UNITED STATES – SUBSIDIES ON UPLAND COTTON
Document: RECOURSE TO ARTICLE 21.5 OF THE DSU BY BRAZIL AB-2008-2
Date: 2 June 2008
Document codes: WT/DS267/AB/RW
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

RECOURSE TO ARTICLE 21.5 OF THE DSU BY BRAZIL

AB-2008-2

Report of the Appellate Body

APPELLATE BODY

– Recourse to Article 21.5 of the DSU by Brazil

United States, Appellant/Appellee
Brazil, Other Appellant/Appellee

Argentina, Third Participant
Australia, Third Participant
Canada, Third Participant
Chad, Third Participant
China, Third Participant
European Communities, Third Participant
India, Third Participant
Japan, Third Participant
New Zealand, Third Participant
Thailand, Third Participant

 AB-2008-2

 Present:

 Baptista, Presiding Member
 Hillman, Member
 Unterhalter, Member

I. Introduction
1. The United States and Brazil each appeals certain issues of law and legal interpretations
developed in the Panel Report, – Recourse to Article 21.5
of the DSU by Brazil (the "Panel Report").
1 The Panel was established to consider a complaint by
Brazil concerning the consistency with the Agreement on Agriculture and the Agreement on
Subsidies and Countervailing Measures (the " SCM Agreement ") of measures taken by the United
States to comply with the recommendations and rulin gs of the Dispute Settlement Body (the "DSB")
in the original proceedings in US – Upland Cotton.2

1, 18 December 2007.
2The recommendations and rulings of the DSB resulted from the adoption on 21 March 2005, by the
DSB, of the Appellate Body Report, , and the Panel Report, , in US – Upland
Cotton. In this Report, we refer to the panel in these Article 21.5 proceedings as the "Panel", and to the panel
that considered the original complaint brought by Brazil as the "original panel" and to its report as the "original
panel report".

2. In the original proceedings, Brazil challenged various United States measures
3 that Brazil
alleged constituted actionable subsidies w ithin the meaning of Part III of the SCM Agreement ,
prohibited subsidies within the meaning of Part II of the SCM Agreement, export subsidies within the
scope of the Agreement on Agriculture, and/or subsidies actionable under Article XVI of the General
Agreement on Tariffs and Trade 1994 (the "GATT 1994") . Brazil also challenged certain of these
measures under Article III:4 of the GATT 1994. 4 The United States argued that, by virtue of
paragraphs (a) and (b) of Article 13 of the Agreement on Agriculture , some of the measures were
domestic support measures that were ex empt from being challenged under the SCM Agreement and
the GATT 1994.5
3. The following conclusions of the original panel are relevant for purposes of these proceedings
pursuant to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes (the "DSU"). First, the original panel found that export credit guarantees provided to
unscheduled agricultural products (including upland cotton) and to one scheduled product (rice) under
three export credit guarantee programmes—the Gene ral Sales Manager ("GSM") 102, the GSM 103,
and the Supplier Credit Guarantee Program ("SCGP") —are export subsidies applied in a manner that
resulted in circumvention of the United States' e xport subsidy commitments within the meaning of
Article 10.1 of the Agreement on Agriculture , and were therefore inconsistent with Article 8 of that
Agreement.6 The original panel further found that, to the extent the export credit guarantees provided
with respect to these products were not exempt from action under the SCM Agreement , "the
GSM 102, GSM 103 and SCGP export credit guarantee programmes are provided by the United
States government at premium rates which are inad equate to cover long-te rm operating costs and
losses of the programmes within the meaning of item (j ) of the Illustrative List of Export Subsidies in
Annex I of the SCM Agreement , and therefore constitute per se export subsidies prohibited by
Articles 3.1(a) and 3.2 of the SCM Agreement."7 However, with respect to export credit guarantees
for pig meat and poultry meat, the original panel found that the United States had established that
export credit guarantees under the GSM 102, GSM 103, and SCGP programmes had not been applied

3Brazil made claims in respect of marketing loan programme payments, user marketing (Step 2)
payments ("Step 2 payments"), production flexibility contract payments, market loss assistance payments, direct
payments, counter-cyclical payments, crop insurance payments, cottonseed payments, export credit guarantees
and the FSC Repeal and Extraterritori al Income Exclusion Act of 2000, Public Law No. 106-519 (the "ETI Act
of 2000"). Brazil also made claims regarding legislation and regulations underlying certain of these
programmes. (See Appellate Body Report, US – Upland Cotton, footnote 2 to para. 1; see also Original Panel
Report, paras. 7.200-7.250)
4See Appellate Body Report, US – Upland Cotton, para. 1.
5Ibid.
6See Original Panel Report, para. 8.1(d)(i).
7Ibid.

in a manner that resulted in circumvention of th e United States' export subsidy commitments within
the meaning of Article 10.1 and, therefore, we re not inconsistent with Article 8 of the Agreement on
Agriculture and were exempt from action under the SCM Agreement.8
4. Secondly, as regards Brazil's claims of serious prejudice, the original panel found that the
effect of the mandatory price-contingent United States subsidy measures—marketing loan programme
payments, user marketing (Step 2) payments ("Step 2 payments"), market loss assistance payments,
and counter-cyclical payments—is significant price suppression in the same world market within the
meaning of Article 6.3(c) of the SCM Agreement , constituting serious prejudice to the interests of
Brazil within the meaning of Article 5(c) of the SCM Agreement.9
5. In the light of its conclusions, the original panel recommended, pursuant to Article 19.1 of the
DSU, that the United States bring the export cred it guarantees found to be inconsistent with its
obligations under the Agreement on Agriculture into conformity with that Agreement.10 The original
panel further recommended that, as required by Article 4.7 of the SCM Agreement, the United States
withdraw the export credit guarantees that were f ound to be prohibited subs idies without delay and
specified that this would have to occur "at the latest within six months of the date of adoption of the
Panel report by the Dispute Settlement Body or 1 July 2005 (whichever is earlier)". 11 Finally, as
regards the price-contingent subsidies found to cause serious prejudice, the orig inal panel stated that,
in accordance with Article 7.8 of the SCM Agreement, the United States was "under an obligation to
'take appropriate steps to remove the adverse effects or ... withdraw the subsidy'" upon adoption of the
original panel report.12
6. On appeal, the Appellate Body upheld the orig inal panel's finding "that the effect of the
marketing loan program payments, Step 2 paymen ts, market loss assistance payments, and counter-
cyclical payments (the 'price-contingent subsidies') is significant price suppression within the meaning

8See Original Panel Report, para. 8.1(d)(ii).
9See ibid., para. 8.1(g)(i). The original panel also found that Section 1207(a) of the Farm Security and
Rural Investment Act of 2002, Public Law No. 107-171 (the "FSRI Act of 2002"), providing for Step 2
payments to exporters of upland cotton constituted an export subsidy that was inconsistent with the United
States' obligations under Articles 3.3 and 8 of the Agreement on Agriculture and prohibited by Articles 3.1(a)
and 3.2 of the SCM Agreement. In addition, the original panel concluded that Section 1207(a) of the FSRI Act
of 2002 providing for Step 2 payments to domestic users of upland cotton constituted an import substitution
subsidy prohibited by Articles 3.1(b) and 3.2 of the SCM Agreement. (See ibid., para. 8.1(e) and (f))
10See ibid., para. 8.3(a).
11Ibid., para. 8.3(b).
12Ibid., para. 8.3(d).

of Article 6.3(c) of the SCM Agreement ".
13 The Appellate Body also upheld the original panel's
finding that "the United States export credit guarantee programmes at issue—GSM 102, GSM 103
and SCGP—constitute a per se export subsidy within the meaning of item (j) of the Illustrative List
of Export Subsidies in Annex I of the SCM Agreement"14, and the original panel's findings "that these
export credit guarantee programs are export subsidies for purposes of Article 3.1(a) of the SCM
Agreement and are inconsistent with Articles 3.1(a) and 3.2 of that Agreement". 15 The United States
did not appeal the original panel's findings re lating to circumvention under Article 10.1 of the
Agreement on Agriculture. However, in response to Brazil's appeal, the Appellate Body reversed the
original panel's finding that actual circumvention in respect of export credit guarantees for pig meat
and poultry meat had not been est ablished. Because there were insu fficient uncontested facts in the
record to complete the legal analysis, the Appellate Body was unable to determine whether the United
States' export credit guarantees for pig meat and pou ltry meat had been applied in a manner that
resulted in circumvention of the United States' e xport subsidy commitments, contrary to Article 10.1
of the Agreement on Agriculture.16
7. The original panel and Appellate Body reports were adopted by the DSB on 21 March 2005.
8. On 30 June 2005, the United States Department of Agriculture (the "USDA") announced that
the United States Commodity Credit Corporation (the "CCC") would no longer accept applications for
export credit guarantees under the GSM 103 programme. 17 The USDA also announced that the CCC
would use a new fee structure for the GSM 102 and SCGP programmes. 18 In October 2005, the CCC
ceased issuing export credit guarantees under the SCGP. 19 On 1 February 2006, United States
Congress adopted legislation repealing the Step 2 pa yments programme for upland cotton effective as
of 1 August 2006.20 Since the adoption of the original pane l and Appellate Body reports, the United
States has continued to provide marketing loan and counter-cyclical payments to United States

13Appellate Body Report, US – Upland Cotton, para. 763(c)(i).
15Ibid.
16See ibid., para. 763(f)(i).
17See Panel Report, para. 3.16 (referring to "USDA announces changes to export credit guarantee
programs to comply with WTO findings", USDA Fore ign Agricultural Service (FAS) Online News Release
of 30 June 2005 (Exhibit Bra-502 submitted by Brazil to the Panel); and "Notice to GSM-103 Program
Participants", USDA FAS Program Announcement of 30 June 2005 (Exhibit Bra-503 submitted by Brazil to the
Panel)).
18See Panel Report, para. 3.16.
19See ibid. (referring to United States' first written submission to the Panel, para. 20, and "Summary of
FY 2006 Export Credit Guarantee Programme Activity for GSM-102 as of close of business: 9/30/2006"
(Exhibit Bra-513 submitted by Brazil to the Panel)).
20See ibid., para. 3.7 (referring to Section 1103 of the Deficit Reduction Act of 2005, Public Law
No. 109-171 (Exhibit Bra-435 submitted by Brazil to the Panel)).

producers of upland cotton, and the legislative and regulatory provisions governing these payments
remain unchanged.21
9. Brazil considered that the United States had faile d to bring its measures into conformity with
the United States' obligations under the relevant provisions of the Agreement on Agriculture and the
SCM Agreement and requested that the matter be referred to a panel pursuant to Article 21.5 of the
DSU.22 On 28 September 2006, the DSB established the Panel under Article 21.5. 23 Before the Panel
in these Article 21.5 proceedings, Brazil claimed th at the measures taken by the United States have
failed to bring it into compliance with its obligations under the Agreement on Agriculture and the
SCM Agreement.
10. The Panel Report was circulated to Members of the World Trade Organization (the "WTO")
on 18 December 2007. The following rulings ma de by the Panel concerning the scope of the
Article 21.5 proceedings are relevant to this appeal:
In light of the foregoing consider ations, the Panel finds that the
claims of Brazil relating to export credit guarantees for exports of pig
meat and poultry meat are within the scope of this proceeding under
Article 21.5 of the DSU.
24 (emphasis omitted)

The Panel finds that, although the original panel's finding of
"present" serious prejudice did not apply to legal provisions or
subsidy programmes in addition to subsidies and subsidy measures, it
is not necessary for the Panel to make a ruling on the preliminary
objection of the United States because Brazil does not request the
Panel to find that the marketing loan and counter-cyclical payment
programmes are WTO-inconsistent as such. The Panel also
concludes that the original panel's finding of serious prejudice was
based on an analysis that took into consideration the legal provisions
or subsidy programmes pursuant to which the subsidies were
provided. The Panel considers th at it is appropriate in this
proceeding to conduct a similar analysis of subsidies in the context of
the legal provisions or subsidy programmes pursuant to which the
subsidies are granted.

21See Panel Report, paras. 3.9 and 3.12. In addition to Step 2 payments, marketing loan payments, and
counter-cyclical payments, the original panel's finding of serious prejudice covered market loss assistance
payments. According to the original pane l, market loss assistance payments were " ad hoc emergency and
supplementary assistance prov ided to producers" under "four separate pieces of legislation, one each for the
years 1998 through 2001". (Original Panel Report, para. 7.216 (quoted in Panel Report, para. 3.10))
22Request for the Establishment of a Panel by Brazil, WT/DS267/30.
23See Panel Report, para. 1.2.
24Ibid., para. 9.27.

... For this reason, the Panel does not find it necessary to rule on the
objection of the United States that since the marketing loan and
counter-cyclical programmes are not "measures taken to comply"
within the meaning of Article 21.5 of the DSU, Brazil's claims with
respect to these programmes are not within the scope of this
proceeding.
25 (emphasis omitted)

In light of these considerations, the Panel concludes that to the extent
marketing loan payments and counte r-cyclical payments made by the
United States after 21 September 2005 are provided under the same
conditions and criteria as the marke ting loan payments and counter-
cyclical payments subject to the original panel's finding of "present"
serious prejudice, they are subject to the obligation of the United
States under Article 7.8 of the SCM Agreement to take appropriate
steps to remove the adverse effects of the subsidy. As a
consequence, we also consider th at Brazil's claim that the United
States has failed to comply with its obligations under Article 7.8 with
respect to these payments is properly before this Panel. ...
26
11. The following findings of the Panel are relevant for this appeal:
With respect to the measure taken by the United States to comply
with the DSB recommendations and rulings relating to the original
panel's finding of inconsistency with Articles 5 and 6 of the
SCM Agreement:
(a) The United States acts inconsistently with its obligations
under Articles 5(c) and 6.3(c) of the SCM Agreement in that the
effect of marketing loan and counter-cyclical payments provided to
[United States] upland cotton producers pursuant to the FSRI Act
of 2002 is significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement in the world market for upland
cotton constituting "present" serious prejudice to the interests of
Brazil within the meaning of Article 5(c) of the SCM Agreement.
By acting inconsistently with Articles 5(c) and 6.3(c) of the
SCM Agreement the United States has failed to comply with the
DSB recommendations and rulings. Specifically, the United States
has failed to comply with its obligation under Article 7.8 of the SCM
Agreement "to take appropriate steps to remove the adverse effects
or ... withdraw the subsidy".

25Panel Report, paras. 9.54 and 9.55.
26Ibid., para. 9.81.

With respect to the measure taken by the United States to comply
with the DSB recommendations and rulings relating to the original
panel's findings of inconsistency with Articles 10.1 and 8 of the
Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM
Agreement:
(c) Regarding GSM 102 export credit guarantees issued after
1 July 2005 the United States acts inconsistently with Article 10.1 of
the Agreement on Agriculture by applying export subsidies in a
manner which results in the circumvention of [United States] export
subsidy commitments with respect to certain unscheduled products
and certain scheduled products, a nd as a result acts inconsistently
with Article 8 of the Agreement on Agriculture . Regarding
GSM 102 export credit guarantees issued after 1 July 2005 the
United States also acts inconsistently with Articles 3.1(a) and 3.2 of
the SCM Agreement by providing export subsidies to unscheduled
products and by providing export s ubsidies to scheduled products in
excess of the commitments of the United States under the Agreement
on Agriculture. By acting inconsistently with Articles 10.1 and 8 of
the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the
SCM Agreement the United States has failed to comply with the
DSB recommendations and rulings. Specifically, the United States
has failed to bring its measures into conformity with the Agreement
on Agriculture and has failed "to withdraw the subsidy without
delay".
27 (footnotes omitted)
12. The Panel concluded that "to the extent that the measures taken by the United States to
comply with the recommendations and rulings adop ted by the DSB in the original proceeding are
inconsistent with the obligations of the Un ited States under the covered agreements, these
recommendations and rulings remain operative."28
13. On 12 February 2008, the United States notifie d the DSB, pursuant to Article 16.4 of the
DSU, of its intention to appeal certain issues of law covered in the Pane l Report and certain legal
interpretations developed by the Panel and filed a Notice of Appeal 29, pursuant to Rule 20 of the
Working Procedures for Appellate Review 30 (the " Working Procedures"). On 19 February 2008, the
United States filed an appellant's submission. 31 On 25 February 2008, Brazil notified the DSB,
pursuant to Article 16.4 of the DSU, of its intenti on to appeal certain issues of law covered in the
Panel Report and certain legal inte rpretations developed by the Pa nel and filed a Notice of Other
Appeal32, pursuant to Rule 23(1) and (2) of the Working Procedures. On 27 February 2008, Brazil

27Panel Report, para. 15.1.
28Ibid., para. 15.2.
29WT/DS267/33 (attached as Annex I to this Report).
30WT/AB/WP/5, 4 January 2005.
31Pursuant to Rule 21 of the Working Procedures.
32WT/DS267/34 (attached as Annex II to this Report).

filed an other appellant's submission.
33 On 12 March 2008, Chad notified the Appellate Body
Secretariat of its intention to appear at the oral hearing as a third participant. 34 On 13 March 2008,
Brazil and the United States each filed an appellee's submission 35, and Argentina, Australia, Canada,
the European Communities, Japan, and New Zealan d each filed a third participant's submission. 36 On
the same day, China, India, and Thailand each notif ied the Appellate Body Secretariat of its intention
to appear at the oral hearing as a third participant.37
14. After consultation with the Appellate Body Secretariat, Brazil and the United States agreed, in
a joint letter dated 19 March 2008, that it would not be possible for the Appellate Body to circulate its
Report in this appeal within the 90-day time-limit re ferred to in Article 17.5 of the DSU. Brazil and
the United States agreed that add itional time was needed because of the complexity of the issues
arising in the appeal and the difficulties encountered by the Appellate Body in scheduling the oral
hearing. Brazil and the United States accordingly confirmed that they would deem the Appellate
Body Report in these proceedings, issued no later than 2 June 2008, to be an Appellate Body Report
circulated pursuant to Article 17.5 of the DSU.38
15. The oral hearing in this appeal was held on 14-15 April 2008. The participants and the third
participants39 presented oral arguments and responded to questions posed by the Members of the
Appellate Body Division hearing the appeal.

33Pursuant to Rule 23(3) of the Working Procedures.
34Pursuant to Rule 24(2) of the Working Procedures.
35Pursuant to Rules 22 and 23(4) of the Working Procedures. After consultation with the participants,
the Appellate Body Division hearing this appeal allocated additional time for filing the appellees' submissions
and the third participants' submissions and notifications, pursuant to Rules 16, 22, 23, 24, and 26 of the Working
Procedures.
36Pursuant to Rule 24(1) of the Working Procedures.
37Pursuant to Rule 24(2) of the Working Procedures.
38On 11 April 2008, the Appellate Body notified the Ch airman of the DSB that the expected date of
circulation of its Report was 2 June 2008 (WT/DS267/35).
39China, India, and Thailand did not make a statement at the oral hearing.

II. Arguments of the Participants and the Third Participants
A. Claims of Error by the United States – Appellant
1. Scope of These Article 21.5 Proceedings
(a) Export Credit Guarantees for Pig Meat and Poultry Meat
16. The United States argues that the Panel erred in finding that Brazil's claims relating to export
credit guarantees for pig meat and poultry meat are properly within the scope of the Article 21.5
proceedings.
17. The United States maintains that, as the Pane l itself recognized, the application of the
GSM 102 export credit guarantees to an individual pr oduct constitutes a measure. The United States
adds that, because neither the original panel nor the Appellate Body made findings that export credit
guarantees with respect to pig meat and poultry meat were inconsistent with the United States' WTO
obligations, the DSB adopted no recommendations and rulings as to these measures. Thus, there
could be no "measures taken to comply" relating to pig meat and poultry meat. The United States
submits that "[t]he Panel ... disregarded these facts, and considered claims that were beyond the scope
of the compliance proceeding under Article 21.5."
40
18. The United States further alleges that the Panel disregarded the requirements of Article 21.5
by substituting them with a "particularly close rela tionship" test, erroneously relying on the Appellate
Body Reports in US – Softwood Lumber IV (Article 21.5 – Canada) and US – Oil Country Tubular
Goods Sunset Reviews (Article 21.5 – Argentina) . In the United States' view, the Appellate Body's
reasoning in these reports is not applicable because they addressed situations different from the one
raised in these proceedings. In US – Softwood Lumber IV (Article 21.5 – Canada) , the Appellate
Body addressed the situation in which a separate m easure was issued at approximately the same time
as the one that the responding party declared to be the measure taken to comply, and which was
alleged to undo the compliance achieved by the declared measure taken to comply. The United States
submits, however, that "the question before this Panel was not whether a second measure had
undone, superseded, or otherwise replaced co mpliance with DSB recommendations and rulings

regarding export credit guarantees for pig meat and poultry".
41 As there were no such
recommendations and rulings in this dispute, the qu estion before the panel a nd the Appellate Body in
US – Softwood Lumber IV (Article 21.5 – Canada) does not arise. The dispute in US – Oil Country
Tubular Goods Sunset Reviews (Article 21.5 – Argentina) concerned a revised administrative
determination in an anti-dumping sunset review. The United States asserts that a revision to export
credit guarantee programmes cannot in any way be compared to a revision to an administrative
determination, and export credit guarantees for pig meat and poultry meat ca nnot be considered as a
"factual basis" for the "wholly separate export credit guarantees that were within the DSB's
recommendations and rulings."42
19. The United States submits that th e Appellate Body's findings in EC – Bed Linen
(Article 21.5 – India) are "highly instructive" 43 for these Article 21.5 proceedings, because in both
disputes there exist no DSB recommendations and rulings that must be implemented with respect to
the part of the measure that the complaining party alleged to be within the scope of the Article 21.5
proceedings. Moreover, the United States points out that, in EC – Bed Linen (Article 21.5 – India) ,
the Appellate Body acknowledged that Article 21.5 proceedings are not intended to provide
complaining parties with a second chance to reassert cl aims that had been unsuccessful in the original
proceedings. To allow Brazil to reassert its claims relating to pig meat and poultry meat in these
Article 21.5 proceedings would give Brazil such a "second chance"
44, which, in the United States'
view, is not the purpose of Article 21.5.
20. In addition, the United States argues that the Pa nel's finding raises serious systemic concerns,
because it would create a disincentiv e for WTO Members to take action in response to a finding of
WTO-inconsistency beyond the precise scope of th e DSB's recommendations and rulings. According
to the United States, the Panel's approach sends a signal to WTO Members to make the least possible
changes to their measures, for purposes of implementa tion, so as to avoid having a measure that was
not required to be changed pursuant to the DS B's recommendations and rulings subjected to
Article 21.5 proceedings. This approach, according to the United States, "would create an incentive
for a Member to create a tangle of separate regim es to address the application of a measure in
different situations simply to avoid exposure to a dispute settlement challenge"45 under Article 21.5 of
the DSU, even though a programme-wide change, as is the case with respect to the revised GSM 102

41United States' appellant's submission, para. 42. (original emphasis)
42Ibid., para. 46.
43Ibid., para. 47.
44Ibid., para. 49 (referring to Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 74
and 87).
45Ibid., para. 54.

programme, would have been preferable because it is easier to administer and improves the
programme generally.
21. Therefore, the United States requests the Appella te Body to reverse the Panel's finding that
Brazil's claims relating to export credit guarantees fo r pig meat and poultry meat are within the scope
of these Article 21.5 proceedings.
(b) Marketing Loan and Counter-cyc lical Payments Made After
21 September 2005
22. The United States asserts that the Panel erred in concluding that Brazil's claims concerning
marketing loan and counter-cyclical payments ma de after 21 September 2005 were properly within
the scope of these Article 21.5 proceedings.46
23. The United States submits that "the only measures subject to any finding of WTO-
inconsistency, and the DSB's recommendations an d rulings based on them, or any implementation
obligations, were payments made under the Step 2, marketing loan and counter-cyclical payment
program[s] in MY [("marketing year")] 1999-2002 (i.e., through July 31, 2003)." 47 The United States
adds that marketing loan and counter-cyclical payments made after 21 September 2005 "were not
subject to the DSB's recommendations and rulings", "were not in any way [United States] measures
taken to comply", and, therefore, "were outsi de the scope of the compliance proceeding under
Article 21.5" of the DSU.48
24. The United States contends that the Panel "f undamentally misunderstood both the obligation
of the United States under Article 7.8 of the SCM Ag reement and the relationship between Article 7.8
of the SCM Agreement and Article 21.5 of the DSU." 49 According to the United States, "the
obligation under Article 7.8 extends only as far as the DSB's recommendations and rulings" 50, which,
in this case, "applied only to the Step 2, market loss assistance, marketing loan, and counter-cyclical
payments made during MY 1999-2002, and did not c over either future payments, or the subsidy

46See United States' appellant's submission, para. 56.
47Ibid., para. 62.
48Ibid.
49Ibid., para. 63.
50Ibid., para. 65.

programs themselves."
51 The Panel, however, incorrectly understood Article 7.8 of the SCM
Agreement as setting up an "ongoing obligation" with r espect to subsidies that were not within the
scope of the DSB's recommendations and rulings, despite the fact that "nothing in Article 7.8 refers to
such an ongoing, general obligation". 52 Moreover, in the United States' view, "[t]he Panel's
interpretation ignores the text of Article 21.5 and wo uld expand a compliance panel's jurisdiction into
matters reserved for original proceedings."53
25. The United States considers that the Panel impr operly relied on the Appellate Body Report in
US – Softwood Lumber IV (Article 21.5 – Canada) . The United States explains that, in that dispute,
the Appellate Body "addressed the distinct issue of what measures could be considered to be part of
the measures taken to comply." 54 In the present dispute, marketing loan and counter-cyclical
payments made after 21 September 2005 are not "m easures taken to comply", but are "original
measures challenged by Brazil, and against which th e original panel declined to make findings." 55
Furthermore, the United States considers that the Pa nel's view that there is a "particularly close
relationship" between payments made after 21 September 2005 and the recommendations and rulings
of the DSB in the original proceedings is "wrong and irrelevant". 56 For the United States, the fact that
two separate payments resemble one another may establish similarity, but it does not establish a
relationship between them, particularly not a relati onship that has any legal relevance for purposes of
Article 21.5 of the DSU.
26. The United States further submits that "[d]isa llowing Brazil's over-expansive claims in this
proceeding would not mean that Members have no remedy to address the adverse effects of a
subsidy."57 The United States asserts that "nothing prevents Members from challenging the present
adverse effects of past or current payments; the th reat of serious prejudice of past, current, or future
payments; or present adverse effects or threat of serious prejudice from payment programs 'as
such'."
58 The obligations of a responding Member under Article 7.8 of the SCM Agreement depend
on what the outcome is of those challenges. In the original proceedings, Brazil succeeded only with

51United States' appellant's submission, para. 65 (referring to Original Panel Report, paras. 8.1(g)(i)
and 8.3(d)).
52Ibid., para. 66.
53Ibid., para. 67.
54Ibid., para. 69.
55Ibid.
57Ibid., para. 72.
58Ibid.

respect to payments made in MY 1999-2002 and, consequently, the obligation in Article 7.8 applies
only to those payments. Brazil, however, has not argued that the United States failed to remove the
adverse effects of marketing loan and counter-cyclical payments made during MY 1999-2002.
27. Therefore, the United States requests the Appella te Body to reverse the Panel's finding that
marketing loan and counter-cyclical payments ma de after 21 September 2005 are properly within the
scope of these Article 21.5 proceedings.
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005
28. The United States challenges the Panel's findi ng that the revised GSM 102 export credit
guarantee programme constitutes an export subsidy b ecause it is provided against premiums that are
inadequate to cover its long-term operating co sts and losses under the terms of item (j) of the
Illustrative List of Export Subsidies, which is attached as Annex I to the SCM Agreement (the
"Illustrative List"). The United States advances the following arguments in support of its appeal.
(a) The Panel's Quantitative Analysis
29. The United States contends that the Panel's quantitative analysis under item (j) of the
Illustrative List fails because the Panel erroneously found that Brazil presented data sufficient to
support a prima facie case that GSM 102 export credit guarantees were provided at premiums
inadequate to cover long-term operating costs an d losses. According to the United States, in
conducting its quantitative analysis, the Panel er roneously relied on initial budgetary estimates
presented by Brazil and failed to take into account the "flaws inherent in the initial subsidy estimates"
and the new budgetary re-estimates submitted by the United States, which show "profitability".59
30. The United States argues that the "new re-estim ate budgetary data, which came into existence
after the original proceeding, indicated the profitability of the GSM 102 program, as well as the other
two programs which have been eliminated (GSM 103, SCGP), even before substantial revisions were
undertaken to comply with the DSB's recommendations and rulings."
60 The United States adds that
two of the cohorts included in the re-estim ates data—1994 and 1995—had actually closed, and
reflected actual experience with the programmes. 61 In contrast, the initial estimates submitted by
Brazil for GSM 102 export credit guarantees issued in 2006-2008 were calcula ted before any use of
the programme was made. Moreover, they were de rived using government-wide estimation rules that

60Ibid., para. 80 (referring to United States' first writte n submission to the Panel, paras. 83, 86-90,
61See ibid., para. 80.

impose assumptions of default and recovery rates irr espective of the experience specific to the CCC's
programmes, thereby resulting in "an exaggera ted projection of losses in the initial subsidy
estimate."
62 The United States further asserts that th e initial estimates submitted by Brazil were
limited to three fiscal years ("FY") only, and th at item (j) is concerned with whether premiums
charged under an export credit guarantee programme are adequate to cover the long-term operating
costs and losses of that programme. By not accounting for the re-estimates data indicating long-term
profitability, the United States asserts that the Panel "misapprehended and misapplied the item (j)
standard in conducting its quantitative analysis."63
31. Furthermore, the United States argues that the cash-basis accounting data submitted by Brazil
was "separate and apart from the [United States'] budget accounting approach", and that the "credit
guarantee liability" 64 figure in the CCC's Financial Statements submitted by Brazil was merely a
balance sheet entry and did not represent a "loss". 65 Recalling the Panel's statement that the CCC's
Financial Statements and the cash-basis accountin g data "at the very least raise questions" 66 as to
whether the re-estimates establish that the export credit guarantee programmes were not provided at a
net cost, the United States claims that "[m]erely to 'raise questions' ... is not sufficient to satisfy a
burden of putting forward a prima facie case." 67 On this basis, the United States argues that the
Panel committed a legal error in finding that th e initial estimates and other quantitative evidence
submitted by Brazil were sufficient to meet its burden of proving that fees charged under the
GSM 102 programme are inadequate to cover long-te rm operating costs and losses. Accordingly, the
United States claims that the Panel's conclusion in respect of the quantitative analysis for purposes of
item (j) is erroneous as a matter of law.
(b) Comparison with OECD Minimum Premium Rates
32. The United States claims that the Panel has "fundamentally misinterpreted"68 the requirements
of item (j) of the Illustrative List by comparing GSM 102 fees to minimum premium rates ("MPRs")
under the Organisation for Economic Co-operation and Development (the "OECD") Arrangement on
Officially Supported Export Credits (the "OECD Ar rangement"). The United States argues that, even
though the Panel recognized that MPRs under the OE CD Arrangement have no legal status under
item (j) and do not provide a benchmark for agri cultural export credit guarantees, it nevertheless

63Ibid., para. 83.
64Ibid., para. 85.
67Ibid.
68Ibid., para. 89.

"made determinations under item (j) based on a comparison of GSM 102 program fees to MPRs." 69
According to the United States, neither the OECD Arrangement nor the MPRs are referred to in
item (j), and MPRs, promulgated by OECD member s, do not explain how the sufficiency of export
credit guarantee premiums should be judged. The Unite d States further argues that, in the light of the
negotiations for internationally agreed disciplines to govern the provision of export credit guarantees
envisaged in Article 10.2 of the Agreement on Agriculture , the Panel erred in permitting any
application of MPRs, designed for industrial goods, to the GSM 102 programme, which is an
agricultural export credit guarantee programme. The United States emphasizes that, to this date, no
international disciplines have been agreed under Article 10.2 of the Agreement on Agriculture
regarding export credit guarantee programmes for agri cultural products. Despite the absence of such
disciplines, the Panel "would now impose on agricu ltural export credit guarantees criteria applicable
only to industrial goods." 70 In the United States' view, such a result would render Article 10.2 "a
nullity".71
(c) Structure, Design, and Operation of the Revised GSM 102
Programme
33. The United States contends that, in making findings as to the structure, design, and operation
of the revised GSM 102 programme, the Panel relied on an improper comparison between the rate of
increase, with risk, of the revised GSM 102 fees and that of fees charged by the United States Export-
Import Bank (the "Ex-Im Bank") for two of its insura nce programmes: the Letter of Credit Insurance
("LCI") and the Medium-Term Export Credit Insuran ce ("MTI"). The United States considers these
two Ex-Im Bank programmes as "fundamentally dissimilar"
72 to the GSM 102 programme for several
reasons, including the fact that the Ex-Im Bank programmes are subject to the MPRs and that the MTI
is not available for agricultural goods. Despite th ese differences, the Panel inappropriately took into
account "'the significant difference between the rat es of increase for, on the one hand, GSM 102 fees
and, on the other hand, the Ex-Im Bank's ... products ' to conclude that the GSM 102 program did not
have a 'truly risk-based fee structure'."73
34. The United States argues that the Panel's legal error in relying on a comparison with Ex-Im
Bank programmes was compounded by its improper unde rstanding of scaling of fees as part of an
item (j) analysis. According to the United States, "[i]tem (j) does not even impose a 'risk-based'

70Ibid., para. 99. (emphasis omitted)
71Ibid.
72Ibid., para. 103.

condition, so the Panel erred in imputing one in the first place and conducting a scaling analysis."
74
The United States submits that, even were a risk-based standard relevant, item (j) does not dictate any
specific standards as to scaling, and scaling is only relevant with respect to a comparison of those
transactions that are eligible under the programme. Thus, in the United States' view, a full
examination of whether a programme is risk-based would also have to take into account those
transactions that are wholly ineligible.
35. The United States additionally challenges the Panel' s finding that the continued existence of a
statutory one per cent fee cap under the GSM 102 programme prevented the adoption of risk-based
fees. The United States emphasizes that it "fundame ntally revised the GSM 102 program to comply
with the recommendations and rulings of the DSB", including making "wholesale changes in the
eligibility criteria for country risk" and the adoptio n of "substantially increased fees based on risk for
all eligible countries".
75 The United States further notes that th e Panel itself was uncertain as to the
effect of the 46 per cent average increase in fees ( 23 per cent trade-weighted) that resulted from these
changes. The United States maintains that nothing in item (j) precludes the imposition of a fee cap for
an export credit guarantee programme "[a]s long as fees are structured in such a way as to cover long-
term operating costs and losses of a program".76
36. The United States further submits that the Panel misinterpreted item (j) by taking into account
other factors that are not part of a proper analysis under that provision. According to the United
States, the Panel erroneously relied on the fact that the CCC has access to funds from the United
States Treasury and that it benefits from the fu ll faith and credit of the United States Government,
even though such considerations are irrelevant under item (j). The United States argues that the
Panel's interpretation "would render item (j) i nutile since a government export guarantee program
would always be an export subsidy."
77 In addition, the United States contests the Panel's finding that,
although the United States sets bank limits with re spect to each foreign bank obligor, this does not
change the fact that foreign obligor risk is not reflected in GSM 102 fees. The United States asserts
that item (j) does not dictate how foreign obligor risk should be taken into account by the
government extending the export credit guarantees, and that this risk can be mitigated in several ways.
The United States emphasizes that "[n]o WTO rule governs how a government program shall be
designed to ensure that its premia are adequa te to cover long-term operating costs and losses." 78

75Ibid., para. 105 (referring to United States' first written submission to the Panel, para. 7).
76Ibid., para. 106.
78Ibid., para. 113.

Therefore, the Panel erred in concluding that f ees were the only proper way to deal with foreign
obligor risk.
37. On this basis, the United States submits that the Panel's finding concerning GSM 102 export
credit guarantees provided after 1 July 2005 "fails as a matter of law".79
(d) Article 11 of the DSU
38. The United States claims that the Panel acted in consistently with Article 11 of the DSU by
failing to undertake an objective assessment of Brazil's claims concerning the revised GSM 102
export credit guarantee programme. First, the United States asserts that the Panel "disregarded the
import of the budgetary re-estimates da ta submitted by the United States" 80 when conducting the
quantitative analysis under item (j). Secondly, the United States claims that the Panel, in its "non-
quantitative analysis" of the GSM 102 programme, "dis torted the meaning of the evidence before it,
and made unsubstantiated assumptions to support its findings." 81 More specifically, the United States
refers to the Panel's failure to recognize that MP Rs are irrelevant for ite m (j) and to the Panel's
reliance on Brazil's comparison of GSM 102 and MPR fees to support the finding that the premiums
under the GSM 102 programme were inadequate to cover that programme's long-term operating costs
and losses. The United States argues that the Pa nel "exacerbated its error by adopting Brazil's
unsupported assertion that 'if anything, the MPRs w ould increase if agricultural products were made
subject to it'" 82, adding that "[t]hese conclusory observa tions were unsupported by evidence on the
record".83 Finally, the United States contends that , despite the "obvious factual distinction"84 between
the GSM 102 programme and the Ex-Im Bank's programmes, the Panel offered no support for its
conclusion that this distinction "does not ... f undamentally undermine the value of the [scaling]
comparison."
85
39. For these reasons, the United States requests the Appellate Body to reverse the Panel's finding
that the United States failed to comply with the DSB's recommendations and rulings relating to the
findings of inconsistency of the GSM 102 export credit guarantee programme with Articles 10.1 and 8
of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement.

80Ibid., para. 117.
81Ibid., para. 120.
83Ibid., para. 122.
84Ibid., para. 123.
85Ibid. (quoting Panel Report, para. 14.125).

3. Serious Prejudice

40. The United States appeals the Pane l's finding that the effect of marketing loan and counter-
cyclical payments provided to United States upland cotton producers pursuant to the Farm Security
and Rural Investment Act of 2002 86 (the "FSRI Act of 2002") is significant price suppression in the
world market for upland cotton within the meaning of Article 6.3(c) of the SCM Agreement ,
constituting "present" serious prejudice to the interests of Brazil within the meaning of Article 5(c) of
the SCM Agreement. The United States also submits that the Panel did not carry out an objective
assessment of the matter before it as required by Article 11 of the DSU.
(a) Market Insulation
41. The United States submits that the Panel's findi ng that marketing loan and counter-cyclical
payments caused "present" serious prejudice to Brazi l by significantly suppressing the world price of
upland cotton rested in large part on the Panel's e rroneous conclusion that those payments "insulated"
United States upland cotton producers from market signa ls to such an extent that the payments had
significant effects on planting, production, exports, and, ultimately, price. 87 The United States argues
that the Panel erred in its analysis of how the st ructure, design, and operation of marketing loan
payments and counter-cyclical payments allege dly insulated United States producers by relying
excessively on the findings of the original panel. In this respect, the United States notes that the
Article 21.5 proceedings "pertained to marketing lo an payments and counter-cyclical payments made
in MY 2006" 88, while the original proceedings addressed pa yments made in a different time period.
The United States further argues that, in examining "m arket insulation", the Panel "did not adequately
take into account all factors relevant to producers' planting decisions." 89 These factors "showed that
in making these planting decisions, [United States] upland cotton farmers responded in ways that were
consistent with market forces, even though they we re aware that they might receive marketing loan
and counter-cyclical payments if actual prices were below trigger prices."90
42. In particular, with respect to marketing loan payments , the United States asserts that the
Panel "failed to take into account the fact that [U nited States] producers looked to other factors, aside

86Farm Security and Rural Investment Act of 2002, Public Law No. 107-171 (Exhibit Bra-29 submitted
by Brazil to the original panel).
87See United States' appellant's submission, para. 132.
88Ibid., para. 136. (footnote omitted)
89Ibid., para. 134.
90Ibid., para. 137.

from the expected price of upland cotton, and res ponded to them as the market would predict." 91 The
United States submits, as an example, that in MY 20 05 there was a "shift away from soybean acreage
due to concerns about an outbreak of Asian soybean rust at the end of MY 2004" 92, which, together
with other factors, drove planting decisions in that year. Moreover, the United States argues that the
Panel's finding of market insulation is inconsiste nt with a survey of upland cotton farmers "showing
that [United States] producers intended to pull back on their upland cotton plantings in MY 2007 by
approximately 14 percent in response to such factors as the relatively more attractive expected prices
for corn and the poor performance of [United St ates] exports since August 2006 (at which time the
Step 2 program was eliminated)." 93 Finally, the United States argues that the Panel "made no
evaluation of producers' expectati ons that 'actual harvest prices [would be] below the marketing loan
rate' in MY 2006 or any other year examined."94
43. As regards counter-cyclical payments, the United States challenges the Panel's treatment of
certain economic studies submitted by the parties. First, the United States argues that the Panel
"downplayed the studies' relevance, and then im properly relied on them to support its flawed
conclusion that the structure, design, and operation of [United States] counter-cyclical payments had a
revenue-insulating effect on [Unite d States] upland cotton producers, that they led to increased
acreage and production, and that the 'effect' of the payments was significant price suppression." 95 The
United States asserts that "a ll the research submitted by the United States indicated minimal effects
of counter-cyclical payments on plantings and production by [United States] producers, and could not
reasonably lead to such findings by the Panel." 96 Secondly, the United States argues that "the Panel
did not even address the shortcomings of the research submitted by Brazil". 97 The United States also
challenges the Panel's treatment of an OECD study 98, which, in its view, demonstrates that "much of
the increase in wealth from farm payments accrues to non-operator landlords and can have no effect
on production [because,] [w]here land is rented, some amount of the value of decoupled payments is
transferred from operators to the owners of base acres in the form of higher rents and sales values."99

91United States' appellant's submission, para. 140. (footnote omitted)
92Ibid.
93Ibid., para. 141. (footnote omitted)
95Ibid., para. 144 (referring to Panel Report, paras. 10.95 and 10.104). (footnote omitted)
96Ibid., para. 145. (original emphasis)
97Ibid., para. 153.
98OECD Paper, "A Review of Empirical Studies of the Acreage and Production Response to US
Production Flexibility Contract Payments under the FAIR Act And Related Payments under Supplementary
Legislation", AGR/CA/APM(2004)21/FINAL, 30 March 2005 (Exhibit US-32 submitted by the United States to
the Panel). (This paper is sometimes referred to as the "Abler and Blandford study", for example, see Panel
Report, para. 13.10.)
99United States' appellant's submission, para. 149. (footnote omitted)

44. The United States submits that the Panel's finding of market insulation also rests on the
flawed conclusion that the "relationship between upland cotton base acre holders and upland cotton
production is significant in that it suggests that cotton counter-cyclical payments play a role in
maintaining the level of acreage and production at a higher level than would otherwise be the case."
100
The United States explains that, in arriving at this conclusion, the Panel "never actually tested the
strength of the alleged relationship between payments and plantings in order to conclude that the
former was driving the latter." 101 According to the United States, "the facts showed that the
relationship between counter-cyclical payments and planting was weak—upland cotton farmers who
also held cotton base acres were planting 40 percen t less upland cotton than they had in the period
when their collective base acres were established". 102 Moreover, "17 percent of plantings was on
farms with no base acres or on farms planting more than their base acres."103
45. In addition, the United States claims that "[t]he Panel made several findings that contradict its
ultimate conclusion that marketing loan and count er-cyclical payments insulated [United States]
producers of upland cotton from market prices." 104 The United States observes that, in determining
that United States producers were insulated from market forces, the Panel overlooked its own findings
that the United States' shares of world cotton produc tion and exports had remained relatively constant
in MY 2002-2005 105; that in MY 2006 the expected market price of upland cotton was above the
marketing loan rate106; and that there was no "discernible te mporal coincidence" between suppressed
world prices and the price-contingent United States subsidies.107
46. Finally, the United States submits that the Pane l "failed to make any findings as to the degree
of market insulation, or the degree of the effects related to that insulation". 108 Instead, the Panel
"erroneously assumed that the existence of any market-insulating effect, and any related production
effect, due to [United States] marketing loan and counter-cyclical payments was sufficient to support
a finding of significant price suppression." 109 The United States asserts that the Panel's conclusion on
market insulation "is inconsistent with the requireme nt that the degree of effects attributable to
support payments be determined before there can be a finding on significant price suppression."110

101Ibid., para. 154.
102Ibid., para. 156.
103Ibid.
104Ibid., para. 157.
105See ibid., paras. 158 and 160.
106See ibid., para. 161.
107See ibid., paras. 162 and 163 (referring to Panel Report, paras. 10.133 and 10.139).
108Ibid., para. 164.
109Ibid., para. 165. (original emphasis)
110Ibid., para. 166.

(b) Divergence between United States Producers' Total Costs and Market
Revenues
47. The United States argues that the Panel's finding that there was a significant gap between the
total costs of production of United States upland cotton producers and their market revenue is
undermined by the Panel's decision to use total costs, instead of vari able costs, as a benchmark; to
include overhead costs not specific to upland cotton and non-cash opportunity costs in total costs;
and, to discount "off-farm" income from cotton farmers' revenues.
48. The United States argues that "the Panel failed to comprehend that variable costs should be
used to properly assess the yearly planting/production e ffects, if any, attributable to marketing loan
and counter-cyclical payments." 111 The United States asserts that it had demonstrated that its cotton
farmers covered their variable costs in the period MY 2002-2005, and that in almost all years they
covered most, if not all, of their total costs.112 Moreover, the United States argues that adopting a total
costs approach leads to the absurd result that "p roducers of every single major field crop except for
soybeans would have lost money in MY 2005 and, ev en for soybeans, [United States] farmers would
have eked out no more than $1/acre."113
49. The United States submits that, in calculating to tal costs of production, the Panel improperly
relied on USDA crop-specific data, and included "all the items under 'allocated overhead', which were
either not specific to upland cotton ... or were not actual cash outlays". 114 The United States also
maintains that the Panel should not have cons idered non-cash opportunity costs corresponding to
values attributed to unpaid labour a nd land that "are not necessarily costs that must be paid off in
order for farmers to avoid having to shut down their business." 115 Additionally, the United States
argues that the Panel's legal error was compounded by its disregard of off-farm income—and income
from other crops—that are an important part of cotto n farmers' revenue and "lower the probability of
exit by providing farm operator households with another source of income." 116 The United States
contends that the Panel ignored new evidence that the United States had submitted on the impact of
off-farm income on farm exits, and that the Panel, "while asserting that increasing off-farm revenue

112See ibid., para. 179.
113Ibid., para. 175.
114Ibid., para. 182. (footnote omitted)
115Ibid., para. 186.
116Ibid., para. 191 (quoting R.A. Hoppe and P. Korb, "Understanding US Farm Exits", USDA
Economic Research Service, Economic Research Report No. 21 (June 2006) (Exhibit US-46 submitted by the
United States to the Panel)).

could signal that farmers were exiting farming, ... never examined whether [United States] cotton
producers actually were exiting cotton farming."
117
(c) Economic Simulation Model
50. The United States argues that the Panel overlooked the fundamental flaws of Brazil's
economic simulation model. The United States further submits that the model, in any event, showed
that the effect of United States subsidies on prices was minimal. The United States adds that it was
not sufficient for the Panel to find that the model showed "price suppression" to support a finding of
"significant price suppression" within the meaning of Article 6.3(c) of the SCM Agreement .
According to the United States, in order to properly rely on the results of modelling for its conclusion,
the Panel would have had to concl ude which model, or models, were appropriate; determine the level
of price suppression resulting under that model; and find that such price suppression was of a
significant degree. The United States argues that th e Panel "never assessed the likely magnitude of
the price effects of marketing loan and counter-cyclical payments based on the economic models."
118
(d) Impact of the Elimination of Step 2 Payments
51. The United States argues that it demonstrated th at there was a signifi cant decline in United
States production and exports of upland cotton in MY 2006 after the elimination of Step 2 payments.
As a result, Brazil had the burden of proving that th e impact of the repeal of the Step 2 payments
programme on United States production and exports was modest. Therefore, the United States
submits that the Panel erred in finding that the elim ination of this subsidy did not affect the price
suppressing effects of the marketing loan and coun ter-cyclical payments in the world market for
upland cotton.
52. The United States also claims that the Panel misconstrued a nd overlooked the United States'
evidence as to the indirect impact of the elimin ation of Step 2 payments, which resulted in the
substantial decrease of marketing loan payments and no significant increase in counter-cyclical
payments. The United States refers, in particular , to a study by the Food and Agricultural Policy
Research Institute ("FAPRI"), which shows that th e elimination of the Step 2 payments programme
results in an average increase of 0.4 cent/lb in the adjusted world price of upland cotton in
MY 2006-2010 and a decline of the same amount in the marketing loan payment.
119 In addition, the

117United States' appellant's submission, para. 193. (original emphasis)
118Ibid., para. 196.
119See ibid., para. 202.

United States asserts that the Panel overlooked im portant evidence demonstr ating that there was
unlikely to be an increase in counter-cyclical pa yments in MY 2006 as a result of the elimination of
the Step 2 payments programme. The United Stat es explains that, when United States prices are
below the marketing loan rate, the eliminati on of the Step 2 payments programme—and any
consequent decline in farm prices—cannot have an y effect on the level of counter-cyclical payments
because the payment remains fixed at the maximum level of 13.73 cents/lb.120
53. Moreover, according to the United States, the Panel's analysis of the impact of the elimination
of Step 2 payments was flawed, because the Panel did not "determine how much of an effect remained
after repeal of [the] Step 2 [programme] and how this compared to the original price suppression in
order to determine whether the remaining effect, under the Panel's own view, was 'significant'."
121
(e) Magnitude of Marketing Loan and Counter-cyclical Payments
54. The United States challenges the Panel's finding that, "when considered in conjunction with
other factors, the order of magnitude of the mark eting loan payments and counter-cyclical payments
supports a finding of significant price suppression, even when account is taken of the decline in the
amount of marketing loan payments projected for MY 2006." 122 According to the United States, this
finding is premised on the Panel's earlier conclusion that the struct ure, design, and operation of the
marketing loan and counter-cyclical payments had an "important revenue-stabilizing effect" on United
States farmers, and that the payments bridged "the gap between costs of production and market
revenues of [United States] upland cotton producers." 123 The United States considers that the Panel's
findings on the structure, design, and operation of the marketing loan and counter-cyclical payments,
and on the payments' role in covering the alleged cost-revenue gap, are erroneous. Consequently, it
considers that the Panel's finding as to the magn itude of the marketing loan and counter-cyclical
payments, which depends on those same findings, also "fails as a matter of law".124
(f) Substantial Proportionate Influence on the World Market for Upland
Cotton
55. The United States submits that the Panel erre d in finding that the United States exerts a
"substantial proportionate influence" 125 on the world market for upland cotton, because the Panel did
not undertake an analysis of competitive conditions in the upland cotton market. According to the

120See United States' appellant's submission, para. 205.
121Ibid., para. 209.
122Panel Report, para. 10.111. (footnote omitted)
123Ibid.
125Panel Report, para. 10.58.

United States, the Panel should have analyzed how United States upland cotton competed with cotton
from other sources and how "other factors in the wo rld market, including the predominant role of
China, have influenced world prices".
126 Moreover, the United States argues that the Panel
overlooked its own finding that United States shares of world production and exports have been stable
in recent years.
(g) Other Factors Impacting the World Market Price for Upland Cotton
56. The United States submits that the Panel failed to conduct a proper non-attribution analysis as
required by Article 6.3(c) of the SCM Agreement . The United States argues that, while the Panel
itself recognized that it had an obligation to conduc t a non-attribution analysis, it ultimately failed to
do so. In the United States' view, "[t]he very use of a but-for analysis ... requires the Panel not to
attribute effects to [United States] payments that they are not having."
127
57. The United States observes that, "[m]issing from the Panel's analysis was any discussion of
just how other factors, including China, actually played a role in establishing the world price for
upland cotton", and that "the Pa nel only acknowledged that China had a 'significant role', without
examining how price changes could be attributed to that factor." 128 The United States submits that it
was not enough for the Panel to dismiss developmen ts concerning the role of China's demand and
supply by noting that, "with a share of world exports of around 40 per cent, the United States is
capable of exerting a substantial proportionate influence on the world market." 129 The United States
argues that the share of United States exports is by itself meaningless, and thus the Panel "should have
placed that figure in the context of world market c onditions influencing price, including China's role
as the largest producer, consumer, and importer of cotton." 130 The United States observes that China's
share of world imports rose from 1 per cent in MY 1998 to 44 per cent in MY 2005, and also points to
market reports indicating that China's cotton trade played a role in preventing a significant price
increase in 2005 and 2006.131

127Ibid., para. 213.
129Ibid.
130Ibid., para. 214.
131See ibid., paras. 211 and 212 (referring to United St ates' first written submission to the Panel,
paras. 314-317; and International Cotton Advisory Committee Report, "Cotton: Review of the World Situation"
(May-June 2006) (Exhibit Bra-485 submitted by Brazil to the Panel), p. 7).

