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

EUROPEAN UNION – COUNTERVAILING DUTIES ON CERTAIN
POLYETHYLENE TEREPHTHALATE FROM PAKISTAN
REPORT OF THE PANEL
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LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Additional Working Procedures on Business Confidential Information A-7
ANNEX B
ARGUMENTS OF THE EUROPEAN UNION
Contents Page
Annex B-1 First Integrated Executive Summary of the European Union B-2
Annex B-2 Second Integrated Executive Summary of the European Union B-12
ANNEX C
ARGUMENTS OF PAKISTAN
Contents Page
Annex C-1 First Integrated Executive Summary of Pakistan C-2
Annex C-2 Second Integrated Executive Summary of Pakistan C-18

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

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

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CASES CITED IN THIS REPORT
Short title Full case title and citation
Argentina – Ceramic Tiles Panel Report, Argentina – Definitive Anti-Dumping Measures on Imports of
Ceramic Floor Tiles from Italy, , adopted 5 November 2001,
DSR 2001:XII, p. 6241
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of
Footwear, , adopted 12 January 2000, DSR 2000:I, p. 515
Argentina – Poultry
Anti-Dumping Duties
Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from
Brazil, , adopted 19 May 2003, DSR 2003:V, p. 1727
Argentina – Textiles and
Apparel
Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles,
Apparel and Other Items, , adopted 22 April 1998, as modified
by Appellate Body Report /R, DSR 1998:III, p. 1033
Australia – Apples Appellate Body Report, Australia – Measures Affecting the Importation of
Apples from New Zealand, WT/DS367/AB/R, adopted 17 December 2010,
DSR 2010:V, p. 2175
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft,
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1161
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut,
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted
23 October 2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)
China – Autos (US) Panel Report, China – Anti-Dumping and Countervailing Duties on Certain
Automobiles from the United States, WT/DS440/R and Add.1, adopted
18 June 2014, DSR 2014:VII, p. 2655
China – Electronic Payment
Services
Panel Report, China – Certain Measures Affecting Electronic Payment
Services, WT/DS413/R and Add.1, adopted 31 August 2012, DSR 2012:X,
p. 5305
China – GOES Appellate Body Report, China – Countervailing and Anti-Dumping Duties on
Grain Oriented Flat-Rolled Electrical Steel from the United States,
WT/DS414/AB/R, adopted 16 November 2012, DSR 2012:XII, p. 6251
China – GOES (Article 21.5 –
US)
Panel Report, China – Countervailing and Anti-Dumping Duties on Grain
Oriented Flat-Rolled Electrical Steel from the United States – Recourse to
Article 21.5 of the DSU by the United States, WT/DS414/RW and Add.1,
adopted 31 August 2015
China – HP-SSST (Japan) /
China – HP-SSST (EU)
Panel Reports, China – Measures Imposing Anti-Dumping Duties on High-
Performance Stainless Steel Seamless Tubes ("HP-SSST") from Japan /
China – Measures Imposing Anti-Dumping Duties on High-Performance
Stainless Steel Seamless Tubes ("HP-SSST") from the European Union,
WT/DS454/R and Add.1 / WT/DS460/R, Add.1 and Corr.1, adopted
28 October 2015, as modified by Appellate Body Reports WT/DS454/AB/R /

China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of
Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R /
WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII, p. 3295
Dominican Republic – Import
and Sale of Cigarettes
Panel Report, Dominican Republic – Measures Affecting the Importation and
Internal Sale of Cigarettes, WT/DS302/R, adopted 19 May 2005, as modified
by Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, p. 7425
EC – Approval and Marketing of
Biotech Products
Panel Reports, European Communities – Measures Affecting the Approval
and Marketing of Biotech Products, WT/DS291/R, Add.1 to Add.9 and Corr.1
/ WT/DS292/R, Add.1 to Add.9 and Corr.1 / WT/DS293/R, Add.1 to Add.9
and Corr.1, adopted 21 November 2006, DSR 2006:III, p. 847
EC – Bananas III Appellate Body Report, European Communities – Regime for the
Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted
25 September 1997, DSR 1997:II, p. 591

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Short title Full case title and citation
EC – Bananas III
(Article 21.5 – Ecuador II) /
EC – Bananas III
(Article 21.5 – US)
Appellate Body Reports, European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Second Recourse to
Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, adopted
11 December 2008, and Corr.1 / European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of
the DSU by the United States, WT/DS27/AB/RW/USA and Corr.1, adopted
22 December 2008, DSR 2008:XVIII, p. 7165
EC – Bed Linen Panel Report, European Communities – Anti-Dumping Duties on Imports of
Cotton-Type Bed Linen from India, WT/DS141/R, adopted 12 March 2001, as
modified by Appellate Body Report WT/DS141/AB/R, DSR 2001:VI, p. 2077
EC – Countervailing Measures
on DRAM Chips
Panel Report, European Communities – Countervailing Measures on Dynamic
Random Access Memory Chips from Korea, WT/DS299/R, adopted
3 August 2005, DSR 2005:XVIII, p. 8671
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping
Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R,
adopted 28 July 2011, DSR 2011:VII, p. 3995
EC – Fasteners (China) Panel Report, European Communities – Definitive Anti-Dumping Measures on
Certain Iron or Steel Fasteners from China, WT/DS397/R and Corr.1,
adopted 28 July 2011, as modified by Appellate Body Report
WT/DS397/AB/R, DSR 2011:VIII, p. 4289
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, p. 135
EC – IT Products Panel Reports, European Communities and its member States – Tariff
Treatment of Certain Information Technology Products, WT/DS375/R /
WT/DS376/R / WT/DS377/R, adopted 21 September 2010, DSR 2010:III,
p. 933
EC – Salmon (Norway) Panel Report, European Communities – Anti-Dumping Measure on Farmed
Salmon from Norway, WT/DS337/R, adopted 15 January 2008, and Corr.1,
DSR 2008:I, p. 3
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters,
WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, p. 3791
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti-Dumping Duties on
Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R,
adopted 18 August 2003, DSR 2003:VI, p. 2613
EC – Tube or Pipe Fittings Panel Report, European Communities – Anti-Dumping Duties on Malleable
Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted
18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R,
DSR 2003:VII, p. 2701
EC and certain member States
– Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted
1 June 2011, DSR 2011:I, p. 7
EC and certain member States
– Large Civil Aircraft
(Article 21.5 – US)
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU
by the United States, WT/DS316/RW and Add.1, circulated to WTO Members
22 September 2016 [appealed by European Union 13 October 2016]
Egypt – Steel Rebar Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from
Turkey, WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, p. 2667
EU – Biodiesel (Argentina) Appellate Body Report, European Union – Anti-Dumping Measures on
Biodiesel from Argentina, WT/DS473/AB/R and Add.1, adopted
26 October 2016
EU – Biodiesel (Argentina) Panel Report, European Union – Anti-Dumping Measures on Biodiesel from
Argentina, WT/DS473/R and Add.1, adopted 26 October 2016, as modified
by Appellate Body Report WT/DS473/AB/R
EU – Fatty Alcohols (Indonesia) Panel Report, European Union – Anti-Dumping Measures on Imports of
Certain Fatty Alcohols from Indonesia, WT/DS442/R and Add.1, circulated to
WTO Members 16 December 2016 [appealed by Indonesia
10 February 2017]
EU – Footwear (China) Panel Report, European Union – Anti-Dumping Measures on Certain Footwear
from China, WT/DS405/R, adopted 22 February 2012, DSR 2012:IX, p. 4585

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Short title Full case title and citation
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding
Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998,
DSR 1998:IX, p. 3767
India – Additional Import
Duties
Panel Report, India – Additional and Extra-Additional Duties on Imports from
the United States, WT/DS360/R, adopted 17 November 2008, as reversed by
Appellate Body Report WT/DS360/AB/R, DSR 2008:XX, p. 8317
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and
Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998,
DSR 1998:I, p. 9
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile
Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and
Corr.2, adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,
DSR 1996:I, p. 97
Korea – Certain Paper Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII,
p. 10637
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000,
DSR 2000:I, p. 3
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from
the European Communities, WT/DS341/R, adopted 21 October 2008,
DSR 2008:IX, p. 3179
Mexico – Steel Pipes and Tubes Panel Report, Mexico – Anti-Dumping Duties on Steel Pipes and Tubes from
Guatemala, WT/DS331/R, adopted 24 July 2007, DSR 2007:IV, p. 1207
Mexico – Taxes on Soft Drinks Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other
Beverages, WT/DS308/AB/R, adopted 24 March 2006, DSR 2006:I, p. 3
Peru – Agricultural Products Appellate Body Report, Peru – Additional Duty on Imports of Certain
Agricultural Products, WT/DS457/AB/R and Add.1, adopted 31 July 2015
Russia – Commercial Vehicles Panel Report, Russia – Anti-Dumping Duties on Light Commercial Vehicles
from Germany and Italy, WT/DS479/R and Add.1, circulated to WTO
Members 27 January 2017 [appealed by Russia 20 February 2017]
Russia – Tariff Treatment Panel Report, Russia – Tariff Treatment of Certain Agricultural and
Manufacturing Products, WT/DS485/R, Corr.1, Corr.2, and Add.1, adopted
26 September 2016
Thailand – H-Beams Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes
and Sections of Iron or Non-Alloy Steel and H-Beams from Poland,
WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 2701
Thailand – H-Beams Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and
Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/R,
adopted 5 April 2001, as modified by Appellate Body Report
WT/DS122/AB/R, DSR 2001:VII, p. 2741
Turkey – Textiles Panel Report, Turkey – Restrictions on Imports of Textile and Clothing
Products, WT/DS34/R, adopted 19 November 1999, as modified by
Appellate Body Report WT/DS34/AB/R, DSR 1999:VI, p. 2363
Ukraine – Passenger Cars Panel Report, Ukraine – Definitive Safeguard Measures on Certain Passenger
Cars, WT/DS468/R and Add.1, adopted 20 July 2015
US – Anti-Dumping and
Countervailing Duties (China)
Appellate Body Report, United States – Definitive Anti-Dumping and
Countervailing Duties on Certain Products from China, WT/DS379/AB/R,
adopted 25 March 2011, DSR 2011:V, p. 2869
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain
Corrosion-Resistant Carbon Steel Flat Products from Germany,
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX,
p. 3779
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727

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Short title Full case title and citation
US – Carbon Steel (India) Panel Report, United States – Countervailing Measures on Certain Hot-Rolled
Carbon Steel Flat Products from India, WT/DS436/R and Add.1, adopted
19 December 2014, as modified by Appellate Body Report WT/DS436/AB/R,
DSR 2014:VI, p. 2189
US – Certain EC Products Appellate Body Report, United States – Import Measures on Certain Products
from the European Communities, WT/DS165/AB/R, adopted
10 January 2001, DSR 2001:I, p. 373
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application
of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009,
DSR 2009:III, p. 1291
US – Countervailing and Anti-
Dumping Measures (China)
Appellate Body Report, United States – Countervailing and Anti-Dumping
Measures on Certain Products from China, WT/DS449/AB/R and Corr.1,
adopted 22 July 2014, DSR 2014:VIII, p. 3027
US – Countervailing Duty
Investigation on DRAMS
Appellate Body Report, United States – Countervailing Duty Investigation on
Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, p. 8131
US – Countervailing Measures
(China)
Appellate Body Report, United States – Countervailing Duty Measures on
Certain Products from China, WT/DS437/AB/R, adopted 16 January 2015
US – DRAMS Panel Report, United States – Anti-Dumping Duty on Dynamic Random
Access Memory Semiconductors (DRAMS) of One Megabit or Above from
Korea, WT/DS99/R, adopted 19 March 1999, DSR 1999:II, p. 521
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/R, adopted 20 March 2000, as modified by
Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I,
p. 55
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/RW, adopted 29 January 2002, as modified by
Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, p. 119
US – Gasoline Panel Report, United States – Standards for Reformulated and Conventional
Gasoline, WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body
Report WT/DS2/AB/R, DSR 1996:I, p. 29
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain
Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted
23 August 2001, DSR 2001:X, p. 4697
US – Hot-Rolled Steel Panel Report, United States – Anti-Dumping Measures on Certain Hot-Rolled
Steel Products from Japan, WT/DS184/R, adopted 23 August 2001 modified
by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, p. 4769
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia,
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX,
p. 4051
US – Large Civil Aircraft (2nd
complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large
Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7
US – Large Civil Aircraft (2nd
complaint)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Line Pipe Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Circular Welded Carbon Quality Line Pipe from Korea,
WT/DS202/AB/R, adopted 8 March 2002, DSR 2002:IV, p. 1403
US – Oil Country Tubular
Goods Sunset Reviews
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping
Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R,
adopted 17 December 2004, DSR 2004:VII, p. 3257
US – Poultry (China) Panel Report, United States – Certain Measures Affecting Imports of Poultry
from China, WT/DS392/R, adopted 25 October 2010, DSR 2010:V, p. 1909

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Short title Full case title and citation
US – Softwood Lumber IV
(Article 21.5 – Canada)
Appellate Body Report, United States – Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from Canada –
Recourse by Canada to Article 21.5 of the DSU, WT/DS257/AB/RW, adopted
20 December 2005, DSR 2005:XXIII, p. 11357
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R,
WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R,
WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003,
DSR 2003:VII, p. 3117
US – Tyres (China) Appellate Body Report, United States – Measures Affecting Imports of
Certain Passenger Vehicle and Light Truck Tyres from China,
WT/DS399/AB/R, adopted 5 October 2011, DSR 2011:IX, p. 4811
US – Tyres (China) Panel Report, United States – Measures Affecting Imports of Certain
Passenger Vehicle and Light Truck Tyres from China, WT/DS399/R, adopted
5 October 2011, upheld by Appellate Body Report WT/DS399/AB/R,
DSR 2011:IX, p. 4945
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R,
adopted 19 January 2001, DSR 2001:II, p. 717
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven
Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997,
and Corr.1, DSR 1997:I, p. 323
US – Wool Shirts and Blouses Panel Report, United States – Measure Affecting Imports of Woven Wool
Shirts and Blouses from India, WT/DS33/R, adopted 23 May 1997, upheld by
Appellate Body Report WT/DS33/AB/R, DSR 1997:I, p. 343
US – Zeroing (Japan)
(Article 21.5 – Japan)
Appellate Body Report, United States – Measures Relating to Zeroing and
Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan,
WT/DS322/AB/RW, adopted 31 August 2009, DSR 2009:VIII, p. 3441

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ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
Anti-Dumping Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994
BCI Business Confidential Information
CVD Countervailing duty
Definitive Determination Council Implementing Regulation (EU) No. 857/2010 of 27 September 2010
imposing a definitive countervailing duty and collecting definitively the
provisional duty imposed on imports of certain polyethylene terephthalate
originating in Iran, Pakistan, and the United Arab Emirates, Official Journal of
the European Union, L Series, No. 254/10 (29 September 2010), (Exhibit
PAK-2)
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
EU European Union
GATT 1994 General Agreement on Tariffs and Trade 1994
IP Investigation period
KIBOR Karachi Inter-Bank Offer Rate
LTF-EOP Long Term Financing of Export-Oriented Projects
MBS Manufacturing Bond Scheme
PET Polyethylene terephthalate
PKR Pakistani rupees
POI Period of investigation
Provisional Determination Commission Regulation (EU) No. 473/2010 of 31 May 2010 imposing a
provisional countervailing duty on imports of certain polyethylene terephthalate
originating in Iran, P akistan, and the United Arab Emirates, Official Journal of
the European Union, L Series, No. 134/25 (1 June 2010), (Exhibit PAK-1)
SBP State Bank of Pakistan
SCM Agreement Agreement on Subsidies and Countervailing Measures
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155
UNTS 331; 8 International Legal Materials 679
WTO World Trade Organization

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1 INTRODUCTION
1.1 Complaint by Pakistan
1.1. On 28 October 2014, Pakistan requested consultations with the European Union pursuant to
Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU), Article 30 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement),
and Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994).1
1.2. Consultations were held on 17 December 2014 but failed to resolve this dispute.
1.2 Panel establishment and composition
1.3. On 12 February 2015, Pakistan requested the establishment of a panel pursuant to Article 6
of the DSU with standa rd terms of reference. 2 At its meeting on 25 March 2015, the Dispute
Settlement Body (DSB) established a panel pursuant to the request of Pakistan in document
WT/DS486/3, in accordance with Article 6 of the DSU.3
1.4. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by Pakistan in document
WT/DS486/2 and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements.4
1.5. On 13 May 2015, the parties agreed that the Panel would be composed as follows:
Chairperson: Mr William Davey

Members: Mr Michael Mulgrew
 Mr Welber Barral

1.6. The United States and China notified their interest in participating in the Panel proceedings as
third parties.
1.3 Panel proceedings
1.3.1 General
1.7. The Panel began its work on this case later than it would have wished due to staff constraints
in the WTO Secretariat. 5 After consultation wit h the parties, the Panel adopted its Working
Procedures6 on 15 March 2016 and the timetable on 1 April 2016. The timetable was revised on
16 June 2016, 1 December 2016 and 20 March 2017.
1.8. The Panel held a first substantive meeting with the parties on 21 an d 22 September 2016. A
session with the third parties took place on 22 September 2016. The Panel held a second
substantive meeting with the parties on 29 and 30 November 2016. On 27 January 2017, the
Panel issued the descriptive part of its Report to the p arties. The Panel issued its Interim Report to
the parties on 24 February 2017. The Panel issued its Final Report to the parties on
31 March 2017.

1 Pakistan's request for consultations, WT/DS486/1.
2 Pakistan's request for the establishment of a panel, WT/DS486/2 (Pakistan's panel request).
3 DSB, Minutes of the meeting held on 25 March 2015, (circulated on 1 May 2015), WT/DSB/M/359.
4 Constitution note of the Panel, WT/DS486/3.
5 EU – PET (Pakistan), communication from the Panel, (issued and circulated on 13 November 2015),

6 Working Procedures of the Panel, Annex A-1.

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1.3.2 Working Procedures on Business Confidential Information (BCI)
1.9. After consultation with the parties, the Panel adopted, on 14 April 2016, Additional Working
Procedures Concerning Business Confidential Information (BCI).7
1.3.3 Request for a preliminary ruling
1.10. On 3 March 2016, the European Union submitted to the Panel a request for a preliminary
ruling. The Panel addresse s the European Union's request for a preliminary ruling in its findings
below.8
2 FACTUAL ASPECTS
2.1 The measures at issue
2.1. This dispute concerns countervailing measures imposed by the European Union on imports of
certain polyethylene terephthalate (PET) from Pa kistan pursuant to the Council Implementing
Regulation (EU) No. 857/2010 of 27 September 2010 imposing a definitive countervailing duty
(CVD) and collecting definitively the provisional duty imposed on imports of certain polyethylene
terephthalate originat ing in Iran, Pakistan, and the United Arab Emirates (the Definitive
Determination). The previously applicable provisional measure challenged by Pakistan had been
imposed pursuant to Commission Regulation (EU) No. 473/2010 of 31 May 2010 imposing a
provisional countervailing duty on imports of certain polyethylene terephthalate originating in Iran,
Pakistan, and the United Arab Emirates (the Provisional Determination).
3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1. Pakistan requests that the Panel find that9:
a. With respect to the Manufacturing Bond Scheme (MBS), which the European Commission
(the Commission) found to be a countervailable subsidy contingent on export
performance, the Commission acted inconsistently with its obligations under:
i. Article 1.1(a )(1)(ii) of the SCM Agreement, because it improperly determined the
existence of a financial contribution;
ii. Article 1.1(b) of the SCM Agreement, because it improperly analysed the existence of
a benefit;
iii. Article 3.1(a) of the SCM Agreement, because – given its incorrect interpretation and
application of Article 1 – it incorrectly determined the existence of an export subsidy;
iv. Article 10 of the SCM Agreement, because it imposed a countervailing duty not in
accordance with the provisions of Article VI of the G ATT 1994 and the
above-mentioned terms of the SCM Agreement;
v. Article 32 of the SCM Agreement, because it took specific action against a subsidy
not in accordance with the provisions of the GATT 1994, as interpreted by the
SCM Agreement, in particular by the above-mentioned provisions;
vi. Article 19.1 of the SCM Agreement, because it made a final determination of the
existence and amount of the subsidy and imposed a countervailing duty not in
accordance with Article 19;
vii. Annex I(i) of the SCM Agreement by failing to properly determine the existence of an
export subsidy within the meaning of that provision; and

7 Additional Working Procedures of the Panel Concerning Business Confidential Information, Annex A-2.
9 Pakistan's first written submission, paras. 9.3-9.6.

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viii. Article VI:3 of the GATT 1994, by levying a countervailing duty in excess of an
amount equal to the estimated bounty or subsidy determined to have been gr anted,
directly or indirectly, on the manufacture, production, or export of the product at
issue.
If the Panel finds that the MBS falls under Annex II of the SCM Agreement, Pakistan also
requests the Panel to find that the Commission acted inconsistently with:
i. The procedures under Annex II(II) as a whole;
ii. Annex II(II)(2), because it failed to ensure/provide for the opportunity that an
investigation be carried out to determine the existence of an excess remission; and
iii. Annex II(II)(1), because it failed to e xamine the "generally accepted commercial
principles" prevailing in Pakistan when examining the verification system and
procedures under the MBS.
If the Panel finds that the MBS falls under Annex III of the SCM Agreement, Pakistan also
requests the Panel to find that the Commission acted inconsistently with:
i. The procedures under Annex III(II) as a whole;
ii. Annex III(II)(3) because it failed to ensure/provide for the opportunity that an
investigation be carried out to determine the existence of an excess remission; and
iii. Annex III(II)(2), because it failed to examine the "generally accepted commercial
principles" prevailing in Pakistan when examining the verification system and
procedures under the MBS.
b. With respect to the Long Term Financing of Export -Oriented Projects (LTF -EOP), which
the Commission found to be a countervailable subsidy contingent on export
performance, the Commission acted inconsistently with its obligations under:
i. Article 1.1(b) of the SCM Agreement by improperly analysing and determining the
existence of benefit;
ii. The chapeau of Article 14 of the SCM Agreement, because the Commission failed to
adequately explain the application of the method used by the investigating authority
in calculating the benefit (which is provided for in the nationa l legislation or
implementing regulations) to the particular case at hand;
iii. Article 14(b) of the SCM Agreement, because the Commission failed to properly
calculate any benefit as the difference between the amount that the firm receiving
the loan pays on the government loan and the amount the firm would pay on a
comparable commercial loan which the firm could actually obtain on the market;
iv. Article 10 of the SCM Agreement, because it failed to impose a countervailing duty in
accordance with the provisions of Article VI of GATT 1994 and the above -mentioned
terms of the SCM Agreement;
v. Article 19.1 of the SCM Agreement, because it made a final determination of the
existence and amount of the subsidy and imposed a countervailing duty not in
accordance with Article 19 (benefit);
vi. Article 32 of the SCM Agreement, because it failed to take specific action against a
subsidy in accordance with the provisions of GATT 1994, as interpreted by the
SCM Agreement, in particular by the above-mentioned provisions; and
vii. Article V I:3 of the GATT 1994, by levying a countervailing duty in excess of an
amount equal to the estimated bounty or subsidy determined to have been granted,
directly or indirectly, on the manufacture, production, or export of the product at
issue.

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c. With respect to its non -attribution determinations, the Commission acted inconsistently
with its obligations under Article 15.5 of the SCM Agreement.
d. With respect to its obligation to disclose the results of the verification visit to the
exporting producer in Pakistan , the Commission acted inconsistently with its obligations
under Article 12.6 of the SCM Agreement.
3.2. The European Union requests that the Panel reject Pakistan's claims in this dispute in their
entirety.10
4 ARGUMENTS OF THE PARTIES
4.1. The arguments of the partie s are reflected in their executive summaries, provided to the
Panel in accordance with paragraph 19 of the Working Procedures adopted by the Panel (see
Annexes B-1 and B-2 and Annexes C-1 and C-2).
5 ARGUMENTS OF THE THIRD PARTIES
5.1. The arguments of the China and the United States are reflected in their executive summaries,
provided in accordance with paragraph 19 of the Working Procedures adopted by the Panel (see
Annexes D-1 and D-2).
6 INTERIM REVIEW
6.1. On 24 February 2017, the Panel issued its Interim Report to the parties. On 8 March 2017,
the European Union communicated to the Panel that it had no substantial comments on the Panel's
Interim Report. On 10 March 2017, Pakistan submitted a written request for the Panel to review
aspects of the Interim Report. Nei ther party requested an interim review meeting. On
16 March 2017, the European Union submitted comments on Pakistan's requests for review.
6.2. The parties' comments made at the interim review stage as well as the Panel's discussion and
disposition of those requests are set out in Annex E-1.
7 FINDINGS
7.1. This dispute concerns EU measures imposing CVDs on certain PET from Pakistan. Pakistan's
claims proceed under various provisions of the SCM Agreement and the GATT 1994. The
European Union requests that the Panel r eject each of the claims presented by Pakistan. In the
request for a preliminary ruling, the European Union also argued that the Panel should terminate
its work in this dispute because the challenged measures have expired, and, in the alternative,
that certain of Pakistan's claims were outside the Panel's terms of reference under the standards
set forth in Article 6.2 of the DSU.
7.2. We begin by examining the request for a preliminary ruling submitted by the
European Union. Thereafter, we consider Pakistan's cl aims concerning the MBS, followed by
Pakistan's claims concerning the LTF-EOP. We then consider Pakistan's claims under Article 15.5 of
the SCM Agreement, before turning to Pakistan's claim under Article 12.6 of the SCM Agreement
pertaining to the results of the verification visit. However, before proceeding to do so, we briefly
recall the relevant general principles regarding treaty interpretation, the standard of review and
the burden of proof in World Trade Organization (WTO) dispute settlement proceedin gs, as laid
down by the Appellate Body.
7.1 General principles regarding treaty interpretation, the applicable standard of
review, and burden of proof
7.1.1 Treaty interpretation
7.3. Article 3.2 of the DSU provides that the dispute settlement system serves to clarify t he
existing provisions of the covered agreements "in accordance with customary rules of

10 European Union's first written submission, para. 269.

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interpretation of public international law". It is generally accepted that the principles codified in
Articles 31 and 32 of the Vienna Convention are such customary rules.11
7.1.2 Standard of review
7.4. Panels generally are bound by the standard of review set forth in Article 11 of the DSU, which
provides, in relevant part:
[A] panel should make an objective assessment of the matter before it, including an
objective assessment of t he facts of the case and the applicability of and conformity
with the relevant covered agreements.12
7.5. The Appellate Body has stated that the "objective assessment" to be made by a panel
reviewing an investigating authority's determination is to be informed b y an examination of
whether the authority provided a reasoned and adequate explanation as to: (a) how the evidence
on the record supported its factual findings; and (b) how those factual findings supported the
overall determination.13
7.6. The Appellate Body has also clarified that a panel reviewing an investigating authority's
determination may not conduct a de novo review of the evidence or substitute its judgment for
that of the investigating authority. At the same time, a panel must not simply defer to the
conclusions of the investigating authority. A panel's examination of those conclusions must be
"in-depth" and "critical and searching".14
7.7. A panel must limit its examination to the evidence that was before the agency during the
course of the investigation and must take into account all such evidence submitted by the parties
to the dispute. 15 A panel's examination in that regard is not necessarily limited to the pieces of
evidence expressly relied upon by an investigating authority in its establishment and evalua tion of
the facts in arriving at a particular conclusion. 16 Rather, a panel may also take into consideration
other pieces of evidence that were on the record and that are connected to the explanation
provided by the investigating authority in its determinat ion. This flows from the principle that
investigating authorities are not required to cite or discuss every piece of supporting record
evidence for each fact in the final determination. 17 That notwithstanding, since a panel's review is
not de novo , ex post rationalizations unconnected to the investigating authority's explanation –
even when founded on record evidence – cannot form the basis of a panel's conclusion.18
7.1.3 Burden of proof
7.8. The general principles applicable to the allocation of the burden of proof i n WTO dispute
settlement require that a party claiming a violation of a provision of a WTO Agreement must assert
and prove its claim. 19 Therefore, Pakistan bears the burden of demonstrating that the
European Union's measures are inconsistent with the WTO Agreement. The Appellate Body has
stated that a complaining party will satisfy its burden when it establishes a prima facie case,
namely a case which, in the absence of effective refutation by the defending party, requires a
panel, as a matter of law, to rul e in favour of the complaining party. 20 Finally, it is generally for
each party asserting a fact to provide proof thereof.21

11 Appellate Body Report, Japan – Alcoholic Beverages II, p. 10, section D.
12 Emphasis added.
13 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 186.
14 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 93.
15 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 187 and 188.
16 See Appellate Body Report, Thailand – H-Beams, paras. 117-119.
17 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 164.
18 Appellate Body Report, US – Lamb, paras. 153-161. See also Appellate Body Reports, US – Steel
Safeguards, para. 326; and US – Softwood Lumber VI (Article 21.5 – Canada), para. 97; and Panel Reports,
Argentina – Ceramic Tiles, para. 6.27; and Argentina – Poultry Anti-Dumping Duties, para. 7.48.
19 Appellate Body Report, US – Wool Shirts and Blouses, p. 14.
20 Appellate Body Report, EC – Hormones, para. 104.
21 Appellate Body Report, US – Wool Shirts and Blouses, p. 14.

