are present at
the same time, the investigating authority must assess whether and to wh at extent subsidised
imports cause injury, and whether and to what extent other factors cause injury. These two
"steps" can be done in either sequence, and there is no reason why the assessment of one "step"
should not refer to findings made in the other "step".

34. Article 15.5 imposes no obligation to carry out the causation analysis in a particular order.
Causation and non-attribution are closely related aspects of the overall assessment of a causal link
between the subsidized imports and the injury, an d it would be artificial to impose a particular
order of analysis between them. This position is also supported by the Appellate Body which
emphasized the discretion enjoyed by the investigating authority in this respect and repeatedly
stated that no method was prescribed for the process of separating and distinguishing the injurious
effects of subsidized imports from other known factors.

35. Pakistan's claim that the Appellate Body in US - Wheat Gluten would have mandated the
three-step analysis advocated by Pakistan is incorrect. US - Wheat Gluten concerned non -
attribution under the Safeguards Agreement, and the main focus of the Appellate Body was that
the effects of other known factors should be properly separated and distinguished. In subsequent
cases, the Appellate Body has also repeatedly emphasized that Article 15.5 does not set out a
specific order of analysis, e.g. in US Hot-Rolled Steel and in EC – Tube or Pipe Fittings where the
Appellate Body "underscored" that no method is prescribed for non-attribution.

36. Pakistan's claim that the Commission's preliminary finding of a causal link in the first step of
the Commission's analysis can never become less than "substantial" or be undone by other factors
is also obviously incorrect. If that were the case, the Commission would always find a causal link in
its determinations and could never come to the conclusion that other factors were the true cause
of injury. Pakistan's allegation is belied by the many terminations of Commission's investigations in
anti-dumping and anti-subsidy proceedings where other factors were found to be the true cause of
injury.

37. Pakistan's attempt to find support in previous negative determinations of the Commission in
which the Commission did not use verbatim the phrase th at the causal link was "broken" by other
factors is misguided. It is obvious that in case of negative determinations an investigating
authority will not find interim causation by subsidised imports only to find a few paragraphs later
that causation was "br oken" and injury was in fact caused by other factors. In such case, an
investigating authority will simply condense its written analysis and find that the injury was not
caused, or not sufficiently caused, by the subsidised imports. This does not change th e fact that
for a positive determination, which is solely at issue in the present case, the Commission's method
constitutes a logical sequence and useful analytical tool to assess whether the subsidised imports
constitute a genuine and substantial cause of injury as required under the case-law.

38. In the present case, the Commission first established that there was a causal link between
subsidised imports and an injury to domestic producers. Then the Commission examined other
known factors and whether the y could break the causal link between the imports and the injury,
concluding that they did not. As such, the Commission fully met its obligation to separate and
distinguish the effects of subsidized imports from the effects of other known factors.

39. The European Union also recalls that under the case law investigating authorities are not
required to quantify the injury caused by other factors in order to separate and distinguish it from
the injurious effects of the alleged subsidized imports.

40. Thus, Pakistan's claim against the Commission's method of assessing causation should be
rejected.

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2.4.2. The Commission's analysis of specific known factors

41. Contrary to Pakistan's claims, the Commission provided a well -reasoned explanation in the
determinations why the nature and extent of the contribution of specific other factors were
insufficient to break the causal link.

42. First, regarding the Korean imports the EU recalls that the Commission separated and
distinguished their effects and recognised that they may have contributed to injury. In the process
the Commission carried out an extensive analysis of prices, market shares and volumes of Korean,
subsidised and domestic producers. The Commission reasoned that prices of Korean imports were
higher than the subsidised imports and only slightly below prices of domestic producers and hence
their contribution would only be limited. This finding is further supported by the lower volumes of
Korean imports and the fact that subject imports increased by 440% whereas Korean imports only
increased by 146% since 2006. This type of qualitative explanation is exactly what the case -law
requires. No additional quantification of the injury is required under Article 15.5.

43. Regarding the economic downturn , the EU r ecalls that the Commission found that the
downturn did have an injurious effect. But the downturn did not break the causal link because it
had a global character and hence affected all companies more or less equally. In addition, the
Commission stated in t he determinations that the downturn had no impact on the period prior to
the last quarter of 2008. This made clear that the downturn only affected part of the period
considered (i.e. 1 January 2006 to the end of the IP), namely three quarters out of 3.5 ye ars and
part of the IP, namely three out of four quarters starting in September 2008. The downturn
therefore only affected 3 quarters during the period considered and during the IP and hence had a
limited impact in terms of duration.

44. The Commission made it clear in its determinations that oil prices were not low but volatile
during the IP and that they were "world" prices and hence applied to all companies equally. Oil
price developments did not break the causal link.

45. Regarding non-cooperating EU producers, the EU recalls that the market share of the
subsidised imports increased by almost 500% during the period considered whereas the non -
cooperating EU producers lost 20% market share during the same time. This would in itself be
sufficient to count er any argument that these producers would have broken the causal link. The
Commission also assessed the market shares during a period of 4 years and did not simply carry
out a point -to-point analysis of two years. In addition, the EU observes that several non-
cooperating producers exited the market during or shortly after the IP, which confirms that the
slight increase of market share during the IP of was not a reversal of the previous trend of
declining market shares.

46. Pakistan's claims under Article 15.5 should therefore be rejected.

2.5. CLAIMS RELATING TO VERIFICATION VISITS (ARTICLE 12.6 SCM AGREEMENT)

2.5.1. The proper legal standard under Article 12.6 of the SCM Agreement and the
meaning of "result"

47. Article 12.6 of the SCM Agreement makes it clear that investigating authorities are not
required to conduct a verification visit but rather gives permission to do so ("may carry out…").
Regarding the disclosure of the results of the verification visit to the verified firms, Article 12.6
allows for two methods: the investigating authority either "shall make the results of any such
investigations available", or "shall provide disclosure thereof pursuant to paragraph 8, to the firms
to which they pertain". The purpose of the disclosure requirement under Article 12.6 is to make
sure that exporters, and to a certain extent other interested parties, are informed of the
verification results and can therefore structure their cases for the rest of the investigation in light
of those results.

48. The phrase "results of any such investigations" within the meaning of Article 12.6 is to be
understood as category of information closely related to the "essential facts" within the meaning of
Article 12.8. In fact, the cross -reference to Article 12.8 in Article 1 2.6 confirms this close
relationship. The "results of any such investigations" are used, together with other information
available, to form the universe of essential facts used by the investigating authority in its

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determination. This category related to t he essential facts with respect to the verification visit can
either be made available separately (as is the practice of some investigating authorities) or in the
context of the disclosure of essential facts under Article 12.8 (as is the practice for examp le of the
Commission). This is also in line with the interpretation of the term "results" as posited by the
European Union. A result is an outcome. The "outcome" of a verification visit cannot therefore be
mere factual information about the verification vi sit as such, e.g., a detailed account of what
happened during the visit, or which documents were requested by the Commission or were
provided by Novatex. Such facts are the verification visit (or, in other words, concern the process
of the verification visit), but they are not an "outcome" or "result" of the verification visit.

49. There is no requirement that the investigating authority prepare written "minutes" of the
verification visit. If what Pakistan wants is minutes of the verification visit, such minutes can be
easily prepared by the company investigated. The investigating authority usually only has 2
officials on the spot whereas the company may have hundreds of employees available as well as
its legal representatives. It is not the task of invest igating authorities to draft minutes for the
company.

50. "Result" does not include an explanation why the authority looks at certain information as
requested by Pakistan. It is obvious and needs no further detailed explanation that the overarching
reason of the verification visit is to verify the accuracy of previously submitted documents and
possibly of documents submitted during the verification visit. "Result" also does not include
information as to whether a verification visit was successful or not as argued by Pakistan
(e.g. whether the information previously provided is accurate). This is because the ultimate
"success" of a verification visit can only be determined once all other information has been
assessed and cross-checked, i.e. at the disclosure stage. It would also make little sense to report
on which information was successfully or unsuccessfully verified during the verification visit when
many of the documents may not even be relied on by the investigating authority in its
determinations.

2.5.2. Pakistan's claims that the results of the verification visit were needed to defend
itself are not credible

51. Pakistan has failed to demonstrate how the alleged failure by the Commission to provide the
results of the verification visit would have impeded Pakistan's or Novatex's rights of defence. Quite
to the contrary, both parties have been perfectly able to defend themselves during the CVD
investigation and Pakistan in the present panel proceedings. Pakistan also has not shown
concretely in the cas e at hand how its rights of defence were allegedly compromised. Pakistan
argues that if a "result" of the verification visit, as understood by Pakistan, would be provided by
the authority, then the authority would be unable to "ignore" whatever information is provided by
the company. Such a proposition is of course incorrect. The fact that the authority verifies certain
information provided by the company does not mean that it has to agree with the company's view
regarding such information. The authority may still "ignore" the company's view if it has reasons to
do so, even if the authority confirms that such information was checked at the company's
premises, thereby providing the "result" of the verification visit. The disagreement about the
moment of drawd own of certain amounts in the calculation sheets provides a good example. The
Commission did verify the calculation sheets submitted by Novatex and sent out a deficiency letter
regarding the incorrect commercial interest rate provided by Pakistan. Neverthe less, this
verification did not prevent the Commission from interpreting the column "Opening" differently
than Pakistan. Nor did the knowledge by Pakistan that the calculation sheets were verified by the
Commission have any relevance for its defence since Pakistan has not once made reference to this
fact during the entire proceeding - even though it claims that knowledge about whether certain
information was verified is of paramount importance.

52. This example shows that the essential due process safeguar d with respect to information
being "ignored" by the authority cannot be the "result" of the verification visit. Safeguarding due
process rights is precisely the purpose of instruments such as the disclosure of the essential facts
which sets out the author ity's factual and legal interpretations and provides the company with the
possibility to defend itself.

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2.5.3. Pakistan was informed of the result

53. In the present case, Novatex was informed by pre-verification letter that the verification visit
would focus on the MBS programme. Recitals 68 -72 of the Provisional Determination set out in
considerable detail what type of information the Commission checked during the verification visit
(e.g., the (non)existence of a proper verification system, the records of input goods received, the
Analysis Certificates etc.). In addition, several of the items in the log of exhibits concern the MBS
programme. Even assuming that Novatex was not provided with the log of exhibits, Novatex held
originals or a copy of all the documents that were collected during the verification visit (both as
regards the MBS and other subsidy schemes). Other items that were also relevant for the other
subsidy schemes were verified in addition, such as the company's turnover and sales figures and
(KIBOR) interest rates as submitted by the company. Novatex and/or its legal counsel were
present or had the opportunity to be present during the entire verification visit. Any new
documents during the visit would have to be handed out by Novatex. The European Union also
recalls that Pakistan in its First Written Submission did not appear to take issue with a purported
lack of "result" a as regards the MBS programme, the main aspect of the verification visit.

54. In sum, Pakistan's claim under Article 12.6 should be rejected.

3. CONCLUSIONS

55. In view of the foregoing, the European Union requests the Panel to reject Pakistan's claims
in their entirety.

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ANNEX C
ARGUMENTS OF PAKISTAN
Contents Page
Annex C-1 First Integrated Executive Summary of Pakistan C-2
Annex C-2 Second Integrated Executive Summary of Pakistan C-18

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ANNEX C-1
FIRST INTEGRATED EXECUTIVE SUMMARY OF PAKISTAN
Prepared with the cooperation of the Advisory Centre on WTO Law
1. INTRODUCTION AND OVERVIEW
1.1. In this dispute, Pakistan challenges several aspects of the EU's Determinations in a CVD
investigation concerning polyethylene terephthalate (PET) from, inter alia, Pakistan. Pakistan's
claims concern various aspects of the subsidy determination, the causati on analysis, as well as the
lack of disclosure of verification results.

2. PAKISTAN'S ARGUMENTS UNDER ARTICLE 6.2 OF THE DSU
2.1. The EU makes a number of procedural objections under Article 6.2 of the DSU. First, the EU
contends that the "references to Annexes I, II and III of the SCM Agreement contain multiple
obligations and, thus, the European Union fails to understand to which specific obligations within
those provisions Pakistan is referring".1 The EU's objections are without merit.

2.2. Pakistan's panel request clearly specifies items (h) and (i) of Annex I to the SCM Agreement,
each of which contains one particular category or type of export subsidy. Each of these provisions
contains a specific obligation on investigating authorities. Thus, the EU clearly could understand
from the panel request to which "specific obligations" Pakistan referred.

2.3. With respect to Annexes II and III, Pakistan notes that these Annexes are referenced in
Annex I(h) and I(i) described above and constitute guidelines for the interpretation of the
obligations set out therein. As such, they provide a detailed explanation of an integrated and single
process that reflects and leads up to a unified, single and "overarching" fundamental obligation 2,
that is, a determination of whether the alleged subsidy satisfies the definitions in Annex I(h) or
I(i). In any case, Pakistan has identified in the panel request the specific paragraphs on Annexes II
and III it considers to have been violated: Annexes II(I)(1) -(2), II(II)(1) -(2), (III)(I) and
(III)(II)(1)-(3). WTO jurisprudence has made clear that a comprehensive reference to a set of
legal rules is permissible when the complainant makes a claim concerning this set of rules in its
totality.

2.4. Moreover, even if Pakistan was req uired under Article 6.2 of the DSU to identify the specific
procedural step in Annexes II and III, the panel request clearly set out that Pakistan was taking
issue with the fact the Commission countervailed the entirety of the duty remissions, as opposed
to the "excess portion of these refunds". Thus, by referring to the "excess portion" it is clear that
Pakistan referred to the specific part of Annexes II and III that refer to it. In this respect, WTO
jurisprudence confirms that a reference to, for instanc e, Article 3 of the Anti -Dumping Agreement
may be sufficient if a reader can discern, from the narrative in the panel request, the specific
paragraph(s) or obligation(s) to which the complainant refers.3

2.5. Second, with respect to the LTF -EOP programme, the EU argues that the phrase "by failing
to explain adequately the application of its method to calculate the benefit in the case at hand"
does not allow it to "identify in any of the provisions listed therein" the "problem" described by
Pakistan.4 The EU argues that "[t]he provisions cited by Pakistan appear to address substantive
violations as opposed to failures to provide adequate reasoning".5

1 EU's Request for a Preliminary Ruling, para. 41.
2 Panel Report, China – Broiler Products, para. 7.521.
3 Appellate Body Report, Thailand – H-Beams, para. 90; and Panel Report, Thailand – H-Beams,
para. 7.36.
4 EU's Request for a Preliminary Ruling, para. 43.
5 EU's Request for a Preliminary Ruling, para. 43.

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2.6. Thus, the EU disagrees with Pakistan on whether the "problem" described by Pakistan is
capable of violating the WTO provisions cited in the panel request. This is, however, a matter to be
dealt with on the merits of this dispute. In fact, in response to similar objections, the
Appellate Body has stated that "the question of whether the measures identified i n the panel
request can violate, or cause the violation of, [a WTO] obligation [] is a substantive issue to be
addressed and resolved on the merits".6

2.7. At any rate, the EU's objection cannot be upheld because the narrative of Pakistan's panel
request clearly reflects the wording of, for instance, the chapeau of Article 14 of the
SCM Agreement. Moreover, the EU's objection unduly parses out the distinction between
substantive and procedural violations in the realm of trade remedies. The Appellate Body h as
consistently stated that substantive violations are to be assessed against the explanation given by
the authority, and that a lack of appropriate explanation "enables panels to determine" an
inconsistency with the substantive provisions.7 For these reasons, the EU's objection cannot stand.

2.8. The EU makes three additional objections to the panel request. In response, first,
Articles 10, 19.1 and 32 of the SCM Agreement were explicitly referred to in the panel request.
Second, even though Article 32 ha s been referred to generally, the narrative in the panel request
makes clear that Pakistan referred to the first paragraph only. Pakistan fails to see how the EU was
somehow prevented from understanding that Pakistan was referring to Article 32.1. Third, e ven if
Article 1.1(b) of the SCM Agreement was not explicitly mentioned in the panel request, a violation
of this provision follows automatically from a violation of Article 1.1(a)(1)(ii), given that revenue
forgone or not collected is tantamount to provid ing a benefit and no separate analysis of a benefit
is thereby required.

2.9. Finally, the EU has also argued that Pakistan's claim under Article 12.6 is not properly
specified because Pakistan did not identify which of the two options for disclosing veri fication
results the EU chose. This assertion is illogical. Pakistan argues that the EU adopted neither of the
two alternative means of disclosure under Article 12.6. Moreover, at the time of drafting the panel
request, Pakistan could not have known which of the two permissible alternative approaches the
EU would argue it adopted during the investigation.

3. PAKISTAN'S CLAIM CONCERNING THE MANUFACTURING BOND SCHEME (MBS)
3.1 Introduction
3.1. The EU acted inconsistently with Articles 1.1(a)(1)(ii), 1.1(b) , 3.1(a), 10, 19.1, 32.1 and
Annexes I(i), II(II) as a whole, II(II)(1) and II(II)(2) of the SCM Agreement, as well as
Article VI:3 of the GATT 1991. The core of the issue is that the EU incorrectly determined that a
subsidy existed in the form of the totality of the duties drawn back/remitted, rather than only the
excess drawback/remission, if any. Moreover, in reaching that incorrect subsidy determination, the
EU failed to observe the prescribed analytical process set out in Annexes II and III of the
SCM Agreement and violated a number of other related requirements enshrined in the above -
mentioned provisions.

3.2 A duty drawback scheme gives rise to a subsidy only if there is an excess
drawback
3.2. A subsidy under a duty drawback/remission scheme within the meaning of Footnote 1 and
Annex I(i) to the SCM Agreement can exist only if there is an excess drawback or remission. As a
matter of legal principle, under the SCM Agreement, the totality of the duties drawn back is never
the subsidy. For instance, Fo otnote 1 of the SCM Agreement states that duties drawn -back or
remitted not in excess are deemed not to be a subsidy. However, under the EU's reading,
Footnote 1 is a conditional exception (a "carve -out") to the otherwise applicable rules of the
SCM Agreement and this exception may or may not apply, depending on whether the duty -
drawback regime of the exporting Member satisfies certain conditions set out in Annexes II
and III.