(h) Degree of Price Suppression
58. The United States contends that the Panel failed to determine "the degree of price
suppression that it considered to be 'significant', as applied to the facts before it."132 The United States
notes that Article 6.3(c) of the SCM Agreement does not make actionable just any price suppression,
but instead expressly requires that the price suppres sion be "significant". The United States asserts
that, by relying on evidence that showed some pr ice effect, however minimal, to establish significant
price suppression within the meaning of Article 6.3(c), the Panel "essentially writes the word
'significant' out of Article 6.3(c)."
133
59. The United States points out that Article 6.3(c) of the SCM Agreement "does not define
'significant' price suppression". 134 It observes, however, that the ordinary meaning of "significant" is
"important, notable; consequential", and argues that "[w]hat is clear is that a finding of significant
price suppression must take into account the degree of price suppression that is deemed 'significant',
and that the degree must be the equivalent of 'important, notable; consequential'."135 According to the
United States, in order to conduct a proper analysis under Article 6.3(c), the Panel was required to set
out the price suppression, if any, as shown by the facts, and to explain how the degree of that
suppression was significant, if at all. The United Stat es adds that the Panel, "by merely repeating the
term 'significantly', or 'significant', did nothing to satisfy this requirement."136
60. The United States concludes by cautioning that, "[i]f left to stand, the Panel's failure to set out
the degree of price suppression would have detrim ental consequences for the WTO dispute settlement
system."137 This is because "Members would not know how to take appropriate steps to avoid the
alleged 'adverse effects' of price-contingent subs idies if it were impossible to discern the 'adverse

132United States' appellant's submission, para. 221. (original emphasis)
133Ibid., para. 224.
134Ibid., para. 222.
135Ibid. (quoting The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon
Press, 1993), Vol. 2, p. 2860 (Exhibit US-51 submitted by the United States to the Panel). (original emphasis)
137Ibid., para. 225.

effects' that rise to the level of WTO-inconsistency."
138 The United States adds that Members "would
be left without guidance as to how to structure progr ams and payments so as to avoid significant price
suppressing effects, and would be deterred from taking likely WTO-consistent actions when
confronted with such uncertainty."139
(i) Article 11 of the DSU
61. The United States claims that the Panel acted inconsistently with Article 11 of the DSU by
failing to carry out an objective assessment of whet her marketing loan and counter-cyclical payments
made after 21 September 2005 caused significant price suppression in the world market for upland
cotton.
62. First, the United States asserts that the Panel, in assessing the structure, design, and operation
of marketing loan payments, disregarded the new evidence submitted by the United States and relied
exclusively on findings from the original panel and the Appellate Body. 140 The United States
additionally argues that the Panel "wilfully distorte d and misrepresented the meaning of the economic
studies that the United States submitted concerning the effects of counter-cyclical payments on
production."141 Moreover, the United States submits that the Panel "failed to provide a reasoned and
adequate explanation for its conclusions" 142 regarding the structure, design, and operation of both
marketing loan payments and counter-cyclical payments.
63. Secondly, the United States contends that the Panel "deliberately distorted" 143 the meaning
and significance of the evidence on stable United States production and export shares and found that,
despite the stable market shares, marketing loan and counter-cycli cal payments still insulated United
States producers from price signals "to such a degree as to have significant effects" 144 on production
and price. The United States points out that stable shares indicated that United States producers "were
responding to world market signals in much the sa me way as foreign producers, and could not have
been 'insulated' by [United States] marketing loan and counter-cyclical payments." 145 The United
States also argues that the Panel failed to provi de a reasoned and adequate explanation for its
conclusions and failed to evaluate objectively this evidence.

139Ibid.
140See ibid., para. 232.
141Ibid., para. 234. (footnote omitted)
142Ibid., paras. 233 and 235.
143Ibid., para. 237.
144Ibid.
145Ibid., para. 236.

64. Thirdly, the United States submits that the Pane l "misrepresented and distorted the results of
the [United States'] econometric modeling exerci se to fit its own version of what the facts
demonstrated", ignored the inherent flaws in Brazi l's model that the United States had demonstrated,
and "disregarded that ... neither model could support a finding of significant price suppression".146
65. Finally, the United States asserts that the Pa nel "superficially acknowledged that China had a
'significant role', but ignored completely, and never took into account, the [United States'] evidence
showing the price changes in the world upland cotton market that could be attributed to that factor."147
The United States also considers that the Panel fail ed to provide a reasoned and adequate explanation
for its conclusions in the light of an alternative plau sible explanation. The United States explains that
it had submitted substantial evidence explaining th at China is one of the most important "other
factors" influencing the world price of upland cotton . This evidence showed th at China is the world's
largest producer of upland cotton, the world's largest consumer of upland cotton, and the world's
largest importer of upland cotton. According to the United States, the evidence also demonstrated
China's role in influencing world market prices, including the fact that downward pressure on cotton
prices may have resulted from uncertainty over Ch ina's supply and demand evolution, as well as
ad hoc changes to government policies.148
B. Arguments of Brazil – Appellee
1. Scope of These Article 21.5 Proceedings
(a) Export Credit Guarantees for Pig Meat and Poultry Meat
66. Brazil submits that the Panel correctly interp reted and applied Article 21.5 of the DSU and
properly found that the export credit guarantees for pig meat and poultry meat had a "particularly
close relationship" with, and were inextricably linke d to, the United States' declared measure taken to
comply, that is, the revised GSM 102 programme.
67. Brazil states that Appellate Body jurisprudence makes it clear that measures that are shown to
have a "particularly close relationship" to the or iginal measure, the recommendations and rulings of
the DSB, and a declared measure taken to comply (i f such a measure exists), fall within the scope of

147Ibid., para. 243.
148See ibid., paras. 242 and 243.

proceedings under Article 21.5.
149 Brazil then provides several bas es that support its view that the
export credit guarantees for pig meat and poultry meat are "inextricably linked" to the declared
measure taken to comply. According to Brazil, the measures found to be inconsistent in the original
proceedings, and subject to the United States' im plementation obligations, included the old GSM 102
programme, and "the United States adopted a single compliance measure—the amended GSM 102
program—with a single set of terms and conditions that apply in identical fashion to all products
eligible for support, including pig meat and poultry meat." 150 Brazil adds that the manner by which
the individual guarantees for pig meat and poultry meat are introduced establishes "a relationship of
extreme dependence"
151 between those export credit guarantees and the revised GSM 102 programme,
because the individual export credit guarantees are factually and legally dependent on the programme.
Brazil further submits that, because the individual export credit guarantees result from the application
of the revised GSM 102 programme, "they provide perfect evidence of whether the amended
GSM 102 program is consistent with the covered agreements" and thus "have a direct impact on
whether the United States has fully complied with its export subsidy commitments through the
amended GSM 102 program."152
68. Brazil asserts that, although none of the individual product-specific export credit guarantees
are declared by the United States to be measures taken to comply, "the United States accepts that
individual guarantees for unscheduled products and rice are 'measures taken to comply'" 153 subject to
these Article 21.5 proceedings. Thus, according to Brazil, the United States apparently accepts the
"particularly close relationship" test used by th e Panel, because the export credit guarantees for pig
meat and poultry meat, and for unscheduled products and rice, "have an identical relationship to the
declared ... measure [taken to comply]."154
69. Brazil disagrees with the United States' argument that export credit guarantees for pig meat
and poultry meat are excluded from these proceed ings because the DSB's recommendations and
rulings did not specify the export credit guarantees relating to these products. Brazil argues that,
contrary to the United States' assertion, a panel established pursuant to Article 21.5 of the DSU has

149See Brazil's appellee's submission, para. 177 (referring to Appellate Body Report, US – Softwood
Lumber IV (21.5 – Canada), paras. 69-85).
151Ibid., para. 195.
152Ibid., para. 198. (original emphasis)
153Ibid., para. 201.

jurisdiction to examine any declared measure taken to comply "in its totality" for its consistency with
the covered agreements. Brazil further submits that "measures that are not declared to be 'taken to
comply' are also within the scope of Article 21.5 proceedings, if they are 'inextricably linked' and
'closely connected' to the declared compliance measure".155
70. In addition, Brazil maintains that the United St ates is wrong in relying on the Appellate Body
Report in EC – Bed Linen (Article 21.5 – India) , and in suggesting that Brazil is trying to secure a
second chance to pursue its claims on pig meat and poultry meat. Brazil emphasizes that, in these
Article 21.5 proceedings, it challenges new expor t credit guarantees issued under the revised
GSM 102 programme, which are different from those at issue in the original proceedings and have not
previously been challenged by Brazil.
71. Finally, Brazil takes issue with the United States' argument that the Panel's approach "creates
'disincentives' for comprehensive reform, and 'tell[s] Members to do the least possible changes to their
measures'."156 Brazil considers that "nothing in the DSU compels a Member to reform its law in ways
that are not required by the DSB's recommendations and rulings" 157 and neither does WTO law
establish any incentive—or disincentive—for Members to take such action. Instead, such reform is
made at the sole discretion of the implementing Member, provided that, at a minimum, it complies
with the DSB's recommendations and rulings. Thus, in Brazil's view, "[i]f a Member chooses to
undertake more comprehensive reform as an integral and inseparable part of its 'measure taken to
comply', that measure is necessarily subject to Article 21.5 'in its totality'."158
72. Brazil therefore requests the Appellate Body to uphold the Panel's finding that Brazil's claims
relating to export credit guarantees for pig meat a nd poultry meat are properly within the scope of
these Article 21.5 proceedings.

156Ibid., para. 191 (quoting United States' appellant's submission, paras. 52 and 53).
157Ibid., para. 192.
158Ibid. (original emphasis)

(b) Marketing Loan and Counter-cyc lical Payments Made After
21 September 2005
73. Brazil submits that the Panel correctly found th at Brazil's claims regarding marketing loan
and counter-cyclical payments made after 21 Sept ember 2005 are properly within the scope of these
Article 21.5 proceedings.
74. Brazil makes two preliminary ob servations regarding the United States' arguments. First,
Brazil notes that Article 21.5 proceedings concern "n ew and different measure[s] that [were] not
before the original panel".
159 Accordingly, Brazil rejects the Un ited States' argument that marketing
loan and counter-cyclical payments made afte r 21 September 2005 cannot be included in these
proceedings simply because they were not subj ect to the DSB's recommendations and rulings. 160
Secondly, Brazil observes that, although "the United States has not declared the existence of any
'measure taken to comply'", this "does not preclude a compliance panel from finding that an
undeclared measure falls within the scope of Article 21.5."161
75. Brazil asserts that marketing loan and counter-cyclical payments made
after 21 September 2005 are "substantively identical subsidies" 162 to the payments made in MY 2002.
Brazil explains that both sets of payments are ma de pursuant to the same subsidy programmes under
the FSRI Act of 2002, and that the United States ha s not modified the terms on which the payments
are made. According to Brazil, both the old and ne w payments were made on the basis of exactly the
same terms and conditions, to the same recipients, in respect of the same crop. Thus, Brazil contends
that "[t]he substantive connections between the payments are much closer than the connections
between the measures at issue in US – Softwood Lumber IV (Article 21.5 – Canada)".163
76. In addition, Brazil submits that a Member does not comply with its obligations under
Article 7.8 of the SCM Agreement regarding one set of WTO-inconsistent payments by replacing
them with another set of identical payments, if these new payments also cause adverse effects. In
Brazil's view, the Panel's reliance upon Article 7.8 di d not expand, but remained faithful to, the scope
of Article 21.5 of the DSU.

159Brazil's appellee's submission, para. 227 (quoting Appellate Body Report, Canada – Aircraft
(Article 21.5 – Brazil), para. 41).
160See ibid., para. 227.
161Ibid., para. 228.
162Ibid., para. 235. (emphasis omitted)
163Ibid.

77. Finally, Brazil argues that if subsequent marketi ng loan and counter-cyclical payments "are
not subject to these Article 21.5 proceedings, the gr ant of annually recurring subsidies becomes … 'a
moving target that escape[s] from [the WTO subsidy] disciplines'." 164 Brazil observes that, under the
approach advocated by the United States, th e disciplines in Articles 5 and 6 of the SCM Agreement
regarding the "present" adverse effects of th e most obvious form of subsidies—annual cash
payments—are reduced to a nullity. Brazil rejects th e United States' contention that future payments
could be the subject of Article 21.5 proceedings if there is a finding of "threat" of serious prejudice, or
if there is a finding against the programmes "as such " in the original proceedings. Brazil points to
several difficulties in relying on a "threat" of serious prejudice claim against future payments,
including: the fact that future payments cannot be identified as "measures at issue" under Article 6.2
of the DSU because, by definition, they do not exis t; the "inherently uncertain" nature of such a
claim, because it is based on the likely level of future payments under a programme and the likely
future market conditions; and, the need for the "thr eat" claim to cover payments far into the future to
offer a viable remedy. As for the possibility of challenging the subsidy programmes "as such", Brazil
observes that the United States itself recognizes that an "as such" claim made in the abstract against a
subsidy programme is "difficult, if not impossible, to bring successfully".
165
78. Accordingly, Brazil requests the Appellate Body to uphold the Panel's finding that marketing
loan and counter-cyclical payments made after 21 September 2005 are properly within the scope of
these Article 21.5 proceedings.
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005
79. Brazil requests the Appellate Body to uphold th e Panel's finding that the revised GSM 102
export credit guarantee programme constitutes an export subsidy because it is provided against
premiums which are inadequate to cover its long- term operating costs and losses under item (j) of the
Illustrative List of Export Subsidies.
80. Brazil submits that, in its analysis, the Panel relied on a broad range of evidence, made its
findings on the basis of th e "totality of the evidence" 166, and did not ascribe decisive meaning or
weight to any single piece of evidence. According to Brazil, such evidence included: (i) the United
States Government's own initial estimates showing a net cost to the government of operating the
revised GSM 102 programme; (ii) re -estimates data showing that, ev en when updated to account for

164Brazil's appellee's submission, para. 243 (quoting Panel Report, US – Softwood Lumber IV
(Article 21.5 – Canada), para. 4.30).
165Ibid., para. 251 (referring to United States' appellant's submission, paras. 73 and 135).

actual results, a net cost is still projected in many fi scal years; (iii) the Financial Statements of the
CCC; (iv) cash-accounting data; (v) data showi ng that the revised GSM 102 fees remain far below
the MPRs in the OECD Arrangement; and (vi) various indications that the revised GSM 102
programme is not structured, designed, or operated to cover its long-term costs and losses.
167
(a) The Panel's Quantitative Analysis
81. Brazil submits that the Panel did not err by relying on the initial budget estimates of the
United States Government projecting losses for export credit guarantees issued under the revised
GSM 102 programme in 2006-2008. Brazil maintains th at the initial estimates, calculated pursuant to
the Federal Credit Reform Act of 1990 168 (the "FCRA"), were generate d using the net present value
methodology that was expressly designed and adopted by the United States Government to accurately
measure the costs of federal credit programmes. According to Brazil, initial estimates are "critical
tools for prudent fiscal management ... relied upo n by credit and banking regulators worldwide,
irrespective of subsequent re-estimates."169 The fact that initial estimates are updated, or re-estimated,
annually to account for actual cash flows and changed assumptions does not render these initial
estimates unreliable. Brazil emphasizes that the m odel used to calculate initial estimates "is based on
the USDA's own 'loan performance experience'" , and that the USDA's self-assessment of the
GSM 102 programme indicated that the credit model "currently provide[s] reliable estimates."170
82. Brazil further submits that the Panel "neither 'failed to account for', nor 'ignored the import
of'"171, the United States' evidence and argument regard ing alleged deficiencies in the initial estimate
process. According to Brazil, the Panel noted that the United States was re-asserting arguments
rejected by the original panel, and saw no objective basis for revisiting the original panel's finding that
the initial estimates were reliable indicators that the export credit guarantee programmes constituted
export subsidies within the meaning of item (j) of th e Illustrative List. Brazil submits that, "in an
abundance of caution" 172, the Panel addressed the United States' arguments that the initial estimates
were unreliable because they were inflated and were calculated using government-wide, rather than
CCC-specific, formulae, but found these arguments unconvincing. The Panel "expressly took the

167See Brazil's appellee's submission, para. 266.
168Federal Credit Reform Act of 1990, enacted as part of the Omnibus Budget Reconciliation Act
of 1990, Public Law No. 101-508.
170Ibid., para. 312 (quoting Panel Report, para. 14.77, in turn quoting USDA's Agricultural Export
Credit Guarantee Programs Assessmen t, at <ExpectMore.gov> (Exhibit Br a-588 submitted by Brazil to the
Panel), Section 3.CR2).
171Ibid., para. 314 (quoting United States' appellant's submission, paras. 84 and 119).
172Ibid., para. 316.

[United States'] evidence into account, and adopted a plausible view on the basis of the evidence as a
whole that supported its conclusion regarding the weight to be attached to initial estimates."173
83. Brazil adds that the initial estimates for FY 2006- 2008 are "not only robust, but of particular
importance in these Article 21.5 proceedings" 174, because these proceedings concern a new fee
structure for which, by definition, little past perfo rmance data exists. Moreover, contrary to the
United States' assertion, Brazil does not consider th at reliance on initial estimates for "only" three
fiscal years undermines the "long-term" nature of the Panel's assessment 175, because each estimate
reflects the costs "over the lifetime of a cohort", which "typically exceeds ten years".176
84. Brazil takes issue with the United States' asser tion that the Panel incorrectly allocated the
burden of proof under item (j) of the Illustrative Li st when stating that certain data submitted by
Brazil "at the very least raise questions" about the probative value of the re-estimates data. 177 Brazil
submits that, because it was the United States that offe red the re-estimates data as rebuttal evidence to
demonstrate an anticipated profit to the United States Government, the United States bore the burden
of proof with respect to that evidence and the ar gument allegedly supported by it. According to
Brazil, the United States submitted the re-estimates data to highlight two points: that the three export
credit guarantee programmes at issue in the original proceedings were in fact not provided at a net
cost to the United States Government; and that in itial estimates in general are not reliable indicators
of the long-term net cost of the programmes. Braz il argues that the Panel correctly concluded that the
United States had not succeeded in proving either of these two points. The first point had been
"definitively disposed of in the original proceedings"
178, and, with respect to the second point, the
USDA itself recently concluded that the FCRA initial estimate methodology "provide[d] reliable
estimates".
179 The Panel also attached significance to the "credit guarantee liability" figure in the
CCC's 2005-2006 Financial Statements, as well as cash-basis accounting evidence submitted by
Brazil. Both sets of data indicated a net loss fo r the three export credit guarantee programmes subject
to the original proceedings. Weighing this eviden ce, the Panel concluded th at evidence provided by
Brazil "at the very least raise[d] questions" 180 regarding "whether the United States had succeeded in
meeting its burden of proving what it set out to prove with its re-estimates data."181

173Brazil's appellee's submission, para. 318. (footnotes omitted)
174Ibid., para. 324.
176Ibid., para. 327. (emphasis omitted)
181Ibid. (original underlining)

(b) Comparison with OECD Minimum Premium Rates
85. Brazil requests the Appellate Body to dismi ss the United States' arguments concerning the
Panel's reference to the magnitude of differen ce between the revised GSM 102 fees and OECD MPRs
as relevant evidence under item (j) of the Illustrative Li st. First, Brazil asserts that the Panel did not
turn the comparison of the revised GSM 102 f ees with the OECD MPRs into a "dispositive"
182 test
under item (j). Instead, the Panel "expressly considered the comparison ... as one piece of evidence
among many informing its assessment whether the revised GSM 102 premiums are adequate to cover
the long-term operating costs and losses of the program." 183 Brazil adds that "[t]he United States sees
the absence from item (j) of express license to consider evidence regarding the OECD MPRs as a
bar to a panel's consideration of that evidence." 184 Brazil explains that, on the contrary, "the original
panel and the Appellate Body interpreted the ab sence of any prohibition regarding the type of
evidence to be considered in an item (j) assessment as an indication of flexibility that permits a panel
to assess objectively any evidence considered relevant to its inquiry."185 Secondly, Brazil argues that
the fact that item (j) does not refer to the OE CD Arrangement, whereas the second paragraph of
item (k) of the Illustrative List does, similarly do es not preclude the Panel's approach to relying on
OECD MPRs as relevant evidence. Brazil emphasizes that the Appellate Body's decision in Brazil –
Aircraft also suggests that the OECD Arrangement offers relevant, indicative evidence under item (j).
86. As regards the United States' allegation that the Panel rendered Article 10.2 of the Agreement
on Agriculture a nullity by "impos[ing]" the MPRs as a "multilaterally agreed discipline" 186, Brazil
explains that the Panel expressly characterized th e comparison of the revised GSM 102 fees to OECD
MPRs as an evidentiary matter and not as a legally binding benchmark. Brazil highlights the Panel's
statement that "it was the 'magnitude of the difference between MPRs and GSM 102 fees'" 187 that
rendered the comparison evidence relevant for purposes of its assessment of the facts under item (j).
(c) Structure, Design, and Operation of the Revised GSM 102
Programme
87. Brazil submits that the Panel correctly examined the structure, design, and operation of the
revised GSM 102 programme, and requests the Appellate Body to reject the United States' appeal in
this regard.

182Brazil's appellee's submission, para. 375 (quoting United States' appellant's submission, para. 94).
184Ibid., para. 379. (original emphasis)
185Ibid. (original emphasis; footnote omitted)

88. Brazil notes that, as one part of this analysis , the Panel looked at the fees charged for
comparable programmes offered by the Ex-Im Bank, "considered 'the rate of increase (or scaling ) of
fees with increased risk', and found that 'the "scaling" of GSM 102 fees is greatly inferior'" 188 to that
for the Ex-Im Bank programmes. Brazil further s ubmits that, when examining the comparison of fee
scaling between the GSM 102 programme and the Ex -Im Bank programmes, the Panel "relied on the
extent of the difference as an evidentiary indication of the shortcomings" 189 of the GSM 102
programme. Thus, contrary to the United States' a ssertion, the Panel did not impose or establish any
specific affirmative standards that must be met, ex cept that fees must be adequate to cover the long-
term operating costs and losses of the programme.
89. According to Brazil, the Panel's assessment of whether GSM 102 fees are "risk-based" is
consistent with item (j) of the Illustrative List because, to the extent that fees do not adequately
account for increased risks—such as longer tenors (duration of the guarantee), higher country risk, or
higher borrower risk—those fees are not designed "t o cover the long-term operating costs and losses"
of a programme. Thus, Brazil argues that the Panel properly assessed whether the fees under the
revised GSM 102 programme adequately respond to the increased costs of all the risks faced in
guaranteed transactions.
90. Brazil also requests the Appellate Body to dismiss the United States' allegations that the Panel
incorrectly considered the GSM 102 export credit gu arantees and the two Ex-Im Bank programmes to
be comparable. Brazil states that, apart from as serting that the Panel erred in accepting Brazil's
proffered adjustments for the differences between these programmes, the United States neither
explains, nor substantiates, its allegations. Brazil observes that the United States submitted no
evidence showing that the risks involved in a tran saction differ depending on the product involved.
Secondly, Brazil explains that the United Stat es' argument that the GSM 102 programme and the
Ex-Im Bank programmes "differ significantly in te rms of interest and principal cover" ignores
adjustments offered by Brazil and considered by the Panel as "appropriate".
190 Thirdly, Brazil asserts
that the Panel correctly found that the alleged difference between the GSM 102 programme and the
Ex-Im Bank programmes with respect to recourse benefits for uninsured amounts "does not exist".191
91. Brazil recalls that the Panel considered the one per cent fee cap as one of the elements
indicating insufficient scaling of fees under the revised programme. According to Brazil, contrary to

188Brazil's appellee's submission, para. 431 (quoting Panel Report, para. 14.126 and footnote 757
thereto). (underlining added by Brazil; footnote omitted)
189Ibid., para. 433. (original emphasis)
190Ibid., para. 452 (quoting United States' appellant's submission, para. 103; and Panel Report,
para. 14.125, respectively).
191Ibid., para. 453. (original emphasis)

the United States' suggestion that the Panel "interpret ed item (j) to 'mandate[]' removal of fee caps to
avoid an export subsidy finding"
192, the Panel did not interpret item (j) to include any such
requirement. Rather, the Panel "treated the one-percent fee cap as another element supporting its
conclusion that the amended GSM 102 program is not structured, designed and operated to ensure that
fees cover long-term costs and losses." 193 Brazil adds that, as the Panel correctly found, removing
certain high-risk countries from eligibility under th e programme did not change the riskiness of the
GSM 102 portfolio sufficiently to enable risk-based fees, despite the statutory one per cent fee cap.
Brazil submits that, ultimately, the Panel found Braz il's argument and evidence more persuasive than
the United States' argument and evidence, according great er weight to the former than the latter. In
Brazil's view, this is not a valid basis for concludi ng that the Panel committed a reversible legal error
because, in applying the law to the facts, the Panel adopted a view that was "more than 'plausible'".194
92. Brazil further requests the Appellate Body to re ject the United States' challenge against the
Panel's reliance on two additional factors in examin ing the structure, design, and operation of the
revised GSM 102 programme, namely: (i) the CCC's unlimited access to United States Treasury
funds; and (ii) the fact that revised GSM 102 fees still fail to account for foreign obligor risk. With
respect to the first factor, Brazil maintains that "reco urse to [United States] Treasury funds is part and
parcel of the ordinary course of business for the GSM 102 program" and, theref ore, is "a structural
element ... on which the complianc e Panel was entitled to rely" 195, as had the original panel. Brazil
asserts that, under United States law, the CCC export credit guarantee programmes "are exempted
from the usual appropriations requirements" 196, and that the CCC can "replenish its capital on an
annual basis through an unlimited budgetary short-cut". 197 According to Brazil, this indicates that the
designers of the GSM 102 programme considered the likelihood of losses high enough to create an
exceptional regime. Brazil adds that, because no ch ange had occurred since the original proceedings
with regard to this factor, the Panel acted consiste ntly with relevant Appellate Body jurisprudence in
not departing from the original panel's reasoning and findings in this regard.
93. With respect to the second factor, Brazil submit s that the Appellate Body should reject the
United States' assertion that the Panel "erred in concludi ng that fees were the only proper way to deal
with foreign obligor risk". 198 Recalling the item (j) standard, Brazil considers that fees are not

192Brazil's appellee's submission, para. 467 (referring to United States' appellant's submission,
paras. 106 and 109).
193Ibid., para. 469.
194Ibid., para. 473.
195Ibid., para. 484.
196Ibid., para. 486.
197Ibid., para. 487.

designed to adequately "cover" long-term costs a nd losses if those fees do not adequately account for
the increased costs of increased risk, such as higher foreign obligor risk. Brazil argues that the United
States offered no evidence to support its assertion th at existing exposure limits to control foreign
obligor risk are a sufficient alternative to setting fees commensurate to such risk. Brazil further
submits that the United States did not offer ev idence on the alleged CCC exposure limits for the
GSM 102 programme. In contrast, Brazil provided ev idence to the Panel in support of its argument
that exposure limits and variable fees are used " in tandem"199 by commercial financial institutions to
control for the costs associated w ith borrower risk. In Brazil's vi ew, therefore, the United States
"essentially argues that the compliance Panel's er ror lies in not accepting [the United States']
arguments regarding an '[a]lternative[]' way to account for the costs of foreign obligor risk". 200 Brazil
reiterates that "there is no reversible error where a panel adopts 'a plausible view of the facts', 'even
though it attributed to these factors a different weight or meaning than did' a party to the dispute."201
94. Brazil concludes that the United States has failed to substantiate a reversible error in any of
the Panel's intermediate findings and in its ove rall finding that the revised GSM 102 programme
constitutes an export subsidy.
(d) Article 11 of the DSU
95. Brazil submits that the United States has failed to demonstrate that the Panel did not conduct
an objective assessment of the matter as required by Article 11 of the DSU. More specifically, Brazil
argues that the allegation that the Panel violated Article 11 in its assessment of the United States'
evidence and argument regarding deficiencies in the initial estimate process is untenable, because the
United States has not demonstrated that the Panel ex ceeded the bounds of its discretion as the trier of
facts. With regard to the United States' argument that the Panel violated Article 11 by failing to
assess the evidence concerning the re- estimates, Brazil emphasizes that the Panel "did not uncritically
follow the original panel's assessment concerning re-estimates, but objectively assessed the evidence
before it." 202 According to Brazil, the Panel was called upon to judge the relative weight and
probative value of competing evidence, and the fact that the Panel attributed to competing evidence a
different weight or meaning than the United States does not constitute reversible error under
Article 11 of the DSU.

199Brazil's appellee's submission, para. 504 (referring to Panel Report, footnote 735 to para. 14.113, in
turn referring to Brazil's second written submission to the Panel, footnote 718 to para. 498). (original emphasis)
201Ibid. (quoting Appellate Body Report, US – Upland Cotton, para. 445).
202Ibid., para. 354.

96. With respect to the United States' claim that th e Panel acted inconsistently with Article 11 by
failing to recognize that the OECD MPRs are not re levant for an analysis under item (j) of the
Illustrative List, Brazil submits that the Panel si mply disagreed with the United States' arguments
regarding MPRs and, in so doing, acted consistently with Article 11 of the DSU. Finally, with regard
to the United States' assertion that the Panel violated Article 11 because it "offered no support"
203 for
its conclusion that the GSM 102 programme and the Ex-Im Bank programmes are similar, Brazil
reiterates that, beyond asserting the existence of differences between these programmes, the United
States has not explained how the Panel erred in its assessment of the evidence or demonstrated why
the Panel exceeded the bounds of its discretion as the trier of facts.
97. Brazil therefore requests the Appellate Body to uphold the Panel's findings under
Articles 10.1 and 8 of the Agreement on Agriculture , and Articles 3.1(a) and 3.2 of the SCM
Agreement, as well as its finding that the United States has failed to withdraw the subsidy without
delay, and to reject the United States' claim under Article 11 of the DSU.
3. Serious Prejudice
98. Brazil requests the Appellate Body to reject the United States' appeal of the Panel's finding
that the effect of marketing loan and counter-c yclical payments provided to United States upland
cotton producers pursuant to the FSRI Act of 2002 is significant price suppression within the meaning
of Article 6.3(c) of the SCM Agreement, constituting "present" serious prejudice to the interests of
Brazil within the meaning of Article 5(c) of the SCM Agreement. Brazil also requests the Appellate
Body to reject the United States' claim that the Panel failed to make an objective assessment of the
matter before it as required by Article 11 of the DSU. Brazil asserts that, on the basis of the totality of
the evidence, the Panel was well within the bounds of its discretion—and fully supported by the
evidence—when it found that marketing loan and counter-cyclical subsidies cause significant price
suppression.
(a) Market Insulation
99. Brazil argues that the United States' appeal re lating to market insulation concerns factual
aspects of the Panel's findings and that the United St ates effectively is asking the Appellate Body to
"second-guess"204 the Panel's appreciation and weighing of th e evidence before it. Brazil asserts that
the Panel's findings "rest on a thorough and proper assess ment of the evidence", and that it "did not

203Brazil's appellee's submission, para. 456 (quoting United States' appellant's submission, para. 123).
204Ibid., para. 540.

exceed the bounds of its discretion in applying the law to the facts." 205 Moreover, Brazil rejects the
United States' contention that the Panel relied excessively on the findings of the panel and the
Appellate Body in the original proceedings. In stead, the Panel reviewed these findings and held,
based on its own assessment of the updated evidence be fore it, that these findings remained accurate
"under current factual conditions ".206 Brazil notes that an Article 21.5 proceeding "is part of a
'continuum of events' and that a compliance panel can be expected to refer and rely on the findings of
the panel and the Appellate Body in the original proceeding." 207 Brazil further recalls the Appellate
Body's statement that "doubts could arise about the objective nature of an Article 21.5 panel's
assessment if, on a specific issue, that panel were to deviate from the reasoning in the original panel
report in the absence of any change in the underlying evidence in the record."208
100. Regarding marketing loan payments , Brazil disagrees with the United States that the Panel
focused exclusively on the United States' argument that producers' planting decisions were not
influenced by the possibility of marketing loan subs idies because expected prices were above the loan
rate. Brazil asserts that the Panel did assess the Unite d States' arguments that price expectations and
other factors—rather than marketing loan subsidi es—explain the planting decisions of United States
upland cotton producers. Brazil also recalls that, in the original proceedings, the Appellate Body held
that "[t]he way in which United States upland cotton farmers make decisions relating to the
production of upland cotton, and the basis on which they make such decisions, are factual matters that
fall within the Panel's task of weighing and assessing the relevant evidence" 209, and asks that the
United States' appeal be rejected on the same grounds.
101. Brazil asserts that the fact that expected cash prices were above the marketing loan rate in
certain years does not mean that producers did not expect marketing loan payments at the time of
planting. In this respect, Brazil notes that the adju sted world price is "consistently much lower than
the [United States] cash price", and that Un ited States upland cotton producers would expect
marketing loan subsidies "even in situations where the expected cash price is above the loan rate".210
Brazil argues that it demonstrated that the expected adjusted world price for upland cotton was below
the marketing loan rate in every year since MY 1999 and that the evidence indicates that "[United

207Ibid., para. 552 (quoting Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) ,
para. 121).
208Ibid., para. 555 (quoting Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada),
para. 103).
209Appellate Body Report, US – Upland Cotton, para. 441.
210Brazil's appellee's submission, para. 568. (original emphasis)

States] upland cotton producers did expect mark eting loan subsidies in each of these years."
211
Moreover, Brazil argues that uncertainty about the act ual level of the adjusted world price during the
following marketing year, even if the expected adjusted world price is above the loan rate,
demonstrates the significance for producers' plan ting decisions of the "revenue-stabilization" 212
provided by the marketing loan subsidy.
102. Brazil submits that, in the light of these facts, "the United States cannot establish, as it must,
that the compliance Panel's finding of market insula tion from marketing loan subsidies has no basis in
the evidence before it." 213 Instead, according to Brazil, the Panel adopted a plausible view on the
basis of the evidence as a whole that supported its conclusion. Brazil adds that, "even if [United
States] upland cotton producers had adapted their pl anting behavior in the direction that market
signals would predict— i.e., assuming that the United States' read ing of the evidence were correct—
this would not undermine the compliance Panel's finding that [United States] marketing loan subsidies
'insulate'—or, in the words of the original pa nel, 'numb'—[United States] upland cotton producers
from market price signals." 214 Brazil observes that the ordinary meaning of the term "insulate" does
not require that United States upland cotton producer s are shielded altogether from market signals.
Brazil submits that the Panel's finding of market insulation would be consistent with evidence
showing that United States upland cotton producers react somewhat to market price signals, "just not
to the same extent they would ab sent the [United States] subsidy".
215 Thus, according to Brazil, " but
for marketing loan and counter-cyclical payments , [United States] upland cotton producers would
have reduced their planted acreage by significantly more than merely 14 percent" 216 in MY 2007.
Brazil also argues that the Panel did take into account producers' expectations in MY 2006 and
concluded that they "had every reason to expect 'very significant' marketing loan payments when
making their planting decisions."217
103. Regarding counter-cyclical payments, Brazil argues that the Panel did not improperly rely on
the new studies in isolation to find that the effect of counter-cyclical subsidies is significant price
suppression. Brazil submits that the conclusion that the Panel drew from these studies "is not—as the
United States argues—that counter-cyclical subsidies have significant production effects; rather, it is
that … these subsidies have the potential
 to cause production-increasing effects." 218 Brazil points out

211Brazil's appellee's submission, para. 568. (emphasis omitted)
212Ibid., para. 569.
213Ibid., para. 575.
215Ibid.
216Ibid., para. 581. (original emphasis)
217Ibid., para. 584. (footnote omitted)

that it is only in a subsequent step of the analysis that the Panel satisfied itself that "these potential
production effects in fact exist with respect to [United States] upland cotton production" 219 and that it
did so based on supplementary evidence, including: the fact that the vast majority of upland cotton
producers receive counter-cyclical subsidies; the ma gnitude of these counter-cyclical subsidies; their
importance as a share of upland cotton producers' re venue; and, their role in covering a significant
part of upland cotton producers' costs.
104. Brazil rejects the argument by the United States that "it is not relevant that 95 percent of
[United States] upland cotton production takes pl ace on farms holding upland cotton base", because
"[t]his fact would simply be a reflection that areas growing upland cotton in the past exhibit
favourable weather and natural e ndowments to continue to do so." 220 Brazil notes that this argument
does not undermine the Panel's finding of market insulation and contradicts the United States'
argument that upland cotton producers "actively c onsider planting alternative crops, including corn
and soybeans."221 Brazil argues that the evidence shows that, throughout the history of the FSRI Act
of 2002, roughly 95 per cent of United States upland cotton production has taken place on farms that
hold upland cotton base acres and receive counter-cycli cal subsidies, which "means that 95 percent of
[United States] upland cotton pro duction benefits from the revenue-s tabilizing structure, design and
operation of this subsidy."
222 Brazil further contends that United States upland cotton producers opt to
produce upland cotton, instead of corn and soybean s, because the availability of counter-cyclical
subsidies reduces the risk of growing upland co tton, thereby favouring cotton production over
alternative crops such as corn and soybeans.
105. Finally, Brazil contends that, contrary to what the United States suggests, there are no
inconsistencies between the Panel's finding of mark et insulation and certain other findings identified
by the United States. Brazil asserts that the Pane l's finding of market insulation is not undermined by
the relatively stable United States shares of wo rld production and exports, because these market
shares are determined by the interaction of numer ous factors and not only by producers' responses to
market prices. Neither is that finding undermined by the fact that expected prices were above the
marketing loan rate in MY 2006, because United St ates upland cotton producers "expected to receive
marketing loan subsidies in each of the mark eting years at issue, including in MY 2006." 223 I n
addition, Brazil argues that the alleged absence of a "discernable temporal coincidence" between

219Brazil's appellee's submission, para. 597 (referring to Panel Report, paras. 10.99-10.102 and 10.104).
(original emphasis)
220Ibid., para. 599 (referring to United States' appellant's submission, paras. 154 and 155).
221Ibid., para. 600 (referring to United States' appellant's submission, paras. 138-141).
222Ibid., para. 601.
223Ibid., para. 680. (footnote omitted)

subsidy payments, increasing e xports, and suppressed prices does not undermine the Panel's finding
of market insulation, because the Panel never found th at temporal coincidence was completely absent.
Rather, having assessed the relationship between pri ces and United States subsidies, the Panel stated
that it was "unable to detect a similar 'strong discernible coincidence ' between the [United States]
subsidies, the increase in [United States] cott on exports and the drop in world market prices"
224, and
immediately concluded that subsidy payments result in a stabilization of United States cotton
producers' revenues.
106. Finally, Brazil states that the Panel was not required to quantify precisely the price-
suppressing effects of the United States subsidies, "let alone quantify precisely any intermediate
findings of market-insulating or production effects." 225 Brazil adds that, although a quantitative
assessment is not required, the Panel did undertak e a quantitative assessment of the degree to which
marketing loan and counter-cyclical subsidies insulate United States upland cotton producers from
market signals.
(b) Divergence between United States Producers' Total Costs and Market
Revenues
107. Brazil submits that the Panel properly exercised its discretion in using total costs as a
benchmark to assess the effects of the marketing loan and counter-cyclical subsidies on prices.
According to Brazil, the Panel correctly examined total costs in assessing long-term developments in
the upland cotton industry, appropriately following the analyses undertaken by both the panel and the
Appellate Body in the original proceedings. In Brazil's view, because both the original panel and the
Appellate Body had relied on total costs to analyze the long-term effects of subsidies, there was no
basis for the Panel to treat long-term costs any diffe rently from the way they had been treated in the
original proceedings. Furthermore, Brazil notes that the Panel's decision to take into account total
costs in its long-term assessment rema ined "well within [its] discretion" 226 and was supported, not
only by the economic literature in general, but, more specifically, by a study from the United States
Congressional Research Service (the "USCRS").227
108. Brazil observes that the Panel also engaged in a detailed analysis of the effects of the
subsidies on short-term annual planting decisions in the context of its assessment of the structure,

224Brazil's appellee's submission, para. 687 (quoting Panel Report, para. 10.135). (emphasis added by
Brazil)
225Ibid., para. 617. (footnote omitted)
226Ibid., para. 722.
227Ibid., para. 724 (referring to Congressional Research Service Report for Congress by R. Schnepf and
J. Womach, "Potential Challenges to US Farm Subsidies in the WTO" (25 October 2006) (Exhibit Bra-577
submitted by Brazil to the Panel)).

design, and operation of the marketing loan and counte r-cyclical subsidies. In this analysis, the Panel
considered "evidence presented by both the Unite d States and Brazil regarding annual data assessing
variable costs."228 Brazil argues that, had the Panel "focused exclusively on the short-term effects of
the [United States] subsidy regime (measured by expected returns against annual variable costs)—as
the United States asserts it should have—the ev idence would unambiguously have shown that
marketing loan and counter-cyclical payments di stort the economic decision-making of the average
[United States] upland cotton producer." 229 Brazil submits that an analysis of expected market
revenues and annual variable costs of growing upla nd cotton, soybeans, or corn shows that, "[o]nly
when expected marketing loan and counter-cyclical subsidies are taken into account … does growing
upland cotton become a viable decision compared to growing corn and soybeans."230
109. Brazil also contests the United States' allegati on that the Panel erred by ignoring off-farm
income in its total cost-revenue analysis. Brazil refers to the findings of the original panel, recalled by
the Panel, that the references to "subsidized product" and "like product" in Article 6.3(c) of the SCM
Agreement circumscribe the examination to the upland cotton industry and that "the very fact that the
United States relies on such cross-subsidization as a possible source of revenue would tend to support
the proposition that upland cotton pro ducers would have lost money over the longer term if they were
involved in upland cotton production alone." 231 Moreover, according to Brazil, the Panel "carefully
considered the evidence submitted by the United States" and appropriately concluded that it "did not
support the [United States'] assertion that off-farm income negated th e significant production effects
of the marketing loan and counter-cyclical subsidies ."232 Brazil submits that the Panel's finding was
well within its discretion as the trier of facts and did not amount to a legal error. On the contrary, in
Brazil's view, there is a solid evidentiary, economic, and logical foundation for the Panel's conclusion
that off-farm income "did not negate the signifi cant production effects of the marketing loan and
counter-cyclical subsidies."
233
110. Additionally, Brazil rejects the United States' argu ment that the total cost analysis should be
limited to total cash costs and should exclude oppor tunity costs. According to Brazil, the Panel

228Brazil's appellee's submission, para. 731 (referring to Panel Report, paras. 10.185-10.195). (original
emphasis)
229Ibid., para. 741. (original emphasis)
230Ibid., para. 737 (referring to Brazil's oral statement at the Panel meeting, paras. 60-78; Analysis of
Planting Decisions Based on Expected Returns (Exhibit Br a-634 submitted by Brazil to the Panel); Brazil's
comments on the United States' oral st atement at the Panel meeting, para s. 13-27; Analysis of Planting
Decisions Based on Expected Returns and Cash Costs (Exhibit Bra-665 submitted by Brazil to the Panel); and
Expected Costs and Returns Using Variable Costs (Exhibit Bra-667 submitted by Brazil to the Panel)).
233Ibid., para. 753.

correctly understood that disregarding opportunity costs is contrary to "basic economic principles".
234
Brazil notes that, in arriving at this conclusion, the Panel "relied on USDA economists who also
rejected the notion that opportunity costs should be excluded from total costs". 235 Brazil also points
out that the Appellate Body, in Canada – Dairy (Article 21.5 – New Zealand and US II) , "has already
clarified that non-cash 'opportunity' costs are part of cost of production".236
111. Finally, in response to the United States' ch allenge to the Panel's use of USDA cost and
market return data, Brazil submits that these data are authentic, accurate, contemporaneous evidence,
and have the same credibility as the data used in the original proceedings. Brazil further observes that
the USCRS's analysis, which was before the Panel, confirms the accuracy of both the USDA's data on
cost and market return and the Panel's reliance upon it. Brazil considers that, like the original panel
and the Appellate Body before it, the Panel did not abuse its discretion in using such USDA data to
assess the significant long-term gap between total costs of production and market revenue. Therefore,
Brazil asserts that the mere fact that the Panel did not agree with the United States' view of the
evidence does not amount to legal error under Articles 5(c) and 6.3(c) of the SCM Agreement.
(c) Economic Simulation Model
112. Brazil disagrees with the United States' allegati on that the parties' econometric modelling was
insufficient to support the Panel's finding of signif icant price suppression. Brazil submits that the
Panel never concluded that the ec onometric modelling of the parties was "'sufficient', in and of
itself"237, to support a finding of significant price suppression. On the contrary, the econometric
modelling was "just one of many facts that [the Pa nel] considered in its evaluation of whether the

235Ibid., para. 756.
236Ibid., para. 758 (referring to Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand
and US II), paras. 102-104).
237Ibid., para. 830.

subsidies cause significant price suppression." 238 Brazil contends that, because the United States
presents no legal or factual basis that would ha ve required the Panel to exclude the economic
simulation model from its overall analysis of the evidence, the United States' appeal must be
dismissed. Brazil adds that, "even though the co mpliance Panel was not in a position to 'judge the
claims of the parties about the exact magnitude ' of the price suppression demonstrated by the
economic model, it did identify the range of possib ilities, with Brazil demonstrating a change of up
to 8.9 percent (MY 2002-2005) or 6.05 percent (MY 2006-2008), and the United States alleging a
change as low as 1.41 percent (MY 2002-2005) or approximately 1 percent (MY 2006-2008)." 239
Brazil emphasizes that "even if the Panel had determ ined that the number at the lowest end of the
spectrum advanced by the United States ( i.e., approximately 1 percent) were correct, which it did not,
this would have still been high en ough to constitute significant price suppression, in light of other
considerations regarding 'significance'."240
(d) Impact of the Elimination of Step 2 Payments
113. Brazil asserts that the Panel properly found that the withdrawal of the Step 2 payments does
not eliminate the significant price suppression caused by the marketing loan and counter-cyclical
subsidies. Brazil notes that the United States a ppears to understand that the Panel's duty was to
"(i) identify the level of price suppression caused by the original basket of three subsidies in one
reference period, (ii) identify the level of pri ce suppression caused by th e Step 2 subsidy alone,
and (iii) determine whether the remaining pri ce suppression caused by the marketing loan and
counter-cyclical subsidies continues to be significant in a different period."
241 However, according to
Brazil, "nothing in Part III of the SCM Agreement or Article 21.5 of the DSU mandates [this]
circuitous approach".242 Furthermore, if the United States believe d that "the withdrawal of the Step 2
subsidy necessarily means that the two remaining subsidies cannot cause adverse effects, it bore the
burden of proving this fact." 243 Brazil asserts that the United States failed to meet its burden,
particularly because Brazil demonstrated that the remaining subsidies do, in fact, continue to cause
adverse effects, despite the withdrawal of the Step 2 subsidy.
114. Brazil submits that the United States' argumen t that the Panel was required to determine
whether, and to what extent, the withdrawal of the Step 2 payments caused the decline in United

239Ibid., para. 842 (referring to Panel Report, paras. 10.201, 10.202, and 10.221). (emphasis added by
Brazil)
240Ibid., para. 842 (referring to Brazil's first written submission to the Panel, para. 190).
242Ibid., para. 869.
243Ibid., para. 872. (original emphasis)

States exports in MY 2006 is not relevant to the Pa nel's assessment of Brazil's claim. This is because
the Panel was only required to assess—and did assess—whether United States production and
exports, as well as the United States' world market share of production and exports, in MY 2006 were
sufficiently large to support a finding that the United States exerted a substantial proportionate
influence on world market prices.
115. Brazil asserts that the Panel properly assessed the effects of the withdrawal of Step 2
payments on the magnitudes of the marketing loan and counter-cyclical payments. Brazil notes that,
in assessing the effects of the withdrawal of Step 2 payments, the Panel relied on budget documents
prepared by the USDA and on an assessment by the United States Congressional Budget Office (the
"USCBO"), and correctly concluded that the withdrawal of Step 2 payments "will reduce marketing
loan subsidies by $17 million over ten years, but increase counter-cyclical subsidies by $484 million
over the same period."
244 Thus, Brazil contends that the Panel adopted a plausible view of the facts
when finding "relatively modest changes" in subs idy amounts and that "these changes run counter to
one another." 245 In Brazil's view, although the United Stat es might prefer for the Panel to have
weighed differently the evidence regarding market ing loan and counter-cyclical payments following
the withdrawal of Step 2 payments, it has failed to explain how the Panel erred in making the findings
it made.
(e) Magnitude of Marketing Loan and Counter-cyclical Payments
116. Brazil submits that the Panel properly found th at the magnitude of the marketing loan and
counter-cyclical subsidies was a relevant factor in its assessment, and that this factor, in conjunction
with others, supported its finding of significant price suppression. Brazil notes that the United States'
appeal appears to be entirely contingent on it prevailing on its appeal of the Panel's findings
regarding: "(i) the revenue-stabilizing and market -insulating role of marketing loan and counter-
cyclical subsidies; and (ii) their importance to cover [United States] upland cotton producers'
cost[s]."246 However, the magnitude of the subsidy is " one important element that must be considered
in a holistic analysis." 247 In Brazil's view, "the magnitude of a subsidy cannot be ignored or
disregarded, as the United States wishes the Appellate Body to do, even if one of the panel's findings
on another, potentially related, factor were in error— quod non."248

244Brazil's appellee's submission, para. 95. (original emphasis)
246Ibid., para. 784.
247Ibid., para. 787. (emphasis omitted)
248Ibid., para. 788.