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7.2 Request for a preliminary ruling
7.2.1 Introduction
7.9. On 3 March 2016, the European Union filed a request for a preliminary ruling. The reque st
asked the Panel to: (a) cease all work on this dispute because the relevant EU CVD measures on
certain PET from Pakistan terminated on 30 September 2015 (the Termination Request) 22; and (b)
if the Panel denied the Termination Request, find that certain o f Pakistan's claims are outside the
Panel's terms of reference under the standards set forth in Article 6.2 of the DSU. 23 This Section
addresses each subject in turn.
7.2.2 The Termination Request
7.2.2.1 Main arguments of the parties
7.10. The European Union argues that the Panel should terminate its work in this dispute because
the purpose of these proceedings has already been fulfilled, i.e. to secure the withdrawal of the
challenged measures. 24 The European Union cites Articles 3.4, 3.7, and 11 of the DSU for the
proposition that the role of a panel is to make recommendations or rulings when these contribute
to securing a positive solution to a dispute. 25 The European Union asserts that because the
challenged measures no longer exist, they have been "withdrawn" within the mean ing of
Article 3.7 of the DSU, and thus a positive solution has been secured. 26 The European Union
further argues that relevant WTO jurisprudence supports its position. As an additional justification
for terminating this proceeding, the European Union refer s to the backlog of cases in the WTO
dispute settlement system, cases which could be more rapidly addressed if the Panel were to
terminate this dispute.27
7.11. Pakistan asks the Panel to reject the Termination Request because it "lacks any basis in the
text of the DSU or the practice of panels and the Appellate Body". 28 Pakistan asserts that, "[f]rom
a strictly legal perspective … the core issue here is … that the measures were in force on the date
on which the panel was established. In these circumstances, the Pa nel must rule on Pakistan's
claims".29 According to Pakistan, the Appellate Body has explained that the expiry of a measure
does not limit a panel's jurisdiction to issue findings regarding that measure and a panel cannot
decline to rule on the entirety of the claims over which it has jurisdiction. 30 Pakistan notes that
many GATT and WTO panels have made findings with respect to expired measures, and that no
panel has declined to exercise its jurisdiction over a measure that expired after the panel's
establishment and where the complainant asked the panel to issue findings regarding that
measure.
7.2.2.2 Evaluation by the Panel
7.12. On 19 May 2016, the Panel sent a communication to the parties denying the Termination
Request and indicating that "[t]he Panel will provide the reasons for its decision in due course. This

22 Pakistan responded to the Termination Request on 24 March 2016, and the European Union filed
comments thereon on 4 April 2016. Pakistan filed a reply to the European Union's comments on 8 April 2016.
23 Pakistan responded to the European Union's objections under Article 6.2 of the DSU in its first written
submission, and the European Union filed comments thereon on 13 June 2016. In those comments, the
European Union raised additional objections under Article 6.2 regarding certain claims that Pakistan pursued in
its first written submission. Pakistan filed a reply to the European Union's comments regarding Article 6.2
issues on 4 July 2016.
24 European Union's request for a preliminary ruling, para. 14.
25 European Union's comments on Pakistan's response to the European Union's preliminary ruling
request, para. 10.
26 European Union's request for a preliminary ruling, para. 15.
27 European Union's request for a preliminary ruling, para. 31.
28 Pakistan's response to the European Union's preliminary ruling request, para. 1.3.
29 Pakistan's response to the European Union's preliminary ruling request, para. 4.36.
30 Pakistan's response to the European Union's preliminary ruling request, para. 4.14 (quoting
Appellate Body Report, Mexico – Taxes on Soft Drinks, para. 46).

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preliminary ruling, and the reasons for it, will form an integral part of the Panel's final report." 31
The Panel provides its reasons for denying the Termination Request here.
7.13. The challenged measures in this di spute are CVDs on certain PET from Pakistan imposed
pursuant to the Definitive Determination. The legal effect of the Definitive Determination vis-à-vis
certain PET from Pakistan expired on 30 September 2015, at which time the associated CVDs on
certain PE T from Pakistan were removed. 32 The challenged measures have thus expired and
ceased to have legal effect. 33 WTO panel and Appellate Body jurisprudence indicates that panels
have discretion regarding whether to make findings regarding such expired measures. 34 We have
not identified any reason to depart from this current of jurisprudence. We therefore have
discretion as to whether to make findings with respect to the challenged measures in this dispute.
In deciding how to exercise our discretion, we note certai n other circumstances surrounding this
dispute. First, and in particular, the challenged measures expired only after panel establishment.35
Second, the complainant has continued to request that we make findings with respect to the
expired measures.36 Third, we consider it a reasonable possibility that the European Union could
impose CVDs on Pakistani goods in a manner that may give rise to certain of the same, or
materially similar, WTO inconsistencies that are alleged in this dispute. 37 In particular, we note
that Pakistan claims, not contested by the European Union, that a wide range of Pakistani exports
benefit from the MBS 38 and that the parties dispute, on a fundamental level, how investigating
authorities should determine the extent to which duty drawback schemes like the MBS may
constitute countervailable subsidies within the meaning of the SCM Agreement. Given such
circumstances, we proceed with this dispute.39

31 Panel communication to the parties, 19 May 2016.
32 On 1 October 2015, the European Union sent a letter to the Panel notifying the Panel that "the
measures at issue in this dispute no longer exist as of 30 September 2015" and enclosing the notice of expiry.
(European Union's communication, 1 October 2015).
33 It is therefore possible neither: (a) for the European Union to "withdraw" the challenged measures
within the meaning of Article 3.7 of the DSU; nor (b) for the Panel to issue meaningful recommendations under
Article 19.1 of the DSU that the European Union bring the measures into conformity with the relevant WTO
agreement(s) if the Panel were to find the measures WTO-inconsistent. (See Appellate Body Report, US –
Certain EC Products, paras. 80-82 (discussing appropriateness of making DSU Article 19.1 recommendations
vis-à-vis expired measures)). We emphasize the fact-specific nature of these conclusions. Given the array of
measures subject to WTO dispute settlement, and the many ways measures may operate in
Members' municipal law, there may be other cases where it is unclear the extent to which the legal effect of a
certain measure or group of measures expired in a manner that makes Article 19.1 recommendations inutile.
(See Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), paras. 6.831-6.838
(observing this phenomenon and discussing related jurisprudence) (appeal pending)).
34 Appellate Body Reports, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5
and EC – IT Products, para. 7.165. Expiry of the challenged measures does not affect the jurisdiction of the
Panel to issue findings with respect to such measures. (Appellate Body Report, EC – Bananas III (Article 21.5 –
Ecuador II) / EC – Bananas III (Article 21.5 – US), para. 270).
35 For reports considering this factor, see Panel Reports, Dominican Republic – Import and Sale of
EC – Approval and Marketing of Biotech Products, paras. 7.1307 and 7.1308. See also Panel Reports, US –
Gasoline, para. 6.19 (declining to make findings with respect to a measure that expired before panel
establishment); and Argentina – Textiles and Apparel, paras. 6.4, 6.12, and 6.13 (same). No panel has
declined to hear the entirety of a dispute due to the expiry of the challenged measure(s).
36 For reports considering this factor, see Panel Reports, US – Wool Shirts and Blouses, para. 6.2;
Indonesia – Autos, paras. 14.134 and 14.135; and Dominican Republic – Import and Sale of Cigarettes,
para. 7.343. See also Appellate Body Report, Peru – Agricultural Products, paras. 5.18 and 5.19 ("Members
enjoy discretion in deciding whether to bring a case, and are thus expected to be largely self-regulating in
deciding whether any such action would be fruitful. The largely self-regulating nature of a Member's decision to
bring a dispute is borne out by Article 3.3 [of the DSU]" but also cautioning that "the considerable deference
accorded to a Member's exercise of its judgment in bringing a dispute is not entirely unbounded" (emphasis
original; fns omitted; internal quotation marks omitted)).
37 For reports considering this factor, see Panel Reports, US – Gasoline, para. 6.19; Argentina – Textiles
and Apparel, para. 6.14; India – Additional Import Duties, paras. 7.69 and 7.70; US – Poultry (China),
Approval and Marketing of Biotech Products, para. 7.1310.
38 Pakistan's response to the European Union's preliminary ruling request, para. 4.72.
39 We note that in a different context the Appellate Body suggested a number of reasons why a panel
should not normally decline to exercise jurisdiction in a case that is properly before it. (Appellate Body Report,
Mexico – Taxes on Soft Drinks, paras. 46-53). We further note the European Union's argument that granting
the Termination Request would conserve the WTO Secretariat's dispute settlement resources, thus allowing

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7.2.3 Article 6.2 of the DSU
7.14. The European Union's request for a preliminary ruling also asked us to fi nd that certain of
Pakistan's claims are outside our terms of reference under the standards set forth in Article 6.2 of
the DSU. The European Union raised additional objections under Article 6.2 in subsequent
submissions. This Section addresses those objections. It proceeds in three parts. First, it examines
relevant legal considerations. Second, it notes certain EU objections under Article 6.2 of the DSU
that have become moot. Third, it examines the European Union's remaining objections under
Article 6.2 of the DSU.
7.2.3.1 Relevant legal considerations
7.15. Article 6.2 of DSU provides, in relevant part:
The request for the establishment of a panel shall be made in writing. It shall indicate
whether consultations were held, identify the specific measures at issue and pr ovide a
brief summary of the legal basis of the complaint sufficient to present the problem
clearly.
7.16. Identifying the measure(s) at issue and briefly summarizing the legal basis of the complaint
so as to present the problem clearly are central to the establishment of a panel's jurisdiction.40 The
panel request also serves a due process function, providing the respondent and third parties notice
as to the nature of the complainant's case41, enabling them to respond accordingly.42 A panel must
therefore determine whether the panel request, read as a whole and as it existed at the time of
filing43, is "sufficiently clear" or "sufficiently precise" on the basis of an "objective examination".44
7.17. In order to "provide a brief summary of the legal basis of the complaint sufficient to present
the problem clearly", the panel request must set out the claims so as to "present the problem
clearly".45 A "claim" in this context is an allegation "that the respondent party has violated, or
nullified or impaired the benefits arising from, an identified provision of a particular agreement". 46
Further, "the narrative" of panel requests should "explain succinctly how or why the measure at

their reallocation to other matters. Although true, we have trouble accepting this as a goal to pursue in
isolation. Rather, we consider the conservation of judicial resources as a constituent of the larger, and
legitimate, goal of promoting the efficiency of the WTO dispute settlement system. We are mindful, however,
that such efficiency may be derivative of a variety of factors extending beyond the expediency with which a
panel may dispose of one particular dispute.
40 See Appellate Body Reports, EC and certain member States – Large Civil Aircraft, paras. 639 and 640
(referring to Appellate Body Reports, Guatemala – Cement I, paras. 72 and 73; and US – Carbon Steel,
para. 125); US – Continued Zeroing, paras. 160 and 161; US – Zeroing (Japan) (Article 21.5 – Japan),
and Brazil – Desiccated Coconut, p. 22.
41 See Appellate Body Reports, Brazil – Desiccated Coconut, p. 22; US – Carbon Steel, para. 126; and
EC and certain member States – Large Civil Aircraft, para. 640.
42 See Appellate Body Reports, Brazil – Desiccated Coconut, p. 22; Chile – Price Band System,
43 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 642.
44 Appellate Body Reports, EC – Bananas III, para. 142; EC and certain member States – Large Civil
Anti-Dumping Measures (China), para. 4.8; US – Oil Country Tubular Goods Sunset Reviews, paras. 164
and 169; and US – Zeroing (Japan) (Article 21.5 – Japan), para. 108. Parties' subsequent submissions and
statements, therefore, cannot "cure" defects in panel requests. (Appellate Body Reports, China – Raw
Materials, para. 220; EC – Bananas III, para. 143; EC and certain member States – Large Civil Aircraft,
para. 787; US – Carbon Steel, para. 127; and US – Countervailing and Anti-Dumping Measures (China),
para. 4.9).
45 Appellate Body Report, EC – Selected Customs Matters, para. 153.
46 Appellate Body Report, Korea – Dairy, para. 139. "Identification of the treaty provisions claimed to
have been violated by the respondent is always necessary." (Appellate Body Report, Korea – Dairy, para. 124
(referring to Appellate Body Reports, Brazil – Desiccated Coconut, p. 22; EC – Bananas III, paras. 145 and
147; and India – Patents (US), paras. 89, 92, and 93)). A panel request need not, however, include arguments
seeking "to demonstrate that the responding party's measure does indeed infringe upon the identified treaty
provision". (Appellate Body Report, Korea – Dairy, para. 139 (referring to Appellate Body Reports, EC –

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issue is considered by the complaining Member to be violating the WTO obligation in question". 47
Moreover, a panel request must "plainly connect the challenged measure(s) with the provision(s)
of the covered agreements claimed to have been infringed". 48 "[T]o the extent that a provision
contains not one single, distinct obligation, but rather multiple obli gations, a panel request might
need to specify which of the obligations contained in the provision is being challenged."49 "Whether
such a brief summary is 'sufficient to present the problem clearly' is to be assessed on a
case-by-case basis, keeping in min d the nature of the measure(s) at issue, and the manner in
which it is (or they are) described in the panel request, as well as the nature and scope of the
provision(s) of the covered agreements alleged to have been violated."50
7.2.3.2 Moot objections
7.18. During the course of this proceeding, the following objections raised by the European Union
under Article 6.2 of the DSU have become moot:
a. The objections to claims regarding: (i) certain EU "practices" or "methodologies" 51; (ii)
the European Union's imposition of provi sional CVDs52; (iii) the Commission's "allocation
of the amount of the subsidy" with respect to the LTF -EOP programme53; and (iv) the
Commission's conduct during verification visits. 54 Pakistan does not pursue these claims
in this dispute.55
b. The objection to t he claim that the Commission failed to explain adequately the
application of its method to calculate the benefit conferred by the LTF -EOP programme.
The European Union has withdrawn this objection.56
c. Certain other objections relating to claims that we do no t address for other reasons
described herein.57
7.2.3.3 Remaining objections
7.2.3.3.1 Annex II(II)(1) and/or Annex III(II)(2) of the SCM Agreement
7.19. Pakistan's first written submission claimed, inter alia , that the Commission acted
inconsistently with Annex II(II)(1) and/or Annex III(II)(2) of the SCM Agreement "because it failed
to examine the 'generally accepted commercial [practices]' prevailing in Pakistan when examining
the verification system and procedures under the MBS". 58 The European Union argues that the
panel reques t failed to present this problem clearly. 59 The panel request, in relevant part,
provides:
 The EU determined that the "Manufacturing Bond Scheme" (MBS) is a countervailable
subsidy that is contingent upon export performance. This determination appears to be

47 Appellate Body Reports, China – Raw Materials, para. 226 (emphasis original); and EC – Selected
Customs Matters, para. 130.
48 Appellate Body Reports, China – Raw Materials, para. 220; US – Oil Country Tubular Goods Sunset
Reviews, para. 162; and US – Countervailing and Anti-Dumping Measures (China), para. 4.8.
49 Appellate Body Reports, China – Raw Materials, para. 220 (referring to Appellate Body Reports, Korea
– Dairy, para. 124; and EC – Fasteners (China), para. 598); and US – Countervailing and Anti-Dumping
Measures (China), para. 4.8.
50 Appellate Body Report, US – Countervailing Measures (China), para. 4.9.
51 European Union's request for a preliminary ruling, paras. 26-29 and 34.
52 European Union's request for a preliminary ruling, paras. 35-38.
53 European Union's request for a preliminary ruling, para. 43.
54 European Union's request for a preliminary ruling, paras. 44 and 45.
55 See, e.g. Pakistan's response to the European Union's preliminary ruling request, para. 4.86;
comments on the European Union's comments on Pakistan's response to the European Union's preliminary
ruling request, para. 5.1; first written submission, paras. 3.5-3.7; and response to Panel question No. 10,
para. 1.49.
56 European Union's comments on Pakistan's response to section 5.2 of the European Union's
57 See below paras. 7.61 (and fns thereto) and 7.105 (and fns thereto).
58 Pakistan's first written submission, paras. 5.134, third bullet point, and 5.135, third bullet point.
59 European Union's comments on Pakistan's response to section 5.2 of the European Union's
preliminary ruling request, para. 18.

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inconsistent with Articles 1 and 3, and Annexes I, II, and III of the SCM Agreement, as
well as Article VI of the GATT 1994. In particular:
o the EU appears to have acted inconsistently with Articles 1.1(a)(1)(i),
1.1(a)(1)(ii), and 3.1(a) and Annexes I(h), I(i), II(I)(1)-(2), II(II)(1)-(2),
III(I), and III(II)(1)-(3) of the SCM Agreement, as well as Article VI of the
GATT 1994, by determining that the MBS constituted a remission or
drawback of import charges in excess of those levied on imported inputs
that are consumed in the production of the exported product; and
o the EU appears to have acted inconsistently with Articles 1.1(a)(1)(i),
1.1(a)(1)(ii), and 3.1(a) and Annexes I(h), I(i), II(I)(1) -(2), II(II)(1)-(2),
III(I), and III(II)(1)-(3) of the SCM Agreement, as well as Article VI of the
GATT 1994, by determining that the entirety of the duty refunds under the
MBS scheme – rather than just the excess portion of these refunds –
constituted an export subsidy.60
7.20. Pakistan thus presents its MBS claims in two bul let points that reference identical provisions
of the SCM Agreement and the GATT 1994 but offer different narratives as to why the Commission
acted inconsistently with the provisions. For present purposes, we assume that both narratives are
relevant as our resolution of the European Union's objection is the same under both.
7.21. Annex II(II)(1) and Annex III(II)(2) of the SCM Agreement both refer to the obligation that
Pakistan alleges the Commission failed to fulfil in this context, i.e. to examine "generally a ccepted
commercial practices in the country of export" under certain relevant circumstances. The panel
request includes these provisions in its references to "Annexes … II(II)(1) -(2) … and III(II)(1)-(3)
of the SCM Agreement". But Annex II(II)(1) and Annex III(II)(2), in our view, contain multiple
obligations.61 Moreover, the panel request cites additional provisions of the SCM Agreement,
including additional provisions of Annexes II and III, and the GATT 1994. Such additional
provisions contain their own di sciplines, and the nature and scope of such provisions differ
significantly.62 In the face of such complexity, we look to the panel request's narratives to clarify
the problem being presented. The commercial -practices issue, however, appears nowhere in the
narratives. Rather, the narratives present problems focused on the extent to which the
Commission found import -duty remissions obtained under the MBS to be "excess". We find no
reasonable way in which such narratives can be read as isolating the commercial -practices issue
from the content of the numerous provisions cited in the panel request. Read as a whole,
therefore, the panel request does not "provide a brief summary of the legal basis of the complaint
sufficient to present the [commercial-practices] problem clearly".63
7.22. For these reasons, we find that Pakistan's claim that the Commission acted inconsistently
with Annex II(II)(1) and/or Annex III(II)(2) of the SCM Agreement "because it failed to examine

60 Emphasis added.
61 We note, therefore, that Annex II(II)(1) alone appears to contain the following obligations for
investigating authorities: (a) "determine whether the government of the exporting Member has in place and
applies a system or procedure to confirm which inputs are consumed in the production of the exported product
and in what amounts"; (b) "examine the [verification] system or procedure to see whether it is reasonable,
effective for the purpose intended"; (c) ascertain whether the system is "based on generally accepted
commercial practices in the country of export"; and (d) if the investigating authority deems it necessary, to
conduct "certain practical tests" of the verification system "in accordance with paragraph 6 of Article 12".
Annex III(II)(2) contains similar obligations.
62 For example, these provisions reflect obligations relating to, inter alia, identifying a "financial
contribution" under Articles 1.1(a)(1)(i) and 1.1(a)(1)(ii), determining whether a subsidy is contingent on
export performance under Article 3.1(a), and others contained in Annexes II and III. Further, a brief
examination of the nature of the measures at issue and nature and scope of the provisions cited would reveal
that certain cited provisions appear facially inapposite to the case at hand. Article 1.1(a)(1)(i) describes a
financial contribution in the form of "a government practice involv[ing] a direct transfer of funds", which the
Commission did not find in the investigation regarding the MBS. Annex I(h) addresses situations involving
indirect taxes, remissions of which were not at issue in the MBS context. Inclusion of such provisions creates
further confusion as to the focus of the cited provisions.
63 The Appellate Body has recognised that "listing general or over-inclusive legal claims in a panel
request runs the risk of having such claims excluded from the panel's terms of reference if, as a consequence,
the panel request fails to present the problem clearly". (Appellate Body Report, US – Countervailing and

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the 'generally accepted commercial [practices]' prev ailing in Pakistan when examining the
verification system and procedures under the MBS" is outside our terms of reference.
7.2.3.3.2 Article 1.1(a)(1) of the SCM Agreement
7.23. The European Union argues that "by omitting provisions in the SCM Agreement directly
addressing the issue of the calculation of benefit or the amount of subsidisation (such as
Articles 14 or 19.4), Pakistan failed to present the problem clearly as required by Article 6.2 of the
DSU."64 This is so because, from the European Union's perspective, the only relevant narrated
claim is contained in the second sub -bullet, i.e. that the Commission "determin[ed] that the
entirety of the duty refunds under the MBS scheme – rather than just the excess portion of these
refunds – constituted an export subsidy". I n the European Union's view, under the circumstances
presented in this dispute, this narrative logically goes to the calculation of the benefit, rather than,
for example, how the Commission determined the existence of a financial contribution under
Article 1.1(a)(1)(ii).65
7.24. Article 6.2 does not require that all provisions of WTO agreements be cited that may have
been violated in light of described conduct of a respondent. Thus, insofar as the European Union
argues that the referenced narrative describes a pro blem that relates to additional provisions of
the SCM Agreement, we reject the European Union's objection as raising a problem with which
Article 6.2 is unconcerned. Insofar as the European Union argues that the panel request is unclear
because the narrati ve describes a problem that does not meaningfully relate to the cited
provisions, especially Article 1.1(a)(1)(ii)66, we also reject the European Union's objection. Indeed,
even the European Union has expressly stated that it clearly understood the problem that the
panel request presented in this context at least with respect to Articles 1.1(a)(1) and 3.1(a) of the
SCM Agreement.67 The European Union's objection is, rather, that the legal obligations contained
in the cited provisions do not discipline the described conduct. Viewed as such, the European Union
essentially asks us to resolve the merits of Pakistan's claim in a preliminary ruling. In our view, the
panel request presents the problem clearly, and the issue of whether the conduct described by
Pakistan violates the provisions it cites goes to the merits of the case and not to the issue of
whether we have jurisdiction to reach the merits.68
7.2.3.3.3 Article 12.6 of the SCM Agreement
7.25. Pakistan's panel request contained, inter alia , a claim that the Commission acted
inconsistently with "Articles 12.6 and 12.8 of the SCM Agreement by failing to provide the
Pakistani exporter with the results of the EU's verification visits to that exporter and by failing to
inform all interested parties of the essential facts under co nsideration."69 Pakistan does not pursue
a claim under Article 12.8 that the Commission failed to disclose the essential facts of the
investigation in this dispute. Thus, the relevant language in the panel request is limited to a claim
that the Commission v iolated Article 12.6 because it failed "to provide the Pakistani exporter with
the results of the EU's verification visits to that exporter".

64 European Union's response to Panel question No. 30, para. 19.
65 See, e.g. European Union's response to Panel question No. 30, para. 25.
66 European Union's response to Panel question No. 30, para. 23.
67 European Union's comments on Pakistan's response to section 5.2 of the European Union's
preliminary ruling request, para. 24 (asserting that "the European Union considers that the only claims which
fall under the Panel's terms of reference are Pakistan's claims under Articles 1.1(a)(1)(ii), and 3.1(a) and
Annex[] I(i) of the SCM Agreement. From Pakistan's panel request, it can be understood that Pakistan alleges
that the EU's determination that the MBS was a countervailable subsidy contingent upon export performance
was contrary to Articles 1.1(a)(1)(ii) and 3.1(a) and Annex[] I(i) of the SCM Agreement, because the
European Union found that the entirety of the duty refunds under the MBS programme – rather than just the
excess portion of these refunds – constituted an export subsidy").
68 If respondents are allowed to convert arguments that complainants' claims cannot succeed under a
given provision into an objection under Article 6.2 of the DSU in this manner, it is difficult to see what
argument could not be readily converted into an objection under Article 6.2 of the DSU, and thus become
subject to a request for a preliminary ruling. We further emphasize that even if we were to construe this
objection as one properly raised under Article 6.2 of the DSU, we would reject it for reasons discussed further
below when we discuss the substance of Pakistan's MBS claims (i.e. the panel request presents the problem
clearly under Article 1.1(a)(1)(ii)). (See below Section 7.3.3.1.2 (and fns thereto)).
69 Panel Request, section B (fourth main bullet).

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7.26. The European Union argues that the panel request failed to present the problem clearly for
two reasons. First, th e European Union observes that Article 12.6 provides two alternatives for
investigating authorities in this context, i.e. " the authorities shall make the results of any such
investigations available or shall provide disclosure thereof pursuant to paragraph 8".70 The
European Union explains that during the investigation the Commission did not avail itself of the
first alternative, but rather performed the actions described in the second alternative. Therefore,
the panel request should have, but did not, specifically mention a failure to comply with the second
alternative.71 Second, the European Union argues that the panel request should have specified, but
did not, what "results" of the verification visit in question were not disclosed.72
7.27. We reject both arguments. Regarding the first, we observe that (as explained in more detail
further below in this Report73) Article 12.6 describes two approaches to satisfy the same obligation
in this context, i.e. the provision of the "results" of verification visits "to the fir ms to which they
pertain". The language in the panel request, i.e. the Commission's failure "to provide the Pakistani
exporter with the results of the EU's verification visits to that exporter", matches the language of
neither approach, nor does it appear to materially resemble one more than the other. We therefore
do not consider that the panel request only claims that the Commission failed to properly use one
such approach. Rather, the panel request describes a failure to satisfy the obligation contained in
both and thus a failure to comply with either. The panel request therefore clearly presents the
problem, i.e. a failure to provide the results of verification visits which is precisely what
Article 12.6, in relevant part, demands.
7.28. We thus turn to the Eu ropean Union's second argument. In this context, we observe that a
claim regarding the failure to provide "results" of verification visits logically depends, of course, on
certain "results" not being provided. All that is necessary under Article 6.2 of the DSU, however, is
a clear, succinct claim explaining how or why the measure at issue is considered by the
complaining Member to be violating the WTO obligation in question. This is what Pakistan did.
From the panel request it is clear that Pakistan claims that the Commission failed to provide the
Pakistani exporter with the results of the Commission's verification visits to that exporter.
Article 12.6, which the panel request cites, contains the obligation to do precisely this. We further
note that, in this context, Article 12.6 contains a relatively specific obligation pertaining to a
particular body of information relating to a specific event, as opposed to a provision broad in scope
that applies on "a continuous basis throughout an investigation". 74 In light of these considerations,
the European Union asks for a level of detail in the panel request that is not required.75
7.3 Claims regarding the MBS
7.3.1 Introduction
7.29. Pakistan's MBS permits licensed companies to import duty -free production input materials if
such materials are consumed in the production of a product that is subsequently exported. Under
the MBS, when a licensed company imports inputs, it posts securities in the amount of import
duties due on those inputs. 76 Pakistan remits the security to that company u pon export of the
company's products if the company presents documents indicating that inputs for which remissions

70 Emphasis added.
71 See generally European Union's response to Panel question No. 87 (summarizing arguments on this
score).
72 See, e.g. European Union's comments on Pakistan's response to section 5.2 of the European Union's
preliminary ruling request, para. 38.
73 See below Section 7.6.4. The European Union's objection in this context appears to implicate the
interpretation of the substantive legal standard(s) contained in Article 12.6 of the SCM Agreement. Analyses
under Article 6.2 of the DSU often require panels to consider the nature and scope of legal provisions, and thus
such analyses may well relate to the substantive content of such provisions. We are somewhat concerned,
however, that such overlap may be employed by respondents as a means by which to request the effective
resolution of the merits of a dispute at a preliminary stage through the use of Article 6.2 of the DSU.
74 Appellate Body Report, EC – Fasteners (China), para. 598 (discussing Articles 6.2 and 6.4 of the
Anti-Dumping Agreement in the context of a DSU Article 6.2 analysis).
75 If the investigating authority does not disclose any such results, we wonder whether a complainant
can reasonably be expected to divine and list all such specific results.
76 See Commission Regulation (EU) No. 473/2010 of 31 May 2010 imposing a provisional countervailing
duty on imports of certain polyethylene terephthalate originating in Iran, Pakistan, and the
United Arab Emirates, Official Journal of the European Union, L Series, No. 134/25 (1 June 2010) (Provisional
Determination), (Exhibit PAK-1), para. 63 (describing securities).

