UNITED STATES – SUBSIDIES ON UPLAND COTTON
Document: Notification of an Appeal by the United States under paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU")
Date: 20 October 2004
Document codes: WT/DS267/17
Complainant: Brazil
Respondent: U.S.
Third parties: Argentina, Australia, Benin, Canada, Chad, China, Taiwan, EU, India, New Zealand, Pakistan, Paraguay, Venezuela, Japan, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 3, 5, 6  Subsidies and Countervailing Measures (SCM)Art. 3.3, 7.1, 8, 9.1, 10.1  AgricultureArt. III:4, XVI  GATT 1994

UNITED STATES – SUBSIDIES ON UPLAND COTTON

Notification of an Appeal by the United States
under paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes ("DSU")

 The following notification, dated 18 October 2004, from the Delegation of the United States,
is being circulated to Members.

Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
United States hereby notifies its decision to app eal to the Appellate Body certain issues of law
covered in the Report of the Panel on () and
certain legal interpretations developed by the Panel in this dispute.

1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
certain U.S. decoupled income support measures – that is, production flexibility contract payments
under the Federal Agricultural Impr ovement and Reform Act of 1996 ("1996 Act"), direct payments
under the Farm Security and Rural Investment Ac t of 2002 ("2002 Act"), and "the legislative and
regulatory provisions which establish and maintain the [direct payments] programme" – are not
exempt from actions under Article 13(a) of the Agreement on Agriculture.
1 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings include, for example, that these dec oupled income support measures do not conform to
Annex 2.

2. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
certain U.S. domestic support measures
2 are not exempt from actions under Article 13(b) of the
Agreement on Agriculture .3 This conclusion is in error and is based on erroneous findings on issues
of law and related legal interpre tations. These erroneous findings include, for example, the Panel's
finding that the challenged U.S. measures granted support to a specific commodity in excess of that
decided in marketing year 1992 and therefore breached the proviso of Article 13(b) in each year from
marketing year 1999-2002.

3. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of unscheduled agricultura l products supported unde r the programs and one
scheduled commodity (rice) are "export subsidies app lied in a manner which results in circumvention
of United States export subsidy commitments, within the meaning of Article 10.1 of the Agreement on

1See, e.g., Panel Report, paras. 8.1(b), 7.337-7.414.
2See Panel Report, para. 7.337.
3See, e.g., Panel Report, paras. 8.1(c), 7.415-7.647.

Agriculture," are therefore inconsistent with Article 8 of the Agreement on Agriculture , and are not
exempt from actions under Article 13(c) of the Agreement on Agriculture.
4 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings, include, for example, the Panel's finding that export credit guarantees, notwithstanding
Article 10.2 of the Agreement on Agriculture , constitute measures subject to Article 10.1 of the
Agreement on Agriculture.

4. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of other scheduled agricultural products constitute export subsidies within the
meaning of Article 10.1 of the Agreement on Agriculture.
5 This conclusion is in error and is based on
erroneous findings on issues of law and relate d legal interpretations. These erroneous findings,
include, for example, the Panel's finding that e xport credit guarantees, notwithstanding Article 10.2 of
the Agreement on Agriculture , constitute measures subject to Article 10.1 of the Agreement on
Agriculture.

5. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of unscheduled agricultura l products supported unde r the programs and one
scheduled commodity (rice) are per se export subsidies prohibited by Articles 3.1(a) and 3.2 of the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement").
6 This conclusion is in
error and is based on erroneous fi ndings on issues of law and relate d legal interpretations. These
erroneous findings include, for example, the Panel's finding that the program for each product
constitutes an export subsidy for purposes of th e WTO Agreements and is provided by the United
States at premium rates which are inadequate to cover long-term operating costs and losses of the
programs within the meaning of item (j) of the Illust rative List of Export Subsidies in Annex I of the
SCM Agreement.

6. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
section 1207(a) of the 2002 Act, which provides for user marketing (Step 2) payments to exporters of
upland cotton, is an export subsidy that is listed in Article 9.1(a) of the Agreement on Agriculture that
is inconsistent with U.S. obligati ons under Articles 3.3 and 8 of the Agreement on Agriculture, is not
exempt from actions under Article 13(c) of the Agreement on Agriculture , and is inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement.
7 This conclusion is in error and is based on erroneous
findings on issues of law and rela ted legal interpretations. These erroneous findings include, for
example, the Panel's finding that payments under th e user marketing (Step 2) program are contingent
on export performance.

7. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
section 1207(a) of the 2002 Act providing for user mark eting (Step 2) payments to domestic users of
upland cotton is an import substitution subsidy prohibited under Articles 3.1(b) and 3.2 of the
Agreement on Subsidies and Countervailing Measures .8 This conclusion is in error and is based on
erroneous findings on issues of la w and related legal interpretati ons. These erroneous findings
include, for example, the Panel's finding that dome stic support payments that are consistent with a
Member's domestic support reduction commitments under the Agreement on Agriculture may
nonetheless be prohibited under the SCM Agreement.