(f) Substantial Proportionate Influence on the World Market for Upland
Cotton
117. Brazil argues that the Panel properly found that the "substantial proportionate influence"
exercised by the United States on the world market for upland cotton supports its finding of
significant price suppression in that market. Brazi l notes that United States world market shares of
upland cotton production and exports since MY 1999 ar e artificially high and reflect the production-
and export-enhancing effects of the subsidies at issue. Brazil contends that, "[b]ut for these subsidies,
the [United States] market shares would be much smaller."
249 Additionally, Brazil rejects the United
States' argument that the relative size of the sh ares of production and expor ts alone cannot support a
finding of significant price suppression in the world market for upland cotton. In Brazil's view, this
argument misrepresents the Panel's finding, because th e Panel analyzed this factor "in light of the
totality of the evidence before [it]".250
(g) Other Factors Impacting the World Market Price for Upland Cotton
118. Brazil requests the Appellate Body to dismiss th e United States' claim that the Panel failed to
conduct a non-attribution analysis regarding other factors impacting the world market price for upland
cotton, in particular, the role of China. Br azil asserts that the Panel's analysis included a
comprehensive evaluation of China's role in the world market.
119. Brazil submits that the Panel properly examined the effects of United States subsidies through
a "'unitary' counterfactual approach"251, examining a wide variety of factors, including the role played
by China in the world market. More specifically, Brazil contends that the Panel carefully examined
the evidence and arguments from both sides regard ing China's role, and appropriately held that
"China's role in the market does not preclude the United States from exerting a 'substantial
proportionate influence' on the world market, nor does it preclude [United States] subsidies from
having significant price suppressing effects."
252 According to Brazil, the Panel's findings were
properly reasoned, as required by Article 12.7 of the DSU, and had a strong evidentiary basis.
(h) Degree of Price Suppression
120. Brazil rejects the United States' claim that the Panel erred, as a matter of law, in failing to
explain the degree of price suppression that it consid ered to be significant. Brazil observes that,

unlike Article 15.2 of the SCM Agreement , which explicitly requires consideration of whether
subsidized imports suppress or depress prices "to a significant degree", "Article 6.3(c) does not refer
to the 'degree of' anything, but simply uses the phrase 'significant price suppression'."
253 Brazil argues
that Article 6.3(c) does not require a panel to " quantify precisely what degree of price suppression
would be 'significant'". 254 Brazil also notes that the Panel properly followed the same approach
adopted by the original panel and approved by th e Appellate Body, and endorsed the original panel's
finding that, "in the case of a widely traded commodi ty like upland cotton, 'a relatively small decrease
or suppression of prices could be significant'" 255, given the narrow profit margins, the high degree of
price sensitivity for sales of a homogenous product, and the sheer size of the market.
121. Furthermore, Brazil submits that the Panel pr operly based its "significance" finding on the
"collective effects" of the subsidies, examin ing "the totality of the quantitative and qualitative
evidence before it" 256, such as, the United States' share of production and exports; the structure,
design, and operation of the United States subsidies; their magnitude; producers' planting decisions,
costs of production, and the share of subsidies in th eir total revenues; and overall price trends in the
world market for upland cotton. According to Braz il, the Panel's findings on the various individual
factors provide an ample evidentiary basis for its ultimate conclusion that the extent of the price
suppression it found was "significant".257
(i) Article 11 of the DSU
122. Brazil asserts that the Panel did not exceed the bounds of its discretion as the trier of facts
under Article 11 of the DSU in finding that the effect of marketing loan and counter-cyclical
payments provided to United States upland cotton producers is significant price suppression and thus

254Ibid., para. 823.
255Ibid., para. 820 (quoting Panel Report, para. 10.50, in turn quoting Original Panel Report,
para. 7.1330).
256Ibid., para. 808.
257Ibid.

fully complied with its duties under Article 11 of th e DSU. Brazil also rejects the United States'
allegation that the Panel disregar ded and distorted evidence submitted by the United States in relation
to both marketing loan payments and counter-cyclical payments. In Brazil's view, the United States
has not established that the Panel "exceeded the bounds of its discretion, as the trier of fact, in
assessing the evidence before it" 258 and "[t]he fact that the Panel accorded the evidence a weight or
meaning different than did the United States is not grounds for reversible error."259 Brazil furthermore
rejects the United States' argument that the Panel vi olated Article 11 of the DSU because it did not
expressly address in its analysis arguments made by the United States, and notes that "Article 11 does
not require a panel to address each and every argument made by the parties."260
123. In particular, Brazil asserts that the Panel "adopted a 'plausible'—indeed, likely the only
plausible—view of the facts, fully supported by the evidence before it, when it found that very large
price-contingent marketing loan and counter-cyclical subsidies insu late [United States] upland cotton
producers from market price signals." 261 Brazil contends that the Panel did not exceed the bounds of
its discretion in finding market insulation, even in the light of the relatively stable United States shares
of world production and exports. Brazil additionally argues that the Panel did not exceed the bounds
of its discretion with respect to the appreciation of the "substantial proportionate influence" exercised
by the United States in the world market of upland cotton.
124. As regards the econometric model, Brazil states that the United States has not identified errors
in the Panel's assessment that woul d have precluded reliance on it as part of the evidentiary basis for
the significant price suppression finding. Brazil further asserts that the Panel did not "ignore",
"distort", or "misrepresent" the United States' arguments and evidence relating to the economic model,
but instead carefully considered and rejected them. 262 In Brazil's view, "[t]he essence of the United
States' appeal is that, because th e Panel disagreed with the United States, it must have exceeded the
bounds of its discretion and conducted a non-objective analysis." 263 However, the mere fact that the
Panel did not agree with the United States, and atta ched different weight to the evidence than the
United States, does not mean that the evidence cannot support the Panel's conclusions and that the
Panel exceeded the bounds of its discretion as the trier of facts.

259Ibid., para. 650. (footnote omitted)
260Ibid., para. 135 (referring to Appellate Body Report, US – Upland Cotton , para. 446; Appellate
Body Report, Dominican Republic – Import and Sale of Cigarettes , para. 125; Appellate Body Report, EC –
Poultry, paras. 135 and 143; and Appellate Body Report, Japan – Agricultural Products II , footnote 39 to
para. 91).
262See ibid., paras. 844-853.
263Ibid., para. 853.

125. Brazil asserts that the Panel properly weighed all the evidence and arguments before it with
respect to "other factors" that could be affecting prices, such as China's influence on the world market
price of upland cotton. Brazil explains that the Pa nel "understood that China is a significant player in
the world market; but it concluded that the Unite d States—as the world's second largest producer and
largest exporter—nonetheless continues to exert su bstantial influence in the market place."
264 In
Brazil's view, the evidence before the Panel am ply supports this conclusion, which "constitutes a
more-than-'plausible' view of the facts".265
126. Brazil argues that the arguments submitted by the United States concerning the reasoning of
the Panel do not relate to Article 11 of the DSU but, rather, should have been raised under
Article 12.7 of the DSU. As the United States made no claim of error under Article 12.7 of the DSU,
for that reason alone, these arguments should be dism issed. In any event, Brazil notes that the Panel
did provide a basic rationale for its findings, in accordance with Article 12.7 of the DSU.
C. Claims of Error by Brazil – Other Appellant
1. Scope of These Article 21.5 Proceedings: The Revised GSM 102
Programme
127. Brazil appeals the Panel's finding that the revised GSM 102 programme is not the measure
that was the subject of Brazil's claim. 266 Brazil's appeal is conditional on the Appellate Body
reversing the Panel's finding that Brazil's claims pertaining to pig meat and poultry meat were
properly within the scope of these Article 21.5 proceedings.
128. Brazil maintains that the revised GSM 102 programme itself was the declared measure taken
to comply and that this was identified in Brazil' s request for the establishment of an Article 21.5
panel. Brazil observes that the revised GSM 102 pr ogramme "applies, without distinction, to all
eligible products falling within its scope". 267 Brazil argues that, "[c]onsistent with the declaration by
the United States" 268, Brazil challenged the revised GSM 102 programme as a measure at issue
throughout the Article 21.5 proceedings. Brazil not es that it additionally identified as "measures at
issue" individual export credit guarantees issued under the revised GSM 102 programme, including
those provided in connection with exports of pig meat and poultry meat.

265Ibid.
267Ibid., para. 178.
268Ibid., para. 179.

129. Brazil states that it sees no basis on which the Pa nel could disagree that the measure that is
the subject of Brazil's claims is the revised GSM 102 programme itself. According to Brazil, "[a]
panel is bound to examine the measure ... identified by the complainant in its panel request, which
forms the panel's terms of reference."269 Brazil further submits that the Panel's finding is "puzzling"270
because the Panel examined the revised GSM 102 pr ogramme under item (j) of the Illustrative List
but refused to examine the same measure under Article 10.1 of the Agreement on Agriculture.
130. In Brazil's view, the Panel "appears to have c onsidered that Brazil could not identify, as the
measure at issue, the GSM 102 program as a whole because Brazil's claims concerning the
circumvention of export subsidy commitments were product-specific."
271 Brazil argues that this
approach "is flawed because it confuses the sharp distinction between measures and claims".272 Brazil
asserts that, although it made a claim under Article 10.1 of the Agreement on Agriculture , the fact
that the United States' obligation under that pr ovision applies on a product-specific basis does not
mean that the measure at issue must also be product-specific.
131. Brazil recalls the Appellate Body's finding in EC – Chicken Cuts that "the identification of the
products at issue must flow from the specific meas ures identified in the panel request", and argues
that the Panel did the reverse by "re-defin[ing] the scope of the measures" 273 according to the product-
specific character of the obligations. Brazil adds that the Panel, by "unilaterally chang[ing] its terms
of reference" 274 and excluding the declared measure take n to comply from these proceedings, also
failed to make an objective assessment of the matter as required by Article 11 of the DSU. Brazil
therefore requests the Appellate Body to reverse th e Panel's finding and to find, instead, that the
revised GSM 102 export credit guarantee programme itself was a "measure at issue" before the Panel.
132. In the event that the Appellate Body reverses the Panel's finding, Brazil further requests the
Appellate Body to complete the analysis and to fi nd that the revised GSM 102 programme is applied
in a manner that circumvents the United States' expor t subsidy commitments with respect to pig meat
and poultry meat, contrary to Articles 10.1 and 8 of the Agreement on Agriculture . Brazil explains
that it makes this request because, "should the Appellate Body accept the United States' appeal against
the compliance Panel's finding that [export credit guarantees] for pig meat and poultry meat were
properly before the Panel, this would deprive the Panel's substantive finding of its jurisdictional

269Brazil's other appellant's submission, para. 180.
270Ibid., para. 181.
271Ibid., para. 182.
272Ibid., para. 184.
274Ibid., para. 190.

basis"
275, and the dispute between the parties with respect to export credit guarantees for pig meat and
poultry meat would remain unresolved.
133. Brazil submits that the measures challenged and the claims made by Brazil relating to export
credit guarantees for pig meat and poultry meat are pr operly within the jurisdiction of the Panel and
the Appellate Body. Brazil recalls that, as it has demonstrated, the revised GSM 102 programme is
the measure taken to comply, and, thus, Brazil claims that it is entitled to challenge this new measure
"in its totality" without any limitation on the claims. 276 More specifically, Brazil argues that it is
entitled to challenge the revised GSM 102 programme "under any provision of the covered
agreements" and "with respect to any product falling within the scope of that 'new' measure".277
134. Moreover, according to Brazil, there are sufficien t factual and legal findings by the Panel to
enable the Appellate Body to complete the analysis . Brazil refers to the following two findings of the
Panel, and notes that the second finding is not appealed by the United States: (i) the revised GSM 102
programme "constitutes an 'export subsidy' under item (j) of the Illustrative List" 278; and (ii) the
quantity of exports of pig meat and poultry meat "having benefited from GSM 102 export credit
guarantees exceeds the [United States' export subsidy] commitments" 279 by 57 and 14 times,
respectively. Brazil maintains that, in any event, under Article 10.3 of the Agreement on Agriculture,
"the United States bears the burden of proving" that its exports of pig meat and poultry meat "in
excess of its quantity-based reduction commitment levels do not benefit from export subsidies". 280
Brazil notes that the United States has made no argumen ts in this regard. On this basis, Brazil
requests the Appellate Body to complete the anal ysis and to find that the revised GSM 102 export
credit guarantee programme is applied in a manner that results in circumvention of the United States'
export subsidy commitments with respect to pig meat and poultry meat, contrary to Articles 10.1
and 8 of the Agreement on Agriculture, and Articles 3.1(a) and 3.2 of the SCM Agreement.
2. Scope of These Article 21.5 Proceedings: Marketing Loan and Counter-
cyclical Payments Programmes
135. Brazil claims that the Panel erred in assessing its terms of reference under Article 21.5 of the
DSU and concluding that the original panel's "p resent" serious prejudice findings and conclusions

275Brazil's other appellant's submission, para. 193. (original emphasis; footnote omitted)
276See ibid., para. 195 (referring to Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia) ,
paras. 87 and 90; Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 –
Argentina), para. 146; and Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), paras. 40 and 41).
277Ibid., para. 195. (original emphasis)
280Ibid., para. 200. (original emphasis)

covered exclusively subsidy payments, and did not ex tend to subsidy programmes. Brazil's appeal is
conditional on the Appellate B ody reversing the Panel's finding that payments made
after 21 September 2005 under the marketing loan and counter-cyclical payments programmes are
measures taken to comply that are properly within the scope of these Article 21.5 proceedings.
136. Brazil cautions about using the labels "as such " and "as applied" to describe the measures at
issue in the context of a claim of adverse effects under Article 5 of the SCM Agreement . Brazil
explains that Article 5 allows a complaining Memb er to demonstrate that the "use" of a subsidy
programme causes "adverse effects". According to Brazil, "if a panel does examine payments as part
of the evidence of the 'use' of a program that does not prevent the program itself from being a
measure that causes adverse effects." 281 Brazil adds that, "[a]lthough th is may not be a 'classic' 'as
such' challenge to a program in WTO dispute settlement, it is a type of challenge against subsidy
programs that is envisaged by Article 5 of the SCM Agreement."282
137. Brazil does not agree with the Panel that the or iginal panel's reference to "mandatory price-
contingent United States subsidy measures" "inevitably" 283 excludes subsidy programmes from the
scope of the original panel's findings. For Brazil, "it is possible, at the least, that the original panel's
reference to 'mandatory price-contingent ... subsidy measures' includes the four subsidy programs" 284,
and the ambiguity in the formulation "call[s] for furt her elucidation in light of 'the factual and legal
background' provided by the remainder of the original panel report." 285 Brazil proceeds to review the
terms of reference of the original panel and the orig inal panel report, and points to several elements
that it considers support its view that "the orig inal panel's finding regarding 'mandatory price-
contingent United States subsidy measures' must be understood to include the subsidy programs, as
set forth in the 'legislative and regulatory provis ions providing for payment' of the subsidies." 286 In
particular, Brazil refers to: (i) the original pane l request, which established the original panel's terms
of reference287; (ii) the original panel's statement of the measures before it 288; (iii) the original panel's
reasoning regarding those measures, which includes an examination of their "structure", "design", and

281Brazil's other appellant's submission, para. 62. (original emphasis)
282Ibid.
283Ibid., para. 68 (referring to Panel Report, para 9.46, in turn quoting Original Panel Report,
para. 8.1(g)(i)).
284Ibid., para. 69.
285Ibid., para. 70 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) ,
para. 69).
286Ibid., para. 122.
287See ibid., para. 75.

"operation"
289; and (iv) the original panel's reasons fo r exercising judicial economy with respect to
Brazil's claims of "threat" of serious prejudice.290
138. Brazil also claims that the Panel's finding that the original panel's conclusions and the DSB's
recommendations and rulings related to only the su bsidy payments, and not the subsidy programmes,
constitutes a violation of the duty to make an "obj ective assessment of the matter" under Article 11 of
the DSU. Brazil argues that the Panel "failed to c onsider the original panel's own description of the
'measures at issue'" and "failed to examine the origin al panel's terms of reference, as set forth in the
original panel request." 291 Brazil asserts that "[a] compliance panel cannot objectively assess the
scope of the original panel's findings if it ignores both the original panel's own statements of the
measures at issue, and its terms of reference."
292
139. In the event that its conditional appeal is accep ted, Brazil requests the Appellate Body to find
that marketing loan and counter-cyclical paym ents made after 21 Se ptember 2005 constitute
"measures taken to comply" with the DSB's recomme ndations and rulings in the original proceedings,
because of the close connection to the marketing loan and counter-cyclical payments programmes that
are subject to those recommendations and rulings. Alternatively, Brazil requests the Appellate Body
to find that, through the continued use of the marketing loan and counter-cyclical payments
programmes, the United States causes serious prejudice to Brazil's interests.
D. Arguments of the United States – Appellee
1. Scope of These Article 21.5 Proceedings: The Revised GSM 102
Programme
140. The United States submits that, because the re vised GSM 102 programme is not a "measure
taken to comply" with the DSB's recommendations and rulings, the Appellate Body should reject
Brazil's conditional appeal against the Panel's finding that the GSM 102 programme was not the
measure subject to Brazil's claims.
141. The United States recalls that the original panel made findings with respect to specific export
credit guarantees for individual products, rather th an the GSM 102 programme itself. The United
States refers to the original panel's conclusion that , "in respect of exports of upland cotton and other

289See Brazil's other appellant's submission, paras. 93-194 (referring to Original Panel Report,
paras. 7.1191-7.1194, 7.1291-7.1296, 7.1305, 7.1332, and 7.1477).
290See ibid., para. 106 (referring to Original Panel Report, paras. 7.1498-7.1503).
291Ibid., para. 128.
292Ibid.

unscheduled agricultural products ... and in respect of ... rice" 293, the United States export credit
guarantees were export subsidies applied in a manner resulting in circumvention of its export subsidy
commitments. The United States argues that, "[a]s is clear from the language" 294 of this conclusion,
the original panel considered specific export cr edit guarantees for individual products to constitute
export subsidies, and the DSB's recommendations and rulings applied to only those export credit
guarantees specifically mentioned in this conclusion.
142. The United States submits that, in these Article 21.5 proceedings, Brazil did not assert that the
GSM 102 programme itself circumvents the United St ates' export subsidy commitments but, rather,
challenged the GSM 102 programme "as applied" with respect to certain products, including pig meat
and poultry meat. The United States contends that Brazil nevertheless "attempts to bring the entire
GSM 102 program before the compliance Panel by ca sting the program as the 'declared' [United
States] implementation measure". 295 The United States maintains that "the statements made by the
United States when the GSM 102 program was change d do not amount to any such 'declaration' that
the GSM 102 program was a measure taken to comply". 296 Furthermore, these statements do not
"amount to any acknowledgement about the scope of the DSB recommendations and rulings and the
scope of the changes"297 to the GSM 102 programme.
143. The United States asserts that, although it ma de changes with respect to export credit
guarantees generally, including for pig meat and poultry meat, "it did so as a matter of administrative
convenience and not 'to comply'"
298 with the DSB's recommendations and rulings. By casting the
revised GSM 102 programme itself as the measure ta ken to comply, Brazil's approach suggests that
"Members should refrain from efficient manageme nt or good public policy because otherwise they
risk an expedited compliance proceeding with no re asonable period of time to respond to any adverse
findings."299
144. Furthermore, the United States argues that Braz il mistakenly relies on the Appellate Body's
finding in US – Shrimp (Article 21.5 – Malaysia) to support its position that a new measure can be
challenged in its totality in Artic le 21.5 proceedings. Noting that the "new measure" referred to in

293United States' appellee's submission, para. 77 (quoting Original Panel Report, para. 8.1(d)(i)).
294Ibid., para. 78.
295Ibid., para. 80.
296Ibid.
297Ibid.
298Ibid., para. 86.
299Ibid.

US – Shrimp (Article 21.5 – Malaysia) was the "measure taken to comply", the United States
reiterates that the measure taken to comply in th ese Article 21.5 proceedings encompasses changes to
GSM 102 export credit guarantees for unscheduled produc ts and one scheduled product, rice, rather
than the revised GSM 102 programme in its totality . In addition, the United States submits that
Brazil's reliance on the Appellate Body's finding in Canada – Aircraft (Article 21.5 – Brazil) is also
misplaced because, in that dispute, Canada was re quired to withdraw the subsidy with respect to " all
[Technology Partnerships Canada] assistance to the Canadian regional aircraft industry".
300 In
contrast, in these proceedings, the "measure take n to comply" encompasses only the changes made
with respect to a "subset" 301 of GSM 102 export credit guarantees with respect to which the United
States was required to implement the DSB's recommendations and rulings.
145. The United States also contests Brazil's claim that the Panel acted inconsistently with
Article 11 of the DSU by "unilate rally chang[ing] its terms of re ference" and "excluding measures
specifically identified" 302 by Brazil. According to the United States, the Panel did not exclude
measures listed by Brazil but, rather, addressed Brazil's claims relating to specific GSM 102 export
credit guarantees for individual products. The United States argues that, because the revised
GSM 102 programme was not the subject of Brazil's claims, the Panel "committed no error by failing
to address non-existent claims as to that alleged measure".
303 In any event, the Panel was entitled to
limit its review to those claims which must be addressed in order to resolve the matter at issue in this
dispute.304 Thus, because the Panel was able to resolve the dispute by reviewing Brazil's claims as to
specific GSM 102 export credit guarantees for indi vidual products, the Panel was not required to
consider Brazil's other claims "concerning a di fferent measure", namely, the revised GSM 102
programme in its totality.305
146. Finally, the United States contests Brazil's claim that "there are more than sufficient factual
and legal findings by the compliance Panel to enable the Appellate Body to complete its legal analysis

300United States' appellee's submission, para. 88 (quoting Appellate Body Report, Canada – Aircraft
(Article 21.5 – Brazil), para. 2). (emphasis added by the United States)
301Ibid., para. 88.
303Ibid., para. 83.
305Ibid., para. 84.

and find that the amended GSM 102 program results in circumvention" 306 of the United States' export
subsidy commitments with respect to pig meat an d poultry meat. The United States submits that it
has demonstrated that the Panel erred as a matte r of law in finding that the GSM 102 programme
constitutes an export subsidy under item (j) of the Illu strative List, and that this finding of the Panel
should be reversed.
147. On this basis, the United States requests the A ppellate Body to find that the revised GSM 102
export credit guarantee programme is not a "measure taken to comply", to reject Brazil's conditional
appeal, and to deny Brazil's request to complete the analysis with respect to GSM 102 export credit
guarantees for pig meat and poultry meat.
2. Scope of These Article 21.5 Proceedings: Marketing Loan and Counter-
cyclical Payments Programmes
148. The United States considers that the Panel corr ectly concluded that the "original panel's
findings and recommendations with respect to 'pr esent' serious prejudice were limited to payments
under the marketing loan and counter-cyclical programs, and did not encompass the programs
themselves."307 Accordingly, the United States request s the Appellate Body to reject Brazil's
conditional appeal regarding marketing loan and counter-cyclical payments programmes.
149. The United States asserts that Brazil is "ask[ing] the Appellate Body to revisit the proceedings
before the original panel to ascertain whether th e compliance Panel correctly interpreted the findings
of the original panel." 308 Thus, "Brazil would have the A ppellate Body reexamine in full the
proceedings of the original panel regarding the measures at issue and the claims made."309 The United
States does not see a "need to revisit and reexamine the original panel proceedings in this way"
because "the critical element is the findings of the or iginal panel, as adopted by the DSB, as these set
the scope of the compliance proceeding under Article 21.5 of the DSU."310
150. The United States submits that Brazil did not make a claim of "present" serious prejudice with
respect to the marketing loan and counter-cycli cal payments programmes and, consequently, the
original panel "could not make" 311 findings with respect to the pr ogrammes themselves. Moreover,
the United States rejects Brazil's reliance on the "measu res at issue" listed in Brazil's request for the

306United States' appellee's submission, para. 89 (quoting Brazil's other appellant's submission,
para. 196).
307Ibid., para. 20.
308Ibid., para. 14.
309Ibid.
310Ibid., para. 15.
311Ibid., para. 27.

establishment of the panel. The United States adds that "the issue here is the scope of the [original]
panel's findings on the claims Brazil presented"
312, and not the "measures" listed in Brazil's original
panel request. According to the United States, Br azil's claim before the original panel "did not
include a claim of 'present' serious prejudice with respect to marketing loan and counter-cyclical
programs as such." 313 Thus, the United States asserts, the "o riginal panel's findings ... paralleled the
claims made by Brazil, showing that the original panel well understood the issues before it."314
151. The United States additionally argues that the "f act that the original panel analyzed the
'structure, design, and operation of subsidies' was perfectly consistent with the claims before it
regarding payments under the marketing loan and c ounter-cyclical payment programs". 315 T h e
United States explains that, "[c]ontrary to Brazil's position, even a 'simple' payment can be analyzed
in terms of 'structure,' 'design,' and 'operation'."316
152. The United States also takes issue with Brazil's reliance on the statement made by the original
panel when explaining the basis for its exercise of judicial economy on Brazil's claims of "threat" of
serious prejudice, that "the United States would make changes in its statutory and regulatory
framework as a result of its finding on 'present' serious prejudice". 317 For the United States, this point
"actually confirms that Brazil is in error". 318 In the United States' view, if the "measures taken to
comply" with the recommendations and rulings of th e DSB stretch to include the marketing loan and
counter-cyclical payments programmes, "then the or iginal panel would have had no need to discuss
claims concerning threat of serious prejudice with respect to future payments—the original panel
would have already found that the programs 'as such' caused serious prejudice and that finding
(erroneous as it necessarily must be) would have th en had implications for any payments under the
programs."319
153. Finally, the United States disagrees with Brazi l's claim that the Panel failed to make an
objective assessment of the matter as required by Article 11 of the DSU. The United States asserts
that the Panel "undertook a detailed legal analysis of the original panel's report" and the Panel's
conclusion "correctly interprets the original panel's findings".320

312United States' appellee's submission, para. 30. (original emphasis)
313Ibid., para. 31.
314Ibid., para. 32.
315Ibid., para. 49. (original emphasis)
316Ibid., para. 48.
318Ibid., para. 56.
319Ibid. (footnote omitted)
320Ibid., para. 59.

154. Therefore, the United States requests the Appellate Body to uphold the Panel's finding that the
original panel's findings, and the DSB's recommenda tions and rulings, include only marketing loan
and counter-cyclical payments made in MY 1999 -2002. Should the Appellate Body reverse the
Panel's finding, the United States requests the Appellate Body: (i) to deny Brazil's request to find that
marketing loan and counter-cyclical payments ma de after 21 September 2005 are measures taken to
comply with the DSB's recommendations and rulings; and (ii) to deny Brazil's request to find that the
United States, through continued use of the marketing loan and counter-cyclical payments
programmes, causes serious prejudice to Brazil's interests.
E. Arguments of the Third Participants
1. Argentina
155. Argentina agrees with the Panel's finding that marketing loan payments and counter-cyclical
payments made after 21 September 2005 are pr operly within the scope of these Article 21.5
proceedings. Argentina disagrees, however, with the reasoning that the Panel used to arrive at this
conclusion. According to Argentina, looking at "the original Panel's approach, reasoning, findings
and recommendations" 321, it is clear that the marketing loan and counter-cyclical payments
programmes—and not only the pa yments made pursuant to those programmes—were measures
subject to the original panel's findings. Hence, Argentina considers that the marketing loan and
counter-cyclical payments programmes are within the scope of these Article 21.5 proceedings and,
consequently, the payments made pursuant to those programmes after 21 September 2005 are also
within their scope.322
2. Australia
156. Australia disagrees with the United States th at export credit guarantees issued under the
revised GSM 102 programme with respect to pig meat and poultry meat are outside the scope of these
Article 21.5 proceedings. Australia maintains that such export credit guarantees "have a 'particularly

321Argentina's third participant's submission, para. 15.
322Ibid.

close relationship' to the measure taken to comply with the recommendations and rulings"
323 of the
DSB, which, Australia contends, is the revised GSM 102 programme. Australia further argues that,
even if the Appellate Body finds that the measur es taken to comply are the GSM 102 export credit
guarantees for those products subject to the DSB's recommendations and rulings (namely,
unscheduled products and rice), the export cr edit guarantees issued under the revised GSM 102
programme for pig meat and poultry meat would still have a "particularly close relationship" to the
measures taken to comply. According to Aust ralia, this is because "the amended GSM 102
programme applies, without distinction, to all eligible products falling within its scope."
324
157. Australia takes issue with the United States' argument that allowing Brazil's claims
concerning the export credit guarantees for pig meat and poultry meat in these Article 21.5
proceedings would give Brazil a "second chance"
325 to make such claims. Australia emphasizes that
there has been no final resolution to the dispute between the parties in respect of export credit
guarantees for pig meat and poultry meat, nor is th e Appellate Body's inability to complete the
analysis in the original proceed ings a basis for excluding Brazil's claims from these Article 21.5
proceedings. Australia adds that, in any event, Br azil's claims in these Article 21.5 proceedings relate
to a new measure that was taken to comply with the DSB's recommendations and rulings.
158. Australia submits that the marketing loan and counter-cyclical payments made after
21 September 2005 were properly considered by the Panel to be within the scope of these Article 21.5
proceedings. Australia disagrees with the United States' assertion that the DSB recommendations and
rulings applied only to payments made in MY 199 9-2002, and did not cover either future payments,
or the subsidy programmes themselves. On the cont rary, Australia contends that, by continuing to
make payments of a subsidy on the same legal basi s and under the same conditions and criteria as the
subsidy found to have caused ser ious prejudice in the original proceedings, the United States has
failed to fulfil the requirements of Article 7.8 of the SCM Agreement . According to Australia,
acceptance of the approach advocated by the United Stat es would lead to "a situation in which taking
no action to remove the adverse effects or to withdr aw the subsidy would be sufficient to fulfil the
obligations imposed by Article 7.8". 326 In Australia's view, Article 7.8 imposes a positive obligation
on the subsidizing Member and "[i]t is clear that lack of action to remove the adverse effects or

323Australia's third participant's submission, para. 7.
324Ibid., para. 8.
326Ibid., para. 16. (original emphasis)

withdraw the subsidy does not and could not satis fy the subsidizing Member's obligations under
Article 7.8".327
159. Australia explains that, under the approach a dvocated by the United States, a complaining
Member that was successful in the original proceed ings would have to bring a new subsidies claim
"with respect to each set of subsidies paid subseq uently to those originally found to have caused
adverse effects." 328 Australia cautions that this approach raises fundamental systemic concerns
relating to the nature of dispute settlement pro ceedings, as it would lead to a complaining Member
becoming involved in a permanent litigation loop of annual challenges concurrent with the expiry of
each marketing year. Such an outcome would defeat the object and purpose of Article 21.5
proceedings, and would also be contrary to Artic les 3 and 21.1 of the DSU, which recognize that
prompt compliance with the rulings and recommendati ons of the DSB is essential for the effective
functioning of the WTO and the effective resolution of disputes.
160. Australia additionally asserts that the Panel did not err in concluding that the United States
acted inconsistently with its obligations under Articles 5(c) and 6.3(c) of the SCM Agreement, in that
the effect of marketing loan and counter-cyclical payments provided to United States upland cotton
producers after 21 September 2005 was significant price suppression constituting present serious
prejudice to the interests of Brazil. Australia ar gues that the Panel was entitled to take into account
the findings in the original proceedings a nd that, "rather than placing excessive reliance"
329 on those
findings, the Panel examined the facts and evid ence, including the new and updated economic
evidence that was submitted by both parties to the dispute, before reaching its conclusions concerning
the continuing market-insulating effects of the marketing loan and counter-cyclical payments.
Australia further submits that the "Panel's findings with respect to market insulation, taken together
with the Panel's findings on each of the [additional] factors identified by the Panel, supported its
ultimate finding of significant price suppression."330
161. Australia also disagrees with th e United States' contention that the Panel acted inconsistently
with Article 11 of the DSU by failing to carry out an objective assessment of the evidence before it in
assessing Brazil's claim of serious prejudice. In Australia's view, many of the United States'
submissions amount to arguments that the Panel faile d to accord to the eviden ce the weight that the

327Australia's third participant's submission, para. 16.
328Ibid., para. 17.
329Ibid., para. 26.
330Ibid., para. 27.

United States believes should have been accorded to it.
331 These allegations of error, Australia
contends, do not amount to a failure to comply with Article 11, which requires an "egregious error
that calls into question the good faith of the panel". 332 According to Australia, the United States has
not demonstrated that the Panel exceeded the bou nds of its discretion in its appreciation of the
evidence, and therefore the Appellate Body should not interfere with the findings of the Panel.
Australia submits that, on the contrary, the manne r in which the Panel analyzed the facts and
evidence—including the new and updated economic ev idence—and the way in which it took account
of the panel and Appellate Body findings in th e original proceedings was appropriate in the
circumstances of this case.
3. Canada
162. Canada disagrees with the United States' argum ent that export credit guarantees for pig meat
and poultry meat fall outside the scope of these Ar ticle 21.5 proceedings because they are separate
measures not subject to the DSB's recommendations and rulings. Canada submits that the United
States revised the GSM 102 programme in order to comply with the DSB's recommendations and
rulings in the original proceedings, and the GSM 102 export credit guarantees for pig meat and
poultry meat are not separate measures but are " part of the measure taken to comply". 333 This is
demonstrated by the fact that, when the United States revised the GSM 102 programme, it did not
exclude export credit guarantees for pig meat and poultry meat from the modification. Canada further
submits that, even if the export credit guarantees for pig meat and poultry meat were to be considered
as separate measures, they are closely related to the declared measure taken to comply. This is
because the United States did not treat the GSM 102 export credit guarantees for pig meat and poultry
meat differently, but rather modified the en tire GSM 102 programme, without distinction as to
product coverage.
163. Canada also considers that marketing loan payments and counter-cyclical payments made
after 21 September 2005 fall within of the scope of these Article 21.5 proceedings. According to
Canada, the position advocated by the United States "is a direct challenge to the effectiveness of

331See Australia's third participant's submission, para. 31.
332Ibid. (quoting Appellate Body Report, EC – Hormones, para. 133).
333Canada's third participant's submission, para. 30. (original emphasis)

compliance proceedings in serious prejudice cases." 334 Canada explains that, under the United States'
approach, a finding that subsidy payments are cau sing serious prejudice would have no consequences
and require no change in behavi our by the subsidizing Member. This is because a "Member whose
subsidy payments are found to cause serious prejudice would be considered to have brought itself into
conformity with its obligations where it did nothing affirmative to withdraw the subsidy or remove the
adverse effects for payments made during the period in question, even where it continued to make
identical subsidy payments prospectively".335
164. Canada emphasizes that, pursuant to Article 7.8 of the SCM Agreement, the United States
was required to withdraw the subsidy at issue or take appropriate steps to remove the adverse effects.
In Canada's view, the United States "seeks to divorce" 336 Article 7.8 of the SCM Agreement from
Article 21.5 of the DSU, and from the object and pur pose of the DSU more generally, and to interpret
Article 7.8 "to insulate its ongoing subsidy payments from challenge." 337 Canada contends that the
United States' position would lead to an "absurd result" 338 where a finding that subsidy payments are
causing serious prejudice would have no consequen ces and require no change of behaviour by the
subsidizing Member. The United States' position, Canada argues, ignores that the scope of an
Article 21.5 proceeding mandates "scrutiny of the overall effect of the measures taken to comply" 339
in their full context, which, in this case, necessarily includes the con tinued existence of payments of
the sort that the DSB found to be causing serious prejudice. Thus, "[t]he only logical interpretation"
of Article 7.8 of the SCM Agreement is that "a Member does not take appropriate steps to remove the
adverse effects of a subsidy if it c ontinues to provide payments under the same conditions and
criteria as the original subsidy in a manner that causes adverse effects."
340
165. Canada adds that it is not entirely clear that the DSB recommendations and rulings apply to
the "'combined effects' of a 'basket of measures'" 341 as the United States alleges. Even if they did, the
United States' positive obligation under Article 7.8 of the SCM Agreement to take appropriate steps
to remove the adverse effects refers to the paym ents made under the four different programmes that
were part of the "basket of measures" examined by the original panel. Thus, even if the United States
has eliminated one of the payment programmes, in order to assess whether the United States has

334Canada's third participant's submission, para. 17.
335Ibid.
336Ibid., para. 15.
337Ibid.
338Ibid., para. 17.
339Ibid., para. 18.
341Ibid., para. 22 (referring to United States' appellant's submission, paras. 1 and 68).

fulfilled its obligations under Article 7.8, the Panel must necessarily consider the payments under the
"remaining programmes in the 'basket of measures'."
342
166. Canada submits that it takes no position on the meri ts of the United States' allegation that the
Panel failed to make an objective assessment of the f acts before it, in violation of Article 11 of the
DSU, in assessing Brazil's claims concerning both GSM 102 export credit guarantees and marketing
loan and counter-cyclical payments. Canada not es, however, that the United States makes precisely
the sort of allegations that the Appellate Body h as described as "very serious" and "going to the very
core of the integrity of the WTO dispute settlement process itself". 343 Moreover, Canada recalls the
Appellate Body's findings that "[it] will not interfere lightly with the Panel's discretion 'as the trier of
facts'"344, and that a panel is "not required to accord to factual evidence of the parties the same
meaning and weight as do the parties".345 Thus, Canada maintains that, in order to prevail on its claim
that the Panel failed to make an objective assessment of the facts, "the United States must establish
not only that the Panel erred in its appreciation of the facts, but that its errors were so egregious as to
violate fundamental fairness or to call into question the Panel's good faith."346
4. Chad
167. At the oral hearing, Chad made a statemen t underscoring the importance of cotton for its
economy and for the economies of other West African countries. Chad also drew attention to the
negative effects that United States subsidies have on Chad's cotton producers. Chad requests the
Appellate Body to uphold the Panel's findings, in order to ensure that WTO rules and disciplines
apply fully to the cotton sector resulting in a more equitable and market-based system.
5. European Communities
168. The European Communities submits that the Un ited States accepts that the revised GSM 102
programme, as it relates to unscheduled products and one scheduled product (rice), was within the
jurisdiction of the Panel. The European Communities argues that there is a "close nexus"347 between
this part of the revised GSM 102 programme and the part of the same programme that relates to pig
meat and poultry meat. According to the European Communities, this is confirmed by the fact that

342Canada's third participant's submission, para. 22.
346Ibid., para. 39.
347European Communities' third participant's submission, para. 19. (original emphasis)

the United States revised the GSM 102 programme in its entirety. Consequently, the European
Communities contends, the Panel did not err when it concluded that Brazil's cl aims relating to export
credit guarantees for pig meat and poultry meat are within the scope of these proceedings. The
European Communities nevertheless disagrees with Brazil insofar as it may be suggesting that the
question of what is a "measure at issue" in an original panel proceeding is, "in all cases, entirely
within the hands of the complaining Member."348
169. At the oral hearing, the European Communities explained that the issue of whether the revised
GSM 102 programme, in its entirety, constitutes the measure taken to comply in this proceeding could
be analyzed from both an objective and a subjectiv e perspective. According to the European
Communities, the subjective perspective points to wards the conclusion that the revised GSM 102
programme is the measure taken to comply, because the statement the United States made at the time
of the amendment almost amounts to an admissi on that the United States considered the revised
programme was the measure taken to comply. Th e European Communities submits that the emphasis
placed by Brazil on the subjective perspective is fair . With respect to the objective perspective, the
European Communities maintains that the degr ee of connectedness between the revised GSM 102
programme and the export credit guarantees issued thereunder confirms the proposition that the
revised GSM 102 programme should be examined in its totality and is within the scope of these
proceedings.
170. The European Communities disagre es with the United States' assertion that marketing loan
and counter-cyclical payments made after 21 Se ptember 2005 are outside of the scope of these
Article 21.5 proceedings. In the European Co mmunities' view, if pa yments under a subsidy
programme have been found to cause adverse effects, the defending Me mber is obliged to withdraw
the subsidy or remove the adverse effects. If the defending Member continues to make payments
under such a programme, those further payments clea rly fall within the jurisdiction of a compliance
panel.
171. In its third participant's submission, the Europ ean Communities also raises an issue related to
the Panel's composition. The Eur opean Communities submits that the Panel erred in finding that it
was not within its authority to make a ruling with respect to the propriety of its own composition on
the basis that the issue had not been raised by eith er of the parties to the dispute and concerns the
application by the WTO Director-General of the DSU provisions on panel composition. According to
the European Communities, such an interpretation is incorrect because the matter concerns the

348European Communities' third participant's submission, para. 20. (original emphasis)

"correct legal interpretation of Articles 21.5 and 8.3 of the DSU"
349 and, therefore, falls within the
scope of the WTO dispute settlement system, as defi ned in Article 1 of the DSU. Additionally, the
Panel was obliged to make findings in relation to th is matter "notwithstanding the fact that it [was]
raised by the European Communities as a third part y", given the Appellate Body's statement that
panels have to address certain issues of a fundamental nature, such as their jurisdiction or authority to
decide on a matter, even if the parties remain silent on those issues.350
172. The European Communities asserts that, once a pa rty to the dispute has agreed to waive the
rule in Article 8.3 of the DSU precluding a citizen from a party or third party from serving on the
panel, the DSU contains no provision permitting such agreement to be withdrawn when the matter is
referred back to the panel pursuant to Article 21. 5 of the DSU. Since the United States accepted an
Australian citizen to serve as a panelist in the original proceedings, th e European Communities
understands that it could not withdr aw its agreement in the implementation stage without giving any
new reasons other than citizenship. The European Communities emphasizes that, once the citizenship
of a panelist has been put aside as a non-issue, a nd once the panelist has engaged in the dispute, the
panelist must be protected, throughout the ensu ing proceedings, from inappropriate or capricious
pressure from either party. This is consistent w ith Article 8.6 of the DSU, which provides that the
parties shall not oppose panelists other than for "'compelling' reasons".
351
173. The European Communities requests the Appellate Body to reverse the Panel's findings on
this issue and to find, instead, that the Panel ha d the authority and the obligation to consider the
propriety of its own composition. Furthermore, the European Communities requests the Appellate
Body to find that the composition of the Panel in this case was inconsistent with Articles 21.5 and 8.3
of the DSU. The European Comm unities, however, does not request the Appellate Body to make any
further consequential reversals, modifications, or findings.
6. Japan
174. Japan submits that it takes no position on the meri ts of the United States' contention that
Brazil's claims relating to export credit guarantees for pig meat and poultry meat are outside the scope

349European Communities' third participant's submission, para. 12. (original emphasis)
350Ibid., para. 14 (referring to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) ,
para. 36).
351Ibid., paras. 7 and 8.

of these Article 21.5 proceedings. Japan neverthel ess recalls certain findings by the Appellate Body
which, in Japan's view, should be taken into account when determining whether Brazil's claims
relating to pig meat and poultry m eat are within the scope of these Article 21.5 proceedings. More
specifically, Japan refers to the Appellate Body's finding that a "measure taken to comply" may
include a measure that has a "particularly close relationship" with the DSB's recommendations and
rulings and a declared measure taken to comply. 352 Furthermore, Japan asserts that the question
whether a "close relationship" exists must be examined on a case-by-case basis depending on
pertinent facts, including "the timing, nature and e ffects of the various measures" and "the factual and
legal background against which a declared 'measure taken to comply' is adopted."353
175. Japan submits that the absence of DSB recomme ndations and rulings with respect to export
credit guarantees for pig meat and poultry meat w as not due to the fact that such export credit
guarantees were found to be WTO-consistent in the orig inal proceedings. As a result, the situation in
these Article 21.5 proceedings is distinct from that in US – Shrimp (Article 21.5 – Malaysia) and EC –
Bed Linen (Article 21.5 – India) . Japan recalls that, in those disputes, the Appellate Body rejected
certain claims in the Article 21.5 proceedings concerning "measures ... found to be WTO-consistent
in the original proceeding[s]". 354 Moreover, Japan maintains that the lack of DSB recommendations
and rulings regarding export credit guarantees for pig meat and poultry meat "does not necessarily
lead to a conclusion that all claims relati ng to [these guarantees under the revised GSM 102
programme] are outside the scope of this panel proceeding." 355 Finally, Japan submits that, although
it agrees with the United States that measures which undo the compliance achieved by a declared
"measure taken to comply" may fall within the scope of Article 21.5 proceedings, it considers that the
class of measures falling within the scope of Article 21.5 proceedings is broader than what is
proposed by the United States. According to Jap an, such measures may include those formally
separate from a declared measure taken to comp ly and, thus, could include the export credit
guarantees for pig meat and poultry meat in these Article 21.5 proceedings.
176. Japan considers that the Panel Report does not cl early indicate why the Panel considered that
marketing loan and counter-cyclical payments made after 21 Septem ber 2005 are within the scope of
these Article 21.5 proceedings. Japan requests the A ppellate Body to clarify the scope of the DSB
recommendations and rulings stemming from the orig inal proceedings. According to Japan, if the

352See Japan's third participant's submission, para. 7 (quoting Appellate Body Report, US – Softwood
353Ibid.
354Ibid., para. 10 (referring to Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 97;
and Appellate Body Report, EC – Bed Linen (Article 21.5 – India), paras. 90-100). (emphasis added by Japan)
355Ibid., para. 10.

removal of the adverse effects caused by payments made after 21 September 2005 is required by the
DSB recommendations and rulings, then such paymen ts were properly before the Panel and there is
no need to resort to the "close relationship" test developed in US – Softwood Lumber IV
(Article 21.5 – Canada). However, if the removal of the adver se effects caused by such payments is
considered to be outside the DSB recommendations and rulings, then Japan requests the Appellate
Body to focus its analysis on: (i) whether the obligation under Article 7.8 of the SCM Agreement
creates a "close relationship" between the paym ents made after 21 September 2005 and the DSB
recommendations and rulings—that is, the removal of the adverse effects caused by payments during
MY 1999-2002; and (ii) whether the existence of su ch a "close relationship" is affected by the fact
that Brazil explicitly stated during the original panel proceedings that it was not challenging the
marketing loan and counter-cyclical payments progra mmes "as such" and, thus, the original panel did
not make any finding with respect to the programmes per se.
7. New Zealand

177. New Zealand submits that the Panel was correct in finding that payments made
after 21 September 2005 pursuant to the marketing loan and counter-cyclical payments programmes
are within the scope of these Article 21.5 proceedings . In New Zealand's view, such payments "are
provided under the same conditions and criteria as the marketing loan and counter-cyclical payments
subject to the original panel's finding of serious prejudice", and are therefore subject to the United
States' obligation under Article 7.8 of the SCM Agreement to "take appropriate steps to remove the
adverse effects" of the subsidy. 356 New Zealand argues that, "[b]y continuing to use mandatory
price-contingent subsidies on the 'same legal basis an d subject to the same conditions and criteria' and
with the same price suppressing effect" 357, the United States has not complied with the obligation in
Article 7.8 to take "appropriate steps to re move the adverse effects" and with the DSB's
recommendations and rulings. 358 Moreover, New Zealand states that the Panel correctly concluded
that "there exists a 'particularly close relations hip' between the subsidy that [the United States]
continues to provide and the recommendations and rulings of the DSB in the original proceeding." 359
New Zealand explains that the United States c ontinues to use the same regulatory and legal
framework examined in the original proceedings to provide mandatory and price-contingent subsidies
to its cotton producers.

356New Zealand's third participant's submission, para. 1.2.
358Ibid., para. 3.5. (original emphasis)

178. New Zealand further asserts that the United St ates' arguments amount to an assertion that it
can comply with the DSB's recommendations and rulings "by changing nothing" 360, and continuing to
provide the same mandatory price-contingent subsidies that were found to be causing price
suppression in the original proceedings. As New Zealand sees it, the "United States' interpretation
twists the linkage between the adverse effects provisions of the SCM Agreement and the compliance
provisions of the DSU into a kind of Mobius strip—a never-ending cycle of challenge and
'implementation'."361 This, in New Zealand's view, "robs Article 7.8 of the SCM Agreement of any
utility"362 and renders pointless Article 21.5 compliance proceedings as they relate to claims of
adverse effects. New Zealand also expresses concer n that denying an effective remedy in cases of
harmful amber box subsidies would significantly undermine both SCM Agreement subsidy
disciplines and the integrity of the WTO dispute settlement system as a whole.
179. New Zealand asserts that the Panel correctly found that the effect of the marketing loan and
counter-cyclical payments is significant price suppression. New Zealand disagrees with the United
States' contention that the Panel placed excessive re liance on the findings made in the original
proceedings. According to New Zealand, given the significant factual similarities between the
original proceedings and the current Article 21.5 pr oceedings, "it was entirely appropriate to consider
the original panel and Appellate Body re ports and draw on them as appropriate."
363 New Zealand
further argues that, in appealing the Panel's treat ment of the economic studies, "the United States
continues to blur the line between counte r-cyclical payments and decoupled payments."364 According
to New Zealand, counter-cyclical payments, by co ntrast to decoupled payments, are "clearly and
explicitly linked to prices" and "are clearly not green box measures and hence are presumptively trade
distorting".365
180. New Zealand also disagrees with the United Stat es' allegation that, in determining whether
there was "market insulation", the Panel ignored its own finding that United States production and
exports fluctuated in the same manner as those of other producers such that United States shares of
world cotton production and exports remained stable. New Zealand considers that the "Panel spent
considerable time examining" 366 this point and "correctly concluded that the stability of the United
States' share of world production and exports do es not prove the absence of market insulation." 367 In

360New Zealand's third participant's submission, para. 3.9.
361Ibid., para. 3.9.
362Ibid.
363Ibid., paras. 1.6 and 4.6.
364Ibid., para. 4.7.
365Ibid., para. 4.8.
366Ibid., para. 4.11.
367Ibid.

New Zealand's view, "the critical question is not whether the United States production and exports
increased in line with other world production and exports, but rather, what would have happened to
the United States production and exports but for the guaranteed minimum prices."
368 New Zealand
understands that, "but for" the existence of marketing loan and counter-cyclical payments
programmes, United States farmers, like cotton farmer s in the rest of the world, would experience no
such insulation.
181. New Zealand agrees with the Panel's finding of a significant gap between United States
upland cotton farmers' total costs of production and market revenues. It also disagrees with the
United States' contention that the Panel should have used variable costs instead of total costs of
production in its comparison. According to Ne w Zealand, the purpose of comparing costs of
production with revenues is to determine whether ma rketing loan and counter-cyclical payments are
playing an important role in affecting the economi c viability of United States upland cotton farming.
New Zealand explains that, "if United States cotton producers are not covering total costs of
production in the long term, they will exit the cotton farming, unless their cotton revenues are
'supplemented' in order to 'finance' this gap."
369
182. New Zealand further submits that the United States' claim about the significance of the
removal of the Step 2 payments programme "is undermined by a comparison of the amounts paid
under the various programmes."
370 In New Zealand's view, it is the marketing loan and counter-
cyclical payments that underpin producers' price ex pectations and, therefore, their planting decisions,
not Step 2 payments. Moreover, New Zealand cont ests the United States' argument that the Panel
should have considered the effect on prices of China's cotton production and consumption. New
Zealand asserts that, even if it were true that Chin a's cotton trade is impac ting upon the world market
price of cotton, the Panel's findings of price s uppression stands independently of any other global
factors that might also be suppressing world market prices. New Zealand additionally asserts that the
Panel showed full cognizance of the fact that price suppression must be "significant" in order to cause
serious prejudice within the meaning of Article 6.3(c) of the SCM Agreement.
183. Turning to the United States' claim under Article 11 of the DSU, New Zealand contends that
the United States simply repeats "the arguments it ma de in appealing the 'legal conclusions' of the
compliance Panel".371 For the reasons already stated, New Ze aland does not consider that the Panel
erred in making its finding of serious prejudice under the SCM Agreement , let alone that it made

368New Zealand's third participant's submission, para. 4.11. (original emphasis)
369Ibid., para. 4.18.
370Ibid., para. 4.22.
371Ibid., para. 4.31.