6 Appellate Body Report, Australia – Apples, paras. 423-425.
7 Appellate Body Report, US – Steel Safeguards, paras. 301-303.

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3.3. This is demonstrably incorrect. Footnote 1, together with the Ad Note Artic le XVI of the
GATT 1994, Annex I(i), and Annexes II and III, reflect a special rule applicable to duty drawback
systems. This rule stipulates that only the excess drawback can constitute a subsidy. There are no
other (default) rules applicable to duty draw back schemes. The principle that only the excess
drawback or remission can be a subsidy is also explicitly set out in Annex I(g) and I(h), which like
Annex I(i) relate to indirect taxes or charges. In contrast, Annex I(e), which relates to direct
charges, considers any exemption or remission as a subsidy.

3.3 Footnote 1 is not a conditional carve -out and the EU's reading of the "in
accordance with" introductory clause is nonsensical
3.4. The EU is incorrect in reading the "In accordance with" introductory clause under Footnote 1
as a condition for the applicability of the remainder of the footnote. The EU would have the Panel
read the clause as "If the facts are in accordance with … ". However, the "[i]n accordance with"
phrase does not express any conditio nality, but instead clarifies that the provisions listed therein
(the Ad Note Article XVI, and Annexes I through III) reflect the same cardinal and decades -old
principle as the second part of Footnote 1, that is, that only an excess drawback or remission c an
be a subsidy. The correct reading of the words "in accordance with" in Footnote 1 is therefore "as
stated in", "as stipulated in", "in harmony with", "as provided in".

3.5. In this regard, the grammar and syntax of Footnote 1 are similar to, for instan ce,
Article 19.2 of the DSU, Article 4.1(b) of the Agreement on Safeguards and numerous other
provisions in the covered agreements. If these provisions were given the reading proposed by the
EU for Footnote 1 – that of a condition for the application of th e rest of the provision – they would
become entirely nonsensical. Moreover, the ordinary meaning of the words "in accordance with" is
not to create a condition, as the EU's interpretation would require. When the drafters wished to
create a conditionality, and make the applicability of a provision dependent on compliance with
another provision, they used words or phrasing such as "if", "when", "provided that", "unless that",
etc. This can be seen, for instance, in Article 1.2 of the SCM Agreement, Article 2. 9 of the
TBT Agreement or other provisions throughout the covered agreements.

3.4 The drafting history confirms Pakistan's reading of Footnote 1
3.6. The drafting history of the SCM Agreement during the Uruguay Round confirms Pakistan's
reading of the phr ase "in accordance with". As late as 1990, the draft text of the SCM Agreement
contained an introductory ("In accordance with") clause that referred only to the Ad Note to
Article XVI, and not also to Annexes I to III. Because the text of the Ad Note is id entical to the
second clause of the Footnote, the words "in accordance with" must have the meaning argued by
Pakistan, namely, "as stated in", "as stipulated in", "in harmony with", "as provided in".

3.7. In the final version of the SCM Agreement, the dra fters chose to include also Annexes I
through III in the "in accordance with" clause. Thus, the drafters obviously must have considered
that the reference to Annexes I through III fitted within the existing meaning, structure and thrust
of the sentence, which defined the subsidy as the excess remission or drawback only. The drafters
cannot have intended to change fundamentally, at the last minute, a clear definition found in
GATT/WTO law since the 1950s, by creating conditions for the applicability of that definition.

3.5 The EU's reading of footnote 1 contains additional logical problems
3.8. The EU's reading of Footnote 1 also creates several logical problems. First, Annexes II
and III apply only in a countervailing duty investigation. It is therefore not clear how the EU's logic
would apply when a direct challenge is brought against a subsidy in a WTO dispute under Article 3
of the SCM Agreement, and when no prior CVD investigation has taken place. Second, Annexes II
and III contain obligations on an investigating authority to adopt a certain analytical approach, in a
certain sequence. If the investigating authority fails to comply with these requirements, the
exporting Member and its companies would then suffer the adverse consequences. Third, it is not
clear how a WTO panel, in a direct WTO challenge against a subsidy, could comply with a
definitional provision such as Annex I(i), as a condition for applying another definitional provision.

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3.6 Pakistan was not required to make its claim under Article 1 .1(b) or 14 of the
SCM Agreement
3.9. The EU also argues that Pakistan accepts that a financial contribution existed and that it
takes issue only with the Commission calculation of the amount of the subsidy. This, in the EU's
view means that Pakistan shou ld have brought its claim under the provisions relevant for benefit,
that is, Articles 1.1(b) and 14 of the SCM Agreement.

3.10. The EU's assertions are without merit. A subsidy consists of a financial contribution and a
benefit element. These two element s are separate and must not be confused. In the case of duty
drawback systems, determining the existence of an excess drawback is part of the definition of a
financial contribution. Footnote 1, one the key provisions in this dispute, is attached to
Article 1.1(a)(1)(ii), which is concerned with the determination of the financial contribution. For
some subsidies, such as grants or government revenue foregone, identifying the financial
contribution, for all practical purposes, has the effect of quantifying th e benefit also, and relevant
WTO caselaw confirms this.8 However, this does not undermine the conceptual distinction between
the two elements. Pakistan's case rests primarily on the issue of identifying the financial
contribution.

3.7 There is no basis f or the EU's argument that the investigating authority is entitled
to assume that the entirety of the duty remission is a subsidy
3.7.1 Introduction
3.11. The EU relies on a range of arguments to argue that an investigating authority has discretion
to "ass ume" that the entirety of the drawn -back duties constitute the excess amount. 9 This
discretion would be triggered by a determination that the exporting Member's monitoring
mechanism is not adequate, and when no additional investigation by the exporting Mem ber has
been undertaken.

3.12. However, in this case, the Commission failed to provide the Government of Pakistan with an
opportunity to conduct that further examination. The absence of the allegedly required information
is therefore the EU's own responsibility. Second, even if no additional investigation was conducted,
there was nevertheless record evidence on which the Commission could have relied to examine the
existence and amount of any excess. Third, all provisions at issue make clear that, even wher e a
monitoring system is considered inadequate, the resulting subsidy can only be the amount of any
excess remission. Nothing in these provisions suggests that all amounts remitted (including those
that are clearly not in excess) may be treated as a financial contribution.

3.7.1 The EU has failed to provide Pakistan with the opportunity to conduct the "further
examination"
3.13. The EU claims the right to "assume" 10 that the entirety of refunded duties constitute a
subsidy, in part because there was "no reliable information provided by [Pakistan] about the actual
amounts of imported materials incorporated into the exported products". 11 However, the
investigating authority must provide a meaningful opportunity for the exporting Member to
conduct the "further examination", which comes only after the monitoring mechanism has been
found to be inadequate.

3.14. It is common sense that the exporting Member cannot conduct this investigation before it
has been apprised of the ruling of the investigating authority ab out the monitoring mechanism.
Similarly, an investigating authority cannot determine at the same time that the verification
system is insufficient and that the exporting Member has failed to conduct the "further
examination". Finally, the exporting Member requires at least some time to conduct that
examination and subsequently communicate the results to the investigating authority.

8 Panel Report, US – Aircraft, paras. 7.115 – 7.167; Panel Report, US – FSC (21.5), paras. 8.3 – 8.43;
Appellate Body Report, US – FSC (21.5), para. 106.
9 EU's first written submission, paras. 91 and 92.
10 EU's first written submission, paras. 91 and 92.
11 EU's first written submission, para. 98.

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3.15. In this case, the EU made a simultaneous finding, in its Preliminary Determination, that the
monitoring mechanism was in adequate and that Pakistan "had failed" to conduct the further
examination. An investigating authority that was genuinely open to seeing the exporting Member
conduct the "further examination", and was open to relying on the results, would not have used
the language used by the Commission. Therefore, faced with the Commission's determination and
tis failure to ask Pakistan to conduct an examination, Pakistan could reasonably conclude only that
there was no scope for any such "further examination", because th e EU was simply not interested
in the results. This is confirmed by the subsequent parts of the Determination, in which the
Commission refers only to its finding that the monitoring mechanism was not adequate, not to any
failure of Pakistan to follow up. T hese statements reveal, in essence, that the EU considered the
mandated "further examination" as a dispensable and ultimately not relevant part of the
investigation. In these circumstances, the Commission's reference to Pakistan's alleged failure to
conduct the "further examination" appears at most to pay lip service to the legal text, rather than
being a proper application of the analytical steps of Annexes II and III.

3.16. In any event, the Commission was also obliged to inform the exporter of: the type of
information the investigating authority would accept as output of the "further examination"; the
form and format in which the results of the "further examination" had to be reported; the required
procedural steps taken during the "further examination" and any required communication with the
investigating authority prior to the conclusion of the "further examination"; and the time frame for
the further examination and the deadline by which the exporting Member was required to report to
the investigating authority the results of the "further examination". This obligation is analogous to
that in Article 12.1 of the SCM Agreement, which requires an investigating authority to "give
notice" to "[i]nterested Members and all interested parties" "of the informati on which the
authorities require".

3.7.2 Following the procedures of Annexes II and III does not entitle the investigating
authority to disregard the investigation record
3.17. The EU also argues that Annexes II and III provide for certain investigative s teps, but that
they do not address "how" an analysis of the excess should be undertaken. 12 The EU also argues
that Annexes II and III do not address the consequences of the various intermediate conclusions
that an investigating authority might reach under t hese procedures. In the EU's apparent view,
these perceived "gaps" under Annexes II and III entitle the investigating authority to "assume"
that the entire refunded amount, rather than just the excess, amounts to a subsidy.

3.18. There is no basis for th is view. First, as Pakistan has demonstrated, whatever the outcomes
of the prescribed analytical steps under Annexes II and III, the underlying legal principle remains
that only the excess remission or drawback can be a subsidy. Second, Pakistan does not a gree
with the EU's reading of certain parts of Annexes II and III. By way of example, contrary to the
EU's assertions, if a monitoring mechanism is found effectively to apply, a presumption exists that
no subsidy exists even under Annex II, which is less explicit on this particular point than Annex III.

3.19. Third, nothing in Annexes II and III relieves the investigating authority of its obligation to
actually analyse the data before it or to explain why the data is considered unreliable. Rather than
making "assumptions" without any basis on record evidence, the authority must base its decision
on any other available record evidence, or third -source information. The investigating authority
can address any data deficiencies in the same manner as it would fo r any other subsidy in a
countervailing duty investigation, including by relying on facts available.13

3.20. Annexes II and III provide for additional rules that apply together with the normal rules and
principles. This cumulative application of legal prov isions is one of the cardinal rules of WTO law. 14
Hence, application of Annexes II and III does not mean that other rules cease to apply.

3.21. Finally, the investigation concerns an exporter, and not the government; and any CVD
action is imposed on the ex porter, and not the government. The investigating authority cannot
equate misgivings about a government's documents or actions with misgivings about an exporter's

12 EU's first written submission, paras. 72 and 74.
13 Appellate Body, Mexico – Anti-Dumping Measures on Rice, paras. 290 - 295.
14 See, for instance, Appellate Body Report, Korea – Dairy, para. 74. See also Panel Report, Indonesia –
Autos, para. 14.56.

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data. The authority cannot "punish" an exporter for any real or perceived flaws in the
government's regulatory system or the government's actions in the investigation.

3.7.3 Record evidence does not suddenly become unreliable because the investigating
authority has determined that the monitoring mechanism is not adequate
3.22. The EU also appears to believe that, when the investigating authority finds that the
monitoring mechanism is not adequate, all the remaining information on the record, from
whatever source, is no longer reliable. But that cannot be correct. The monitoring mechanism
under a duty drawback scheme relates to how a government operates an overarching system that
applies to multiple companies. It is separate from the data and financial records of individual
companies that operate under that regime. The drafters of the SCM Agreement also saw these two
as separate, since both Annex II and III envisage a "further examination" on the basis of "actual
inputs"15 or "actual transactions involved". 16 In this investigation, the use of the "input/output"
ratio in the context of the duty drawback scheme – the main reason why the Commission
considered the MBS monitoring mechanism unsatisfactory – says nothing about how the company
in its own records tracks its actual stocks, the quantities produced and exported, and the prices of
its inputs.

3.23. In certain prior investigations in which it found that a monitoring mechanism did not exist or
was inadequate, however, the Commission went on to find that the company was able to
demonstrate that no excess remission had occurred. 17 Moreover, in this case , the Commission
continued to rely extensively on information and data provided by the company, despite its
misgivings about the government's monitoring mechanism. The Commission relied, for instance,
on the volume and value of PTA imports imported by Nova tex into the MBS, as well as the volume
and value of Novatex' exports out of the MBS. Furthermore, the Commission conducted a parallel
anti-dumping investigation on the same product. Both preliminary AD and CVD determinations
were published on the same day. In the dumping determination, the Commission relied on a broad
range of Novatex's data, including cost of production data that tracked separate raw input for
domestic and for export production that could have been used in determining whether an excess
existed.

3.7.4 There was extensive record evidence that the Commission could have relied on in
order to estimate any alleged excess remission
3.24. Even though the Commission did not properly investigate, there was record evidence on
which the Commission c ould have relied to estimate any alleged excess remission. Contrary to
what the EU claims, Pakistan's arguments on this point do not mean that Pakistan admits that
there was in fact an actual excess, within the meaning of Footnote 1 and Annex I(i).

3.25. Finally, the evidence suggests that it was highly unlikely that all of the duties remitted were
an "excess". Novatex made substantial exports during the PoI, implying that, at the very least, a
very high proportion of the imported inputs were actually exp orted. They must have been
incorporated into the final exported product. Consequently, the EU could – if at all – countervail
only a (small) proportion of the refunded/drawn-back duties as a subsidy.18

3.26. Contrary to what the EU argues, there is not a s hred of evidence that Novatex diverted
duty-free (MBS) imported PTA into the domestic market. Indeed, Novatex was legally precluded
from doing so, unless it paid the import duty. The Commission's determination speaks a different
language, in that it reflec ts acceptance of the fact that imported inputs were used for production
for export. The Commission's criticism of the MBS revolves largely around the input/output ratio.

3.27. Moreover, the Commission had before it extensive evidence that showed how Nova tex
traced raw inputs throughout its production chain. Specifically, in response to the Commission's
third deficiency letter19, Novatex filed over 1,000 pages of documentation relating to the MBS, for
two sample months in the PoI selected by the Commission. This included examples of the type of

15 Annex II(II)(2).
16 Annex III(II)(3).
17 Commission Regulation (EC) No 1411/2002 of 29 July 2002 and Commission Decision
No 284/2000/ECSC of 4 February 2000.
18 Pakistan's first written submission, paras. 5.47 – 5.48.
19 Exhibit PAK-20.

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documentation that Novatex presented to Pakistani customs upon the exportation of PET, in order
to claim the release of securities posted on imports of raw materials. 20 These documents link the
final exported PET to the imported raw materials, including PTA, consumed in the production of the
exported PET. The Commission never mentioned, let alone analysed, that evidence. An
investigating authority cannot expressly request such extensive highly relevant information and
then simply act as if that evidence were never part of the investigation record.

3.28. In addition, there was substantial evidence on the record to confirm whether an excess
remission was taking place. For instance, the company traced its actual consumptio n data and, on
its own initiative, periodically reported any differences to the input/output ratio-based consumption
data to the Pakistani authorities. The Commission explicitly acknowledged this practice by the
company in its Determination. Novatex conducted a similar exercise for the Commission during the
investigation, by presenting it with its actual consumption data for the period of investigation. This
data showed a deviation of 0.71% and 1.16%, respectively, for the two key raw materials. 21
Although t his difference was only temporary and would have been later accounted for (and
therefore was not a real "excess"), the Commission could have used this figure to estimate the
amount of any perceived excess. The Commission could have estimated that the drawb ack was
1%, rather than 100% under its unsupported "assumption". This would have meant a
subsidization margin (from the MBS programme) of 0.0384%, rather than 2.57%. Instead, the
Commission simply ignored the data.22

3.29. Pakistan also pointed to other ev idence, such as data from a pre -PoI analytical exercise
through which Novatex's input/output ratio was revised and adjusted. The relevant data pointed to
a difference, again, in the range of 1 -2% of an excess (rather than the 100% assumed by the
Commission), which would have yielded a subsidization margin of well below 0.1%, instead of the
2.57% calculated by the Commission.

3.8 Conclusion and request for findings
3.30. For all of the above reasons, Pakistan requests that the Commission has acted inconsist ently
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail
in paragraphs 5.133 to 5.135 of Pakistan's first written submission.23

4. PAKISTAN'S CLAIM CONCERNING THE LTF-EOP PROGRAMME
4.1. The EU violated Articl es 1.1(b), the chapeau of Article 14, Article 10, 14(b), 19.1, and 32.1
of the SCM Agreement, and Article VI:3 of the GATT 1994, because it applied a single (and ill -
suited) commercial interest rate benchmark to Novatex's multi -tiered LTF -EOP loan, because it
failed to explain the application of the methods enshrined in its domestic law and because it failed
to analyse whether a comparable commercial loan existed in order to calculate the amount of the
subsidy.

4.1 The structure of the LTF-EOP loan
4.2. The basic structure of the LTF -EOP loan was as follows. In 2005, Novatex obtained a loan
from a consortium of five Pakistani banks. Disbursement of the principal took place in tranches.
When a particular tranche was drawn down, the interest rate set by the P akistani Government for
that year got "locked in" for that particular tranche, for the remainder of the duration of the loan.
Hence, even if the interest rate increased or decreased in subsequent years, this change would
affect only the tranches drawn down in each subsequent year. Tranches drawn down in previous
years remained subject to the interest rate prevailing at the time of draw-down of each tranche.

4.3. The loan agreement was executed on 9 June 2005, and the funds became effectively
available on 1 6 June 2005 (the "Facility Effective Date"). At least half of the total authorized
amount of [***] rupees was to be drawn down within [***] months of the Facility Effective Date,

20 Novatex' Response to the Commission's Third Deficiency Letter, dated 10 December 2009. Exhibit
PAK-51.
21 Pakistan's first written submission, para. 5.110.
22 See Exhibit PAK-11.
23 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the
SCM Agreement.

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and the rest within [***] months of the Facility Effective Date. The [***]-month deadline was
extended several times due to unforeseen circumstances, such that Novatex made its last draw -
downs during the PoI.