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are requested were used in its production of the exports. Systems like the MBS (i.e. systems
allowing domestic producers to obtain reductions on duties paid on production inputs if they are
consumed in the production of exports) are commonly referred to as duty drawback schemes.77
7.30. A Pakistani PET producer and exporter named Novatex used the MBS to obtain remissions of
import duties on imported PET production inputs. The Commission considered that all duties
remitted to Novatex 78 – "rather than any purported excess remission" 79 – constituted a
countervailable subsidy, contingent on export performance, in the form of revenue forgone
otherwise due th at conferred a benefit to Novatex. The Commission considered that it was
appropriate to countervail all remissions, rather than excess remissions, essentially because
Pakistan lacked a reliable system to confirm what inputs Novatex used in producing its ex ported
PET and because Pakistan conducted no further examination regarding that issue.
7.3.2 Main arguments of the parties
7.31. Pakistan argues that the Commission improperly found the existence of a "financial
contribution" in this context, i.e. "government revenue that is otherwise due [but] forgone" within
the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement, resulting in an improper subsidy
determination.80 Pakistan asserts that, with respect to duty drawback schemes like the MBS,
footnote 1 of the SCM Agreeme nt states a rule that a "financial contribution" for purposes of
Article 1.1(a)(1)(ii) is limited to excess remissions.81 Pakistan notes that footnote 1 indicates that
it is "[i]n accordance with the provisions of Article XVI of GATT 1994 (Note to Article X VI) and the
provisions of Annexes I through III of this Agreement". Pakistan argues that the meaning of "[i]n
accordance with" in this context means that the referenced provisions reflect the same rule as
footnote 1 does.82 Pakistan argues that the text of these provisions supports Pakistan's position. In
particular, Pakistan argues that, contrary to the European Union's argument, neither Annex II nor
Annex III provide any basis for departing from the rule stated in footnote 1, but rather confirm its
validity.83 Thus, by finding that all remitted duties, rather than excess remissions, constituted a
financial contribution and thus the countervailable subsidy, the Commission violated, inter alia ,
Articles 1.1(a)(1)(ii) and 3.1(a) of the SCM Agreement.
7.32. The European Union first asserts that it is evident from the record of the investigation and
Pakistan's submissions in this dispute that Novatex received excess remissions under the MBS.
Thus, the Commission properly found a financial contribution to exist in the in vestigation in the
form of revenue forgone otherwise due.84 Pakistan, therefore, logically only challenges the amount
of the subsidy found in the investigation. A subsidy's amount is determined by measuring the
"benefit" conferred. Because Pakistan raises n o claim under, for example, Articles 1.1(b), 14,
and/or 19.4 of the SCM Agreement, which address the concept of benefit and/or amount of the
subsidy, Pakistan's MBS claims are without a proper legal basis and the Panel must reject them.
The European Union further argues that footnote 1 and Annexes I -III of the SCM Agreement
contain no requirement that investigating authorities, with respect to duty drawback schemes,
always equate excess remissions and the subsidy's amount. The European Union agrees with
Pakistan that footnote 1 does describe a subsidy in terms of excess remissions, but the
European Union further observes that footnote 1 states that it must be read "[i]n accordance
with", inter alia, Annexes II and III. If conditions described in Annexes II a nd III are unsatisfied,

77 The SCM Agreement and this Report adopt this term in describing such systems in general. We note
that "substitution" drawback schemes closely relate to duty drawback schemes. Substitution schemes allow
participants, when requesting drawback, to treat certain domestically sourced inputs that were consumed in
the production of an exported product as if they had been imported and thus subject to import duties.
78 Specifically, such duties were the "import duties forgone (basic custom duties unpaid) in the import of
raw materials used in the production of [PET] during the investigation period ('IP')". (European Commission,
Definitive company-specific disclosure, 26 July 2010, (Exhibit PAK-33) (BCI), p. 1). This Report describes these
as "remissions", a term that the European Union also adopts in this context. (See, e.g. European Union's first
written submission, para. 52 ("The Commission found that, in the absence of permitted duty drawback systems
or substitution drawback systems, the amount of the benefit conferred consisted in the remission of total
import duties normally due upon importation of inputs.") (emphasis added)).
80 Pakistan's first written submission, para. 5.21.
81 Pakistan's first written submission, para. 5.3; opening statement at the first meeting of the Panel,
paras. 3.2 and 3.3.
82 Pakistan's second written submission, para. 2.9.
83 Pakistan's opening statement at the first meeting of the Panel, paras. 3.11.
84 European Union's second written submission, para. 34.

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therefore, footnote 1 no longer can be interpreted to mean that a subsidy in this context can only
exist by reason of excess remissions. 85 According to the European Union, the condition relevant to
this dispute is that Pakistan eithe r have a reliable verification system to confirm what inputs
Novatex used in producing its exported PET or conduct a further examination regarding that issue.
Because that condition was unsatisfied in the underlying investigation, the Commission was free t o
apply other principles to calculate the amount of the countervailable subsidy. 86 The
European Union argues that this result is supported by policy considerations. In particular, in the
absence of effective verification systems or further examinations by t he exporting Member,
investigating authorities would have to rely on unverifiable information from companies to
calculate excess remissions, inviting abuse of duty drawback schemes by companies.87
7.3.3 Evaluation by the Panel
7.33. This Section proceeds in two parts. First, it examines Pakistan's claim under Article 1 of the
SCM Agreement. Second, it addresses Pakistan's claims under other provisions of the
SCM Agreement and the GATT 1994.
7.3.3.1 Article 1
7.34. This Section examines Pakistan's claim under Article 1 of the SCM Agreement. It proceeds in
three parts. First, it interprets the relevant legal standard under Article 1.1(a)(1)(ii) of the
SCM Agreement. Second, it applies that legal standard to the Commission's subsidy determination
vis-à-vis the MBS. Finally, it concludes.
7.3.3.1.1 Legal standard under Article 1.1(a)(1)(ii)
7.35. Article 1 of the SCM Agreement provides, in relevant part:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public bod y within the
territory of a Member (referred to in this Agreement as "government"), i.e. where:
 …
(ii) government revenue that is otherwise due is foregone or not collected
(e.g. fiscal incentives such as tax credits)[*];
 [*fn original] 1 In accordance w ith the provisions of Article XVI of GATT 1994 (Note to
Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption of an
exported product from duties or taxes borne by the like product when destined for domestic
consumption, or the remission of such duties or taxes in amounts not in excess of those which
have accrued, shall not be deemed to be a subsidy.
7.36. Article 1.1(a)(1)(ii) requires a "comparison" "between the challenged measure and a
'defined, normative benchmark'". 88 "The p urpose of this comparison is to distinguish between
situations where revenue forgone is 'otherwise due' and situations where such revenue is not
'otherwise due'."89 Article 1.1(a)(1)(ii) is silent regarding what two things should be compared to
determine whether import duty remissions obtained by a company under a duty drawback scheme
like the MBS constitute revenue forgone otherwise due. Footnote 1, however, attaches to this

85 European Union's first written submission, para. 98; second written submission, para. 20.
86 European Union's first written submission, paras. 60 and 93.
87 European Union's first written submission, para. 95.
88 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 808. The Appellate Body
articulated this standard in cases in which a WTO panel was determining whether a "subsidy" existed under the
SCM Agreement in the first instance, rather than reviewing the decision of an investigating authority. We see
no reason to think, however, that a different analytic framework should apply in this context.
89 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 89 (emphasis original). See also
Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812 (discussing this issue). Such
guidance was mainly formulated in disputes examining tax systems, rather than duty drawbacks.
Article 1.1(a)(1)(ii), however, should be interpreted in a flexible fashion so as to adapt to different
circumstances. (Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66).

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provision, and contains crucial guidance 90 on this score. Footnote 1 consists of one sentence with
two basic parts. The first identifies legal provisions that the remainder of the sentence are "[i]n
accordance with". The second identifies two situations, i.e. (a) the "exemption of an exported
product from duties or taxes borne by the like product when destined for domestic consumption";
or (b) "the remission of such duties or taxes in amounts not in excess of those which have
accrued", that "shall not be deemed to be a subsidy". Attaching footnote 1, which refers to a
"subsidy", to Article 1.1(a)(1)(ii), which defines a "financial contribution" (i.e. a part of a subsidy)
in terms of revenue forgone otherwise due, indicates that it should be interpreted vis-à-vis that
article, and is further an implicit recognition of the close relationship between the concepts of
revenue forgone otherwise due and a subsidy.91 That is, as panels have observed, where "financial
contributions" exist in the form of revenue forgone otherwise due, a finding of a "benefit" – and
hence a "subsidy" – readily follows.92
7.37. The language "shall not be deemed to be a subsidy" in footnote 1 indicates that, in the
absence of further qualification, the two situations described are never subsidies under Article 1.
Of the two, the latter appears the more material and contains the terms at which the parties direct
their arguments, i.e. "the remission of such duties or taxes in amounts not in excess of those
which have accrued". 93 The parties appear to agree, and we see no reason to doubt, that the
"duties" that "accrued" in this context are import duties that accrued on imported inputs consumed
in the production of a subsequently exported product. 94 Thus, the comparison under
Article 1.1(a)(1)(ii) is between remissions of duties obtained by a company under a duty drawback
scheme, on the one hand, and duties that accrued on imported production inputs used by that
company to produce a subsequently exported product, on the other hand. A subsidy exists insofar
as the former exceeds the latter, i.e. an "excess" remission occurs representing r evenue forgone
otherwise due. For ease of reference, this Report refers to this as the Excess Remissions Principle.
7.38. The issue thus becomes whether situations exist where the Excess Remissions Principle
should not be used to analyse remissions obtained unde r duty drawback schemes. The
European Union asserts that the first part of footnote 1 prescribes such a situation through its
explanation that footnote 1 is "[i]n accordance with … Annexes I through III". More specifically,
the European Union argues that A nnex II(II)(2) and/or Annex III(II)(3) describe certain
circumstances in which the Excess Remissions Principle is inapplicable. In evaluating this issue, we
examine the language of footnote 1 and the provisions cited therein.
7.3.3.1.1.1 Footnote 1 and the term "[i]n accordance with"
7.39. The first part of footnote 1 reads: "In accordance with the provisions of Article XVI of
GATT 1994 (Note to Article XVI) and the provisions of Annexes I through III of this Agreement".
The word "accordance" means "[a]greement; conformity; harmony".95 Thus, the Excess
Remissions Principle is "in agreement with", "in conformity with" and/or "in harmony with" the
cited provisions. The footnote refers to these provisions equally, suggesting that the Excess
Remissions Principle is equally in agreement with each.

90 Pakistan does not claim a violation of footnote 1.
91 A subsidy cannot exist without a financial contribution. Further, the guidance that footnote 1 provides
appropriately coheres with the analytic framework regarding identification of revenue forgone otherwise due.
Moreover, as also discussed in this paragraph, the identification of a benefit and hence a subsidy follows readily
from identification of revenue forgone otherwise due.
92 See, e.g. Panel Reports, US – FSC, paras. 7.41-7.103; US – FSC (Article 21.5 – EC), paras. 8.3-8.48;
and US – Large Civil Aircraft (2nd complaint), paras. 7.115-7.171. We are mindful that a "financial contribution"
and a "benefit" are still "separate legal elements in Article 1.1". (Appellate Body Report, Brazil – Aircraft,
para. 157).
93 Although the two situations described in footnote 1 may be related, we see no reason why the issues
at stake in this dispute cannot be effectively resolved with particular reference to the second.
94 See, e.g. Annex II(I)(2) (explaining that "drawback schemes can constitute an export subsidy to the
extent that they result in a remission or drawback of import charges in excess of those actually levied on
inputs that are consumed in the production of the exported product"). If the scheme allows for substitution,
the characterization of what duties "accrued" may differ to allow for the enhanced complexity of such schemes.
(See generally Annexes I(i) and III of the SCM Agreement). Pakistan, however, asserts that the MBS is not a
substitution drawback scheme. (See Pakistan's first written submission, fn 63). The European Union has not
argued to the contrary. We further find no basis upon which to conclude that the MBS is a "substitution"
drawback scheme on this record.
95 Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1,
p. 15.

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7.40. We consider the European Union's argument to be in tension with the language in
footnote 1.96 Indeed, it appears incongruous to say that a principle is in agreement with a
provision when the provision potentially eliminates the principle. Moreover, we find no other
instance in which the SCM Agreement uses the term "in accordance with", on its own, to create an
exception to an otherwise stated rule by cross -referencing another provision. 97 We nonetheless
consider the possibility that the term "in accordance with" signals that the Excess Remissions
Principle only applies insofar as the cited provisions "agree" that it should, such that the provisions
limit its application. We examine the cited provisions (i.e. Article XVI of GATT 1994 (Note to
Article XVI), and Annexes I-III of the SCM Agreement) in turn to assess this possibility.98
7.3.3.1.1.2 Article XVI of GATT 1994 (Note to Article XVI)
7.41. Article XVI of GATT 1994 contains the original GATT disciplines on subsidies. The Note to
Article XVI reads:
The exemption of an exported product from duties or taxes borne by the like product
when destined for domestic consumption, or the remission of such duties or taxes in
amounts not in excess of those which have accrued, shall not be deemed to be a
subsidy.
7.42. This is t he predecessor of footnote 1 of the SCM Agreement. Because Article XVI of the
GATT 1994 applies together with the SCM Agreement to discipline subsidies, we impart some
weight to this provision.99 We therefore note that it states the Excess Remissions Principle vis-à-vis
GATT subsidy disciplines without qualification.
7.3.3.1.1.3 Annex I
7.43. Annex I is the Illustrative List of Export Subsidies. The examples listed therein describe
"subsidies" within the meaning of Article 1 of the SCM Agreement that are, additionally, prohib ited
under Article 3. Parts (g), (h), and (i) address situations that resemble the situations described in
the second part of footnote 1 of the SCM Agreement in that they describe situations involving
remissions of taxes or import duties. Under all these p rovisions, remissions are "subsidies" only if
they are excess. Moreover, one of these provisions, Annex I(i), specifically addresses situations
involving import duty drawbacks of the type at issue in this dispute100:
The remission or drawback of import charg es in excess of those levied on imported
inputs that are consumed in the production of the exported product (making normal
allowance for waste); provided, however, that in particular cases a firm may use a
quantity of home market inputs equal to, and havin g the same quality and
characteristics as, the imported inputs as a substitute for them in order to benefit
from this provision if the import and the corresponding export operations both occur
within a reasonable time period, not to exceed two years. This item shall be
interpreted in accordance with the guidelines on consumption of inputs in the

96 It will be recalled that the European Union's argument is that the words "in accordance with" mean
that the cited provisions in footnote 1 limit the situations in which the Excess Remissions Principle applies.
97 See SCM Agreement, Articles 1.2, 6.8, 8.3, 10, 11.7, 12.12, 13.3, 17.1, 18.6, 19.1, 25.10, 27.8,
32.1, Annex I(h)-(i), Annex II(II)(1)-(2), Annex III(II)(2)-(3), Annex V(5), and fns 12, 14, 35, 44, and 45.
Rather, such exceptions or deviations are generally achieved by using the word "except". (See SCM
Agreement, Articles 3.1, 7.1, 11.1, 12.5, 16.1, 20.1, 20.4, 30, Annex IV(2), and fn 49).
98 The European Union only argues that Annex II(II)(2) and/or Annex III(II)(3) limit the availability of
the Excess Remissions Principle in a relevant manner. Nonetheless, to more fully understand footnote 1, we
examine all provisions it cross-references.
99 We are mindful that "[t]he relationship between the GATT 1994 and the other goods agreements in
Annex 1A is complex" and "Article[] … XVI of the GATT 1994 alone do[es] not represent the total rights and
obligations of WTO Members. The … SCM Agreement reflect[s] the latest statement of WTO Members as to
their rights and obligations … [and] represent[s] a substantial elaboration of the provisions of the GATT 1994".
(Appellate Body Report, Brazil – Desiccated Coconut, p. 15). In the event of a conflict between the GATT 1994
and the SCM Agreement, the latter prevails. (WTO Agreement, General interpretive note to Annex 1A).
100 Annex I(i) addresses drawbacks of "import charges". It will be recalled that footnote 1 operates with
respect to "duties or taxes". "Import charges" include import duties. (SCM Agreement, fn 58). The Commission
found remissions granted under the MBS to be contingent upon export performance. (Provisional
Determination, (Exhibit PAK-1), para. 74). Neither party has provided any reason to suggest that this finding
was flawed.

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production process contained in Annex II and the guidelines in the determination of
substitution drawback systems as export subsidies contained in Annex III.101
7.44. Annex I(i) therefore restates the Excess Remissions Principle.102
7.3.3.1.1.4 Annex II
7.45. Annex II is entitled " Guidelines on Consumption of Inputs in the Production Process". As
described below, the Annex applies to duty drawback schemes like the MBS. 103 It has two parts,
i.e. Annex II(I) and II(II), which we address in turn.
7.46. Annex II(I) provides:
I
1. Indirect tax rebate schemes can allow for exemption, remission or deferral of
prior-stage cumulative indirect taxes levied on inputs that are consumed in the
production of the expo rted product (making normal allowance for waste). Similarly,
drawback schemes can allow for the remission or drawback of import charges levied
on inputs that are consumed in the production of the exported product (making
normal allowance for waste).
2. The Illustrative List of Export Subsidies in Annex I of this Agreement makes
reference to the term "inputs that are consumed in the production of the exported
product" in paragraphs (h) and (i). Pursuant to paragraph (h), indirect tax rebate
schemes can constitute an export subsidy to the extent that they result in exemption,
remission or deferral of prior -stage cumulative indirect taxes in excess of the amount
of such taxes actually levied on inputs that are consumed in the production of the
exported product. Pursuant to paragraph (i), drawback schemes can constitute an
export subsidy to the extent that they result in a remission or drawback of import
charges in excess of those actually levied on inputs that are consumed in the
production of the exported produ ct. Both paragraphs stipulate that normal allowance
for waste must be made in findings regarding consumption of inputs in the production
of the exported product. Paragraph (i) also provides for substitution, where
appropriate.104
7.47. Annex II(I) states facts and associated principles. Paragraph 1, inter alia, acknowledges the
existence of, and describes, duty drawback schemes. Paragraph 2, in most relevant part, recalls
circumstances under which Annex I(i) considers such schemes subsidies, i.e. when remissions
obtained under them are excess. The paragraph neither states nor suggests other circumstances in
which remissions under drawback schemes may be subsidies, and contains no language restricting
the application of the Excess Remissions Principle in any relevant way. We take special note that
Annex II(I) is placed at the beginning of Annex II. This indicates that Annex II(I) is context for
interpreting Annex II(II), and, more specifically, that Annex II(I) indicates that the scope of the
second part of the Annex is limited to the context of determining whether remissions under a
drawback system constitute a subsidy by reason of them being excess. With these observations in
mind, we turn to examine Annex II(II).

101 Fn omitted.
102 We are mindful that Annex I is an illustrative list, and does not describe all subsides. We note that
Annex I(i) states that it "shall be interpreted in accordance with" Annexes II and III. We turn next to examine
those Annexes.
103 Neither party has questioned the relevance of Annex II vis-à-vis the MBS. The parties, rather,
dispute the consequences of its guidance as applied to the MBS.
104 Emphasis added.

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7.48. Annex II(II) provides:
II
In examining whether input s are consumed in the production of the exported
product, as part of a countervailing duty investigation pursuant to this Agreement,
investigating authorities should proceed on the following basis:
1. Where it is alleged that an indirect tax rebate scheme, or a drawback scheme ,
conveys a subsidy by reason of over -rebate or excess drawback of indirect taxes or
import charges on inputs consumed in the production of the exported product, the
investigating authorities should first determine whether the governme nt of the
exporting Member has in place and applies a system or procedure to confirm which
inputs are consumed in the production of the exported product and in what amounts.
Where such a system or procedure is determined to be applied, the investigating
authorities should then examine the system or procedure to see whether it is
reasonable, effective for the purpose intended, and based on generally accepted
commercial practices in the country of export. The investigating authorities may deem
it necessary to carry out, in accordance with paragraph 6 of Article 12, certain
practical tests in order to verify information or to satisfy themselves that the system
or procedure is being effectively applied.
2. Where there is no such system or procedure, where it is not reasonable, or
where it is instituted and considered reasonable but is found not to be applied or not
to be applied effectively, a further examination by the exporting Member based on the
actual inputs involved would need to be carried out in the conte xt of determining
whether an excess payment occurred. If the investigating authorities deemed it
necessary, a further examination would be carried out in accordance with
paragraph 1.105
7.49. Annex II(II) provides guidance for investigating authorities. Its introd uction describes the
issue at which this guidance is directed, i.e. how to determine "whether inputs are consumed in
the production of the exported product". This is an intermediate, but necessary, factual issue to
address when determining whether excess payments occurred under a drawback scheme.106
7.50. Annex II(II)(1) indicates that investigating authorities should essentially: (a) determine
whether the exporting Member has a system for tracking what inputs were consumed in the
production of a relevant exported product; and (b) if such a system exists, evaluate its reliability.
This guidance only applies, however, "[w]here it is alleged that … a drawback scheme, conveys a
subsidy by reason of … excess drawback". This language appears to assume that the only relev ant
allegation underlying the inquiry as to whether a drawback scheme conveys a subsidy is that it
resulted in excess remissions. In other words, it assumes the operation of the Excess Remissions
Principle. If it were permissible to label all drawn back duties as a countervailable subsidy, whether
excess or not, we would expect allowance for an allegation to that effect. Indeed, we would
consider it odd if the very guidance that could lead to the non-application of the Excess Remissions
Principle could only be triggered by an allegation assuming its application.
7.51. Annex II(II)(2) addresses the situation in which, pursuant to the inquiries performed under
Annex II(II)(1), it is determined that the exporting Member has no reliable system of tracking
inputs consu med in the production of a relevant exported product. In this scenario, "a further
examination by the exporting Member based on the actual inputs involved would need to be
carried out in the context of determining whether an excess payment occurred." 107 We first note
that this provision operates "in the context of determining whether an excess payment occurred",
which reinforces the idea that Annex II is focused on identifying excess remissions.
Annex II(II)(2), however, does not indicate what happens if the "further examination" that "would

105 Emphasis added.
106 After establishing what inputs were used in the production of an exported product, it would also have
to be determined what duties accrued and were remitted.
107 The "further examination" appears to be an ad hoc process intended to substitute for the presence of
a verification system that would otherwise have monitored which inputs were used in the production of the
relevant exported product.

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need to be carried out" is not performed. In the European Union's view, this silence means that
the Excess Remissions Principle ceases to apply, and different principles apply such that an
investigating authority – like the Commission in this investigation – may find that the entire sum
of drawn back duties, rather than excess, is a countervailable subsidy.
7.52. We must disagree. We have found nothing in footnote 1, Article XVI of GATT 1994 (Note to
Article XVI), Annex I, or Annex II that materially suggests that the Excess Remissions Principle, as
stated in footnote 1, is anything but the final word in how remissions under duty drawback
schemes like the MBS are to be identified as subsidies. We agree that Annex II provides
incomplete guidance as to how to investigate a particular issue in this context in that it does not
specify what occurs if something that "need[s] to be carried out" is not. But we see no reasonable
basis upon which to interpret that silence as a directive to r ead footnote 1 out of the
SCM Agreement. Indeed, we take special note that this silence in Annex II(II)(2) does not mean
that other portions of Annex II cease to speak, and we recall that the entirety of Annex II(II)(2)
only operates in the presence of an allegation that a "drawback scheme[] conveys a subsidy by
reason of over-rebate or excess drawback".108 Thus, we interpret such silence as just that, leaving
us to the provisions that the otherwise intact SCM Agreement provides, including footnote 1.
7.3.3.1.1.5 Annex III
7.53. Annex III is entitled "Guidelines in the Determination of Substitution Drawback Systems as
Export Subsidies". As the title indicates, it is applicable to a particular species of duty drawback
schemes, i.e. substitution drawback schemes. Substitution sch emes allow participants, when
requesting drawback, to treat certain domestically sourced inputs that were consumed in the
production of an exported product as if they had been imported and thus subject to import
duties.109
7.54. Although there are certain structural and textual differences between Annexes II and III due
to the different issues they address 110, these are minor for our purposes. Given the similarities
between Annexes II and III, therefore, we limit our discussion of Annex III to the following
observations. Like Annex II, Annex III consists of two parts. Annex III(I) states facts and
principles, acknowledging the existence of and describing substitution drawback schemes, and
recalls that under Annex I(i) such schemes result in subsidies when remissions o btained under
them are excess. 111 Consistent with this observation, Annex III(II) provides guidance for
investigating authorities that is designed to allow investigating authorities to identify excess
remissions.112 We especially note that the issue addressed in Annex III(II)(3) is analogous to that
addressed in Annex II(II)(2), and the texts of the two are also materially similar. Annex III(II)(3)
provides:
Where there are no verification procedures, where they are not reasonable, or where
such procedures are instituted and considered reasonable but are found not to be
actually applied or not applied effectively, there may be a subsidy. In such cases a
further examination by the exporting Member based on the actual transactions
involved would need to be carried out to determine whether an excess payment
occurred.
7.55. The European Union argues that because Annex III(II)(3) does not specify what occurs in
the absence of reliable verification procedures or a "further examination" that "would need to be

108 Annex II(II)(1).
109 We have previously noted that we find no basis on this record to conclude that the MBS is a
substitution drawback scheme. (See above fn 94).
110 Annex II addresses a prominent but specific factual issue arising in the context of addressing duty
drawback schemes. Annex III addresses substitution drawback schemes as a whole.
111 In the context of substitution drawback schemes, the word "excess" has the same basic meaning as
when used in the context of a non-substitution drawback scheme, i.e. when remissions exceed duties accrued.
112 See Annex III(II)(1) ("The existence of a verification system or procedure is important because it
enables the government of the exporting Member to ensure and demonstrate that the quantity of inputs for
which drawback is claimed does not exceed the quantity of similar products exported, in whatever form, and
that there is not drawback of import charges in excess of those originally levied on the imported inputs in
question" (emphasis added)), and III(II)(2) (offering guidance regarding determinations of whether the
exporting member maintains a reliable "verification system or procedure" that guards against excess
drawbacks).