"egregious" errors rising to a level that calls into question the objectivity of the Panel's assessment. 372
Thus, for these same reasons, New Zealand submits that the Appellate Body should reject the United
States' appeal under Article 11 of the DSU.
184. As regards Brazil's conditional appeal, New Zealand agrees with Brazil that the Panel
incorrectly found that the original panel's findings do not cover the marketing loan and counter-
cyclical payments programmes. New Zealand asserts that, "[i]n the circumstances of this case, it is
not possible to divorce the payments from the pr ogrammes under which they are made", because the
"mandatory price contingent nature of the subsidi es derives from the conditions and criteria set out in
the marketing loan and counter-cyclical payment programmes, and this is central to the analysis of the
effects of the actual payments made".
373 New Zealand considers that "the original panel's finding of
serious prejudice, which explicitly refers to 'the mandatory price-contingent' subsidy measures, is
consistent with this interpretation". 374 New Zealand also finds support for its position in the original
panel's statement that "the United States is obliged to take action concerning its present statutory
and regulatory framework as a result of our 'present' serious prejudice finding". 375 Moreover, New
Zealand does not consider that "the 'as such'/'as applied' lexicon is ... helpful in the present case"
because, in accordance with Article 5 of the SCM Agreement , "[i]t is the use of the subsidy
programmes in this case that result[s] in the adverse effects".376
III. Issues Raised in This Appeal
185. The following issues are raised in the appeal filed by the United States:
(a) whether the Panel erred in finding that Br azil's claims relating to export credit
guarantees for pig meat and poultry meat were properly within the scope of the
Article 21.5 proceedings;
(b) whether the Panel erred in finding that Brazil's claims against marketing loan and
counter-cyclical payments made by the United States after 21 September 2005 were
properly within the scope of the Article 21.5 proceedings;
(c) whether the Panel erred in finding that export credit guarantees issued under the
revised GSM 102 programme after 1 July 2 005 constitute export subsidies because

372New Zealand's third participant's submission, para. 4.31 (referring to United States' appellant's
submission, para. 230).
373Ibid., para. 3.13.
374Ibid., para. 3.14.
375Ibid. (quoting Original Panel Report, para. 7.1501). (emphasis added by New Zealand)
376Ibid., para. 3.15. (original emphasis)

they are provided at premium rates whic h are inadequate to cover the long-term
operating costs and losses of the programme, within the meaning of item (j) of the
Illustrative List of Export Subsidies annexed to the SCM Agreement;
(d) whether the Panel failed to make an objective assessment of the matter under
Article 11 of the DSU in its assessment of the revised GSM 102 programme pursuant
to item (j) of the Illustrative List;
(e) whether the Panel erred in finding that the effect of marketing loan and
counter-cyclical payments provided to United States upland cotton producers
pursuant to the FSRI Act of 2002 is signifi cant price suppression, within the meaning
of Article 6.3(c) of the SCM Agreement , in the world market for upland cotton,
constituting "present" serious prejudice to the interests of Brazil, within the meaning
of Article 5(c) of the SCM Agreement; and
(f) whether the Panel failed to make an objective assessment of the matter under
Article 11 of the DSU in its assessment of Brazil's claim that the effect of marketing
loan and counter-cyclical payments is significant price suppression.
186. The following issues are raised in the other appeal filed by Brazil:
(a) in the event that the Appellate Body reve rses the Panel's finding that Brazil's claims
pertaining to export credit guarantees provi ded to pig meat and poultry meat were
properly within the scope of the Article 21. 5 proceedings, whether the Panel erred or
failed to make an objective assessment of th e matter, under Article 11 of the DSU, in
finding that the measure that is the subject of Brazil's claims is not the revised
GSM 102 programme itself; and,
(b) in the event that the Appellate Body reve rses the Panel's finding that Brazil's claims
against marketing loan and counter-cyclical payments made after 21 September 2005
were properly within the scope of the Ar ticle 21.5 proceedings, whether the Panel
erred or failed to make an objective assessme nt of the matter, under Article 11 of the
DSU, in finding that the original panel' s conclusions and recommendations addressed
only the payments made under the programmes, and not the programmes themselves.
IV. Scope of These Article 21.5 Proceedings: Pig Meat and Poultry Meat
187. We begin with the United States' appeal of the Panel's finding that Brazil's claims relating to
export credit guarantees for pig meat and poultry meat are within the scope of these Article 21.5

proceedings. Before examining the issues raised on appeal, we briefly set out, in Section A, the
relevant findings in the original proceedings. In Section B, we describe the measures taken by the
United States subsequent to the DSB's recommendati ons and rulings in the original proceedings.
Section C summarizes the Panel's findings in these Article 21.5 proceedings. Section D provides an
overview of the claims and arguments raised on appeal by the participants. In Section E, we examine
the United States' claim regarding the scope of these Article 21.5 proceedings.
188. Brazil conditionally appeals the Panel's rejection of Brazil's argument that the measure that
was the subject of Brazil's claims is the revi sed General Sales Manage r ("GSM") 102 programme
itself. Brazil's appeal is premised upon a reversal of the Panel's finding that Brazil's claims pertaining
to export credit guarantees for pig meat and poultry meat are properly within the scope of these
Article 21.5 proceedings. We address Brazil's other appeal in Section F.
A. Original Proceedings
189. In the original proceedings, Brazil challenged three United States agricultural export credit
guarantee programmes—the GSM 102, the GSM 103, and the Supplier Credit Guarantee Program
("SCGP")—under Articles 10.1 and 8 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of
the SCM Agreement.
377 All three programmes were used to guarantee the repayment of credit made
available to finance commercial export sal es of United States agricultural commodities. 378 T h e
original panel first determined whether the e xport credit guarantees constitu ted an export subsidy
within the meaning of Articles 10.1 and 8 of the Agreement on Agriculture . For this purpose, the
original panel sought contextual guidance from the SCM Agreement and, in particular, relied on
item (j) of the Illustrative List of Export Subsid ies (the "Illustrative List") annexed to that
Agreement.379
190. Having determined that the export credit guara ntee programmes were export subsidies, the
original panel proceeded to examine these programmes under Article 10.1 of the Agreement on
Agriculture. Article 10.1 requires export subsidies not to be applied in a manner that results in
circumvention of a WTO Member's export subsidy co mmitments. The original panel found that the

377See Original Panel Report, para. 7.762.
378See Panel Report, para. 3.13. In general, an ex port credit guarantee is a commitment to cover losses
that an exporter would suffer should there be a default on the repayment of the credit granted to the foreign
importer to finance the purchase of the exported product. A detailed description of the three programmes is
provided in paragraphs 7.242-7.244 of the original panel report, which are reproduced in paragraph 3.14 of the
Panel Report.
379See Original Panel Report, para. 7.763. Pursuant to item (j) of the Illustrative List, the original panel
examined whether the United States export credit guarantee programmes were provided at premium rates which
were inadequate to cover the long-term opera ting costs and losses of the programmes. (See ibid.,
paras. 7.787-7.869)

United States had granted export subsidies with respect to upland cotton and other unscheduled
products.
380 As regards scheduled products, the original panel recalled that Brazil "initially alleged"381
that the United States provided export subsidies to thirteen scheduled ag ricultural commodities in
excess of its quantitative reduction commitments. The original panel noted the United States'
submission that it was in compliance with its quan titative reduction commitments in respect of ten of
those products, and that this "would also be true for poultry meat" 382 in fiscal year ("FY") 2002; pig
meat was not mentioned by the United States. The original panel concluded that "[i]t has not been
established ... that ... actual circumve ntion has resulted in respect of the twelve other United States
scheduled commodities"383, including pig meat and poultry meat.
191. On appeal in the original proceedings, Brazil cl aimed that the original panel erred by failing
to find that the United States applied its export cr edit guarantee programmes in a manner that led to
actual circumvention of its export subsidy commitmen ts with respect to pig meat and poultry meat
in 2001.384 In examining Brazil's claim, the Appellate Body noted that, although the original panel
recognized that Brazil's claims of circumvention ex tended to pig meat and poultry meat, the original
panel did not mention pig meat in its analysis and used the phrase "would also be true" for poultry
meat, hence suggesting uncertainty as to the actua l circumvention with respect to poultry meat.
Consequently, the Appellate Body reversed the orig inal panel's conclusion that circumvention had not
been established in respect of pig meat and poultry meat. 385 Nevertheless, because there were
insufficient uncontested facts on the record, the Ap pellate Body was unable to complete the analysis
and determine whether the United States' export cred it guarantees had been applied in a manner that

 380Original Panel Report, para. 7.875.
381Original Panel Report, para. 7.878. Article 10.3 of the Agreement on Agriculture provides a special
rule for proof of export subsidies that applies in certa in disputes under Articles 3, 8, 9, and 10 of that
Agreement. The special rule in Article 10.3 applies to scheduled products. (See Appellate Body Report, US –
Upland Cotton, para. 652) In Canada – Dairy (Article 21.5 – New Zealand and US II) , the Appellate Body
explained that the burden of proof under Article 10.3 operates as follows:
[W]here a Member exports an agricultu ral product in quantities that exceed
its quantity commitment level, that Me mber will be treated as if it has
granted WTO- inconsistent export subsidies, for the excess quantities,
unless the Member presents adequate ev idence to "establish" the contrary.
This reversal of the usual rules obliges the responding Member to bear the
consequences of any doubts co ncerning the evidence of export
subsidization.
(Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 74 (original emphasis))
382Ibid., para. 7.879.
383Ibid., para. 7.881.
384See Appellate Body Report, US – Upland Cotton, para. 681.
385Ibid., para. 694.

resulted in actual circumvention of the United St ates' export subsidy commitments for pig meat and
poultry meat.386
B. Measures Taken by the United States
192. Following the adoption of the pane l and Appellate Body reports in the original proceedings,
the United States made several changes to its expo rt credit guarantee programmes. On 30 June 2005,
the United States Department of Agriculture (t he "USDA") announced that the United States
Commodity Credit Corporation (the "CCC") would no longer accept applications for export credit
guarantees under the GSM 103 programme. 387 Subsequently, in October 2005, the CCC ceased
issuing export credit guarantees under the SCGP. 388 The GSM 102 programme remained operational,
but the USDA announced, on 30 June 2005, that the CCC would use a new fee structure for the
GSM 102 programme.
389 Under the new fee structure, fees were increased and now vary according to
country risk, length of repayment term (tenor), and repayment frequency (annual or semi-annual). 390
Countries are classified in eight risk categories (0 -7), and exports to coun tries in the riskiest
category (7) are classified as ineligible to receive export credit guarantees.391
C. Article 21.5 Proceedings
193. Before the Panel, Brazil claimed that the measur es taken to comply by the United States with
regard to the GSM 102 export credit guarantee programme are inconsistent with Articles 10.1 and 8 of
the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement.392 The United
States requested the Panel to make a preliminar y ruling that Brazil's claims relating to GSM 102

386See Appellate Body Report, US – Upland Cotton, paras. 693 and 694.
387See Panel Report, para. 3.16 (referring to Exhib its Bra-502 and Bra-503 s ubmitted by Brazil to the
Panel, supra, footnote 17).
388See ibid. (referring to United States' first written subm ission to the Panel, para. 20; and Exhibit
Bra-513 submitted by Brazil to the Panel, supra, footnote 19).
389See ibid., para. 3.16. The new fee structure was al so applicable to the SCGP until the USDA
announced that it would no longer accept application under that programme.
390Ibid. (referring to "USDA changes its fees to risk-based method for the GSM-102 and Supplier
Credit Guarantee programs", USDA FAS Online News Release of 30 June 2005 (Exhibit Bra-504 submitted by
Brazil to the Panel); as well as Exhibit Bra-502 submitted by Brazil to the Panel, supra, footnote 17;
"GSM-102 Guarantee Fee Rate Sche dule", USDA FAS Online (Exhibit Bra-505 submitted by Brazil to the
Panel); and "SCGP Guarantee Fee Rate Schedule", USDA FAS Online (Exhibit Bra-506 submitted by Brazil to
the Panel)).
391See ibid., para. 3.16. The Panel noted that "[a] number of countries that were previously eligible
were reclassified into this ineligible risk category." ( Ibid., footnote 39 to para. 3.16 (referring to United States'
first written submission to the Panel, footnote 15; an d Country Risk Category (for the GSM-102 and Supplier
Credit Guarantee Program) updated on 1 July 2005, US DA FAS Online (Exhibit US-2 submitted by the United
States to the Panel))
392See ibid., para. 4.2.

export credit guarantees for pig meat and poultry m eat were outside the scope of the Article 21.5
proceedings.
393
194. The Panel described the issue before it as follows:
[W]hether in this proceeding under Article 21.5 of the DSU Brazil
may present claims relating to export credit guarantees for pig meat
and poultry meat considering that: (i) Brazil presented such claims in
the original proceeding; (ii) the or iginal panel rejected these claims;
(iii) the Appellate Body reversed the original panel's rejection of
these claims, but found itself unable to complete the analysis; such
that (iv) the original proceeding did not result in a finding of WTO-
inconsistency in respect of export credit guarantees for pig meat and
poultry meat.
394
195. Turning to the measure at issue, the Panel found that the export credit guarantees in respect of
pig meat and poultry meat are measures in themselves. According to the Panel, "that the [revised]
programme applies to all products in the same manne r does not alter the fact that the application of
the programme to an individual product constitutes a 'measure'." 395 The Panel then recalled the
Appellate Body's finding in US – Softwood Lumber IV (Article 21.5 – Canada) that "[s]ome measures
with a particularly close relationship to the d eclared 'measure taken to comply', and to the
recommendations and rulings of the DSB" 396, may also be subject to review by a panel established
under Article 21.5 of the DSU. The Panel consid ered that the GSM 102 export credit guarantees for
pig meat and poultry meat had a "particularly clos e relationship to the declared measure taken to
comply and to the recommendations and rulings of the DSB". 397 The Panel based its finding on the
following elements: (i) the revised GSM 102 progr amme applied in the same manner to all products
covered by the programme; (ii) most of the legal and factual issues raised by Brazil's claims relating
to export credit guarantees pertain to the revised GS M 102 programme in general, without distinction
between individual products to which the programme applies; and (iii) the United States argued that
the Panel should examine Brazil's claim solely unde r the standard contained in item (j) of the
Illustrative List, a standard that required the Pa nel to analyze the GSM 102 programme as a whole,
rather than in relation to particular products.
398

393See Panel Report, para. 9.7.
394Ibid., para. 9.21.
395Ibid., para. 9.25.
396Ibid., para. 9.24 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada),
para. 77).
397Ibid., para. 9.25.
398See ibid.

196. The Panel then observed that there was no pre- existing jurisprudence regarding the precise
question of whether a WTO Member may assert a claim in an Article 21.5 proceeding in respect of
which the Appellate Body had found itself unable to complete the analysis in the original
proceeding.399 Nonetheless, the Panel fou nd it "significant" that, in US – Oil Country Tubular Goods
Sunset Reviews (Article 21.5 – Argentina) , the Appellate Body held that a claim relating to an aspect
of the measure with respect to which the panel in the original proceeding had exercised judicial
economy was properly within the scope of review under Article 21.5 of the DSU. 400 This, according
to the Panel, "demonstrates that a claim relating to a measure that has a sufficiently close nexus with
the measure taken to comply or with the DSB recommendations and rulings in the original proceeding
can be within the scope of Article 21.5 [proceed ings]", even though that measure "has not been the
subject of DSB recommendations and ru lings in the original proceeding." 401 Based on these
considerations, the Panel concluded that "the clai ms of Brazil relating to export credit guarantees for
exports of pig meat and poultry meat are within the scope of this proceeding under Article 21.5 of the
DSU."402
D. Claims and Arguments on Appeal
197. On appeal, the United States submits that GSM 102 export credit guarantees for pig meat and
poultry meat are individual measures and are not subject to the DSB's recommendations and rulings in
the original proceedings. Therefore, the United States argues, there "logically" 403 could be no
disagreement regarding the existence of "measures taken to comply" or their consistency with the
covered agreements with respect to export credit guarantees for pig meat and poultry meat. The
United States maintains that the Panel's finding, which rested on a perceived "particularly close
relationship" between the GSM 102 export credit gua rantees for pig meat and poultry meat, on the
one hand, and the declared measure taken to comp ly with the DSB's recommendations and rulings, on
the other hand, is not supported by the text of Article 21.5.404
198. Brazil submits that the Panel properly found that the export credit guarantees for pig meat and
poultry meat have a "particularly close relationshi p" with, and are "inextricably link[ed]" to, the

399See Panel Report, para. 9.26.
400Ibid. (referring to Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews
(Article 21.5 – Argentina), para. 152).
401Ibid., para. 9.26.
402Ibid., para. 9.27. Having found that these claims were within the scope of its mandate, the Panel
proceeded to find that the United States has applied export subsidies in the form of GSM 102 export credit
guarantees in a manner which has resulted in the circumvention of the United States' export subsidy reduction
commitments for poultry meat and pig meat in the period from 1 October 2005 to 30 September 2006, and for
poultry meat in the period from 1 July to 30 September 2005. (See ibid., para. 14.149)
404See ibid., para. 43.

United States' "declared compliance measure", that is, the revised GSM 102 programme.
405 Brazil
argues that this "particularly close relationship" arises because the export credit guarantees for pig
meat and poultry meat are factually and legally dependent on the GSM 102 programme.406
E. Whether Brazil's Claims Relating to Expor t Credit Guarantees for Pig Meat and
Poultry Meat are within the Scope of These Article 21.5 Proceedings
199. The issue on appeal is whether Brazil's claims regarding export credit guarantees issued under
the revised GSM 102 programme for pig meat and poultry meat are within the scope of these
Article 21.5 proceedings.
200. Article 21.5 of the DSU provides, in relevant part:
Where there is disagreement as to th e existence or consistency with a
covered agreement of measures taken to comply with the
recommendations and rulings such disputes shall be decided through
recourse to these dispute settlement procedures, including wherever
possible resort to the original panel. The panel shall circulate its report
within 90 days after the date of referral of the matter to it.
201. As in original dispute settlement proceedings, the "matter" in proceedings brought pursuant to
Article 21.5 of the DSU consists of two elements: the specific measures at issue and the legal basis of
the complaint (that is, the claims).
407 Thus, in order to determine whether Brazil's claims relating to
the revised GSM 102 programme concerning pig meat and poultry meat are properly within the scope
of these Article 21.5 proceedings, we must first iden tify the "measure taken to comply" by the United
States. We must then determine whether there are any limitations on the claims that may be raised by
Brazil with respect to that measure in these Article 21.5 proceedings.
202. The Appellate Body has stated that "the phrase 'measures taken to comply' refers to measures
which have been, or which should be, adopted by a Member to bring about compliance with the
recommendations and rulings of the DSB." 408 It has further explained that "determining the scope of
'measures taken to comply' in any given case must ... involve examination of the recommendations
and rulings contained in the original report(s) adopted by the DSB." 409 While the DSB's
recommendations and rulings are a relevant startin g point for identifying the "measures taken to
comply" in an Article 21.5 proceeding, they are no t dispositive as to the scope of such measures.
Where alternative means of implementation are available, a WTO Member enjoys some discretion in

405Brazil's appellee's submission, paras. 213 and 232.
406See ibid., paras. 194-199.
407See Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 78.
408Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 36.
409Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 68.

deciding what measures to take to comply with the DSB's recommendations and rulings. A WTO
Member may choose to take measures that are broader than strictly required to comply with the DSB's
recommendations and rulings. The identification of th e "measure taken to comply" is determined by
reference to what a Member has actually done, and no t to what a Member might have done, to ensure
compliance with the DSB's recommendations and ruli ngs. Therefore, when the measures actually
"taken" by the implementing Member are broader than the DSB's recommendations and rulings, we
do not see why the scope of the DSB's recommenda tions and rulings should necessarily limit the
scope of the "measures taken to comply" for purposes of the Article 21.5 proceedings.
203. As we noted earlier 410, the original panel found that Brazil had not established that export
credit guarantees for pig meat and poultry meat result ed in circumvention of the United States' export
subsidy commitments. The Appellate Body reversed this finding, but was unable to complete the
analysis of Brazil's claims. Thus, although Brazil' s claims were extensively argued, there were no
findings of consistency or incons istency specifically addressed to the export credit guarantees for pig
meat and poultry meat that were part of the DS B's recommendations and rulings in the original
proceedings. Following the adoption of the DSB' s recommendations and rulings, the United States
revised the fee structure of the GSM 102 programme. The changes to the fee structure were taken in
relation to the GSM 102 programme in its totality. The new fee structure applies to export credit
guarantees provided to all eligible commodities unde r the revised GSM 102 programme; individual
guarantees are issued under the same terms a nd conditions and no distinction is made on a
commodity-specific basis. In the Panel's view, "t hat the [revised GSM 102] programme applies to all
products in the same manner does not alter the fact that the application of the programme to an
individual product constitutes a 'measure'." 411 The Panel's finding does not take due account of the
programme-wide nature of the changes made by the United States. The changes made to the
GSM 102 programme apply equally to all eligible commodities and the terms and conditions of the
programme are the same for guarantees issued with respect to all eligible commodities. 412 Treating
the revised GSM 102 programme in an integrated ma nner is consistent with the Appellate Body's
statement in US – Shrimp (Article 21.5 – Malaysia) that "the task of a panel in a matter referred to it
by the DSB for an Article 21.5 proceeding is to consider that new measure in its totality."413

410See supra, para. 190.
411Panel Report, para. 9.25.
412If one were to follow the Panel's approach to the extreme, every individual export credit guarantee
issued under the revised GSM 102 programme would be a distinct "measure".
413Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 87.

204. This conclusion is also supported by the Unite d States' own description of its implementation
efforts.
414 In these Article 21.5 proceedings, the United States rejected the description of the revised
GSM 102 programme as the "measure taken to comp ly". Yet, statements made by United States
Government agencies when the changes to the GSM 102 programme were adopted indicate the
opposite. For instance, a USDA press release expl ains that the changes to the GSM 102 programme
were made "to comply with a recent World Trade Organization (WTO) cotton decision in a dispute
with Brazil." 415 Similarly, in the answers to the "Frequently Asked Questions" published on its
website, the USDA indicates that the changes made to the GSM 102 (as well as to the GSM 103 and
the SCGP) programme were taken in response to a key finding in the recent WTO dispute with Brazil
related to this programme. 416 The United States maintains that th ese are merely press statements and
have no legal relevance. 417 We agree that these statements, on their own, are not dispositive. The
statements, however, indicate that the United States itself considered that the revisions made to the
GSM 102 programme were adopted with the objective of complying with the DSB's
recommendations and rulings in the original dispute.
205. We recall that, after finding that GSM 102 e xport credit guarantees for pig meat and poultry
meat were distinct measures in themselves, the Panel went on to find that these measures have a
"particularly close relationship to the declared me asure taken to comply and to the recommendations
and rulings of the DSB"
418 and, consequently, were properly w ithin the scope of the Article 21.5
proceedings.419 The Panel referred to the Appellate Body's findings in US – Softwood Lumber IV
(Article 21.5 – Canada) that "[s]ome measures with a particular ly close relationship to the declared
'measure taken to comply', and to the recommend ations and rulings of the DSB, may also be
susceptible to review by a panel acting under Article 21.5." 420 In our view, the Appellate Body's
reasoning in US – Softwood Lumber IV (Article 21.5 – Canada) addressed a different situation. In
that case, two distinct measures were taken under tw o separate legal provisions: (i) a determination
under Section 129, which is the United States' lega l framework for issuing new determinations to
comply with recommendations and rulings of the DSB; and (ii) an administrative review

414The Appellate Body has stated that a "Member's designation of a measure as one taken 'to comply',
or not, is relevant" but not "conclusive" to determining what constitutes such a measure. (Appellate Body
Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 73)
415See Exhibit Bra-502 submitted by Brazil to the Pane l, footnote 17 (as referred to in Panel Report,
footnote 38 to para. 3.16).
416See "Frequently Asked Questions: Risk-Based Fees", USDA FAS Online (Exhibit Bra-501
submitted by Brazil to the Panel).
417United States' response to questioning at the oral hearing.
418Panel Report, para. 9.25.
419See ibid., para. 9.26.
420Ibid., para. 9.24 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada),
para. 77).

determination, which was required to be issued in the ordinary course of the application of the United
States' countervailing duty laws. Because the administ rative review determination had the effect of
undermining compliance with the DSB's recommenda tions and rulings, and because both measures
concerned the same analysis of subsidies for so ftwood lumber production, the Appellate Body found
that the administrative review determination was so "inextricably linked" and "clearly connected"421 to
the Section 129 determination as to fall within th e scope of the Article 21. 5 panel's mandate. The
Appellate Body's reasoning in US – Softwood Lumber IV (Article 21.5 – Canada) is not applicable in
this dispute. The dispute in US – Softwood Lumber IV (Article 21.5 – Canada) concerned the
identification of closely connected measures so as to avoid circumvention. In this case, we must
determine whether a single programme may be permissibly atomized.
206. The United States contends that there are systemic problems if the identification of the
"measure taken to comply" goes beyond the recomme ndations and rulings of the DSB. The United
States raises two related objections. First, the United States argues that it would give WTO Members
an incentive to make the least possible cha nges to their measures in response to DSB
recommendations and rulings.422 Secondly, the United States submits that it would "create a tangle of
separate regimes to address the application of a m easure in different situations simply to avoid
exposure to a dispute settlement challenge" 423 pursuant to Article 21.5 of the DSU. The Appellate
Body has stated that, where alte rnative means of achieving complia nce are possible, the choice of
means "belongs, in principle, to the implementing Member". 424 Because it is for the implementing
Member to choose among alternative means of im plementation, WTO dispute settlement cannot be
said to provide incentives or disincentives for a WTO Member to take broader or narrower action as
part of its implementation efforts. In other word s, the WTO dispute settlement system is neutral in
terms of the breadth of the actions to be adopted by the implementing Member, provided the changes
are sufficient to bring that Member into compliance with its WTO obligations.
207. The United States also refers to the fact that Article 21.5 proceedings are "on an expedited
basis with no reasonable period of time [for the responding Member] to co me into compliance". 425
Following the original proceedings, the United States was given a "reasonable period of time" to
implement the DSB's recommendations and rulings. The United States could have excluded pig meat
and poultry meat from the revised GSM 102 progra mme. However, the United States revised the

421Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , paras. 81 (referring to
Panel Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 4.41) and 90.
423Ibid., para. 54.
424Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 184.

GSM 102 fee structure on a programme-wide basis, th ereby changing the terms and conditions for all
guarantees issued under the programme, including e xport credit guarantees for pig meat and poultry
meat. Under these circumstances, we do not cons ider that the unavailab ility of a new "reasonable
period of time" gives rise to the "systemic concerns " alleged by the United States. Moreover, it is a
characteristic of Article 21.5 proceedings that no reasonable period of time for implementation is
available if the new measure taken to comply with the DSB's recommendations and rulings is found to
be WTO-inconsistent.
208. Having said that, we must now determine whether there is any limitation on the scope of the
claims that can be raised by Brazil in these Article 21.5 proceedings.
209. The United States draws our attention to EC – Bed Linen (Article 21.5 – India) , where the
Appellate Body found that India could not reassert in the Article 21.5 proceedings a claim that it had
asserted in the original proceedings. The United Stat es considers it "highly instructive" that in both
EC – Bed Linen (Article 21.5 – India) and in the present dispute there are no DSB recommendations
and rulings that must be implemented with respect to the part of the measu re that the complaining
party alleged to be within the scope of the Article 21.5 proceedings.
426 According to the United
States, "[t]o allow Brazil's claims here would essentia lly give Brazil another chance, this time before
the compliance panel, to argue against GSM 102 guaran tees with respect to exports of pig meat and
poultry meat."427
210. We agree with the United States that the scope of claims that may be raised in an Article 21.5
proceeding is not unbounded. As the Appellate Body found in EC – Bed Linen (Article 21.5 – India) ,
a complainant who had failed to make out a prima facie case in the original proceedings regarding an
element of the measure that remained unchanged since the original proceedings may not re-litigate the
same claim with respect to the unchanged element of the measure in the Article 21.5 proceedings. 428
Similarly, a complainant may not reassert the same claim against an unchanged aspect of the measure
that had been found to be WTO-consistent in the original proceedings. 429 Because adopted panel and
Appellate Body reports must be accepted by the parties to a dispute 430, allowing a party in an
Article 21.5 proceeding to re-argue a claim that has been decided in adopted reports would indeed

426See United States' appellant's submission, para. 47.
427Ibid., para. 49.
428See Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.
429See Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 96.
430Ibid., para. 97; and Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.

provide an unfair "second chance" to that party. The situation before us is different. Brazil's claims
against export credit guarantees provided under the original GSM 102 programme to pig meat and
poultry meat were not resolved on the merits in the original proceedings, because the Appellate Body
was unable to complete the analysis as a result of there being insufficient factual findings or
undisputed facts on the record. 431 Thus, allowing Brazil's claims in this case would not raise the due
process concerns identified by the United States. Br azil is not unfairly getting a "second chance" to
make a case that it failed to make out in the origin al proceedings such that the finality of the DSB's
recommendations and rulings would be compromised. There is an additional distinction between the
facts before the Appellate Body in EC – Bed Linen (Article 21.5 – India) and the facts before us in
this case. In EC – Bed Linen (Article 21.5 – India) , India challenged an unchanged aspect of the
European Communities' measure. 432 In the present case, the revised GSM 102 programme is a new
measure.
211. We do not suggest that Brazil could raise just any claim in these Article 21.5 proceedings,
without limitation, against the revised GSM 102 programme. A complaining Member ordinarily
would not be allowed to raise claims in an Article 21.5 proceeding that it could have pursued in the
original proceedings, but did not. Brazil has referred to Canada – Aircraft (Ar ticle 21.5 – Brazil) as
support for the proposition that, because the "me asure taken to comply" is a new measure, a
complaining Member may raise new claims against that measure in the Article 21.5 proceedings. 433
The Appellate Body's statement in Canada – Aircraft (Article 21.5 – Brazil) refers to the situation in
which the responding Member is seeking to circum vent its compliance obligations by replacing the
WTO-inconsistent measure with a new measure that is also WTO-inconsistent, albeit with a provision
not at issue in the original proceedings. This is not the situation in this dispute.
212. Finally, we note that "the aim of Article 21.5 of the DSU is to promote the prompt
compliance with DSB recommendations and rulings and the consistency of 'measures taken to
comply' with the covered agreements by ma king it unnecessary for a complainant to begin new
proceedings and by making efficient use of the or iginal panelists and thei r relevant experience." 434
Moreover, having an Article 21.5 panel examine Brazil's claims against export credit guarantees

431See Appellate Body Report, US – Upland Cotton, paras. 693 and 694.
432Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 89.
433In Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body stated that, in order to "examine
fully the 'consistency with a covered agreement of the measures taken to comply', as required by Article 21.5 of
the DSU", a panel acting under Article 21.5 of the DSU sh ould not be "restricted to examining the new measure
from the perspective of the claims, arguments and factua l circumstances that related to the original measure".
(Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 41)
434Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 151.

provided under the revised GSM 102 programme to upl and cotton and certain other products, while a
new panel examines Brazil's claims against export credit guarantees provided under the same
programme to pig meat and poultry meat, would not be the most efficient use of WTO dispute
settlement procedures.
435
213. In sum, we are of the view that the revised GSM 102 programme is "a measure taken to
comply" within the meaning of Article 21.5 of the DSU. In addition, we find that Brazil is not
precluded from asserting its claims in relation to export credit guarantees issued under the revised
GSM 102 programme for pig meat and poultry meat. Accordingly, we uphold the Panel's finding, in
paragraph 9.27 of the Panel Report, that Brazil's claims relating to export credit guarantees for pig
meat and poultry meat are properly within the scope of these Article 21.5 proceedings.
F. Brazil's Other Appeal
214. Brazil appeals the Panel's finding that the revised GSM 102 programme itself was not the
measure that was the subject of Brazil's claims. 436 However, this appeal is conditional on the
Appellate Body reversing the Panel's finding that Brazil's claims pertaining to export credit guarantees
provided to pig meat and poultry meat are properly within the scope of these Article 21.5 proceedings.
Should this condition be fulfilled, Brazil requests th e Appellate Body to comp lete the analysis and
find that the revised GSM 102 programme itself is a pplied in a manner that results in circumvention
of the United States' export subsidy commitments with respect to pig meat and poultry meat.437
215. The United States submits that , because the revised GSM 102 programme is not a measure
taken to comply with the DSB's recommendations and rulings, the Appellate Body should reject
Brazil's conditional appeal.438
216. We have upheld the Panel's conclusion that Brazi l's claims pertaining to pig meat and poultry
meat are properly within the scope of these Arti cle 21.5 proceedings. Accordingly, the condition
upon which Brazil's other appeal is predicated has not been met, making it unnecessary for us to
address it further.

435See Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 –
Argentina), para. 151.
436See Brazil's other appellant's submission, para. 165 (referring to Panel Report, para. 9.25).
437See ibid., paras. 192-201.
438See United States' appellee's submission, paras. 64, 74, and 75.

V. Scope of These Article 21.5 Proceedings: Marketing Loan and Counter-cyclical
Payments Made After 21 September 2005
217. We turn next to the United States' appeal of the Panel's finding that marketing loan and
counter-cyclical payments made after 21 September 2005 are properly within the scope of these
Article 21.5 proceedings.
218. We begin, in Section A, with a summary of th e findings made in the original proceedings.
Section B describes the measures taken by the United States following the adoption of the DSB
recommendations and rulings in the original proceedings. A summary of the Article 21.5 proceedings
is then provided in Section C. Section D provides an overview of the arguments raised on appeal by
the participants and the third participants. In S ection E, we analyze whether the Panel properly found
that marketing loan and counter-cyclical payments made after 21 September 2005 are within the
scope of these Article 21.5 proceedings.
219. Brazil conditionally appeals the Panel's finding that the original panel's conclusions and
recommendations addressed only the payments made under the marketing loan and counter-cyclical
payments programmes, and not the programmes themselves. Brazil's appeal is conditional upon our
reversal of the Panel's finding that marketing loan and counter-cyclical payments made
after 21 September 2005 are within the scope of these Article 21.5 proceedings. We address Brazil's
conditional appeal in Section F.
A. Original Proceedings
220. After reviewing the evidence submitted by Brazil in support of its claim of serious prejudice,
the original panel found that "the effect of the ma ndatory, price contingent United States subsidies at
issue—that is, marketing loan programme payments , user marketing (Step 2) payments and [market
loss assistance] payments and [counter-cyclical] payments—is significant price suppression in the
same world market for upland cotton in the peri od MY [("marketing year")] 1999-2002 within the
meaning of Articles 6.3(c) and 5(c) of the SCM Agreement ."
439 In the "Conclusions and
Recommendations" section of its report, the original panel concluded:
(g) concerning serious prejudice to the interests of Brazil:
(i) the effect of the mandatory price-contingent
United States subsidy measures—marketing loan
programme payments, user marketing (Step 2)
payments, [market loss assistance] payments and
[counter-cyclical] payments—is significant price

439Original Panel Report, para. 7.1416.

suppression in the same world market within the
meaning of Article 6.3(c) of the SCM Agreement
constituting serious prejudice to the interests of
Brazil within the meaning of Article 5(c) of the SCM
Agreement[.]
440
221. In the light of its conclusion, the original pane l recalled the obligation set out in Article 7.8 of
the SCM Agreement and observed that, "upon adoption of this report, the United States is under an
obligation to 'take appropriate steps to remove the adverse effects or ... withdraw the subsidy'."441 The
Appellate Body upheld the original panel's finding of serious prejudice under Article 6.3(c) of the
SCM Agreement.442
B. Measures Taken by the United States
222. The United States Congress enacted legislation 443 on 1 February 2006 repealing the user
marketing (Step 2) payments ("Step 2 payments") programme, which was one of the price-contingent
subsidy measures covered by the original panel's finding of serious prejudice.444 The Panel noted that
"[i]t is not in dispute that the United States pres ently provides marketing loan and counter-cyclical
payments on the same legal basis and subject to the same conditions and criteria as the marketing loan
payments and counter-cyclical payments that were subject to the panel's finding of 'present' serious
prejudice".445
C. Article 21.5 Proceedings
223. Before the Panel, the United States submitted that "the subsidies subject to the obligation in
Article 7.8 of the SCM Agreement to 'take appropriate steps to remove the adverse effects or ...
withdraw the subsidy' were the subsidies provi ded during MY 1999-2002 which the original panel
had found to cause 'present' serious prejudice in MY 1999-2002." 446 Thus, the United States argued
that marketing loan and counter-cyclical paymen ts made after 21 September 2005 "are not properly

440Original Panel Report, para. 8.1.
441Ibid., para. 8.3(d).
442See Appellate Body Report, US – Upland Cotton, para. 763(c)(i).
443Section 1103 of the Deficit Reduction Act of 2005, Public Law No. 109-171; see also Panel Report,
para. 3.7.
444The Step 2 payments programme was repealed effective as of 1 August 2006. In addition to Step 2
payments, marketing loan payments, and counter-cyclical payments, the original panel's finding of serious
prejudice covered market loss assistance payments. Ac cording to the original panel, market loss assistance
payments were "ad hoc emergency and supplementary assi stance provided to producers" under "four separate
pieces of legislation, one each for the years 1998 through 2001". (Original Panel Report, para. 7.216 (quoted in
Panel Report, para. 3.10))
445Panel Report, para. 9.79; see also ibid., paras. 3.9 and 3.12.
446Ibid., para. 9.73. (footnote omitted)

within the scope of these Article 21.5 proceedings". 447 Brazil responded that "even if in this dispute
the original panel had made findings limited to payments made in MY 1999-2002, the obligation of
the United States under Article 7.8 would not be lim ited to the removal of the adverse effects of
payments made in that period." 448 Brazil explained that, "if a panel makes a finding of 'present'
adverse effects, such a finding applies beyond the hist orical period considered by the panel and ... the
Member whose subsidies cause such adverse effects is therefore obligated under Article 7.8 to take
appropriate steps to fully withdraw the present, ongoing and future effects of the subsidies."449
224. At the outset of its analysis, the Panel observe d that, "[s]ince the original panel made a
finding of present serious prejudice in respect of subsidies provided during MY 1999-2002, the
question arises whether the obligation to take appropriate steps to remove the adverse effects only
applies to payments of subsidies made in those years."
450 The Panel next interpreted the requirement
in Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse effects" of the
subsidy:
In our view, the remedy under Article 7.8 must be viewed in its
relationship to the obligation in Article 5 not to cause through the use
of any subsidy referred to in Articles 1.1 and 1.2 of the SCM
Agreement adverse effects to the interests of other Members. It must
serve to restore conformity with the Member's obligation to avoid
causing adverse effects through the use of any subsidy. As a
consequence, a Member does not take appropriate steps to remove
adverse effects of a subsidy if it continues to provide payments under
the same conditions and criteria as the original subsidy in a manner
that causes adverse effects.
451
225. The Panel rejected the "interpretation advocated by the United States, whereby the obligation
under Article 7.8 of the SCM Agreement is limited to the removal of the adverse effects caused by
subsidies granted in a particular period of time". 452 As the Panel saw it, the United States'
interpretation "implies that it would not be possible to review in an Article 21.5 proceeding whether a
Member causes adverse effects by continuing to grant subsidies under the same conditions and criteria

447Panel Report, para. 9.73. (footnotes omitted) Article 7.9 of the SCM Agreement provides that, "[i]n
the event the Member has not taken appropriate steps to remove the adverse effects of the subsidy or withdraw
the subsidy within six months from the date when the DSB adopts the panel report or the Appellate Body report,
and in the absence of agreement on compensation, the DSB shall grant authorization to the complaining
Member to take countermeasures". The panel and Appe llate Body reports in the original proceedings were
adopted on 21 March 2005. Thus, as Brazil explains, th e six-month period referred to in Article 7.9 expired
on 21 September 2005. (See Brazil's first written submission to the Panel, paras. 41 and 42)
448Panel Report, para. 9.74.
449Ibid. (footnote omitted)
450Ibid., para. 9.78.
451Ibid., para. 9.79.
452Ibid.

as the subsidies found to have caused adverse effects."
453 According to the Panel, "[s]uch an
interpretation fails to take into account the relati onship between Article 7.8 and Article 5 of the SCM
Agreement and thus fails to interpret Article 7.8 in its proper context."454
226. Having interpreted Article 7.8 of the SCM Agreement , the Panel turned to the Appellate
Body's jurisprudence concerning measures that may be challenged in Article 21.5 proceedings. The
Panel observed that the Appellate Body has held th at "measures taken to comply", within the meaning
of Article 21.5 of the DSU, include "measures with a particularly close relationship to the declared
'measure taken to comply', and to the recommendations and rulings of the DSB."455 The Panel further
reasoned that, "where payments of a subsidy ha ve been found to cause serious prejudice and the
Member in question continues to provide the same subsidy under the same conditions and criteria,
there exists 'a particularly close relationship' between the subsidy that the Member continues to
provide and the recommendations and rulings of the DSB in the original proceeding."456
227. The Panel concluded:
[T]o the extent marketing loan payments and counter-cyclical
payments made by the United States after 21 September 2005 are
provided under the same conditions and criteria as the marketing loan
payments and counter-cyclical payments subject to the original
panel's finding of "present" serious prejudice, they are subject to the
obligation of the United States under Article 7.8 of the SCM
Agreement to take appropriate steps to remove the adverse effects of
the subsidy. As a consequence, we also consider that Brazil's claim
that the United States has failed to comply with its obligations under
Article 7.8 with respect to these payments is properly before this
Panel. In our view this claim pertains to a disagreement between the
parties as to the "existence or consistency with a covered agreement
of measures taken to comply" with the recommendations and rulings
of the DSB.
457
D. Claims and Arguments on Appeal
228. On appeal, the United States claims that the Pa nel erred in finding that marketing loan and
counter-cyclical payments made after 21 Septembe r 2005 are properly within the scope of these
Article 21.5 proceedings. According to the United States, the only measures subject to the DSB's
recommendations and rulings concerning present se rious prejudice "were payments made under the

453Panel Report, para. 9.79.
454Ibid.
455Ibid., para. 9.80 (referring to Appellate Body Report, US – Softwood Lumber IV (Article 21.5 –
Canada), para. 77).
456Ibid., para. 9.80.
457Ibid., para. 9.81.

Step 2, marketing loan and counter-cyclical payment programs in MY 1999-2002 (i.e.,
through July 31, 2003)." 458 Therefore, the United States assert s, the "marketing loan and counter-
cyclical payments made after September 21, 2005 were not subject to the DSB's recommendations
and rulings" and "the payments ma de after September 21, 2005 were not in any way [United States]
measures taken to comply with other recommendations and rulings of the DSB."459
229. In the United States' view, the Panel's err oneous finding resulted from its fundamental
misunderstanding of both the obligation of the United States under Article 7.8 of the SCM Agreement
and the relationship between Article 7.8 of the SCM Agreement and Article 21.5 of the DSU. 460 The
United States emphasizes that "the obligation un der Article 7.8 extends only as far as the DSB's
recommendations and rulings", and that, "[i]n this dispute, the DSB's recommendations and rulings
applied only to the Step 2, ma rket loss assistance, marketing loan, and counter-cyclical payments
made during MY 1999-2002, and did not cover either future paym ents, or the subsidy programs
themselves."461 The United States further submits that "[ d]isallowing Brazil's over-expansive claims
in this proceeding would not mean that Members ha ve no remedy to address the adverse effects of a
subsidy."462 It explains that a WTO Member may challenge: (i) the present adverse effects of past or
current payments; (ii) the threat of serious prejudice of past, current, or future payments; or (iii) the
programmes "as such". 463 The obligations of the responding Member under Article 7.8 of the SCM
Agreement would depend on the outcome of those challenges.
230. Brazil submits that the Panel correctly in terpreted and applied Article 7.8 of the SCM
Agreement and Article 21.5 of the DSU in finding that marketing loan and counter-cyclical payments
made after 21 September 2005 are properly within the scope of these Article 21.5 proceedings. 464
Brazil argues that the United States "fails to recognize that … Article 21.5 concerns ' new and different
measure[s] that [were] not before the original panel ' and that are, therefore, not the same measures
found to be WTO-inconsistent in the original proceedings." 465 Consequently, in Brazil's view, the
United States is wrong to suggest that the new ma rketing loan and counter-cyclical payments cannot

459Ibid.
460See ibid., para. 63.
461Ibid., para. 65 (referring to Original Panel Report, paras. 8.1(g)(i) and 8.3(d)).
462Ibid., para. 72.
463See ibid.
464Brazil's appellee's submission, heading III.B.4, p. 60.
(emphasis added by Brazil)

be included in these proceedings just because they were not subject to the DSB's recommendations
and rulings.
466
231. According to Brazil, the Panel properly found that a particularly close relationship exists
between the old and the new marke ting loan and counter-cyclical paym ents, such that the latter are
subject to these Article 21.5 proceedings. 467 Brazil submits that the United States' actions in this case
involve replacing the old marketing loan and coun ter-cyclical payments, and their effects, with a
stream of new payments in increased amounts that are substantively identical, made to the same
recipients, for the same crops, and on the same te rms and conditions. Given the substantive nature,
timing, and effects of the new payments at issue— which were the first replacement measures adopted
after the end of the implementation period—the Pane l correctly concluded that the new payments are
"measures taken to comply". 468 Finally, Brazil cautions about the consequences of accepting the
United States' position, which would mean that the grant of annually recurring subsidies becomes "a
moving target that escape[s] from [the WTO subsidy] disciplines'."469
232. Argentina470, Australia 471, Canada 472, the European Communities 473, and New Zealand 474
assert that the Panel did not err in finding that ma rketing loan and counter-cyclical payments made
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings.475
E. Whether Marketing Loan and Counter-cyclical Payments Made After
21 September 2005 are Properly within the Scope of These Article 21.5 Proceedings
233. Brazil and the United States disagree on whether the original panel's findings extend to the
marketing loan and counter-cyclical payments programmes, or are limited to the payments made
under the programmes. The Panel in these Article 21.5 proceedings concluded that the original
panel's findings were addressed to the payments, and not to the programmes themselves. Brazil
conditionally appeals this finding, but requests that we address its claim only if we reverse the Panel's

467Ibid., para. 232.
468Ibid., para. 256.
469Ibid., para. 243 (quoting Panel Report, US – Softwood Lumber IV (Article 21.5 – Canada) ,
para. 4.30).
470Argentina's third participant's submission, para. 6. Argentina's argument, however, focuses on the
Panel's finding concerning the marketing loan and counter-cyclical payments programmes.
471Australia's third participant's submission, para. 19.
472Canada's third participant's submission, para. 23.
473European Communities' third participant's submission, para. 25.
474New Zealand's third participant's submission, para. 3.10.
475Japan requests that the Appellate Body "clarify the scope of the DSB's recommendations and
rulings" when applying the "particularly close relationship" test to marketing loan and counter-cyclical
payments made after 21 September 2005. (Japan's third participant's submission, para. 12)

finding on the admissibility of Brazil's claim ag ainst marketing loan and counter-cyclical payments
made after 21 September 2005.476
234. We have some difficulty accepting the notion th at a subsidy programme and the payments
provided under that programme can be assessed sepa rately. While the payments may cause adverse
effects, the amount of the payments, beneficiaries, and the terms and conditions of eligibility will be
provided in the subsidy programme or legislation authorizing those payments. However, because
Brazil has made it clear that its appeal is cond itional upon our reversal of the Panel's findings
concerning the payments, we begin our analysis by considering the United States' claim that the Panel
erred in finding that marketing loan and counter-cyclical payments made after 21 September 2005
are properly within the scope of these Article 21.5 proceedings.
235. In cases like this one, involving a determination that subsidies have resulted in adverse effects
to the interests of another WTO Member, Article 7.8 of the SCM Agreement provides that "the
Member granting or maintaining" the subsidy "shall take appropria te steps to remove the adverse
effects or shall withdraw the subsidy". 477 Article 7.8 is one of the "special or additional rules and
procedures on dispute settlement cont ained in the covered agreements" 478 that are identified in
Article 1.2 and Appendix 2 of the DSU, which prev ail over the general DSU rules and procedures to
the extent that there is a difference between them. As we see it, Article 7.8 specifies the actions that
the respondent Member must take when a subsidy gr anted or maintained by that Member is found to
have resulted in adverse effects to the interests of another Member. This means that, in order to
determine whether there is compliance with the DSB's recommendations and rulings in a case
involving such actionable subsidies, a panel would have to assess whether the Member concerned has
taken one of the actions foreseen in Article 7.8 of the SCM Agreement. We agree, therefore, with the
Panel that we must also take into account Article 7.8 of the SCM Agreement in order to determine
the proper scope of these Article 21.5 proceedings.479
236. Pursuant to Article 7.8, the implementing Member has two options to come into compliance.
The implementing Member: (i) shall take appropriate steps to remove the adverse effects; or (ii) shall
withdraw the subsidy. The use of the terms "shall take" and "shall w ithdraw" indicate that

476Brazil's other appellant's submission, para. 204.
477(emphasis added) Article 7.8 of the SCM Agreement reads in full:
Where a panel report or an Appellate Bo dy report is adopted in which it is
determined that any subsidy has resulted in adverse effects to the interests of
another Member within the meaning of Article 5, the Member granting or
maintaining such subsidy shall take appropriate steps to remove the adverse
effects or shall withdraw the subsidy.
478Article 1.2 of the DSU.
479See Panel Report, paras. 9.79-9.81.

compliance with Article 7.8 of the SCM Agreement will usually involve some action by the
respondent Member. This affirma tive action would be directed at effecting the withdrawal of the
subsidy or the removal of its adverse effects. A Member would normally not be able to abstain from
taking any action on the assumption that the subsidy w ill expire or that the adverse effects of the
subsidy will dissipate on their own.
480
237. The question then becomes: With respect to which subsidies must the implementing Member
take such action? Such action would certainly be expected with respect to subsidies granted in the
past and which may have formed the basis of a pa nel's determination of present serious prejudice and
adverse effects.481 However, we do not see the obligation in Article 7.8 as being limited to subsidies
granted in the past. Article 7.8 expressly refers to a Member "granting or maintaining such subsidy".
The verb "maintain" suggests, to us, that the oblig ation set forth in Article 7.8 is of a continuous
nature, extending beyond subsidies granted in the p ast. This means that, in the case of recurring
annual payments, the obligation in Article 7.8 w ould extend to payments "maintained" by the
respondent Member beyond the time period examined by the panel for purposes of determining the
existence of serious prejudice, as long as those payments continue to have adverse effects.
482
Otherwise, the adverse effects of subsequent payments would simply replace the adverse effects that
the implementing Member was under an obligation to remove. Such a reading of Article 7.8 would
not give meaning and effect to th e term "maintain", which is distin ct from the term "grant", and has
also been included in that Article. Indeed, it would render the term "maintain" redundant. In
addition, it would fail to give meaning and effect to the obligation to "take appropriate steps to
remove the adverse effects" in Article 7.8, and to the requirement under Article 21.5 to "comply" with
the DSB's recommendations and rulings, including th e requirement to take the remedial action
foreseen in Article 7.8 as a consequence of a finding of adverse effects.
238. Our interpretation of Article 7.8 is consistent w ith the context provided by Article 4.7 of the
SCM Agreement, which applies in cases involving prohibited subsidies. In US – FSC (Article 21.5 –
EC II) , the Appellate Body stated that, "if, in an Article 21.5 proceeding, a panel finds that the
measure taken to comply with the Article 4.7 r ecommendation made in the original proceedings does

480See Australia's third participant's submission, para. 16.
481As noted below, the use of a historical reference or investigation period will usually be necessary
when examining a claim of serious prejudice. (See infra, para. 243)
482As we see it, the period MY 1999-2002 was merely the historical reference period examined by the
original panel. As an evidentiary matter, that period determined the data set that the original panel would
examine. (See Original Panel Report, paras. 7.1198 and 7.1199) Although the original panel referred to the
period MY 1999-2002 in the conclusion that it reached at the end of its analysis of significant price suppression
(ibid., para. 7.1416), it made no reference to any time period in the "Conclusions and Recommendations"
section of its report, nor in its discussion of the United States' obligations under Article 7.8 of the SCM
Agreement. (Ibid., paras. 8.1(g)(i) and 8.3(d))

not achieve full withdrawal of the prohibited subsidy—either because it leaves the entirety or part of
the original prohibited subsidy in place, or becau se it replaces that subsidy with another subsidy
prohibited under the SCM Agreement —the implementing Member continues to be under the
obligation to achieve full w ithdrawal of the subsidy".483 Similarly, a Member would not comply with
the obligation in Article 7.8 to withdraw the subsi dy if it leaves an actionable subsidy in place, either
entirely or partially, or replaces that subsidy with another actionable subsidy. We recognize that,
unlike Article 4.7, Article 7.8 gives Members th e option of removing the adverse effects as an
alternative to withdrawing the subsidy. The availa bility of this option is arguably a consequence of
the fact that actionable subsidies are not prohibited per se; rather, they are actionable to the extent
they cause adverse effects. Nevertheless, the option of removing the adverse effects cannot be read as
allowing a Member to continue to cause adverse effe cts by maintaining the subsidies that were found
to have resulted in adverse effects. As observed ear lier, if the contrary proposition were accepted, the
adverse effects of subsequent subsidies, especially in the case of recurrent subsidies, would simply
replace the adverse effects that the implementing Member was required to remove, making the
obligation in Article 7.8 to "take appropriate steps to remove the adverse effects" meaningless.
239. Our interpretation of Article 7.8 is also c onsistent with the approach taken under the SCM
Agreement with respect to countervailing duty measures. A determination that the existence of a
subsidy causes material injury provides a basis for the prospective application of countervailing duty
measures. Thus, even though the basis for a countervailing duty determination is the injury
determined to exist in the past, the remedial measures are prospective.
240. The United States submits that "the obligation under Article 7.8 extends only as far as the
DSB's recommendations and rulings"
484, and asserts that Article 7.8 cannot modify "the terms of
reference or the scope of compliance pr oceedings under Article 21.5 of the DSU". 485 We believe the
United States misinterprets the relevance of Ar ticle 7.8 for interpreting the scope of DSB
recommendations and rulings in cases where subsidies are found to cause adverse effects. Article 7.8
informs the meaning and scope of the DSB's recomm endations and rulings arising from the original
proceedings. In our view, Article 7.8 specifies the ac tions that the United States had to take in order
to comply with the DSB's recommendations and rulings. 486 To the extent a WTO Member fails to

483Appellate Body Report, US – FSC (Article 21.5 – EC II) , para. 84 (referring to subsidies provided
under the Foreign Sales Corporation ("FSC") Act of 1984 and the FSC Repeal and Exterritorial Income
Exclusion ("ETI") Act of 2000, and not fully withdrawn by the Jobs Creation Act of 2004).
485Ibid., para. 66.
486See New Zealand's third participant's submission, para. 3.3. New Zealand explains that this result
does not "amount to 'somehow modifying Article 21.5 of the DSU' as the United States claims" but rather "is
simply the result of effective treaty interpretation". (Ibid., para. 3.4)

comply with the requirement in Article 7.8 that it take steps to remove the adverse effects or withdraw
the subsidy, because it maintains the subsidy, it can not be said to have achieved full compliance with
these DSB recommendations and rulings.
241. Brazil and several of the third participants have cautioned that accepting the United States'
approach would deny effective relief to WTO Memb ers who successfully demonstrate that subsidies
provided by another Member have resulted in adverse effects.
487 The United States, however, rejects
the notion that its interpretation would " undermine the effectiveness of Article 7.8" 488 of the SCM
Agreement. It asserts that "[d]isallowing Brazil's over-expansive claims in this proceeding would not
mean that Members have no remedy to address the adverse effects of a subsidy" because "[n]othing
prevents Members from challenging the present adver se effects of past or current payments; the
threat of serious prejudice of past, current, or futu re payments; or present adverse effects or threat of
serious prejudice from payment programs 'as such.'"489
242. We examine, first, the United States' argu ment that Brazil could have challenged the
programmes "as such". As we indicated above 490, we have difficulty accepting the notion that
payments under a subsidy programme can be assessed separately from the programmes or legislation
pursuant to which those payments are made. 491 This is because the terms and conditions,
beneficiaries, amounts, and other aspects of a paym ent will be set in the programme or authorizing
legislation, especially in the case of annually recurring payments. The difficulty of divorcing the
payments from the programmes, in this case, is evident in the Panel's approach to this issue. Despite
finding that only the payments we re properly within the scope of the Article 21.5 proceedings, the
Panel nevertheless considered that it could not exclude completely from its assessment the
programmes under which the payments were provided.
492
243. Moreover, even if a complainant brings an " as such" challenge to a subsidy programme, it is
difficult to see how a panel would assess whether th e subsidy has resulted in adverse effects without
reviewing the payments actually made under that programme during a past reference period. The

487See infra, footnote 499.
489Ibid., para. 72.
490See supra, para. 234.
491The European Communities and New Zealand expressed similar views at the oral hearing.
492See Panel Report, para 9.54. Because "the original panel's finding of serious prejudice was based on
an analysis that took into consideration the legal pr ovisions or subsidy programmes pursuant to which the
subsidies were provided", the Panel "c onsider[ed] that it is appropriate in this proceeding to conduct a similar
analysis of subsidies in the context of the legal provisions or subsidy programmes pursuant to which the
subsidies are granted." (Ibid.)