4.4. The principal repayment terms were "up to seven and a half years (90 months)", to be made
in "up to twelve consecutiv e, equal, semi -annual instalments", with an 18 -month grace period
before the first repayment of principal. The vast majority (over 90%) of funds outstanding during
the PoI had been drawn down in years prior to the PoI, in periods when the commercial intere st
rate was significantly lower than the commercial interest rate during the PoI.

4.5. In its Questionnaire response, Novatex reported to the Commission all of the amounts
outstanding during the PoI, that is, amounts drawn down prior to the PoI as well a s amounts
drawn down during the PoI.

4.2 The EU's changing position on the monetary amounts countervailed wholly
undermines its credibility on this issue
4.6. During these proceedings, the Commission has changed its description of how it understood
the fa cts during the investigation. In its first written submission, the Commission stated
emphatically that it countervailed only the amounts drawn down during the PoI, to the exclusion
of amounts drawn down prior to the PoI. The EU continued to make these asse rtions in its
Opening Statement at the Panel meeting. 24 These assertions are demonstrably incorrect, as the
spreadsheets used included amounts drawn down prior to and during the PoI. The Commission
was thus under a mistaken impression as to what exactly it had calculated.

4.7. In a complete reversal of its previous argument, the EU in its oral responses to the Panel's
questions at the meeting began to claim that it knew all along that the spreadsheet contained all
amounts outstanding during the PoI, including drawdowns prior to the PoI. In Pakistan's view, this
change in the EU's factual description affects the credibility of all of the EU's arguments on this
issue.

4.3 The Commission countervailed the entire amount outstanding during the PoI, not
only the amounts drawn down during the PoI
4.8. Pakistan explained in detail that the loan amounts listed by Novatex in its Questionnaire
Response, separately for each of the banks involved in the LTF -EOP loan, were the total amounts
outstanding during the PoI. Novatex had been requested to inform the Commission about the loan
amounts that it "used" during the PoI. In Pakistan's view, this language can only be read as
including amounts drawn down prior to the PoI. The term "use" in Pakistan's view clearly includes
all amounts from which the company was drawing some benefit during the PoI, which includes
amounts drawn down prior to the PoI, but not yet repaid prior to the PoI.

4.9. The "Opening" amount in each of the bank -specific worksheets show the total cumulati ve
amount drawn down prior to the PoI. This is obvious not only from the ordinary meaning of the
term "Opening" (balance), which a sophisticated investigating authority such as the EU
Commission must have understood. These figures also match the "closing" amounts for each of
those banks in Novatex' financial statements, which the Commission had itself requested Novatex
to file. Moreover, other columns in the spreadsheets make clear that movements in principal
(drawdowns or repayments) were marked in an alto gether different column. All these facts meant
that the Commission either should have known that the amounts indicated all prior draw -downs or
at the very least could not have assumed that the amounts had all been drawn down during the
PoI, without asking Novatex at least some relevant questions. Indeed, whenever the Commission
applied its mind to any issue, it had no difficulties asking additional questions to Novatex.

4.4 The Commission was not entitled to apply the same interest rate for all
outstanding amounts
4.10. In a reversal of its previous arguments, the EU now accepts that the Commission was aware
that the reported amounts reflected the total amounts outstanding during the PoI, and not only
amounts drawn down during the PoI. However, the EU now argues that it was entitled to apply one

24 See for instance EU's opening statement at the first panel hearing, paras. 29 and 30.

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single interest rate to these entire outstanding amounts, even though the majority of the funds -
the tranches drawn -down prior to the PoI – were subject to interest rates locked in in previous
years.

4.11. This is entirely incorrect. The EU is asking the Panel for license to ignore the most
fundamental difference between the terms of loans, whether they have a fixed interest rate or a
variable interest rate. Novatex's loan is a bundle of fixed -rate tranches and had to be treated as
such. Thus, the Commission was required to identify the commercial interest rate benchmark for a
particular year and use it to calculate the amount of the subsidy with respect to the tranches
drawn down during that year. However, the Commi ssion could not use, for instance, the
commercial interest rate from 2008 in calculations for amounts drawn down during 2007. For
amounts drawn down during 2007, the Commission was required to use a commercial interest rate
from 2007.

4.12. If the Commiss ion's position were to prevail, investigating authorities could start treating
any fixed-term loan as a subsidy, not because it was granted at a preferential interest rate at the
time of disbursement, but rather only because, in a subsequent year, the comm ercial interest rate
happened to change. This cannot be correct. An investigating authority must respect the basic
terms and conditions of the subsidized loan when identifying a commercial interest rate
benchmark. Distinguishing between a fixed -rate and va riable-rate loan is one of the most
fundamental terms and conditions, and an investigating authority cannot be permitted to ignore it.

4.5 The Commission is incorrect in arguing that Novatex's loan was not a loan, but a
line of credit
4.13. The Commission argues that it determined that Novatex's loan was not a standard loan, but
rather a line of credit. This finding, in the Commission's view, justifies the application of a single
commercial interest rate benchmark from the PoI, rather than multiple interes t rate benchmarks
that would respect the fact that different parts of Novatex's loan were drawn down in different
years.

4.14. The EU is incorrect in its characterization of Novatex's loan. Pakistan is not aware that the
explanation in the Commission's D etermination contains a finding on this issue, nor did the
Commission explain in any way to the investigated company that the Commission's subsidy
calculation methodology would depend on this distinction. Thus, the EU's arguments on this point
appear to be an ex post rationalization.

4.15. In any event, Novatex's loan is not a line of credit, in the sense that the company – as the
EU incorrectly insinuates – had the right to draw down any amount at any time. The initial terms
and credits made clear that 5 0% of the principal had to be drawn down within 9 months, and the
totality of the principal had to be drawn down within the first 11 months of the entry into force of
the loan agreement. Each drawdown had to be repaid within 7.5 years. Pakistan fails to se e how
this kind of arrangement could be equated to, for instance, a revolving line of credit, where
withdrawals and repayments could be made at any time at the discretion of the borrower. The
subsequent extensions of the draw -down period came about due to unforeseen circumstances. In
any event, the Commission never investigated this point and never asked Novatex any questions
on this topic, even though as a diligent authority that had studied the terms and conditions of the
agreement, it would have been aware of the extensions of the strict draw-down deadlines.

4.16. In any event, Pakistan is not aware that the term line of credit is a term of art for purposes
of CVD investigations that would enable an investigating authority to ignore the terms and
conditions of the loan agreement/arrangement, especially that the interest rate was locked in for a
fixed term, and to proceed to apply an interest rate that does not mirror the structure of the loan
agreement/arrangement. Put differently, even if the Commission were correct that the loan
agreement could be characterized as a line of credit, this does not mean that the Commission
could apply the PoI commercial interest rate to tranches drawn down in previous years, for which
the locked-in interest rate is the rate applicable in the year of draw-down.

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4.6 The Commission failed to explain the applied methodology in the light of its own
domestic law
4.17. The Commission's internal rules (the so -called "Guidelines for the Calculation of the Amount
of Subsidy in Countervailing Duty Investigations") require the Commission to undertake a series of
analytical steps when calculating the benefit on a subsidized loan. These Guidelines are modelled
on Article 14 of the SCM Agreement. However, none of these steps is discernible in any way in the
Commission's Determination. Therefore, the Commission failed to provide the explanation required
by the chapeau of Article 14.

4.18. First, the Commission made no effort to identify a comparable commercial loan. The
Commission failed to mention, let alone to analyse, the fact that Novatex proposed several
comparable commercial loans. The Commission also made no effort to identify the interest
normally payable on that loan. Nor did the Commission attempt to identify the interest payable o n
a comparable loan to companies in a similar financial situation in the same sector of the economy
or to identify the interest payable on a comparable loan to companies in any sector of the
economy. Instead, without any explanation, the Commission used th e so-called Karachi Interbank
Offered Rate (KIBOR) that the Commission itself identified on the internet. The KIBOR is an
average of several lending rates in effect in the relevant period for loans of one day, one week,
one month, one year, two years, and three years' duration. The Commission failed to explain why
this rate would be appropriate for a loan with a tenor of 7.5 years for every tranche from the date
of its draw-down.

4.19. The Commission also failed to reflect in its analysis the particular mu lti-tranche structure of
the loan at issue by applying a single rate to all of the outstanding amounts, rather than
differentiating between the sub-amounts depending on when they were drawn down.

4.7 The Commission acted inconsistently with Article 14(b) because it failed to
identify, nor did it attempt to identify, a comparable commercial loan as benchmark for
its benefit calculations analysis
4.20. Article 14(b) instructs the investigating authority to undertake a "progressive search" to
identify a compa rable commercial loan, so as to identify the proper benchmark, for an allegedly
subsidized loan.25 The Commission failed to conduct such a progressive search. It failed to make
any effort to identify a comparable commercial loan; it failed to acknowledge th at Novatex
submitted a number of commercial loans it had itself concluded, by way of identifying the proper
commercial interest rate benchmark, much less explained why it did not use these loans. All of the
EU's statements on this point before the Panel are impermissible ex post rationalizations.

4.21. The Commission also violated Article 14(b) because it applied the KIBOR, which is a blend of
interest rates for tenors of up to 3 years, which is much shorter than the 7.5 years under
Novatex's LTF -EOP loan s. The Commission failed to explain why, these differences
notwithstanding, the KIBOR was not only an appropriate interest rate benchmark, but also was
better than any other commercial interest rate benchmark available to the Commission.

4.22. With respect to the EU's procedural objection that the requirement to "explain" is contained
only in the chapeau of Article 14(b), the requirement to provide a reasoned and adequate
explanation permeates most of the substantive disciplines of the SCM Agreement. This explanation
is the vehicle by which an investigating authority demonstrates compliance with its substantive
obligations, including that under Article 14(b). In the absence of any explanation of, for instance,
how the authority identified, or sought to iden tify a comparable commercial loan, there is no basis
for a WTO panel to find that the authority acted consistently with its obligations.

4.8 Conclusion and request for findings
4.23. For all of the above reasons, Pakistan requests that the Commission has acted inconsistently
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail
in paragraph 6.101 of Pakistan's first written submission.26

25 Appellate Body Report, US – AD/CVD (China), para. 486.
26 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the
SCM Agreement.

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5. THE COMMISSION'S CAU SATION ANALYSIS IS I NCONSISTENT WITH ART ICLE 15.5
OF THE SCM AGREEMENT
5.1. Pakistan submits that the analysis of the existence of a "causal link" between the subject
imports and the alleged injury to the domestic industry is inconsistent with Article 15.5 of the
SCM Agreement. Pakistan's allegations are two-fold in this respect.

5.1 The Commission's approach to causation is inconsistent with Article 15.5 of the
SCM Agreement
5.1.1 The Commission's finding of a causal link conflated the distinct analytical steps in
Article 15
5.2. The Commission's causation analysis conflated the distinct analytical steps that an
investigating authority is required to follow under Article 15. In this respect, the Appellate Body
has observed that there is a "logical progression" in paragraphs 2, 4 and 5 of Article 15. 27
Article 15.2 enquires into the effects of the subject imports on the prices of the domestic product,
notably whether such effects take the form of significant price undercutting, price depression or
price suppression. Article 15.4 requires an assessment of the r elationship between the subject
imports and the state of the domestic industry. Finally, and importantly, Article 15.5 requires an
enquiry into the relationship between the subject imports and the injury to the domestic industry.

5.3. In the challenged De terminations, the Commission found, as an initial matter, that the
volumes of the subject imports had increased over the PoI 28, and that the subject imports had
undercut the prices of the EU producers. 29 Moreover, the Commission found that certain indicators
of the domestic industry's performance showed a modest decline, while others showed a
deterioration.30 Turning to its causation analysis, the Commission recalled its finding that the
subject imports had undercut the prices of the EU producers. On that basis, alone, the Commission
found that "a causal link exists between those imports and the Union industry's injury". 31 Finally,
the Commission assessed whether the other known factors were capable of "breaking the causal
link" previously found.32

5.4. The Comm ission's causation analysis thus conflated the "logical progression" set out in
Articles 15.2, 15.4 and 15.5. Particularly, the Commission assumed that its finding of the effects of
the subject imports on the prices of the domestic product (price undercutt ing) constituted, without
more, a causal link between the subject imports and the injury. By so doing, the Commission
conflated the analysis required under Article 15.2 with that required under Article 15.5.

5.5. Pakistan recalls the Appellate Body's und erstanding of the "logical progression" set out in
Article 15 of the SCM Agreement to the effect that the outcome of the analyses under Articles 15.2
and 15.4 are not dispositive, but rather "form the basis", of the subsequent causation analysis
under Article 15.5.33 In other words, the findings under Articles 15.2 and 15.4 do not automatically
lead to the conclusion that there exists a causal link between the subject imports and the injury to
the domestic industry within the meaning of Article 15.5 of the S CM Agreement. Rather, under
Article 15.5, an investigating authority is required to assess whether, through the effects of the
subsidies (the effects previously found under both Articles 15.2 and 15.4), the subject imports are
causing injury.

5.6. As sho wn below, by conflating the distinct analytical steps in Article 15, the Commission
prejudged its causation analysis.

27 Appellate Body Report, China – GOES, para. 128.
28 Preliminary Determination, recital 211. Exhibit PAK-1.
29 Preliminary Determination, recital 217. Exhibit PAK-1.
30 Preliminary Determination, recital 239. Exhibit PAK-1.
31 Preliminary Determination, recital 245. Exhibit PAK-1.
32 Preliminary Determination, recitals 246-261. Exhibit PAK-1.
33 Appellate Body Report, China – GOES, para. 149.

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5.1.2 The Commission's finding of a "causal link" prior to assessing the effects of "other
known factors" is inconsistent with Article 15.5
5.7. The Appellate Body has laid out a three -step analysis of causation. First, an investigating
authority must ensure that "the injurious effects caused to the domestic industry by increased
imports are distinguished from the injurious effects caused b y other factors".34 In "separating and
distinguishing"35 the effects of these other factors from those of the subject imports, an
investigating authority must provide a "meaningful explanation of the nature and extent of the
injurious effects".36 Second, once the effects of all factors, including those of the subject imports,
are separated and distinguished, an investigating authority must "attribute to increased imports,
on the one hand, and, by implication, to other relevant factors, on the other hand, 'inju ry' caused
by all of these different factors, including increased imports". 37 Third, an investigating authority
must determine, based on the proper attribution of the injury, whether "a causal link" exists
between the subject imports and the injury to the d omestic industry —that is, "a genuine and
substantial relationship of cause and effect between these two elements".38

5.8. The Commission's approach to finding, first, a "causal link" between the subject imports and
the alleged injury, and then ascertaining whether other factors could "break the causal link" is
inconsistent with Article 15.5 and with the three -step causation analysis laid out by the Appellate
Body. The Commission should in the first place have separated and distinguished the injurious
effects of all the relevant factors including those of the subject imports. Having properly separated
and distinguished all such effects, the Commission should then have attributed to the subject
imports the actual injury that they were causing. This analysis is what Pakistan called a
"simultaneous analysis" in response to Panel Question No. 73. Finally, only once the Commission
had attributed the actual injury caused by the subject imports, would it have been in a position to
determine whether a "causal relation ship" between these elements existed. Importantly, a finding
of causation required ascertaining, not any causal link however remote or insignificant, but a
"genuine and substantial relationship of cause and effect" between the subject imports and the
alleged injury to the domestic industry.39

5.9. Accordingly, the finding of a "causal link" should have been made at the third step of the
causation analysis. Yet, by making this finding upfront, the Commission prejudged its later
non-attribution analysis. By the time it turned to the analysis of the other factors, the Commission
had already found a "causal link" by virtue of its earlier finding of significant price undercutting.
Pakistan questions how under this approach the Commission could ever find that an " other factor"
could undo its earlier finding of the existence of a causal link between the subject imports and the
injury to the domestic industry.

5.2 The Commission's analysis of "other factors" is inconsistent with Article 15.5
5.10. The methodological flaws explained above prejudged, and rendered meaningless, the
Commission's non-attribution analysis of at least four "other factors".

5.11. First, in the case of the imports from Korea, the Commission merely pointed out that "it
cannot be excluded" that these imports "contributed to the injury suffered by the Union industry".
The words "cannot be excluded" amount to no more than a speculative statement made without
any effort to probe the nature and extent of the contribution of those factors to the all eged injury.
Instead, the Commission should have assessed the injurious effects of the price undercutting of
Korean imports. In principle, there is no reason to exclude the proposition that this price
undercutting had a downward effect on domestic prices s imilar to that of the effects of the subject
imports, all the more so when (1) both imports from Korea and the subject imports had similar
market shares during the PoI; and (2) imports from Korea grew by almost 150% during the same
period. If the Commission believed that the price undercutting by the Korean imports did not have
the same injurious effects as the price undercutting by the subject imports, it should have found
so explicitly, following an appropriate analysis and explanation. Accordingly, the C ommission's

34 Appellate Body Report, US – Wheat Gluten, para. 69.
35 Appellate Body Reports, US – Hot – Rolled Steel, para. 228; and US – Wheat Gluten, para. 68.
36 Appellate Body Reports, US – Pipe Line, para. 215; and US – Lamb Safeguard, para. 186.
37 Appellate Body Report, US – Wheat Gluten, para. 69.
38 Appellate Body Report, US – Wheat Gluten, para. 69.
39 Appellate Body Report, US – Wheat Gluten, para. 69.

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analysis of the imports from Korea cannot constitute a "meaningful explanation of the nature and
extent of [its] injurious effects".

5.12. Second, in the case of the 2008 economic downturn, the Commission stated that, regardless
of its nature and extent, any injury it caused was in any event "exacerbated by the increased
subsidised imports from the countries concerned, which undercut the prices of the Union
industry".40 Thus, the Commission based its dismissal of this factor on its previous pric e
undercutting finding. In other words, regardless of the magnitude of the injurious effects of the
2008 economic downturn on the domestic industry, this factor could never have been sufficient to
break the causal link, as the Commission had already found the alleged price undercutting of the
subject imports. Importantly, The Commission failed to explain what "exacerbate" means and the
extent to which the subject imports "exacerbated" the negative effects of the 2008 economic
downturn. This question remaine d unresolved because the Commission did not separate and
distinguish the injurious effects of the 2008 economic downturn from those of the subject imports.
Moreover, the Commission partly dismissed the 2008 economic downturn on the grounds that the
EU indu stry had suffered injury prior to 2008. This statement was unsubstantiated because its
injury finding was by reference to the period 2008 -June 2009. Thus, the Commission's statement
that the EU industry was suffering injury prior to 2008 lacked supporting analysis. It is all the
more puzzling since a large number of injury indicators actually showed a positive performance up
to 2008 and it was only then that they began to languish.