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carried out", as was the case with Annex II(II)(2), the Excess Remissions Principle ceases to apply
and investigative authorities may use other principles to identify the subsidy. The crucial point
again is that even if Annex III provides incomplete guidance as to how to determine whether
excess payments occurred under substitution drawback schemes, without some relatively clear
indication to the contrary within Annex III's focus of determining whether excess remissions
occurred, we see no reasonable basis upon which to in terpret this silence as substantively altering
what amounts to a "subsidy" in Article 1 of the SCM Agreement. We find no such indication in any
examined provision, including Annex III.113
7.3.3.1.1.6 Conclusion – legal standard under Article 1.1(a)(1)(ii)
7.56. We conclude th at the Excess Remissions Principle provides the legal standard under which
to determine whether remissions of import duties obtained under a duty drawback scheme
constitutes a financial contribution in the form of revenue forgone otherwise due under
Article 1.1(a)(1)(ii) of the SCM Agreement114, and reject the European Union's position that
Annex II and/or Annex III provides a relevant reason to depart from the Excess Remissions
Principle. Thus, even if the exporting Member has no reliable system of tracking inputs consumed
in the production of a relevant exported product and in the absence of a further examination by
the exporting Member of that issue, investigating authorities should still determine if an excess
remission occurred.
7.3.3.1.2 Application of Article 1 to the Commission's MBS subsidy determination
7.57. In its investigation, the Commission concluded that the MBS was "a[n export] subsidy … in
the form of forgone government revenue which confers a benefit upon [Novatex]".115 The following
statements in the Provisio nal Determination clearly explain that the financial contribution, i.e. the
"forgone government revenue", was not any excess remissions but the total amount of unpaid
duties, and it was this amount that was to be countervailed 116: (a) "the normal rule of
countervailing of [sic] the amount of (revenue forgone) unpaid duties applies, rather than any
purported excess remission "117; and (b) "[t]he subsidy amount … was calculated on the basis of
import duties forgone … on the material imported under the [MBS]".118

113 No party has provided reason to believe that different results should be reached under
Annex II(II)(2) and Annex II(II)(3) in this context, and we see no reason to believe that divergent results
should occur.
114 We do not a priori exclude the possibility that an investigating authority might permissibly reject a
company's characterization of monies obtained from a government as remissions obtained under a duty
drawback scheme. This is not that case, however. The entirety of the Commission's analysis in its
Determinations characterized the relevant financial contribution as received under the operation of the MBS, no
suggestion was ever made that Novatex obtained remissions of import duties for which it had never posted
securities, and the mere application of the revenue-forgone-otherwise-due rubric indicates that remissions of
government revenue, i.e. customs duties, was at stake.
116 Contrary to the European Union arguments, therefore, the Commission did not simply "tick the box
of the existence of a financial contribution". Rather the Commission specified the duties that it considered to be
the financial contribution. (European Union's response to Panel question No. 89, para. 17).
117 Provisional Determination, (Exhibit PAK-1), para. 78. (emphasis added)
118 Provisional Determination, (Exhibit PAK-1), para. 79 (emphasis added). We recall that the second
sub-bullet of Pakistan's MBS-related claims in its panel request asserted a violation of Article 1.1(a)(1)(ii)
because the Commission "determin[ed] that the entirety of the duty refunds under the MBS scheme – rather
than just the excess portion of these refunds – constituted an export subsidy" (See above para. 7.19). In light
of our discussion above, and recalling that the European Union made an objection to Pakistan's
Article 1.1(a)(1)(ii) claim under Article 6.2 of the DSU, we consider this is a sufficiently clear statement of the
problem. The Commission's determination that the entirety of remissions under the MBS – rather than just the
excess portion of these refunds – constituted an export subsidy, was a clear and direct consequence of how the
Commission identified the financial contribution. Indeed, without providing any additional calculations or
reasoning, the Commission also explained that the financial contribution was also the amount of the benefit:
"[T]he benefit consists in [sic] the remission of total import duties normally due upon importation on inputs."
(Provisional Determination, (Exhibit PAK-1), para. 78). This is consistent with the manner in which WTO panels
and the Appellate Body have treated the relationship between revenue forgone otherwise due and the benefit
conferred by that particular financial contribution. (See above para. 7.36 et seq.). We recall that the first sub-
bullet of Pakistan's MBS-related claims in its panel request also asserted a violation of Article 1.1(a)(1)(ii)
because the Commission "determin[ed] that the MBS constituted a remission or drawback of import charges in
excess of those levied on imported inputs that are consumed in the production of the exported product".

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7.58. The Commission indicated that this approach was justified because: (a) Pakistan "did not
effectively apply its verification system or procedure to confirm whether and in what amounts
inputs were consumed in the production of the exported product"; and (b) Pak istan "did not carry
out a further examination based on actual inputs involved, although this would normally need to
be carried out in the absence of an effectively applied verification system". 119 The problem with
this approach is thus clear. That is, as ex plained above, these reasons, even if true, provide no
basis upon which to depart from the Excess Remissions Principle. The Commission should still have
determined whether an excess remission occurred. The Commission, therefore, offered no
reasoned and ade quate explanation for why the entire amount of unpaid duties was a financial
contribution and that those duties were "in excess of those which have accrued" within the
meaning of footnote 1 of the SCM Agreement, and thus acted inconsistently with
Article 1.1(a)(1)(ii) of the SCM Agreement.
7.59. In this regard, we note the European Union's concern that our decision would require
investigating authorities to essentially administer another Member's duty drawback system in the
event that the system is found to be de ficient under Annex II(II). To be clear, this is not what we
believe the SCM Agreement requires. If an exporting Member's system is found to be wanting
under Annex II(II), the amount of the excess remissions would need to be determined on the basis
of info rmation available to the investigating authority. If an investigating authority lacks
"necessary information" with respect to a specific issue, it may rely on facts available under
Article 12.7 of the SCM Agreement. 120 In that event, we do not exclude the po ssibility that an
investigating authority might permissibly determine that all remitted duties under a drawback
scheme are "excess" in the absence of reliable information with which to calculate the excess
amount. But that outcome results from the lack of necessary information, not from the
non-applicability of the Excess Remissions Principle. This is an important distinction because it may
be possible for an exporter to supply the necessary information in circumstances where the
exporter's government faile d, for example, to conduct a further examination under Annex II(II).
Indeed, it was noted in this case that the Commission has in the past used other information to
determine the extent of excess remissions in circumstances where the Commission determined
that the exporting Member did not have a reliable verification system with respect to its duty
drawback scheme and did not conduct a further investigation of the excess remissions matter.121
7.3.3.1.3 Conclusion – Article 1
7.60. In accordance with our reasoning above, we f ind that by failing to provide a reasoned and
adequate explanation for why the entire amount of remitted duties, which the Commission found
to be the financial contribution (and, thus, the countervailable subsidy), was "in excess of those
which have accrue d" within the meaning of footnote 1 of the SCM Agreement, the Commission
acted inconsistently with Article 1.1(a)(1)(ii) of the SCM Agreement. 122 Because the Commission,
therefore, incorrectly identified the existence of a subsidy, we also find that the Comm ission acted
inconsistently with Article 3.1(a) by improperly finding the existence of a "subsidy" that was
contingent on export performance.123

Pakistan has provided no reason for us to believe that resolution of its claims under the two sub-bullets should
require any sort of separate treatment. We thus exercise judicial economy with respect to the claims in the first
sub-bullet.
120 See, e.g. Appellate Body Report, US – Countervailing Measures (China), paras. 4.178 and 4.179
(explaining that the "evaluation of the 'facts available' that is required, and the form it may take, depend on
the particular circumstances of a given case, including the nature, quality, and amount of evidence on the
record and the particular determinations to be made" and that "the nature and extent of the explanation and
analysis will necessarily vary from determination to determination").
121 See, e.g. Commission Regulation (EC) No. 1411/2002 of 29 July 2002 imposing a provisional
countervailing duty on imports of polyester textured filament yarn originating in India, Official Journal of the
European Communities, L Series, No. 205/26 (2 August 2002), (Exhibit PAK-42), paras. 65 and 66; and
Commission Decision No. 284/2000/ECSC of 4 February 2000, Official Journal of the European Communities,
L Series, No. 31/44 (5 February 2002), (Exhibit PAK-43), paras. 30-34.
122 See above para. 7.4 et seq. (setting forth standard of review).
123 Pakistan has stated that its Article 3.1(a) claim is consequential to the Panel finding a violation of
Article 1. (Pakistan's first written submission, paras. 5.133 and 9.3; response to Panel question No. 22,
para. 2.30).

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7.3.3.2 Other MBS-related claims
7.61. Pakistan also claims that the Commission, in making its MBS subsidy determination:
a. Failed to investigate whether the duty drawback system verification mechanisms were
based on generally accepted commercial practices in the country of export . This Report
has previously found this claim to be outside our terms of reference.
b. Failed to provide Pakistan with the opportunity to assist the Commission's determination
of the excess amount, failed to take into account evidence regarding the amount of any
excess drawback, and failed to make normal allowance for waste . Pakistan has indicated
that if the Panel reaches the conclusion stated in Section 7.3.3.1.3, above, and reaches
that conclusion in the manner that we did, Pakistan no longer requests findings on these
claims.124 We therefore do not address them.
c. Violated Annexes II(II) and III(II) "as a whole ". Pakistan's arguments, in our view, have
clarified that this claim is predicated on the Panel finding a violation of one of the "steps"
that Annex I(i), II(II) and/or Annex III(II) prescribe. 125 In light of the discussion directly
above in paragraphs (a) a nd (b), and the fact that we find no relevant violation of
Annex I(i) as described in paragraph (d), below, we find no such violations. This claim is
therefore moot.
d. Violated Annex I(i). Pakistan has asserted this claim in two different ways. First, Pakistan
argues that the Commission violated this provision for the same reasons that it violated
Article 1. Insofar as this is the case, we exercise judicial economy with respect to this
claim. Second, Pakistan argues that the Commission violated Annex I(i) as a necessary
consequence of its violations of Annexes II and/or III. 126 Insofar as this is the case,
because we find no separate violations of Annexes II and III, this claim is moot.
e. Violated Articles 1.1(b), 10, 19, and 32, and Article VI of the GATT 1994 . Pakistan has
explained that these claims are consequential to other violations of the
SCM Agreement.127 Insofar as such claims are premised on claims that we do not
consider, such claims are moot. Insofar as they are based on violations of
Article 1.1(a)(1)(ii) and/or Article 3.1(a), we exercise judicial economy with respect to
them.128
7.4 Claims regarding the LTF-EOP
7.4.1 Introduction
7.62. Pakistan's LTF-EOP programme provided government -financed loans through pre -approved
banks for certain qualifying companies. The banks w ere prohibited from charging interest rates

124 Pakistan's response to Panel question No. 25, para. 2.35.
125 See Pakistan's response to Panel question No. 3(b), para. 1.15 (explaining that "the failure to include
a given step – or the decision to 'skip' one of these obligatory steps – is a violation of the procedures of
Annex II(II) as a whole"), No. 3(c), para. 1.18 (explaining that a separate violation of Annex I(i) results in a
violation of Annex II(II) "as a whole"), and No. 6(a), paras. 1.39 (explaining that "[a] failure to respect a
particular aspect of th[e] process [in Annex II(II) or Annex III(II)] … results in a violation of that process as a
whole"), and 1.40 (explaining that the Commission violated the Annex provisions "as a whole" "because it
failed to observe the totality of the steps mandated" therein). In the alternative, Pakistan may argue that the
Commission violated Annex II(II) or Annex III(II) "as a whole" for the same reasons that the Commission
violated Article 1. (See Pakistan's response to Panel question No. 6(b), para. 1.41 (stating that "by
countervailing the total amount of the import duty remissions rather than just the excess amount, the EU acted
inconsistent with Article 1, Annex I(i) and the whole of Annexes II(II) and III(II) to the SCM Agreement")).
Insofar as this is the case, we exercise judicial economy regarding this claim.
126 See, e.g. Pakistan's response to Panel question No. 2, paras. 1.6-1.8, No. 3(a), para. 1.11, No. 3(b),
127 Pakistan's comments on the European Union's comments on Pakistan's response to the
European Union's preliminary ruling request, para. 5.13; and response to Panel question No. 7(b), para. 1.43,
and No. 23, para. 2.32.
128 The European Union has raised objections under Article 6.2 of the DSU with respect to many of the
claims discussed immediately above in paragraphs (b)-(e). Because we do not address these claims, however,
we do not address the European Union's related objections under Article 6.2 of the DSU.

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above a specified level, which consisted of a base interest rate that was to be determined by the
State Bank of Pakistan (SBP) on an annual basis, plus a further mark -up of up to three percentage
points. Novatex concluded a loan under the LTF -EOP with a consortium of five banks in June 2005
for a maximum of Pakistani rupees (PKR) [***] (the LTF -EOP Loan). The LTF -EOP Loan was
structured so that it could be drawn down in tranches over time, and Novatex drew down th e loan
in this manner. Each tranche had a maturity term of 7.5 years and was assigned an interest rate
at the time of its drawdown, which was locked in for the duration of its term. That rate was the
SBP's annual base rate prevailing at the time of drawdow n plus a mark -up of 1.8 percentage
points. In June 2005, the SBP's annual base rate was 5% and never changed thereafter. Thus, the
interest rate assigned to all tranches that Novatex drew down ended up being the same, i.e. 6.8%.
The Commission determined the LTF-EOP Loan to be a countervailable subsidy in its investigation.
In doing so, the Commission determined that the LTF -EOP Loan conferred a "benefit" to Novatex
by comparing the amount of interest Novatex paid on the total outstanding amount of the LTF-EOP
Loan during the period of investigation (POI) with the interest that Novatex would have paid if the
interest rate on the LTF -EOP Loan had not been 6.8%, but a commercial benchmark interest rate
instead. That benchmark interest rate was a rate taken fro m the website of the SBP that prevailed
during the POI (the SBP Rate)129, and was 14.44%.
7.4.2 Main arguments of the parties
7.63. Pakistan raises two related claims in this context, one under the chapeau of Article 14 of the
SCM Agreement and one under Article 14(b). Pakistan argues that the Commission's determination
that the LTF-EOP Loan conferred a "benefit" to Novatex within the meaning of Article 1.1(b) of the
SCM Agreement is inconsistent with the chapeau of Article 14 because the Commission failed to
adequately explain the application of its method of calculating the benefit in light of its own
guidelines on this subject (the EU Guidelines). 130 In this context, Pakistan argues that the
Commission failed to: (a) identify a comparable commercial loan; (b) identify the interest normally
payable on a comparable commercial loan to Novatex; (c) identify the interest payable on a
comparable loan to companies in a similar financial situation in the same sector of the economy;
(d) identify the interest payable on a comparable loan to companies in any sector of the economy;
(e) reflect in its analysis the particular multi -tranche structure of the LTF-EOP Loan, whereby each
tranche was assigned an interest rate at the time of its drawdown; (f) explain why the SBP Rate
was an appropriate benchmark for a loan of 7.5 years, which the LTF -EOP Loan assigned to each
tranche drawn down, when the SBP Rate reflects an average of several lending rates for shorter
loans; and (g) explain why the Commission rejected evidence on the record co ncerning available
commercial loans to Novatex that Novatex provided during the investigation. 131 For essentially the
same reasons, Pakistan argues that the Commission's method of calculating the "benefit" was
inconsistent with Article 14(b) 132, i.e. "because the application of its method was not 'consistent
with [the] guidelines [in Article 14(b)]', because the EU failed to identify a comparable commercial
loan".133 In this context, Pakistan emphasizes that the Commission improperly benchmarked
interest payments made on principal drawn down by Novatex under the LTF -EOP Loan before the
POI with a benchmark (i.e. the SBP Rate) prevailing during the POI. Relying on these arguments
Pakistan also claims violations of Articles 1.1(b), 10, 19.1, and 32 of the SCM Agreem ent, and
Article VI:3 of the GATT 1994.134
7.64. The European Union argues that the Commission adequately explained its methodology for
assessing the benefit conferred under the LTF -EOP Loan as required by the chapeau of Article 14.
In particular, the European Uni on stresses that Novatex could draw down amounts under the
LTF-EOP Loan at times of its choosing, and that interest rates were assigned to tranches at the
time they were drawn down. This flexibility meant that the LTF -EOP Loan was more akin to a line
of cr edit than a fixed -term loan where an interest rate is typically assigned to the entire loan
amount at the time of contracting. Due to such fundamental differences, it was proper to not

129 The "SBP Rate" is distinct from the annual base rate that the SBP set with respect to the LTF-EOP
programme.
130 Guidelines for the Calculation of the Amount of Subsidy in Countervailing Duty Investigations,
(98/C 394/04), Official Journal of the European Communities, C Series, No. 394/6 (17 December 1998),
(Exhibit PAK-5).
131 Pakistan's first written submission, paras. 6.28-6.44; opening statement at the second meeting of
the Panel, para. 3.5.
132 Pakistan's first written submission, paras. 6.45-6.100.
133 Pakistan's first written submission, para. 6.25.
134 Pakistan's first written submission, para. 6.101.

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consider typical fixed-term loans when benchmarking the LTF -EOP Loan, including the commercial
loans offered by Novatex in the investigation, and instead the Commission chose a proxy against
which to benchmark the LTF -EOP Loan, i.e. the SBP Rate. That the LTF -EOP Loan operated like a
flexible line of credit also meant that it was proper to benchmark any interest payments made
during the POI on principal outstanding during the POI against a benchmark prevailing during the
POI, regardless of whether such principal had been drawn down by Novatex before or during the
POI.135 The European Union emphasizes, however, that the record most reasonably reflects that
the entirety of the countervailed loan amount was drawn down during the POI. 136 The
European Union asserts that the Commission explained all such issues in its Determinations and
associated disclosure documents to Novatex. Moreover, the European Union stresses that the
Commission's explanations on this score were sufficient considering that Novatex and Pakistan
advocated the use of the SBP Rate during the investigation. 137 The European Union submits that
Pakistan's claim under Article 14(b) is unfounded for essentially the same reasons. 138 The
European Union therefore also argues that the Panel should reject Pakistan's claims under
Articles 1.1(b), 10, 19.1, and 32 of the SCM Agreement and with Article VI:3 of the GATT 1994.139
7.4.3 Relevant legal considerations
7.65. Article 14 of the SCM Agreement reads, in relevant part:
Article 14
Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient

For the purpose of Part V, any method used by the investigating authority to calculate
the benefit to the recipient conferred pursuant to paragraph 1 of Article 1 shall be
provided for in the national legislation or implementing regulations of the Member
concerned and its application to each particular case shall be transparent and
adequately explained. Furthermore, any such method shall be consistent with the
following guidelines:
 …
(b) a loan by a government shall not be considered as conferring a benefit, unless
there is a difference betw een the amount that the firm receiving the loan pays on the
government loan and the amount the firm would pay on a comparable commercial
loan which the firm could actually obtain on the market. In this case the benefit shall
be the difference between these two amounts;
7.66. Sub-paragraph (b), therefore, establishes "guidelines" for determining whether a loan
confers a benefit on a recipient. According to those guidelines, a benchmark under Article 14(b) is
a "comparable commercial loan", which "should have as ma ny elements as possible in common
with the investigated loan to be comparable" such that the comparison is meaningful. 140 Selecting
such a benchmark "involves a progressive search for a comparable commercial loan, starting with
the commercial loan that is cl osest to the investigated loan (a loan to the same borrower that is
nearly identical to the investigated loan in terms of timing, structure, maturity, size and currency)
and moving to less similar commercial loans while adjusting them to ensure comparabili ty with the
investigated loan". 141 In the absence of a commercial loan actually available on the market, a
proxy may be used. 142 The further away a selected benchmark is from the ideal benchmark of a
materially identical loan, however, the more adjustments mus t be made to ensure the
benchmark's comparability to the subject loan. Moreover, because a "benefit" analysis depends on

135 See generally European Union's first written submission, paras. 132-159.
136 See, e.g. European Union's second written submission, para. 127.
137 See, e.g. European Union's second written submission, para. 78; and response to Panel question
No. 93, paras. 24-26.
138 See generally European Union's first written submission, paras. 160-186.
139 European Union's first written submission, paras. 187 and 188.
140 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 476.
141 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 486.
142 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 487.

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making a comparison "between the terms and conditions of the [loan] when it is granted with the
terms and conditions that would have be en offered on the market at that time"143, for purposes of
Article 14(b) "[t]he comparison is to be performed as though the [actual and benchmark] loans
were obtained at the same time … [and thus] the assessment focuses on the moment in time
when the lender and borrower commit to the transaction". 144 Article 14(b) thus allows certain
flexibility in selecting a benchmark. 145 Moreover, according to the chapeau of Article 14, the
method employed "shall be provided for in the national legislation or implementing regu lations of
the Member concerned and its application to each particular case shall be transparent and
adequately explained".146
7.4.4 Evaluation by the Panel
7.67. This Section evaluates Pakistan's claims under Article 14 of the SCM Agreement. It proceeds
in two parts. First, it examines Pakistan's claim under Article 14(b). Second, it examines Pakistan's
claim under the chapeau of Article 14.
7.4.4.1 Article 14(b)
7.68. To succeed in its claim under Article 14(b), Pakistan must make out a prima facie case that
the SBP Rate does not re present "the amount [Novatex] would pay on a comparable commercial
loan which [Novatex] could actually obtain on the market". 147 With this in mind, this Section
proceeds in four parts. First, we address a factual disagreement between the parties regarding
when Novatex drew down the principal under the LTF -EOP Loan on which it paid interest during
the POI, i.e. the principal that the Commission countervailed. Addressing this issue will provide
helpful background for the following two parts. Second, it examines the portions of the
Determinations and associated disclosure documents that discuss the selection of the SBP Rate as
the benchmark interest rate. Third, based the previous two parts, it examines whether Pakistan
has made out its prima facie case and wheth er the European Union has rebutted it. Finally, it
concludes.
7.4.4.1.1 Whether Novatex drew down principal before the POI on which it paid interest
during the POI
7.69. This Section examines when Novatex drew down the principal under the LTF -EOP Loan on
which it paid interest during the POI. The parties agree that, in fact, Novatex drew down tranches

143 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 706. (emphasis
original)
144 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 835 and 836. The
Appellate Body has indicated that in examining this issue vis-à-vis loans, "the assessment of benefit must
examine the terms and conditions of a loan at the time it is made and compare them to the terms and
conditions that would have been offered by the market at that time" including the issue of how risk is factored
into the loan's terms. (Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 834-
838).
145 See Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 476
(agreeing with the panel that "ideally, an investigating authority should use as a benchmark a loan to the same
borrower that has been established around the same time, has the same structure as, and similar maturity to,
the government loan, is about the same size, and is denominated in the same currency. … [I]n practice, the
existence of such an ideal benchmark loan would be extremely rare, and th[us] a comparison should also be
possible with other loans that present a lesser degree of similarity"), 484 (warning against excessive formalism
in interpreting Article 14(b)), and 489 (explaining that "we are of the view that a certain degree of flexibility
also applies under Article 14(b) in the selection of benchmarks, so that such selection can ensure a meaningful
comparison for the determination of benefit"). Whatever benchmarking method an investigating authority uses,
however, it must be transparent and adequately explained. (See Appellate Body Reports, US – Anti-Dumping
and Countervailing Duties (China), para. 489; and US – Carbon Steel (India), para. 4.345).
146 Prior panel reports have opined that this requirement indicates that such application should be set
out in a manner that it can be "easily understood or discerned" and making clear or intelligible, and giving
details of how the methodology was applied. (Panel Report, US – Carbon Steel (India), para. 7.191. See also
Appellate Body Report, US – Carbon Steel (India), para. 4.279 (citing this standard)).
147 This prima facie case and the European Union's rebuttal must be based on the European Union's
Determinations and associated disclosure documents. This follows from the fact that, although we may take
into account record evidence connected to the explanations provided by the Commission in its Determinations,
our review is not de novo and thus cannot consider ex post rationalizations unconnected to the Commission's
explanations, even if such rationalizations are founded on record evidence. (See above para. 7.4 et seq.
(setting forth standard of review)).

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of the LTF-EOP Loan before the POI began.148 For ease of reference, this Report will refer to this as
the Pre -POI Principal. Pakistan claims that the record before the Commissi on reflected that
Novatex carried over a substantial amount of the Pre -POI Principal into the POI, and thus made
interest payments on it during the POI. The European Union asserts that the record reflected that
all principal drawn down under the LTF -EOP Loan on which Novatex paid interest during the POI
was drawn down during the POI. We address this factual disagreement here because: (a) all the
evidence that we discuss in this Section was on the record of the investigation before the issuance
of the Provisional Determination, and thus it provides context for understanding the content of the
Determinations; and (b) it may pertain to an assessment regarding whether Pakistan has made
out a prima facie case that the SBP Rate represented what Novatex would have paid on a
"comparable commercial loan".149
7.70. In this context, we first recall that during the investigation both Novatex and Pakistan
argued that the entire amount of the LTF -EOP Loan should have been benchmarked against an
interest rate prevailing during the time-period in which Novatex negotiated and concluded the
LTF-EOP Loan, i.e. 2004 -2005.150 Under this argument, when Novatex drew down tranches under
the LTF -EOP Loan was immaterial. As an apparent result, neither party ever explicitly told the
Commission th at Novatex drew down principal under the LTF -EOP Loan before the POI.
Pakistan's position now, therefore, is not that the Commission ignored any particular argument by
a relevant party to the investigation, but that the record at large reflected that Novat ex paid
interest on Pre-POI Principal during the POI.
7.71. We therefore examine the evidence that was before the Commission during the
investigation that went to the issue of when Novatex drew down the LTF -EOP Loan principal upon
which it paid interest during t he POI. Based on the parties' arguments and our own review of the
record, the material pieces of evidence in this context are: (a) the questionnaire sent to Novatex;
(b) Novatex's questionnaire response; (c) the Second Deficiency Letter and Novatex's respo nse
thereto; (d) the LTF-EOP offer letter; (e) the LTF -EOP Contract; and (f) Novatex's 2007 -2008 and
2008-2009 annual reports. We examine each in turn.
7.4.4.1.1.1 The questionnaire
7.72. At the outset of the investigation, the Commission sent a questionnaire to Novatex
requesting, inter alia , information on "[s]chemes of export credit". 151 Under this heading, the
questionnaire queried whether Novatex had availed itself of the LTF -EOP, and, if the answer was
affirmative, to "provide … [certain] information in relation to expor t credits used during the IP". 152
This requested information included the "[a]mount of credit granted" under the scheme, the
"[d]ate of grant", the "[r]epayment period", the [i]nterest rate payable", and the "[n]ormal
commercial interest rate". 153 The question naire indicated that this "information [should] be
presented in" an attached Excel spreadsheet (the Spreadsheet Template). 154 The Spreadsheet
Template contained a number of columns with headings the names of which generally

148 See, e.g. European Union's response to Panel question No. 91, para. 19; and Pakistan's comments
on the European Union's response to Panel question No. 91.
149 More specifically, this issue may pertain to an examination as to whether the SBP Rate that prevailed
during the POI represented what Novatex would have paid on a comparable loan in terms of timing. We note
that, as discussed further below, the manner in which the Commission identified timing comparability is highly
ambiguous, and thus addressing this factual issue may not be necessary. (See below Section 7.4.4.1.3). We
address this factual issue, however, in the interest in providing a record allowing for most effective appellate
review.
150 See Council Implementing Regulation (EU) No. 857/2010 of 27 September 2010 imposing a
definitive countervailing duty and collecting definitively the provisional duty imposed on imports of certain
polyethylene terephthalate originating in Iran, Pakistan, and the United Arab Emirates, Official Journal of the
European Union, L Series, No. 254/10 (29 September 2010) (Definitive Determination), (Exhibit PAK-2),
para. 72.
151 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 30.
152 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 30.
153 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 30.
154 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 30.

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corresponded to the types of infor mation requested.155 We take special note, however, that the
template contains no heading for the "date of grant" of any amounts. Given the context in which it
was provided, therefore, the purpose of the completed Spreadsheet Template was to provide
information on Novatex's interest payments on "export credit[s] used during the IP", and allow a
comparison of such payments to what Novatex would have paid under a commercial interest rate.
In other words, the Spreadsheet Template asked Novatex to compare its int erest payments made
under the LTF -EOP Loan to an applicable commercial benchmark, thereby assisting the
Commission in determining whether, and in what amount, the loan conferred a "benefit" to
Novatex.
7.73. Two aspects of this questionnaire warrant emphasis. Fi rst, the questionnaire requested
"information in relation to export credits used during the IP ".156 This phrase indicates, and the
parties agree, that the questionnaire requested information on interest payments made during the
POI on amounts of any relevant LTF-EOP loan that were outstanding during the POI. 157 It was
therefore foreseeable that Novatex might provide information on payments made on principal
received by Novatex under an LTF -EOP loan before the POI. Second, the Commission would have
expected Novatex's response to reasonably reflect the "date of grant" of any such export credits,
at least in a manner relevant for purposes of calculating the benefit the loan may have conferred
upon Novatex. However, given that the template contained no section for t he "date of grant", it
was foreseeable that the provision of such information would be subject to the judgment of
Novatex158, and thus may require interpretation by the Commission.
7.4.4.1.1.2 The questionnaire response and the Original Spreadsheets
7.74. On 20 October 2009, Novatex responded to the questionnaire.159 In that response, Novatex
indicated that it had availed itself of the LTF -EOP.160 Novatex provided certain background
information concerning the LTF -EOP Loan, including that it had been "approved … in April 2005",
the total amount of the loan, the identity of the five -bank lending consortium, the PKR amounts to
which Novatex was entitled from each bank, and the interest rate of 6.8%. 161 Moreover, Novatex
attached Excel spreadsheets laying out Novatex's interest payments on the LTF -EOP Loan during
the POI (the Original Spreadsheets). 162 A group of spreadsheets was assigned to each of the five
lending consortium banks. The Original Spreadsheets contained all the columns and headings that
the Spreadsheet Template contained, but also added columns, marking them with an asterisk that
indicated their addition. 163 In particular, the Original Spreadsheets added columns entitled:
"Opening"; "Received/(Payments)"; "Outstanding balance"; "Period"; and "Date of Payment".
Generally, each r ow of the spreadsheets was dedicated to a "Period" of time within the POI over
which a specific and static "Outstanding balance" of principal under the loan prevailed. Thus, every

155 Excel file F-V.1 of the Commission's questionnaire, (Exhibit EU-14). This was labelled as "Excel file
F-V.1" in the questionnaire. (European Commission, Directorate-General for Trade, Novatex's Original
Questionnaire Response, including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI),
p. 30).
156 Emphasis added.
157 European Union's response to Panel question No. 67, para. 100; and Pakistan's response to Panel
question No. 67, para. 3.47.
158 As noted further above, Novatex argued that the entirety of the LTF-EOP Loan should have been
benchmarked against a single interest rate prevailing at the time of the loan's negotiation and conclusion,
i.e. 2004-2005. Under this line of argument, the timing of tranche drawdowns did not matter. Thus, this may
have provided reason to suspect that Novatex would not have been overly concerned with how it presented
"date of grant" information in the spreadsheets.
159 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI); and European Union's first
written submission, para. 117 (identifying the date of return). Pakistan has not disputed the accuracy of this
date.
160 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 30.
161 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), pp. 31 and 32. In
June 2005, the SBP's annual base rate was 5% and never changed thereafter. (Pakistan's first written
submission, paras. 6.14 and 6.15).
162 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 31. This was attached to
the questionnaire as "Annex F-V.1.b.a".
163 See generally European Commission, Directorate-General for Trade, Novatex's Original Questionnaire
Response, including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), annex F-V.1.b.a.