United States acknowledges that "serious prejudice, by its nature, is fact-sp ecific and depends on the
situation in the market, a situation that may be cons tantly changing such that the terms and conditions
for a subsidy that causes serious prejudice during one time period are not causing serious prejudice for
another time period." 493 Thus, we find it difficult to conceive how an analysis of whether a
programme "as such" resulted in adverse effects w ould differ from an analysis of whether payments
under a programme have resulted in such effects.494
244. Secondly, the United States asserts that paym ents made after 21 September 2005 would have
been covered by the DSB's recommendations and ru lings if Brazil had succeeded in its threat of
serious prejudice claim in the original proceedings. The United States notes, in this regard, that the
original panel "declined to make any finding of 'thr eat' of serious prejudice with respect to payments
allegedly 'mandated' to be made in MY 2003-2007; and ... declined to make any find[ing] of 'threat'
of serious prejudice with respect to the Step 2, marketing loan, and counter-cyclical payment
programs themselves (which would have implicated all payments under the programs)." 495
However, a claim of serious prejudice may relate to a different situation than a claim of threat of
serious prejudice. A claim of present serious prejudice relates to the existence of prejudice in the
past, and present, and that may continue in the future. By contrast, a claim of threat of serious
prejudice relates to prejudice that does not yet exist, but is imminent such that it will materialize in the
near future. Therefore, a threat of serious pr ejudice claim does not necessarily capture and provide a
remedy with respect to the same scenar io as a claim of present serious prejudice. 496 A distinction
between injury and threat of injury also exists in the context of countervailing duty measures. Once a

494We do not believe that only DSB recommendations and rulings of "as such" WTO-inconsistency
create implementation obligations with prospective effect. DSB recommendations and rulings involving
findings of "as applied" WTO-inconsistency also give ri se to prospective implementation obligations as of the
adoption of the panel and Appellate Body reports. Indeed, remedies in WTO law are generally understood to be
prospective in nature.
495United States' appellant's submission, para. 60. (original emphasis; footnote omitted)
496See ibid. The original panel declined to make a findin g on Brazil's threat of serious prejudice claim
partly because it considered that:
[b]ecause the Panel's "present" serious prejudice findings include findings of
inconsistency that deal with the FSRI Act of 2002 and subsidies granted
thereunder in MY 2002, the United States is obliged to take action
concerning its present statutory and regulatory framework as a result of our
"present" serious prejudice finding. We recall that, pursuant to Article 7.8 of
the SCM Agreement, the United States is under an obligation to "take
appropriate steps to remove the adverse effects or ... withdraw the subsidy".
(Original Panel Report, para. 7.1501 (emphasis added; footnote omitted))

determination of present material injury is ma de, a Member may impose countervailing duties on
future imports without any obligation to demonstrate a threat of material injury.
245. Thus, the approach advocated by the United St ates would have serious implications for a
complaining Member's ability to obtain relief agains t adverse effects of actionable subsidies. Under
such an approach, a complaining Member that has demonstrated that subsidies provided by another
Member have resulted in adverse effects would obtai n relief only with respect to any lingering effects
of the subsidies provided during the period examined by the panel.
497 As Australia notes 498, such
panel findings would essentially be declaratory in nature, because there would be no impact on
subsidies granted or maintained after the panel made its finding. The complaining Member would
have to initiate another dispute to obtain relief w ith respect to payments made after the period
examined by the panel, even if those subsidies are recurring payments or otherwise of the same nature
as those found to have resulted in adverse effects. Even if the complaining Member were to succeed
in its claims a second time, the subsidizing Member could provide further subsidies after the second
panel's ruling, and the complaining Member would have to initiate yet another dispute, and this cycle
could continue. As Brazil and several of the thir d participants have warned, the inability of a
complaining Member to obtain relief against subsidi es that result in adverse effects to its interests
would seriously undermine the disciplines contained in Articles 5 and 6 of the SCM Agreement.499
246. The approach advocated by the United States would not only compromise the effectiveness of
the provisions on actionable subsidies in the SCM Agreement, it is also difficult to reconcile with the
objectives of the DSU. According to Article 3.3, one of the objectives of the DSU is "the prompt
settlement of situations in which a Member consid ers that any benefits accruing to it directly or
indirectly under the covered agreements are being impaired by measures take n by another Member".
Article 21.1 further provides that "[p]rompt complia nce with recommendations or rulings of the DSB
is essential in order to ensure effective resolutio n of disputes to the benefit of all Members".

497This assumes that it is even possible to remove the effects of a subsidy that has already been granted.
498Australia's responses to questioning at the oral hearing.
499See Brazil's appellee's submission, para. 245. Aust ralia asserts that the ap proach advocated by the
United States "would lead to a complaining Member becoming involved in a permanent litigation loop of annual
challenges concurrent with the expiry of each marketi ng year", thereby "defeat[ing] the object and purpose of
Article 21.5 proceedings, and would al so be contrary to Articles 3 and 21 .1 of the DSU, which recognize that
prompt compliance with the recommendations and rulings of the DSB is essential to the effective functioning of
the WTO and the effective resolution of disputes." (Austra lia's third participant's submission, para. 17 (footnote
omitted)) Canada describes the United States' position as "a direct challenge to the effectiveness of compliance
proceedings in serious prejudice cas es". (Canada's third participant's submission, para. 17) New Zealand
submits that "[t]he United States' interpretation twists th e linkage between the adverse effects provisions of the
SCM Agreement and the compliance provisions of the DSU into a ... never-ending cycle of challenge and
'implementation'", and adds that "[s]uch an interpretation robs Article 7.8 of the SCM Agreement of any utility
and renders pointless Article 21.5 compliance proceedings as they relate to adverse effects claims of this
nature". (New Zealand's third participant's submission, para. 3.9)

Requiring a WTO Member to initiate new proceedings to challenge the same type of recurrent
subsidies that were found to result in adverse effe cts, simply because the subsidies were provided
subsequent to the original proceedings, does not promote "prompt settlement" nor "prompt
compliance". Moreover, the issue before us is one of admissibility. Even if the claim is allowed to
proceed in an Article 21.5 proceeding, the compla ining Member would still have to establish the
existence of adverse effects that allegedly result from the subsidies at issue.
247. It is undisputed that the only action the United States had taken to comply with the DSB's
recommendations and rulings concerning serious pr ejudice, and thereby with its obligations under
Article 7.8 of the SCM Agreement, was the repeal of the Step 2 payments programme effective as
of 1 August 2006.500 The United States has not contested that it continues to provide marketing loan
and counter-cyclical payments to United States produ cers of upland cotton and that "the legislative
and regulatory provisions governing these ... payments have not been changed".501 Thus, the question
that remained before the Panel was whether the United States had ta ken "appropriate steps to remove
the adverse effects" of the subsidies found to have r esulted in adverse effects to the interests of Brazil.
In order to respond to that question, it was proper for the Panel to examine the marketing loan and
counter-cyclical payments made by the United States after the expiration of the implementation period
on 21 September 2005.
248. Accordingly, we agree with the Panel that, "to the extent marketing loan payments and
counter-cyclical payments made by the United St ates after 21 September 2005 are provided under the
same conditions and criteria as the marketing loan pa yments and counter-cyclical payments subject to
the original panel's finding of 'present' serious pr ejudice, they are subject to the obligation of the
United States under Article 7.8 of the SCM Agreement to take appropriate steps to remove the
adverse effects of the subsidy". 502 We further agree that, as a consequence, Brazil's claim that the
United States failed to comply with its obligations under Article 7.8 with respect to those payments
was properly within the scope of the Article 21. 5 proceedings, because the "claim pertains to a
disagreement between the parties as to the 'existen ce or consistency with a covered agreement of
measures taken to comply' with the r ecommendations and rulings of the DSB."503 More precisely, the
claim relates to whether the measure taken by th e United States achieves full compliance with the

500See Panel Report, para. 3.7.
501Ibid., paras. 3.9 and 3.12. See also ibid., para. 9.79, noting that "[i]t is not in dispute that the United
States presently provides marketing loan and counter-cyclical payments on the same legal basis and subject to
the same conditions and criteria as the marketing loan payments and counter-cyclical payments that were subject
to the panel's finding of 'present' serious prejudice".
502Ibid., para. 9.81.
503Ibid.

DSB's recommendations and rulings as informed by the obligation of the United States under
Article 7.8 of the SCM Agreement.
249. For these reasons, we uphold the Panel's finding, in paragraph 9.81 of the Panel Report, that
Brazil's claims against marketing loan and counte r-cyclical payments made by the United States
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings.
F. Brazil's Other Appeal
250. In its other appeal, Brazil claims that the Pane l erred in concluding that the original panel's
findings did not cover the marketing loan payment and counter-cyclical payments programmes.
504
According to Brazil, the Panel's finding constitutes a le gal error or, alternatively, a failure to make an
objective assessment of the matter under Article 11 of the DSU. 505 Brazil's appeal is conditional on
the Appellate Body reversing the Panel's finding that payments made af ter 21 September 2005, under
the marketing loan payments and counter-cyclical payments programmes, are measures taken to
comply that are properly within the scope of these Article 21.5 proceedings.506
251. In the event that its conditional appeal is accep ted, Brazil requests the Appellate Body to find
that marketing loan and counter-cyclical payments made after 21 September 2005 constitute measures
taken to comply with the DSB's recommendations a nd rulings in the original proceedings because of
the close connection to the marketing loan and counter-cyclical payments programmes that are subject
to those recommendations and rulings. Alternatively, Brazil requests the Appellate Body to find that,
through the continued use of the marketing loan and counter-cyclical payments programmes, the
United States causes serious prejudice to Brazil's interests.507
252. The United States asserts that the "original panel's findings and recommendations with respect
to 'present' serious prejudice were limited to pa yments under the marketing loan and counter-cyclical
programs, and did not encompass the programs themselves". 508 It explains that the original panel

504See Brazil's other appellant's submission, para. 46 (referring to Panel Report, para. 9.54).
 505Brazil submits that, "[i]n mischaracterizing the sc ope of the original panel's findings, and of the
DSB's recommendations and rulings, the Panel failed to make an 'objective assessment of the matter before it'."
(Brazil's other appellant's submission, paras. 127) In pa rticular, Brazil alleges that the Panel failed to consider
the original panel's description of the "measures at issu e" and failed to examine the original panel's terms of
reference, as set forth in the original panel request. Brazil adds, however, that "the Appellate Body need not
address this claim under Article 11 of the DSU if it find s that the compliance Panel erred under Article 21.5 of
the DSU in examining its terms of reference pursuant to the DSB's recommendations and rulings regarding the
subsidy programs". (Ibid., para. 130)
506See ibid., para. 204.
507Ibid., para. 205.
508United States' appellee's submission, para. 20 (referring to Original Panel Report, paras. 7.1416
and 8.1(g)(i)).

"conducted its analysis consistent with Brazil's clai ms, which, ... did not include a claim of 'present'
serious prejudice regarding the marketing lo an and counter-cyclical payment programs
themselves".509 In addition, the United States argues that Brazil has failed to demonstrate that the
Panel failed to discharge its duties under Article 11 of the DSU by "disregarding or misconstruing" 510
the findings of the original panel, or the partie s' arguments concerning those findings. Thus, the
United States requests the Appellate Body to uphold the Panel's finding that "the original panel's
findings, and the DSB's recommendations and ruli ngs, include only marketing loan and counter-
cyclical payments made in MY 1999-2002".511
253. Argentina and New Zealand support Brazil's conditional appeal. 512 By contrast, the European
Communities considers that the original panel's fi ndings related to the marketing loan and counter-
cyclical payments and not to the programmes authorizing those payments.513
254. We have upheld the Panel's finding that mark eting loan and counter-cyclical payments made
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings and,
therefore, the condition on which Brazil's other a ppeal is predicated has not been fulfilled.
Consequently, we do not need to address Brazil's other appeal.
VI. GSM 102 Export Credit Guarantees
255. We turn now to the United States' appeal of the Panel's conclusion that export credit
guarantees issued after 31 July 2005 under the revised GSM 102 programme constitute export
subsidies because they are provided at premiums which are inadequate to cover the long-term
operating costs and losses of the programme, within th e meaning of item (j) of the Illustrative List.
We begin our analysis by providing a summary of the relevant aspects of the original proceedings in
Section A and a description of the measures taken by the United States to comply with the DSB's
recommendations and rulings in Section B. This is followed by summaries of the Panel's findings in
these Article 21.5 proceedings in Section C and of the claims and arguments raised on appeal in
Section D. We then analyze in Section E the specific issues raised in the United States' appeal against
the Panel's assessment of the revised GSM 102 progr amme under item (j) of the Illustrative List.
Finally, in Section F, we set out our conclusions.

510Ibid., para. 59.
512See Argentina's third participant's submission, pa ra. 17; and New Zealand's third participant's
submission, para. 3.11.
 513See European Communities' third participant's submission, para. 26.

A. Original Proceedings
256. As described above
514, Brazil challenged three export credit guarantee programmes in the
original proceedings: the GSM 102, the GSM 103, and the SCGP. The GSM 102 programme
guarantees the repayment of credit made available to finance export sales of agricultural commodities
on credit terms between 90 days and 3 years. To obtain the guarantee, the exporter had to pay a fee
calculated on the basis of guaranteed value, according to a schedule of rates applicable to different
credit terms and repayment intervals. The fee is capped by law at one per cent of the guaranteed
value.
515 The GSM 103 programme operated in a similar fashion to the GSM 102 programme,
although the GSM 103 programme guaranteed export credits with longer terms (between three and ten
years) and the fees under GSM 103 were not capped by law. 516 Finally, the SCGP guaranteed credits
provided by the exporter to the purchaser for a term not exceeding 180 days. 517 Like the GSM 102,
fees for the SCGP are capped by law at one per cent of the dollar amount guaranteed.518
257. The original panel and the Appellate Body foun d that export credit guarantees provided under
the GSM 102, GSM 103, and SCGP programmes to un scheduled products (including upland cotton)
and one scheduled product (rice) constituted export s ubsidies applied in a manner that resulted in
circumvention of the United States' export subsid y commitments, and were thereby inconsistent with
Articles 10.1 and 8 of the Agreement of Agriculture .519 To the extent that these subsidies did not
fully conform to the Agreement on Agriculture , these export credit guarantees were also found to be
prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement.520
B. Measures Taken by the United States
258. Following the adoption of the original pa nel and Appellate Body reports, the USDA
announced that, as of 1 July 2005, it would no longer accept applications under the GSM 103
programme and would apply a new fee structure to the GSM 102 and SCGP programmes. Under the
new fee structure, fees were increased and differe nt fees are applicable depending on country risk,
repayment term, and repayment frequency.
521 More specifically, countries are classified into eight

514See supra, para. 189.
515Panel Report, para. 3.14.
516Ibid.
517Ibid.
518Original Panel Report, para. 7.244.
519Ibid., para. 8.1(d)(i).
520Appellate Body Report, US – Upland Cotton, para. 763(e)(iv).
521Fees were increased by 46 per cent on average (23 per cent on a weighted-average basis). (Panel
Report, para. 14.119)

risk categories, according to the extent of the ri sk. Credit guarantees for exports to countries in a
higher risk category are subject to higher fees, and exports to countries in the highest risk category are
not eligible for credit guarantees. However, the one per cent statutory fee cap was maintained.
Subsequently, in October 2005, the United States announced that it would no longer issue export
credit guarantees under the SCGP.522
C. Article 21.5 Proceedings
259. In the Article 21.5 proceedings, Brazil claimed that "GSM 102 export credit guarantees
provided to exports of unscheduled products and exports of three scheduled products—rice, pig meat
and poultry meat—since the end of the implementation period, i.e. 1 July 2005" resulted in
circumvention of the United States' export subsidy commitments, contrary to Articles 10.1 and 8 of
the Agreement of Agriculture , and are consequently also prohib ited export subsidies contrary to
Article 3.1(a) and 3.2 of the SCM Agreement.523
260. The Panel observed that it would first dete rmine whether GSM 102 export credit guarantees
constitute "export subsidies" within the meaning of Article 10.1 of the Agreement on Agriculture .
The Panel noted that, because "the Agreement on Agriculture does not contain a comprehensive
definition" of the term "export subsidy", it would refer to the SCM Agreement for contextual
guidance.524 In particular, the Panel said it would determine whether GSM 102 guarantees are "export
subsidies" by applying the standard set out in item (j) of the Illustrative List. 525 In order to determine
whether export credit guarantees under the GSM 102 programme were provided at "premium rates
that are inadequate to cover its long term operating costs and losse s", the Panel conducted a "two-step
analysis".526 It first reviewed evidence of a "quantitative nature submitted by the parties" and then it
examined "evidence pertaining to elements of th e 'structure, design and operation' of the GSM 102
programme submitted by Brazil".527

522Panel Report, para. 3.16.
523Ibid., para. 14.40. (footnote omitted)
524Ibid., para. 14.48.
525Ibid., para. 14.52. In addition to claiming that the export credit guarantees did not meet the
benchmark in item (j) of the Illustrative List, Brazil claimed that the export credit guarantees meet the definition
of an export subsidy under the terms of Articles 1.1 and 3.1(a) of the SCM Agreement, (that is, that they are
"financial contributions" that confer a "benefit" and are contingent upon export performance). Brazil described
these two lines of inquiry as separate claims and asked the Panel to resolve the latter one first. The Panel,
however, rejected Brazil's request because it considered th e two lines of inquiry as alternative arguments, rather
than separate claims. It went on to state that it would only address Brazil's argument based on the definition of
an export subsidy in Articles 1.1 and 3. 1(a) if it did not resolve the matter under item (j) of the Illustrative List.
Because the Panel made a finding under item (j), it foun d it unnecessary to address Brazil's other argument.
(Ibid., paras. 14.49-14.53 and para. 14.135)
526Ibid., para. 14.64.
527Ibid.

261. As regards the evidence of a "quantitative natu re", the Panel noted that the United States
budgets for 2007 and 2008 continued to project a loss in connection with GSM 102 export credit
guarantees issued between 2006 and 2008.
528 The Panel agreed with the original panel that
"consistently positive initial subsidy estimates pr ovide an indication by the [United States]
government that it expects the export credit guara ntee programmes ... to be run at a net cost". 529 The
Panel considered it "highly significant that the [United States] Government continues to project, at the
time of their issuance, that new GSM 102 guarant ees issued under the revised programme will be
provided at a net cost." 530 The Panel rejected the United Stat es' arguments that the initial estimates
were unreliable because they were established before any use is made of the programme and were
calculated on the basis of government-wide estimati on rules without regard to CCC's actual default
experience. According to the Panel, these initial estimates were subsequently re-adjusted in the
United States budgets of the two years subsequent to the fiscal year in which the initial estimate
appears
531, and in no case had such an adjustment turn ed a positive subsidy estimate into a negative
one.532 The Panel additionally noted a USDA statement that the credit models used to calculate the
subsidy estimate "currently provide reliable estimates" 533, and concluded that the CCC's estimation
method is relied upon by the United States' government itself to assess the long-term net costs of its
export credit guarantee programmes.
262. The Panel also considered new budget da ta submitted by the United States concerning
cumulative subsequent re-estimates of the initial su bsidy estimates on a cohort-specific basis for the

528Panel Report, para. 14.69.
530Ibid., para. 14.71.
531Ibid., para. 14.76. As the Panel noted, "[e]ach annual budget provides long-term subsidy estimates
for three cohorts of export credit guarantees: the cohort of guarantees to be i ssued in the fiscal year that has not
yet begun (for instance, in the 2008 budget, the 2008 cohort ), the cohort of guarantees issued in the fiscal year
that has partly elapsed at the time the budget is released (in the 2008 budget, the 2007 cohort), and the cohort of
guarantees issued in the fiscal year that has most r ecently ended (in the 2008 b udget, the 2006 cohort)." ( Ibid.,
footnote 681 to para. 14.76) In addition, the estimates are subject to further re-estimates over the lifetime of a
cohort. (See infra, footnote 534)
532Ibid., para. 14.76 (referring to Exhibit Bra-617 submitted by Brazil to the Panel and Exhibit US-8
submitted by the United States to the Panel). The Panel explained:
We need not quantify such a cost. Therefore, the fact that the initial subsidy
estimate may be overstated does not, in our view, mean that it is not a reliable
predictor of a net cost to the [United States] Government.
(Ibid., para. 14.76)
533Ibid., para. 14.77 (referring to Exhibit Bra- 588 submitted by Brazil to the Panel, supra,
footnote 170).

period 1992-2006.534 A cohort is comprised of all guarantees issued in a given year. 535 The United
States submitted a table showing an anticipated profit of US$926 million for the 1992-2002 cohorts
(which are the cohorts examined by the origin al panel) and of US$403 million for the 1992-2006
cohorts. The Panel was not convinced that the re- estimates data established that all positive initial
estimates would eventually turn in to negative ones. The Panel noted , in particular, that the United
States Government continued to project, for th e new cohorts issued under the revised GSM 102
after 1 July 2005, that the guarantees woul d be provided at a long-term net cost. 536 Moreover, it
observed that the re-estimates data ("except those related to the 1994 and 1995 cohorts, which have
closed") were still estimates, albeit revised, and they did not est ablish that the programmes were not
provided at a net cost to the government. 537 In addition, the Panel reviewed cash accounting evidence
submitted by Brazil and relevant figures reported in the CCC's Financial Statements, both of which, in
the Panel's view, pointed to the programmes bein g provided at a net cost to the United States
Government.538
263. The Panel concluded:
[N]otwithstanding the reestimates data submitted by the United States,
we find it highly significant that the [United States] Government
continues, at the time of their issu ance, to project that new GSM 102
export credit guarantees will, in the long-term, be provided at a net
cost to the Government. In light of this, we consider that the initial
subsidy estimates provide a str ong indication that GSM 102 export
credit guarantees are provided against premia which are inadequate to
cover the long-term operating costs and losses of the GSM 102
programme.
539
264. The Panel next examined a comparison submitte d by Brazil of the prem iums charged under
the revised GSM 102 programme and the minimum premium rates (the "MPRs") provided in the
Organisation for Economic Co-opera tion and Development (the "OEC D") Arrangement on Officially
Supported Export Credits (the "OECD Arrangement") . The Panel observed that the MPRs do not

534Pursuant to the Federal Credit Reform Act of 1990 (the "FCRA") ( supra, footnote 168), initial
subsidy estimates in annual bu dgets are subject to re-estimations until a cohort is closed. The CCC is required
to re-estimate the subsidy cost throughout the life of each cohort to account for differences between the original
assumptions of cash flow and actual cash flow or revised assumptions about future cash flow. (Panel Report,
paras. 14.78 and 14.79; Original Panel Report, footnote 1003 to para. 7.843) Only the 1994 and 1995 cohorts
have closed. (Panel Report, para. 14.81) According to the United States, this re-estimate process "project[ed]
cashflows to and from the government over the life of the cohort". (United States' response to Question 111
posed by the Panel, Panel Report, p. D-430, para. 240)
535Panel Report, para. 14.57.
536Ibid., para. 14.80.
537Ibid., para. 14.81.
538Ibid., paras. 14.81-14.87.
539Ibid., para. 14.89.

provide a legally binding benchm ark for determining whether a programme constitutes an export
subsidy within the scope of item (j).
540 Nevertheless, the Panel opined that the MPRs are relevant
"from an evidentiary point of view". 541 In the light of the magnitude of the difference between the
MPRs and the fees under the revised GSM 102 pr ogramme (the MPRs are on average 106 per cent
above GSM 102 fees), the Panel considered that "the MPRs may provide an indication, on an
informed basis, of the fact that GSM 102 fees are set at a level which is insufficient to cover the long
term operating costs and losses."542
265. Turning to the structure, design, and operation of the revised GSM 102 programme, the Panel
recalled the original panel's finding that the CCC ha s access to funds from the United States Treasury
and benefits from the full faith and credit of the Un ited States Government. According to the Panel,
"this is still the case" with respect to the revised GSM 102 programme. 543 Furthermore, the Panel
recalled the original panel's finding that the fees charged by the CCC were not "risk based" either with
respect to country risk or the cr edit-worthiness of the borrower in an individual transaction. With
regard to borrowers' credit-worthiness, the Pane l found that the GSM 102 fees were not risk-based
insofar as they did not take into account the risk of default that is specific to an individual foreign
obligor.544 With regard to country risk, the Panel concluded that the non-repeal of the one per cent fee
cap was an indication that the fees charged for GSM 102 export credit guarantees were still not "risk-
based".
545
266. The Panel found that this conclusion was confirmed by the evidence presented by Brazil with
respect to the insufficient "scaling" (namely, the rate of increase) of GSM 102 fees in relation to the
risks that the programme does take into consideration—country risk and length of tenor. As the Panel
explained, Brazil's evidence showed significant di fferences between the rates of increase, based on
country risk, of GSM 102 fees and the fees charged by the United States Export-Import Bank (the
"Ex-Im Bank") for two of its programmes: the Letter of Credit Insurance (the "LCI") and the
Medium-Term Export Credit Insurance (the "MTI").
546 In the Panel's view, the fact that the financial
products being compared are not identical did not fundamentally undermine the evidentiary relevance

540Panel Report, para. 14.94.
541Ibid., para. 14.95. The Panel added that the MPRs "may be regarded as representing an assessment,
developed by and agreed upon by the export credit experts of the Participants to the Arrangement, of the premia
levels that are necessary to ensure that export credit guarantee programmes cover their long-term operating costs
and losses". (Ibid., para. 14.96)
542Ibid., para. 14.97.
543Ibid., para. 14.110.
544Ibid., para. 14.115.
545Ibid., para. 14.120.
546Ibid., para. 14.125.

of the comparison of the scaling of their fees. 547 The Panel found, therefore, that the significant
difference between the scaling of fees suggested that the one per cent statutory fee cap on GSM 102
fees prevented the adoption of a truly risk-based fee structure by the CCC.548
267. On the basis of its examination of the structure, design, and operation of the GSM 102
programme, the Panel concluded:
In light of these considerations – the CCC's access to funds from the
[United States] Treasury, which f acilitates the functioning of the
programme, the fact that GSM 102 fees do not vary with foreign
obligor risk, the fact that the one per cent fee cap has not been
repealed and in our view prevents the adoption of risk-based fees
(notably due to the insufficient "scaling" of GSM 102 fees) – we
conclude that the GSM 102 programme is not designed to cover its
long term operating costs and losses.
549
268. In concluding its analysis under item (j), the Panel stated:
We find that Brazil has met its burden of proof in this respect and that
it has established that the GSM 102 export credit guarantee
programme constitutes an "export subsidy" because it is provided
against premiums which are inad equate to cover its long term
operating costs and losses under the terms of item (j) of the Illustrative
List.
550
The Panel emphasized that it reached this conclusi on "on the basis of the totality of the evidence
submitted by Brazil in this respect".551
269. The Panel further found that, by applying th e GSM 102 export credit guarantees in a manner
that resulted in circumvention of its export subs idy commitments regarding three scheduled products
(rice, pig meat, and poultry meat) and unscheduled products (including upland cotton) supported by
the guarantees, the United States acted inconsistently with Articles 10.1 and 8 of the Agreement on
Agriculture.552 To the extent that the GSM 102 export credit guarantees did not conform to the
provisions of the Agreement on Agriculture , the Panel found that the United States also "acted
inconsistently with Articles 3.1(a) and 3.2 of the SCM Agreement by providing export subsidies to
unscheduled products and by providing export subs idies to scheduled products in excess of its
commitments under the Agreement on Agriculture ".553 Consequently, the Panel concluded that the

547Panel Report, para. 14.126.
548Ibid., para. 14.128.
549Ibid., para. 14.131.
550Ibid., para. 14.133.
551Ibid.
552Ibid., paras. 14.140 and 14.149.
553Ibid., paras. 14.150 and 14.156.

United States had failed to comply with the DSB' s recommendations to bring its measures into
conformity with the Agreement on Agriculture , and had failed to comply with the DSB's
recommendation, pursuant to Article 4.7 of the SCM Agreement , to withdraw the prohibited
subsidies.
554
D. Claims and Arguments on Appeal
270. The United States challenges on appeal several aspects of what it describes as the Panel's
application of item (j) to the facts of the case. Fi rst, the United States submits that, in conducting its
quantitative analysis, the Panel erroneously relie d on initial budgetary estimates presented by Brazil
even though Brazil accounted for neither the "flaws inherent in the initial subsidy estimates", such as
government-wide default and recovery rates, nor th e new re-estimates submitted by the United States
that show "profitability".555 Secondly, the United States alleges that the Panel inappropriately made a
comparison of GSM 102 fees to MPRs under the OECD Arrangement despite recognizing that the
latter do not have any legal status as a benchmark for examining agricultural export credit guarantees
pursuant to item (j). 556 Thirdly, the United States argues th at the Panel erred in comparing the
"scaling" of the fees under the revised GSM 102 programme with fees under the "fundamentally
dissimilar" programmes of the United States Ex-Im Bank. 557 Fourthly, the United States maintains
that the Panel erred in finding that the continued existence of the one per cent fee cap prevented the
imposition of risk-based fees. 558 Finally, the United States asserts that the Panel "fundamentally
misinterpreted" item (j) in relying on certain factors not foreseen by that provis ion, including the fact
that the CCC has unlimited access to United States Government funds and that the GSM 102 fees do
not reflect foreign obligor risk.559
271. The United States also argues that the Panel failed to make "an objective assessment of the
matter", as required by Article 11 of the DSU, with respect to Brazil's claim that the GSM 102 export
credit guarantees constituted export subsidies. According to the United States, the Panel:
(i) disregarded the import of the budgetary re -estimates data submitted by the United States; 560 and
(ii) distorted the meaning of the evidence on reco rd when relying on "flawed" comparisons between
GSM fees and MPRs 561, and a comparison of the "scaling" of fees under the GSM 102 programme

554Panel Report, paras. 14.150 and 14.157.
556Ibid., para. 89.
557Ibid., para. 103.
558Ibid., para. 109.
559Ibid., para. 110.
560Ibid., para. 117.
561Ibid., para. 121.

and the Ex-Im Bank's export credit insurance progra mmes, despite "the obvious factual distinctions"
between these programmes.562
272. Brazil responds that the Panel properly relied on the initial estimates in the United States
budget data in reviewing the revised GSM 102 progr amme pursuant to item (j), because the evidence
in the record "provides a more than plausible basis for concluding that the initial estimates are
significant indicators that new GSM 102 guarantees issued under the revised programme will be
provided at a cost." 563 Moreover, Brazil maintains that the Panel did not ignore the evidence
submitted by the United States relating to re-estimates, and that it was within the bounds of the Panel's
discretion to have attributed to the evidence a different weight or meaning than did the United
States.
564 Brazil further submits that the Panel did not consider the comparison of the new GSM 102
fees to the OECD MPRs as "dispositive" and that, in any event, consideration of the comparison is
consistent with the Panel's discretion as the trier of facts. 565 Furthermore, Brazil maintains that the
Panel properly assessed whether revised GSM 102 fees adequately respond to the increased costs of
risk—including country risk and tenor length—by comparing the scaling of fees under the revised
GSM 102 programme and the Ex-Im Bank's programmes. In so doing, the Panel did not "dictate ...
specific standards as to scaling" but relied on the extent of the differ ence as an evidentiary indication
of the shortcomings of the GSM 102 programme.566 Brazil additionally argues that the Panel properly
treated the one per cent fee cap as another element supporting its conclusion that the revised GSM 102
programme is not structured, designed, and operate d to ensure that fees cover long-term costs and
losses, without according "presumptiv e weight to such evidence". 567 Finally, Brazil argues that the
Panel was entitled to rely on the fact that the CCC has access to government funds568, and submits that
the Panel's consideration of the revised GSM 102 programme's failure to account for foreign obligor
risk represents a proper interpretation of item (j), because the fact that the new GSM 102 fees failed to
account for costs associated with increased foreign obligor risk "is not cured by diversifying the
riskiness of its portfolio through exposure limits". 569 On this basis, Brazil concludes that the United
States failed to substantiate error in any of the Panel's intermediate findings, much less error in its

564Ibid., para. 362.
565Ibid., paras. 376 and 391.
566Ibid., para. 433.
567Ibid., paras. 469 and 470.
568Ibid., para. 484.
569Ibid., para. 506.

overall finding that the revised GSM 102 programme constitutes an export subsidy which was based
on the totality of a broad range of evidence.
570
273. With respect to the United States' claim under Ar ticle 11 of the DSU, Brazil submits that the
United States' allegation that the Panel should no t have attached the weight it did to Brazil's
arguments and evidence is insufficient to demons trate that the Panel did not make an objective
assessment of the matter.571
E. The Panel's Assessment of the Revised GSM 102 Programme under Item (j) of the
Illustrative List of Export Subsidies
274. Before turning to the specific i ssues raised in the United States ' appeal, we consider it useful
to recall certain general observations made by the Appellate Body concerning the interpretation of
item (j) of the Illustrative List of Export Subsidies, referred to in Article 3.1 of the SCM Agreement.
275. Article 3.1 of the SCM Agreement provides, in relevant part:
Except as provided in the Agreem ent on Agriculture, the following
subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact, whether solely or as one
 of several other conditions, upon export performance, including
 those illustrated in Annex I 5; (footnote omitted)
5Measures referred to in Annex I as not constituting export subsidies
shall not be prohibited under this or any other provision of this
Agreement.

276. Item (j) of the Illustrative List reads:
The provision by governments (or special institutions controlled by
governments) of export credit guarantee or insurance programmes, of
insurance or guarantee programmes ag ainst increases in the cost of
exported products or of exchange risk programmes, at premium rates
which are inadequate to cover the long-term operating costs and
losses of the programmes.
277. The Appellate Body has explained that "the measure of value under item (j) is the overall cost
to the government, as the service provider, of providing the service."
572 It has described the test set
out in item (j) as "essentially financial, as it requires a panel to look at the financial performance of an
export credit guarantee program, that is, its revenu es from premiums and its long-term operating costs

571Ibid., paras. 459 and 510.
572Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US I), para. 93.

and losses".573 According to the Appellate Body, "the fo cus of item (j) is on the inadequacy of the
premiums".574 This focus implies that "what is require d is a finding on whether the premiums are
insufficient and thus whether the specific export credit guarantee program at issue constitutes an
export subsidy".575 Item (j) does not require "a finding of the precise difference between premiums
and long-term operating costs and losses". 576 Nor does item (j) require a panel "to choose one
particular basis for the calculation" of the adequacy of the premiums.577
278. Thus, to the extent relevant data is available, an analysis under item (j) will primarily involve
a quantitative evaluation of the financial performance of a programme. Such an analysis will focus on
the difference, if any, between the revenues derived from the premiums charged under the programme
and its long-term operating costs and losses. An analysis under item (j) may examine both
retrospective data relating to a programme's hist orical performance and projections of its future
performance. Evidence concerning a programme's stru cture, design, and operation may be relevant in
situations where financial data is not available. It may also serve as a supplementary means for
assessing the adequacy of premiums where relevant da ta are available. We note that the Panel was
presented with various financial data relating to the performance of the revised GSM 102 programme.
Thus, as a general matter, we consider it appropriate for the Panel to have first examined the evidence
of a quantitative nature submitted by the parties be fore evaluating evidence concerning the structure,
design, and operation of the programme as additional elements for appraisal.
1. The Panel's Quantitative Analysis under Item (j)
279. The Panel reviewed four pieces of evidence in its quantitative analysis under item (j). The
Panel began by examining evidence submitted by Br azil regarding the initial subsidy estimates
reported in the 2007 and 2008 United States budgets. Observing that these estimates projected losses
for the 2006, 2007, and 2008 cohorts, the Panel stated that "[i]t is in our view highly significant that
the [United States] Government continues to project, at the time of their issuance, that new GSM 102
guarantees issued under the revised progra mme will be provided at a net cost." 578 The United States
submitted subsidy re-estimates data, which conc erned the period 1992-2006, and which became
available after the original proceedings, to dem onstrate that its export credit guarantee programmes
were not provided at a net cost to the United St ates Government "even before it took measures to

573Appellate Body Report, US – Upland Cotton, para. 667.
574Ibid., para. 666. (footnote omitted)
575Ibid.
576Ibid.
577Ibid., para. 665.
578Panel Report, para. 14.71.

comply with the DSB recommendations."
579 The Panel reviewed the re-estimates data, but did not
consider that they established that the revi sed GSM 102 programme did not operate at a loss. 580 In
reaching this conclusion, the Panel examined two additional pieces of quantitative evidence submitted
by Brazil, namely: (i) the CCC's consolidated Fi nancial Statements for FY 2005 and FY 2006, which
report a "credit guarantee liability" of US$220 m illion in relation to the CCC's GSM 102, GSM 103,
and SCGP export credit guarantee programmes 581; and (ii) cash-basis accounting data compiled by
Brazil concerning the cumulative receipts and disbursements under the GSM 102, GSM 103, and
SCGP programmes between 1992 and 2005, which shows a net loss of over US$689 million.582
280. On appeal, the United States claims that the Pa nel "improperly failed to take into account ...
the undisputed evidence of profit" reflected in the subsidy re-estimates data, which became available
after the original proceedings and which were "in marked contrast to the analogous figures considered
by the original panel". 583 The United States further claims that the Panel failed to conduct an
objective assessment of the matter, as required by Article 11 of the DSU, because it "disregarded the
import of the budgetary re-estimates data submitted by the United States."
584
281. As background, we note that the initial estimates submitted by Brazil were made pursuant to
the Federal Credit Reform Act of 1990 585 (the "FCRA"), which is intended to "measure more
accurately the costs of Federal credit programs" a nd applies to United States federal credit agencies
such as the CCC. 586 Accordingly, the CCC is required to make annual subsidy estimates of the cost
(in net present value terms) associated with th e export credit guarantees issued in a given year
(referred to as a "cohort"). 587 These initial subsidy estimates are subsequently re-adjusted in the
budgets prepared for the two years following the budget year in which the initial estimate appears. 588
The FCRA further requires that the initial estimate (as adjusted in the third budget year since the
issuance of the guarantees) be subject to annual re-e stimates over the lifetime of the cohort, that is,
until all guarantees in a cohort are closed. 589 These re-estimates "'take into account all factors that
may have affected the estimate of each component of the cash flows, including prepayments, defaults,

579Panel Report, para. 14.78.
580Ibid., para. 14.89.
581Ibid., para. 14.81.
582Ibid., para. 14.84. Brazil constructed the cash-basis accounting calculations using data from the
United States Budgets for FY 1993-2006. (Ibid., footnote 701 to para. 14.85)
584Ibid., para. 117.
585Federal Credit Reform Act of 1990, enacted as part of the Omnibus Budget Reconciliation Act
of 1990, Public Law No. 101-508.
586Panel Report, footnote 668 to para. 14.69.
587Ibid.
589Ibid., para. 14.78.

delinquencies, and recoveries', to the extent that those factors have changed since the initial estimate
was made".590 Consequently, re-estimates are "revisions of the subsidy cost estimate of a cohort ...
based on information about the actual performance a nd or estimated changes in future cash flows of
the cohort".591 Re-estimates are tracked in Table 8 of the Federal Credit Supplement accompanying
the budget.592
282. The re-estimates data submitted by the United States in these Article 21.5 proceedings cover
the period 1992-2006. The data for the period 1992-2005 relate to export credit guarantees issued
under the GSM 102, GSM 103, and SCGP programmes, while the data for 2006 relate to export credit
guarantees issued under the revised GSM 102 programme . The re-estimates data record a downward
trend in the costs associated w ith the three export credit programmes during the period 1992-2006.
As the Panel noted, the table shows an aggregat e overall anticipated profit of US$926 million for the
1992-2002 cohorts (the cohorts examined by the original panel) and US$403 million anticipated profit
for the 1992-2006 cohorts.593
283. The United States asserts that the retros pective data, showing profitability over 15 years
under the three export credit guarantee programmes exam ined by the original panel, is "compelling"
evidence as to what one should anticipate under the revised GSM 102 programme, particularly
because two programmes have ceased to be operational, and the revision to the fee structure of the
remaining GSM 102 programme has resulted in higher fees. 594 Consequently, this "new information
undermined the initial subsidy estimates submitted by Brazil, which the Panel relied on to find that the
premia under the GSM 102 program were inadequate to cover the program's long-term operating costs
and losses".595
284. Thus, the re-estimates data were a central piece of evidence that the United States adduced in
the Panel proceedings as part of its defence agains t Brazil's claims under item (j). In addressing this
evidence, the Panel began by recalling that, in the original proceedings, the United States also
submitted cumulative re-estimates data for the th ree export credit guarantee programmes at issue in

590Original Panel Report, para. 7.843 (quoting Section 185.3(x) of Executive Office of the President,
Office of Management and Budget, June 2002: Circular No. A-11, Part 5: Federal Credit Programs , p. 185-12
(Exhibit Bra-116 submitted by Brazil to the original panel)). See also Panel Report, footnote 686 to para. 14.78.
592Panel Report, footnote 681 to para. 14.76.
593Ibid., para. 14.79.
594United States' responses to questioning at the oral hearing.

those proceedings. The Panel recognized that, unlike in the original proceedings, the re-estimates data
submitted by the United States in these Article 21.5 proceedings showed an overall profit.
Nevertheless, the Panel stated, in paragraph 14.80 of its Report:
The original panel was not persuaded that cohort reestimates, over time,
would necessarily not give rise to a net cost to the United States
Government. Similarly, we are not convinced that the re-estimates data
submitted by the United States establishes that all positive subsidy
estimates—and in particular, those for cohorts 2006-2008—will
eventually turn into negative ones.
596
285. In the US – Softwood Lumber VI (Article 21.5 – Canada) , the Appellate Body noted that
"doubts could arise about the objective nature of an Article 21.5 panel's assessment if, on a specific
issue, that panel were to deviate from the reasoning in the original panel report in the absence of any
change in the underlying evidence in the record". 597 There has been, however, a change in the
evidence from the original proceed ings to these Article 21.5 proceedings. The re-estimates data
submitted by the United States in these Article 21.5 proceedings are not the same as those submitted
in the original proceedings. The data submitted in the original proceedings covered the period
1992-2002 and showed an overall net cost to the United States Government of $230 million 598 for the
entire period. The original panel recognized the re levance of this figure because it "reveals that over
the long term the United States government anticipates that it may not break even with its export
credit guarantee programmes".
599 The data submitted in these Article 21.5 proceedings cover the
period 1992-2006 and, as the Panel itself recognized, the data now projects overall profits for the
same programmes over a longer period of time. Mo reover, the original panel noted that, for the 1994
cohort, "a cohort that [was] on the verge of closing" 600, the re-estimates data still showed a net cost.
The re-estimates data submitted in these Article 21.5 proceedings indicate that the 1994 cohort has
closed and was profitable.601 The same occurs with the 1995 cohort. 602
286. Thus, whereas the original panel "was not persuaded that cohort reestimates, over time, would
necessarily not give rise to a net cost", the re-estimates data before the Panel project overall profits for

596Panel Report, para. 14.80. (footnote omitted)
597Appellate Body, US – Softwood Lumber VI (Article 21.5 – Canada), para. 103.
598Original Panel Report, para. 7.852.
599Ibid., para. 7.854.
600Ibid., para. 7.853 and footnote 1028 thereto.
601Panel Report, para. 14.81; United States' respon se to Question 111 posed by the Panel, Panel
Report, p. D-440, paras. 277 and 278.
602Ibid.

the period 1992-2006, and the two cohorts that have already closed show actual profits. Accordingly,
the original panel's reasoning, as quoted by the Panel in paragraph 14.80 of its Report, was not
applicable given that the factual circumstances have changed.
287. The Panel reasoned that, "because [the re-estimates] are revised estimates, they do not
establish that the programmes were provided at no net cost to the United States Government". 603 We
focus upon the Panel's reasoning because it is this reasoning that gives rise to serious concern.
Neither the initial estimates, nor th e re-estimates, are a final and definitive account of the financial
performance of the programmes concerned. Rather, they are both projections (except for the two
closed cohorts) and are hence subj ect to uncertainty. The Panel c onsidered that this uncertainty
provided a basis for marginalizing the re-estimates da ta. At the same time, the Panel considered the
initial estimates of central importance despite the fa ct that they suffered fro m the same uncertainty
given that they too are estimates. If anything, the re-estimates might be expected to be more reliable
because they reflect the historical performance of the programme. They also include two closed
cohorts (1994 and 1995) for which th e data is final. Moreover, th e re-estimates data cover a longer
period of time and thus provide a basis for a long-term assessment, the very question at issue under
item (j).
288. After considering the re-estimates data, the Panel went on to examine two additional pieces of
quantitative evidence submitted by Brazil. In particul ar, the Panel noted that the CCC's consolidated
Financial Statements for FY 2005 and FY 2006 report a "credit guarantee liability" of US$220 million
in relation to the CCC's GSM 102, GSM 103, and SCGP export credit guarantee programmes. 604 The
Panel recalled the original panel's finding that the credit guarantee liability figure is "another
indicator, used and relied upon by the United St ates government, to assess the estimated long-term
cost" to the government of export credit guarantees. 605 Following the same line of reasoning, the
Panel relied on the definitions from the CCC's Fina ncial Statements and observed that the credit
guarantee liability figure represents "the estimated net cash outflow (loss) of the guarantees on net
present value basis" and "records a liability and an expense to the extent ... CCC will be unable to
recover claim payments". 606 According to the Panel, theref ore, the "credit guarantee liability"

603Panel Report, para. 14.81. (original emphasis)
604Ibid.
605Ibid. (quoting Original Panel Report, para. 7.855). We note that the United States submitted before
the Panel that the original panel's explanation in paragraph 7.855 of its report, specifically quoted by the Panel,
"is an accurate and proper definition of liability". (United States' response to Question 107 posed by the Panel,
606Panel Report, para. 14.82 and footnote 693 thereto (referring to Audit Report, Commodity Credit
Corporation, Consolidated Financial Statements – Fiscal Years 2006 and 2005 (November 2006) (Exhibit
Bra-585 submitted by Brazil to the Panel), p. 11 of Notes to the Financial Statements). (emphasis added)

reported in the CCC's Financial Statements indicates that, "with respect to guarantees that were
outstanding as of 30 September 2006, the [United States] Government estimates future disbursements
of US$220 million".
607 The Panel noted that the credit guara ntee liability figure also represented an
estimated loss by the United States Government. 608 The Panel did not provide any reasoning,
however, as to why it was appropriate to place strong reliance on this evidence, which is an estimated
figure, while not relying on the re-estimates data "because they are estimates".
289. The final category of quantitative evidence re viewed by the Panel was the cash basis
accounting data submitted by Brazil. This data concerned cumulative receipts and disbursements
under the GSM 102, GSM 103, and SCGP programmes between 1992 and 2005, and shows a net loss
of over US$689 million.
609 As the Panel noted, however, th is cash basis accounting data "only
capture[] receipts and disbursement s to date" and "do[] not ... record projected receipts and
disbursements, including (as the United States indicates) projected recoveries under rescheduled
amounts".610 By this observation, the Panel appeared to recognize the major difference between
Brazil's cash basis accounting data and the re-estimat es data, in that the former record actual receipts
and disbursements to date, whereas the latter project future costs on a net present value basis. Given
that the Panel itself recognized the different nature of these data, we find it somewhat puzzling that
the Panel referred to the cash basi s accounting data as one of the fact ors affecting the reliability of the
re-estimates.611
290. After reviewing these four categories of quantitative evidence, the Panel stated:
In conclusion, notwithstanding the reestimates data submitted by the
United States, we find it highly significant that the [United States]
Government continues, at the time of their issuance, to project that new
GSM 102 export credit guarantees will, in the long-term, be provided at a
net cost to the Government. In light of this, we consider that the initial
subsidy estimates provide a strong indication that GSM 102 export credit
guarantees are provided against premia which are inadequate to cover the
long-term operating costs and losses of the GSM 102 programme.
612
291. Thus, the Panel dismissed the import of the re- estimates data as estimates, yet concluded that
the initial estimates provided a "strong indication" th at the GSM 102 programme is expected to run at

607Panel Report, para. 14.83.
608Ibid.
609Ibid., para. 14.84. The source of the data is the United States Budgets for FYs 1993-2006. ( Ibid.,
footnote 701 to para. 14.85) On appeal, except for sta ting that the cash basis accounting data are "separate and
apart from the [United States] budget accounting approach", the United States does not provide other arguments
against the Panel's review of this data. (United States' appellant's submission, para. 85)
610Panel Report, para. 14.87. (original emphasis)
611Ibid., para. 14.88.
612Ibid., para. 14.89.

a net cost. However, all the quantitative evidence examined by the Panel, except for the cash basis
accounting data submitted by Brazil, are estimates, or projections, of future fi nancial performance.
There is no rationale offered by the Panel as to why it marginalized the re-estimates data while, at the
same time, accepting the initial estimat es as "provid[ing] a strong indication" 613 that the GSM 102
programme is expected to run at a net cost.
292. The Panel's treatment of the competing evid ence submitted by the parties is therefore
internally inconsistent. The initial estimates, the re-estimates, and the CCC's Financial Statements are
all routinely produced by the United States Governme nt, yet obvious discrepancies exist among them.
For example, both the re-estimates data and the cred it guarantee liability figure relate to the financial
performance of the CCC's export credit guarantee programmes up to 2006, but the former project
profits, whereas the latter projects losses. The Panel did not reconcile these discrepancies. If this was
not possible, the Panel should have provided a reasoned explanation as to why it preferred one
category of quantitative evidence over the other. Instead, the Panel dismissed the import of the
re-estimates, which were the central piece of evid ence relied on by the United States, on the basis of
reasoning that, in our view, is internally incohe rent, and compounded the matter by relying on
evidence that suffered from the same limitation as th e re-estimates. The Panel's treatment of the
evidence submitted by the parties lacked even-handedness.
293. Brazil underscores that, as the trier of facts, the Panel was entitled to determine the probative
value and relative weight of the re-estimates data submitted by the United States. 614 According to
Brazil, the fact that "the compliance Panel attribut ed to the competing evidence a different weight or
meaning than did the United States does not constitute reversible legal error in the application of
item (j) to the facts." 615 We agree that the Appellate Body has consistently held that it would not
interfere lightly with a panel's exercise of its authority as the trier of facts. 616 The Appellate Body has
explained that, under Article 11 of the DSU, "a pa nel is charged with the mandate to determine the
facts of the case and to arrive at factual findings. In carrying out this mandate, a panel has the duty to

613Panel Report, para. 14.89.
615Ibid. (footnote omitted)
616See, for example, Appellate Body Report, EC – Asbestos, para. 161; Appellate Body Report, EC –
Hormones, para. 132; Appellate Body Report, EC – Sardines , para. 299; Appellate Body Report, Japan –
Apples, para. 222; Appellate Body Report, Korea – Dairy, para. 137; and Appellate Body Report, US – Wheat
Gluten, para. 151.

examine and consider all the evidence before it"
617, and may not "disregard" evidence or "appl[y] a
double standard of proof".618
294. Our concern with the Panel's treatment of the re-estimates, however, is not directed towards
its weighing of the evidence. Rather, there is a lack of explanation and coherent reasoning by the
Panel that led it to marginalize the re-estimates. The Panel was presented w ith a class of quantitative
evidence that is based on estimates, including the initial estimates, the re-e stimates, and the CCC's
Financial Statements, but effectively disregarded the re-estimates data submitted by the United States.
The error is amplified by the fact that the Pa nel unquestioningly accepted the initial estimates and
CCC Financial Statements submitted by Brazil, although they too are based on estimates. The Panel's
internally incoherent treatment of the same class of quantitative evidence thus vitiates the conclusion
it drew based on the financial data submitted by the parties.
295. In sum, we find that, by dismissing the import of the re-estimates data submitted by the
United States on the basis of internally inconsiste nt reasoning, the Panel did not make "an objective
assessment of the matter before it, including an objective assessment of the facts of the case", under
Article 11 of the DSU. Consequently, the Panel erre d in its intermediate conclusion that "the initial
subsidy estimates provide a st rong indication that GSM 102 expor t credit guarantees are provided
against premia which are inade quate to cover the long-term ope rating costs and losses of the
GSM 102 programme."619
296. Having reversed the Panel's intermediate fi nding, we turn to examine whether we can
complete the analysis and make our own assessment of the quantitative evidence on the record. In the
past, the Appellate Body has completed the legal anal ysis when there was a su fficient factual basis in
the panel record to enable it to do so.620
297. The United States and Brazil disagree on the significance of the initial estimates and
re-estimates data on record. According to the United States, the re-estimates data are "highly
probative" because they "demonstrated that the export credit guarantee programs in the aggregate—

618Appellate Body Report, Korea – Alcoholic Beverages , para. 164. In cases concerning a panel's
examination of determinations by domestic investigating authorities, the Appellate Body has also held that a
panel must assess "whether the explanations provided by the authority are 'reas oned and adequate' ... and
[assess] the coherence of its reasoning." (Appellate Body Report, US – Softwood Lumber VI (Article 21.5 –
Canada), para. 97) In cases where a panel operates as the initial trier of facts, such as this one, it would
similarly be expected to provide reasoned and adequate explanations and coherent reasoning.
619Panel Report, para. 14.89.
620See, for example, Ap pellate Body Report, Canada – Periodicals , p. 24, DSR 1997:I, 449, at 469;
Appellate Body Report, Australia – Salmon , para 118; Appellate Body Report, US – Shrimp , para. 124; and
Appellate Body Report, US – Section 211 Appropriations Act, para. 352.

even before the adoption of the new fee structure for the GSM 102 program and the elimination of the
longer-term GSM 103 export credit guarantee program and the riskier SCGP—charged premium rates
more than adequate to cover long-term ope rating costs and losses of the three programs". 621 B y
contrast, Brazil argues that historical data regard ing the export credit guarantee programmes, such as
the re-estimates, have serious limitations because they merely reflect one possible outcome (in this
case, profits), whereas the initial estimates reflect an evaluation of all possible outcomes regarding the
programmes' financial performance.
622
298. The Panel itself recognized that it is "factually correct" that "the initial estimates are
established before any use is made of the programme and ... are based on the projected use of the
programme".623 The Panel also noted that the initial est imates are "subsequently re-adjusted in the
United States Budget two years after the budget year in which the initial estimates appears" 624 and,
"[i]n subsequent years, re-estimates are tracked in Table 8 of the Federal Credit Supplement
accompanying the budget".625 These re-estimates show a consiste nt downward trend in the estimated
costs of the export credit guarantee programmes, thus calling into question the reliability of the initial
estimates for purposes of evaluating the programme's "long-term operating costs and losses".
299. Although the measure subject to these proceed ings is the GSM 102 programme, as revised
since July 2005, the re-estimates data cannot be dismissed simply because the data concern the
financial performance of the three programmes examined in the original proceedings. As noted by the
Panel, "GSM 102 export credit guarantees made up 93 per cent of the CCC guarantees portfolio". 626
Under the revised fee structure, fees for GSM 102 e xport credit guarantees were increased by 23 per
cent (on a weighted-average basis). 627 It is not unreasonable to assume that the increase of fees
resulting from the revision of the GSM 102 programme would accentuate the downward trend shown
in the re-estimates data for the 15-year period. Thus, we consider that the re-estimates data, which
show better-than-expected historical performance, are an important indicator of the revised GSM 102
programme's likely future performance.