5.13. Third, in the case of low prices of crude oil, the Commission again recognized the (at least
potential) negative effects of this factor on the domestic industry. However, it did not separate and
distinguish these effects, or provide a "meaningful explanation of the nature and extent of [its]
injurious effects".41 It merely dismissed this "other factor" by recalling its previous finding that the
subject imports undercut the prices of the EU producers. The Commission thus failed to ascertain
the extent of the impact of this factor, if any, on the domestic industry. In fact, it recognized that
prices of PET depend to some extent on prices of crude oil, but failed to address the argument that
low prices of PET in the EU were a function of the low prices of crude oil. Rather, it gave an off -
the-point explanation about the volatility of world prices and how this cannot explain "why imports
of PET were subsidised and therefore undercut the Union producers' prices".42

5.14. Fourth, the Commission should have addressed the reasons why a part of the EU industry,
which did not cooperate, improved their performance from 2008 to the end of the PoI. This period
coincided with the contraction of global demand and with the expansion of the EU demand. It is at
least intriguing that the subject imports only affected one part of the EU industry ( those
supporting the investigation), whereas the other part of the EU industry (those not supporting the
investigation) showed a positive performance from 2008 to the end of the PoI. The Commission
failed to explain why a certain part of the overall domest ic industry was able to recover market
share and sales from 2008 to the end of the PoI, while another part of the same domestic industry
experienced injury during the same period.

5.3 Conclusion and request for findings
5.15. For the reasons set out above , Pakistan requests the Panel to find that the causation
analysis in the challenged Determinations is inconsistent with Article 15.5 of the SCM Agreement.

6. PAKISTAN'S CLAIM UND ER ARTICLE 12.6 OF T HE SCM AGREEMENT REG ARDING THE
RESULTS OF THE VERIFICATION VISIT
6.1. Pakistan claims that the European Union has acted inconsistently with its obligation under
Article 12.6 of the SCM Agreement, because it failed either to make the results of the verification
visit to Novatex available or to provide disclosure thereof as part of the disclosure of essential facts
under Article 12.8.

6.2. Article 12.6 requires the investigating authority to provide the companies subject to a
verification visit with the "results" of these verification visits. It provides, in relevant part:

40 Preliminary Determination, recital 254. Exhibit PAK-1.
41 Appellate Body Report, US – Lamb, para. 186.
42 Definitive Determination, recital 118. Exhibit PAK-2.

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Subject to the requirement to protect confidential information, the authorities shall
make the results of any such investigations available , or shall provide disclosure
thereof pursuant to paragraph 9, to the firms to which they pertain and may make
such results available to the applicants.
6.3. Article 12.6 thus requires the investigating authority to disclose the "results" of the
verification visits, by means of one or other of two different avenues: the investigating authority
may either (i) "make available" a separate report containing the results of the verification visits, or
(ii) "provide disclosure" of the results as part of the disclosure of the essential facts under
Article 12.8. Regardless of which avenue is chosen, however, the inves tigating authority must
disclose the same thing – the "results" of the verification visit.

6.4. The term "result" is defined, in relevant part, as "a thing that is caused or produced by
something else; a consequence or outcome". 43 In US – Steel Safeguards, the Appellate Body has
stated that the term "result" is to be read as "an effect, issue, or outcome from some action,
process or design".44 The "result" of any given activity is closely linked to the conduct, content and
the purpose of that activity. Thus, the "result" of a verification visit is closely linked to the conduct,
content and purpose of that verification visit. Annex VI(7) of the SCM Agreement defines the
purpose of a verification visit as to "verify the information provided or to obtain further details". As
noted, the purpose, conduct, and content of a verification visit is to verify the information provided
by the investigated firms in their questionnaire responses and to enable the investigating authority
to obtain, and the investigated export er to provide, additional information or explanations
regarding the exporter's submitted questionnaire responses.

6.5. In the normal course of events, during a verification visit, an investigating authority will
request the investigated company to provid e access to its accounting system and other records,
including all of the worksheets and source documents used to prepare the questionnaire
responses. During the verification visits, the investigating authority normally reviews these
documents and cross -checks them against the data provided in the questionnaire responses. The
investigating authority also uses the opportunity to clarify any areas of doubt regarding the
contents of the questionnaire responses. As part of this process, the investigating author ity may,
for instance, request access to an entire category of documents or data or focus on certain specific
documents.

6.6. It is important to note here that the investigating authority normally does not take any final
decisions during the verification as to how the verification will affect the investigating authority's
determinations of subsidization and injury in the investigation until they have returned home and
had the opportunity to consult with their superiors and other colleagues on any issues a rising
during the verification. The verification is, therefore, in essence a fact -gathering and a fact -
checking exercise. The results of this exercise, therefore, relate to what facts have been gathered
and checked and, by implication, what facts have not been gathered or checked. However, the
results of the verification do not include any subsequent determinations by the investigating
authority as to how to use the results of the verification, and other items in the record, to calculate
subsidization margi ns for the exporter in accordance with the SCM Agreement. The subsequent
decision how to determine the subsidization margins is the result of the investigation, not the
result of the verification.

6.7. Thus, the results of a verification visit are reflected in the investigating authority's choices as
to (i) which information to look at; (ii) why it looks at that information and (iii) whether it is
satisfied during the verification that a given specific piece of information or document was
successfully verified. However, the results of the verification may also include information that was
provided and substantiated by the exporter, but that the investigating authority did not
immediately consider relevant to its final determination. This is precisely the conclusion reached by
the panel in Korea – Certain Paper, which stated that "results" of verifications include "adequate
information regarding all aspects of the verification , including a description of the information
which was not verified as well as of information which was verified successfully".45

43 Oxford English Dictionary Online, available at
http://oxforddictionaries.com/definition/english/result?q=result
44 Appellate Body Report, US – Steel Safeguards, para. 315. (original emphasis)
45 Panel Report, Korea – Certain Paper, para. 7.192. (emphasis added)

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6.8. A clear reporting of the results of the verification is essential to enable the exporter to
structure its case for the rest of the investigation. Pursuant to Annex II(3) of the
Anti-Dumping Agreement, which applies by analogy under the SCM Agreement 46, all information
that is "verifiable" and submitted in timely and usable fashion, must be taken into account by the
investigating authority. The investigating authority is "not entitled to disregard the submit ted
information and use information from another source to make the determination." 47 This means
that any information that is verifiable – which includes information that has actually been verified
by the investigating authority – must be taken into consideration by the investigating authority.

6.9. In addition, the ability of domestic courts (using their own standard of review) and of WTO
panels (using the standard of review pursuant to Article 11 of the DSU) to review the
determinations of investigating authorities depends on the existence of a proper disclosure of the
"results" of the verification visit under Article 12.6 of the SCM Agreement. A failure to disclose the
results of the verification, or an incomplete disclosure, will thus significantly unde rmine a domestic
court's or WTO panel's ability to examine, in a "critical and searching" fashion, the establishment
and evaluation of the facts by the investigating authority.

6.10. In the investigation at issue, the Commission failed to disclose the re sults of the verification
visit. To the extent it made an effort to comply with the requirements of Article 12.6, in this case
the Commission opted to disclose the results of the verification via the disclosure of essential facts
under Article 12.8. However, the Commission's disclosures contain no information of what occurred
during the verification visit and which topics, other than the MBS, the Commission discussed with
the investigated company, even though the Commission had provided the exporter with an
extensive list of topics to be verified. However, there is no information whatsoever about
verification on any of these issues other than the Manufacturing Bond Scheme. Hence, the EU has
failed to provide any information on the results of its verification concerning all these other issues.

6.11. Beyond the list of exhibits collected at verification, the EU disclosed no information on the
conduct of the verification visit, or any corrections or rectification of the information contained in
the Questionnaire Response. The EU has not disclosed which particular aspect of these documents
was discussed, for what purpose, or whether the Commission considered the data and information
contained in this document to be verified or verifiable.

6.12. In its submissions, the EU attempts to conflate the concept of the results of the verification
with the results of the investigation. In its opening statement at the first meeting of the Panel with
the parties, for example, the EU explained that the results of the verifi cation were the facts that
the investigating authority had decided to include in the essential facts disclosure as those on
which it intended to base its final determination.

6.13. This approach would deprive exporters of their rights and ability to defen d themselves.
Under this approach, the results of the verification would be only those the investigating authority
subjectively considers to be important or to support its final determination. The results of the
verification would not include outcomes of t he verification to which the exporter may attach
greater importance than the investigating authority or outcomes on which the exporter thinks the
investigating authority should base its final determination. This would undermine the exporter's
ability to ob tain review of the investigating authority's determination in domestic courts and the
exporting Member's ability to obtain review from a WTO panel.

6.14. The results of the verification and the results of the verification are not the same thing. The
SCM Agreement imposes separate legal obligations governing each of these concepts. Effect must
be given to these textual differences in the references to the results of the verification and the
disclosure of the essential facts.

6.15. Moreover, these are also different concepts from a practical point of view. Pakistan has also
provided to the Panel examples from both this particular investigation and a generic or
hypothetical cases illustrating how the EU's conflation of the results of the verification with th e
results of the investigation would negatively affect the ability of interested parties to defend their
interests, both in this investigation and more generally. These examples make clear that disclosure

46 See Appellate Body Report, Mexico – Rice, paras. 290 – 295.
47 Panel Report, EC – Salmon (Norway), para. 7.383 (see also Ibid., para. 7.347). Panel Report, US –
Steel Plate, para. 7.57.

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of the essential facts of the investigation does no t, in itself, satisfy the EU's obligation to provide a
clear and objective disclosure of the results of the verification.

6.2 Conclusion and request for findings
6.16. For the reasons set out above, Pakistan requests the Panel to find that the EU's failur e to
disclose the results of the verification visit is inconsistent with Article 12.6 of the SCM Agreement.

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ANNEX C-2
SECOND INTEGRATED EXECUTIVE SUMMARY OF PAKISTAN
1 INTRODUCTION AND OVERVIEW
1.1. In this dispute, Pakistan challenges several aspects of the EU's Determinations in a CVD
investigation concerning polyethylene terephthalate (PET) from, inter alia, Pakistan. Pakistan's
claims concern various aspects of the subsidy determination, the causation analysis, as well as the
lack of disclosure of verification results.
1.2. This executive summary summarizes Pakistan's submissions since the filing of Pakistan's
responses to the Panel's first set of questions, that is, Pakistan's second written submission,
Pakistan's opening and closing statements at the second meeting of the panel with the parties,
Pakistan's responses to the Panel's second set of questions, and Pakistan's comments on the EU's
responses to the Panel's second set of questions.
2 PAKISTAN'S ARGUMENTS UNDER ARTICLE 6.2 OF THE DSU
2.1. The EU has "confirm[ed] that it no longer objects to Pakistan's claim under the chapeau of
Article 14 of the SCM Agreement with respect to the LTF -EOP programme". The EU nevertheless
claims that, to the extent that Pakistan argues that "the determinations at iss ue fail to properly
explain e.g. its reasons for not using certain private loan information", the claim "would pertain to
the obligations in Article 22 of the SCM Agreement, which Pakistan has decided not to pursue in
this case".1 However, this reflects a disagreement that boils down to the applicability of Article 14
of the SCM Agreement. This is an issue that goes to the merits and not to the Panel's jurisdiction.
2.2. The EU also continues to insist that the reference to Article VI of the GATT 1994 in Pa kistan's
panel request is not sufficiently precise so as to be a reference to Article VI:3. However, based on
the description of Pakistan's claim in the panel request, the only conceivably relevant sub -
paragraph of Article VI could be sub -paragraph 3. Paki stan has also listed a large number of
disputes in which a reference to Article VI of the GATT 1994 was deemed to be sufficient as a
reference to Article VI:3. None of these disputes has been addressed by the EU.
2.3. Next, contrary to the EU's arguments, Pakistan's reference to Article 32 of the
SCM Agreement can only be read as a reference to Article 32.1. The EU argues that Pakistan's
claim could also have fallen under Articles 32.5 and 32.6, because "Pakistan could have claimed
that the Commission appli ed a method that was not foreseen in its municipal law and, thus, its
administrative procedures were not in accordance with the SCM Agreement". 2 But the narrative
description in the panel request makes clear that Pakistan did not make that claim. Rather, t he
explanation is clear that Pakistan takes issue with the "specific action against a subsidy of another
Member" within the meaning of Article 32.1 of the SCM Agreement. Consequently, the reference to
Article 32 unequivocally means Article 32.1 of the SCM Agreement. Upholding the EU's objection
would erroneously elevate form over substance.
2.4. Finally, the EU continues to argue that Pakistan's claim under Article 12.6 was not sufficiently
clear, because Pakistan did not indicate which of the two options u nder Article 12.6 Pakistan
considers the EU did not satisfy. The EU continues to argue that Article 12.6 contains two separate
obligations, which are "alternatives", and that Pakistan was aware that the EU would argue that it
opted for the second "alternative" (disclosure of the verification results together with the essential
facts disclosure), but failed to specify this "alternative" in the panel request.
2.5. The EU misunderstands the structure of Article 12.6. Article 12.6 contains two alternative
"pathways" for achieving compliance with an overarching obligation. These two pathways are not
two "separate obligations", because neither has to be complied with if the other has been complied
with. Moreover, from a practical perspective, a complainant cannot know in advance which of the

1 EU's response to Panel Question No. 13, para. 5.
2 EU's response to Panel Question No. 15(b) para. 10.

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two options the defendant will argue it took and complied with; indeed, the defendant may argue,
as the EU has overtime done in this case, that it used both options. The EU now argues that
disclosure of verification results occurred not only through the "essential facts" disclosure, but also
at or after verification in the form of the list of documents collected during verification, that is,
outside the context of the essential facts disclosure.
2.6. The EU's view is also unten able because the complainant may also have incomplete
information, since disclosure of verification results may occur through confidential,
company-specific documents. In any event, under the EU's approach, a complainant would argue
that both alleged "obli gations" have been violated, which would effectively be the same as
Pakistan has done in this case, and would not provide any greater level of information to the
defendant.
3 PAKISTAN'S CLAIM CONCERNING THE MANUFACTURING BOND SCHEME (MBS)
3.1 Introduction
3.1. The EU acted inconsistently with Articles 1.1(a)(1)(ii), 1.1(b), 3.1(a), 10, 19.1, 32.1 and
Annexes I(i), II(II) as a whole, II(II)(1) and II(II)(2) of the SCM Agreement, as well as
Article VI:3 of the GATT 1994. The core of the issue is that the EU i ncorrectly determined that a
subsidy existed in the form of the totality of the duties drawn back/remitted, rather than only the
excess drawback/remission, if any. Moreover, in reaching that incorrect determination, the EU
failed to observe the prescribed analytical process set out in Annexes II and III of the
SCM Agreement and violated a number of other related requirements enshrined in the above -
mentioned provisions.
3.2 A duty drawback scheme gives rise to a subsidy only if there is an excess drawback
3.2. The EU continues to deny that a subsidy under a duty drawback/remission scheme within the
meaning of Footnote 1 and Annex I(i) to the SCM Agreement can exist only if there is an excess
drawback or remission. As before, the EU argues that Footnote 1 des cribes a "situation" – that is,
a situation in which a duty drawback system and the monitoring system under that system is to
the liking of an investigating authority – and if that situation is found to exist, only an excess
drawback will constitute a subs idy. If the monitoring system does not please the investigating
authority, the alleged "carve-out" does not apply. In contrast, Pakistan continues to argue that this
is not what Article 1 and footnote of the SCM Agreement state. The limitation of a financi al
contribution to the "excess" only, as opposed to the entirety of the drawn -back duties, is not
conditional on anything. Rather, it is the definition of this type of subsidy.
3.3. The EU views the limitation of a financial contribution/subsidy to the excess drawback (as
opposed to the totality of the drawback) as some kind of a privilege for the exporting Member that
must be earned. The exporting Member enjoys the privilege only if the exporting government's
monitoring system is to the satisfaction of th e investigating authority. As the key element of this
argument, the EU points to the "[i]n accordance with" phrase in Footnote 1 and argues that this
clause is to be read, effectively, as " [i]f the duty drawback scheme is in accordance with ". Only if
that is the case should the remainder of the Footnote 1 apply. Otherwise, the totality of the drawn-
back duties constitutes the financial contribution.
3.4. Pakistan has provided extensive arguments, including numerous references to other WTO
provisions, to ref ute the EU's position. Pakistan has referred to no less than 15 provisions
throughout the covered agreements that demonstrate that the EU's reading of Footnote 1 is
incorrect. These include provisions that use an "in accordance with" clause like that in Fo otnote 1
that have a meaning different from the meaning postulated by the EU. Moreover, the provisions
listed by Pakistan demonstrate that, where the drafters wished to express the kind of reading
proposed by the EU, they used different formulations. The P anel has explicitly asked the EU to
respond to these arguments. However, the EU has not addressed a single one of the provisions
listed by Pakistan. Instead, the EU merely asserts that Pakistan draws an "artificial distinction"
between provisions that cont ain a condition and other types of provisions. What the EU labels
"artificial distinction[s]" are, however, essential steps in the process of treaty interpretation under
the Vienna Convention on the Law of Treaties.