4See, e.g., Panel Report, paras. 8.1(d)(1), 7.762-7.945.
5See, e.g., Panel Report, paras. 8.1(d)(2), 7.762-7.945.
6See, e.g., Panel Report, paras. 8.1(d)(1), 7.787-7.869, 7.946-7.948.
7See, e.g., Panel Report, paras. 7.678-7.761, 8.1(e).
8See, e.g., Panel Report, paras. 7.1018-7.1098, 8.1(f).

8. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
"the effect of the mandatory, price contingent United States subsidies at issue – that is, marketing loan
programme payments, user marketing (Step 2) paym ents and MLA payments and CCP payments – is
significant price suppression in the same world market for upland cotton in the period MY 1999-2002
within the meaning of Articles 6.3(c) and 5(c)" of the SCM Agreement.
9 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings include, for example, the following:

(a) the Panel's finding that Brazil need not de monstrate, and the Panel need not find, the
amount of the challenged subsidy that benefits the subsidized product, upland cotton;

(b) the Panel's finding that subsidies not directly tied to current production of upland
cotton (decoupled payments) need not be allocated to all products produced and sold by the
firms receiving such subsidies;

(c) that the Panel could make findings concer ning subsidies that no longer existed at the
time of panel establishment and that present ser ious prejudice could be, and was, caused by
such subsidies;

(d) the Panel's finding that the challenged s ubsidies provided to cotton producers "passed
through" to cotton exporters;

(e) the Panel's finding that there was price suppression "in the same market";

(f) the Panel's finding that significant price suppression existed;

(g) the Panel's finding that the price suppression it found under an erroneous legal
standard was "significant";

(h) the Panel's finding that "the effect of" the U.S. subsidies "is" significant price
suppression;

(i) the Panel's finding that "significant price suppression" is sufficient to establish
"serious prejudice" for purposes of Articles 5(c) and 6.3 of the SCM Agreement; and

(j) the Panel's finding that its "'present' serious prejudice findings include findings of
inconsistency that deal with the FSRI Act of 2002 and subsidies granted thereunder in MY
2002."
10

9. The United States seeks review by the Appellate Body of the Panel's finding that decoupled
payments made with respect to non-upland cotton base acres were within its terms of reference.
11
This finding is in error and is based on errone ous findings on issues of law and related legal
interpretations. These erroneous findings incl ude, for example, the Panel's finding that these
payments were measures at issue within the meaning of Articles 4.4 and 6.2 of the DSU.

9Panel Report, paras. 7.1416, 7.1107-7.1416, 8.1(g)(i).
11See, e.g., Panel Report, paras. 7.129-7.136.

10. The United States requests the Appellate Body to find that the Panel failed to set out the
findings of fact, the applicability of the relevant pr ovisions, and the basic rationale behind its findings
and recommendations, as required by Article 12.7 of the DSU. The Panel's failure to set these out
include, for example, the findings or lack of findings concerning the following areas: the amount of
the challenged subsidies, including the amount of paym ents not directly tied to current production of
upland cotton (decoupled payments); that significan t price suppression existed; the degree of price
suppression it deemed "significant"; that "the effect of" the U.S. subsidies "is" significant price
suppression; that decoupled payments made with r espect to non-upland cotton base acres were within
its terms of reference; and the basis for its ability to make findings with respect to subsidies that no
longer existed at the time of panel establishment.

11. The United States seeks review by the Appellate Body of the Panel's finding that export credit
guarantees to facilitate the export of "other eligib le agricultural commodities" besides upland cotton
were within its terms of reference.
12 This finding is in error and is based on erroneous findings on
issues of law and related legal in terpretations. These erroneous fi ndings include, for example, the
Panel's finding that such export credit guarantees were included in Brazil's consultation request and its
finding that, contrary to Articles 4.2, 4.4, and 6.2 of the DSU, it could examine measures that were not
included in Brazil's request for consultations.

12. The United States seeks review by the Appellate Body of the Panel's finding that Brazil
provided the statement of available evidence requi red by Article 4.2 of the SCM Agreement with
respect to export credit guarantee measures relating to eligible United States agricultural products
other than upland cotton, and that accordingly, Br azil's claims concerning these measures were within
the terms of reference of this dispute.
13 This finding is in error and is based on erroneous findings on
issues of law and related legal interpretations.

13. In the event Brazil appeals the Panel's exercise of judicial economy with respect to Brazil's
claims concerning the compatibility of U.S. export credit guarantee measures with Part III of the SCM
Agreement,14 in this U.S. appeal the United States co nditionally requests the Appellate Body to find
that Brazil also failed to provide a statement of av ailable evidence as required by Article 7.2 of the
SCM Agreement, and that accordingly, Brazil's claims concerning these measures would not be
within the terms of reference of this dispute.

14. The United States seeks review by the Appellate Body of the Panel's legal conclusion that two
types of expired measures, production flexibility c ontract payments and market loss assistance
payments, were within the Panel's terms of referen ce. This conclusion is in error and is based on
erroneous findings on issues of la w and related legal interpretati ons. These erroneous findings
include, for example, the Panel's finding that measures that are no longer in existence as of the date of
establishment of a panel are nonetheless within a panel's terms of reference.
15