621United States' appellant's submission, paras. 117-119.
622Brazil's response to questioning at the oral hearing.
623Panel Report, para. 14.76. (original emphasis)
624Ibid. The Panel stated that "[i]n no case has such an adjustment turned a positive subsidy estimate
into a negative one". (Ibid.) The Panel, in stating such, referred to Exhibit Bra-617, supra, footnote 532, which
contains the initial estimates as they first appeared in United States budgets and as re-adjusted in the two
subsequent United States budgets. Howe ver, these "re-adjustments" in the th ird year are not final, as the Panel
itself noted, but continue to be re-estimated in subsequent years and recorded in Table 8 of the Federal Credit
Supplement accompanying the budget. (Ibid., para. 14.76 and footnote 681 thereto)
625Ibid., footnote 681 to para. 14.76.
626Ibid., para. 14.118.
627Ibid., para. 14.119.

300. We recall that Brazil also submitted to the Pa nel the CCC's audited Financial Statements,
which are another indicator of the performance of the CCC's export credit guarantee programmes up
to 2006. Both the re-estimates data submitted by the United States and the audited Financial
Statements of the CCC were routinely produced by the United States Government, and neither were
produced specifically for this dispute. In these circ umstances, both are relevant for the appraisal of
the long-term financial performance of the revised GSM 102 programme. While the re-estimates data
project overall profits of US$403 million under the CCC's export credit guarantee programmes for the
period 1992-2006
628, the CCC's Financial Statements estima te a credit guarantee liability of US$220
million with respect to post-1991 guarantees that were outstanding as of 30 September 2006. 629
Although, at the oral hearing, we tried to explor e possible ways of reconciling these two figures, we
did not get a clear explanation from either party as to how this could be done.
301. Thus, the quantitative eviden ce submitted by Brazil and the United States support two
plausible conclusions that one could draw rega rding the profitability of the revised GSM 102
programme: (i) the CCC's Financial Statements indicate that the programme is making losses; and
(ii) the re-estimates data indicate that the progr amme is making profits. Therefore, the critical
quantitative data before the Panel give rise to conf licting conclusions. The data also give rise to
similar probabilities that point to opposite conclusion s as to the binary outcome in item (j), that is,
whether a programme is making a loss or not. We r ecall, however, that the Panel also examined other
evidence adduced by Brazil, "which further convince[d]"
 630 the Panel that the premiums under the
revised GSM 102 programme are inadequate to cover its long-term operating costs and losses, within
the meaning of item (j). This evidence incl udes a comparison between fees under the revised
GSM 102 programme and the OECD MPRs, and various elements relating to the structure, design,
and operation of the programme. We now turn to examine the United States' arguments regarding the
Panel's consideration of this evidence in order to determine whether the ev idence as assessed by the
Panel makes one of the two probable outcomes th at emerge from the quantitative evidence more
likely than not.
2. Comparison with MPRs under the OECD Arrangement
302. The United States submits that the Panel "fundame ntally misinterpreted" the requirements of
item (j) in "[making] determinations" under that provision based on a comparison of GSM 102
programme fees with MPRs under the OECD Arrangement.
631 According to the United States,

628Panel Report, para. 14.79.
629Ibid., para. 14.83.
630Ibid., para. 14.90.

"[d]espite its recognition of the inapplicability of the OECD Arrangement and MPRs", the Panel
"compared OECD MPRs to fees charged under th e GSM 102 program, and found that comparison
dispositive for purposes of the item (j) analysis." 632 The United States adds that the Panel acted
inconsistently with Article 11 of the DSU by "disregard[ing] the irre levancy of the [OECD
Arrangement] MPRs" for purposes of the analysis under item (j).633
303. In our view, the United States exaggerates th e importance the Panel attached to the fee
comparison of GSM 102 fees with the MPRs in its overall analysis under item (j). After reviewing
the budgetary evidence described above, the Panel tu rned to review the evidence relating to MPRs
submitted by Brazil. At the outset, the Panel made clear that it did not consider the MPRs to be
directly applicable in determining whether an export credit guarantee programme falls within the
scope of item (j). 634 The Panel emphasized that item (j) makes no reference to the OECD
Arrangement and that the MPRs do not provide a legally bindi ng benchmark for purposes of an
analysis under item (j). As the Panel explained:
While the MPRs were developed at least in part to ensure that
Participants would comply with item (j), item (j) itself does not refer
to the OECD Arrangement or to an y other international agreement or
benchmark in determining whether the premia are inadequate to
cover the long term operating costs and losses of export credit
guarantee programmes and other programmes covered by item (j) of
the Illustrative List. As the United States points out, this contrasts
with the second paragraph of item (k) of the Illustrative List, where
such a reference is made. In con sequence, there is in our view no
basis to treat the OECD MPRs as providing a legally binding
benchmark to determine whet her an export credit guarantee
programme falls within the scope of item (j) of the Illustrative List.
635
(footnote omitted)
304. The Panel further noted that the OECD Arrange ment does not cover exports of agricultural
commodities and applies only to government support for credit terms of two years or more. 636 Thus,
the Panel did not consider that the OECD MPRs constituted a valid benchmark under item (j).
305. Although the Panel recognized that MPRs have no le gal status in the context of an analysis
under item (j), it did consider them relevant "from an evidentiary point of view".637 In particular, what
the Panel found relevant was the magnitude of the difference between the MPRs and the GSM 102

633Ibid., para. 121.
634Panel Report, para. 14.94.
635Ibid.
636Ibid. (footnote omitted)
637Ibid., para. 14.95. (emphasis added)

fees. Based on the comparison submitted by Brazil, the Panel observed that, "[o]n average, the MPRS
are 106 per cent above GSM 102 fees".
638 The magnitude of the differ ence in the fees is repeatedly
emphasized by the Panel in its reasoning. The Panel explained that, "in this particular case, because
of the magnitude of the difference between the MPRs and GSM 102 fees, the MPRs may provide an
indication, on an informed basis, of the fact that GSM 102 fees are set at a level which is insufficient
to cover the long term operating costs and losses of the programme." 639 The Panel emphasized that it
took into account the comparison of MPRs and GSM 102 fees "because of the importance of the
difference between them". 640 The Panel immediately cautioned that it was "not suggest[ing] that
any difference in this respect could be relie d upon as an indication that an export guarantee
programme meets the criteria of item (j) of the Illustrative List".641
306. Therefore, contrary to the United States' assertions, the Panel did not make a definitive
determination under item (j) on the basis of the comparison between MPRs and GSM 102 fees, nor
did the Panel find "that comparison dispositive for purposes of the item (j) analysis". 642
Consequently, we see no basis in the Panel's analys is for the United States' argument that the Panel
misinterpreted the requirements in item (j) by imposing a legal benchmark not specified therein.
307. In addition, the United States argues that the Pane l acted inconsistently with Article 11 of the
DSU by making "conclusory observations ... unsupported by evidence" that "the MPRs would
increase if agricultural products were made subject to it", because industrial products "offer a better
security".
643 We recall the Panel's emphasis on the "ma gnitude of the difference between MPRs and
GSM 102 fees" when it found that the MPRs "may pr ovide an indication" that the GSM 102 fees are
inadequate to cover long-term operating costs and losses.644 Noting that MPRs are on average 106 per
cent above GSM 102 fees, the Panel stated that "t here is ... no reason why the MPRs should be
lowered were agricultural products to fall under its product coverage." 645 It is within this context that
the Panel agreed with Brazil's submission that, "i f anything, the MPRs woul d increase if agricultural
products were made subject to it". 646 Thus, even if these observations, taken in isolation, were to be
unsupported by specific evidence, they do not under mine the Panel's overall conclusion that the
significant difference in fees provides an additional evidentiary basis for its analysis under item (j).

638Panel Report, para. 14.98. (footnote omitted)
639Ibid., para. 14.97. (original underlining)
640Ibid.
641Ibid. (original emphasis)
644Ibid., paras. 14.97 and 14.98.
645Ibid., para. 14.101.
646Ibid.

3. Structure, Design, and Operation of the Revised GSM 102 Programme
308. We turn next to examine the United States' ar guments concerning the elements relied on by
the Panel in analyzing the structure, design, and operation of the revised GSM 102 programme. These
elements are: (i) the one per cent statutory fee cap applicable under the GSM 102 programme; (ii) a
comparison of the "scaling" of fees under the GSM 102 programme and the two credit insurance
programmes of the Export-Import Bank; (iii) the fact that foreign obligor risk is not reflected in
revised GSM 102 fees; and (iv) the CCC's access to government funds.
309. The United States maintains that the Panel "erred as a matter of law in relying on the one per
cent fee cap as proof that the revised GSM 102 program was not risk-based". 647 According to the
United States, nothing in item (j) says that, just because a programme has a fee cap, it cannot satisfy
the test that premium rates cover long-term operati ng costs and losses. We do not consider that the
Panel made such a conclusion. Rather, the Panel focused its analysis on the " effects of the remaining
presence of the one per cent fee cap" 648—namely, how the fee cap affect s the adequacy of the fees in
relation to risks—and did not find that a fee cap, in itself, necessarily prevents a programme from
covering its long-term operating costs and losses, as the United States' argument seems to suggest.
310. The United States further claims that the Panel erred in relying on the comparison of "scaling"
of fees under the revised GSM 102 programme an d the Ex-Im Bank programmes for its analysis
under item (j).
649 We recall that Brazil submitted a comparison of the rate of increase, corresponding
to increased risk (by country risk category and le ngth of tenor), of fees charged by the GSM 102
programme with the rate of increase of fees unde r two programmes of the Ex-Im Bank—the LCI and
the MTI. The Panel reviewed this comparison and concluded that the "significant difference between
the rates of increase" for GSM 102 fees and for the LCI and the MTI suggests that "the [one] per cent
fee cap ... does indeed prevent the adoption of a truly risk-based fee structure by the CCC."650
311. The United States submits that the Ex-Im Bank programmes are "fundamentally dissimilar" to
the GSM 102 programme. 651 According to the United States, "[i] n addition to the fact that [LCI and
MTI] are subject to MPRs, and that MTI is not av ailable for agricultural goods, [LCI and MTI] differ
significantly in terms of interest and principal cove r, as well as the availability of recourse to a third
party for uninsured amounts." 652 Despite these dissimilarities, the United States argues, the Panel

648Panel Report, para. 14.121. (emphasis added)
650Panel Report, para. 14.128.
652Ibid.

"acceded to Brazil's proffered adjustments to ta ke into account these differences and force a scaling
comparison".
653
312. We note that, rather than "forcing a comparison" despite the dissimilarities between the
programmes, the Panel specifically addressed the di ssimilarities by reviewing various adjustments
made in the evidence submitted by Brazil to re nder the LCI and the MTI more analogous to the
GSM 102 programme, and considered them to be "appropriate". 654 Furthermore, the Panel did not
focus on the differences between the amount of fees charged under the GSM 102 programme and
under the Ex-Im Bank programmes. Rather, the compar isons were intended to show that, due to the
limitation placed by the one per cent fee cap, th e revised GSM 102 fees increase much slower, in
response to the increased risk, than the rate of increase of the fees charged under the Ex-Im Bank
programmes. We therefore do not consider that it w as improper for the Panel to conclude that "[t]he
fact that the financial products being compared are not identical" did not fundamentally undermine the
evidentiary value of the comparisons regarding scaling of fees under the programmes.655
313. In addition, the United States contests the releva nce of scaling to an analysis under item (j),
arguing that "[i]tem (j) does not even impose a 'r isk-based' condition", and that the only condition
under item (j) is whether the premiums under an ex port credit guarantee programme are adequate to
cover its long-term operating costs and losses. 656 We agree that the analysis of risk is not expressly
required by the text of item (j) in assessing the ad equacy of premiums of an export credit guarantee
programme. However, an export credit guarantee programme exposed to risk of default is more likely
to incur costs and losses if its design and structure do not adequately safeguard against such risk.
Therefore, we consider that risk is a relevant factor in the assessment of a programme's structure,
design, and operation under item (j).657
314. The United States argues that, "[e]ven were a ri sk based standard relevant, item (j) does not
indicate any specific standards as to scaling." 658 We concur that item (j) does not impose a standard
as to scaling. The Panel did not impose such a st andard. Rather, the Panel reviewed the scaling

654Panel Report, para. 14.125.
655Ibid., para. 14.126.
657We note that the original panel, in a finding not subject to appeal, stated that, "where a programme
does not provide for premium rates that are fully reflective of the risks of a particular transaction, this might be
one indicator that the programme was set up in such a way that its long-term operating costs and losses have to
be borne, in total or in part, by the government." (O riginal Panel Report, para. 7.805 (quoted in Panel Report,
para. 14.108))

comparison with the Ex-Im Bank programmes to apprai se the effect of the one per cent fee cap under
the revised GSM 102 programme. The Panel noted that the scaling comparisons "convincingly
demonstrated that the GSM 102 fees only minimall y respond to increased country risk and increased
risk in the form of longer tenors", as compared to the LCI and the MTI fees.659 In particular, the Panel
found that, "while the fees for lowest country risk categories are relatively similar between GSM 102
and the LCI and MTI, there is a sharp difference between the fees charged by the Ex-Im Bank and the
CCC for the highest risk categories."
660
315. We note that the United States itself acknowledges that "[s]caling is ... relevant with respect
to a comparison of those transactions that are eligible under the program." 661 The United States
nevertheless contends that "[a] full examination of whether a program is risk-based would also take
into account those transactions that are wholly inelig ible [and for which] the current fee is effectively
infinite".662 The comparisons provided by Brazil were ma de between individual eligible countries in
the corresponding risk categories of the revised GSM 102 programme and the Ex-Im Bank
programmes.
663 In our view, the fact that a number of countries are ranked as "ineligible" under the
revised GSM 102 programme does not affect the validity of the fee comparisons insofar as the eligible
countries are concerned.
316. The United States further maintains that the Pane l acted inconsistently with Article 11 of the
DSU by accepting Brazil's evidence regarding "scaling" of fees under the GSM 102 and the Ex-Im
Bank programmes. According to the United States, despite the "obvious factual distinction" regarding
the product coverage under the Ex-Im Bank MTI a nd the GSM 102 programme, the Panel concluded
that the distinction does not fundamentally undermine the value of the comparison but offered "no
support for this conclusion".
664 We recall that the Panel found that the differences regarding product
coverage did not undermine the value of the co mparison, because the relevant comparison being
conducted was between the rates of increase of the fees, rather than the fees themselves.665 Moreover,

659Panel Report, para. 14.127.
660Ibid., para. 14.127. In making this observation, th e Panel referred to certain graphs submitted by
Brazil showing that Ex-Im Bank fees rise more sharply than GSM 102 fees in response to increased risks
involved in a transaction. ( Ibid., footnote 758 to para. 14.127) The Panel further noted that, for a tenor of 36
months, the GSM 102 fee and the MTI fee for a country fa lling within risk category 2 are, respectively, 0.637
per cent and 1.060 per cent. For a country falling with in risk category 6, however, the GSM 102 fee is 1 per
cent, whereas the MTI fee is increased to 4.325 per cent. (Ibid., footnote 759 to para. 14.127)
662Ibid.
663See, for example, Exhibits Bra-693 and Bra-694 subm itted by Brazil to the Panel (as referred to in
Panel Report, para. 14.125 and footnote 755 thereto).
665Panel Report, para. 14.126.

the Panel examined the adjustments made by Braz il which, in the Panel's view, made the Ex-Im
Bank's programmes more comparable to the GSM 102 programme.
317. According to the United States, the Panel fa iled to conduct an objective assessment of the
matter, as required by Article 11 of DSU, when it stated, "[without] any basi s in the evidence", that
the 100 per cent increase in fees under the revised GSM 102 programme between the lowest and
highest risk category "suggests that f ees insufficiently take account of" risk.
666 The United States'
argument does not take full account of the context in which the Panel's statem ent is made. The Panel
made the observation that fees insufficiently take account of risk after reviewing the evidence
showing that the rate of increase of the f ees charged under the Ex-Im Bank programmes is
significantly higher than 100 per cent. 667 The Panel noted, in particular, that, "while the fees for the
lowest country risk categories are relatively sim ilar between GSM 102 and the LCI and MTI, there is
a sharp difference between the fees charged by the Ex-Im Bank and the CCC for the highest risk
categories."668 When seen in the context in which it w as made, the Panel's statement does have a
basis.
318. The United States contests two other factors relied on by the Panel as "not germane to an
analysis under item (j)." 669 First, the United States argues that the Panel erroneously concluded that
"the fact that the United States sets bank limits w ith respect to each foreign bank obligor does not ...
alter the fact that foreign obligor risk is not reflected in GSM 102 fees." 670 The United States argues
that nothing in item (j) specifies how a government programme shall be designed to ensure the
adequacy of premiums, and managing foreign obli gor risk is one important way to ensure this
adequacy. Therefore, according to the United States, the Panel erred in concluding that "fees were the
only proper way to deal with foreign obligor risk."671 This, however, is not what the Panel concluded.
Rather, the Panel highlighted "the fact that fore ign obligor risk is not reflected in GSM 102 fees" 672,
and noted Brazil's argument that "prudent fiscal management compels commercial banks to take

667See, for example, Brazil's first written submission to the Panel, para. 400, Figure 32 (referred to in
Panel Report, para. 14.127 and footnote 758 thereto). This figure contains tables showing that fees under the
Ex-Im Bank programmes increase by much more than 100 per cent between the lowest and highest country risk
categories.
668Panel Report, para. 14.127 and footnote 759 theret o (referring to the resp ective fees under the GSM
102 programme and under the LCI and the MTI for individual countries in risk categories 0 to 6 (Exhibit
Bra-536 submitted by Brazil to the Panel)). We note that, in an apparent clerical error in footnote 759, the Panel
referred to Exhibit Bra-548, which does not contain the evidence the Panel described in this footnote.
670Panel Report, para. 14.115.
672Panel Report, para. 14.115.

varying borrower risk into account not only via exposure limits, but also through fees".673 Thus, the
Panel recognized the relevance of exposure limits , but found that setting exposure limits alone was
insufficient to account for foreign obligor risk, when such risk was not adequately taken into account
in the determination of fees for the transactions within the exposure limits.
319. In addition, the United States submits that the Panel mistakenly relied on the fact that the
CCC has access to funds from the United States Treasu ry and that it benefits from the full faith and
credit of the United States government, even though "[s]uch considerations ... are irrelevant under
item (j)". 674 The United States maintains that, according to the Panel's "overly-broad approach, a
government-backed export credit ... program could ne ver satisfy the item (j) test because ... the
unlimited access to government funds discourages the design of a programme that meets long-term
operating costs and losses".
675 We share the view that access to government funds, alone, is not a
significant factor for purposes of determining profitability under item (j). The Panel, however, did not
seem to place much emphasis on this factor. Rather , the Panel recalled that this was a factor taken
into account by the original panel and confirmed that the CCC still has the same access to government
funds.676
320. In sum, we are not persuaded that the Panel erred in finding that "the GSM 102 programme is
not designed to cover its long term operating costs and losses."677
321. At the outset of its analysis, the Panel stated that it would "first conduct [its] analysis as if
Brazil bore the burden of proof with respect to both the quantitative and the subsidization elements of
its claims, i.e. as if Article 10.3 [of the Agreement on Agriculture] did not apply".678 We have found
that the Panel failed to make an objective assessment of the matter, as required under Article 11 of the
DSU, in its assessment of the quantita tive evidence submitted by the parties. 679 We have explained,
furthermore, that the two critical pieces of evidence, the re-estimates data and the CCC Financial
Statements, tend to show that, in the long run, th e revised GSM 102 programme may be either profit-
making or loss-making. Also, we stated our view that the analysis under item (j) should proceed
primarily on the basis of quantitative evidence, where such evidence is available. We have
recognized, however, that evidence relating to the structure, design, and operation has a
supplementary role to play in an assessment conducte d under item (j). The Panel, in this case, relied

673Panel Report, para. 14.113. (emphasis added; footnote omitted)
675Ibid.
676Panel Report, para. 14.110.
677Ibid., para. 14.131.
678Ibid., para. 14.47.
679See supra, para. 295.

on several elements relating to the structure, design, and operation of the revised GSM 102
programme, and we have not found flaws in the Pa nel's analysis of this evidence. The Panel
recognized that these elements are not in and of themselves dispositive. Nonetheless, according to the
Panel, the evidence on the structure, design, and operation supports the proposition that the revised
GSM 102 programme operates at a loss. We recall th at we have found that the quantitative data give
rise to opposite conclusions with similar probabilities as to the binary outcome in item (j). The
Panel's finding on the structure, design, and operation, in the light of the two plausible outcomes with
similar probabilities that emerge from the quantitati ve evidence, provides a sufficient evidentiary
basis for the conclusion that it is more likely th an not that the revised GSM 102 programme operates
at a loss. Therefore, we consider that Brazil has succeeded in establishing that the revised GSM 102
programme is provided at premiums that are inad equate to cover its long-term operating costs and
losses.
F. Conclusion
322. For these reasons, we consider that the Panel did not err in finding that "the GSM 102 export
credit guarantee programme constitutes an export s ubsidy because it is provided against premiums
which are inadequate to cover its long-term opera ting costs and losses under the terms of item (j) of
the Illustrative List".
680
323. Accordingly, we uphold the Panel's findings that GSM 102 export credit guarantees issued
after 1 July 2005 are export subsidies within the meaning of Article 3.1(a) of the SCM Agreement
and Article 10.1 of the Agreement on Agriculture .681 Therefore, the Panel's findings in
paragraphs 14.140, 14.149, 14.150, 14.156, 14.157, and 15.1(c) also stand.
VII. Serious Prejudice
324. We turn finally to the United St ates' appeal of the Panel's finding that the effect of marketing
loan and counter-cyclical payments provided to United States upland cotto n producers is significant
price suppression in the world market for upland cotton, constituting "present" serious prejudice to the
interests of Brazil, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement. Section A
summarizes the findings made in the original proceedings, and Section B describes the measures
taken by the United States to comply with the DSB's recommendations and rulings. The Article 21.5
proceedings are summarized in Section C. Secti on D provides an overview of the arguments raised
on appeal by the participants and third participants. In Section E, we discuss the Panel's findings of

680Panel Report, para. 14.133.
681Ibid., para. 14.134.

"present" serious prejudice under Articles 5(c) and 6.3 of the SCM Agreement. Finally, in Section F,
we set out our conclusions.
A. Original Proceedings
325. In the original proceedings, Brazil challe nged several United States domestic support
measures under Articles 5 and 6 of the SCM Agreement. Brazil argued that these measures were not
exempt from being challenged as actionable subsidi es under paragraphs (a) and (b) of Article 13 of
the Agreement on Agriculture , and that they caused serious prejudi ce to its interests, within the
meaning of Article 5(c) of the SCM Agreement, because their effect was to significantly suppress the
price of upland cotton, within the meaning of Article 6.3(c) of the SCM Agreement.682
326. Having found that the United States domestic support measures were not exempt from
challenge under Article 13 of the Agreement on Agriculture , the original panel found that the effect
of the mandatory price-contingent United States s ubsidy measures—marketing loan payments, Step 2
payments, market loss assistance payments, and counter-cyclical payments—was significant price
suppression in the same world market within the meaning of Article 6.3(c) of the SCM Agreement,
constituting serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM
Agreement.683 The Appellate Body upheld the original panel's findings.684
327. In accordance with Article 7.8 of the SCM Agreement , which specifies the remedies
applicable in cases where subsidies have been determ ined to result in adverse effects, the original
panel stated that, upon adoption of the panel repor t, "the United States [was] under an obligation to
'take appropriate steps to remove the adverse effects or ... withdraw the subsidy'."685
B. Measures Taken by the United States
328. On 1 February 2006, United States Congress enact ed legislation amending the Farm Security
and Rural Investment Act of 2002 686 (the "FSRI Act of 2002") by repealing the Step 2 payments
programme, which was one of the price-contingent subsidy measures covered by the original panel's

682Original Panel Report, para. 3.1(vi).
683Ibid., paras. 7.1416 and 8.1(g)(i).
684Appellate Body Report, US – Upland Cotton, para. 496.
685Original Panel Report, para. 8.3(d).
686Farm Security and Rural Investment Act of 2002, Public Law No. 107-171; see Original Panel
Report, para. 7.201.

finding of serious prejudice.
687 The Step 2 payments programme was repealed effective as
of 1 August 2006.688 The Panel noted that it is undisputed that the United States continues to provide
marketing loan and counter-cyclical payments to United States producers of upland cotton, and that
the legislative and regulatory provisions governing these payments have not been changed.689
C. Article 21.5 Proceedings
329. On 18 August 2006, Brazil requested the establishm ent of a panel pursuant to Article 21.5 of
the DSU, because it considered that the United States had failed to implement the recommendations
and rulings of the DSB stemming from the original dispute. 690 Brazil claimed that the repeal of the
Step 2 payments programme is insufficient to brin g the United States into compliance with the DSB's
recommendations and rulings. 691 In particular, Brazil claimed that payments made under the
marketing loan and counter-cyclical payments pr ogrammes continued to cause "present" serious

687In addition to Step 2 payments, marketing loan payments, and counter-cyclical payments, the
original panel's finding of serious prejudice covered market loss assistance payments. According to the original
panel, market loss assistance payments were "ad ho c emergency and supplementary assistance provided to
producers" under "four separate pieces of legislation, one each for the years 1998 through 2001". (Original
688Section 1103 of the Deficit Reduction Act of 2005, Public Law No. 109-171; see also Panel Report,
para. 3.7.
689Panel Report, paras. 3.9 and 3.12.
690Request for the Establishment of a Panel by Brazil, WT/DS267/30.
 691Brazil also claimed before the Panel that the United States had taken no actions to comply with the
DSB's recommendations and rulings during the period between 22 September 2005 and 31 July 2006—that is,
between the expiration of the six-month time period set out in Article 7.9 of the SCM Agreement and the
effective date on which the Step 2 payments programme was repealed. The Panel di sagreed with Brazil that
Article 21.5 of the DSU contemplated a finding on the existence of or consistency with a covered agreement of
a measure taken to comply at the end of the six-month period set out in Article 7.9 of the SCM Agreement, in
addition to a finding on the existence of a measure taken to comply as of the date of the establishment of an
Article 21.5 panel. Therefore, the Panel found that it was not appropriate to make a finding on Brazil's claim
that the United States had failed to take any measures to remove the adverse effects or to withdraw the three
price-contingent upland cotton subsidy programmes between 22 September 2005 and 31 July 2006. (Panel
Report, paras. 9.70 and 9.71) This finding of the Panel was not appealed by Brazil.

prejudice to the interests of Brazil in the form of significant price suppression in the world market for
upland cotton according to Article 6.3(c) of the SCM Agreement.692
330. At the outset of its analysis, the Panel said it would adopt a "unitary" approach to determine
whether the effect of the marketing loan and counter-cyclical payments was significant price
suppression within the meaning of Article 6.3(c) of the SCM Agreement . Therefore, it did "not
separate the question of the existence of signifi cant price suppression from the issue of the causal
relationship between significant price suppression and the subsidies at issue."693 Moreover, relying on
the Panel Report in Korea – Commercial Vessels , the Panel said it would adopt a "but for" approach
to analyze whether the effect of the subsidies is significant price suppression. 694 Thus, in order to
determine whether the effect of marketing loan and counter-cyclical payments to upland cotton
producers was significant price suppression within the meaning of Article 6.3(c) of the SCM
Agreement, the Panel considered it necessary to determin e whether, "but for" these subsidies, the
world market price for upland cotton would have increased significantly, or would have increased by
significantly more than was in fact the case.695
331. Having set out the approach it would follow, the Panel turned to the assessment of the

692Brazil also made a claim of thr eat of serious prejudice under Articles 5(c) and 6.3(c) of the SCM
Agreement. Having found "present" serious prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement, the
Panel considered it unnecessary to make additiona l findings with respect to Brazil's claim of threat of serious
prejudice. (Panel Report, para. 11.4) This finding of the Panel was not appealed by Brazil.
In addition to its price suppression claims under Articles 5(c) and 6.3(c) of the SCM Agreement, Brazil
alleged under Articles 5(c) and 6.3(d) that the effect of the marketing loan and counter-cyclical payments in
MY 2005 was an increase in the United St ates' share of the world market for upland cotton. Brazil argued that
the United States' share of the world market for upland cotton in MY 2005 increased as compared to the average
United States world market share duri ng MY 2002-2004. In analyzing the United States' world market share,
the Panel relied on world production data (rather than on world export data). ( Ibid., para. 10.264) The Panel
found that the evidence submitted did not support Brazil' s argument that there was an increase in the United
States' world market share of upland cotton as compared to the average United States world market share during
the previous three years. Thus, the Panel concluded that Brazil had not made a prima facie case. ( Ibid.,
para. 10.268) This finding of the Panel was not appealed by Brazil.
693Panel Report, para. 10.46.
694See ibid., para. 10.48 (referring to Panel Report, Korea – Commercial Vessels , paras. 7.537
and 7.612).
695See ibid., para. 10.49. In addition, the Panel agreed with the original panel that the term
"significant" in Article 6.3(c) of the SCM Agreement relates to "the degree of the price suppression or
depression in the context of the prices that have been affected" and that "the 'significance' of any degree of price
suppression may vary from case to case, depe nding on the factual circumstances". ( Ibid. (referring to Original
Panel Report, paras. 7.1328 and 7.1329)) The Panel also quoted the following statement of the original panel:
... for a basic and widely traded commodity, such as upland cotton, a
relatively small decrease or suppressi on of prices could be significant
because, for example, profit margins may ordinarily be narrow, product
homogeneity means that sales are price se nsitive or because of the sheer size
of the market in terms of the amount of revenue involved in large volumes
traded on the markets experiencing the price suppression.

evidence submitted by Brazil in support of its claim. The Panel considered a number of factors, taken
collectively, to determine whether the effect of marketing loan and counter-cyclical payments to
United States upland cotton producers was significant price suppression in the world market for
upland cotton.
332. First, the Panel reviewed data on the United States' share of world upland cotton production
and world upland cotton exports, and concluded that the United States exerts a substantial
proportionate influence on the world market for upland cotton.
696 The Panel then examined the
structure, design, and operation of the mark eting loan and counter-cyclical payments. 697 The Panel
found that marketing loan and counter-cyclical pa yments affected the level of United States upland
cotton acreage and production as a result of their mandatory and price-contingent nature, and their
revenue-stabilizing effect.
698
333. The next factor examined by the Panel was th e alleged "large magnitude" of the marketing
loan and counter-cyclical payments. 699 The Panel recalled that, al though the Appellate Body had
found in the original proceedings that a precise quantification of the amount of a subsidy was not
required in an analysis under Article 6.3(c) of the SCM Agreement , it had also held that the
magnitude of a subsidy and its relationship to prices were factors relevant to an analysis of whether
the effect of a subsidy is significant price suppression. 700 Having reviewed the data on the record, the
Panel found that the order of magnitude of the marketing loan and counter-cyclical subsidies was such
that, in conjunction with other factors, this element supported a finding that significant price
suppression was the effect of the marketing loan and counter-cyclical payments.701
334. The Panel also examined Brazil's claim that there was a "link between high levels of [United
States] subsidies and high levels of [United States] planted acreage, production and exports". 702 The
Panel noted that the fact that the United States' share of world cotton production and exports remained
relatively constant during the period MY 2002-20 05 suggested that United States cotton producers

696See Panel Report, paras. 10.52-10.58. Over the period MY 2002-2005, th e average United States'
share of world upland cotton production and exports was 19.7 per cent and 40.5 per cent, respectively. For
MY 2006, the projected United States' share of world upland cotton production and exports was 18.6 per cent
and 36.3 per cent, respectively. (See ibid., paras. 10.56 and 10.57)
697See ibid., paras. 10.59-10.105.
698See ibid., para. 10.104. The Panel emphasized that it considered this factor in conjunction with other
factors, such as: (i) the fact that the adjusted world price in most r ecent years had been below the marketing
loan rate; (ii) the magnitude of the marketing loan an d counter-cyclical payments; (iii) the importance of these
subsidies as a share of the revenues of United States upland cotton producers; and (iv) the role of these
subsidies in covering a significant part of the costs of production of these producers.
699See ibid., paras. 10.106-10.111.
 700See ibid., para. 10.109 (referring to Appellate Body Report, US – Upland Cotton, para. 461).
701See ibid., para. 10.111.
702Ibid., paras. 10.112-10.127.

had increased production and exports in the sa me proportion as had foreign cotton producers. 703
However, according to the Panel, the United Stat es' stable share of world cotton production and
exports did not mean an absence of insulation of United States producers from market price signals,
but that the degree of price insulation that the or iginal panel had found had become weaker, possibly
because prices were not as depressed as during the period examined by the original panel.704
335. Next, the Panel examined Brazil's assertion that there was a "discernible temporal
coincidence"705 of suppressed world market prices and large marketing loan and counter-cyclical
payments. The Panel observed that, while the Un ited States' share of world production and exports
remained stable in MY 2002-2006, world upland cotton prices did not sharply decline over the same
period, as they had done in MY 1998-2001. Inst ead, in MY 2002-2006, world upland cotton prices
went through "intermittent peaks and troughs"
706, rising strongly from MY 2002 to MY 2003,
declining sharply in MY 2004, and climbing again in MY 2005 and MY 2006. The Panel explained
that, the fact that recent years had not witnessed the sharp decline in the world market price for upland
cotton that occurred during the period considered by the original panel, does not necessarily mean that
there is currently no price suppression within the meaning of Article 6.3(c) of the SCM Agreement.707
336. The Panel then turned to Brazil's argument that there was a gap between long-term costs of
production and market revenues of United States upland cotton producers. 708 In comparing market
revenues and costs of production, the Panel consider ed it essential to look at medium- to long-term
developments in the United States upland cotton sector . As a consequence, the Panel compared the
market revenue with total costs of production (which included both variable and fixed costs). 709 The
Panel found that there was a significant gap between the total costs of production of United States
upland cotton producers and their market revenue, suggesting that the subs idies at issue are an
important factor affecting the economic viability of United States upland cotton farming.710
337. The next factor examined by the Panel was the impact of the elimination of Step 2
payments.711 The Panel considered that, given that l ess than one year had passed since the Step 2

703See Panel Report, para. 10.127.
704Ibid.
705Ibid., para. 10.128.
706Ibid., para. 10.141.
707See ibid., para. 10.146.
708See ibid., para. 10.147.
709The Panel also found that: (i) certain items such as land, unpaid labour, and capital recovery costs
should be counted as fixed costs (Panel Report, para. 10.166); (ii) non-cash opportunity costs should be counted
as part of total costs (para. 10.170); and (iii) off-farm income did not play a significant role in sustaining the
economic viability of United States upland cotton farmers (para. 10.184).
710Panel Report, para. 10.196.
711Ibid., paras. 10.223-10.239.

payments programme was terminated, and that the amount of Step 2 payments was much smaller than
the amount of marketing loan and counter-cyclical payments, it was not possible "to determine with
any … precision or confidence just how much of the projected decline in [United States] exports of
upland cotton [was] due to the elimination of the Step 2 payments."
712 The Panel further considered
that the evidence on the effect of the elimination of Step 2 payments on the amounts of marketing
loan and counter-cyclical payments suggested that "the indirect impacts on [United States] production
and exports are likely to be small, given the rela tively modest changes projected in the amounts of
marketing loan and counter-cyclical payments, and the fact that these changes run counter to one
another."
713
338. The Panel also considered economic simulati ons conducted by the parties, estimating the
impact of the United States subsidies on world prices for upland cotton. 714 The Panel noted that there
was disagreement between the parties on the adequacy of the model chosen and on the appropriate
parameter values (demand and supply elasticity and coupling factor), which led to divergent results as
to the magnitude of the impact of United States subsidies on the world price. Although the United
States did not present its own model and criticized Brazil's model, it ran a simulation using Brazil's
model with the parameters it deemed to be appropr iate. For MY 2005, Brazil's simulation estimated
that removal of marketing loan and counter-cycli cal payments would have increased the world price
of cotton by 9.3 per cent to 10.7 per cent, while the simulation conducted by the United States showed
an increase of between 1.41 per cent and 2. 26 per cent over the period MY 2002-2005.
715 The Panel
found that all the simulations conducted by the parties pointed in the direction that marketing loan and
counter-cyclical payments led to an increase in United States production and exports of cotton that
then led to the suppression of world prices.
716
339. Finally, in considering other factors which might also have an impact on the world market
price for upland cotton, the Panel recalled that it had adopted a "but for" approach to the question of
whether the effect of United States marketing loan and counter-cyclical payments to upland cotton
producers was significant price suppression within the meaning of Article 6.3(c) of the SCM
Agreement.717 The Panel observed that, because it had fo llowed this approach, it was not necessary to
undertake a comprehensive analysis of other fact ors affecting the world market price for upland

712Panel Report, para. 10.231.
713Ibid., para. 10.239.
714See ibid., paras. 10.197-10.222.
715Ibid., paras. 10.201 and 10.202.
716Ibid., para. 10.222.
717See ibid., paras. 10.240-10.243.

cotton. Rather, the question before the Panel wa s whether the evidence supported the conclusion that,
in the absence of the United States marketing loan and counter-cyclical subsidies, "the world market
price would increase significantly". 718 The Panel considered that, while China may have played a
significant role in the market for upland cotton, this did not diminish the significance of the impact of
United States subsidies on the world price for upl and cotton resulting from their effect on the United
States' supply to the world market. The Panel noted that developments concerning the role of China's
demand and supply did not change the fact that, with a share of world exports of around 40 per cent,
the United States was capable of exerting a substantial proportionate influence on the world market.719
340. On the basis of its evaluation of these factors, the Panel found that the United States acted
inconsistently with Articles 5(c) and 6.3(c) of the SCM Agreement , in that the effect of marketing
loan and counter-cyclical payments was significan t price suppression in the world market for upland
cotton, within the meaning of Article 6.3(c), constitu ting "present" serious prejudice to the interests of
Brazil, within the meaning of Article 5(c).720 The Panel concluded that the United States had failed to
comply with the recommendations and rulings of th e DSB because it had failed "to take appropriate
steps to remove the adverse effects or ... withdraw the subsidy" 721, as required under Article 7.8 of the
SCM Agreement.722
D. Claims and Arguments on Appeal
341. The United States claims that the Panel erred in finding that the effect of marketing loan and
counter-cyclical payments provided to United St ates upland cotton producers pursuant to the FSRI
Act of 2002 is significant price suppression in the world market for upland cotton, within the meaning
of Article 6.3(c) of the SCM Agreement , constituting "present" serious prejudice to the interests of
Brazil, within the meaning of Article 5(c) of the SCM Agreement.
342. In particular, the United States argues that th e Panel erred in: (i) finding that the United
States marketing loan and counter-cyclical paymen ts insulated United States upland cotton producers
from market signals723; (ii) finding that there was a gap between market revenues and the production
costs of United States upland cotton producers 724; (iii) its assessment of the economic simulations
conducted by the parties725; (iv) its evaluation of the impact of the elimination of Step 2 payments on

718Panel Report, para. 10.243.
719See ibid., para. 10.243.
720Ibid., para. 10.256.
721Ibid., para. 15.1(a).
722Ibid., para. 10.257.
723See United States' appellant's submission, para. 133.
724See ibid., para. 165.
725See ibid., para. 196.

United States upland cotton production and exports and on marketing loan and counter-cyclical
payments
726; (v) its consideration of the alleged larg e magnitude of marketing loan and counter-
cyclical payments727; (vi) finding that the United States exer ted a substantial pro portionate influence
on the world market for upland cotton 728; (vii) failing to conduct a prope r non-attribution analysis as
required by Article 6.3(c) of the SCM Agreement in respect of other factors, particularly China's role
in the world upland cotton market 729; and (viii) failing to determine the degree of price suppression it
considered to be significant within the meaning of Article 6.3(c) of the SCM Agreement. 730
343. The United States also claims that the Panel fa iled to make an objective assessment of the
matter before it as required by Article 11 of the DS U, because it deliberately disregarded, and refused
to consider, evidence submitted by the United States; wilfully distorted and misrepresented this
evidence; and failed to provide a reasoned and adequa te explanation of its conclusions in the light of
other plausible alternative explanations.731
344. Brazil responds that the Panel did not err in finding that the effect of marketing loan and
counter-cyclical payments provided to United St ates upland cotton producers is significant price
suppression, constituting "present" serious prejudice to the interests of Brazil, within the meaning of
Articles 5(c) and 6.3(c) of the SCM Agreement.
345. More specifically, Brazil argues that the Panel: (i) did not exceed the bounds of its discretion
in finding that marketing loan and counter-cycli cal subsidies insulate United States upland cotton
producers from market price signals by stabilizing their revenue 732; (ii) properly exercised its
discretion in relying on total costs of production and market revenue data generated by the USDA
when finding that there was a gap between market revenues and production costs of United States
upland cotton producers 733; (iii) did not err in relying on the economic simulations as support for its
finding of significant price suppression734; (iv) did not err in finding that the withdrawal of the Step 2
payments does not eliminate the significant pri ce-suppressing effects of the marketing loan and
counter-cyclical subsidies 735; (v) properly found that the large magnitude of marketing loan and
counter-cyclical subsidies supports its finding of significant price suppression 736; (vi) properly found

726See United States' appellant's submission, para. 197.
727See ibid., para. 217.
728See ibid., paras. 218 and 219.
729See ibid., para. 214.
730See ibid., para. 221.
731See ibid., paras. 227-243.
732See Brazil's appellee's submission, para. 624.
733See ibid., paras. 707-777.
734See ibid., paras. 838-843.
735See ibid., para. 900.
736See ibid., para. 790.

that the substantial proportionate influence exercised by the United States on the world market for
upland cotton supports its finding of significant price suppression in that market 737; (vii) properly
assessed the role of other factors, including the role of China in the world market for upland cotton 738;
and (viii) properly found that the price suppression caused by the subsidies is of a "significant" 739
degree, based on a comprehensive consideration of both qualitative and quantitative factors.
346. Brazil submits that the Panel did not exceed the bounds of its discretion as the trier of facts
under Article 11 of the DSU in finding that the effect of marketing loan and counter-cyclical
payments provided to United States upland cotton producers is significant price suppression. 740 Brazil
also asserts that certain arguments of the United St ates that are directed at the sufficiency of the
Panel's reasoning do not properly belong under Article 11 of the DSU, but should have been raised
under Article 12.7 of the DSU. 741 Brazil argues that the United States made no claim of error under
Article 12.7 of the DSU and that, for this reason alone, these arguments should be dismissed. 742 In
any event, Brazil notes that the Panel did provide a basic rationale for its findings.743
347. Australia, Canada, and New Zealand address the Panel's finding of serious prejudice in their
third participant's submissions. Australia submits that, in finding that the effect of marketing loan and
counter-cyclical payments provided to United St ates upland cotton producers is significant price
suppression, the Panel acted within its discretion in the appreciation of the evidence and made
appropriate use of the findings in the original proceedings. 744 As regards the United States' claims
under Article 11 of the DSU, Australia asserts that the conduct of the Panel in assessing the evidence
presented to it was not such as to give rise to "the deliberate disregard of, or refusal to consider, the
evidence submitted to a panel" nor to "the willful di stortion or misrepresentation" of that evidence so
as to amount to an "egregious error that ca lls into question the good faith of a panel". 745 Canada
addresses the claims of the United States under Article 11 of the DSU exclusively, arguing that "the
Appellate Body should accord to the Panel's appreci ation of the evidence the same deference it has
routinely accorded in other cases."
746 Finally, New Zealand states that the Panel correctly concluded
that United States upland cotton producers are insu lated from market signals and correctly relied on

737See Brazil's appellee's submission, para. 804.
738See ibid., para. 941.
739See ibid., paras. 806-829.
740See ibid., para. 136.
741See ibid., para. 142.
742See ibid., paras. 156 and 157.
743See ibid., para. 158.
744See Australia's third participant's submission, para. 23.
745Ibid., para. 31.
746Canada's third participant's submission, para. 40.

several other factors in supporting its finding of present serious prejudice.
747 Moreover, New
Zealand argues that the Panel did not make "egregious" errors rising "to a level that calls into question
the objectivity of the Panel's assessment" 748, which is required for a claim under Article 11 of the
DSU to succeed.
E. The Panel's Findings of "Present" Serious Prejudice under Articles 5(c) and 6.3(c) of
the SCM Agreement
348. We begin our analysis by addressing the United States' claim that the Panel failed to
determine the degree of price suppression that it found to be "significant" within the meaning of
Article 6.3(c) of the SCM Agreement. We then turn to the Panel's analysis of causation and to the
United States' claim that the Pane l failed to conduct a proper non-attribution analysis, as required by
Article 6.3(c) of the SCM Agreement . Next, we discuss the standard of review applicable in our
examination of the various other errors the United St ates alleges that the Panel made in its assessment
of the various factors supporting its finding of si gnificant price suppression. In the light of the
applicable standard of review, we finally consider the United States' argument that the Panel erred in
its evaluation of the various factors supporting its finding of significant price suppression.
1. Significant Price Suppression under Article 6.3(c) of the SCM Agreement

349. In terms of Article 6.3(c) of the SCM Agreement , "serious prejudice", in the sense of
Article 5(c) of the SCM Agreement, may arise where:
… the effect of the subsidy is a significant price undercutting by the
subsidized product as compared with the price of a like product of
another Member in the same market or significant price suppression,
price depression or lost sales in the same market.