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3.5. Pakistan notes that the EU has also so far not provided any response to Pakistan's argument
that Annexes II and III apply only in CVD investigations and not in a direct subsidy challenge in
the WTO; that Annexes II and III contain obligations on the investigating authority, compliance
with which the exporting Member has no control of; and that Footnote 1 refers, in part, to
definitional provisions. It is not clear how a WTO panel can be said to act consistently or
inconsistently with definitional provisions. The EU's reading of Footnote 1 is convoluted and leads
to logical impasses.
3.6. The EU's interpretation of the footnote also continues to ignore the fundamental historical
context of the principle that only the "excess" drawback can constitute a subsidy, including the
Report of the Work ing Party on Border Tax Adjustments. This Report and the Illustrative List of
Export subsidies, which dates from the 1960s, reveal that the limitation of a subsidy to an
"excess" drawback is a long -standing, decades-old principle in GATT law, as well as in the OECD
where the original Illustrative List was developed. The "excess" principle is enshrined in several
other items of the Illustrative List that address so -called indirect taxes or charges – that is,
charges imposed on products. These charges have hi storically been considered as eligible for
border tax adjustment. This is in contrast to so -called direct charges/taxes (e.g. income taxes or
social security charges), which are not eligible for border tax adjustment. For direct charges, any
exemption, rem ission or deferral are considered a subsidy – not just the excess drawback, as
shown by Annex I(e). These principles were never intended to be subject to qualifications of the
type the EU now postulates.
3.7. Moreover, the EU's argument would create an ine xplicable asymmetry in how the
SCM Agreement treats (finished) products and the inputs for those products. Annex I(g) refers to
indirect tax drawbacks or remissions on final products, whereas Annexes I(h) and I(i) refer to
indirect taxes or tariffs on inputs. However, for final products, there are no additional "guidelines"
like in Annexes II and III, presumably because determining the excess remission on those
products is a less complex determination. The EU's arguments would mean that the definition of a
subsidy as consisting of the excess would apply only sometimes for subsidies under Annex I(h)
and I(i) (namely, in situations of compliance with Annexes II and III), but would apply always for
subsidies under Annex I(g), because there is no Annex II and II I to comply with. There is no
logical reason for this difference, nor anything in the text or negotiating history of the Ad Note, the
documents concerning border-tax adjustments, or Footnote 1 to justify such a difference.
3.3 Pakistan was correct in brin ging a challenge to a financial contribution
determination and not a benefit determination
3.8. The EU continues to assert that Pakistan should have brought its claim under provisions
pertaining to the benefit calculation. The EU argues that "the excess re mission … amounts to a
financial contribution [under] Article 1.1(a)(1)(ii)", that "[t]his element is easy to be found" and is
binary (yes/no),3 whereas the determination of benefit involves determining a "quantum".
3.9. Pakistan does not doubt that the EU found it "easy" in this investigation to determine the
existence of a financial contribution, because it conveniently resorted to an unsupported
"assumption" rather than examining the extensive relevant record evidence before it. However, an
investigating authority that actually follows the SCM Agreement will not necessarily find it "easy"
to determine the existence of an excess. Similarly, it is not clear what the EU means by saying
that the question behind financial contribution "is not about its quantum, but about their (yes or
no) existence". That is not correct, because some financial contributions require the determination
of a "quantum". For instance, a grant of $ 0 is not a financial contribution; a grant of $ 1'000 is.
Similarly, it may not be true for other types of financial contribution, such as government revenue
foregone or a duty drawback scheme. This principle applies also in the context of duty drawback
schemes, where only the excess remission is a financial contribution. Here, an investigat ing
authority must compare the total amount of duties (definitively) drawn back with the amount that
the exporter was entitled to receive. The investigating authority must necessarily come up with a
"quantum" to determine the existence of a financial contribution.
3.10. As Pakistan has already explained, this means that indeed for some forms of financial
contributions, the benefit analysis is for all practical purposes a foregone conclusion. A grant of
$ 1'000 will virtually always result in a benefit that corresponds precisely to that amount.

3 EU's response to Panel Question No. 30, para. 24.

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3.4 The EU failed to examine relevant evidence, such as the documents contained in
Exhibit PAK-58
3.11. The EU also continues to argue that it was entitled to resort to an unsubstantiated
assumption or conclusion that the entirety of duties was an excess remission because there was no
reliable record evidence. However, in this investigation, the Commission had before it extensive
evidence submitted by Novatex in direct response to the Commission's explicit requests. Th is
evidence pertained to how Novatex traces its raw materials through the production process and
how individual specific export consignments are linked to specific import consignments of raw
materials; and how Novatex traces its actual consumption data, in order to perform annual
reconciliation exercises, to adjust for any difference between the "standard" input -output ratio and
actual output. Moreover, in the parallel anti -dumping investigation, the Commission also had
before it cost-accounting data that t racked separately raw inputs for, respectively, the production
of export products and the production of products for the domestic market.
3.12. There is no discussion whatsoever of this evidence in the Commission's determination.
Whatever the substantive merits of this evidence, the Commission could not ignore it without
providing a corresponding "reasoned and adequate" explanation. The entirety of the EU's
arguments on these matters before this Panel is inadmissible ex post facto rationalisations.
3.13. The EU also continues to point to the misgivings expressed by the investigating authority
about the use of the input/output ratio used by Novatex and the GoP as part of the MBS
management, to argue that the use of this ratio also means Novatex was unable to trace its
imported inputs throughout the production chain. That is incorrect, because one does not exclude
the other. The input/output ratio is very close to the actual consumption, and the variance
between the actual input/output ratio and the approved ( or "standard") analysis card ratio was
between 1% and 2%. Pakistan has made this point repeatedly, but the EU has never responded.
3.14. The practical reason, in layman's terms, why a producer such as Novatex might use a
standard input/output ratio is that the production process at issue involves pouring bags of various
raw materials into a melting pot, processing them, and pouring the end product out of the melting
pot. It is expected that there will be some wastage in the pouring, in the pot in terms of b urn off
or residue, and spillage when pouring the final product out of the pot. All of these residues,
spillages, and waste will be very small. It would not make business sense to measure them on a
bag-by-bag basis. This is precisely why businesses and gov ernments (including the GOP) use
input/output ratios. In these circumstances, the Commission should have relied on Novatex's
actual production records and accounting records and systems, to determine whether an excess
remission occurred. The Commission cou ld have easily done this based on the ample information
provided by Novatex to the Commission in respect of actual consumption ratios that were
achieved.
3.15. Moreover, the use of standard costs/costing ratios that are converted to actual costs by
means of a variance is a standard accounting practice with which the Commission is very familiar.
Pakistan has provided two examples of EU antidumping determinations in which normal value was
constructed on the basis of standard costs. In contrast, in this case, the Commission failed to
review or consider the same type of information.
3.5 The EU failed to apply facts available
3.16. The EU was not entitled to reject the manifold record evidence that was presented by
Novatex and that would have enabled the Commis sion to approximate the excess drawback. Even
if the EU had been entitled to do so, it should have provided an explanation for why the
information was deemed to be unreliable.
3.17. An investigating authority in a trade remedy investigation, including in a CVD investigation,
is required to make its determinations on the basis of record evidence. The record evidence
consists primarily of data and information submitted by the investigated companies and other
interested parties, as well as of data and informa tion collected by the investigating authority itself.
The rules of evidence, including on the conditions under which an investigating authority may
depart from evidence submitted by an investigated party and instead use other evidence, are
practically the same under the Anti -Dumping Agreement and under the SCM Agreement. The

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Anti-Dumping Agreement contains detailed rules in Annex II concerning the use of facts available.
The Appellate Body has found that these rules in Annex II of the Anti -Dumping Agreement apply –
by analogy – also under the SCM Agreement.
3.18. Annex II(3) of the Anti -Dumping Agreement defines the conditions under which submitted
information must be taken into account. To the extent that the authority wishes to depart from the
evidence submitted by an investigated company, Annex II(6) sets forth specific rules, in particular
that the investigating authority inform the company and provide it with an opportunity to provide
further explanations.
3.19. In this investigation, the Commission had before it extensive evidence submitted by Novatex
in direct response to the Commission's explicit requests. This evidence pertained to, for instance,
how Novatex traces its raw materials through the production process and how individual specific
export c onsignments are linked to specific import consignments of raw materials; and how
Novatex traces its actual consumption data, in order to perform annual reconciliation exercises, to
adjust for any difference between the "standard" input -output ratio and act ual output. In the
parallel anti-dumping investigation, the Commission also had before it cost -accounting data that
tracked separately raw inputs for, respectively, the production of export products and the
production of products for the domestic market.
3.20. There is no discussion whatsoever of this evidence in the Commission's determination. There
is not even an acknowledgement that this evidence had been submitted. The EU was, first and
foremost, obliged to use the record evidence before it supplied by the investigated company. If the
EU considered this information unreliable, it was required to explain the reasons therefor to the
company, provide the company with the opportunity to provide further explanation and then make
a final decision concerning th at evidence. This deliberative process must be discernible from the
authority's determination and explanation.
3.21. Only if the investigating authority has, in this process, properly determined that the data and
information supplied by the investigated co mpany was unreliable, can the investigating authority
have recourse to facts available, e.g. second -source information. However, even then the
investigating authority cannot, in principle, resort to unwarranted "assumptions" without any
evidentiary support and must seek, to the greatest extent possible, to rely on some evidence for
its determination.
3.22. In this investigation, the EU failed to explain why it could not use the information and data
provided by Novatex. Even assuming that the EU would have b een entitled to reject Novatex'
record evidence, the EU would then have to apply the best other information available, rather than
jumping to an unwarranted "assumption" that the totality of the duties constituted a subsidy.
3.6 The EU failed to provide th e Government of Pakistan with an opportunity to conduct
the "further examination"
3.23. An investigating authority has the obligation to structure its investigation such that there is
an effective opportunity for the exporting government to conduct the "fu rther examination". At the
very minimum, the investigating authority cannot make statements – like the Commission did in
this investigation – that require the exporting government to do the impossible and that effectively
signal to the exporting Member tha t the investigating authority is not interested in any such
"further examination" or the results thereof.
3.24. The Commission found that Pakistan had "failed" to conduct the "further examination", even
though logically this was impossible for Pakistan to have done so prior to being informed about the
Commission's decision on the monitoring mechanism. The EU now tries to imply that Pakistan
should have known before the Provisional Determination that its monitoring mechanism would be
found deficient. This argument should, of course, be rejected because it was only in the Provisional
Determination that the Commission determined that the monitoring system was inadequate. The
EU also repeatedly points to the Government of Pakistan's effort to convince the EU of the merits
of its monitoring regime, as if that somehow proved that Pakistan was not willing to conduct the
"further examination". Clearly, Pakistan would have done so had the Commission given it a proper
opportunity to do so and informed it of what was needed.

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3.25. An investigating authority has a duty, analogous to Article 12.1 of the SCM Agreement (and
for instance Annex II(1) to the Anti -Dumping Agreement), to provide certain information to the
exporting Member explaining what information is required, in which format, how the further
examination was to be conducted and within which timeframe. This is because the required scope
of the "further examination" will vary on a case -by-case basis. For instance, the precise scope of
the investigation could depe nd on the precise deficiencies that have been found in the monitoring
system; the authority may be required to point to precise aspects or elements of the "actual
inputs" or "actual transactions" that should be examined; the exporting Member might require
access to some of the confidential information that the investigated exporters have provided to the
investigating authority, but that the exporting Member does not have. The investigating authority
might also have to provide the relevant information to the investigated company. The due process
rights of an investigated company – whether it is access to information, the ability to request
hearings, the ability to submit evidence, etc. – must be safeguarded also in the context of the
"further examination". Fi nally, the "further examination" might require the exporting Member to
consider documents or information of the investigated company that have not been previously
submitted, either with the Questionnaire Response or in subsequent stages of the investigation.
3.7 The EU's arguments about the alleged unreliability of Novatex's records and
bookkeeping
3.26. The EU also continues to argue that Novatex's records and data were unreliable and
therefore could be rejected whole -sale by the Commission. These argumen ts are an ex post facto
explanation provided by the EU in these proceedings. The EU also appears to argue that, because
it ruled that the monitoring mechanism was inadequate and unreliable, this implicitly also meant
that all information and data provided by Novatex was also inadequate and unreliable. However,
real or perceived deficiencies in a monitoring scheme say nothing about the reliability of a
company's data and records. Moreover, the drafters of Annexes II and III clearly considered that,
as a general rule, a company's records remain a reliable source of information even if a monitoring
scheme is considered to be deficient. Finally, the rules on the use of facts available require a clear
statement by the investigating authority to the affected compa ny as to why information is not
deemed reliable.
3.27. The Commission's refusal to engage with the evidence provided by Novatex, to analyse that
evidence and – at the very least – to explain why this information could not be used or deemed
reliable, is particularly inappropriate in this particular investigation where Novatex's data
addressed the alleged problems in the monitoring system. Even assuming for a moment that the
Commission's misgivings about the input/output ratio are justified, these concerns sh ould have
been addressed – at least in principle – by the record evidence regarding the company's actual
consumption data. In any event, as demonstrated by Exhibit PAK -58, Novatex provided records
showing how it could trace a given set of raw materials throughout the production chain.
3.8 Pakistan's approach to Footnote 1 and Annexes II and III does not create a risk of
abuse by exporting governments nor impose an "unreasonable burden" on investigating
authorities
3.28. The EU is also incorrect in arguing t hat its approach to Footnote 1 and Annexes I through III
is the only manner to avoid abuse by exporting governments or individual companies, or that
Pakistan's approach would impose an undue burden on the investigating authorities. Under
Pakistan's approac h, an investigating authority can always ensure that inadequately monitored
duty drawback schemes do not enjoy the presumption created by Annexes II and III (namely, the
presumption that an adequately monitored regime does not give rise to an excess drawba ck).
Indeed, even upon a finding that a monitoring mechanism is adequate, an investigating authority
may still proceed to examine the exporting company's records to determine whether an excess
exists, as the EU itself argues. Thus, when an investigating au thority finds that the monitoring
mechanism is inadequate and then examines the company's own records, it is merely doing what
it could/should be doing in any event. Thus, no new burden or requirement is imposed on the
investigating authority.
3.29. In other words, the investigating authority is simply asked to proceed like it would in any
other CVD, anti -dumping or safeguard investigation. It must base itself on record evidence
provided by interested parties. Depending on the circumstances, the investigati ng authority may
be required to become active and gather evidence on its own. Of course, in the case of duty -

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drawback schemes, the authority must additionally observe the supplementary rules that the
drafters chose to include in the SCM Agreement. But at t he same time, the investigating authority
enjoys the same rights that it has in any trade remedy investigation. It can reject evidence and
data as unreliable if they so are, in accordance with the applicable rules of evidence and subject to
the requirement of providing a transparent, reasoned and adequate explanation. This also means
that the authority can resort to facts available, in order to remedy any data deficiencies.
3.9 Request for findings
3.30. For all of the above reasons, Pakistan requests the Panel to find that the Commission has
acted inconsistently with its multilateral obligations under the SCM Agreement and the GATT 1994,
as set out in detail in paragraphs 5.133 to 5.135 of Pakistan's first written submission.4
4 PAKISTAN'S CLAIM CONCERNING THE LTF-EOP PROGRAMME
4.1. The EU violated Articles 1.1(b), the chapeau of Article 14, Article 10, 14(b), 19.1, and 32.1 of
the SCM Agreement, and Article VI:3 of the GATT 1994, because it applied a single (and ill -suited)
commercial interest rate benchma rk to Novatex's multi -tiered LTF-EOP loan, because it failed to
explain the application of the methods enshrined in its domestic law and because it failed to
analyse whether a comparable commercial loan existed in order to calculate the amount of the
subsidy.
4.1 The structure of the LTF-EOP loan
4.2. The structure of the LTF -EOP loan is described in Pakistan's first integrated executive
summary.
4.2 The EU's defence has shifted multiple times throughout these proceedings
4.3. The EU's defence against Paki stan's claim has changed several times since Pakistan filed its
first written submission. At first, the EU argued that it did not countervail the entirety of the
outstanding loan amounts , but rather only the amounts drawn down during the PoI . During the
first panel hearing, the EU then argued that it had known all along that it had based its
calculations on the full outstanding amount, that is, including pre -PoI amounts, and not only the
amounts actually drawn down during the PoI. However, according to the EU, the Commission was
nevertheless entitled to apply the interest rate prevailing during the PoI, because Novatex's loan
was akin to a "line of credit", rather than a standard fixed rate loan. Then, in its Responses to the
Panel's questions, the EU change d its arguments again and argued that that it considered the
amounts reported by Novatex to have been exclusively amounts drawn down during the PoI. In
the second panel hearing, the EU admitted that this was erroneous.
4.4. These shifts in the EU's positio n alone demonstrate that the EU cannot have provided a
reasoned and adequate explanation for its determination. Where the respondent member is
uncertain as to what its investigating authority actually did; and where a determination is so vague
that it perm its multiple shifting of key arguments; this cannot satisfy the requirement of a
"reasoned and adequate" explanation.
4.3 It is also irrelevant whether the Commission's error was "excusable"
4.5. Contrary to what the EU has argued, and to what at least on e question by the Panel suggests,
it does not matter whether the Commission "should … have been reasonably expected" to
understand Novatex's spreadsheet. It is abundantly clear from the evidence cited by Pakistan that
the Commission committed an error, and indeed that was explicitly admitted by the EU during the
second panel meeting with the parties. An error by an investigating authority that results in a
violation of the covered agreements remains an error even if one were to consider that error
excusable. Pakistan is not aware of any such "excusable error" doctrine that could somehow justify

4 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the
SCM Agreement.