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time that outstanding amount changed (i.e. when Novatex "Received" principal during the POI,
evidenced by a non -parenthesized amount in this column, or executed a "Payment" of principal
back to the banks during the POI, evidenced by a parenthesized amount in this column) a new row
in the spreadsheet appears with the re -adjusted "O utstanding balance". For each "Period",
Novatex indicated the amount of interest that it had paid on the outstanding principal present
during that period and the "Date of [such] Payment". Each row compared that amount of interest
paid to what Novatex would have paid under a commercial interest rate of [***].
7.75. Six aspects of the Original Spreadsheets warrant emphasis. First, in each group of
spreadsheets applying to each of the five consortium banks, only one numeric entry 164 appears
under the column "Opening". This indicates this entry's uniqueness.
7.76. Second, the amount in each "Opening" entry corresponds exactly to the "Outstanding
balance" entry in the same row. Moreover, each such row corresponds to a "Period" that begins on
the first day of the POI. This in dicates that Novatex received this "Opening" amount either before
the POI or on the first day of the POI. We consider the word "Opening", however, as too
ambiguous on its own to signal which was the case.165
7.77. Third, for each "Opening" amount, there is no corr esponding entry for principal "Received".
This contrasts with every other instance in which Novatex drew down principal under the loan
during the POI, reflected by a positive entry in the "Received / (Payments)" column. 166 In our
view, this strongly suggests that the "Opening" amounts were not received on the first day of the
POI, but beforehand.
7.78. Fourth, given the logic of the spreadsheets' structure, it would appear that in each row that
reflects principal being "Received", the corresponding "Period" reflected in that same row will begin
on the date of the drawdown. Novatex drew down amounts from each bank in the lending
consortium [***] or [***] times during the POI (excluding the "Opening" amounts), depending
on the bank. Drawdowns were, therefore, rare ev ents during the year -long POI. It would thus
appear a remarkable coincidence that Novatex would have drawn down amounts from all five
banks on what happened to be the first day of the POI. 167 In our view, this made the notion that
the "Opening" amounts were drawn down during the POI highly questionable.
7.79. Fifth, we note the magnitude of the "Opening" amounts. The aggregate value of the five
"Opening" amounts is PKR [***].168 This is roughly [***] of the total amount to which Novatex
was entitled under the LTF -EOP Loan, i.e. PKR [***]. The drawdowns during the POI reflected by
entries in the "Received / (Payments)" column were much smaller, totalling PKR [***]169, or
approximately [***] of the amount to which Novatex was entitled under the loan. It will be
recalled that in its questionnaire response, Novatex indicated that Novatex's PKR [***] LTF-EOP

164 For three banks the spreadsheets contain duplicate entries for the same amounts. This would not
appear to alter the conclusions regarding how such amounts warrant interpretation, however.
165 Pakistan has argued that the term "opening" should be understood to be synonymous with "opening
balance", and has submitted evidence indicating that the term "opening balance" is "the balance brought
forward at the beginning of an accounting period". (Pakistan's comments on the European Union's response to
Panel question No. 92, paras. 4.10 and 4.11). But, according to the same source, this definition applies not
only to a balance carried forward from a previous time into a new period, but can also apply to "when a
company is first starting up its accounts". (Debitoor Dictionary, definition of "opening balance"
<https://debitoor.com/dictionary/opening-balance>, (Exhibit PAK-57)).
166 Payments of principal are parenthesized in this column. We note that each "Opening" amount has a
corresponding identical entry made in the column for "TOTAL" "Amount of Credit granted". Thus, although this
column may indicate the opening amounts were "granted", it appears to shed no material light on when such
amounts were granted.
167 When Novatex drew down an amount from one bank during the POI, it tended to be accompanied by
drawdowns from other banks as well at or around the same date. Pakistan has explained that this was because
"[w]hen Novatex drew down any amount, it turned first to [an] agent, who then in turn coordinated the
drawdown with the remaining banks. All five banks contributed to the draw-down amount in proportion to their
participation in the agreement." (Pakistan's response to Panel question No. 45(f), para. 3.20). Due to
differences in when the SBP provided refinancing for the banks in connection with the loan, however,
drawdowns sometimes resulted on different dates across the five banks. (Pakistan's response to Panel question
No. 45(f), para. 3.21).
168 Calculated by the Secretariat.
169 Calculated by the Secretariat.

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Loan had been "approved … in April 2005". 170 It would appear a rather extraordinary coincidence,
therefore, that, of a loan approved in April 2005, [***] would be drawn do wn in one day that
happened to be 1 July 2008, i.e. the first day of the POI in this particular investigation. In our
view, this indicates that it was highly unlikely that the "Opening" amounts were drawn down
during the POI.
7.80. Sixth, in its questionnaire re sponse, Novatex stated that it "has made total drawdowns of
PKR [***]", (i.e. the last day of the POI). 171 The spreadsheets indicate, however, that during the
POI Novatex drew down less than PKR [***] (even assuming the "Opening" amounts were
drawdowns), and the parties agree that the spreadsheets indicate that Novatex had paid back less
than PKR [***].172 These data demonstrate that pre -POI principal drawdowns and pre -POI
principal repayments had occurred. Although detecting these differences would have requir ed
some calculation, at least summing the drawdown amounts in the spreadsheets would not appear
overly complex. We thus find such differences indicative that the "Opening" amounts could very
well represent drawdowns occurring before the POI, as Novatex cou ld have well carried over Pre -
POI Principal into the POI.
7.4.4.1.1.3 The Second Deficiency Letter and the Revised Spreadsheets
7.81. As indicated in the above Section, the Original Spreadsheets claimed that the commercial
benchmark interest rate to apply to the LTF -EOP Loan was [***]. This interest rate was lower
than the interest rate Novatex indicated that it paid on the LTF -EOP Loan, i.e. 6.8%. This
apparently begged the question as to why Novatex would have opted for the LTF -EOP Loan in the
first place. Apparently recog nizing this, on 13 November 2009, the Commission sent a letter to
Novatex (the Second Deficiency Letter). The letter, inter alia, asked Novatex to clarify whether the
provision of the [***] figure was in error, and asked Pakistan to provide the contract fo r
Novatex's LTF-EOP Loan from the five-bank consortium.173
7.82. On 24 November 2009, Novatex responded to the Second Deficiency Letter. In the
response, Novatex provided the Commission with "[t]he facility offer letter [(Offer Letter)] signed
by the consortium banks and the final contract executed between Novatex Limited and consortium
of five banks" (the LTF -EOP Contract ).174 Novatex also confirmed that the [***] figure in the
Original Spreadsheets had been provided in error, and indicated that the relevant commerc ial
interest benchmark was instead [***].175 Novatex provided revised versions of the Original
Spreadsheets (the Revised Spreadsheets) that reflected this correction in the "Commercial Interest
rate for loans and guarantees" column, and resultant changes in the "Interest payable for
Commercial Interest Rate" columns (i.e. the interest that Novatex would have paid on the LTF-EOP
Loan had the interest rate been [***] instead of 6.8%). Aside from those revisions, the Revised
Spreadsheets were almost identical to the Original Spreadsheets.176
7.83. One further change was significant, however. To the left of the "Opening" column, Novatex
added a column entitled "Date of grant of Principal LTF -EOP". Entries in this new column appear in
each row representing a drawdown of p rincipal during the POI reflected by a non -parenthesized

170 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 31. At this point in time,
the Commission did not yet have Novatex's LTF-EOP Loan contract that indicated the LTF-EOP Loan had
actually been concluded in June 2005. The April 2005 date appeared to come from the LTF-EOP offer letter,
discussed further below.
171 European Commission, Directorate-General for Trade, Novatex's Original Questionnaire Response,
including Annexes F.V.1.b.a and F.VIII.1.d, 20 October 2009, (Exhibit EU-9) (BCI), p. 32.
172 See European Union's response to Panel question No. 91, para. 19 (stating that Novatex only had
paid back roughly PKR [***] during the POI); and Pakistan's comments on the European Union's response to
Panel question No. 91, para. 4.2 (stating that Novatex only had paid back roughly PKR 220 million during the
POI).
173 Second Deficiency Letter dated 13 November 2009 from the Commission to Novatex,
(Exhibit PAK-12) (BCI), p. 2.
174 Letter dated 24 November 2009 from Novatex to the Commission as response to the Commission's
Second Deficiency Letter (excerpts only), (Exhibit PAK-3-A) (BCI), p. 3.
175 Letter dated 24 November 2009 from Novatex to the Commission as response to the Commission's
Second Deficiency Letter (excerpts only), (Exhibit PAK-3-A) (BCI), p. 3.
176 Letter dated 24 November 2009 from Novatex to the Commission as response to the Commission's
Second Deficiency Letter, including Revised Annex F-V.1.b.a of Novatex's questionnaire response,
(Exhibit EU-7) (BCI), annex F-V.1.b.a.

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entry in the "Received / (Payments)" column. Pakistan has explained that the addition of this
column "was intended to help the investigating authority to identify more quickly those entries in
the 'Received/(Payments)' column that reflect drawdowns actually made during the [POI]". 177 The
problem with this revision, however, was that this column also included a date next to each of the
"Opening" amounts in the Revised Spreadsheets, i.e. the first day of the POI. On its face, this
indicated that the "Opening" amounts had been "granted" on the first day of the POI. The
"Opening" amounts, however, still had no associated entries in the "Received" column, which
continued to contrast with every other instance in which Novatex drew down principal under the
loan during the POI, reflected by a non -parenthesized entry in the "Received / (Payments)"
column. Thus, there continued to appear something different about the "Opening" amounts from
other entries indicating drawdowns during the POI.
7.84. We note that the Revised Spreadsheets were particularly noteworthy in the investigation.
This was so because the Commission used them as the basis on which to calculate the benefit
conferred by the LTF -EOP Loan. The Commission did this by apparently replacing the [***]
interest rate provided by Novatex with its chosen benchmark rate, i.e. 14.44%. 178 Thus, in this
dispute, the European Union emphasizes the importance of the fact that the Revised Spreadsheets
indicated that the "Date of grant" of the "Opening" amounts was the first day of the POI.
7.4.4.1.1.4 The LTF-EOP offer letter
7.85. Novatex attached the Offer Letter to its response to the Second Deficiency Letter. The Offer
Letter is dated 30 April 2005 and contains terms of a proposed loan. The Offer Letter identifies
Novatex as the borrower in a facility that was to be "[***]".179 It further identifies a consortium of
[***] banks as the lenders; five of these banks became the lending consortium reflected in the
LTF-EOP Contract (discussed in the following Section of this Report).180 The Offer Letter, therefore,
was the predecessor, and eventually formed the basis, of the LTF -EOP Contract. Its terms are
non-binding.181 Nevertheless, given that it provided the basis for negotiations between Novatex
and the banks for what eventually became the LTF -EOP Contract, and was on the record of the
investigation, we believe that it carries some probative weight.
7.86. The Offer Letter contains an " [***]" of proposed terms of what became the LTF -EOP Loan.
Regarding the "[***]" of the facility, the Offer Letter specifies that " [***]" and that "[***]" and
that such drawdowns could only occur until " [***]". The Facility Effective Date is " [***]".182 The
"[***]" of the loan was to be 7.5 years.183
7.4.4.1.1.5 The LTF-EOP Contract
7.87. Novatex als o attached the LTF -EOP Contract to the Second Deficiency Letter. 184 The
LTF-EOP Contract is dated 9 June 2005, and was thus concluded roughly six weeks after the
conclusion of the Offer Letter. The LTF-EOP Contract describes a loan very similar to that described
in the Offer Letter.
7.88. Under the LTF -EOP Contract, a consortium of five banks would make a loan of up to PKR
[***] available to Novatex under the LTF-EOP programme.185 The loan was structured such that it

177 Pakistan's response to Panel question No. 45(a), para. 3.3.
178 See generally Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI).
179 Offer Letter, (Exhibit PAK-31) (BCI), p. 3. The circular generally described the terms of the LTF-EOP
programme. (See Banking Policy Department, Circular No. 14 (18 May 2004), (Exhibit PAK-60)).
180 Only [***] did not participate in the eventual lending consortium. The removal of this bank
apparently caused a decrease in the proposed amount of the loan, which was PKR [***] in the Offer Letter but
PKR [***] in the LTF-EOP Contract.
181 Its terms "[***]". (Offer Letter, (Exhibit PAK-31) (BCI), p. 1).
182 Offer Letter, (Exhibit PAK-31) (BCI), p. 3.
183 Offer Letter, (Exhibit PAK-31) (BCI), p. 3.
184 See Exhibit PAK-29 (BCI) containing the [***] and the [***]. Pakistan has explained that [***]
concluded a separate agreement as to operate under Islamic banking principles. As it appears the case that the
two agreements' relevant terms operated similarly, this Report does not, therefore address the two separately.
Rather, it generally refers to them, taken together, as the "LTF-EOP Contract". (See Pakistan's response to
Panel question No. 44, paras. 3.1 and 3.2).
185 See Syndicate Agreement, (Exhibit PAK-29) (BCI), clause 1.1(ai) (providing [***]) and Murabaha
Agreement, (Exhibit PAK-29) (BCI), clause 1.01 (providing [***]). The LTF-EOP Contract also states that the

BCI deleted, as indicated [***]

could be drawn down in tranches. Novatex was requi red to draw down [***] of the total loan
amount within [***] of the signing of the LTF -EOP Contract, and Novatex could only draw down
the remaining amounts within [***] of the signing of the LTF-EOP Contract.186 There is nothing on
the record specifically in dicating that the [***] deadline had ever been extended. 187 It is
undisputed that the [***] deadline was extended, which accounted for Novatex's drawdowns
during the POI, which began roughly three years following the conclusion of the LTF -EOP
Contract.188 The interest rate for a particular tranche would be set when it was drawn down and
remained locked in until the tranche was paid back; that interest rate comprised of the SBP annual
base rate that prevailed at the time of drawdown, plus a mark -up of 1.8 percen tage points.189 At
the time of its drawdown, each tranche was assigned its own 7.5 -year repayment period. Further,
when read together with the government circular describing the LTF -EOP programme, the parties
further agree, and we see no reason to doubt, tha t the LTF -EOP Loan had an initial eighteen -
month grace period on principal repayment.190
7.89. We therefore note that the LTF -EOP Contract clarifies: (a) that the LTF -EOP Loan was
concluded in June 2005 (i.e. roughly three years before the beginning of the POI); (b) each
tranche of principal drawn down thereunder had its own 7.5-year repayment period assigned to it;
(c) the LTF-EOP Loan had an initial eighteen -month grace period on principal repayment; and (d)
Novatex had to draw down at least [***] of the loan by roughly [***]. Given that there is no
material evidence on the record that the [***] deadline was not respected, and the European

consortium has agreed to provide the loan pursuant to the LTF-EOP scheme. (Syndicate Agreement, (Exhibit
PAK-29) (BCI), clause 1.1(w) and p. 5/61 (item ii); and Murabaha Agreement, (Exhibit PAK-29) (BCI), clause
1.02 and p. 42/61 (definition of "LTF-EOP Scheme").
186 Consistent with the terms of the Offer Letter, [***] could have been added to the [***] and [***]
drawdown deadlines stated above. (Syndicate Agreement, (Exhibit PAK-29) (BCI), clauses 1.1(i), 1.1(j),
1.1(o), 1.1(p), and 2.3; and Murabaha Agreement, (Exhibit PAK-29) (BCI), clause 2.03 and definitions of
[***] p. 41/61).
187 We recall that the balances in the "Opening" columns in the Original and Revised Spreadsheets was
well over [***] of the total amount of the LTF-EOP Loan. The LTF-EOP Contract appeared to provide for
additional payments to the bank consortium by Novatex if Novatex drew down less than [***] of the loan
amount before the [***] deadline, but there is no evidence that such payments occurred. (Syndicate
Agreement, (Exhibit PAK-29) (BCI), clause 5.5; and Murabaha Agreement, (Exhibit PAK-29) (BCI),
clause 4.06). The LTF-EOP Contract also contained repayment schedules that indicated that significant
amounts of Pre-POI Principal would be drawn down and would still be outstanding as of the first day of the POI.
(Syndicate Agreement, (Exhibit PAK-29) (BCI), schedule C (envisioning payments years beyond July 2008);
and Murabaha Agreement, (Exhibit PAK-29) (BCI), schedule E (same)).
188 At least the Syndicate Agreement appeared to allow for extension of the [***] deadline subject to
agreement among the parties. (Syndicate Agreement, (Exhibit PAK-29) (BCI), clause 2.4(b)).
189 The parties agree that the record reflected this "lock-in" structure. (European Union's response to
Panel question No. 96, para. 30; and Pakistan's response to Panel question No. 96, para. 3.20. See also
Syndicate Agreement, (Exhibit PAK-29) (BCI), p. 36/61). Pakistan has explained that under the Murabaha
Agreement (under which Novatex was entitled to only about [***] of the total loan amount), "this explicit
statement is lacking, due to the adherence to strict Islamic banking principles which do not utilize the concept
of 'interest rate'". (Pakistan's response to Panel question No. 44, fn 116). We note, however, that the
Murabaha Agreement indicates that the loan is "[***]" which is "[***]". (Murabaha Agreement, (Exhibit PAK-
29) (BCI), clause 1.02 and the definition of "[***]" on p. 42/61). The referenced circular references this "lock-
in" structure. (See Banking Policy Department Circular No. 14 (18 May 2004), (Exhibit PAK-60), para. 4). The
circular also attaches more detailed terms and conditions of the LTF-EOP scheme, some of which also appear to
reference this structure. (See Banking Policy Department Circular No. 14 (18 May 2004), (Exhibit PAK-60), p.
20, para. 9(a)). The Provisional Determination refers to the LTF-EOP as set out in this circular. (Provisional
Determination, (Exhibit PAK-1), para. 118).
190 See Pakistan's second written submission, para. 3.53 (explaining eighteen-month grace period). The
European Union claims the grace period was even longer, amounting to over two years, in which case it would
appear even less likely that Pre-POI Principal would have been paid back in its entirety by the first day of the
POI. (European Union's second written submission, table in para. 100 and para. 108 (referencing two-year
grace period); and opening statement at the second meeting of the Panel, para. 52 (same). But see
European Union's comments on Pakistan's response to Panel question No. 93, para. 6 (referencing eighteen-
month grace period)). It is not entirely clear to us whether the grace period applied to the loan as a whole or
to each individual tranche, although this appears immaterial for our purposes. We also note that the parties
agree that each tranche was assigned its own 7.5-year repayment term. (Pakistan's response to Panel question
No. 70, para. 3.52; European Union's response to Panel question No. 70, para. 104. See also Pakistan's
opening statement at the first meeting of the Panel, para. 4.8 (explaining that drawdowns occurred in 2005
and the LTF-EOP Loan was "repaid (ahead of schedule) by 2015", i.e. roughly ten years following the
conclusion of the LTF-EOP Contract and the first drawdowns); Syndicate Agreement, (Exhibit PAK-29) (BCI),
p. 3/61 (item (i); and Murabaha Agreement, (Exhibit PAK-29) (BCI), clause 1.02). We see no reason to
disagree with this interpretation.

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Union has provided us no particular reason to believe that it would have been reasonable to
assume that Novatex would not ava il itself of the full 7.5 -year repayment term per tranche, we
consider that this combination of facts means that it was a near certainty that Novatex would have
drawn down Pre -POI Principal and carried over at least some of that principal into the POI, and
thus that the "Opening" amounts in the Original and Revised Spreadsheets represented, or at least
contained significant amounts of, Pre-POI Principal.191
7.4.4.1.1.6 Novatex annual reports
7.90. Pakistan asserts that the Commission also should have been on notice that the "O pening"
amounts in the Original and Revised Spreadsheets represented Pre -POI Principal because
Novatex's 2007 -2008 and 2008 -2009 annual reports, which included financial statements, both
indicated that on 30 June 2008 (i.e. the last day preceding the POI) Novatex had large sums
outstanding from all five of the lending consortium banks under the LTF-EOP Loan. The statements
do indeed reflect this 192, and were on the record of the investigation before the Provisional
Determination was issued. 193 The financial sta tements clearly list Novatex's outstanding balances
under the LTF -EOP Loan bank -by-bank in the notes to the financial statements. When one
compares these bank -specific outstanding balances on 30 June 2008 to the bank -specific
"Opening" amounts in the Origi nal and Revised Spreadsheets for the first day of the POI (i.e.
1 July 2008), we observe that those two amounts are identical for three of the five lending banks
([***]) and almost identical for two of the banks ( [***]). These data, on their own, prove tha t
the "Opening" balances were indeed Pre -POI Principal, not drawdowns that occurred on the first
day of the POI. We note that even though these reports may have been examined by the
Commission for purposes other than examining the LTF -EOP, and contain many types of
information beyond the LTF -EOP Loan balances, they were still on the record before the
Commission, and the outstanding balance data were, in our view, plain enough that we would
expect a reasonable investigating authority to detect it and take it into account, especially given
the evidence (discussed above) calling into question the nature of the "Opening" balances in the
Original and Revised Spreadsheets.194
7.4.4.1.1.7 Conclusion – timing of drawdowns of principal
7.91. We conclude that the evidence discussed above , taken together, would clearly suggest to a
reasonable investigating authority that the amounts in the "Opening" balances in the Original and
Revised Spreadsheets represented Pre -POI Principal. 195 This is not to say, however, that the
manner in which Novate x presented its data in the Original and, in particular, the Revised
Spreadsheets, to the Commission in this context was a model of clarity. Indeed, assigning the date
of the first day of the POI to the "Date of grant" column next to the "Opening" amounts in the
Revised Spreadsheets appeared confusing at best.
7.4.4.1.2 The decision to use the SBP Rate: Determinations and disclosure documents
7.92. In this Section, we examine the portions of the Determinations and associated disclosure
documents provided to Novatex discuss ing how the Commission determined the LTF -EOP Loan to

191 We recall that the Offer Letter also referenced the [***] deadline and 7.5-year repayment term.
Even though its terms were non-binding, it basically repeated certain key information contained in the LTF-EOP
Contract, and thus should have further drawn the Commission's attention to such facts.
192 See Novatex' audited Annual Report 2007-2008, (Exhibit PAK-40) (BCI), p. 16 Nos. 17 and 17.1; and
Novatex' audited Annual Report 2008-2009, (Exhibit PAK-41) (BCI), p. 17 Nos. 18 and 18.1.
193 See generally European Union's response to Panel question No. 95, para. 28; and Pakistan's
response to Panel question No. 95, para. 3.13.
194 In the Second Deficiency Letter, the Commission asked Pakistan to provide details regarding a
short-term borrowing facility referenced in the notes to the financial statements in the Novatex 2007-2008
annual report. (Second Deficiency Letter dated 13 November 2009 from the Commission to Novatex,
(Exhibit PAK-12) (BCI), p. 2). The LTF-EOP loan amounts are listed just two pages before this reference in the
notes to the financial statements concerning long term borrowing. (Novatex' audited Annual Report
2007-2008, (Exhibit PAK-40) (BCI), pp. 16 and 18). This indicates that the Commission reviewed the notes to
the financial statements in some detail.
195 See, e.g. European Union's second written submission, para. 129 (advocating the following standard
in this context: "whether a reasonable investigating authority would have concluded, on the basis of the
evidence before it and in view of all factual circumstances surrounding the submission of the evidence, that the
spreadsheets submitted by Novatex showed amounts that were drawn down during the IP").

BCI deleted, as indicated [***]

be a subsidy, and, more specifically, how it chose to benchmark Novatex's interest payments
under the loan during the POI against the SBP Rate.
7.93. In the Provisional Determination, the Commission found th e LTF -EOP Loan to be a
countervailable subsidy. In so finding, the Commission first discussed the LTF -EOP scheme,
demonstrating an understanding of its legislative basis, eligibility requirements, and
implementation procedures. With respect to such procedu res, the Provisional Determination
indicated that: (a) the maximum period of financing was 7.5 years; (b) "[b]anks are allowed to
charge the borrower up to 3% over and above the rates notified by the SBP. Interest rates for
financing under [the] LTF -EOP scheme are benchmarked with the weighted average yields of 12
months Treasury Bills and three and five years Pakistan Investment Bond, depending on the
period of financing"; (c) "[u]nder this scheme, the SBP mandatorily sets maximum ceiling interest
rates applicable to long-term loans"; and (d) Novatex's loan under the LTF -EOP was "a long -term
financing and the benefit was availed of in April 2005 for a period of 7 -1/2 years". 196 The
Commission then considered that "Pursuant to Article 6(b) of the basic Regulat ion, the benefit to
the recipient is calculated by taking the difference between the [SBP] imposed credit ceiling and
the applicable commercial credit rates."197
7.94. The provisional company -specific disclosure sent to Novatex 198 revealed what this
"applicable commercial credit rate" was in its subsidy calculation regarding the LTF -EOP Loan. The
document explained that, vis-à-vis the LTF-EOP Loan, "[t]he normal interest rate was found at an
average of 14,44% (source Statistic on monthly average of interest rate - outstanding loans - from
SBP" (i.e. the SBP Rate). 199 An associated table in the disclosure also indicated that this monthly
average rate was "Interest normally payable (based on average for the IP; Outstanding loan;
excluding zero Markup". 200 The table provided this rate for each month of the POI, and then
averaged them, yielding the 14.44% figure. The following note appears below this table: "all banks
- source: Statistics DWH Department - sbp.org.pk)".201 It is undisputed that the Commission then
calculated the subsidy amount by taking the difference between Novatex's actual interest
payments on the LTF -EOP Loan (pursuant to the loan's 6.8% interest rate) made during the POI
and the interest that Novatex would have paid on the LTF -EOP Loan had the interest rate b een
14.44% instead.202
7.95. The definitive general disclosure document (which was a draft of the Definitive
Determination) provided the following relevant discussion:
Both parties claimed that the interest rate used to calculate the subsidy margin of this
financing scheme has to be the interest rate available at the time the exporting
producer was negotiating the fixed rate financing, namely the rate in the year
2004-2005. …
These claims had to be rejected. First of all, it should be clarified that the rate used i n
the calculation is the commercial interest rate applied during the IP in Pakistan, as
sourced from the website of the [SBP]. When calculating the subsidy amount the
amount of credit for the IP, as reported by the cooperating exporting producer, was
used. It is the normal practise [ sic] when examining the benefit availed by a party

196 See generally Provisional Determination, (Exhibit PAK-1), paras. 117-126. We note that the technical
accuracy of these descriptions is not at issue.
197 Provisional Determination, (Exhibit PAK-1), para. 131. It should be noted that, in calculating the
subsidy amount, the Commission in fact took the difference between the rate actually charged by the bank
consortium on the Novatex loan (i.e. 6.8%) and the "applicable commercial credit rates". (See generally
Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI)).
198 These disclosure documents were sent to Novatex along with a copy of the Provisional
Determination.
199 Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI), second text box under item 4. See
also European Commission, Provisional company-specific disclosure, 1 June 2010, (Exhibit PAK-32) (BCI)
(containing same content).
200 Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI), table on p. 5 of PDF.
201 Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI), table on p. 6 of PDF.
202 Novatex Provisional Subsidy Calculation, (Exhibit EU-8) (BCI).