747See New Zealand's third participant's submission, paras. 4.3 and 4.16-4.30.
748Ibid., para. 4.31.

350. In the original proceedings, the Appellate Body agreed with the following description of price
suppression provided by the original panel:
Thus, "price suppression" refers to the situation where "prices"—in
terms of the "amount of money set for sale of upland cotton" or the
"value or worth" of upland cotton—either are prevented or inhibited
from rising (i.e. they do not increase when they otherwise would
have) or they do actually increase, but the increase is less than it
otherwise would have been. Price depression refers to the situation
where "prices" are pressed down, or reduced.[*]
749 (emphasis added
by the Appellate Body)

[*original footnote 1388] In the remainder of our analysis, we use the term
"price suppression" to refer both to an actual decline (which otherwise
would not have declined, or would have done so to a lesser degree) and an
increase in prices (which otherwise would have increased to a greater
degree).
The Appellate Body observed that "'the situation where 'prices' ... are prevented or inhibited from
rising' and 'the situation where "prices" are pressed down, or reduced' may overlap." 750 However, it
disagreed with the original panel's use of the term "price suppression" as short-hand for both price
suppression and price depression, noting that Article 6.3(c) refers to the two as distinct concepts.751
351. At a conceptual level, we see some differenc es between the concepts of "price depression"
and "price suppression" as defined in the original pr oceedings. While price depression is a directly
observable phenomenon, price suppression is not so. Falling prices can be observed; by contrast,
price suppression concerns whether prices are le ss than they would otherwise have been in
consequence of various factors, in this case, the subsidies. The identification of price suppression,
therefore, presupposes a comparison of an observable factual situation (prices) with a counterfactual
situation (what prices would have been) where one has to determine whether, in the absence of the
subsidies (or some other controlling phenomenon) , prices would have increased or would have
increased more than they actually did. Price depressi on, by contrast, can be directly observed, in that
falling prices are observable. The determination of whether such falling prices are the effect of the
subsidies will require consideration of what pric es would have been absent the subsidies. Thus,
counterfactual analysis is an inescapable part of an alyzing the effect of a subsidy under Article 6.3(c)
of the SCM Agreement.

749Original Panel Report, para. 7.1277 and footnote 1388 thereto (quoted in Appellate Body Report,
US – Upland Cotton, para. 423).
750Appellate Body Report, US – Upland Cotton , para. 424 (quoting Original Panel Report,
para. 7.1277).
751See Appellate Body Report, US – Upland Cotton, para. 424.

352. In the original proceedings, the panel conducte d a two-step analysis of whether "price
suppression" existed and whether it was "significant". In the first step, the original panel examined:
(i) the relative magnitude of United States production and exports; (ii) general price trends; and
(iii) the nature of the subsidies.
752 Under the second step, the original panel interpreted the term
"significant" as meaning "important, notable ... consequential" 753, and noted that the term may have a
"numeric"754 connotation, but that the nature of the ma rket and of the product under consideration
may enter into such assessment as we ll. The original panel recalled its assessment of the evidence in
the light of the same three factors mentioned above, and concluded that it was not looking at an
"insignificant or unimportant world price phenomenon".
755
353. By contrast, in these Article 21.5 proceedings, the Panel stated that it would adopt a
"unitary"756 approach and would not separate into thr ee analytical steps whether there was price
suppression in the world market for upland cotton, wh ether this price suppression was significant, and
whether a causal relationship existed between this significant price suppression and the subsidies.
The Panel found support for this approach in the finding of the Appellate Body in the original
proceedings that "it would be difficult to make a judgement on significant price suppression without
taking into account the effect of the subsidies."757
354. Because of the counterfactual nature of price suppression, it is difficult to separate price
suppression from its causes. Hence, the Panel's "unitary " analysis", at least in respect of identifying
price suppression and its causes, has a sound conceptual foundation.
355. In this case, the Panel was required to consid er the impact of marketing loan and counter-
cyclical payments on the prices of upland cotton on the world market. Brazil did not allege that
marketing loan and counter-cyclical payments to United States upland cotton farmers have a direct
impact on world market prices. Rather, these payments are alleged to have had an impact on farmers'
planting decisions and, consequently, on domestic upland cotton production levels. Thus, the analysis
should initially focus on the effects of the subsidi es on production levels by examining whether there
was more production than there otherwise would ha ve been as a result of the marketing loan and
counter-cyclical payments. It is the marginal production attributable to the marketing loan and
counter-cyclical payments that matters. If there were to be increased upland cotton production, the

752See Original Panel Report, para. 7.1280.
753Ibid., para. 7.1325.
754Ibid., para. 7.1329.
755Ibid., para. 7.1332. The Appellate Body did not disturb the original panel's analysis. (See Appellate
Body Report, US – Upland Cotton, paras. 429 ff)
756Panel Report, para. 10.46.
757Appellate Body Report, US – Upland Cotton, para. 433.

analysis would then focus on whether that increase in supply had effects on prices in the world
market. All else being equal, the marginal production attributable to the subsidy would be expected to
have an effect on world prices, particularly if the subsidy is provided in a country with a meaningful
share of world output.
356. Given the focus on production and price effects, an analysis of price suppression would
normally include a quantitative component. 758 There is some inherent difficulty in quantifying the
effects of subsidies, because, as we have indicated, the increase in prices, absent the subsidies, cannot
be directly observed. One way to undertake the analysis is to use economic modelling or other
quantitative techniques. These techniques can be used to estimate whether there are higher levels of
production resulting from the subsidies and, in turn, the price effects of that production. Economic
modelling and other quantitative techniques provide a framework to analyze the relationship between
subsidies, other factors, and price movements.
357. Brazil presented an economic simulation model before the Panel. The United States criticized
certain structural aspects of the economic simulation model presented by Brazil, as well as the
parameters used in that model. Instead of offering its own model, the United States ran Brazil's model
using its own preferred parameters. The results of both simulations were presented to the Panel. The
Panel provided an extensive discussion of the simula tions presented by both parties, the differences in
the parameters used by each, and the explanations provided by each party to justify their choice of
parameters.
759 It also described the resu lts of the various simulations. 760 The Panel concluded that
"all the simulations conducted by the parties support th e view that [United States] marketing loan and
counter-cyclical payments have led to an increase in [United States] producti on and exports of cotton
that have then suppressed world prices." 761 Because the examination of price suppression necessarily
involves an analysis of what would have been the case in the absence of an intervening event,
modelling exercises are likely to be an important an alytical tool that a panel should scrutinize. The
relative complexity of a model and its parameters is not a reason for a panel to remain agnostic about
them. Like other categories of evidence, a pane l should reach conclusions with respect to the

758The original panel stated that "the 'significance' of any degree of price suppression may vary from
case to case, depending upon the factual circumstances, and may not solely depend upon a given level of
numeric significance". It added that "[o]ther considerations, including the nature of the 'same market' and the
product under consideration may also enter into such an assessment, as appropriate in a given case." (Original
Panel Report, para. 7.1329 (footnote omitted); see also Appellate Body Report, US – Upland Cotton, para. 434)
These findings were not disturbed by the Appellate Body. (Appellate Body Report, US – Upland Cotton ,
para. 490)
759See Panel Report, paras. 10.197-10.222.
760The results are graphically set out in Figure 4 at ibid., para. 10.203.
761Ibid., para. 10.222.

probative value it accords to economic simulations or models presented to it. This kind of assessment
falls within the panel's authority as the initial trier of facts in a serious prejudice case.
358. In the present case, the Panel did not take a position on which parameters were more
appropriate to measure the effect of the subsidies at issue on prices, or the appropriateness of the
structure of the model itself. The Panel simply concluded that all simulations showed increases of
production and exports and the con sequential suppression of prices. While the Panel appropriately
examined the model, the parameters used by each party, and the arguments made by the parties
762, and
noted the different results generated by the simula tions conducted by each party, the Panel could have
gone further in its evaluation and comparative analys is of the economic simulations and the particular
parameters used.
359. We proceed to consider the specific aspects of the Panel's analysis challenged by the United
States, namely, the Panel's alleged failure to dete rmine the degree of price suppression it found to be
"significant", the Panel's non-attribution analysis, a nd the other allegations of error raised by the
United States.
2. The United States' Claim that the Pane l Failed to Determine the Degree of
Price Suppression It Found to Be "Significant"
360. The United States claims on appeal that the Panel failed to determine what degree of price
suppression was "significant"763, as required by Article 6.3(c) of the SCM Agreement.
361. The Panel adopted, as indicated, a "unitary" approach". It did not, as the original panel did,
separate its analysis into three steps to determ ine whether there was price suppression in the world
market for upland cotton, whether this price suppression was significant, and whether a causal
relationship existed between such signifi cant price suppression and the subsidies. 764 Rather, in
undertaking a unitary analysis, the Panel considered both quantitative and qualitative elements in its
assessment. It made a quantitativ e assessment of significance by ev aluating the magnitude of the
subsidies, the gap between United States upland co tton producers' revenues and costs of production,
the United States' share of world production and expo rts, and the economic simulations; and it made

762We note that in paragraph 10.198 of its Report, the Panel stated that it had considered "in some detail
the arguments made by the parties about the model, its assumptions and results" and that, to the extent possible,
it had "provided [its] assessment of these arguments, and based on that arrived at an overall conclusion about the
simulation results." However, its overall conclusion in paragraph 10.222 is limited to the consideration that "all
the simulations conducted by the par ties support the view that [United States] marketing loan and counter-
cyclical payments have led to an increase in [United States] production and exports of cotton that have then
suppressed world prices".
764See Panel Report, para. 10.46.

a qualitative assessment by evaluating the structure, design, and operation of the subsidies. The
adoption of a unitary approach, however, did not absolve the Panel from clearly explaining its
position on the question of "significance". The Pane l could have provided a clearer explanation of
how the factors that it examined supported its finding that the price suppression was "significant".
362. In our view, several of the factors evaluated by the Panel support the proposition that the
effect of the marketing loan and counter-cyclical payments is "significant" price suppression in the
world market for upland cotton. The Panel noted that there was some disagreement between Brazil
and the United States on the exact magnitude of the subsidies, particularly in relation to counter-
cyclical payments, with the United States' data showing lower payments than Brazil's data. 765 T h e
data submitted by the United States showed that ma rketing loan payments exceeded US$1.7 billion in
MY 2004, and US$1.2 billion in MY 2005. 766 The United States indicated that counter-cyclical
payments to upland cotton production exceeded US$800 million in MY 2004 and in MY 2005. 767 In
other words, the subsidies provided to upland cotton production under the marketing loan and
counter-cyclical payments programmes exceeded US $2 billion in both MY 200 4 and MY 2005. This
magnitude of the marketing loan and counter-cycli cal payments is significant not only in absolute
terms, but also as a share of Unite d States producers' total revenues. The Panel found, in this regard,
that "[t]he share of marketing loan payments an d counter-cyclical payments in total revenues of
[United States] upland cotton producers was 35 per cent in MY 2004 and 27 per cent in MY 2005."768
363. Although the Panel did not quantify the effect of these subsidies on upland cotton plantings
and production, it established that the marketing lo an and counter-cyclical payments "affect the level
of [United States] upland cotton acreage and produc tion as a result of their mandatory and price-
contingent nature and their revenue-stabilizing effect."769 Moreover, the Panel found that "there exists
a significant gap between the total costs of productio n of [United States] upland cotton producers and

765The Panel provided a table comparing the results of various calculations provided by Brazil and the
United States of the amounts of counter-cyclical payments to United States upland cotton producers. (See
Table 2A, Panel Report, para. 10.32)
766See ibid., para. 10.24, Table 1: Marketing Loan Payments, MY 2002-2005 (referring to data
provided by the United States in its response to Question 4 posed by the Panel, Panel Report, p. D-140,
para. 14).
767See ibid., para. 10.32, Table 2A: Counter-cyclical Payments (non-Annex IV Methodology),
MY 2002-2005 (referring to data provided by the United States in its response to Question 4 posed by the Panel,
ibid., p. D-141, para. 16).
768Ibid., para. 10.111. (footnote omitted)
769Ibid., para. 10.248. The United States has appealed the Panel's findings with respect to the "market-
insulating" effects of the marketing loan and counter-cyclical payments. The United States claims are examined
infra, para. 387. We uphold the Panel's findings.

their market revenue."
770 The gap between revenues and costs was found to exist in four of the five
years examined by the Panel, if ginning costs are in cluded in the calculation, or in three of the five
years, if ginning costs are excluded. 771 Costs exceeded market revenues by between 3.7 per cent
and 71.9 per cent, if ginning costs are included, or by 12.3 per cent and 83.6 per cent, if ginning costs
are excluded.772 The Panel reasoned in this regard:
[V]iewed together with other ev idence on the record, including the
fact that the adjusted world price in most recent years has been below
the marketing loan rate, the magnitude of the marketing loan and
counter-cyclical payments, the importance of these subsidies as a
share of the revenues of [United States] upland cotton producers and
their role in covering a significant part of the costs of production of
these producers, it is reasonable to conclude that without these
subsidies the level of [United States] upland cotton acreage and
production would likely be significantly lower.
773 (footnote omitted)
The effect of marketing loan and counter-cycli cal payments on production of upland cotton was
confirmed in the economic simulations conducted by the parties. Even when run using the parameters
that the United States considered to be appropria te, the simulation showed 12 per cent to 18 per cent
additional production of upland cotton due to marke ting loan and counter-cyclical payments in the
period MY 2002-2005.774
364. The Panel also found that "the United States exerts a substantial proportionate influence on
the world market for upland cotton". 775 According to the Panel, th e United States' share of world
upland cotton production was 19.6 per cent in MY 2002, 20.9 per cent in MY 2005, and was projected
to be 18.6 per cent in MY 2006. 776 The United States' share of world exports of upland cotton
was 39.9 per cent in MY 2002, 39.8 per cent in MY 2005, and was projected to be 36.3 per cent in
MY 2006.777 We understand the Panel's finding to imply that, given the United States' significant
shares of world exports and production, the incr eased production resulting from the marketing loan
and counter-cyclical payments would have an eff ect on the world market for upland cotton and would
be reflected in the world market price of upland cotton.

770Panel Report, 10.196. The United States has also challenged the Panel's assessment of the difference
between United States upland cotton producers' revenues and costs. These claims are addressed infra, para. 419.
We also uphold the Panel's findings in this regard.
771See ibid., paras. 10.189 and 10.190, Tables 6A and 6B.
772Ibid.
773Ibid., para. 10.104.
774See United States' first written submission to the Panel, Annex I, Table A8, p. 14.
775Panel Report, para. 10.58.
776See ibid., para. 10.58.
777Ibid.

365. The Panel found confirmation for this propos ition in the economic simulations. The
simulation with the parameters preferred by the Un ited States showed that the removal of marketing
loan and counter-cyclical payments would have increased the world price of upland cotton
by 1.41 per cent to 2.26 per cent in the period MY 2002-2005. 778 The simulation run with the
parameters suggested by Brazil showed that, in MY 2002-2005, the world price of upland cotton
would have been higher by 8.2 to 8.9 per cent in the absence of the marketing loan and counter-
cyclical payments.
779 The Panel further noted the significan ce of even relatively small changes in
price for commodity products such as upland cotton, endorsing the original panel's view that:
… for a basic and widely traded co mmodity, such as upland cotton, a
relatively small decrease or suppression of prices could be significant
because, for example, profit margins may ordinarily be narrow,
product homogeneity means that sales are price sensitive or because
of the sheer size of the market in terms of the amount of revenue
involved in large volumes traded on the markets experiencing the
price suppression.
780
The United States has not challenged the accuracy of th is statement. Thus, the range of price effects
resulting from the simulations would fall within the Panel's view of what constitutes "significant"
price suppression in the specific context of the world price of upland cotton.
366. Therefore, we find that the evidence on the r ecord supports the Panel's conclusion that the
effect of the marketing loan and counter-cyclical payments is "significant" price suppression, within
the meaning of Article 6.3(c) of the SCM Agreement.
3. Causation and Non-attribution
367. The United States submits that the Panel failed to conduct a proper non-attribution analysis
under Article 6.3(c) of the SCM Agreement , despite having recognized that it had an obligation to
do so.781 According to the United States, "[m]issing fro m the Panel's analysis was any discussion of
just how other factors, including China, actually played a role in establishing the world price for
upland cotton."782
368. The Appellate Body explained in the original proceedings that Articles 5 and 6.3 of the SCM
Agreement do not contain the more elaborate and precise "causation" and "non-attribution" language

778See Panel Report, para. 10.202.
779See ibid., para. 10.201.
781See United States' appellant's submission, para. 210.
782Ibid., para. 214.

found in the trade remedy provisions of the SCM Agreement.
783 This means that "a panel has a certain
degree of discretion in selecting an appropriate me thodology for determining whether the 'effect' of a
subsidy is significant price suppression". 784 In the original proceedings, the Appellate Body found
that the original panel's approach with respect to causation and non-attribution was similar to that
reflected in Appellate Body findings in the contex t of other WTO agreements, which defined a causal
link as involving "a genuine and substan tial relationship of cause and effect" 785 and required the non-
attribution of effects caused by other factors. The Appellate Body "agree[d] with the [original panel]
that it is necessary to ensure that the effects of ot her factors on prices are not improperly attributed to
the challenged subsidies", explaining that, "[i]f th e significant price suppression found in the world
market for upland cotton were caused by factors othe r than the challenged subsidies, then that price
suppression would not be 'the effect of' the challenged subsidies in the sense of Article 6.3(c)."786
369. The approach to causation and non-attributio n taken by the Panel in these Article 21.5
proceedings differs from the approach taken by the or iginal panel. In the original proceedings, the
panel's approach consisted of "exami n[ing] whether or not 'the effect of the subsidy' is significant
price suppression which [it had] found to exist in the same world market". 787 The original panel then
separately "consider[ed] the role of other alleged cau sal factors in the record before [it] which may
[have] affect[ed] [the] analysis of the causal link between the United States subsidies and the
significant price suppression." 788 The Panel in these Article 21.5 proceedings "adopted a 'but for'
approach to the question of whether the effect of [United States] marketing loan and counter-cyclical
subsidies to upland cotton producers is significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement".789 The Panel also considered that, having adopted a "but for"
approach, "it is not necessary in this respect to undertake a comprehensive evaluation of factors
affecting the world market price for upland cotton."790
370. We recall that "a panel has a certain degree of discretion in selecting an appropriate
methodology for determining whether the 'effect' of a subsidy is significant price suppression". 791
Articles 5(c) and 6.3(c) of the SCM Agreement do not exclude, therefore, that a panel could examine

783See Article 15.5 of the SCM Agreement. See also Article 3.5 of the Anti-Dumping Agreement and
Article 4.2(b) of the Agreement on Safeguards.
784Appellate Body Report, US – Upland Cotton, para. 436.
785Ibid., para. 438.
 786 Ibid., para. 437.
 788Appellate Body Report, US – Upland Cotton , para. 437 (quoting Original Panel Report,
para. 7.1346).
789Panel Report, para. 10.243.
790Ibid.
791Appellate Body Report, US – Upland Cotton, para. 436.

causation based on a "but for" approach. We have explained that a price suppression analysis is
counterfactual in nature. The Panel's choice of a "but for" approach reflects this. In consequence, the
Panel had to determine whether the world price of upland cotton would have been higher in the
absence of the subsidies (that is, but for the subsidies).
371. In the original proceedings, the Appellate Body observed that:
... the ordinary meaning of the transitive verb "suppress" implies the
existence of a subject (the challenged subsidies) and an object (in this
case, prices in the world market for upland cotton). This suggests
that it would be difficult to make a judgement on significant price
suppression without taking into account the effect of the subsidies.
The Panel's definition of price suppression, explained above, reflects
this problem; it includes the notion that prices "do not increase when
they otherwise would have" or "they do actually increase, but the
increase is less than it otherwise would have been". The word
"otherwise" in this context refers to the hypothetical situation in
which the challenged subsidies are absent. Therefore, the fact that
the Panel may have addressed some of the same or similar factors in
its reasoning as to significant price suppression and its reasoning as
to "effects" is not necessarily wrong.
792 (original emphasis; footnotes
omitted)
The Panel's choice of a "but for" approach, theref ore, is consistent with the definition of price
suppression endorsed by the Appellate Body in the or iginal proceedings, insofar as the counterfactual
determination of whether price suppression exists cannot be separated from the analysis of the effects
of the subsidies.
372. We note that Article 6.3(c) does not use the wo rd "cause" but, rather, provides that serious
prejudice may arise where "the effect of the subs idy is ... significant price suppression". The
Appellate Body stated in the origin al proceedings that the text of Article 6.3(c) nevertheless requires
the establishment of a causal link between th e subsidy and the significant price suppression. 793 We
agree that Article 6.3(c) requires the establishmen t of a causal link, but we observe that, while the
term "cause" focuses on the factors that may trigger a certain event, the term "effect of" focuses on the
results of that event. The effect—price suppressi on—must result from a chain of causation that is
linked to the impugned subsidy.
373. The United States has not appealed the Panel's choice of a "but for" approach per se. Instead,
the United States argues that the Panel erred in dec lining to carry out a comprehensive evaluation of
other factors affecting the world market price fo r upland cotton. According to the United States,

792Appellate Body Report, US – Upland Cotton, para. 433.
793See ibid., para. 435.

"[t]he very use of a but-for analysis ... requires th e Panel not to attribute effects to [United States]
payments that they are not having."
794
374. The Panel does not clearly articulate the standard implicated in its "but for" approach. Brazil
submits that the Panel's "but for" standard "effectively isolated the effects of [United States]
subsidies from the effects of other factors." 795 New Zealand asserts that the Panel's finding—that
without the United States subsidies the price of upland cotton would be higher—"stands independent
of any other global factors that might also be suppressing world market prices". 796 T h i s m a y
somewhat oversimplify the position. A subsidy may be necessary, but not sufficient, to bring about
price suppression. Understood in this way, the "but for" test may be too undemanding. By contrast,
the "but for" test would be too rigorous if it required the subsidy to be the only cause of the price
suppression. Instead, the "but for" test should determine that price suppression is the effect of the
subsidy and that there is a "genuine and substantial relationship of cause and effect".
797
375. The United States argues that the Panel was re quired to conduct a non-attribution analysis as
part of its "but for" approach. While we agree th at Article 6.3(c) requires the Panel to have ensured
that the effects of other factors on prices did not di lute the "genuine and substantial" link between the
subsidies and the price suppression, Article 6.3(c) leaves some discretion to panels in choosing the
methodology used for this assessment. In the light of this flexibility, it would not have been improper
for the Panel to have assessed the effect of other f actors as part of its counterfactual analysis, rather
than conducting a separate analysis of non-attribution. In our view, the Panel's "but for" standard,
understood as we have set out above, is permissible under Article 6.3(c) of the SCM Agreement, and it
is consistent with the Panel's counterfactual analysis of price suppression.
376. The United States relied upon only one other fa ctor that it considered required a non-
attribution analysis. That factor is China's role in the upland cotton market. The Panel considered
that "based on the evidence before it, ... while China may play a si gnificant role in the market for
upland cotton, this does not diminish the significance of the impact of [United States] subsidies on the
world price for upland cotton as a result of their effect on [United States] supply to the world
market".798 It further noted that "[d]evelopments concerning the role of China's demand and supply

795Brazil's appellee's submission, para. 921. (original emphasis)
796New Zealand's third participant's submission, para. 4.25.
797Appellate Body Report, US – Upland Cotton , para. 438 (quoting Appellate Body Report, US –
Wheat Gluten, para. 69).
798Panel Report, para. 10.243.

do not change the fact that, with a share of world exports of around 40 per cent, the United States is
capable of exerting a substantial proportionate influence on the world market".799
377. The United States asserts that China is "one of the most important 'other' factors influencing
the world price of upland cotton." 800 According to the United States, China is "the world's largest
producer of upland cotton, the world's largest cons umer of upland cotton and world's largest importer
of upland cotton" with "its share of world im ports rising from only 1% in MY 1998 to 44% in
MY 2005".801 The United States also asserts that "downward pressure on cotton prices may also have
resulted from uncertainty over China's supply and demand statistics, as well as ad hoc changes to
government policies."802
378. As we review the United States' arguments, we have considerable difficulty understanding
how China's increasing consumption and imports of cotton could have contributed to the suppression
of the world price of cotton. To the contrary, the additional demand from China's imports would have
been likely to contribute positively to world prices. We are also not persuaded that the United States
has established how uncertainties over China's supply and demand statistics and ad hoc changes in
government policies have contributed to price suppression. In both cases, the United States asserts
that China has an impact on world upland cotton pr ices, but fails to demonstrate how China's role
impacts negatively on world prices. The United States relies on a report of the International Cotton
Advisory Committee, which notes that "uncertain ties regarding statistics on cotton production,
consumption, and stocks" make it "difficult to est imate the gap between supply and use in China ...,
and therefore to predict the level of Chinese imports from one season to another", and that the "timing
and amount of import quotas released by China ... has t hus become precious information to evaluate
the need for cotton by Chinese mills." 803 The report further suggests that "the lack of information
about the future releases of these import quot as may contribute to pushing prices downward". 804
However, the same report is unambiguous about th e general overall effect of China on the price of
cotton, stating that, "[i]n the past 25 years, significant increases in Chinese imports resulted in hikes in
international cotton prices". 805 Moreover, the evidence submitted by the United States suggests that
uncertainty about China's demand may cause pri ce volatility in the world upland cotton market.

799Panel Report, para. 10.243.
800United States' appellant's submission, para. 211. In its appellant's submission, the United States
sometimes refers to "other factors", in the plural. However, it only makes arguments on the role of China.
801Ibid.
802Ibid., para. 212.
803United States' first written submission to the Panel, para. 315 (quoting International Cotton Advisory
Committee (ICAC) Report, p. 7 (Exhibit Bra-485 submitted by Brazil to the Panel, supra, footnote 131).
804Ibid. (emphasis added by United States omitted)
805Ibid.

However, we are not persuaded that the evidence of volatility demonstrates prima facie that Chinese
consumption of cotton and policies have a suppressi ng effect on the price of upland cotton in the
world market. The effects of volatility appear to be inconclusive. Therefore, while the Panel agreed
with the United States that "China may play a significant role in the market for upland cotton"
806, it
properly concluded that this does not diminish price suppressing effects of marketing loan and
counter-cyclical payments.
379. For these reasons, we find that the Panel did not e rr in finding that the role of China's trade in
cotton "does not attenuate the link between significa nt price suppression and the subsidies at issue in
this proceeding".
807
380. The United States also argues that the Panel faile d to make an objective assessment of the
matter, as required by Article 11 of the DSU, by disregarding evidence that the United States had
submitted that was relevant to the non-attribution analysis, and by failing to provide a reasoned and
adequate explanation for its conclusions in the light of possible alternative explanations.808
381. We have found that the Panel's finding concerni ng the role of China is not inconsistent with
Article 6.3(c) of the SCM Agreement. We disagree with the assertion by the United States that the
Panel "ignored completely, and never took into account" 809, evidence concerning the role of China
submitted by the United States. 810 Although its analysis of China's role may be succinct, the Panel
considered, " based on the evidence before it , that while China may play a significant role in the
market for upland cotton, this does not diminish the significance of the impact of [United States]
subsidies on the world price for upland cotton as a r esult of their effect on [United States] supply to
the world market."811 Moreover, we stated above that the evidence submitted by the United States on
the role of China in the world cotton trade does not establish that China is a factor that contributes to
the suppression of world upland cotton prices. We do not believe, therefore, that the Panel was
required to conduct a more thorough analysis of the role of China in the light of the evidence

806Panel Report, para. 10.243.
807Ibid., para. 10.252.
808See United States' appellant's submission, para. 243.
809Ibid.
810Brazil argues that the United States should have raised this claim under Article 12.7 of the DSU. We
are not persuaded by the argument put forward by Brazil that such a claim should have been raised under
Article 12.7 of the DSU and that, as it was not, it should fail for that reason. We recall that Article 12.7 requires
panels to set out the findings of fact, the applicability of relevant provisions, and the basic rationale behind any
findings and recommendations it makes.
811Panel Report, para. 10.243. (emphasis added)

submitted by the United States. In our view, theref ore, the Panel did take into account the evidence
submitted by the United States on the role of China and properly reached the conclusion that China's
role in the world cotton trade did not impact negati vely on world upland cotton prices. For the same
reasons, we also do not believe that the Panel faile d to provide a "reasoned and adequate explanation"
for its conclusions in the light of "possible alternative explanations" 812, as alleged by the United
States.813
4. Other Allegations of Error Raised by the United States
(a) Standard of Review
382. The United States claims that the Panel erred in its evaluation of the various elements, which
supported its finding that marketing loan and co unter-cyclical payments cause significant price
suppression. In particular, the United States asserts that the Panel erred: (i) in finding that marketing
loan and counter-cyclical payments insulated Un ited States producers of upland cotton from market
signals; (ii) in finding that there was a significant gap between the total costs of production of United
States upland cotton producers and th eir market revenues; (iii) in its evaluation of the economic
simulations conducted by the parties; (iv) in its ev aluation of the impact of the withdrawal of Step 2
payments; and (v) in its assessment of the magn itude of the marketing loan and counter-cyclical
payments and the alleged substantia l proportionate influence of the United States in the world upland
cotton market.
383. Before turning to the arguments raised by the United States, we address the preliminary
question of the applicable standard of review, bearing in mind that, with respect to some of these
claims, the United States has challenged the Pane l's findings under both Article 6.3(c) of the SCM
Agreement and Article 11 of the DSU.
384. We recall that, in the original dispute, the Appellate Body stated:
Pursuant to Article 17.6 of the DSU, appeals are "limited to issues of
law covered in the panel report and legal interpretations developed by
the panel". To the extent that th e United States' arguments concern
the Panel's appreciation and weighing of the evidence, we note from
the outset that the Appellate Body will not interfere lightly with the
Panel's discretion "as the trier of facts". At the same time, the
Appellate Body has previously poin ted out that the "consistency or
inconsistency of a given fact or set of facts with the requirements of a
given treaty provision is ... a lega l characterization issue". Whether
the Panel properly interpreted the re quirements of Article 6.3(c) of

812See Appellate Body Report, US – Lamb, para. 106.

the SCM Agreement and properly applied that interpretation to the
facts in this case is a legal question. This question is different from
whether the Panel made "an objective assessment of the matter
before it, including an objective asse ssment of the facts of the case",
in accordance with Article 11 of the DSU.
814 (footnotes omitted)

385. The United States has characterized its appeal under Article 6.3(c) of the SCM Agreement as
one relating to the Panel's application of the law to the facts, although it has also brought some claims
under Article 11 of the DSU that challenge the objectivit y of the Panel's assessme nt of the facts. We
recognize that the boundary between an issue that is purely factual and one that involves mixed issues
of law and fact is often difficult to draw. However, we consider that many of the United States'
claims against the Panel's evaluation of the elem ents supporting its finding of significant price
suppression are primarily directed at the Panel's a ppreciation and weighing of the evidence, and the
inferences that the Panel drew from the evidence, both of which fall within its authority that is
recognized under Article 11 of the DSU.
815 Therefore, we shall review those claims and arguments
raised by the United States concerning the applicati on of the law to the facts under the legal standard
of Article 6.3(c) of the SCM Agreement , and those claims and argum ents concerning the Panel's
appreciation and weighing of the evidence under Article 11 of the DSU.
386. The United States claims that, in its finding of significant price suppression, the Panel relied
excessively on the findings in the origin al panel and Appellate Body reports. 816 A s t h e P a n e l
recognized, the Appellate Body has stated that proceedings under Article 21.5 of the DSU do not
occur in isolation, but are part of a "continuum of events" 817, and "doubts could arise about the
objective nature of an Article 21.5 panel's assessment if, on a specific issue, that panel were to deviate
from the reasoning in the original panel report in the absence of any change in the underlying
evidence in the record". 818 Thus, in this case, it was appropria te for the Panel to have relied on the
findings from the original proceedings unless "any ch ange in the underlying evidence in the record"
would have justified departing from them. It is undisputed "that the conditions of application of the
marketing loan and counter-cyclical payments, as de fined in the relevant provisions of the FSRI Act
of 2002, are the same at present as when th e original panel analyzed these measures." 819 On appeal,
however, the United States asserts that "[t]he fact s in the original proceeding and this compliance
proceeding vary in fundamental ways which make unsupportable the Panel's reliance on the original

814Appellate Body Report, US – Upland Cotton, para. 399.
815See Appellate Body Report, EC – Sardines, para. 299.
816See United States' appellant's submission, para. 135.
817Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 121.
818Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 103.
819Panel Report, para. 10.71.

panel and Appellate Body reports on issues related to market insulation." 820 According to the United
States, this is so because the DSB's recommendations and rulings related to a package of payments
that included Step 2 payments, which have been repealed. 821 We note that the Panel specifically
addressed the repeal of Step 2 payments and anal yzed the impact of the elimination of these
payments, an issue to which we return below. 822 As regards marketing loan and counter-cyclical
payments, the Panel concluded that "[n]othing in the facts presented ... in this proceeding would
appear to warrant a conclusion different from the conclusion drawn by the panel and the Appellate
Body in the original proceeding".823
(b) Market Insulation
387. The United States claims that the Panel erred in finding that marketing loan and counter-
cyclical payments insulated United States pr oducers of upland cotton from market signals. 824 I n
particular, the United States challenges the Panel' s evaluation of upland cotton producers' planting
decisions825; the Panel's assessment of the economic studies submitted by the parties about the impact
of counter-cyclical payments on production 826; and the Panel's analysis of the relationship between
upland cotton base acres and production.827 The United States also argues that the Panel made several
findings that contradict its conclusion that marke ting loan and counter-cyclical payments insulated
United States producers of upland cotton from market signals.828 Finally, the United States challenges
the Panel's alleged failure to determine the degr ee of market insulation and the degree of production
effects related to that insulation.829

820United States' appellant's submission, para. 136. The United States adds:
Neither the original panel nor the A ppellate Body addressed the precise
serious prejudice claims that Brazil made before the Panel. The findings
and recommendations of the original panel and Appellate Body, and the
recommendations and rulings of the DSB, related to the package of Step 2,
market loss assistance, marketing loan, and counter-cyclical payments made
in MY 1999-2002. The compliance proceeding pertained to marketing loan
payments and counter-cyclical payments made in MY 2006. Whether these
payments insulated [United States] upl and cotton producers, and ultimately,
whether they caused significant price suppression, was a question of first
impression, which involved the consid eration of new evidence on market
conditions and producers' expectations.
(Ibid. (footnotes omitted))
821See United States' appellant's submission, para. 136.
822See infra, para. 436.
823Panel Report, para. 10.82.
824See United States' appellant's submission, para. 132.
825See ibid., para. 134.
826See ibid., paras. 144 and 145.
827See ibid., para. 154.
828See ibid., para. 157.
829See ibid., para. 164.

388. Before examining the specific arguments raised by the United States, we note that the Panel
did not examine whether marketing loan or counter-c yclical payments, "taken individually, [were] a
cause of significant price suppression", nor did the Panel "pronounce on the relative importance of
each of these subsidies in causing significant price suppression".
830 Instead, the Panel "conduct[ed] an
examination of the collective effects of the marketing loan and counter-cyclical payments".831
(i) Factors Relevant to Planting Decisions
389. The United States submits that the Panel "did not adequately take into account all factors
relevant to producers' planting decisions" 832, and, instead, placed "excessive reliance" on the findings
from the original proceedings. 833 We have determined that the Panel did not improperly rely on the
findings from the original proceedings, considering th at the conditions of application of the marketing
loan and counter-cyclical payments are the same as when the original panel analyzed these measures.
390. The United States points to several elements th e Panel allegedly failed to take into account,
which show that "[United States] producers looked to other factors, aside from the expected price of
upland cotton, and responded to them as the market would predict." 834 First, the United States asserts
that "in MY 2003-2007, producers' decisions on pl anting [upland] cotton were consistent with
expectations concerning the costs and revenues of competing crops." 835 We observe that the United
States' argument regarding competing crops was examined by the Panel, albeit in a separate section of
its report. 836 The Panel dismissed the relevance of the data submitted by the United States on the
relationship between cotton and soybean prices:
The Panel notes, in this regard, that the ratio of cotton futures prices
to soybean futures prices and [United States] cotton planted acreage
only moved in the same direction in MY 2006. In MY 2003, the
ratio of cotton futures prices to soybeans futures prices increased
sharply while cotton planted acreage declined. The ratio decreased in
both MY 2004 and MY 2005, while planted acreage increased in
both years. Thus, even if we agree with the argument of the United
States that futures prices of altern ative crops to cotton need to be
taken into account, the data does not support an important role for
this ratio of cotton futures prices to soybeans futures prices.
837

830Panel Report, para. 10.51.
831Ibid., para. 10.51.
833See ibid., para. 135.
834Ibid., para. 140.
835Ibid.
836See Panel Report, Section X.B.7, dealing with the alleged link between high levels of United States
subsidies and high levels of United States planted acreage, production and exports.
837Ibid., para. 10.124.

391. The fact that "the relationship of [United St ates] planted acreage to the soybean and cotton
futures ratio did move in the same direction" 838 in MY 2006 is, in our view, insufficient to rebut the
data from other years in which such relationship m oved in opposite directions, or the other evidence
on which the Panel relied. 839 The United States also asserts that , in MY 2005, there was a shift from
soybean to cotton production "due to concerns about an outbreak of Asian soybean rust in
MY 2004."840 A USDA document cited by the United States in support of this argument indicates that
the gains in upland cotton planted acres only "partly" 841 reflected the impact of Asian rust. Moreover,
we observe that, while the United States provides fra gmentary evidence as to the impact of the price
of competing crops on upland cotton planting decisi ons, it does not provide a systematic account of
substitutability between upland cotton and other crops.
392. The United States' argument appears to focus on the short-term impact of marketing loan
payments, that is, on how they affect year-to-year planting decisions. However, nothing in
Article 6.3(c) of the SCM Agreement suggests that the examination of the effect of a subsidy must
focus exclusively on the short-term perspective. Whether production of a particular product is higher
than it would have been in the absence of the subsid y is often a critical issue in establishing whether
the effect of the subsidy is significant price suppres sion. In our view, the effect of a subsidy on
production can also be assessed on the basis of a long-term perspective that focuses on how the
subsidy affects decisions of producers to enter or ex it a given industry. The Panel considered, in this
regard, that "the evidence on the record, notably the evidence regarding the role of marketing loan and
counter-cyclical payments in covering the differenc e between the market revenue of [United States]
upland cotton producers and their costs of productio n, supports the view that these subsidies have a
long-term impact on acreage and production of upland cotton by affecting decisions of [United States]
cotton farmers to enter or exit cotton farming."842
393. Secondly, the United States refers to "survey evidence of MY 2007 upland cotton planting
intentions, showing that [United States] producer s intended to pull back on their upland cotton
plantings".843 As the United States recognizes 844, the Panel examined this survey in its analysis of the

838United States' appellant's submission, footnote 157 to para. 140.
839The United States also submits that the comparison it submitted of planted upland cotton acreage to
the ratio of soybean and cotton future prices was a simplified analysis, a nd that other crops and extraneous
factors could, and did, influence farmers' decisions. ( Ibid.) Given that this point was offered by the United
States in rebuttal, we consider that it bears the responsibility for any limitations in the evidence that it presented.
840Ibid., para. 140.
841Cotton and Wool Situation and Outlook Yearbook (November 2005) (Exhibit Bra-448 submitted by
Brazil to the Panel), p. 2 (quoted in United States' first written submission to the Panel, para. 234).
842Panel Report, para. 10.83.
844See ibid.

impact of the elimination of Step 2 payments, i ndicating that the reduction of plantings would be
"consistent" with the argument that the elimination of that programme is having an effect. Thus, as
we see it, the decline in plantings in MY 2007 could be, at least in part, explained by the fact that
Step 2 payments were no longer available, and does not demonstrate that marketing loan and counter-
cyclical payments do not "insulate" producers from market signals.
394. In addition, the United States submits that th e Panel erred by failing to evaluate whether
producers actually expected that harvest prices woul d be below the marketing loan rate in MY 2006
or in any other year.
845
395. The Panel, like the original panel, considered that the marketing loan payments operate as a
safety net, stabilizing producers' revenue and influenc ing producers' decisions regardless of the level
of expected prices. This is so because, at the time of planting, upland cotton producers know they will
receive a payment should the actual harvest price be below the loan rate. We find no flaws with this
logic. Furthermore, we do not see why the Panel was required to establish whether producers, in fact,
expected harvest prices to fall below the loan rate. In any event, the Panel observed that "in most
recent years actual market prices have been lower th an expected market prices at the time of planting
and ... the adjusted world price has been below the marketing loan rate".
846 In our view, it is not
unreasonable to assume that producers were aware of these historical trends and that, on this basis,
they would have expected to receive a payment in the event that the price fell below the loan rate,
even when the expected price was above the loan rate.
396. We further observe that some of the United States' arguments seem to be premised on a
particular understanding of the Pane l's finding: that marketing loan and counter-cyclical payments
completely insulate United States producers from other factors that may affect planting decisions. We
do not consider that the Panel adopted such a rigid vi ew of market insulation. Instead, we understand
the Panel to have taken the position that marketi ng loan and counter-cyclical payments make United
States upland cotton producers less responsive to other factors that affect planting decisions. This is
evident from the Panel's finding that "the degree of price insulation that the original panel found is

845The United States focuses on the following statement of the Panel:
[E]ven if expected market prices at the time of planting are higher than the
marketing loan rate and producers do not expect to receive marketing
payments at that time, the availability of marketing loan payments can be
considered to influence planting deci sions. While [United States] upland
cotton producers may be uncertain at the time of planting as to whether
actual harvest prices will be below the marketing loan rate, there is no
uncertainty as to the fact that, if actual harvest prices are below the
marketing loan rate, they will receive marketing loan payments.
846Ibid., para. 10.81.

now weaker".847 Moreover, the Panel referred to the origin al panel's description of price-contingent
subsidies (which include marketing loan and count er-cyclical payments) as "numbing the response of
United States producers to production adjustment decisions when prices are low". 848 The use of the
term "numbing" also suggests that the Panel intended "market insulation" to mean "lower
responsiveness" rather than complete insulation. While the Panel clearly took into account the new
evidence submitted by the parties, it did not find that market insulation was reduced to such an extent
that subsidies would no longer have an effect on the production and prices of upland cotton.
397. Turning to the structure, design, and operation of marketing loan payments, the Panel made a
comprehensive assessment of the arguments and the evidence before it. The Panel referred to the
findings made in the original proceedings, which was the proper thing for it to do considering that
Article 21.5 and original proceedings are part of a "continuum of events" 849 and that the programs
authorizing marketing loan payments remained unc hanged. More importantly, it is clear from the
Panel Report that the Panel examined the new argu ments and evidence submitted by the parties. For
instance, the Panel examined upland cotton pri ce patterns from the most recent years before
concluding that the relationship found by the origin al panel between (higher) expected harvest prices
and (lower) actual prices has not changed.850
398. For these reasons, we do not consider that the United States has demonstrated that the Panel
improperly relied on the conclusions from the original proceedings or failed to take into account other
factors that may have influenced producers' plan ting decisions. We recall that, in the original
proceedings, in addressing the appeal by the United States relating to the specific reasons behind the
original panel's conclusions that the effect of the price-contingent subsidies was significant price
suppression within the meaning of Article 6.3(c) of the SCM Agreement, the Appellate Body noted:
The way in which United States upland cotton farmers make
decisions relating to the production of upland cotton, and the basis on
which they make such decisions, are factual matters that fall within
the Panel's task of weighing and assessing the relevant evidence, and
we will not review these matters. However, in our view, the
application of the legal requirements of Article 6.3(c) to the facts
determined by the Panel falls within the scope of appellate review.
851
399. The United States also claims, unde r Article 11 of the DSU, that the Panel failed to carry out
an objective assessment of the f acts, because it disregarded the ne w evidence submitted by the United

847Panel Report, para. 10.127.
849Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 121.
850See Panel Report, paras. 10.80 and 10.81.
851Appellate Body Report, US – Upland Cotton, para. 441.

States on producers' expectations and competing cr ops; relied exclusively on findings from the panel
and the Appellate Body in the original proceedings ; and failed to provide a reasoned and adequate
explanation for its conclusions in the light of plausible alternative explanations.
852 In our view, the
Panel did not fail to analyze the new evidence a nd arguments submitted by the United States, nor did
it, in the light of the reasons given above, re ly excessively on the findings from the original
proceedings. For these reasons, we do not believe that the Panel failed to carry out an objective
assessment of the facts, as required by Article 11 of the DSU.
(ii) Studies on the Production Impact of Counter-cyclical
Payments
400. Next, the United States challenges the Panel's evaluation of certain studies853 submitted by the
parties on the effects of counter-cyclical payments on plantings and production. 854 The United States
argues that the Panel downplayed and improperly interpreted the studies submitted by the United
States855 and that it "did not even address the shortc omings of the research submitted by Brazil."856 In
our view, the United States is asking us to revi ew the Panel's appreciati on and weighing of these
studies, which is a matter that was within the Panel's authority as the trier of facts. It is evident from

852See United States' appellant's submission, paras. 232 and 233.
853The following studies were submitted by the United States: B. Goodwin and A. Mishra, "Another
Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments" (2005) 87(5) American
Journal of Agricultural Economics 1200 (Exhibit US-41 submitted by the United States to Panel); W. Lin and
R. Dismukes, "Supply Response Under Risk: Implications for Counter-cyclical Payments' Production Impacts"
(2005) 29(1) Review of Agricultural Economics 64 (Exhibit US-85 submitted by the United States to the Panel);
W. Lin and R. Dismukes, "Risk Considerations in Supply Response: Implications for Counter-Cyclical
Payments' Production Impact," Selected Paper, American Agricultural Economics Association (July 2005)
(Exhibit US-34 submitted by the United States to the Panel); P.A. Westcott, "Counter-Cyclical Payments Under
the 2002 Farm Act: Production Effects Likely to be Limited" (2005) 20(3) Choices (a publication of the
American Agricultural Economics Association) p. 201 (Exhibit US-35 submitted by the United States to the
Panel); C.E. Young, A. Effland, P.A Westcott, and D. Johnson, "US Agricultural Policy: Overview and Recent
Analyses", presented at the 93rd seminar of the European Association of Agricultural Economists, "The Impacts
of Decoupling and Cross Compliance on Agriculture in the Enlarged EU " held on 22-23 September 2006 in
Prague, Czech Republic (Exhibit US-40 submitted by th e United States to the Pane l); Abler and Blandford
study, Exhibit US-32 submitted by the United States to the Panel, supra, footnote 98).
The following studies were submitted by Brazil: B. Goodwin and A. Mishra, "Are 'Decoupled' Farm
Payments Really Decoupled? An Empirical Evaluation" American Journal of Agricultural Economics (Exhibit
Bra-618 submitted by Brazil to the Panel); N. Key, R. Lubowski and M. Roberts, "Farm-Level Production
Effect From Participation in Government Commodity Programs: Did the 1996 Federal Agricultural
Improvement and Reform Act Make a Difference?" (2005) 87(5) American Journal of Agricultural Economics
1211 (Exhibit Bra-566 submitted by Brazil to the Panel); C.R. McIntosh, J.F. Shogren, and E. Dohlman,
"Supply Response to Counter-Cyclical Payments and Base Acre Updating under Uncertainty: An Experimental
Study" American Journal of Agricultural Economics (Exhibit Bra-565 submitted by Brazil to the Panel);
E.J. O'Donoghue and J. Whitaker, "How distorting are direct payments?", paper prepared for presentation at
the 2006 American Agricultural Economics Association in Long Beach, California (Exhibit Bra-568 submitted
by Brazil to the Panel).
854See United States' appellant's submission, para. 145.
856Ibid., para. 153.

the Panel Report that the Panel carefully reviewed the studies submitted by both parties and reached
its own conclusions as to the meaning and signifi cance of these studies for the present dispute. It
found that the studies were of "somewhat limited relevance", because none of them "specifically
analyzes the experience with counter-cyclical payments to growers of upland cotton". 857 The Panel
also found that all of the studies concurred that counter-cyclical payments can or may have production
effects, because they increase wealth and reduce risk aversion, thus leading farmers to increase
production.858
401. As we indicated earlier, the Panel did not assess whether counter-cyclical payments, taken
individually, were a cause of significant price suppression but, rather, conduc ted "an examination of
the collective effects of the marketi ng loan and counter-cyclical payments". 859 Therefore, the Panel's
evaluation of the production effects of counter-cycli cal payments must be understood in the light of
the collective assessment of the two subsidy measures.
402. The Panel observed that the studies submitted by the United States examine other types of
payments programmes (such as production flexibility contract payments), or examine counter-cyclical
payments provided to producers of crops other than upland cotton (such as corn, wheat, and soybean).
The Panel noted that some of the studies that exam ined the effects of counter-cyclical payments on
plantings of other crops did not carry out an empirical analysis of their effects but, rather, are surveys
of other studies. In addition, the Panel pointed out that there was "some variation in the type and
quality of the studies: some are published or slated to be published in academic journals while others
are articles in newsletters or unpublished manuscripts". 860 The Panel considered that the studies
submitted by Brazil suffered from similar shortcomings.
403. The United States also claims, unde r Article 11 of the DSU, that the Panel failed to carry out
an objective assessment of the facts, because it wilf ully distorted and misrepresented the meaning of
the economic studies submitted by the United States on the effects of counter-cyclical payments on
production, and failed to provide a reasoned and adequate explanation for its conclusions in the light
of plausible alternative explanations. 861 The Panel relied on the new studies on counter-cyclical
payments submitted by the parties only "insofar as they provide new information [that was] not
available to the original panel reflecting the experience with the operation of counter-cyclical

857Panel Report, para. 10.91.
858Ibid., para. 10.92.
859Ibid., para. 10.51.
860Ibid., paras. 10.91 and 10.92.
861See United States' appellant's submission, para. 234.

payments to upland cotton."
862
404. In our view, the arguments presented by the United States do not succeed in demonstrating
that the Panel erred in its evaluation of the economic studies submitted by the United States on the
effects of counter-cyclical payments on producti on. To the contrary, the Panel made a careful
evaluation of the studies. For this reason, we do not consider that the Panel wilfully distorted and
misrepresented the studies submitted by the United St ates on counter-cyclical payments, nor that it
failed to provide a reasoned and ad equate explanation for its conclusions in the light of plausible
alternative explanations. The fact that the Pane l accorded to the studies a different meaning and
weight than did the United States does not constitute a failure to make an objective assessment of the
matter under Article 11 of the DSU.
405. The United States also argues that the Panel erred in finding that "a strongly positive
relationship exists between recipients of upla nd cotton counter-cyclical payments who hold upland
cotton base acres and those who continue to plant upland cotton" because it "never actually tested the
strength of the relationship between payments and plantings in order to conclude that the former was
driving the latter." 863 The Panel based this finding on da ta which showed that, in MY 2005,
95 per cent of cotton acreage was planted on farms that held upland cotton base acres and
that 83 per cent of cotton planted acreage corres ponded directly to cotton base acres eligible for
counter-cyclical payments.864 We note that the United States does not question the accuracy of these
data, although it disagrees with the conclusions the Panel reached based on the data. With respect to
the United States' argument that 40 per cent of upland cotton base acres are not currently planted to
upland cotton, the Panel found that "[United St ates] upland cotton base acres are not a reliable
measure to compare to annual [United States] upland cotton acreage" 865, considering that total base
acres have been historically higher than total pro duction. The Panel explained that, when given an
opportunity to update their base acres, only those farmers producing more than in the past have
elected to update, while those producing less declined to do so.866
406. We see nothing improper in the Panel's reasoning that the fact that 83 per cent of cotton
planted acreage corresponded directly to upland cotton base acres supports the conclusion that a

862Panel Report, para. 10.90.
865Ibid., footnote 341 to para. 10.97.
866Relying on an argument made by Brazil, the Panel noted that the high level of upland cotton base
relative to production reflects the fact that with consecu tive base updates, United States farms elected to update
only if that would increase their high payment upland cotton base, while they declined to update if this would
have decreased upland cotton base in favour of a lower payment crop base. (Ibid., footnote 341 to para. 10.97)

strongly positive relationship exists between recipi ents of upland cotton counter-cyclical payments
who hold upland cotton base acres and those who continue to plant upland cotton. In any event, we
consider that, on this issue, the United States is essentially challenging the inferences drawn by the
Panel from the evidence before it, and this is a matte r that was within the Panel's authority as the trier
of facts. We note that the United States did not raise a claim under Article 11 of the DSU on this
issue.
(iii) The Panel's Alleged Contradictory Findings
407. Next, the United States argues that the Panel "made several findings that contradict its
ultimate conclusion that marketing loan and count er-cyclical payments insulated [United States]
producers of upland cotton from market prices."867
408. First, the United States refers to the Panel's findi ng that "[t]he fact that the [United States']
share of production and exports has remained relatively constant in MY 2002-2005 suggests to us that
[United States] producers have increased production and exports in proportionately the same way as
foreign producers." 868 The United States submits that, "[i]f the [United States'] share of world
production and exports was stable, and if [United States] producers acted in much the same way as
those in other countries, then the Panel could not rationally have found that [United States] payments
insulated [United States] producers to any meaningful degree."869 The Panel did not disregard the fact
that the United States ' market share of world upland cotton production had remained stable in
MY 2002-2005. The Panel specifically addressed this i ssue and noted that "the stable [United States]
share of world production and exports does not mean an absence of insulation of [United States]
producers from market price signals."
870 Rather, it means that "the degree of price insulation that the
original panel found is now weaker possibly b ecause prices are not as depressed as during the period
examined by the original panel." 871 The Panel further explained that "insulation of [United States]
producers from market price signals applies in partic ular when expected prices are below intervention
levels", and that it is "less wh en expected cotton prices are above their intervention levels". 872
Therefore, we do not consider that the Panel "overlooked" 873 its own findings in this regard. Its
conclusions do not lack a rational basis, nor are they contradictory.