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a violation of a provision of the SCM Agreement, such as Article 14(d) or Article 1, by the
investigating authority.5
4.4 Pakistan fails to understand what the EU's l abelling of the LTF-EOP loan as a "line of
credit" is meant to achieve
4.6. Having admitted definitively that the Commission erred in its understanding of the facts, as
reported in Novatex's spreadsheet, the EU has chosen to center its defence on the argum ent that
Novatex's LTF-EOP loan was not a loan, but a "line of credit"; and that, therefore, the Commission
was entitled to apply the KIBOR rate as a commercial interest rate benchmark from the PoI.
4.7. No matter what label the EU chooses to unilaterally apply to a financing arrangement, it must
respect the basic parameters of that arrangement when identifying and applying a commercial
interest rate benchmark. Any financing arrangement has to define at least three major
parameters: how much, for how long, at which interest rate. Where the investigating authority is
looking for a commercial benchmark interest rate, it must choose a benchmark rate that best
approximates or reflects these fundamental parameters. This is also why Article 14(b) refers to a
"comparable commercial loan" (underlining added). The arrangement that is chosen as a
commercial benchmark must be "comparable". In this case, the evidence is clear that the interest
rate for each tranche was fixed or locked in on the date on which the tranche was drawn down.
Furthermore, the interest rate for each tranche was fixed on that date for the duration of the term
of that tranche. It is not clear why the EU believes that simply relabelling the loan would mean
that the Commission can start ignoring the basic parameters of Novatex's financing arrangement.
4.4.1 In any event, the Commission's determinations do not state that it determined that
the LTF-EOP loan was a "line of credit" and there is no such concept in EU law
4.8. If, as the EU now argues, the question of whether the loan was a "line of credit" has such
fundamental impact on the choice of the commercial interest rate benchmark, the Commission was
required to make this point very clear to the investigated company, disclose it as part of the
essential facts, and provide the company with an opportunity to make representations on this
point. In response to Panel's Question 54, the EU refers to several passages in the Commission's
determinations where it allegedly "specifically determine[d] that the L TF-EOP loan to Novatex was
best considered a 'line of credit', rather than a traditional loan." However, none of the passages to
which the EU refers even remotely resemble such a determination.
4.9. More fundamentally, simple logic suggests that the Commi ssion did not make this
determination. As the EU admits, the Commission erroneously assumed that all reported amounts
were drawn down during the PoI. By definition, therefore, in its analysis during the investigation,
the Commission was not concerned with any amounts drawn down pre -PoI. The issue of the
alleged "line of credit" – and its alleged differences to a "standard commercial loan" – did not arise
and had no reason to be on the Commission's mind. It is not surprising, therefore, that nothing
even remotely related to this point, including the concept of a "line of credit", can be found in the
Commission's Determination. The EU is now simply creating reasoning that cannot be found in the
Determinations.
4.10. The EU's allegations about the LTF -EOP loan as a "line of credit" is belied also by the EU's
own domestic law. The EU's Guidelines for the Calculation of the Amount of Subsidy in
Countervailing Duty Investigations (98/C 394/04) contain a separate detailed section entitled
"Loans", which provides de tailed instructions for an investigating authority in identifying a
comparable commercial loan. These Guidelines even contain separate criteria for "specific cases",
that is, particular "loan" arrangements that warrant special attention in the identificati on of a
commercial interest rate benchmark. There is no reference whatsoever to a "line of credit", nor is
there any trace of a distinction between this alleged category of "line of credit" as compared to a
"standard loan".

5 Pakistan notes that, for instance, the "negligible error" doctrine was rejected in Guatemala –
Cement II. Panel Report, Guatemala – Cement II, para. 8.22.

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4.5 The EU mischaracterizes the core features of the LTF-EOP loan
4.11. The EU's characterization of the LTF -EOP arrangement also contains other significant
inaccuracies. For instance, the EU argues that "Novatex could choose when to draw down money
under the credit facility and could t hereby also choose the applicable interest rate". The
Commission also argues that the "disbursement terms were also not established in 2004 – 2005".6
These statements are demonstrably incorrect, and contradict explicit clauses of the LTF -EOP loan.
Similarly, the EU is also incorrect to state that "it [was] not possible to know ex ante with precision
the duration of the repayment". 7 There was no doubt about the duration of the LTF -EOP
arrangement. The duration of the repayment was fixed at 7.5 years, with an initial grace period of
18 months for the principal repayment (but not interest payment).
4.12. The EU's misleading description of the LTF -EOP loan – that is, as some sort of variable -rate
line of credit from which Novatex could draw funds entirely at its discretion – is also contradicted
by the manner in which the Government of Pakistan designed and described the LTF -EOP
programme in the underlying policy documents.
4.6 The EU is incorrect about the legal standard under Article 14(b)
4.13. The EU also attempts to justify the use of a commercial interest benchmark from the PoI for
all tranches under Article 14(b). Pakistan fails to see how Article 14(b) justifies the EU's approach.
The EU argues, for instance, that the Commission countervailed the amount t hat was "effectively
used" or enjoyed by Novatex in 2008 -2009 and "hence, it was appropriate to also apply a
benchmark for that same period". 8 This argument makes no sense. The fact that Novatex was
"effectively us[ing]" funds during the PoI cannot mean th at the Commission could use an interest
rate from the PoI. If the EU were correct, then any not -yet-repaid fix-term loan taken in the past
could be measured against today's commercial interest rate, because the money is still being
"used" by the debtor.
4.14. The EU argues that "amounts under the LTF -EOP programme continued to be drawn down
during the IP which further confirms the close nexus between the benchmark chosen by the
Commission and the LTF -EOP programme."9 Pakistan never disputed that the Commis sion could
use the PoI benchmark (leaving aside Pakistan's misgivings about KIBOR) for amounts drawn
down during the PoI. However, it makes no sense to use the PoI KIBOR for amounts drawn down
in previous years, when a different KIBOR was applicable. As indicated in the preceding paragraph,
the EU's approach would deprive the term "comparable" of any meaning.
4.15. Similarly, the EU's assertion that the LTF -EOP scheme was a "single scheme" constitutes no
basis for applying a single interest rate. It is perf ectly possible – as was the case here – that a
"single scheme" contains multiple tranches each one of which is subject to a different interest rate
from a different period. Thus, the label "single scheme" is an essentially meaningless term.
4.7 The EU misrepresents the Commission's determination of the commercial benchmark
interest rate
4.16. In response to a Panel question, the EU also misrepresents several aspects related to the
nature of the commercial benchmark interest rate applied by the Commission. T he EU argues that
this rate was the KIBOR, and that Novatex itself had suggested that the KIBOR rate be used.
4.17. First, neither Novatex nor the GOP suggested the use of this rate. The evidence cited by the
EU in this regard is inapposite. Second, while "KIBOR" has been used in these proceedings as a
convenient short-hand for the Commission's interest rate, and that rate is in the numerical vicinity
of the KIBOR, the Commission did not apply the KIBOR. Instead, the Commission obtained the
benchmark interest rate by selecting, from a wide range of choices, data from the website of the
State Bank of Pakistan (SBP), made its own calculations and then applied this rate, without
providing even the most basic explanation of how it had derived this benchmark int erest rate. Due
to their sophistication and knowledge of the SBP data, the Government of Pakistan and Novatex

6 EU's response to Panel Question No. 55, para. 80.
7 EU's response to Panel Question No. 55, para. 80.
8 EU's response to Panel Question No. 55, para. 81.
9 EU's response to Panel Question No. 55, para. 81.

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were able to reverse engineer this rate and comment on it. However, an uninitiated reader would
have no basis to even begin to understand how the Commission derived its benchmark interest
rate.
4.8 The EU confirmed to the Panel that it failed to follow the analytical process required
both by its Guidelines and by Article 14(b)
4.18. Pakistan has argued that the EU failed to explain why it rejected the loan benchmark interest
rates provided by Novatex. In addition, in its responses to Panel questions 58, 59, 60 and 61, the
EU has confirmed to the Panel that – once the Commission rejected Novatex's proposed
commercial interest rates – it did not attemp t to identify the interest normally payable on a
comparable commercial loan to Novatex; and did not attempt to identify the interest payable on a
commercial loan to companies in a similar financial situation in the same sector of the economy. It
also did not attempt to identify the interest rate payable on a comparable loan to companies in any
sector of the economy, nor did it attempt to identify a proxy that reflected the duration of the
subject loan.
4.19. This amounts, in effect, to an admission that th e Commission failed to comply with the
chapeau of Article 14 and with Article 14(b) and the "progressive search" required by the Appellate
Body under that provision.10
4.9 The EU's responses contain additional misrepresentations and factual inaccuracies
4.20. The EU attempts to argue, for instance, that Novatex paid the same interest on the total
outstanding amount and that this somehow puts into question "the alleged separate nature of each
tranche." That is incorrect. The fact that the annually -locked in i nterest rate happened to be
similar in certain successive years does not compromise the separate nature of each tranche.
4.21. The EU also claims that that Novatex's data were not sufficiently disaggregated into the
various tranches (or the tranches aggreg ated by years) and that the Commission therefore would
have been unable, on the basis of Novatex's Questionnaire response alone, to apply multiple
interest rate benchmarks and to calculate the respective subsidization amounts. 11 That is correct.
In order to perform the analysis correctly, the Commission would have had to request Novatex to
provide more disaggregated data. The reason why Novatex did not provide the data in that format
was because the Commission's questionnaire template did not permit it to do so and also
because Novatex could not know the analytical approach that would be ultimately adopted by the
Commission. Novatex also took a view that an altogether different benchmark was appropriate. It
was the responsibility of the Commission as the inve stigating authority, in response to the
Questionnaire response, to choose the appropriate analytical approach and to request additional
data from the company, if the Commission considered that it needed this additional data.
4.10 Conclusion and request for findings
4.22. For all of the above reasons, Pakistan requests that the Commission has acted inconsistently
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail
in paragraph 6.101 of Pakistan's first written submission.12
5 THE COMMISSION'S CAUSATION ANALYSIS IS I NCONSISTENT WITH ARTICLE 15.5 OF
THE SCM AGREEMENT
5.1. The Commission's analysis of the existence of a "causal link" between the subject imports and
the alleged injury to the domestic industry is incons istent with Article 15.5 of the SCM Agreement
for the following reasons.

10 Appellate Body Report, US – AD/CVD (China), para. 486.
11 EU's response to Panel Question No. 55, para. 81.
12 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the
SCM Agreement.

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5.2 The Commission's "breaking the causal link" approach is inconsistent with Article
15.5 of the SCM Agreement
5.2. The Commission's "breaking the causal link" approach is inconsiste nt with Article 15.5 of the
SCM Agreement. Pakistan submits that, as a matter of logic, the Commission could not possibly
first establish a causal link (i.e. a relationship of cause and effect) between the alleged imports
and the subsidized imports and sub sequently find that one or more other factors "break" that
causal link. If an "other factor" is capable of breaking the causal link, this causal link should never
have existed in the first place. In response to this argument, the EU referred to four anti -dumping
determinations where the Commission made a negative finding of causation. In none of these four
determinations did the Commission make a finding at the outset of its causation analysis that a
causal link existed and then examine whether other factor s "broke" that link. By not making that
finding at the start in those determinations, the Commission was able to assess properly the
injurious effects of all the relevant factors on the domestic industry, including those of the subject
imports, and then determine that the subject imports "in isolation" could not have caused material
injury.13 Thus, the EU has not provided any instances on which to base its assertion that the
Commission can find that a causal link between investigated imports and alleged injury existed but
that the injury caused by other factors "broke" that link.
5.3. The Commission's "breaking the causal link" approach effectively vitiated the non -attribution
analysis in the challenged Determinations. The causal link found at the start of i ts causation
analysis was not "preliminary", as the EU suggests.14 Rather, this causal link was exactly the same
link that was used to dismiss the significance of the non -attribution factors that the Commission
purportedly analysed. This explains why, even if the Commission accepted that at least three other
factors might have been causing injury, it ultimately rejected them because they did not "break"
the causal link. Had the Commission applied the correct legal standard, it would have examined
whether the injurious effects of these other factors were such as to render any link between the
subject imports and the alleged injury too distant, remote or insubstantial.
5.4. For these reasons, the EU is incorrect that there is similarity between the Commission's
"breaking the causal link" approach and Pakistan's understanding of the proper legal standard in
Article 15.5.15 Under the "breaking the causal link" approach, the Commission failed to analyse the
injurious effects of the subject imports and the other know n factors independently and objectively.
Rather, under this approach, the Commission merely assessed these other factors against the
previously found causal link between the subject imports and the alleged injury. This approach
effectively pre-judges the issue of non-attribution: it appears to be impossible as a matter of logic
to "break" a causal link once it has been established. This is also evident from the challenged
Determinations, where the Commission identified certain injurious effects of at least three non-
attribution factors but dismissed them on the grounds that these factors could not "break the
causal link". Because the "breaking the causal link" approach vitiated the analysis of the non -
attribution factors, the Commission's causation analysis is inconsistent with Article 15.5 of the
SCM Agreement.
5.3 The Commission merely assumed the existence of a causal link based on its finding
of increased imports which undercut prices
5.5. The Commission simply assumed the existence of a causal link based on its previous finding
that the investigated imports were undercutting the prices of the domestic product. The
Commission found its causal link based on nothing more than a "coincidence in time" between
increased imports, which allegedly undercut the pri ce of the domestic product, and the
deterioration in the condition of the domestic industry.16
5.6. The Commission should have gone beyond the mere identification of a coincidence and
provided some analysis of causation. By assuming the existence of a causal link based merely on a
temporal coincidence, the Commission failed to conduct the analysis required under Article 15.5

13 Commission Decision 2008/227/EC. Exhibit PAK-63; Commission Decision, 2007/214/EC, para. 138.
Exhibit PAK-64. Commission Decision 1999/55/EC. Exhibit PAK-65; and Commission Decision 2005/289/EC.
Exhibit PAK-67.
14 EU's second written submission, paras. 179, 180 and 182.
15 EU's second written submission, para. 164.

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and footnote 47 of the SCM Agreement of how the subject imports had a bearing on the negative
performance of five economic factors identified by the Commission.17
5.7. Also, as matter of fact, the Commission's finding of a temporal coincidence was incomplete
and one-sided. The Commission found that five industry indicators showed negative performance:
production, sales, profitability, re turn on investment and cash flow. 18 All five indicators showed
positive or neutral performance from 2006 to 2007, and deteriorated only in 2008 and the first
semester of 2009 (i.e., towards end of the PoI). 19 However, this is also the same time period in
which other known factors had their greatest effects on the condition of the domestic industry:
the 2008 economic downturn broke out only in 2008; imports from Korea increased by 76%
in 2008 and during the first semester of 2009; and non -cooperating EU produc ers were able to
regain significant sales and market share in the first semester of 2009.
5.8. There is, therefore, the same temporal coincidence between the other known factors and the
alleged injury. This coincidence was just as compelling as the coinci dence between the subject
imports and the alleged injury. The Commission, however, improperly attributed greater value to
the "coincidence" between the subject imports and the injury than to the other coincidence
between several non -attribution factors and the same injury, without providing a reasoned and
adequate explanation of why it did so.
5.4 The Commission's analysis of "other factors" is inconsistent with Article 15.5
5.9. The Commission's analysis of other factors was also inconsistent with Article 15.5. First, in the
case of the imports from Korea, the Commission merely stated that "it cannot be excluded" that
these imports "contributed to the injury suffered by the Union industry". The words "cannot be
excluded" admit that this factor may have been a cause of injury. However, the Commission made
no effort to probe the nature and extent of the contribution of those factors to the alleged injury.
In principle, this price undercutting could have had a similar or even greater downward effect on
domestic prices than the subject imports, given that (1) both imports from Korea and the subject
imports had similar market shares during the PoI; and (2) imports from Korea grew by
almost 150% during the same period. In these circumstances, the Commission's curs ory analysis
of the imports from Korea cannot constitute a "meaningful explanation of the nature and extent of
[its] injurious effects".
5.10. Second, the Commission stated that any injury caused by the 2008 economic downturn it
caused was in any event "ex acerbated by the increased subsidised imports from the countries
concerned, which undercut the prices of the Union industry". 20 In other words, regardless of the
magnitude of the injurious effects of the 2008 economic downturn, this factor could never have
broken the causal link, as the Commission had already found price undercutting by the subject
imports. Importantly, the Commission failed to explain what "exacerbate" means and the extent to
which the subject imports "exacerbated" the negative effects of t he 2008 economic downturn. This
question remained unresolved because the Commission did not separate and distinguish the
injurious effects of the 2008 economic downturn from those of the subject imports. Moreover, the
Commission partly dismissed the releva nce of the 2008 economic downturn on the grounds that
the EU industry had suffered injury prior to 2008. However, the Commission's statement that the
EU industry was suffering injury prior to 2008 lacked supporting analysis. In addition, the
Commission's statement is all the more puzzling since a large number of injury indicators actually
showed a positive performance up to 2008 and it was only then that they began to languish.
5.11. Third, the Commission again recognized the (at least potential) negative effects of the low
prices of crude oil on the domestic industry. However, it did not separate and distinguish these
effects, or provide a "meaningful explanation of the nature and extent of [its] injurious effects". 21
It merely dismissed this "other factor" by recalling its previous finding that the subject imports
undercut the prices of the EU producers. The Commission thus failed to ascertain the extent of the
impact of this factor, if any, on the domestic industry. In fact, it recognized that prices of PE T

17 Preliminary Determination, paras. 238-239. Exhibit PAK-1. (production, sales, return on investment,
profitability and cash flow)
18 Preliminary Determination, paras. 238-239. Exhibit PAK-1.
19 Preliminary Determination, paras. 220, 223, 233 and 235. Exhibit PAK-1.
20 Preliminary Determination, recital 254. Exhibit PAK-1.
21 Appellate Body Report, US – Lamb, para. 186.