BCI deleted, as indicated [***]

during a specific IP to take the applicable commercial credit rate prevailing in the
market during the corresponding IP.203
7.96. The definitive company -specific disclosure document pro vided the following relevant
discussion:
The subsidy amount obtained under the LTF -EOP … was derived from the difference
between the … [SBP] imposed credit ceiling under the LTF -EOP credit facilities and the
interest payable under the normal commercial int erest (i.e. interest rate of 14,44%
found from the [SBP]: Statistic on monthly average interest rate – outstanding
loans).204
7.97. The Definitive Determination provided the following relevant discussion:
Both parties claimed that the interest rate used to calcul ate the subsidy margin of this
financing scheme has to be the interest rate available at the time the exporting
producer was negotiating the fixed rate financing, namely the rate in the
year 2004-2005. …
These claims had to be rejected. First of all, it sh ould be clarified that the rate used in
the calculation is the commercial interest rate which prevailed during the IP in
Pakistan, as sourced from the website of the [SBP]. The financing negotiated
in 2004/2005 was drawn down in tranches by the exporter co ncerned. When
calculating the subsidy amount the amount of credit drawn down for the IP, as
reported by the cooperating exporting producer, was used. When examining the
benefit received by a party during a specific IP the applicable commercial credit rate
prevailing in the market during the IP is normally compared to the rate paid on the
loan received during the IP, and this was done here.205
7.98. The Definitive Determination then confirmed the relevant findings in the Provisional
Determination, discussed above.206
7.4.4.1.3 Whether Pakistan has made out a prima facie case and, if so, whether the
European Union has rebutted it
7.99. It will be recalled that to succeed in its claim under Article 14(b), Pakistan must make out a
prima facie case that the SBP Rate does not represent "th e amount [Novatex] would pay on a
comparable commercial loan which [Novatex] could actually obtain on the market". Based on the
evidence discussed above, we conclude that Pakistan has done so and that the European Union
has not rebutted it. 207 The key issue in this context is whether the SBP Rate is associated with a
"comparable commercial loan". Through its arguments highlighting the lack of discussions in the
Determinations and associated disclosure documents surrounding the choice of the SBP Rate as a
benchmark, Pakistan, in our view, has demonstrated that the Determinations and associated

203 European Commission, General Definitive Disclosure, (Exhibit PAK-36), paras. 71-72.
204 European Commission, Definitive company-specific disclosure, 26 July 2010, (Exhibits PAK-33 and
EU-6) (exhibited twice) (BCI), section 1.5.
205 Definitive Determination, (Exhibit PAK-2), paras. 72 and 73.
207 We dismiss the following European Union arguments as ex post rationalizations for choosing the SBP
Rate, as the Commission did not include them in its Determinations: (a) an obstacle for identifying a
comparable commercial loan for a company in a similar financial situation as Novatex in the same sector of the
economy was the influence of "different subsidy schemes" (European Union's response to Panel question
No. 59, para. 90); (b) the application of the SBP Rate to the LTF-EOP Loan was beneficial to Novatex because
the duration of the LTF-EOP Loan was 7.5 years (and perhaps as long as 10 years if viewed as a whole)
whereas the Karachi Inter-Bank Offer Rate (KIBOR) (discussed more below in this Section) pertains to loans of
shorter durations, which usually carry lower interest rates (See European Union's response to Panel question
No. 55, para. 80, and No. 61, para. 93); (c) the KIBOR was beneficial to Novatex because it did not include
"the amount of benefit enjoyed by Novatex for not having to bear the cost of having borrowed the total
amount at once (cost borne by the banks at issue)" (European Union's response to Panel question No. 62,
para. 94); and (d) the KIBOR was an appropriate benchmark interest rate in light of the fact that one of the
private loans, specifically an [***], that Novatex offered the Commission to demonstrate the benchmark
interest rate (we note that the Commission did not use the loan to do so) had a [***] KIBOR rate
incorporated into it. (European Union's response to Panel question No. 57, para. 86).

BCI deleted, as indicated [***]

disclosure documents leave serious and systemic doubts regarding comparability in terms of
timing, structure, maturity, size, and the identities of relevant borrowers.
7.100. We first consider timing. A "benefit" analysis depends on making a "comparison … to be
performed as though the [subject and benchmark] loans were obtained at the same time … [and
thus] the assessment focuses on the moment in time when the lender and borrower commit to the
transaction".208 We perceive three dates that could, in our view, plausibly reference the moment
that Novatex and the bank consortium committed to the LTF-EOP Loan (or any portion thereof): (i)
the conclusion of the LTF -EOP Contract in June 2 005; (ii) the moment each tranche was drawn
down and therefore the time at which an interest rate was assigned to that tranche; and/or (iii)
the time at which Novatex and the bank consortium extended drawdown deadlines under the loan,
thus allowing tranche s to be drawn down later than originally planned or allowed under the LTF -
EOP Contract. We need not decide which date(s) would be proper to use because the
Determinations offer no demonstration that the SBP Rate is meaningfully connected to any of
them.209 We recall that the Determinations revealed that the SBP Rate was based on monthly rates
for "interest normally payable" on "outstanding loans", i.e. the "commercial interest rate applied
during the IP in Pakistan". Such descriptions, however, do not in our view reveal whether this
means that the monthly rates were: (a) rates (or averages thereof) that banks intended to, and
perhaps did in fact, assign to loans during each month; and/or (b) rates (or averages thereof) that
banks had assigned to then -outstanding loans when such loans had been concluded at unknown
points in the past (which may have included some loans concluded during the POI). In the
presence of such ambiguity, we cannot determine to what extent the SBP Rate is a rate taken from
a time that is comparable to the time at which the parties committed to the LTF -EOP Loan (or any
portion thereof). Moreover, even if we assume that (a) represents the correct interpretation210, the
SBP Rate during the POI would appear to have no meaningful connection to th e time at which the
parties committed to the transaction vis-à-vis principal drawn down before the POI (it will be
recalled that the record suggested that this represented the great majority of the principal on
which Novatex paid interest during the POI) a nd ambiguous connections at best vis-à-vis principal
drawn down during the POI. 211 If we assume that (b) represents the correct interpretation, this
would not avail the European Union because of the ambiguity surrounding when the relevant loans
underlying the SBP Rate were concluded and how such times meaningfully coincide with any of the
plausible reference dates identified above in this paragraph. The Determinations, therefore, leave
serious and systemic doubts as to whether the SBP Rate is associated with comparable commercial
loans in terms of timing. The European Union has pointed to nothing that materially mitigates such
doubts.
7.101. We therefore turn to consider comparability issues regarding structure, maturity, size, and
the identity of borrowers. The Determinations and associated disclosure documents reveal that the

208 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 835 and 836.
209 We therefore also do not consider it necessary to identify which (if any) of these three dates the
Commission used as the proper reference date in its Determinations, although we note that only option (ii)
appears plausible. (See Definitive Determination, (Exhibit PAK-2), para. 73 (rejecting the use of a 2004-2005
reference date, never discussing drawdown extensions, but discussing "the amount of credit drawn down for
the IP" and "the loan received during the IP") (emphasis added)). We note that we find no support for the
European Union's apparent argument in this dispute that the time during which a borrower "effectively uses" or
"enjoys" a loan can represent the moment in time when the lender and borrower commit to a loan transaction.
(See, e.g. European Union's second written submission, para. 106). If the Determinations used the time during
which Novatex was "using" the LTF-EOP Loan as the time at which the parties committed to the LTF-EOP Loan
(or any portion thereof), therefore, the Commission misidentified a fundamental aspect of the LTF-EOP Loan,
logically pre-empting that aspect's proper comparison with any benchmark with respect to timing, and leaving
serious and systemic doubts as to whether the SBP Rate is associated with comparable commercial loans in
terms of timing.
210 In our view, the parties' arguments in this dispute have appeared to reflect the assumption that this
is the correct interpretation of the SBP Rate, or, perhaps more precisely, the rates that were averaged to
calculate the SBP Rate.
211 No evidence indicates that either the Pre-POI Principal drawdown dates or the dates of any
drawdown extension agreements were on the record. We further note that drawdowns only occurred during
certain months of the year-long POI, whereas the monthly rates that were averaged to produce the SBP Rate
of 14.44% were taken from all POI months. Further, insofar as the monthly rates represented averaged KIBOR
rates prevailing during each month (a possibility discussed in the next paragraph), KIBOR rates are produced
daily, not monthly, and drawdowns occurred on certain days, not over months. Even assuming that the
LTF-EOP Loan (or any portion thereof) was comparable in terms of timing to the SBP Rate, however, we could
not find that such limited comparability sufficient to satisfy Article 14(b) due to the other comparability
problems that exist with respect to structure, duration, size and identify of the borrowers, discussed below.

BCI deleted, as indicated [***]

SBP Rate is a rate that reflected "interest normally payable" on "outstanding loans" from "all
[presumably Pakistani] banks" that can be expressed as a monthly average, and that it
"exclud[ed] zero Markup". But for the fact that such descriptions indicate that the SBP Rate is
associated with "loans" that "exclude[ed] zero Markup", this yields no meaningful insight into the
structure, maturity, or size of such loans, and provides no indication of the character of
borrowers.212 We note that the European Union has stated that the SBP Rate is "synonymous" with
the Karachi Inter-Bank Offer Rate (KIBOR). Even assuming arguendo that it was discernible from
the Determinations that the SBP Rate represented averaged KIBOR rates prevailing over each
month of the POI (the record reflects that KIBOR rates are produced daily) 213, and that such rates
were on the record of the investigation, the same basic problems with the SBP Rate persist. The
European Union points to nothing on the record revealing the size or structure of the loans with
which the KIBOR from any particular time was associated.214 Moreover, the European Union agrees
that the KIBOR is associated with loans of much shorter durations than the LTF -EOP Loa n.215
Further, the European Union points to nothing on the record indicating that the borrowers of the
loans associated with the KIBOR in any material way resemble Novatex. 216 The Determinations,
therefore, leave serious and systemic doubts as to whether the S BP Rate is associated with
comparable commercial loans in terms of structure, maturity, and size, and the identities of
borrowers.217 The European Union has pointed to nothing that materially mitigates such doubts.
7.4.4.1.4 Conclusion – Article 14(b)
7.102. In accordance wi th our reasoning above, we find that the Commission, in calculating the
benefit conferred by the LTF -EOP Loan, acted inconsistently with Article 14(b) of the
SCM Agreement by failing to properly identify what Novatex would have paid on a "comparable

212 Given that it is provided by the SBP, we assume arguendo that the loans associated with the SBP
Rate occur in the same currency as the LTF-EOP Loan, i.e. PKR.
213 See, e.g. KIBOR rate for 2 July 2008, (Exhibit EU-16). See also Pakistan's response to Panel question
No. 93, para. 3.6 (indicating that KIBOR rates are daily).
214 The European Union itself notes the importance of size comparability. (European Union's first written
submission, para. 124 (explaining that it could not use one of the loans offered by Novatex during the
investigation to evidence the relevant benchmark because, inter alia, it was "for a much smaller amount")).
Throughout this dispute, the European Union has also stressed the importance of comparability in terms of
structure, indicating that the "flexible" multi-tranche structure of the LTF-EOP Loan where interest rates are
assigned to tranches as they are drawn down must be considered in picking a benchmark to apply to the
LTF-EOP Loan. (See, e.g. European Union's first written submission, para. 115).
215 The KIBOR is associated with lending rates for the following durations: weeks, months, and one to
three years. (KIBOR rate for 2 July 2008, (Exhibit EU-16). See also European Union's response to Panel
question No. 55, para. 81 (discussing KIBOR terms), and No. 61, para. 93 (same); and Pakistan's first written
submission, para. 6.17 (same)). The European Union itself notes that shorter duration loans could lead to
comparability problems. (See, e.g. European Union's first written submission, para. 125 (explaining that it
could not use one of the loans offered by Novatex during the investigation to evidence the relevant benchmark
because, inter alia, it was "for a much shorter duration")).
216 The KIBOR is an inter-bank lending rate, although both parties indicate at times that it is also a basis
upon which banks formulate lending rates to other customers, perhaps including corporate customers. We
note, however, that while the European Union appears to suggest that the KIBOR rates themselves were
extended to a variety of customers, Pakistan is of the view that KIBOR rates would serve as the benchmark for
rates given to at least corporate customers, which would include a mark-up above and beyond KIBOR the
magnitude of which would depend on the customer. (See European Union's response to Panel question No. 59,
para. 90 and No. 93, para. 22; Pakistan's response to Panel question No. 93, para. 3.6; and comments on the
European Union's response to Panel question No. 93). Whatever the case may be, however, such
considerations simply underline that the recipients of the loans associated with SBP Rate would be either
markedly different than Novatex (e.g. banks) and/or comprise an unknown group of borrowers (at best, an
unknown mix of corporate customers).
217 This conclusion holds with respect to the LTF-EOP Loan as a whole or any portion thereof. We further
note that Novatex offered into the record of the investigation certain commercial loans that it claimed were
comparable commercial loans. (Letter dated 24 November 2009 from Novatex to the Commission as response
to the Commission's Second Deficiency Letter (excerpts only), (Exhibit PAK-3-A) (BCI), p. 3). Pakistan claims
that the Commission should have explained why it did not use these loans as a basis on which to calculate the
benchmark interest rate. We find it sufficient to note that the Determinations did not specifically explain why
these loans did not evidence an acceptable benchmark interest rate. Thus, that the Commission did not depend
on them yields no meaningful insight into the appropriateness of the SBP Rate as a benchmark in terms of
structure, maturity, size, or with respect to the identity of the borrowers.

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commercial loan".218 As a consequence of this violation, we further find that the Commission acted
inconsistently with Article 1.1(b) of the SCM Agreement.219
7.4.4.2 The chapeau of Article 14
7.103. Pakistan also claims that the Commission failed to explain its method of benchmar king the
LTF-EOP Loan in a transparent and adequate manner vis-à-vis the European Union's national
legislation or implementing regulations that provide for such method, as required by the chapeau
of Article 14 of the SCM Agreement. In its Determinations, t he Commission applied Article 6(b) of
its Basic Regulation 220 to calculate the subsidy amount with respect to the LTF -EOP Loan.221 The
European Union has explained that "[t]he process for the identification of a comparable loan is
explained in more detail in s ub-paragraph E(b) of the EU Guidelines". 222 The European Union has
further explained that Article 6(b) of the Basic Regulation 223 and sub-paragraph E(b) of the EU
Guidelines require that a benefit be calculated with reference to a "comparable commercial
loan".224
7.104. In the preceding Section of this Report, we found that Pakistan has made out a prima facie
case that the Commission acted inconsistently with Article 14(b) of the SCM Agreement because it
failed to properly identify what Novatex would have paid on a comp arable commercial loan, and
the European Union had failed to rebut that prima facie case. This failure mainly stemmed from
the fact that the Determinations are virtually silent as to why the SBP Rate is associated with a
comparable commercial loan. As alre ady noted, the European Union has explained that both the
Basic Regulation and EU Guidelines require the identification of a comparable loan. Thus, an
explanation of how the Commission identified a comparable loan must be part of the "application"
in this particular case of the "method" called for in the Basic Regulation, which includes

218 In assessing Pakistan's Article 14(b) claim, the European Union has argued that we must take into
account the facts that Pakistan and Novatex understood the SBP Rate/KIBOR during the investigation, provided
such rates to the Commission, and advocated the use of such rates as the benchmark interest rate. (See, e.g.
European Union's second written submission, para. 78; and response to Panel question No. 93, paras. 24-26).
Even if true, these considerations are immaterial on this record. While parties' understanding, provision, and/or
advocacy of a benchmark during an investigation may affect the rigor with which an investigating authority
addresses the appropriateness of a chosen benchmark, they cannot remove the investigating authority's
obligation to demonstrate the comparability of that benchmark to the subject loan to some minimum threshold
that demonstrates that the comparison is meaningful. We also note that the European Union has consistently
argued in this dispute that the LTF-EOP Loan was more similar to a "line of credit" rather than a traditional
loan, and requiring it to be benchmarked to a "proxy", i.e. the SBP Rate. Attaching the moniker "line of credit"
to the LTF-EOP Loan and/or the moniker "proxy" to the SBP Rate (neither moniker appears in the
SCM Agreement) does not assist the European Union on this record. A comparison that satisfies Article 14(b)
must be meaningful. Even if it were true that other types of loans were not comparable to the LTF-EOP Loan,
this does not mean that the SBP Rate was or should be presumed to be out of convenience. We further note
that the Commission made no adjustments to the SBP Rate. (European Union's response to Panel question
No. 62, para. 94).
219 The European Union suggests that certain of Pakistan's arguments on comparability raise due
process concerns because the European Union was limited to responding to them in its comments on Pakistan's
responses to the second set of questions from the Panel. (European Union's comments on Pakistan's response
to Panel question No. 93, para. 5). We emphasize that the comparability of a benchmark loan with a subject
loan is at the heart of the discipline imposed by Article 14(b), and that our decision in this context in no way
depends on evidence or arguments to which the European Union has been unable to respond. We more
specifically note that we do not rely on exhibits submitted by Pakistan in its comments on the European Union's
responses to the second set of questions by the Panel, nor must we do so to reach our above conclusions.
220 Council Regulation (EC) No. 597/2009 of 11 June 2009 on protection against subsidized imports from
countries not members of the European Community, Official Journal of the European Union, L Series,
No. 188/93 (18 July 2009) (Basic Regulation). See Provisional Determination, (Exhibit PAK-1), preamble.
221 Provisional Determination, (Exhibit PAK-1), para. 131. This provision is very similar to Article 14(b)
of the SCM Agreement. (See European Union's first written submission, fn 87 (quoting Article 6(b) of the Basic
Regulation)).
222 European Union's first written submission, para. 143 (quoting EU Guidelines). This is the part of the
EU Guidelines on which Pakistan relies in this context. (See generally Pakistan's first written submission,
section 6.3.1.1).
223 The European Union at times argues that Pakistan's claims under the chapeau of Article 14 must be
rejected because they represent claims under Article 22.3 of the SCM Agreement. (See, e.g. European Union's
comments on Pakistan's response to Panel question No. 93, para. 4). We note that our resolution of Pakistan's
claims under Article 14(b) and the chapeau of Article 14 is in accordance with proper legal standards.
224 Pakistan does not claim that the European Union's relevant national legislation or implementing
regulations are contrary to the principles stated in Article 14(b) in any relevant manner.

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identification of a comparable loan, within the meaning of the chapeau of Article 14(b) of the
SCM Agreement, that the Commission used to benchmark the LTF -EOP Loan. In the absence of
any meaningful explanations in the Determinations as to why the loans with which the SBP Rate
was associated were comparable to the LTF -EOP Loan, we conclude that the Commission acted
inconsistently with the chapeau of Article 14 of the SCM Agreement.
7.4.4.3 Other LTF-EOP-related claims
7.105. Pakistan also asserts that, as a consequence of violating Article 14(b) and the chapeau of
Article 14 of the SCM Agreement, the Commission also violated Articles 10, 19, and 32, and
Article VI of the GATT 1994. Such clai ms are consequential to other alleged violations of the
SCM Agreement, and we exercise judicial economy with respect to them.225
7.5 Pakistan's claims under Article 15.5 of the SCM Agreement
7.5.1 Introduction
7.106. In this Section of our Report, we address Pakistan's claim s concerning Article 15.5 of the
SCM Agreement. During the investigation, certain parties argued that any injury the domestic
industry226 experienced during the period considered 227 was not due to subject imports, but other
factors. The Commission rejected these arguments, finding that although certain other factors may
have also caused injury to the domestic industry, no other factor broke the causal link that existed
between subject imports and the injury the domestic industry experienced. In this context,
Pakistan advances a "twofold" claim. First, Pakistan argues that the Commission's "approach to
causation", whereby the Commission made a finding of the existence of a causal link between
subject imports and the injury to the domestic industry prior to the as sessment of other known
factors, is inconsistent with Article 15.5 of the SCM Agreement. Second, Pakistan claims that the
Commission failed to properly "separate and distinguish" the effects of certain other known factors
from those of subject imports. This Section addresses each in turn.
7.5.2 The Commission's approach to causation
7.107. In the Provisional Determination, the Commission began its causation analysis with the
assessment of the "[e]ffect of the subsidized imports", pursuant to which it "considered" that a
causal link existed between the subject imports and the observed injury to the domestic
industry.228 The Commission then assessed the "effect of other factors". 229 None of these factors
was found to "break the causal link" between subject imports and the obse rved injury to the
domestic industry. Thereafter, the Commission "concluded that the imports from the countries
concerned have caused material injury to the Union industry". 230 In the Definitive Determination,

225 We therefore do not address the European Union's objections to any such claims under Article 6.2 of
the DSU.
226 We use the term "domestic industry" for the purpose of this Report to describe what the Commission
referred to as the "Union industry" in its Determinations, i.e. the EU producers that cooperated with the
investigation. The Commission further relied on a sample of those cooperating producers to ascertain the
situation of the domestic industry in certain respects. (See Provisional Determination, (Exhibit PAK-1),
paras. 8, 201-204, and 219). We note, therefore, that the Commission found that a causal link existed
between subject imports and the observed injury to the domestic industry. (Provisional Determination, (Exhibit
PAK-1), para. 245). We further note that in assessing whether the domestic industry suffered injury, the
Commission at times presented data (e.g. market share and price data) that was derived from all EU producers
(i.e. the domestic industry and, additionally, non-cooperating producers). (Provisional Determination, (Exhibit
PAK-1), para. 219). We use the term "domestic producers" to refer to all EU producers, which the
Determinations referred to as "Union producers".
227 Paragraph 15 of the Provisional Determination explains: "The investigation of subsidisation and injury
covered the period from 1 July 2008 to 30 June 2009 ('investigation period' or 'IP'). The examination of trends
relevant for the assessment of injury covered the period from 1 January 2006 to the end of the investigation
period ('period considered')." We equate the term "IP" with "POI" (i.e. period of investigation), and adopt the
term "period considered" as referring to 1 January 2006 through the end of the POI.
229 Provisional Determination, (Exhibit PAK-1), paras. 246-261.

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the Commission addressed certain additional argu ments raised by interested parties and
"confirmed" its findings on causation made in the Provisional Determination.231
7.5.2.1 Main arguments of the parties
7.108. Pakistan presents three main arguments in this context. First, Pakistan argues that the
Commission's "break t he causal link" approach is contrary to the "three -step analysis" laid down
by the Appellate Body in US – Wheat Gluten.232 Second, Pakistan argues that the Commission's
approach prejudged its analysis of other known factors. 233 Third, Pakistan argues that the
Commission's basis for finding a causal link between subject imports and observed injury to the
domestic industry was flawed because: (a) it equated its findings of price undercutting by subject
imports with the existence of a causal link between the subje ct imports and the injury 234; and
(b) it assumed the existence of a causal link based on temporal coincidence between increase in
volume of imports and deterioration of the domestic industry.235
7.109. The European Union rejects all of Pakistan's arguments. The Europ ean Union argues that
investigating authorities are free to choose the methodology they use to separate and distinguish
the effects of other known factors from the effects of the subsidized imports. 236 The
European Union asserts that the challenged approach allows the Commission to conclude that the
other factors "break the causal link" if such other factors are the true cause of injury. 237 The
European Union further submits that the Commission's finding of the causal link between
subsidized imports and the inj ury to the domestic industry was based on both volume and price
effects of subsidized imports, and not on price undercutting alone as Pakistan contends.238
7.5.2.2 Relevant legal considerations
7.110. Article 15.5 of the SCM agreement provides:
It must be demonstrated tha t the subsidized imports are, through the effects[*] of
subsidies, causing injury within the meaning of this Agreement. The demonstration of
a causal relationship between the subsidized imports and the injury to the domestic
industry shall be based on an e xamination of all relevant evidence before the
authorities. The authorities shall also examine any known factors other than the
subsidized imports which at the same time are injuring the domestic industry, and the
injuries caused by these other factors mus t not be attributed to the subsidized
imports. Factors which may be relevant in this respect include, inter alia, the volumes
and prices of non -subsidized imports of the product in question, contraction in
demand or changes in the patterns of consumption, trade restrictive practices of and
competition between the foreign and domestic producers, developments in technology
and the export performance and productivity of the domestic industry.
[*fn original]47 As set forth in paragraphs 2 and 4.
7.111. It is well -established that Article 15.5 requires an investigating authority to demonstrate
the existence of a causal link between subject imports and the injury to the domestic industry.
This causal link must involve a "genuine and substantial relationship of cause and effect" between
these two elements. The third sentence of Article 15.5 calls for a "non -attribution" analysis which
requires the authorities to ensure that the injury caused by "known factors other than the
subsidized imports" is not attributed to subsidized imports under investigation. The non-attribution
language in Article 15.5 calls for an assessment that involves separating and distinguishing the
injurious effects of the other factors from the injurious effects of the subsidized imports and

232 Pakistan's second written submission, paras. 4.6 and 4.7.
233 Pakistan's response to Panel question No. 74, para. 4.22.
234 Pakistan's response to Panel question No. 74, paras. 4.12-4.20.
235 Pakistan's opening statement at the second meeting of the Panel, para. 4.7.
236 European Union's second written submission, para. 155.
237 European Union's response to Panel question No. 78, para. 111.
238 European Union's second written submission, para. 178.

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requires a satisfactory explanation of the nature and extent of the injurious effects of the other
factors, as distinguished from the injurious effects of the subsidized imports.239
7.112. We note that in accordance with the guidance laid down by previous panels and the
Appellate Body, we consider the jurisprudence on causation analysis developed under
Article 4.2(b) of the Agreement on Safeguards and Article 3.5 of the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
(Anti-Dumping Agreement) to be instructive in our evaluation of Pakistan's claims under
Article 15.5 of the SCM Agreement.240 The following Section will draw upon such guidance when
discussing Pakistan's claims.
7.5.2.3 Evaluation by the Panel
7.113. This Section proceeds in three parts . First, we address Pakistan's argument that the
Commission's "break the causal link" approach is contrary to the three -step analysis laid down by
the Appellate Body in US – Wheat Gluten. Second, we address whether the Commission's approach
prejudged its a nalysis of other known factors. Third, we address certain arguments by Pakistan
concerning the basis on which the Commission found a causal link to exist between subject
imports and the injury to the domestic industry.
7.5.2.3.1 Significance of US – Wheat Gluten
7.114. Pakistan argues that the Commission improperly failed to adhere to a prescribed
methodology for causation analysis outlined by the Appellate Body in US – Wheat Gluten. Pakistan
relies on the following observation of the Appellate Body in US – Wheat Gluten:
[A]s a first step in the competent authorities' examination of causation, … the
injurious effects caused to the domestic industry by increased imports are
distinguished from the injurious effects caused by other factors. The competent
authorities can then, as a second step in their examination, attribute to increased
imports, on the one hand, and, by implication, to other relevant factors, on the other
hand, "injury" caused by all of these different factors, including increased imports.
Through this two stag e process, the competent authorities comply with Article 4.2(b)
[of the Agreement on Safeguards] by ensuring that any injury to the domestic
industry that was actually caused by factors other than increased imports is not
"attributed" to increased imports and is, therefore, not treated as if it were injury
caused by increased imports, when it is not. In this way, the competent authorities
determine, as a final step, whether "the causal link" exists between increased imports
and serious injury, and whether t his causal link involves a genuine and substantial
relationship of cause and effect between these two elements, as required by the
Agreement on Safeguards.241
7.115. In US – Lamb, the Appellate Body clarified that the "three steps" identified in US – Wheat
Gluten "simply describe a logical process for complying with the obligations relating to causation",
and "are not legal 'tests' mandated by the text of the Agreement on Safeguards". 242 The
Appellate Body stressed that "the method and approach WTO Members choose to c arry out the
process of separating the effects of increased imports and the effects of the other causal factors is
not specified" in the Agreement on Safeguards, but that whatever methodology is followed "the
final identification of the injurious effects c aused by increased imports must follow a prior
separation of the injurious effects of the different causal factors". 243 Moreover, later cases
concerning Article 4.2(b) of the Agreement on Safeguards 244, Article 3.5 of the

239 Appellate Body Report, EU – Biodiesel (Argentina), para. 6.125 (quotation marks and citations
omitted).
240 See Appellate Body Reports, US – Hot-Rolled Steel, para. 230; and US – Line Pipe, para. 214; and
Panel Report, China – GOES (Article 21.5 – US), para. 7.119.
241 Appellate Body Report, US – Wheat Gluten, para. 69. (emphasis original)
242 Appellate Body Report, US – Lamb, para. 178. (emphasis added)
243 Appellate Body Report, US – Lamb, paras. 178-181. As discussed further below, the Commission
reached its final conclusion as to the existence of a causal link only after performing the non-attribution
analysis. (See below para. 7.118).
244 Panel Report, Ukraine – Passenger Cars, para. 7.296.