868Panel Report, para. 10.127.
870Panel Report, para. 10.127.
871Ibid.
872Ibid.

409. Secondly, the United States refers to the Panel' s finding that "Brazil's claim of insulation of
[United States] producers from market price signals applies in particular when expected prices are
below their intervention levels. ... However, the degree of insulation is less when expected cotton
prices are above their intervention levels. In such a situation, [United States ] cotton producers
should respond to higher expected cotton prices much in the same way as foreign cotton
producers."
874 The United States points out that it demonstrated to the Panel that, "in MY 2006, the
year relevant to the analysis of 'present' signifi cant price suppression, the e xpected market price of
upland cotton was above the marketing loan rate" 875 and, thus, "[a]ccording to the Panel's own logic,
[United States] producers should have responded just as foreign producers did, a fact proven by the
existence of stable [United States] shares of world upland cotton production and exports."876
410. We note that, while the United States' share of world upland cotton production remained
stable in MY 2002-2005, the United States has been providing subsidies to upland cotton over a long
period of time. Therefore, the fact that its shar es of world upland cotton production remained stable
over a three-year period is not necessarily indicative of a reduction in the market insulating effects of
the subsidies.
411. Contrary to the United States' assertion, the Pa nel did take into account the fact that, in
MY 2006, the expected market price of upland cotto n was above the marketing loan rate. The Panel
stated that:
... the fact that [United States] co tton producers know that they will
receive marketing loan payments wh enever the adjusted world price
is below the marketing loan rate c ontinues to be an important factor
affecting the level of acreage plante d to cotton (and thus the level of
production), even when, a s i n M Y 2 0 0 6, the expected market price
for upland cotton at the time of pl anting is higher than the marketing
loan rate.877 (emphasis added)
Thus, the Panel considered that, even when expected prices were higher than the marketing loan rate,
the availability of marketing loan payments affected plantings.
412. Moreover, in the statement to which the Un ited States draws attention, the Panel
acknowledges that "the degree of insulation is less when expected cotton prices are above their

added by the United States)
875Ibid. The United States explains that it also showed a similar pattern in MY 2003 and MY 2004. In
MY 2005, where expected prices were below the marketing loan rate, the United States explained that other
factors drove planting decisions. (Ibid., footnote 192 to para. 161)
876Ibid., para. 161.
877Panel Report, para. 10.81.

intervention levels".878 The Panel was not suggesting that there would be no insulation when expected
prices are higher than the marketing loan rate but, rather, that such insula tion would be of a lesser
degree. The Panel's following statement—that, "[i]n such a situation, [United States] cotton producers
should respond to higher expected cotton pr ices much in the same way as foreign cotton
producers"879—should be read in the light of the previous statement. In other words, the Panel was
indicating that, given that the degree of insulation would be less when expected prices were higher
than the marketing loan rate, the behaviour of Un ited States farmers, in those situations, should
diverge less from the behaviour of their foreign co mpetitors. Therefore, we do not see a contradiction
in the Panel's statements, as the United States suggests.
413. Thirdly, the United States refers to the Panel' s finding that "the data ... indicates that with
respect to several key factors relied upon by the original panel in finding 'a discernible temporal
coincidence' of suppressed world market prices and th e price-contingent [United States] subsidies, the
current situation is significantly different from the situation considered by the original panel." 880 The
United States also draws attention to the Panel's c onclusion that "two factors—first, that other major
cotton producers were increasing their production and exports at the same time as [United States]
producers and second, that prices received by [Unite d States] cotton producers were not declining
dramatically during this period—make it more difficult to discern a pronounced temporal coincidence
between the [United States] subsid ies, the increase in [United States] cotton exports and the drop in
world market prices."
881 In the United States' view, the absen ce of a discernible temporal coincidence
reinforced the United States' arguments that mark eting loan and counter-cyclical payments did not
insulate United States producers from market signa ls. Therefore, the United States argues that, in
finding that marketing loan and counter-cyclical payments insulated United States producers, the
Panel contradicted its own findings regarding the lack of discernible temporal coincidence.882
414. The difficulty in discerning a temporal coincidence between the United States subsidies, the
increase in United States exports, and the drop in market prices, does not, in our view, necessarily
undermine the Panel's finding on market insulation. Th e Panel did take into account the fact that the
share of United States production and exports was not increasing, but it did not consider that this fact
undermined its conclusion regarding market insulatio n made on the basis of a number of factors, such

878Panel Report, para. 10.127. (emphasis added)
879Ibid.
added by the United States)
881Ibid. (quoting Panel Report, para. 10.139).
882See ibid., para. 163.

as their mandatory and price-contingent nature and their revenue-stabilizing effect. Therefore, we do
not consider that the Panel's finding on the diffi culty of discerning a temporal coincidence between
the United States subsidies, upland cotton exports, and upland cotton prices necessarily contradicts its
finding on market insulation.
415. The United States has also raised a claim under Article 11 of the DSU that the Panel failed to
carry out an objective assessment of the facts, b ecause it "deliberately distorted" the meaning and
significance of the evidence on stable United Stat es shares of world upland cotton production and
exports, and failed to provide a reas oned and adequate explanation for its conclusions in the light of
plausible alternative explanations.
883 We do not consider that the arguments presented by the United
States succeed in demonstrating that the Panel erre d in its evaluation of the meaning and significance
of the evidence on stable United St ates shares of world upland cotton production and exports. As we
explained above, the Panel did not disregard or dist ort the meaning and significance of such evidence,
nor did it fail to provide a reasone d and adequate explanation for its conclusions in the light of
plausible alternative explanations. We, therefore, find that the Panel did not fail to carry out an
objective assessment of the facts, as required by Article 11 of the DSU.
(iv) Degree of Market Insulation
416. Finally, the United States claims that the Pa nel failed to determine the degree of market
insulation. As the Appellate Body explained in th e original proceedings, "Article 6.3(c) does not set
forth any specific methodology for determining whether the effect of a subsidy is significant price
suppression" and, consequently, "[t]here may well be different ways to make this determination".
884
Accordingly, Article 6.3(c) does not specifically require a panel to dete rmine whether a subsidy
"insulates" producers, nor does it require a quantification of the degree of such insulation. What
Article 6.3(c) does require is that the price suppression be "significant", which the Appellate Body has
understood as "connoting something that can be characterized as "important, notable or
consequential".885 However, the fact that the price supp ression must be "significant" does not mean
that a panel examining various factors that support a finding of significant price suppression, as did
the Panel, must make a determination precisely quantif ying the effects of each factor. A factor that
itself is not "significant" may, together with othe r factors (whether individually shown to be of a
significant degree or not), establish "significant pri ce suppression". What needs to be significant is
the degree of price suppression, not necessarily the degree of each factor used as an indicator for

883See United States' appellant's submission, para. 237.
884Appellate Body Report, US – Upland Cotton, para. 427.
885Ibid., para. 426.

establishing its existence. Nor does each factor nec essarily have to be capable of demonstrating, to
the same extent, significant price suppression.
417. In the present case, the Panel examined market insulation as part of its examination of the
structure, design, and operation of the marketing loan and counter-cyclical payments. The structure,
design, and operation of the payments, in turn, were one of several elements on which the Panel based
its conclusion that the effect of marketing loan and counter-cyclical payments is "significant price
suppression". Moreover, the Panel emphasized that, "in determining whether the structure, design and
operation of these subsidies support a finding of significant price suppression under current factual
conditions, we need to consider this factor in conjunction with other facts."
886
418. Article 6.3(c) requires a demonstration of "si gnificant" price suppression. It does not require
that panels make a determination of "significance" for each of the factors examined in its price
suppression analysis. We do not consider that the Panel erred by not determining the precise degree
of market insulation887, which is but one factor in the Panel's overall analysis.
(c) Costs of Production
419. The United States claims that the Panel erred in finding that there is "a significant gap
between the total costs of production of [Unite d States] upland cotton producers and their market
revenue".888 In particular, the United States disagrees with the Panel's decision to: (i) use total costs
of production as the relevant parameter instead of variable costs 889; (ii) use only crop-specific cost
data published by the USDA 890; (iii) include opportunity costs for items such as unpaid labour and
owned land in total costs of production 891; and (iv) disregard off-farm income and income from other
crops in calculating producers' revenues.892
420. We note that the United States has not raised a claim under Article 11 of the DSU against the
Panel's determination that there is a significant gap between costs of production and revenues of
United States upland cotton producers. Therefore, pu rsuant to Article 17.6 of the DSU, we can only

886Panel Report, para. 10.104. (original emphasis)
887The Panel implicitly made a quantitative assessment of the degree of market insulation when it noted
that such insulation is now weaker than it was in the period considered in the original proceedings. (See Panel
Report, para. 10.127) In its appellee's submission, Brazil argues that, although it was not required to do so, the
Panel did quantify the degree of market insulation resulting from marketing loan and counter-cyclical payments
by quantifying their order of magnitude and their importa nce as a share of the revenu e of United States upland
cotton producers. (See Brazil's appellee's submission, paras. 618-620)
889See ibid., paras. 170-172.
890See ibid., para. 181.
891See ibid., paras. 184-188.
892See ibid., para. 189.

review the claim by the United States to the extent that it relates to an error of interpretation or
application of Article 6.3(c) of the SCM Agreement.
421. In the original proceedings, the United States made similar arguments concerning the
calculation of production costs and revenues.
893 The Appellate Body found that the original panel had
not erred in finding that "the six-year period from 1997-2002 ... lends itself to an assessment of the
medium- to longer-term examination of developmen ts in the United States upland cotton industry" 894
and, as a consequence, in relying on total rather than variable costs of production. The original panel
also relied on USDA cost data and declined to ta ke into account off-farm income, noting that it was
examining "costs and market revenues … of the upland cotton industry". 895
422. In US – Softwood Lumber VI (Article 21.5 – Canada) , the Appellate Body noted that "doubts
could arise about the objective nature of an Article 21 .5 panel's assessment if, on a specific issue, that
panel were to deviate from the reasoning in the origin al panel report in the absence of any change in
the underlying evidence in the record". 896 The only relevant difference between the situation before
the Panel and the original proceedings in this disput e is the length of the review period considered to
establish whether significant price suppression exists : six years in the original proceedings
(MY 1997-2002) as opposed to five years in the Article 21.5 proceedings (MY 2002-2006). In our
view, this difference does not justify a departur e from the costs and reve nues methodology used by
the original panel, or from the medium- to long-te rm analysis contemplated in the original panel
report, considering also that compliance measures subject to Article 21.5 proceedings by their very
nature will be in force for a shorter period of time. Moreover, the marketing loan and counter-cyclical
programmes remained unchanged since the original proceedings. 897 Therefore, considering that
relevant circumstances in the current proceedings ha ve not changed since the original proceedings, it
was proper for the Panel not to have deviated from the approach of the panel and the Appellate Body
in the original proceedings, which relied on total co sts of production, and did not to take into account
off-farm income when comparing production cost with revenues.
423. The Panel's decision to undertake an analysis over the medium- to long-term and, therefore, to
compare market revenues with total costs, rather th an with variable costs, is consistent with the
approach adopted by the Appellate Body in Canada – Dairy (Article 21.5 – New Zealand and US) .

893See Appellate Body Report, US – Upland Cotton, paras. 452 and 453; and Original Panel Report,
para. 7.1354 and footnote 1470 thereto.
894Appellate Body Report, US – Upland Cotton , para. 453 (quoting Original Panel Report,
para. 7.1354).
896Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 103.
897See Panel Report, paras. 3.9 and 3.12.

The Appellate Body explained, in that case, that "fixed and variable costs are the total amount which
the producer must spend in order to produce [a commodity] and the total amount it must recoup, in the
long-term, to avoid making losses". 898 The fact that a producer does not recover the total costs of
production may indicate that it is covering its lo sses from some other source, such as subsidies. 899
Consequently, we do not consider that the Pane l erred in using total costs of production when
calculating whether there was a gap between producers' costs of production and revenues.
424. In any event, the methodology used by the Panel in determining which production costs and
revenues to compare to establish whether there is a gap between upland cotton producers' costs of
production and revenues is not an issue of legal inte rpretation or application under Article 6.3(c) of
the SCM Agreement . The existence of a revenue gap is not a legally required benchmark under
Article 6.3(c). In other words, there is no lega l consequence under Article 6.3(c) that necessarily
flows from the fact that there is a gap between produc ers' revenues and costs. Rather, it is merely one
of the elements that the Panel considered in determining whether there was "significant price
suppression". Thus, the profitability of upland cotton production is a factual matter, the evaluation of
which fell to the Panel to determine.
425. Regarding the use by the Panel of crop-specifi c data published by the USDA, we observe that
the Panel relied on USDA cost of production surveys 900, which combined total costs and total returns
from upland cotton lint and cottonseed. 901 This type of cost data was also relied upon by the original
panel in making its findings about United States upland cotton producers' cost of production. The
Panel referred to the original panel's statement that these "data are calcula ted in accordance with a
methodology which the USDA itself has deemed to be a sufficiently reliable reflection of United
States upland cotton producers' costs and revenues." 902 Although the Panel agreed with the United

898Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US), para. 87.
899See ibid.
900The United States also argues that using USDA cost data would lead to the absurd result that total
cost of production was greater than market returns for nearly all United States field crops in MY 2005. (United
States' appellant's submission, paras. 174-176) We note that, in response, Brazil refers to a report prepared by
the United States Congressional Research Service, which indicates, based on USDA data, that it is only with the
aid of subsidies that a substantial portion of United States production (of all crops) is made economically viable.
(Brazil's appellee's submission, paras. 770 and 771 (refe rring to Schnepf and Womach, "Potential Challenges to
US Farm Subsidies in the WTO" (Exhibit Bra-577 submitted by Brazil to the Panel), supra, footnote 227))
901See Panel Report, para. 10.185.
902Original Panel Report, para. 7.1354.

States that imputing values to resources for which there are no market transactions is not as reliable as
direct market valuation, the Panel noted that "the methodology used by the USDA conforms to
standards recommended by the [American Agricultura l Economics Association], and the application
of that methodology probably produces the best estimates that can be achieved."
903
426. We see no reasons to interfere with the Panel's decision to rely on data calculated on the basis
of a methodology that the United States Government itself deems to be reliable and which was
accepted by the panel in the original proceedings . Despite considering that the United States
Government deemed the cost data relied upon by the original panel (including revenues from
cottonseed and costs from ginning) to be sufficientl y reliable, the Panel also took into account the
approach proposed by the United States in its submissions, which included only revenues from cotton
lint and excluded ginning costs. The Panel foun d that, even excluding the revenues from cottonseed
and the ginning costs, a significant gap existe d between market revenues and total costs of
production.904
427. As for non-cash opportunity costs for items such as unpaid labour and owned land, the Panel
agreed with Brazil that such costs should be incl uded in the calculation of total costs of production,
because this was consistent with the basic economic principle that resources allocation is guided by
opportunity cost. The Panel noted that all resources that a farmer uses to produce cotton have a cost
(whether this must be paid in cash or not), whic h is the value they can obtain when employed in the
next best alternative. In addition, the Panel noted that, by applying the methodology used by the
USDA, it was possible to impute opportunity costs and arrive at a reliable estimate of total costs.905
428. Moreover, we note that, in Canada – Dairy (Article 21.5 – US and New Zealand II) , the
Appellate Body ruled that non-cash opportunity costs such as family labour or cost of capital should
have been included in the calculation of the cost of production of milk, noting that "the [cost of
production standard] must cover all of the eco nomic resources invested in the production ...

903Panel Report, para. 10.169.
904See ibid., paras. 10.190, 10.191 and 10.196.
905See ibid., paras. 10.169 and 10.170.

irrespective of whether the resour ces involve an actual cash cost." 906 The Panel's approach was
consistent with the approach followed by the Appellate Body in Canada – Dairy (Article 21.5 – US
and New Zealand II) . We see no reason, therefore, to interfe re with the Panel's decision to include
non-cash opportunity costs for items such as unpaid labour and owned land in the calculation of total
costs of production.
429. Turning to the Panel's decision not to take into account off-farm income and income from
other crops in calculating producers' revenues, we r ecall that the original panel had already rejected
the United States' request to include off-farm income as part of United States upland cotton producers'
revenues. The original panel reasoned that its ex amination of costs and re venues should be confined
to the upland cotton industry, considering that th e legal focus of its analysis under Articles 5
and 6.3(c) of the SCM Agreement was on the subsidized product of upland cotton lint. The original
panel also noted that the very fact that Un ited States upland cotton farmers relied on cross-
subsidization from off-farm income and income fro m other crops supported the proposition that, in
the long term, they would lose money if they were involved in upland cotton production alone.907
430. The Panel in these Article 21.5 proceedings not ed the reasoning of the original panel in
rejecting off-farm income and turned to two new stud ies, which, according to the United States, "note
the increased prevalence of off-farm employment a nd off-farm income for farm households in the
United States".908 The Panel noted that the new studies submitted by the United States demonstrate
that off-farm income has grown in importance to fa rm operators' income, but are ambivalent as to the

906Appellate Body Report, Canada – Dairy (Article 21.5 – US and New Zealand II) , para. 102. The
Appellate Body also found that:
… For the dairy farmer, and his or her family, the investment of services in
the dairy enterprise has an economic cost, as those services cannot be put to
an alternative remunerative use. … [F]rom the perspective of economic
theory, any labour and management services provided to an enterprise involve
such an economic "opportunity" cost. …
The same is also true of any equity the owner invests in the dairy enterprise.
The allocation of such capital is, clearly, an investment of economic resources
and carries an economic opportunity co st to the owner because the capital
cannot simultaneously be invested elsewhere.
(Ibid., paras. 103 and 104 (footnotes omitted))
907See Original Panel Report, footnote 1470 to para. 7.1354.
 908Panel Report, para. 10.178.

impact of off-farm income on farm exit.
909 The Panel concluded that, due to this ambivalence, the
new studies submitted by the United States did not su cceed in showing that off-farm income played a
role in sustaining the economic viability of upland cotton farming and that, therefore, the studies
failed to undermine Brazil's argument that Unite d States producers would exit upland cotton farming
without the support of marketing loan and counter-cyclical payments.
431. In our view, it was reasonable for the Panel to exclude off-farm income from United States
upland cotton producers' income. First, considering that the Panel was assessing the profitability of
upland cotton producers, we agree that its analysis should have been limite d to costs and revenues
related to upland cotton. Secondly, assuming that off-farm income plays a role in keeping upland
cotton producers in business, such cross-subsidizati on by other activities appears to confirm, rather
than contradict, the Panel's conclusion that uplan d cotton production is not economically viable for
some producers. Thirdly, the Panel properly conclu ded that the studies produced by the United States
are inconclusive as to the role played by off-farm income in upland cotton production.
432. The exclusion of off-farm income is one com ponent of the Panel's determination of the
existence of a revenue gap. We have already c onsidered that the profitability of upland cotton
production is a factual matter, the evaluation of which fell within the Panel's authority. Accordingly,
we see no reason to interfere with the Panel's decision to rely on total costs, use USDA crop-specific
data, include opportunity costs for items such as unpaid labour and owned land, and exclude off-farm
income. We, therefore, find that the Panel's ev aluation of these factors was proper and within the
bounds of its authority as the trier of facts. Th e United States has not made a claim under Article 11
of the DSU with respect to the Panel's finding on the existence of a revenue gap, nor in relation to the
components of the Panel's determination.
(d) Economic Simulation Model
433. The United States claims that th e Panel erred in its evaluation of the economic simulations
conducted by the parties regarding the impact of United States' subsidies on world prices for upland
cotton. In particular, the United States submits that, "to rely on the results of modeling for its

909Panel Report, paras. 10.180-10.184. For instance, the study by Hoppe and Korb notes that:
Off-farm work could hypothetically aff ect exits in two ways. First, off-farm
work may be the first step in an exit from farming, which would be reflected
in higher exits for farms the operators of which work off-farm. Second, off-
farm work might lower the probability of exit by providing farm operator
households with another source of income.
(Hoppe and Korb, "Understanding US Farm Exits" (Exhibit US-46 submitted by the United States to the Panel),
supra, footnote 116, p. 20)

conclusion, the Panel would had to have concluded which model or models were appropriate,
determined the level of price suppression resulting from that model, and found that such price
suppression was significant".910
434. We have already considered that, while the Panel appropriately examined the model, the
parameters used by each party, and the arguments made by the parties, it could have gone somewhat
further in its evaluation and comparative analysis of the economic simulati ons and the particular
parameters used. We nevertheless concluded that, in its assessment of the simulations, the Panel did
not commit an error of law.
435. The United States asserts that the Panel failed to make an objective assessment of the matter,
as required by Article 11 of the DSU, because it ov erlooked flaws in Brazil's economic simulation
model and it misrepresented and distorted the re sults of the simulation conducted by the United
States.911 We disagree that the Panel "overlooked the fl aws" in Brazil's economic model, considering
that the Panel expressly stated that it was "mindful of the criticism by the United States that Brazil's
model 'has no foundation within economic circles'" and that Br azil's model "needs to earn the
confidence of this Panel". 912 Nor do we consider that the Pane l "misrepresented and distorted" the
results of the simulations carried out by the Unite d States. The arguments presented by the United
States on appeal do not succeed in demonstrating that the Panel erred in its evaluation of the economic
simulation. Contrary to the United States' asser tion, the Panel did not find that the United States'
simulation demonstrated that the price suppression was significant. The Panel's finding was that the
model, when run using parameters preferred by the United States, also showed price suppression,
which the United States does not deny. The United St ates, rather, contends that the results showed
that the price suppression would be minimal. 913 The Panel simply did not take a view on the
significance of the results. Moreover, the Panel did not rely exclusively on the results of the

910United States' appellant's submission, para. 196. (original emphasis)
911See ibid., paras. 196 and 240.
912Panel Report, para. 10.220 (quoting United States' second written submission to the Panel, Annex I,
para. 7). See also ibid., paras. 10.202, 10.205, 10.207, and 10.216.
 913The United States explains that:
Using long-run values for supply and demand elasticities, complete removal
of the two programs would only show an increase in world prices
of 2.26 per cent over the period MY 2002-2005 and 1.52 per cent over the
period MY 2006-2008. Even though the [United States] estimates were
overstated given the structural flaws in Brazil's model for which the United
States was unable to adjust, the magnitude of the price suppression as
demonstrated by the [United States] adjustments to the Brazilian model
could hardly be called "significant".
(United States' appellant's submission, para. 238 (footnotes omitted))

simulations; rather, it noted that all simulations conducted by the parties "support the view" that
marketing loan and counter-cyclical payments have led to an increase in United States production and
exports of upland cotton that woul d then have suppressed world prices, a conclusion the Panel also
reached on the basis of other elements and indicators. Thus, the results of the simulations were one of
several elements on which the Panel based its finding under Article 6.3(c) of the SCM Agreement. In
our view, the Panel's assessment of the economic simulations falls with in its authority as the trier of
facts and we have not been persuaded that the Panel exceeded the bounds of its authority.
(e) Impact of the Elimination of Step 2 Payments
436. The United States challenges the Panel's analysis of the impact of the elimination of Step 2
payments on three grounds. First, the United Stat es argues that it demonstr ated that there was a
significant decline in United States production and exports of upland cotton in MY 2006 after the
repeal of Step 2 payments.
914 As a result, the United States submits, Brazil had the burden of proving
that the impact of the repeal of Step 2 payments on United States production and exports was modest.
Therefore, the United States considers that the Panel erred in finding that "the elimination of this
subsidy does not affect the price suppressing effect s of the marketing loan payments and counter-
cyclical payments in the world market for upland cotton."915
437. In our view, the United States' argument is based on a mischaracterization of Brazil's claim
and of the findings of the Panel. As the compla inant in these Article 21.5 proceedings, Brazil set out
to prove that the effect of marketing loan a nd counter-cyclical payments was significant price
suppression, within the meaning of Article 6.3(c) of the SCM Agreement. This did not require Brazil
to establish that the impact of the elimination of Step 2 payments was "modest", though it did require
it to demonstrate that the payments under the ot her two programmes (marketing loan and counter-
cyclical payments) caused significant price suppr ession. We observe that the Panel's finding of
significant price suppression did not rest on the impact of the elimination of Step 2 payments. The
Panel found significant price suppression based on the following: its examination of the structure,
design, and operation of marketing loan and coun ter-cyclical payments; the existence of a gap
between United States upland cotton producers' co sts of production and revenues; and the large
magnitude of the subsidies and the substantial pr oportionate influence of the United States in the
world market for upland cotton. Therefore, the Panel's finding of significant price suppression stands
independently of the impact of the elimination of Step 2 payments.

914See United States' appellant's submission, para. 198.

438. Secondly, the United States contends that th e Panel misconstrued and overlooked the United
States' evidence as to the indirect impact of the repeal of Step 2 payments, which will result,
according to the United States, in the substantial decrease of marketing loan payments and in no
significant increase of counter-cyclical payments.916
439. In assessing the indirect impact of the elimination of Step 2 payments, the Panel referred to
projections of the United States Congressional Budget Office (the "USCBO"), which it found
"credible"917, and according to which "lower [United States ] prices due to elimination of Step 2 would
lead to an increase in counte r-cyclical payments of $484 milli on over the 2006-2015 period" and
"higher world prices would reduce the cost of cotton marketing loans by $17 million over
the 2006-2015 period."
918 The United States does not contest the accuracy of these figures but, rather,
refers to other projections from a study by the F ood and Agricultural Policy Research Institute (the
"FAPRI"), which show that the elimination of the Step 2 payments programme results in an average
increase of 0.4 cent/lb in the adjusted world pr ice in MY 2006-2010, and a decline of the same
amount in the marketing loan payments.919
440. In our view, the Panel did not exceed its authorit y as the trier of facts when it decided to rely
on the USCBO projections after having found them to be credible. 920 We note, moreover, that the
Panel specifically took note of the point made by the United States 921 that the projected reduction in
marketing loan payments would apply only to MY 2006 and MY 2007, since no payments were
expected beyond that date.922 However, the Panel still found this projected reduction (US$17 million)
to be modest compared to the annual payments unde r the marketing loan programme and the increase

916See United States' appellant's submission, para. 201.
917Panel Report, para. 10.238.
918Congressional Budget Office Cost Estimate, 20 October 2005, Agricultural Reconciliation Act
of 2005, as approved by the Senate Committee on Agriculture, Nutrition, and Forestry on 19 October 2005,
(Exhibit Bra-482 submitted by Brazil to the Panel), p. 5.
919See United States' appellant's submission, para. 202.
920The Appellate Body has repeatedly stated that the credibility and weight of the evidence is within the
panel's discretion as the trier of facts. Appellate Body Report, EC – Hormones , para. 132; Appellate Body
Report, US – Wheat Gluten , para. 151; Appellate Body Report, EC – Sardines , para. 299; Appellate Body
Report, US – Carbon Steel, para. 142; Appellate Body Report, Japan – Apples, para. 221.
921See United States' appellant's submission, para. 204.
922See Panel Report, para. 10.238.

in counter-cyclical payments projected by the USCBO (US$484 million).
923 The Panel also noted that
it would not be enough simply to compare the magnit ude of the reduction in marketing loan payments
with that of the increase in counter-cyclical payments, because the production inducing effects of
marketing loan payments were greater than those of counter-cyclical payments. Overall, however, the
Panel found that the indirect effects of the elimination of Step 2 payments on United States production
and exports would likely be small, considering the modest projected reduction in marketing loan
payments coupled with significant increases in count er-cyclical payments and the fact that these
changes would run counter to one another.924
441. Finally, according to the United States, the Panel's analysis of the impact of the elimination of
Step 2 payments was flawed, because the Panel did not determine how much of an effect remained
after the repeal of Step 2 payments, and how this compared to the price suppression found to exist in
the original proceedings, in order to determin e whether the remaining effect was significant. 925 The
Panel set out to determine whether the effect of marketing loan and counter-cyclical payments was
present serious prejudice in the form of significant price suppression, and for this purpose conducted
an evaluation of several factors. There is no requirement in Article 6.3(c) of the SCM Agreement that
a panel follow a particular methodology
926, much less a requirement that a panel adopt an approach
that involves subtracting the price suppressing effects of the repealed measure (in this case, the Step 2
payments). We do not see why the Panel could not have analyzed the price suppressing effects of the
remaining marketing loan and counter-cyclical payments instead of analyzing the effects of the bundle
of price-contingent subsidies at issue in the origin al proceedings and then subtracting the impact of
the repeal of the Step 2 payments programme. In any event, even if the Panel did not precisely
quantify the effect of the elimination of Step 2 payments, it did examine the amount of Step 2
payments before their elimination, the impact of the elimination upon export volumes, and the likely
increase and decrease in marketing loan and counte r-cyclical payments resulting from the elimination
of Step 2 payments.

923According to data submitted by Brazil, the projected amount of marketing loan payments in
MY 2006 was US$650 million based on USDA Budget Estimates, US$475 million based on data from the
FAPRI, and US$757 million based on February 2007 USDA stochastic projections. (Panel Report, para. 10.25
(footnotes omitted)) Brazil also submitted data on pr ojected counter-cyclical payments. Based on USDA
Budget Estimates, allocated counter-cyclical payments to United States upland cotton producers were projected
at US$715 million in MY 2006, US$516 million in MY 2007, and US$449 million in MY 2008, MY 2009, and
MY 2010. Based on the July 2006 FAPRI Baseline Upda te for US Agricultural Mark ets, projected allocated
counter-cyclical payments were US$912 million in MY 2006, US$825 million in MY 2007, US$732 million in
MY 2008, US$679 million in MY 2009, and US$686 million in MY 2010. (See Panel Report, para. 10.33
(footnotes omitted))
924See ibid., para. 10.239.
925See United States' appellant's submission, para. 209.
926See Appellate Body Report, US – Upland Cotton, para. 427.

(f) Magnitude of the Subsidies
442. The United States challenges the Panel's finding that, "when considered in conjunction with
other factors, the order of magnitude of the mark eting loan payments and counter-cyclical payments
supports a finding of significant price suppression, even when account is taken of the decline in the
amount of marketing loan payments projected for MY 2006." 927 According to the United States, this
finding is premised on the Panel's earlier conclusion that the struct ure, design, and operation of the
marketing loan and counter-cyclical payments had an "important revenue-stabilizing effect" on United
States farmers, and that the payments bridged "the gap between costs of production and market
revenues of [United States] upland cotton producers." 928 Since the United States considers that the
Panel's findings on the structure, design, and opera tion of the marketing loan and counter-cyclical
payments, and on the payments' role in covering the alleged cost-revenue gap, are erroneous, it
considers that "the Panel's finding as to the magn itude of the marketing loan and counter-cyclical
payments, which depends on those same findings, also fails as a matter of law."929
443. We agree that the Panel linked the probative value of the magnitude of the subsidies, for
purposes of the analysis of significant price suppressi on, to its findings on the structure, design, and
operation of the subsidies and on the gap between costs of production and market revenues of United
States upland cotton producers.930 We have already found that the Panel did not err in its findings on
the structure, design, and operation of the marketi ng loan and counter-cyclical payments, including its
findings on the market-insulating effects of tho se payments, and on the gap between producers'
revenues and costs. 931 Therefore, given that the United States has not offered any additional
arguments that could substantiate its challenge of the Panel's findings on the magnitude of the
subsidies, we see no reason to disturb these findings.
(g) Substantial Proportionate Influence on the World Market for Upland
Cotton
444. The United States claims that the Panel erre d in finding that the United States exerts a
substantial proportionate influence on the world mark et for upland cotton, because it overlooked how
United States upland cotton competed with cotton from other sources 932 and the fact that the United

928Ibid.
929Ibid., para. 217.
930See Panel Report, para. 10.111. The Panel explained that "the relevance of the magnitude of the
subsidies in this connection must also be assessed in li ght of our analysis above of the structure, design and
operation of the subsidies".
931See supra, Sections VII.E.4(b) and (c).
932See United States' appellant's submission, para. 219.

States' shares of world production and exports of upland cotton have remained stable in recent
years.
933
445. The Panel found that, with 20.9 per cent of world upland cotton production and 39.8 per cent
of world upland cotton exports in MY 2005, the Un ited States exerted a substantial proportionate
influence on the world market for upland cotton, ev en taking into account the projected declines in
these shares in MY 2006. 934 The Panel referred to an analysis of a consultant retained by Brazil "of
the functioning of the world market for upland cotton". 935 In this analysis, the consultant indicated
that, "because China is a 'relatively small exporter[] ', it has 'less of an impact on the discovery of
world cotton prices". 936 The Panel also discussed the role of China in its brief non-attribution
analysis.
446. We do not see a contradiction between the fact that United States shares of world production
and exports of upland cotton have remained stable at consistently high levels between MY 2002 and
MY 2007 and the Panel's findings of substantial pro portionate influence of the United States in the
world market for upland cotton. This is because stable high United States shares of world production
and exports of upland cotton could be seen as evidence of the fact that the United States continued to
exert a substantial proportionate influence in the pe riod examined by the Panel, just as it had during
the period examined by the original panel. We also observe that the Panel speci fically noted that this
element supported its finding of significant price suppression when "analyzed in the light of the
totality of the evidence". 937 Therefore, we do not consider that the Panel erred in finding that the
United States exerts a substantial proportionate influence on the world market for upland cotton.938
F. Conclusion
447. For all the reasons stated above, the United States has not persuaded us that the Panel
incorrectly interpreted the requirements of Article 6.3(c) of the SCM Agreement or erred in applying
that provision to the facts of the case. We also find that the Panel did not fail to comply with its duties
under Article 11 of the DSU to make an objective asse ssment of the matter before it, including an
objective assessment of the facts of the case. We therefore uphold the Panel's findings, in
paragraphs 10.256 and 15.1(a) of th e Panel Report, that the United Stat es acts inconsistently with its

933See United States' appellant's submission, para. 220.
934See Panel Report, para. 10.58. For United States shares of production and exports in previous years,
see ibid., para. 10.56.
935See ibid., footnote 279 to para. 10.58.
936Brazil's appellee's submission, para. 930 (quoting D eclaration of Andrew Macdonald, attached as
Annex II to Brazil's first written submission to the Panel, para. 23).
937Panel Report, para. 10.58.
938See ibid.

obligations under Articles 5(c) and 6.3(c) of the SCM Agreement in that the effect of marketing loan
and counter-cyclical payments pr ovided to United States upland cotton producers pursuant to the
FSRI Act of 2002 is significant price suppression, within the meaning of Article 6.3(c) of the SCM
Agreement, in the world market for upland cotton c onstituting "present" serious prejudice to the
interests of Brazil, within the meaning of Article 5(c) of the SCM Agreement. In addition, we uphold
the Panel's consequential finding, in paragraphs 10.257 and 15.1(a) of the Panel Report, that "by
acting inconsistently with Articles 5(c) and 6.3(c) of the SCM Agreement the United States has failed
to comply with the DSB recommendations and ru lings" and "[s]pecifically, the United States has
failed to comply with its obligation under Article 7.8 of the SCM Agreement 'to take appropriate
steps to remove the adverse effects or ... withdraw the subsidy'."
VIII. Findings and Conclusions
448. For the reasons set out in this Report, the Appellate Body:
(a) as regards the scope of these Article 21.5 proceedings:
(i) upholds the Panel's finding, in paragraph 9.27 of the Panel Report, that
Brazil's claims relating to export cred it guarantees for pig meat and poultry
meat are properly within the scope of these Article 21.5 proceedings.
Because the condition on which it is pr edicated has not been fulfilled, the
Appellate Body does not find it necessary
 to consider Brazil's other appeal
that the Panel erred when it found that the measure that is the subject of
Brazil's claims is not the revised GSM 102 programme itself; and
(ii) upholds the Panel's finding, in paragraph 9.81 of the Panel Report, that
Brazil's claims against marketing loan and counter-cyclical payments made
by the United States after 21 September 2005 are properly within the scope of
these Article 21.5 proceedings. Because the condition on which it is
predicated has not been fulfilled, the Appellate Body does not find it
necessary to consider Brazil's other appeal that the Panel erred in finding that
the original panel's conclusions and recommendations addressed only the
payments made under the marketing lo an and counter-cyclical payments
programmes, and not the programmes themselves;
(b) as regards the revised GSM 102 export credit guarantee programme:

(i) finds
 that the Panel failed to make an objective assessment of the matter,
under Article 11 of the DSU, because it dismissed the import of the
re-estimates data submitted by the Un ited States on the basis of internally
inconsistent reasoning. Conseque ntly, the Appellate Body reverses the
Panel's intermediate finding, in paragraph 14.89 of the Panel Report, that "the
initial subsidy estimates provide a strong indication that GSM 102 export
credit guarantees are provided against prem ia which are inadequate to cover
the long-term operating costs and losses of the GSM 102 programme";
(ii) upholds the Panel's finding, in paragra ph 14.131 of the Panel Report, that
"the GSM 102 programme is not design ed to cover its long term operating
costs and losses";
(iii) upholds, albeit for reasons that differ from those of the Panel, the Panel's
conclusion, in paragraph 14.133 of the Panel Report, that "the GSM 102
export credit guarantee programme constitu tes an 'export subsidy' because it
is provided against premiums which are inadequate to cover its long term
operating costs and losses under the terms of item (j) of the Illustrative List".
Consequently, upholds the Panel's finding, in paragraph 14.134 of the Panel
Report, that GSM 102 export credit guarantees issued after 1 July 2005 are
export subsidies within the meaning of Article 3.1(a) of the SCM Agreement
and Article 10.1 of the Agreement on Agriculture; and
(iv) in the light of this, the following findings, in paragraphs 14.140, 14.149,
14.150, 14.156, 14.157, and 15.1(c) of the Panel Report, also stand:
- regarding export credit guarantees issued under the revised GSM 102
programme after 1 July 2005 the United States acts inconsistently with
Article 10.1 of the Agreement on Agriculture by applying export subsidies
in a manner which results in the circumvention of United States' export
subsidy commitments with respect to certain unscheduled products and
certain scheduled products, and as a resu lt acts inconsistently with Article 8
of the Agreement on Agriculture;

- regarding export credit guarantees issued under the revised GSM 102
programme after 1 July 2005, the United States also acts inconsistently with
Articles 3.1(a) and 3.2 of the SCM Agreement by providing export subsidies
to unscheduled products and by prov iding export subsidies to scheduled
products in excess of the commitments of the United States under the
Agreement on Agriculture; and
- by acting inconsistently with Articles 10.1 and 8 of the Agreement on
Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement, the United
States has failed to comply with th e DSB recommendations and rulings.
Specifically, the United States has failed to bring its measures into
conformity with the Agreement on Agriculture and has failed "to withdraw
the subsidy without delay"; and
(c) as regards whether the effect of marketi ng loan and counter-cyclical payments is
significant price suppression:
(i) upholds
 the Panel's findings, in paragraphs 10.256, 10.257, and 15.1(a) of the
Panel Report, that:
- the United States acts inconsistently with its obligations under Articles 5(c)
and 6.3(c) of the SCM Agreement in that the effect of marketing loan and
counter-cyclical payments provided to United States upland cotton producers
pursuant to the FSRI Act of 2002 is significant price suppression, within the
meaning of Article 6.3(c) of the SCM Agreement , in the world market for
upland cotton, constituting "present" ser ious prejudice to the interests of
Brazil within the meaning of Article 5(c) of the SCM Agreement; and
- by acting inconsistently with Articles 5(c) and 6.3(c) of the SCM Agreement,
the United States has failed to comply with the DSB's recommendations and
rulings; specifically, the United States failed to comply with its obligation
under Article 7.8 of the SCM Agreement "to take appropriate steps to
remove the adverse effects or ... withdraw the subsidy"; and

(ii) finds
 that the Panel did not fail to make an objective assessment of the matter
before it, as required by Article 11 of the DSU, in its analysis of Brazil's
claim that the effect of the marketing loan and counter-cyclical payments is
significant price suppression.
449. The Appellate Body recommends that the DSB request the United States to bring its
measures, found in this Report, and in the Panel Repor t as modified by this Report, to be inconsistent
with the Agreement on Agriculture and the SCM Agreement , into conformity with its obligations
under those Agreements.

Signed in the original in Geneva this 16th day of May 2008 by:

Luiz Olavo Baptista
Presiding Member

 _________________________ _________________________
 Jennifer Hillman David Unterhalter
 Member Member

ANNEX I

19 February 2008
 (08-0733)
 Original: English

Recourse to Article 21.5 of the DSU by Brazil

Notification of an Appeal by the United States
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

 The following notification, dated 12 February 2008, 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 appeal to the Appellate Body certain issues of law
covered in the report of the panel in : Recourse to
Article 21.5 of the DSU by Brazil (WT/DS267/RW) ("Panel Report") a nd certain legal interpretations
developed by the panel in this dispute.

1. The United States seeks review by the Appella te Body of the panel's finding that Brazil's
claims relating to GSM 102 export credit guarantees fo r exports of pig meat and poultry meat were
within the scope of this proceeding under Article 21.5 of the DSU.
1 This finding is in error and is
based on erroneous findings on issues of law and related legal interpretations.

2. The United States seeks review by the Appella te Body of the panel's finding that Brazil's
claim that the United States failed to comply with its obligation under Article 7.8 of the Agreement on
Subsidies and Countervailing Measures ("SCM Agreement") with respect to marketing loan payments
and counter-cyclical payments made by the Unite d States after September 21, 2005 was properly
before the panel.
2 This finding is in error and is based on erroneous findings on issues of law and
related legal interpretations.

3. The United States seeks review by the Appellate Body of the panel's legal conclusion that as
to GSM 102 export credit guarantees issued after July 1, 2005, the United States acted inconsistently
with Article 10.1 of the Agreement on Agriculture by applying export subsidies in a manner which
resulted in the circumvention of U.S. export su bsidy commitments with respect to unscheduled

1See, e.g., Panel Report, paras. 9.20-9.27.
2See, e.g., Panel Report, paras. 9.75-9.81.

products and certain scheduled prod ucts, and as a result acted incons istently with Article 8 of the
Agreement on Agriculture.3 The United States also seeks review by the Appellate Body of the panel's
related legal conclusion that the United States acted in consistently with Articles 3.1(a) and 3.2 of the
SCM Agreement by providing export subsidies to unsche duled products and by providing export
subsidies to scheduled products in excess of U.S. commitments under the Agreement on Agriculture.4
These conclusions are in error and are based on erro neous findings on issues of law and related legal
interpretations.

4. The United States requests the Appellate Body to find that the panel failed to make "an
objective assessment of the matter before it, including an objective assessment of the facts of the case
and the applicability of and conformity with the relevant covered agreements" as required by
Article 11 of the DSU with respect to Brazil's claims that the GSM 102 export credit guarantees
constituted prohibited export subsidies. The pa nel's failure to undertake an objective assessment
includes, for example, the following:

 (a) The panel disregarded and misconstrued the import of the GSM 102 export credit
 guarantee budgetary re-estimates data submitted by the United States
5;

 (b) When conducting its analysis under item (j) of the Illustrative List of Export
Subsidies to the SCM Agreement, the panel relied upon assumptions not supported by
evidence on the record
6 and on inappropriate comparisons of fees.7

5. The United States seeks review by the Appellate Body of the panel's legal conclusion that the
United States failed to comply with the DSB's ruli ngs and recommendations relating to the original
panel's findings of inconsistency with Articles 10.1 and 8 of the Agreement on Agriculture and
Articles 3.1(a) and 3.2 of the SCM Agreement.8 This erroneous conclusi on is based on the panel's
erroneous legal conclusions and failure to undertake an objec tive assessment, described in
paragraphs 3-4 above.

6. The United States seeks review by the Appella te Body of the panel's finding that the United
States acted inconsistently with its obligations under Articles 5(c) and 6.3(c) of the SCM Agreement in
that the effect of marketing loan and counter-c yclical payments provided to U.S. upland cotton
producers after September 21, 2005 was significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement in the world market for upland cotton constituting "present"
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement.
9
This conclusion is in error and is based on err oneous findings on issues of law and related legal
interpretations.

7. The United States requests the Appellate Body to find that the panel failed to make "an
objective assessment of the matter before it, including an objective assessment of the facts of the case
and the applicability of and conformity with the relevant covered agreements" as required by
Article 11 of the DSU with respect to Brazil's claims of present serious prejudice. The panel's failure
to undertake an objective assessment includes, for example, the following:

3See, e.g. , Panel Report, paras. 14.89, 14.97, 14.110, 14.115, 14.120, 14.128-14.129, 14.131,
14.133(a)-(c), 14.134, 14.140, 14.149, 15.1(c).
4See, e.g., Panel Report, paras. 14.156, 15.1(c).
5See, e.g., Panel Report, paras. 14.80-14.81.
6See, e.g., Panel Report, paras. 14.101, 14.125, 14.129.
7See, e.g., Panel Report, paras. 14.94-14.103, 14.124-14.128, 14.129-14.131.
8See, e.g., Panel Report, paras. 14.150, 14.157, 15.1(c), 15.2.
9See, e.g., Panel Report, paras. 10.50, 10.58, 10.104, 10.111, 10.196, 10.222, 10.231, 10.239, 10.243,
10.247-10.256, 15.1(a).

 (a) The panel disregarded and misconstrue d evidence on the record concerning the
structure, design, and operation of marketing loan and counter-cyclical payments
10;

 (b) The panel disregarded and misconstrued evidence on the record and its own finding
that the U.S. share of world upland cotton production and exports was stable over
MY 2002-2005
11;

 (c) The panel misconstrued the results of U.S. econometric modeling concerning the
effect of U.S. marketing loan and counter-cyclical payments on the world price for
upland cotton
12;

 (d) The panel disregarded and misconstrue d evidence concerning the alleged gap
between the costs of production and the revenues of U.S. upland cotton farmers
13;

 (e) The panel disregarded evidence relevant to ensuring that the effect of other factors on
upland cotton prices was not improperly a ttributed to U.S. marketing loan and
counter-cyclical payments.14

8. The United States seeks review by the Appellate Body of the panel's legal conclusion that the
United States failed to comply with the DSB's ru lings and recommendations related to the original
panel's findings of inconsistenc y with Articles 5 and 6 of the SCM Agreement .
15 This erroneous
conclusion is based on the panel's erroneous legal conclusions and fa ilure to undertake an objective
assessment, described in paragraphs 6-7 above.

10See, e.g., Panel Report, paras. 10.61-10.82, 10.92-10.95.
11See, e.g., Panel Report, paras. 10.127, 10.251.
12See, e.g., Panel Report, paras. 10.221-10.222, 10.251.
13See, e.g., Panel Report, paras. 10.176, 10.184, 10.195-10.196.
15See, e.g., Panel Report, paras. 10.257, 15.1(a), 15.2-15.3.

ANNEX II

29 February 2008
 (08-0923)
 Original: English

Recourse to Article 21.5 of the DSU by Brazil

Notification of an Other Appeal by Brazil
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 23(1) of the Working Procedures for Appellate Review

 The following notification, dated 25 February 2008, from the Delegation of Brazil, is being
circulated to Members.

Brazil appeals certain issues of law and lega l interpretations in the Panel Report in – Recourse to Article 21.5 of the DSU by Brazil.
1

2. Brazil's first appeal is contingent on the Appellate Body reversing the compliance Panel's
finding, in accordance with the United States' app eal, that payments made after 21 September 2005
pursuant to the Marketing Loan Payments ("ML") program and Counter-Cyclical Payments ("CCP")
program were within the scope of this proceeding under Article 21.5 and, th erefore, properly before
the compliance Panel.
2

3. In that event, Brazil seeks reversal of the compliance Panel's finding that the DSB's
recommendations and rulings in the original pro ceedings, and the original panel's recommendations
and conclusions, included only the ML and CCP pa yments, and not also the ML and CCP programs.
3
This finding constitutes an error by the comp liance Panel under Article 21.5 of the DSU.
Alternatively, in making this finding, the complianc e Panel failed to make an objective assessment of
the matter under Article 11 of the DSU.

4. Brazil furthermore requests that the Appellate Body find:

1WT/DS267/RW, circulated on 18 December 2007.
2Panel Report, paras. 9.75 to 9.81, as challenged in the United States' Appellant's Submission,
Section II.B, paras. 56 to 74.
3Panel Report, paras. 9.44 to 9.55, in particular para. 9.47.

(a) that the ML and CCP payments made after 21 September 2005 constitute measures
taken to comply with the DSB's recomme ndations and rulings in the original
proceedings within the meaning of Article 21.5 of the DSU, because of the close
connection to the ML and CCP programs subject to those recommendations and
rulings; or, alternatively

(b) that the United States, through the continued use of the ML and CCP programs,
causes serious prejudice to Brazil's interests within the meaning of Articles 5(c)
and 6.3(c) of the Agreement on Subsidies and Countervailing Measures.
5. Second, in the event that the Appellate Body reverses, in accordance with the United States'
appeal, the compliance Panel's finding that Brazil' s claims "relating to export credit guarantees
["ECGs"] for exports of pig meat and poultry m eat" were properly before the compliance Panel
4,
Brazil requests that the Appellate Body find that th e compliance Panel erred in rejecting Brazil's view
that "the measure that is the subject of [Brazil's] claims is the amended [General Sales Manager
("GSM")] programme itself".
5 This finding is inconsistent with Article 21.5 of the DSU.
Alternatively, in making this fi nding, the Panel failed to make an objective assessment of the matter
under Article 11 of the DSU. Brazil requests that th e Appellate Body find, instead, that the amended
GSM program itself was the measure taken to comply for purposes of Article 21.5 of the DSU, was
the measure subject to Brazil's claims, and was properly before the compliance Panel.

6. As part of this conditional appeal relating to ECGs, Brazil further requests that the Appellate
Body find that the United States applies th e GSM 102 program in a manner that results in
circumvention of U.S. export subsidy commitment s with respect to pig meat and poultry meat,
contrary to Articles 10.1 and 8 of the Agreement on Agriculture, as well as to Articles 3.1(a) and 3.2
of the SCM Agreement.

4Panel Report, para. 9.27, as challenged in the United States' Appellant's Submission, Section II.A,
paras. 33 to 55.
5Panel Report, para. 9.25.