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depend to some extent on prices of crude oil, but failed to address the argument that low prices of
PET in the EU were a function of the low prices of crude oil. Rather, it gave an off -the-point
explanation about the volatility of world prices and how th is cannot explain "why imports of PET
were subsidised and therefore undercut the Union producers' prices". 22 Of course, the question is
not whether the low prices explain why imports of PET might have been subsidized, but rather
whether they explain the alleged injury to the domestic industry.
5.12. Fourth, the Commission should have addressed the reasons why a part of the EU industry,
which did not cooperate, improved its performance from 2008 to the end of the PoI. This period
coincided with the contractio n of global demand and with the expansion of demand in the EU
market. It is intriguing to say the least that the subject imports had negative effects on only one
part of the EU industry (those supporting the investigation), while the other part of the EU industry
(those not supporting the investigation) showed a positive performance from 2008 to the end of
the PoI. Moreover, the EU's assertion that the Commission found that the non -cooperating EU
producers did not cause injury is troublesome in view of the facts before it. 23 Specifically, the
market share of the non-cooperating EU producers was significantly higher than that of the subject
imports during the PoI (e.g., 16% and 10.2%, respectively, at the end of the PoI). Pakistan thus
fails to understand why the increasing production and market share of the subject imports caused
injury, while the more significant increasing production and market share of the non -cooperating
EU producers did not. Because the Commission failed properly to assess the injurious effects of the
competition from these non -cooperating EU producers, the Commission's causation analysis is
inconsistent with Article 15.5 of the SCM Agreement.
5.5 Conclusion and request for findings
5.13. For the reasons set out above, Pakistan requests the Panel to find that the causation analysis
in the challenged Determinations is inconsistent with Article 15.5 of the SCM Agreement.
6 PAKISTAN'S CLAIM UND ER ARTICLE 12.6 OF T HE SCM AGREEMENT REG ARDING THE
RESULTS OF THE VERIFICATION VISIT
6.1. Pakistan c ontinues to claim that the European Union has acted inconsistently with its
obligation under Article 12.6 of the SCM Agreement, because it failed either to make the results of
the verification visit to Novatex available or to provide disclosure thereof as part of the disclosure
of essential facts under Article 12.8.
6.2. The results of a verification visit are reflected in the investigating authority's choices as to (i)
which information to look at; (ii) why it looks at that information and (iii) whether i t is satisfied
during the verification that a given specific piece of information or document was successfully
verified. However, the results of the verification may also include information that was provided
and substantiated by the exporter, but that the investigating authority did not immediately
consider relevant to its final determination. 24 A clear reporting of the results of the verification is
essential to enable the exporter to structure its case for the rest of the investigation. Pursuant to
Annex II(3) of the Anti -Dumping Agreement, which applies by analogy under the
SCM Agreement25, all information that is "verifiable" and submitted in timely and usable fashion,
must be taken into account by the investigating authority. The investigating authority is "not
entitled to disregard the submitted information and use information from another source to make
the determination." 26 In addition, the ability of domestic courts (using their own standard of
review) and of WTO panels (using the standard of review pu rsuant to Article 11 of the DSU) to
review the determinations of investigating authorities depends on the existence of a proper
disclosure of the "results" of the verification visit under Article 12.6 of the SCM Agreement.
6.3. In the investigation at iss ue, the Commission failed to disclose the results of the verification
visit. To the extent it made an effort to comply with the requirements of Article 12.6, in this case
the Commission opted to disclose the results of the verification via the disclosure o f essential facts

22 Definitive Determination, recital 118. Exhibit PAK-2.
23 EU's response to Panel question 100, para. 33.
24 Panel Report, Korea – Certain Paper, para. 7.192. (emphasis added)
25 See Appellate Body Report, Mexico – Rice, paras. 290 – 295.
26 Panel Report, EC – Salmon (Norway), para. 7.383 (see also Ibid., para. 7.347). Panel Report, US –
Steel Plate, para. 7.57.

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under Article 12.8. However, the Commission's disclosures contain no information of what occurred
during the verification visit and which topics, other than the MBS, the Commission discussed with
the investigated company, even though the Commission had provided the exporter with an
extensive list of topics to be verified. However, there is no information whatsoever about
verification on any of these issues other than the Manufacturing Bond Scheme. Hence, the EU has
failed to provide any information on the results of its verification concerning all these other issues.
6.4. Beyond the list of exhibits collected at verification, the EU disclosed no information on the
conduct of the verification visit, or any corrections or rectification of th e information contained in
the Questionnaire Response. The EU has not disclosed which particular aspect of these documents
was discussed, for what purpose, or whether the Commission considered the data and information
contained in this document to be verified or verifiable.
6.5. In its submissions, the EU continues to attempt to conflate the concept of the results of the
verification with the results of the investigation. The EU argues that the results of the verification
were the facts that the investigat ing authority had decided to include in the essential facts
disclosure as those on which it intended to base its final determination. Pakistan has explained
how this approach necessarily deprives exporters of their rights and ability to defend themselves.
It means that the results of the verification would be only those the investigating authority
considers to be important or to support its final determination. The results of the verification would
not include outcomes of the verification to which the expor ter may attach greater importance than
the investigating authority or outcomes on which the exporter thinks the investigating authority
should base its final determination. In its answers to the Panel's questions, Pakistan provided
examples, both specific to this investigation and generic, illustrating how the exporter's interests
could be negatively affected by a failure to provide information about what happened at the
verification that goes beyond the investigating authority's subsequent, subjective deci sion as to
what evidence supports its final determination.27
6.6. Moreover, in its answers to the Panel's questions, the EU "takes the position that the term
'result' does not include information, for example, about whether the Commission requested
additional documents, whether Novatex provided requested documents or whether the
Commission asked questions during the verification visit". 28 This is an extraordinary proposition.
The EU considers that its investigating authority could ask for and receive (or, ind eed, not receive)
key information regarding the exporter's questionnaire responses and business operations and
subsequently simply ignore that fact or evidence in its final determination. This would mean, for
instance, that the investigating authority coul d have asked for clarification in the verification that
the term "Opening" balance in the spreadsheet of interest amounts paid on loans subject to the
LTF-EOP programme during the PoI included principal amounts drawn down before the PoI,
received that clar ification, and simply ignored that fact in reporting on the results of the
verification.29
6.7. The EU appears to acknowledge that further information about the results of the verification
may be required to be provided "when such information is indispensab le for interested parties to
defend their interests with respect to essential facts … (e.g. in the case of the use of facts
available …)".30 There are, however, two problems with this statement. First, the same problem
remains that it would be the EU, not t he exporter itself, which would determine what information
would be "indispensable" to the defence of the exporter's interests. There is no textual basis in
Article 12.6 for the EU's position that the "results" of the verification are only those matters th at
the investigating authority considers to be relevant to the defence of the exporter's interests.
6.8. In addition, there is no reason why the logic behind requiring more information in cases
involving facts available would not also apply to other situat ions in which the exporter might
consider that additional information about the outcome of the verification might be "indispensable
for interested parties to defend their interests". 31 There is no reason why more or less information
should be disclosed about the outcome of the verification visit on one issue rather than the other.
Certainly, there is textual basis in Article 12.6 for the EU's position that the meaning of the

27 Pakistan's response to Panel Question No. 80, paras. 5.1 – 5.9.
28 EU's response to Panel Question No. 84, para. 124.
29 See, for instance, Pakistan's response to Panel Question No. 38(c), para. 278.
30 EU's response to Panel Question No. 84, para. 121.
31 EU's response to Panel Question No. 84, para. 121.

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"results" of the verification may be the information at issue or the uses to which i t may be put by
the investigating authority.
6.9. In its responses to the Panel's questions, the EU refers to two "examples" of how it disclosed
the results of the verification visit in the disclosure of the essential facts. 32 First, the EU refers to
the statements regarding the MBS in its company -specific disclosures.33 However, Pakistan, in its
own responses to the Panel's questions, has explained how the EU's disclosure of the results of the
verification visit with respect to the MBS was at best incomplet e and left open important issues
that affected Novatex's and Pakistan's ability to defend their interests before reviewing courts and
this Panel.34 Second, the EU refers to the fact that it disclosed "Novatex's turnover figures". 35 It is
not clear how the "turnover figures" represented a sufficiently significant "result" of the verification
to merit such different treatment than other data that was reviewed during the verification. If the
turnover figures merited disclosure as a "results" of the verification, surely so too did the other
matters to which Pakistan has referred in its answers to the Panel's questions.
6.10. The EU also overlooks that one option of disclosing the verification results is a separate
report that will typically be issued well before the authority decides what the essential facts are.
Choosing the option of later disclosure, when the authority has decided on what the essential facts
are, cannot mean that the universe of verification results has suddenly become smaller. If this
were acc epted, the authority could manipulate the scope of its obligations, and the rights of
companies, simply by waiting.
6.11. Another pillar of the EU's defence is the mantra that an investigating authority is not
required to provide written "minutes" of the v erification visit. By means of the label "minutes", the
EU tries to discredit and misrepresent Pakistan's argument as requiring some sort of excessive and
administratively burdensome level of detail from the investigating authority.
6.12. Under this argum ent, the EU would allow an investigating authority to pay lip -service to
Article 12.6 with generic, boilerplate statements that in reality do not disclose anything
meaningful. For the EU, stating that, for instance, "documents relating to the company's fin ancial
accounts were verified" would be enough to satisfy Article 12.6. 36 This cannot be so. The disclosed
results must be sufficiently specific so that the exporter can subsequently make submissions
relating to (i) what specific information or which specif ic document was verified, (ii) against which
other document or other information the original document or information was examined, (iii) for
what purpose a given document or information was considered, and (iii) which final conclusion the
investigating authority drew.37
6.13. The EU also argues that "accuracy of the information" is not part of the results of the
verification visit. 38 This is wholly untenable. The accuracy of the information and hence its
reliability for use in the determinations, and the vie ws of the authority on this point, are the very
core of the verification and therefore are key to the results. This is illustrated well by the questions
surrounding the LTF -EOP loan. Pakistan argues that, had the EU properly reported the results of
the verification, the Panel would not be required today to seek to divine what the EU thought and
how its individual investigators read and understood the term "opening" amount in the LTF -EOP
spreadsheets.
6.14. Yet another line of EU arguments is that the results of the verification are a "summary of the
summary of the information that was checked during the verification visit" 39. In Pakistan's view,
the word "summary" is not a particularly useful tool to gauge compliance with Article 12.6. The
requirement in Article 12.6 is to disclose the "results of the verification". Thus, the word or concept
of "summary" is not treaty language and is thus a potential red herring in discerning the meaning
of Article 12.6, to the extent that it may divert the analysis from disc erning the meaning of the
treaty term "results".

32 EU's response to Panel Question No. 84, paras. 114 – 119.
33 EU's response to Panel Question No. 84, para. 114.
34 Pakistan's response to Panel Question No. 80, paras. 5.4 – 5.5.
35 EU's response to Panel Question No. 83, para. 115.
36 See the EU's second written submission, para. 193.
37 See for instance Pakistan's first written submission, para. 8.41, referring inter alia to Panel Report,
Korea – Certain Paper, para. 7.68.
38 EU's second written submission, para. 208.
39 EU's opening statement at the second meeting of the Panel, para. 73.

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6.15. Finally, in its answers to questions, as in its opening statement at the Panel's meeting with
the parties, the EU posits the possibility that no verification visit might take place (as such visits
are not required). The EU elaborates on what information might or might not have been disclosed
as essential facts in the event that no verification visit had taken place and suggests that the
amount of information that must be disclosed under the SCM Agreeme nt does (or should) not vary
depending on whether a verification visit has taken place. 40 However, as Pakistan explained in its
own answers to the Panel's questions, there is a separate multilateral obligation to report the
results of any verification visit . The obligation in Article 12.6 of the SCM Agreement cannot be
rendered inutile by suggesting that it should not result in a different disclosure than if no
verification visit had occurred.
6.16. With respect to the list of documents collected at the ver ification visit, as reflected in
Exhibit EU-10, this list was not given to Novatex by the EU officials, although the documents on
that list match the company -internal list of documents in the company records of the verification
visit. In any event, the lis t does not disclose the content of the document nor the purpose for
which the document was inspected and collected. The list does not even make clear whether a
given document was collected as part of the CVD investigation or the parallel anti -dumping
investigation.
6.17. For the reasons above, Pakistan requests the Panel to find that the EU acted inconsistently
with its obligations under Article 12.6 of the SCM Agreement, by failing to disclose the results of
the verification in accordance with that provision.

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ANNEX D
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex D-1 Third Party Oral Statement of China D-2
Annex D-2 Executive Summary of United States Third Party written submission D-4

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ANNEX D-1
ARGUMENTS OF CHINA
THIRD PARTY ORAL STATEMENT OF CHINA
I. Introduction

1. Mr. Chairman, Members of the Panel, China welcomes this opportunity to present its views
on European Union – Countervailing Duty Measures on PET from Pakistan (DS486). In this session,
China will only touch upon t wo claims by Pakistan under Article 1, Annex II (II) and Article 14 of
the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

II. Pakistan's Claims Regarding "MBS" Duty Remission Program under Article 1 and
Annex II(II) of the SCM Agreement

2. One of the core issues, for which China takes no position on the merits of the factual
allegations, in this dispute is whether it is legally permissible under the SCM Agreement to treat
the entire amount of import duties otherwise due on imported in puts under a duty drawback
system as an export subsidy under Article 1.1. Put it into more detail, it consists of two parts: (1)
Would the lack of an effective system or procedure in the duty drawback system by the exporting
Member to monitor the inputs co nsumed in the production of the exported product directly form
the basis for a determination of existence of subsidy; and (2) assuming that a further examination
regarding the actual inputs involved in determining whether an excess payment occurred has bee n
failed to carry out, could the entire amount of import duties be treated as an export subsidy?

3. These questions should be answered under the relevant provisions of the SCM Agreement
and the GATT 1994. Article 1.1(a)(1)(ii) and footnote 1 of the SCM Ag reement as well as the
Ad Note to Article XVI of the GATT 1994 state that "a subsidy shall be deemed to exist if: …
government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such
as tax credits)", and "the exemption of a n exported product from duties or taxes borne by the like
product when destined for domestic consumption, or the remission of such duties or taxes in
amounts not in excess of those which have accrued, shall not be deemed to be a subsidy".

4. The text itself makes it clear that only when a drawback system leads to excessive drawback
could a subsidy then be deemed to exist. Despite footnote 1 refers to "In accordance with…the
provision of Annexes I through III of this Agreement", the effectiveness of the du ty drawback
system cannot replace the criterion for deciding the existence of subsidy. According to the
Annex II(II)(1) and (2) of the SCM Agreement, "Where it is alleged that an indirect tax rebate
scheme, or a drawback scheme, conveys a subsidy by reason of over-rebate or excess drawback
of indirect taxes or import charges on inputs consumed in the production of the exported product,
the investigating authorities should first determine whether the government of the exporting
Member has in place and applie s a system or procedure to confirm which inputs are consumed in
the production of the exported product and in what amounts", and "Where… [such system or
procedure] is found not to be applied or not to be applied effectively, a further examination by the
exporting Member based on the actual inputs involved would need to be carried out in the context
of determining whether an excess payment occurred. If the investigating authorities deemed it
necessary, a further examination would be carried out in accordance with paragraph 1". From this,
the fact of non -existence effective system or procedure to monitor the inputs consumed in the
production of the exported product alone is not decisive for determination of existence of an export
subsidy. What the investigating authorities should do is to decide the existence of a subsidy on the
ground that the criterion provided in the SCM Agreement has been met.

 The deadline for the third parties to submit their executive summaries was 7 October 2016. China did
not submit an executive summary by this time. On 9 December 2016, China was informed that if China did not
submit its executive summary by 16 December 2016, China's third party oral statement dated
22 September 2016 would be annexed to the Panel report as the description of China's arguments. China did
not submit an executive summary by 16 December 2016. Thus, we attach China's referenced oral statement
here.

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5. Furthermore, even under the situation that it is determined a drawback system conveys a
subsidy by reason of ex cess drawback of import duties on inputs consumed in the production of
the exported product, it does not mean that the entirety of the duties remitted or drawn back are
in "excess" and constitute a subsidy. Rather, the excess amount remitted or drawn back which
reflects the subsidy provided to the recipient needs to be ascertained, to ensure that the
countervailing duty levied does not excess to the amount of the subsidy found to exist.
Consequently, it is suggested that the Panel should consider whether th e investigating authorities'
determination, that one hundred percent of drawn back of import duties constitutes a subsidy, was
based on positive evidence and involved an objective examination.

III. Pakistan's Claims Regarding Its "LTF -EOP" Export Financin g Program under
Articles 14 of the SCM Agreement

6. Additionally, Pakistan claims that the EU acted inconsistently with Article 1.1(b), the
chapeau and subsection (b) of Article 14 of the SCM Agreement in calculating the benefit under
the Long-Term Financing of Export -Oriented Projects (LTF -EOP) scheme.1 In examining whether
the Commission's choice of a national interest rate as the benchmark to calculate the benefit of the
LTF-EOP loan was in legal error, namely, whether that benchmark is a "comparable" c ommercial
loan benchmark 2, it is necessary to analyze whether the Commission had considered all the
relevant evidence and adequately explained the application of its own analytical method.

7. Specifically, in identifying the benefit of a preferential loan program, the approach of
Articles 14(b) is a straightforward comparison of the interest paid with "the amount the firm would
pay on a comparable commercial loan which the firm could actually obtain in the market".
Although the use of the conditional tense , "could", suggests that a benchmark loan under
Article 14(b) need not in every case be a loan that exists or that can in fact be obtained in the
market3, the Appellate Body has "observe[d] that the Panel reasoned that the identification of an
appropriate benchmark under Article 14(b) can be seen as a 'series of concentric circles', where
the investigating authorities should first seek commercial loans to the same borrower that are
identical or nearly identical to the investigated loan. ….In the absence of an identical or nearly
identical loan, an investigating authority should seek, in turn, other similar commercial loans held
by the same borrower, then similar commercial loans granted to another borrower with a similar
credit risk profile to the investigat ed borrower. ….Yet, there may be situations where the actual
differences between any of the existing commercial loans and the investigated government loan
are so significant that it is not realistically possible to address them through adjustments. In such
situations, the Panel considered that an investigating authority should be allowed to use proxies as
benchmarks."4

8. Thus, China does not intend to deny the discretion possessed by the investigating authority
in selecting an appropriate benchmark. However, the application of the methods set out in national
legislation or regulations to a situation in which the borrower has no comparable commercial loans
and a benchmark must be found must be transparent and adequately explained in accordance with
the chapeau of Article 14 of the SCM Agreement. Namely, it is important to examine whether the
investigating authority fulfil its obligation to provide a transparent and adequate explanation for
why it selected a particular benchmark, in which the parties to the i nvestigation can adequately
and timely defend their interests.

IV. Conclusion

9. China thanks the Panel for its consideration of these comments.

2 See Pakistan First Written Submission, paras. 6.28-6.56.
3 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 674.
4 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 676.

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ANNEX D-2
ARGUMENTS OF THE UNITED STATES
EXECUTIVE SUMMARY OF U.S. THIRD PARTY WRITTEN SUBMISSION
1. INTRODUCTION
1. In this submission, the United States presents its views on the proper legal interpretation of
certain provisions of the Agreement on Subsidies and Countervailing Measures (the
"SCM Agreement") and the General Agreement on Tariffs and Trade 199 4 (the "GATT 1994") as
relevant to certain issues in this dispute.