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Anti-Dumping Agreement245 and Article 15 .5 of the SCM Agreement 246 have established that no
method is prescribed in these provisions for satisfying the requirements of the causation analysis
of the type contained in Article 15.5 of the SCM Agreement. 247 We find nothing in either the
SCM Agreement or jurisprudence indicating that the three -step methodology described in US –
Wheat Gluten is mandatory in any circumstances presented in this case.
7.116. We therefore reject Pakistan's argument that the Appellate Body report in US – Wheat
Gluten prescribes a methodology regarding causation analysis to which the Commission improperly
failed to adhere.
7.5.2.3.2 Prejudgment of other known factors
7.117. Pakistan argues that the Commission's "break the causal link" approach prejudged its
non-attribution analysis. In particular, the approach led to the disregard of "the correct legal
standard, … [i.e.] whether the injurious effects of … other factors were such as to render the
causal link between the subject imports and the alleged injury too distant, remote or insubstantial"
and bec ause the existence of the causal link was "used to dismiss the significance of the
non-attribution factors the Commission purported to analyse".248
7.118. The Introduction to the Provisional Determination's "Causation" section indicates that the
Commission performed a non-attribution analysis to ensure that only injurious effects attributable
to subject imports would be considered in establishing a causal link between subject imports and
injury to the domestic industry. 249 In paragraph 245 of the Provisional Determina tion, the
Commission then "considered" that a causal link existed between the subject imports and the
observed injury to the domestic industry. Thereafter, the Commission examined whether other
factors "broke the causal link". 250 It was only after the analys is of other known factors revealed
that they did not do so did the Commission "conclude[] that the imports from the countries
concerned … caused material injury to the Union industry". 251 It is therefore evident that the
Commission allowed for the possibility that the analysis of other known factors could have negated
its initial consideration that a causal link existed between subject imports and the observed injury
to the domestic industry, as the Commission only made its final identification of the injurio us
effects caused by subject imports after separating and distinguishing the injurious effects of the
other known factors.
7.119. We do not see how this approach, in this case 252, led to the disregard of a relevant legal
standard. The Commission's analysis indicate s that the Commission's finding that subject imports

245 See, e.g. Appellate Body Report, EC – Tube or Pipe Fittings, para. 189; and Panel Report, EC –
Salmon (Norway), para. 7.656.
246 Panel Reports, EC – Countervailing Measures on DRAM Chips, para. 7.405; and Mexico – Olive Oil,
para. 7.303.
247 We also note the following observation of the Appellate Body, albeit not made in the context of a
discussion on the methodology to be followed in causation analysis:
Article 4.2(b) of the Agreement on Safeguards establishes two distinct legal
requirements for competent authorities in the application of a safeguard measure.
First, there must be a demonstration of the "existence of the causal link between
increased imports of the product concerned and serious injury or threat thereof ".
Second, the injury caused by factors other than the increased imports must not be
attributed to increased imports.
(Appellate Body Report, US – Line Pipe, para. 208 (emphasis added))
248 Pakistan's opening statement at the second meeting of the Panel, para. 4.4.
250 We note that in the Definitive Determination, the Commission confirmed its findings on causation
made in paragraphs 242 through 264 of the Provisional Determination (Definitive Determination, (Exhibit
PAK-2), paras. 117 and 126). The Commission's "approach" to causation is, therefore, best reflected in the
Provisional Determination.
252 The "appropriateness of a particular method [to establish causation] may have to be determined on a
case specific basis, depending on a number of factors and factual circumstances". (Appellate Body Report, US –
Tyres (China), para. 191 (quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1376) (square bracketing original)). (See also Panel Report, EU – Footwear (China), para. 7.489 (making
similar remarks)). We therefore reject as immaterial Pakistan's discussions concerning other circumstances in
which the "break the causal link" approach might be problematic or did not appear to have been followed by
the Commission. (See, e.g. Pakistan's response to Panel question No. 74, paras. 4.34-4.38; and second written
submission, paras. 4.7 and 4.24-4-38).

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caused material injury to the domestic industry would be based on effects attributable to subject
imports, and not on effects attributable to other known factors. We also do not see how the
Commission's approach precluded the Commission from separating and distinguishing the injurious
effects of any other known factors from those of the subject imports and from providing a
satisfactory explanation of the nature and extent of the injurious effects of other known factors, as
distinguished from the injurious effects of the subject imports, in accordance with the
non-attribution requirement of Article 15.5 of the SCM Agreement.253 Pakistan does identify certain
purported deficiencies in the Commission's analysis of specific other known factors, discussed
below254, and we agree that certain such deficiencies exist. But we see no reason to think that the
use of the overall "break the causal link" framework necessarily compelled their occurrence or
would preclude thei r remedy. Indeed, we find further below that the Commission sufficiently
separated and distinguished the effects of two known factors, demonstrating that the Commission
did not simply "dismiss" the role of other known factors because the Commission had ear lier
considered that a causal link existed between subject imports and injury to the domestic industry.
We further note that certain panel reports addressing issues within the context of non -attribution
and causation – albeit not addressing the specific ty pe of challenge Pakistan asserts here – have
appeared to accept the "break the causal link" methodology in a variety of circumstances.255
7.120. We therefore reject Pakistan's argument that the Commission's "break the causal link"
approach precluded the Commission from satisfying the non -attribution requirements of
Article 15.5 of the SCM Agreement in this case.
7.5.2.3.3 The basis on which the finding of the causal link was made
7.121. In this Section, we examine two arguments put forth by Pakistan concerning the basis on
which the Commission found a causal link to exist between subject imports and the injury to the
domestic industry. First, Pakistan argues that the Commission conflated the analysis required
under Article 15.5 of the SCM Agreement with that required under Article 1 5.2 of the
SCM Agreement by equating its findings on the price effects of the subject imports with the
existence of a causal link between subject imports and the injury to the domestic industry. 256
Second, Pakistan argues that the Commission found a causal l ink between subject imports and the
injury based on nothing more than a "coincidence in time" between increase in volume of subject
imports and the deterioration in the condition of the domestic industry.257
7.122. We reproduce below the most relevant findings of t he Commission in the Provisional
Determination under the heading "Effects of the subsidized imports", which were made within the
overall framework of determining whether a causal link existed between subject imports and the
observed injury to the domestic industry:
Between 2006 and the IP, the volume of the subsidised imports of the product
concerned increased by more than 5 times to 304 200 tonnes, and their market share
increased by almost 8 percentage points (from 2,1% to 10,2%). At the same time,
the Union industry lost some 10 percentage points of market share (from 84,9% to
72,1%). The average price of these imports decreased between 2006 and the IP and
remained lower than the average price of Union producers.

253 Appellate Body Report, EU – Biodiesel (Argentina), para. 6.125.
254 See below Section 7.5.3.
255 See, e.g. Panel Reports, China – HP-SSST (Japan) / China – HP-SSST (EU), para. 7.200; EU –
256 Pakistan's response to Panel question No. 74, paras. 4.12-4.20; second written submission
paras. 4.3 and 4.4.
257 Pakistan's opening statement at the second meeting of the Panel, paras. 4.6 and 4.7. We note that
the two lines of argument appear to contradict each other. Insofar as they do so, we treat them as having been
presented in the alternative. Pakistan also asserts that the Commission improperly attributed greater value to
the coincidence between subject imports and the injury to the domestic industry, than to the coincidence
between several non-attribution factors and the injury to the domestic industry, but does not elaborate further.
(Pakistan's opening statement at the second meeting of the Panel, paras. 4.8 and 4.9). Article 15.5 of the
SCM Agreement does not require subject imports to be the sole cause of injury to the domestic industry. (See
Appellate Body Reports, US – Wheat Gluten, para. 67; and US – Line Pipe, para. 209. See also Panel Report,
China – Autos (US), para. 7.322). We thus do not see a role for this argument that is meaningfully separate
from that of Pakistan's other arguments regarding why the Commission's non-attribution analysis was flawed.
We therefore do not address it further.

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As indicated above at recital (217), price undercutting of the subsidised imports was
on average 3,2%. Even if the price undercutting was below 4%, it cannot be
considered as insignificant given that PET is a commodity and competition takes place
mainly via price.
…
In view of the undercutting of Union industry's prices by imports from the countries
concerned, it is considered that these subsidised imports exerted a downward
pressure on prices, preventing the Union industry from keeping its sales prices to a
level that would have been necessary to cover its costs and to realise a profit.
Therefore, it is considered that a causal link exists between those imports and the
Union industry's injury.258
7.123. Further, after discussing the effects of other factors, the Commission stated:
The coincidence in time be tween, on the one hand, the increase in subsidised imports
from the countries concerned, the increase in market shares and the undercutting
found and, on the other hand, the deterioration in the situation of the Union
producers, leads to the conclusion tha t the subsidised imports caused material injury
to the Union industry within the meaning of Article 8(5) of the basic Regulation.259
7.124. The Final Determination confirmed all such findings.260
7.125. Thus, in establishing a causal link between subject imports and the obs erved injury to the
domestic industry, the Commission considered: (a) the condition of the domestic industry; (b)
price undercutting by subject imports; (c) the fact that "PET is a commodity and competition takes
place mainly via price", due to which it at tached special significance to price undercutting by
subject imports; (d) the observation that subject imports "exerted a downward pressure on prices,
preventing the Union industry from keeping its sales prices to a level that would have been
necessary to cover its costs and to realise a profit"; (e) the increase in volume of subject imports;
and (f) an increase in market shares of subject imports.261
7.126. We therefore reject Pakistan's arguments that the Commission, in establishing a causal
link between subject imports and observed injury to the domestic industry, relied on only the
presence of price undercutting by subject imports and/or a coincidence in time between an
increase in volume of subject imports and the injury to the domestic industry.262
7.5.2.3.4 Conclusion
7.127. We thus reject Pakistan's claim that the Commission's use of the "break the causal link"
methodology in this case was inconsistent with Article 15.5 of the SCM Agreement.
7.5.3 The Commission's analysis of "other known factors"
7.128. Pakistan argues that the Commission failed to perform a proper non -attribution analysis
with respect to each of the following four factors:

258 Provisional Determination, (Exhibit PAK-1), paras. 242, 243, and 245.
260 Final Determination, (Exhibit PAK-2), paras. 117 and 126.
261 We take special note that the Commission considered the increase in market share of subject imports
both before and after considering the effects of other factors. (Provisional Determination, (Exhibit PAK-1),
paras. 242 and 262).
262 In addition, we recall that the finding of the existence of the causal link in paragraph 245 was
confirmed only in paragraph 264, after the Commission analysed the effects of other known factors causing
injury to the domestic industry, which is further consistent with the view that the finding of the causal link
between subject imports and the injury to the domestic industry was not based solely on the finding of price
undercutting by subject imports and/or on the coincidence in time between an increase in volume of subject
imports and the injury to the domestic industry.

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a. imports from Korea263;
b. economic downturn264;
c. competition from non-cooperating EU producers265; and
d. oil prices.266
7.129. We recall that Article 15.5 calls for an asse ssment that involves separating and
distinguishing the injurious effects of the other factors from the injurious effects of the subsidized
imports and requires a satisfactory explanation of the nature and extent of the injurious effects of
the other factor s, as distinguished from the injurious effects of the subsidized imports. 267 In this
Section, we examine Pakistan's arguments concerning the Commission's analysis of each of the
four factors identified above in turn.
7.5.3.1 Imports from Korea
7.130. In its examination of the factor "[i]mports from third countries – Republic of Korea", the
Commission addressed, inter alia, the increase in market share and volume of imports from Korea,
and the price undercutting by such imports.268 However, in light of the fact that "the Korean prices
were higher than the average prices from the countries concerned", the Commission concluded
that the contribution of imports from Korea to the injury suffered by the domestic industry "was
only limited" and that imports from Korea did not break the causal link between subsidized imports
and the injury to the domestic industry.269
7.5.3.1.1 Main arguments of the parties
7.131. Pakistan puts forth certain arguments which, "individually and together", demonstrate that
the Commission failed to separate and distinguish the effects of imports from Korea from those of
subject imports within the meaning of Article 15.5 of the SCM Agreement. 270 First, Pakistan argues
that the Commission did not adequately assess the effects of price undercutting by imports from
Korea.271 Second, Pakistan argues that the Commission did not properly assess the growth in
volume and market share of imports from Korea. 272 Third, Pakistan submits that the Commission
failed to assess the correlation between the exemption of certain Korean producers from E U
anti-dumping duties and the increase in volume and market share of Korean imports. 273 Fourth,
and related to the three arguments above, Pakistan contends that because the price undercutting
and increasing volumes of Korean imports had the same effects on t he domestic industry as the
price and volumes of the subject imports, "the Commission's summary conclusion that the effects
of Korean imports were 'limited' was not reasoned and adequate". Therefore, the Commission
failed to carry out its duty to separate and distinguish the injurious effects of the Korean
imports.274
7.132. The European Union argues that the Commission's analysis of imports from Korea fully
conforms to the requirements of Article 15.5 of the SCM Agreement because it recognized imports
from Korea as possibly causing injury to domestic industry, separated and distinguished the effects

263 Pakistan's first written submission, para. 7.21.
264 Pakistan's first written submission, para. 7.40.
265 Pakistan's first written submission, para. 7.53.
266 Pakistan's first written submission, para. 7.60.
267 Appellate Body Report, EU – Biodiesel (Argentina), para. 6.125.
270 Pakistan's response to Panel question No. 97, para. 4.7.
271 Pakistan's first written submission, paras. 7.30-7.34; response to Panel question No. 97, paras. 4.2
and 4.3.
272 Pakistan's first written submission, para. 7.35; response to Panel question No. 97, para. 4.4.
273 Pakistan's first written submission, para. 7.36; response to Panel question No. 97, para. 4.5.
274 Pakistan's first written submission, paras. 7.37 and 7.38; response to Panel question No. 97,
para. 4.6.

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of this factor from the effects of subject imports, and provided a qualitative explanation for that
conclusion.275
7.5.3.1.2 Evaluation by the Panel
7.133. In the Provisional Determination, the Commission made the following findings with respect
to imports from Korea:
The Republic of Korea is subject to anti -dumping duties since 2000. However, two
Korean companies are subject to a zero duty and the investigation established that
imports from the Republic of Korea remain at a high level and increased significantly
in the period considered. The Korean imports increased by almost 150% between
2006 and the IP and their corresponding market share increased from 3,5% in 2006
to 7,7% in the IP.
The average price of the Korean imports remained in general slightly below the
average prices of the Union producers. However, the Korean prices were higher than
the average prices from the countries concerned. Consequently, although it cannot be
excluded that imports from the Republic of Korea contributed to the injury suffered by
the Union industry, their contribution was only limited and they are considered not to
have broken the causal link established as regards the subsidised imports from the
countries concerned.276
7.134. We consider that the Commission sufficiently separated and distinguished the effects of
Korean imports. The Commission expressly noted that Korean imports undercut the prices of the
domestic like product, and increased their volumes 277 and market share during the period
considered. The Commission considered, however, that any injury caused by Korean imports "was
only limited" because subject imports undercut the prices of the domestic like product by more
than Korean imports did. This appears a re asonable conclusion in light of the uncontested
assertion stated in the Provisional Determination that the EU PET market is characterized by price
competition.278 Furthermore, we note that subject imports increased their market share and
volume more than imports from Korea did over the period considered, and that in the POI, subject
imports had a higher market share (10.2%) 279 and volume (304,202 tonnes) 280 than the market
share (7.7%)281 and volume (231,107 tonnes)282 of imports from Korea.
7.135. We therefore reject Pakistan's claim that the Commission's analysis of imports from Korea
is inconsistent with Article 15.5 of the SCM Agreement.
7.5.3.2 Economic downturn
7.136. In the Provisional Determination, the Commission addressed the effects of the 2008
economic downturn on the domestic industry.283 The Commission found that the financial and
economic crisis of 2008 led to a market growth that was slower than expected, and that there was
a contraction of demand for PET in 2008, which had an effect on the overall performance of the

275 European Union's first written submission, para. 219.
276 Provisional Determination, (Exhibit PAK-1), paras. 248 and 249.
277 We note Pakistan's argument that the Commission did not adequately consider the effect of the
exemption of certain Korean producers from EU anti-dumping duties on PET imports from Korea, the relevance
of which was a purported sharp increase in the volume of imports from Korea during the period considered.
(Pakistan's first written submission, para. 7.36; response to Panel question No. 97, para. 4.5). However, as
discussed above, the Commission did consider the growth in volume and market share of imports from Korea.
Therefore, the Commission effectively addressed the relevance of exemption of certain Korean producers from
EU anti-dumping duties.
278 Provisional Determination, (Exhibit PAK-1), para. 243. Indeed, Pakistan's argument in this context
depends on such price-based competition, or else there would be no reason to suggest that price undercutting
by Korean imports would have been expected to contribute to the domestic industry's observed injury.
279 Provisional Determination, (Exhibit PAK-1), table 2.
281 Provisional Determination, (Exhibit PAK-1), table 17.
282 Provisional Determination, (Exhibit PAK-1), table 17.
283 Provisional Determination, (Exhibit PAK-1), paras. 253-256.

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domestic industry.284 However, the Commission reasoned that the negative effects of the economic
downturn were exacerbated by the low -priced subsidized imports, as unfair competition from such
imports prevented the domestic industry from maintaining an acceptable le vel of prices. 285 The
Commission concluded that given the global character of the economic downturn, and the fact that
the economic downturn could be considered as having contributed to the injury suffered by the
domestic industry only as from the last quart er of 2008, the economic downturn did not break the
causal link between subject imports and the injury to the domestic industry.286
7.5.3.2.1 Main arguments of the parties
7.137. Pakistan argues that the Commission's analysis of the economic downturn fell short of the
requirements of Article 15.5 of the SCM Agreement. 287 According to Pakistan, since the
Commission found, on the one hand, that the domestic demand for PET increased by 11%
between 2006 and the POI, and on the other hand, that the 2008 financial crisis brought abo ut a
contraction of global demand, the Commission should have sought to ascertain whether, in a
situation characterized by shrinking global demand and increased domestic demand, it was the
increased competition from domestic as well as importing competitor s, which caused injury to the
domestic industry.288 Pakistan submits that the "specific factual circumstances" in the challenged
investigation warranted a collective analysis of the injurious effects of all other factors. 289 Pakistan
argues that the Commission did not "separate and distinguish" the injurious effects of the
economic downturn from the injurious effects of other known factors. 290 Pakistan also contends
that the Commission did not substantiate and/or explain its assertion that material injury to the
domestic industry occurred before the last quarter of 2008, i.e. the time at which the economic
downturn began.291
7.138. The European Union argues that the Commission properly separated and distinguished the
effects of this factor from the injury caused by subjec t imports by clearly analysing the extent of
the injurious impact of the economic downturn, noting how such effects were limited in time, how
they are less relevant in the domestic market of the European Union, and how the effects of the
economic downturn interact with the effects of the subject imports.292 The European Union submits
that there was no need to assess the relevance of imports from Korea and non -cooperating
domestic producers in context of the economic downturn as these factors had been separate ly
assessed.293 The European Union submits that Pakistan has not presented any evidence as to why
there existed special circumstances which required the Commission to carry out a collective
assessment.294 With respect to Pakistan's claim that the Commission ma de no finding of injury
prior to the last quarter of 2008, the European Union submits that the Commission found injury for
the whole period considered, therefore including the period in question.295
7.5.3.2.2 Evaluation by the Panel
7.139. We first address Pakistan's argumen t that in light of certain alleged "particularities of
global and EU demand" resulting from the economic downturn, the Commission should have
examined whether it was increased competition from non -subject imports as well as
non-cooperating EU producers res ulting from such alleged demand conditions in the EU market
which caused injury to the domestic industry. These particularities consisted of "a decline in the
global demand and an increase in the EU demand as a result of the 2008 economic downturn". 296

286 Provisional Determination, (Exhibit PAK-1), para. 256; and Definitive Determination, (Exhibit PAK-2),
para. 120.
287 Pakistan's first written submission, para. 7.52.
288 Pakistan's first written submission, para. 7.48.
289 Pakistan's second written submission, para. 4.52.
290 Pakistan's first written submission, para. 7.47.
291 Pakistan's first written submission, paras. 7.51-7.52.
292 European Union's first written submission, para. 221.
293 European Union's response to Panel question No. 79, para. 113.
294 European Union's opening statement at the second meeting of the Panel, para. 66.
295 European Union's opening statement at the first meeting of the Panel, para. 51.
296 Pakistan's second written submission, para. 4.50. In particular, Pakistan states that "[t]he
Commission first noted that the domestic demand for the product increased by 11 per cent between 2006 and
the [POI]. At the same time, the Commission found that the 2008 financial crisis brought about a contraction
of global demand". (Pakistan's first written submission, para. 7.48 (emphasis original, fn omitted)).

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In ou r view, the record does not reasonably reflect these facts. The only portions of the
Determinations to which Pakistan points in support of its argument indicate that the economic
downturn caused a decrease in EU demand for PET in 2008, although EU demand a ppeared to
recover in the first half of 2009, i.e. the latter half of the POI:
Union consumption of the product under investigation increased between 2006 and
the IP by 11%. In detail, the apparent demand grew in 2007 by 8%, decreased
slightly between 2007 and 2008 (by 2 percentage points) and increased by further 5
percentage points between 2008 and the IP.297
…
The financial and economic crisis of 2008 led to a market growth that was slower than
expected and unusual as compared to the beginning of the year s 2000 where yearly
growth rates around 10% could be observed. For the first time, there was a
contraction of demand for PET in 2008 . This clearly had an effect on the overall
performance of the Union industry.298
7.140. There is no data, however, in the Determina tions evidencing global PET demand.
Moreover, the only narrative statement that we detect potentially relating to the state of global
PET demand in the wake of the 2008 economic downturn is that the downturn had a "global
character".299 This statement sugges ts, however, that the economic downturn had symmetrical
impacts on demand patterns in the European Union and the rest of the world, not the opposite as
Pakistan claims.300 Thus, we find that the record does not reasonably reflect the facts upon which
Pakistan's argument is based, and we reject it accordingly.
7.141. We now turn to Pakistan's argument that "'the specific factual circumstances' in the
challenged investigation warranted a collective analysis of the injurious effects of all other
factors".301 Pakistan's position here appears to be that "as the Commission had found that several
other factors had contributed to the injury to the domestic industry during the [POI]", the
Commission was required to perform a collective assessment of all other factors causing in jury to
the domestic industry.302 In our view, Pakistan has not demonstrated that a collective assessment
was necessary in this case. Article 15.5 of the SCM Agreement does not mention the need to
perform such a collective assessment in any particular circum stances. We note, however, the
following observation by the Appellate Body in EC – Tube or Pipe Fittings regarding the issue of the
collective assessment of other known factors in non -attribution analyses under Article 3.5 of the
Anti-Dumping Agreement:
[W]e are of the view that Article 3.5 does not compel, in every case, an assessment of
the collective effects of other causal factors, because such an assessment is not
always necessary to conclude that injuries ascribed to dumped imports are actually
caused by those imports and not by other factors. … At the same time, we recognize

297 Provisional Determination, (Exhibit PAK-1), para. 206. (emphasis added)
298 Provisional Determination, (Exhibit PAK-1), para. 253 (emphasis added). In our view, the reference
to a decrease in demand for PET in 2008 in this paragraph clearly relates to EU demand. Indeed, the only data
relating to demand for PET in any particular market in the Determinations relates to EU demand. (Provisional
Determination, (Exhibit PAK-1), table 1). Moreover, even if this statement could be construed as relating to
global demand, in light of the data provided in table 1 of the Provisional Determination, it simply means that
global demand and EU demand both decreased in 2008 as a result of the economic downturn, which does not
support Pakistan's position.
300 Certain other statements appear in the Determinations regarding decreased demand of PET in 2008.
Given that the only data in the Determinations regarding demand for PET relate to the EU market, which
evidence a demand decrease in 2008, it is clear to us that such discussions relate to a decrease in the EU
market rather than global demand. (See, e.g. Definitive Determination, (Exhibit PAK-2), para. 120 (referencing
"shrinking demand")). We also note that the data provided in table 16 shows that export sales of the domestic
industry dropped in 2008, before recovering in the first half of 2009 (Provisional Determination, (Exhibit
PAK-1), table 16). This may further suggest that the economic downturn had symmetrical impacts on global
demand and EU demand for PET.
301 Pakistan's second written submission, para. 4.52. In keeping with Pakistan's positioning of this
argument, we address Pakistan's argument concerning cumulative assessment of other known factors in this
Section of our Report.
302 Pakistan's second written submission, para. 4.52.