2. CLAIMS REGARDING ARTICLES 1 AND 3 OF THE SCM AGREEMENT
2. The United States, while taking no position on the merits of the factual allegations made by
either party, submits the followi ng comments. The core disagreement between the parties is
whether it is legally permissible under the SCM Agreement to treat the entire amount of import
duties otherwise due on imported inputs under a duty drawback system as a financial contribution
under Article 1.1 where the exporting Member: (1) does not have an effective system or procedure
in place to monitor the inputs consumed in the production of the exported product and (2) has
failed to carry out a further examination based on the actual inputs in volved in determining
whether an excess payment occurred under the duty drawback scheme. The United States submits
that this question should be answered in the affirmative under the relevant provisions of the SCM
Agreement and the GATT 1994.

3. Both footnote 1 to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994
contemplate that a duty drawback scheme "shall not be deemed to be a subsidy" so long as there
is no "excess" remission of duties or taxes from those which have accrued. Consequentl y, if a duty
drawback system were to provide for exemption or remission of duties or taxes in amounts that
exceed the amounts of "duties or taxes that have accrued," then such a system may be "deemed
to be a subsidy" under the terms of Article 1.1 of that Agreement.

4. Importantly, footnote 1 also notes that this standard (that "the remission of such duties or
taxes in amounts not in excess of those which have accrued" shall "not be deemed to be a
subsidy") is "[i]n accordance with the provisions of Articl e XVI of GATT 1994 (Note to Article XVI)
and the provisions of Annexes I through III of this Agreement." Article 32.8 of the SCM Agreement
provides that "[t]he Annexes to this Agreement constitute an integral part thereof."

5. Annex I to the SCM Agreement, providing an "illustrative list" of export subsidies, elaborates
that the "[t]he remission or drawback of import charges in excess of those levied on imported
inputs that are consumed in the production of the exported product (making normal allowance fo r
waste)" would constitute an "export subsidy." Again, this suggests that an export subsidy exists in
cases where there is such an excess.

6. In determining whether a duty drawback scheme provides for remission of import duties in
amounts that in fact ex ceed a permitted limit, the procedures described in Annexes II and III are
pertinent. The standard in footnote 1 to the SCM Agreement is "in accordance with" Annexes II
and III, which each addresses a particular duty drawback scheme. Annex I, item (i), als o states
that "[t]his item shall be interpreted in accordance with the guidelines on consumption of inputs in
the production process contained in Annex II and the guidelines in the determination of
substitution drawback systems as export subsidies contained in Annex III."

7. For a duty drawback system to operate so as not to provide for excess remission of import
duties, Annexes II and III provide for procedures to check the system of the exporting Member.
Annex II(II)(1) provides that the investigating au thority should first determine whether the
exporting Member has in place an adequate system or procedure to monitor which inputs are
consumed in the production of the exported product and in what amounts. Annex II(II)(2)

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contemplates an additional analysis by the exporting Member absent satisfaction of the condition
under Annex II(II)(1).

8. Therefore, where an exporting Member has a duty drawback scheme in place that does not
satisfy the requirements for such a scheme to "not be deemed to be a subsidy," then an
investigating authority would be permitted to consider the full amount of the financial contribution
as a subsidy under the terms of Article 1.1. The conditions for a duty drawback scheme to be
considered within the scope of footnote 1 to Article 1 .1(a)(1)(ii) of the SCM Agreement are
established by reference to Annex II(II)(1)-(2).

9. Finally, an investigating authority need not consider information that post -dates the period
of investigation in trade remedy proceedings.

3. CLAIMS REGARDING ARTICLES 1.1(B) AND 14 OF THE SCM AGREEMENT
10. Because the title of Article 14 indicates that it sets out "guidelines" for determining benefit,
there exists "a certain degree of flexibility … under Article 14(b) in the selection of benchmarks."
The selection of an appropriate benchmark under Article 14(b) is guided by the terms
"comparable," "commercial," and a "loan which the firm could actually obtain on the market."

11. Of particular relevance to this dispute, the comparable commercial loan benchmark mus t be
contemporaneous in time with the alleged subsidized loan. For example, in EC and certain member
States – Large Civil Aircraft, the Appellate Body explained that investigating authorities must rely
on a benchmark "that would have been available to the recipient firm at the time it received the
government loan," such that the comparison to determine the benefit "is to be performed as
though the loans were obtained at the same time." This contemporaneity factor accords with the
principle that "[t]he investor will make its decision to invest on the basis of information available at
the time the decision is made about market conditions and projections about how those economic
conditions are likely to develop (future demand and price for the product, future costs, etc.)."

12. Finally, Article 14(b) also describes a benchmark loan as reflecting one "which the firm could
actually obtain on the market." The Appellate Body has explained that "[t]he use of the conditional
tense, 'could', suggests that a benchmark loan under Article 14(b) need not in every case be a
loan that exists or that can in fact be obtained in the market." The Appellate Body has also
observed that "could" refers "'first and foremost' to the borrower's risk profile, that is, whether the
benchmark loan is one that could be obtained by the borrower receiving the investigated
government loan." Given these findings, the United States agrees with Pakistan's observation that
"the investigating authority must, at the very least as the starting point of its analysis, first seek to
identify a comparable loan that the specific firm under investigation would pay."

13. In light of the guideline of comparing the transaction to one the loan recipient might have
obtained on the market, an investigating author ity might well examine the transaction and rely on
a benchmark that is contemporaneous with when the loan disbursement terms were established.
This is because the investigating authority could take the view that each tranche is merely a part
of the one overall loan. The investigating authority might also examine the transaction and apply a
loan interest rate benchmark that is contemporaneous in time with when each tranche of the
investigated loan was drawn down, as Pakistan proposes, because the authority m ight determine
that each tranche should be considered as a distinct loan. These considerations will depend on the
factual circumstances concerning the terms of the loan.

14. Finally, the United States observes that an investigating authority has an oblig ation to
provide a transparent and adequate explanation for why it selected a particular benchmark. One
reason is so the parties to the investigation can adequately and timely defend their interests.

4. CLAIMS REGARDING ARTICLE 12.6 OF THE SCM AGREEMENT
15. The last sentence of Article 6.7 of the AD Agreement largely mirrors the last sentence of
Article 12.6 of the SCM Agreement. The last sentence of Article 6.7 of the AD Agreement requires
investigating authorities "to inform the investigated exporters o f the verification results," i.e., the
results of the verification visit. The disclosure of the results of a verification visit are important
both in enabling exporters and WTO Members to seek judicial review of the investigating

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authority's determination under Article 23 of the SCM Agreement, and to protect exporters' rights
to prepare and present their cases under Article 12.3 of the SCM Agreement.

16. The meaning of the term "results" in the last sentence of Article 12.6 of the SCM Agreement
informs the extent of what the investigating authority must provide to "the firms to which they
pertain." The ordinary meaning of "result" is "an effect, issue, or outcome from some action,
process or design." The "results" envisaged by Article 12.6 of the SCM Agreem ent are the
"outcome" of the verification visit, which under Annex VI(7) is an on -the-spot investigation " to
verify information provided or to obtain further details."

17. Article 12.6 of the SCM Agreement (as does Article 6.7 of the AD Agreement) provide s two
alternative mechanisms for disclosing the verification visit results: to make the results available to
the firm to which the results pertain or to disclose the results as part of the essential facts which
form the basis for a decision to impose defin itive measures. Thus, one such option is to "'make
available' a separate report containing the results of the verification visits."

18. Consequently, the Panel should consider whether Pakistan has demonstrated that the
Commission's disclosure of the veri fication visit results was not sufficient to disclose the outcome
of the verification, was not complete such that essential facts were not disclosed, or was not timely
such that interested parties were not able to defend their interests.

EXECUTIVE SUMMARY OF U.S. THIRD-PARTY ORAL STATEMENT AT THE THIRD PARTY SESSION OF
THE FIRST MEETING OF THE PANEL WITH THE PARTIES
5. INTRODUCTION
19. The United States appreciates the opportunity to provide our views as a third party in this
dispute. The United States wi ll focus its remarks on the interpretation and application of Article 1
of the SCM Agreement, particularly in light of issues raised by Pakistan with respect to footnote 1
of Article 1.1 and the operation of the annexes related to these provisions.

6. ARTICLE 1.1 AND FOOTNOTE 1 OF THE SCM AGREEMENT
20. Article 1.1(a)(1)(ii) is accompanied by footnote 1. Footnote 1 does two things: first, it limits
the scope of Article 1.1 subparagraph (a)(1)(ii) where the remission of certain duties or taxes is
not in exc ess of accrued amounts; and second, it requires that this limitation be read "in
accordance with" Annexes I, II, and III in determining its applicability. Consequently, if a program
were to provide for the exemption or remission of duties or taxes in amoun ts that exceed the
"duties or taxes that have accrued" in a given instance, then such excess may be "deemed to be a
subsidy" under the text of Article 1.1 of the SCM Agreement. To reach such a conclusion in the
first place, however, the question of excess remission must be answered per the guidelines and
procedures of the relevant annexes. Where that inquiry is inconclusive, the limitation found in
footnote 1 does not apply and, therefore, an investigating authority may determine whether there
is a financial contribution irrespective of footnote 1.

21. This interpretation is supported by the language of the annexes themselves. The procedures
described in Annex II, in particular, are pertinent in determining whether there is remission of
import duties in amounts that in fact exceed a permitted limit. Annex II(II) provides for a two-step
analysis for investigating authorities to confirm whether the scheme in question provides for
excess remission of import duties.

22. Should the system not satisfy the conditi ons in Annex II(II)(1), Annex II(II)(2)
contemplates an additional analysis by the exporting Member. Specifically, subparagraph (II)(2)
provides that the exporting Member take steps to demonstrate the validity of its system in three
different scenarios. In each of those scenarios, the step of demonstrating that there is no excess
remission is left to the exporting Member. Specifically, the exporting Member would need to carry
out a "further examination ... based on the actual inputs involved" to determine " whether an
excess payment occurred." Otherwise, the investigating authority would have to determine
amounts where not possible per the annex guidelines. Such a result would not be consistent with
meaning of these provisions.

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23. It is for this very reason that both subparagraphs (1) and (2) to Annex II(II) require that
the exporting Member ensure and demonstrate that there is no excess remission of import duties.
If the exporting Member cannot demonstrate that it has an adequate system or procedure in place
or that there are otherwise no excess import duties remitted, then it would be impossible for the
investigating authority to make such a determination.

24. An investigating authority must be able to identify with some precision the extent to which
there is excess duty remission under the system in order to determine whether the limitation
provided for in footnote 1 applies to the particular financial contribution at issue. Neither the
footnote, nor the referenced annexes, suggests their purpose relates t o the determination of
subsidy amounts. This is particularly true where the investigating authority cannot discern
whether, and to what extent, there is excess remission, because the exporting Member has not
been able to make the required demonstration.

25. Thus, the language of the annex supports the interpretation of the United States that
footnote 1 operates to limit the definition of a financial contribution set forth in
Article 1.1(a)(1)(ii). Where the criteria for this limitation are not satisfied p er the guidelines of
Annex II, the limitation does not apply, and the language of footnote 1 has no further bearing on
the question of whether the alleged program is a financial contribution.

7. CHANGES AFTER THE PERIOD OF INVESTIGATION
26. Finally, the United States notes that an investigating authority need not consider information
that post -dates the period of investigation in a trade remedy proceeding. Rather, the authority
must consider the system or procedure that was in place during the period of investigation.

EXECUTIVE SUMMARY OF U.S. RESPONSES TO PANEL QUESTIONS TO THIRD PARTIES
27. In the context of an investigation, if the investigating authority cannot satisfy itself that the
exporting Member has an adequate verification system or procedure i n place under
Annex II(II)(1), or the exporting Member does not demonstrate that there are otherwise no excess
import duties remitted pursuant to Annex II(II)(2), then there is no textual basis for the
investigating authority to make a determination per fo otnote 1 that the alleged financial
contribution shall "not be deemed to be a subsidy." Thus, where the inquiry posed by Annex II(II)
is inconclusive, the limitation in footnote 1 to Article 1.1(a)(1)(ii) does not apply and an
investigating authority may d etermine whether there exists a financial contribution irrespective of
footnote 1.

28. Assuming an exporting Member has no "system or procedure to confirm which inputs are
consumed in the production of the exported product and in what amounts," the only r emaining
step through which an exporting Member may comport with Annex II (and, therefore, footnote 1)
is for the exporting Member to perform the "further examination" as envisioned by Annex II(II)(2).
The exporting Member's opportunity to perform that exa mination is not contingent upon a request
for such action on the part of an investigating authority.

29. In the view of the United States, the analysis under subparagraphs (II)(1) and (2) is
sequential. Thus, absent satisfaction of the criteria in paragra ph 1, a "further examination by the
exporting Member… would need to be carried out". Nothing in the text of paragraph 2 suggests
that the investigating authority must request that the exporting Member carry out the "further
examination" "[w]here there is n o such system or procedure" (as is assumed by the Panel's
question).

30. Suppose that, prior to verification, an exporting Member has acknowledged in its
questionnaire response that its duty drawback scheme lacks a verification system or procedure
under Annex II(II)(1), but has also submitted evidence of the results obtained from conducting a
further examination of the amount of excess remission based on actual inputs consumed, pursuant
to Annex II(II)(2). In this scenario, the investigating authority coul d take that information into
account in determining whether a subsidy exists and the extent of the benefit. During on -the-spot
verification, the investigating authority would then be able to "satisfy itself" as to the veracity of
the evidence already submitted.

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31. By contrast, suppose that an exporting Member has asserted, prior to verification, that its
duty drawback scheme comports with Annex II(II)(1), but has not undertaken "a further
examination" as described by Annex II(II)(2). An investigating autho rity then conducting a
verification to "satisfy itself" as to the veracity of the evidence already submitted would be able to
spot-check the basis for the Annex II(II)(1) assertion, but would have nothing to "verify"
regarding Annex II(II)(2) if no "furthe r examination" had been conducted by the exporting
Member.

32. Whether the entire amount of duty remission or an "excess" amount is countervailed would
depend on the factual circumstances confronted by an investigating authority.

33. In response to the P anel's final question, generally speaking, a "line of credit" can be
considered a type of loan. In considering whether a loan benchmark is "comparable," the
investigating authority should consider a benchmark that "'ha[s] as many elements as possible in
common with the investigated loan ...'," although "in practice, the existence of such an ideal
benchmark loan would be extremely rare," and "a comparison should also be possible with other
loans that present a lesser degree of similarity." As we have noted, this suggests that factual
circumstances are central to the benchmark selection.

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ANNEX E
INTERIM REVIEW
Contents Page
Annex E-1 Interim Review E-2

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ANNEX E-1
INTERIM REVIEW
1 INTRODUCTION
1.1. In compliance with Article 15.3 of the DSU, this Annex sets out the Panel's discussion of the
arguments made at the interim review stage. We have modified certain aspects of the Report in
light of the parties' comments where we considered it appropriate, as explained below. In addition,
the Panel has made certain changes of an editorial nature to improve the clarity and accuracy of
the Report or to correct typographical and other non-substantive errors.
1.2. Due to changes as a result of our review, certain numbering of the paragraphs and footnotes
in the Final Report has changed from the Interim Report. The text below refers to the numbers in
the Interim Report, with the numbers in the Final Report in parentheses for ease of reference.
2 SPECIFIC REQUESTS FOR REVIEW SUBMITTED BY THE PARTIES
2.1 Paragraph 7.115 (paragraph 7.115)
2.1. Pakistan asks the Panel to revise this paragraph to more accurately reflect its arguments.
The European Union considers that Pakistan's request should be dismissed to the extent that
Pakistan is improperly asking the Panel to modify the sections of the Report containing the Panel's
assessment. The European Union suggests that where Pakistan requests the Panel to add or clarify
Pakistan's arguments, such clarifications should be better made in sections of the r eport
summarising Pakistan's arguments.
2.2. Although we do not consider that the language previously used in this paragraph did not
represent Pakistan's position accurately, we have decided to accommodate Pakistan's request, and
also made further conforming changes to paragraphs 7.114, 7.115, and 7.116 (paragraphs 7.114,
7.115, and 7.116) to more fully account for this revision.
2.2 Paragraph 7.117 (paragraph 7.117)
2.3. Pakistan asks the Panel to revise this paragraph to more fully reflect its arguments . The
European Union considers that Pakistan's request should be dismissed to the extent that Pakistan
is improperly asking the Panel to modify the sections of the Report containing the Panel's
assessment. The European Union suggests that where Pakistan requests the Panel to add or clarify
Pakistan's arguments, such clarifications should be better made in sections of the report
summarising Pakistan's arguments.
2.4. We have decided to accommodate Pakistan's request, and also made conforming changes to
paragraphs 7.117 and 7.118 (paragraphs 7.118 and 7.119) and footnotes thereto to more fully
account for this revision.
2.3 Paragraph 7.124 (paragraph 7.125)
2.5. Pakistan asks the Panel to revise the part of the Report in which this paragraph appears to
more fully reflect its arguments. The European Union considers that Pakistan's request should be
dismissed to the extent that Pakistan is improperly asking the Panel to modify the sections of the
Report containing the Panel's assessment. The European Union sugge sts that where Pakistan
requests the Panel to add or clarify Pakistan's arguments, such clarifications should be better
made in sections of the report summarising Pakistan's arguments.
2.6. We consider that the Section of the Report that contains paragraph 7.124 (paragraph 7.125)
already accurately describes and cites the arguments that Pakistan asks us to include. 1 We

1 See paragraph 7.120 and footnotes 254 and 255 (paragraph 7.121 and footnotes 256 and 257).

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therefore decline Pakistan's request. We further emphasize that the manner in which we dispose of
these arguments is consistent with the man ner in which Pakistan presented them in its
submissions.
2.4 Paragraph 7.178 (paragraph 7.179)
2.7. Pakistan asks the Panel to revise this paragraph to more fully reflect its arguments. The
European Union considers that Pakistan's request should be dismis sed to the extent that Pakistan
is improperly asking the Panel to modify the sections of the Report containing the Panel's
assessment. The European Union suggests that where Pakistan requests the Panel to add or clarify
Pakistan's arguments, such clarifica tions should be better made in sections of the report
summarising Pakistan's arguments.
2.8. We have decided to accommodate Pakistan's request.