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that there may be cases where, because of the specific factual circumstances therein,
the failure to undertake an examination of the collective impact of other causal factors
would result in the investigating authority improperly attributing the effects of other
causal factors to dumped imports.303
7.142. Thus, although there may be circumstances in which a collective assessment is warranted,
the simple existence of other known factors tha t are found to have contributed to the injury to the
domestic industry at the same time as subject imports does not on its own amount to such
circumstances. Pakistan, however, has pointed to nothing more than that in support of its
argument. We therefore r eject Pakistan's argument that a collective assessment of other known
factors was needed in this case.
7.143. We now recall Pakistan's argument that the Commission failed to "separate and
distinguish" the injurious effects of the economic downturn from the injuri ous effects of subject
imports. In that context, the Commission found that the financial and economic crisis of 2008 "led
to a market growth that was slower than expected" and brought about a "contraction of demand"
which clearly "had an effect on the overall performance of the [domestic] industry".304 Further, the
Commission noted that the domestic industry was "in a situation of decreasing sales" and bore
"negative effects of … decrease in the growth of consumption". 305 At the same time, the
Commission noted that the "increased subsidized imports" "exacerbated" the effects of the
economic downturn. The Commission explained that despite decreasing sales and decrease in
growth of consumption caused by the economic downturn, the domestic industry "should be able
to maintain an acceptable level of prices … but only in the absence of the unfair competition of low
priced imports in the market". 306 In our view, this observation sufficiently separated and
distinguished the injurious effects of the economic downturn (i.e. injury through the effect of
decreased demand) from that of subject imports (i.e. injury through the effects of things other
than decreased demand 307) during the relevant time -period.308 We therefore reject Pakistan's
argument that the Commission failed to se parate and distinguish the effects of the economic
downturn from those of subject imports.
7.144. We note Pakistan's argument that the Commission's "bald assertion that there existed
injury prior to the last quarter of 2008 [was] unsubstantiated". 309 We reproduce below the portion
of the Provisional Determination relevant in this context:
The economic downturn has also no impact whatsoever on the injury suffered and
observed already before the last quarter of 2008.
Consequently, the economic downturn must be consi dered as an element contributing
to the injury suffered by the Union industry as from last quarter of 2008 only and
given its global character cannot be considered as a possible cause breaking the
causal link between the injury suffered by the Union indust ry and the subsidised
imports from the countries concerned.310
We note that for injury analysis, the Commission made findings regarding the negative
performance of the domestic industry over the entire period considered, i.e. 2006 to the end of the
POI.311 In light of these findings, we do not view the statements of the Commission quoted above

303 Appellate Body Report, EC – Tube or Pipe Fittings, paras. 191 and 192. (emphasis original)
306 Provisional Determination, (Exhibit PAK-1), para. 254. We find it useful to recall in this context that
the Commission found, in the causation analysis, that the subject imports "exerted a downward pressure on
prices, preventing the [domestic] industry from keeping its sales prices to a level that would have been
necessary to cover its costs and to realize a profit". (Provisional Determination, (Exhibit PAK-1), para. 245).
307 See Provisional Determination, (Exhibit PAK-1), paras. 242-245.
308 In the Definitive Determination, the Commission further noted the steady increase of the market
share of subject imports during the period from 2008 through the POI. (Definitive Determination, (Exhibit
PAK-2), para. 120).
309 Pakistan's first written submission, para. 7.51.
310 Provisional Determination, (Exhibit PAK-1), paras. 255 and 256.
311 Provisional Determination, (Exhibit PAK-1), paras. 238-240. We note that in the Provisional
Determination (para. 254) as well as the Definitive Determination (para. 120), the Commission concluded that
this factor did not break the causal link between subject imports and the injury to the domestic industry

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as referring to any injury specifically found to exist prior to the last quarter of 2008. Rather, these
statements simply emphasize that any contribution that the economic downturn made to the injury
suffered by the domestic industry could only have occurred after the last quarter of 2008. Hence,
we reject this argument by Pakistan.312

7.145. We therefore reject Pakistan's claim that the Commission's analysis of the economic
downturn is inconsistent with Article 15.5 of the SCM Agreement.
7.5.3.3 Competition from non-cooperating producers
7.146. Certain interested parties argued before the Commission that the injury suffered by the
domestic industry was on account of competition from non -cooperating EU producers. 313 The
Commission noted that one of the producers stopped production in the POI while two others did so
shortly thereafter and that these producers lost market share from 20.5% in 2006 to 16% in the
POI. The Commission thus concluded that t here was no evidence which suggested that "the
behaviour of these producers has broken the causal link" between the subject imports and the
injury to the domestic industry.314
7.5.3.3.1 Main arguments of the parties
7.147. Pakistan argues that the Commission failed to condu ct a proper non -attribution analysis
with respect to the factor "effects of other domestic producers" for two main reasons. 315 First,
Pakistan argues that by conducting an end -point-to-end-point analysis of market share of
non-cooperating producers, pursuant to which the Commission found that the market share of
non-cooperating producers dropped from 20.5% in 2006 to 16% in the POI, the Commission did
not factor into its analysis that such producers gained market share from 2008 to the end of the
POI.316 Second, Pakistan argues that the fact that the market share and volumes of
non-cooperating producers rose between 2008 and the end of POI, while the market share and
volumes of the domestic industry continued to decline should have triggered an inquiry by the
Commission into whether other factors such as lack of productivity, or necessary skills, were
affecting one sector of the domestic industry more than the other.317
7.148. The European Union argues that the fact that there was no linear drop in market share in
every s ingle part of the period considered does not put its conclusion that competition from
non-cooperating producers did not break the causal link in doubt. 318 The European Union also
submits that, contrary to what Pakistan appears to suggest in making its argume nts in this
context, the SCM Agreement does not require the Commission to examine whether the subsidized
imports caused injury to non-cooperating producers.319
7.5.3.3.2 Evaluation by the Panel
7.149. We first address Pakistan's argument that the Commission should have anal ysed the
non-cooperating producers' market share trends beyond an end -point-to-end-point analysis. We
recall that with respect to competition from non -cooperating EU producers, the Commission, in
relevant part, observed that these producers' market share d eclined from 20.5% in 2006 to 16%

keeping in view "the damaging injurious effects of low priced subsidised imports in the EU market over the
whole period considered" (emphasis added). Further, in paragraph 242 of the Provisional Determination, the
Commission noted that the average price of imports "remained lower than the average price of Union
producers" between 2006 and the end of POI. We also note that Pakistan has not challenged the Commission's
findings concerning injury to the domestic industry.
312 We further note that these statements were not in any way essential to the manner in which the
Commission separated and distinguished the effects of the economic downturn and subject imports during the
relevant time-period (discussed further above in this Section).
314 Provisional Determination, (Exhibit PAK-1), para. 252. We note that while the Commission provided
separate figures for the market share of non-cooperating producers in 2008 and in the POI, the two periods of
time overlap. We recall that the POI refers to the period from 1 July 2008 to 30 June 2009.
315 Pakistan's first written submission, paras. 7.53-7.59.
316 Pakistan's first written submission, paras. 7.58 and 7.59.
317 Pakistan's first written submission, para. 7.59.
318 European Union's first written submission, para. 223.
319 European Union's first written submission, para. 226.

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in the POI.320 The Commission then concluded that the "investigation has not shown any evidence
that the behaviour of these producers has broken the causal link between the subsidised imports
and the injury established for t he Union industry".321 Based on this analysis, we consider that the
Commission dismissed the possibility that competition from non -cooperating EU producers caused
injury to the domestic industry. 322 The end -point-to-end-point analysis of the non -cooperating
producers' market share clearly formed a significant part of the basis for this conclusion.
7.150. In our view, whether an investigating authority has offered a reasoned and adequate
explanation in concluding that a particular factor could not have caused injury to the domestic
industry, when that conclusion is significantly based on an end -point-to-end-point analysis of data
(in this case, market share data for non -cooperating producers), will depend on the facts of a
particular case.323 In this case, we recall that the Provisional Determination presented the market
share of non -cooperating producers for 2006, 2007, 2008, and the POI. Their market share
decreased during the period considered in every consecutive interval except between 2008 and the
POI. The Commission correctly observed that the non -cooperating EU producers lost 4.5
percentage points of market share during the period considered, i.e. from 20.5% in 2006 to 16%
in the POI 324, but did not note that between 2008 and the POI their market share rose by 3.6
percentage points, i.e. from 12.4% to 16%. 325 We note that the magnitude of the rise in market
share of non -cooperating producers between 2008 and the POI was, at least in absolute terms,
similar to the drop in market share the Commission observed pursuant to t he
end-point-to-end-point analysis. We further note that the rise in market share of non -cooperating
producers between 2008 and the POI coincided with: (a) a drop of 8.3 percentage points in the
market share of the domestic industry 326; (b) a rise of 2.6 per centage points in the market share
of subject imports; and (c) a rise in the market shares of non -subject imports (a rise of 1.5
percentage points in market share of Korean producers and of 0.5 percentage points for other
imports).327 This indicates that non -cooperating producers, whose market share increased by 3.6
percentage points between 2008 and the POI, were the largest gainers of market share at the

321 Provisional Determination, (Exhibit PAK-1), para. 252. The Commission also observed that one of the
non-cooperating producers stopped production in the POI while two others did so shortly thereafter. This
statement regarding the cessation of production by certain producers is unaccompanied by any reference as to
why that cessation diminishes the significance of the increase in the market share of non-cooperating
producers between 2008 and the POI, and we detect no basis upon which to make that inference.
322 European Union's response to Panel's question No. 100, para. 33 (agreeing with this interpretation of
the Commission's analysis). Even if we were to interpret the Commission's reasoning in this context as
indicating that non-cooperating producers caused injury to the domestic industry, or even allowing for that
possibility, we would find a violation of Article 15.5 because, on its face, the analysis contains no explanation
whatsoever of the nature and extent of such injury, as distinguished from injurious effects of subject imports.
Without such explanation, it is not logically possible to separate and distinguish that injury from that caused by
subject imports.
323 See Panel Reports, China – Autos (US), paras. 7.289 and 7.334; Ukraine – Passenger Cars,
para. 7.302; and Russia – Commercial Vehicles, para. 7.126 (appeal pending). We also note that the Appellate
Body has found end-point-to-end-point analysis of data to be unsuitable in certain contexts. (See, e.g.
Appellate Body Report, Argentina – Footwear (EC), para. 129).
325 We note that merely by presenting the market share held by non-cooperating producers in different
intervals within the period considered in the form a table, the Commission cannot be assumed to have taken
into account the increase in market share of non-cooperating producers from 2008 through the POI in any
meaningful fashion. (See Panel Reports, US – Hot-Rolled Steel, para. 7.232; Egypt – Steel Rebar, paras. 7.42
and 7.44; and EC – Tube or Pipe Fittings, para. 7.316).
326 In the Provisional Determination, the Commission presented relevant market share data for: (a) all
domestic producers (i.e. cooperating and non-cooperating); and (b) non-cooperating producers. (Provisional
Determination, (Exhibit PAK-1), para. 219 and tables 7 and 19). It did not specifically break out the market
share trends for the domestic industry (i.e. cooperating producers). However, the aggregate market share data
reflect a loss of market shares by all domestic producers between 2008 and the POI. Thus, because
non-cooperating producers gained market share over this time, it can reasonably be inferred that cooperating
producers must have lost market share over the same period. Indeed, the Provisional Determination notes that
the decreasing markets share trend of domestic producers "was also found for the sampled Union producers".
(Provisional Determination, (Exhibit PAK-1), para. 224). We further note that the market share held by the
domestic industry in any given period for which the Commission presented market share data could be derived
by subtracting the market share of non-cooperating producers from the market share of all domestic producers
in that period. The domestic industry's market share for 2006, 2007, 2008 and the POI was 64.4%, 66.4%,
67.4%, and 59.1%, respectively.
327 Provisional Determination, (Exhibit, PAK-1), tables 2, 7, 17, 18, and 19.

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domestic industry's expense between 2008 and the POI. 328 Moreover, the domestic industry's loss
of market share during the period considered was a significant consideration in the Commission's
finding that the domestic industry had suffered injury. 329 We consider that, under these
circumstances, the increase in market share of the non -cooperating producers between 2008 and
the POI warranted more specific examination. This increase in market share raises the distinct
possibility that competition from non-cooperating producers caused injury to the domestic industry
as between 2008 and the POI, which would seem coun ter to the Commission's unqualified
conclusion, significantly based on its end -point-to-end-point analysis, that competition from non -
cooperating producers did not cause injury to the domestic industry.330
7.151. We now recall Pakistan's argument that because the non-cooperating EU producers gained
market share while the domestic industry lost market share between 2008 and the POI, the
Commission should have inquired into whether instead of subject imports being the cause of
injury, it was other factors, such as la ck of productivity, or necessary skills, which were affecting
one sector of the EU industry more than the other. To the extent that Pakistan argues that the
Commission was required to investigate whether and/or why "the alleged injurious effects of the
subject imports were markedly uneven" 331 across various subsets of the domestic producers, we
disagree. We do not see why a comparative examination of how subject imports impacted the
cooperating and the non-cooperating parts of the EU industry would be material in determining the
impact of competition from non -cooperating producers on the domestic industry. 332 Furthermore,
insofar as Pakistan argues that there might have been other factors, such as lack of productivity or
necessary skills, that caused injury to t he domestic industry, Pakistan has not cited evidence
indicating that such factors were "known" to the Commission within the meaning of Article 15.5 of
the SCM Agreement.333
7.152. For reasons stated above, we conclude that the Commission's analysis of competition from
non-cooperating producers is inconsistent with Article 15.5 of the SCM Agreement.
7.5.3.4 Oil prices
7.153. Before the Commission, certain parties argued that "the low prices for PET in the EU reflect
the worldwide cycle of the industry and that from September 2008 until June 2009 the PET prices
in the EU followed the low prices of crude oil". 334 The Commission rejected this argument because,
according to the Commission, prices for crude oil were not low during the whole POI but volatile,

328 We note Pakistan's argument that "the negative effects on EU prices were felt only, or most
dramatically, from 2008 to the end of the [POI], thus coinciding with the rise of volumes and market share of
non-cooperating EU producers". (Pakistan's first written submission, para. 7.56). There is no data on the
record regarding the prices of non-cooperating producers, however.
329 Provisional Determination, (Exhibit PAK-1), para. 238. As the jurisprudence indicates that particular
importance attaches to developments in the most recent portion of a period of investigation, the timing of the
increase in the market share of non-cooperating producers also imparted significance to the increase. This is
especially so given the evolution of the domestic industry's market share as shown in fn 326. (See
Appellate Body Report, US – Steel Safeguards, para. 370 (quoting Appellate Body Report, US – Lamb,
para. 138 fn 88); and Panel Report, Ukraine – Passenger Cars, para. 7.289). In this context, we note that a
recent panel report (which is under appeal) observed that "more recent data during the period of consideration
is likely to be particularly relevant to the determination of material injury during the POI". (Panel Report,
Russia – Commercial Vehicles, para. 7.152 (appeal pending)).
330 This does not necessarily mean that the conclusion that the Commission reached in respect of
competition from non-cooperating producers could not have been sustained had the Commission assessed the
market share of non-cooperating producers beyond an end-point-to-end-point analysis.
331 Pakistan's second written submission, para. 4.56.
332 We recall that the panel in EC – Fasteners (China) observed that an analysis of causation, including
the examination of other factors which may be causing injury to the domestic industry at the same time as
imports, should rest on information related to the industry as defined for the purpose of that investigation, and
not some other group of producers. (Panel Report, EC – Fasteners (China), para. 7.437 (referring to Panel
333 Previous panels have found that "known" factors include those factors that were clearly raised before
an investigating authority by interested parties in the course of an investigation, and that an investigating
authority is under no obligation to seek out and identify all possible other factors causing injury to the domestic
industry in a given investigation on its own initiative. (See Panel Reports, Thailand – H-Beams, para. 7.273;
EC – Tube or Pipe Fittings, para. 7.359; China – Autos (US), para. 7.323; and EU – Footwear (China),
para. 7.484).

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and such volatility could not explain why PET imports were subsidized and undercut the EU
producers' prices.335
7.5.3.4.1 Main arguments of the parties
7.154. Pakistan argues that the Commission failed to separate and distinguish the injurious
effects of oil prices from those of the subject imports beca use the explanations given by the
Commission in dismissing this factor were "unsubstantiated and irrelevant". 336 Further, Pakistan
argues that the Commission's finding that the prices of crude oil were "volatile" during the POI was
not supported by evidence on the record. 337 For these reasons, Pakistan submits that the
Commission's analysis of oil prices falls short of the requirements of Article 15.5 of the
SCM Agreement.338
7.155. The European Union submits that the Commission did not find the effects of this factor so
significant as to break the causal link between subsidized imports and the observed injury to the
domestic industry.339 According to the European Union, this was because oil prices were volatile
through the POI, first falling and then recovering, and beca use prices of crude oil worldwide could
be expected to have a symmetrical impact on prices worldwide. 340 The European Union submits
that a factor that equally or similarly affects both subsidized imports and domestic producers by
definition cannot break the causal link.341
7.5.3.4.2 Evaluation by the Panel
7.156. In the Definitive Determination, the Commission offered the following reasoning:
Some interested parties claimed that any injury found would not be due to subsidised
imports, but that the low prices for PET in the EU reflect the worldwide cycle of the
industry and that from September 2008 until June 2009 the PET prices in the EU
followed the low prices of crude oil. As regards this argument, it is acknowledged that
the prices of PET depend to some extent on the prices of crude oil, its derivatives
being the main raw material to produce PET. However, prices for crude oil were not
low during the whole IP but very volatile, starting with a huge decrease and followed
by a recovery. This volatility of world prices of crude o il cannot explain why imports of
PET were subsidised and therefore undercut the Union producers' prices. It was
precisely this undercutting, made possible due to the subsidies received, that
depressed the prices of the Union industry, forcing EU producers to sell at a loss in
order not to loose [sic] their clients.342
7.157. Based on this analysis, we consider that the Commission dismissed the possibility that oil
prices caused injury to the domestic industry. 343 The Definitive Determination offers two reasons
for thi s dismissal: (a) "prices for crude oil were not low during the whole IP but very volatile,
starting with a huge decrease and followed by a recovery"; and (b) such volatility "cannot explain
why imports of PET were subsidised and therefore undercut the Union producers' prices".

336 Pakistan's response to Panel question No. 98, para. 4.13. See also Pakistan's first written
submission, paras. 7.66 and 7.67.
337 Pakistan's first written submission, para. 7.65.
338 Pakistan's first written submission, para. 7.68.
339 European Union's first written submission, para. 227.
340 European Union's first written submission, paras. 228 and 229.
341 European Union's opening statement at the first meeting of the Panel, para. 53.
342 Definitive Determination, (Exhibit PAK-2), para. 118. Low prices of crude oil were not at issue in the
Provisional Determination.
343 European Union's response to Panel question No. 101, para. 36 (agreeing with this characterization
of the Commission's analysis). Even if we were to interpret the Commission's reasoning in this context as
indicating that oil prices caused injury to the domestic industry, or even allowing for that possibility, we would
find a violation of Article 15.5 because, on its face, the analysis contains no explanation whatsoever of the
nature and extent of such injury, as distinguished from injurious effects of subject imports. Without such
explanation, it is not logically possible to separate and distinguish that injury from that caused by subject
imports.

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7.158. The former reason appears an attempt to reject a factual predicate upon which the parties
based their argument, i.e. that prices of crude oil were "low" during part of the POI. 344 This
attempt fails for two related reasons. First, the C ommission's assertion that oil prices were not low
during the whole POI is not inconsistent with the parties' presented argument. The parties did not
argue that prices of crude oil were "low during the whole IP", but for only part of it, i.e. from
September 2008 to June 2009.345 It was only for this period that the parties argued that "the PET
prices in the EU followed the low prices of crude oil". 346 Thus, the Commission's statement that
crude oil prices "were not low during the whole IP"347 accords with the pos ition that prices for
crude oil were "low" for part of the POI. Second, the Definitive Determination does not specify for
which part of the POI prices were "not low". Rather, it states that prices during the POI were
"volatile, starting with a huge decreas e and followed by a recovery". In our view, this statement
does not necessarily mean that the oil prices were "not low" from September 2008 to
June 2009.348 The reasoning offered by the Commission did not, therefore, necessarily invalidate
any factual predicate upon which the parties' argument was based.
7.159. We next consider whether the statement that the "volatility of world prices of crude oil
cannot explain why imports of PET were subsidised and therefore undercut the Union
producers' prices" adequately explai ns why oil prices, which the Commission accepted PET prices
follow to some degree, were incapable of causing injury to the domestic industry. In our view, it
does not. Even if crude oil prices could not explain why Pakistani PET imports were subsidized and
undercut the domestic industry's prices, this has no logical bearing on the ability of oil prices,
through some other means, to injure the EU domestic PET industry. 349 The Commission's analysis
in this context, therefore, simply addresses the wrong question.350
7.160. For reasons stated above, we conclude that the Commission's analysis of oil prices is
inconsistent with Article 15.5 of the SCM Agreement.351
7.6 Claims regarding verification visits
7.6.1 Introduction
7.161. On 9 December 2009, the Commission sent a letter to Novatex con firming that the
Commission would conduct a verification visit at Novatex's premises in Karachi, Pakistan on
15-17 December 2009.352 The Commission performed this verification visit. Pakistan claims that
the Commission failed to provide the results of this v erification visit to Novatex in violation of
Article 12.6 of the SCM Agreement.353

344 We note that the Commission acknowledged that "prices of PET depend to some extent on the prices
of crude oil". (Definitive Determination, (Exhibit PAK-2), para. 118).
345 July and August 2008 were also part of the POI.
347 Emphasis added.
348 It could, for example, have been the case that the prices of crude oil started "not low" in July 2008
and August 2008, but then experienced a "huge decrease" to become "low" from September 2008 to
June 2009. Even if oil prices were in a period of recovery to some unspecified, and perhaps modest, degree
and/or operated within the bounds of some unspecified range of volatility following the "huge decrease", we
see no reason to think that such prices ceased to be in a range which could be considered "low".
349 The European Union argued that the "intended meaning" of its analysis in this context was that if
crude oil prices are low worldwide, one would expect a symmetrical impact on PET prices worldwide.
(European Union's first written submission, para. 229). Assuming arguendo that this explanation is even
discernible from the wording of the determination, we note that just because a factor can have effects on PET
prices and/or producers across the world, such effects can still be injurious to the EU domestic industry. (See
Provisional Determination, (Exhibit PAK-1), para. 256 (explaining that although the economic downturn had a
"global character", it was "an element contributing to the injury suffered by the [domestic] industry")).
350 This does not necessarily mean that the conclusion that the Commission reached in respect of oil
prices could not have been sustained had the Commission properly analysed this factor.
351 We note that Pakistan claims that the finding by the Commission that the prices of crude oil were
"volatile" during the POI is unsubstantiated. Having found above that the Commission's analysis of oil prices is,
even as it stands, inconsistent with Article 15.5 of the SCM Agreement, we decline to address this issue.
352 Pre-verification Letter dated 9 December 2009 from the Commission to Novatex, (Exhibit PAK-19).

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7.6.2 Main arguments of the parties
7.162. Pakistan argues that the Commission violated Article 12.6 of the SCM Agreement because
it failed to provide the "results" of the verification vi sit by either "mak[ing] the results of
[verifications] available, or … provid[ing] disclosure thereof pursuant to paragraph 8 [of
Article 12], to the firms to which they pertain". 354 Relying on the dictionary definition of the term
and certain Appellate Body jurisprudence, Pakistan asserts that the term "results" are the "effects"
or "outcomes" of the verification visit, and must be interpreted in light of the conduct, content, and
purpose of the visit. 355 Given the conduct and purpose of the Commission's verif ication visit to
Novatex, the "results" of that visit would include: (a) descriptions of any additional documents
collected by the Commission during the visit; (b) how, and the degree to which, the Commission
satisfied itself of the accuracy of information contained in Novatex's questionnaire response during
the visit; (c) corrections or additional explanations regarding information in Novatex's
questionnaire responses received by the Commission during the visit; (d) descriptions of
examination and/or verification of information contained in Novatex's questionnaire response; and
(e) any problems the Commission identified with respect to Novatex's questionnaire responses
during the verification visit. 356 Pakistan claims this interpretation has been confirmed in certain
prior panel reports.357 Pakistan asserts that disclosure of such "results" is essential to an exporter's
ability to safeguard its due process rights guaranteed under Article 12.3 of the SCM Agreement in
a CVD investigation and to seek meaningful jud icial review of such determinations pursuant to
Article 23 of the SCM Agreement. 358 By failing to provide any such "results" in any relevant
document – aside from certain references made regarding Novatex's procedures related to the
MBS – the Commission violated Article 12.6.
7.163. The European Union argues that Pakistan's claim must be rejected. The European Union
recognizes that Article 12.6 contains two options for providing the results of verification visits,
i.e. the investigating authority either "shall make the results of any such investigations available",
or "shall provide disclosure thereof pursuant to paragraph 8". 359 According to the European Union,
the cross -reference to Article 12.8 means that how "results" of verification visits may be
communicated to relevant parties should be interpreted in light of the need to disclose "essential
facts".360 In short, therefore, the term "results" refers to the essential factual outcome of the
verification visit. 361 In more concrete terms, the European Union asserts that the "results" of a
verification visit "is the summary of the information that was reviewed and checked (verified)
during the verification visit, whether such information had been submitted by the company prior to
the visit or was newly obtained by the auth ority during the verification visit". The European Union
further asserts that the "summary does not have to individually describe each single document
reviewed but may generically refer to 'bundles' of documents regarding a certain topic".
Additionally, "[t]o the extent information regarding the verification visit is indispensable for due
process purposes (e.g. for the use of facts available), results may also include such additional
information (e.g. information that was refused access to it [ sic])".362 Thus, although the two are
not identical, the disclosure of "essential facts" under Article 12.8 will reflect, to a significant
degree if not completely, the "results" of verification visits. For instance, the European Union
asserts that insofar as an investig ating authority is unable to verify certain necessary information
as a result of a verification visit, the investigated firm would learn of this by virtue of the
investigating authority's reliance on facts available under Article 12.7 of the SCM Agreement,
reliance that would be reflected in the disclosure of the essential facts under Article 12.8. If the
investigating authority does not rely on facts available, then this would indicate that such

354 Pakistan's first written submission, para. 8.1 (quoting Article 12.6 of the SCM Agreement).
355 Pakistan's first written submission, paras. 8.21 and 8.22; second written submission, para. 5.5.
356 Pakistan's first written submission, para. 8.27.
357 Pakistan's first written submission, paras. 8.30 and 8.31 (referring to Panel Reports, Korea – Certain
Paper; and Mexico – Steel Pipes and Tubes).
358 Pakistan's first written submission, paras. 8.46 and 8.47.
359 European Union's first written submission, para. 235.
360 See, e.g. European Union's first written submission, para. 241 (arguing that the cross-reference to
Article 12.8 in Article 12.6 means that "[t]he requirement to make available the results of the verification visit
is thus related to the need to inform the producers of the essential facts including any data-related concerns
relating to the verification visit") (emphasis added)); and response to Panel question No. 87, para. 6 (arguing
that the "cross-reference [to Article 12.8 in Article 12.6] implies that the scope of the obligation under the
second alternative in Article 12.6 should be interpreted in the context of the obligation to disclose essential
facts under Article 12.8") (emphasis added)).
361 European Union's first written submission, para. 240.
362 European Union's second written submission, para. 193.

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necessary information had been verified. Through the Article 12.8 disclosure, therefore, relevant
parties will learn of the "outcomes" of verification visits and allow those parties to structure their
cases and protect their interests before investigating authorities accordingly. 363 The
European Union further denies that prior jurisprudence supports Pakistan's arguments.
7.164. The European Union argues that the Commission complied with its relevant obligations
here because, as reflected in the record, the Commission disclosed the "essential facts" under
consideration to Nova tex in the form of the provisional and definitive disclosure documents, and
allowed Novatex to respond to such disclosures. The European Union also asserts that other means
exist by which investigated producers like Novatex could become aware of the "outco mes" of
verification visits. For instance, the European Union asserts that investigated companies, including
Novatex, have representatives present during verification visits, and at the end of verification
visits the Commission and verified producers agree on a list of documents collected during the
visit, and thus investigated producers will always know what was and what was not checked and
collected during a visit. 364 The European Union also argues that there is nothing to suggest that
Novatex's ability to defend its interests in the investigation was compromised by any alleged
failure of the Commission to disclose the results of the verification visit.365
7.6.3 Relevant legal considerations
7.165. Article 12 of the SCM Agreement provides, in relevant part:
12.6 The inves tigating authorities may carry out investigations in the territory of
other Members as required, provided that they have notified in good time the Member
in question and unless that Member objects to the investigation. Further, the
investigating authorities may carry out investigations on the premises of a firm and
may examine the records of a firm if (a) the firm so agrees and (b) the Member in
question is notified and does not object. The procedures set forth in Annex VI shall
apply to investigations on t he premises of a firm. Subject to the requirement to
protect confidential information, the authorities shall make the results of any such
investigations available, or shall provide disclosure thereof pursuant to paragraph 8,
to the firms to which they pert ain and may make such results available to the
applicants.
…
12.8 The authorities shall, before a final determination is made, inform all interested
Members and interested parties of the essential facts under consideration which form
the basis for the de cision whether to apply definitive measures. Such disclosure
should take place in sufficient time for the parties to defend their interests.366
7.6.4 Evaluation by the Panel
7.166. This Section proceeds in three parts. First, it examines the relevant legal standard unde r
Article 12.6 of the SCM Agreement. Second, it applies that legal standard to the case at hand.
Finally, it concludes.
7.6.4.1 Legal standard under Article 12.6 of the SCM Agreement
7.167. If an investigating authority conducts a verification visit at a firm during a C VD
investigation367, Article 12.6, in relevant part, indicates that the authority "shall" do one of two
things: (a) make the results of the verification visit available to the firm concerned; or (b) disclose
such results pursuant to Article 12.8 to the firm concerned. Both options, therefore, require the

363 European Union's first written submission, paras. 240-242.
364 European Union's first written submission, para. 244; second written submission, para. 196.
365 European Union's first written submission, para. 261; opening statement at the first meeting of the
Panel, para. 57.
366 Emphasis added.
367 The SCM Agreement imposes no obligation on investigating authorities to perform such visits. We
also note that while the SCM Agreement also envisions verification visits being conducted on the premises of
entities other than firms, the only visit at issue here is the verification visit to Novatex.

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provision of the "results" of verification visits to the investigated firm. This Section, therefore,
turns to examining the meaning of this term.
7.168. Neither Article 12 of the SCM Agreement nor any other provisio n of the SCM Agreement
defines the "results" of verification visits. Moreover, this term is not defined in a relevant manner
in any other covered agreement (e.g. the Anti -Dumping Agreement) and has not yet been
extensively defined in any adopted panel or A ppellate Body report. 368 A "result" is defined,
however, as "[a] consequence, effect, or conclusion", "[t]hat which is achieved, brought about, or
obtained, esp. by purposeful action" 369, and "[t]he effect, consequence … or outcome of some
action, process, or design".370 We therefore interpret the results of verification visits, for purposes
of Article 12.6, as referring to what the "outcomes" of verification visits are, i.e. what is achieved,
brought about, or obtained via the visit. Because such outcomes are ac hieved particularly through
"purposeful action" and through some "process or design", we further interpret the term "results"
as used in Article 12.6 in light of the purpose of verification visits.
7.169. Regarding that purpose, it will be recalled that Article 12.6 of the SCM Agreement indicates
that "[t]he procedures set forth in Annex VI shall apply to" verification visits. Annex VI is entitled
"Procedures for on -the-spot Investigations pursuant to Paragraph 6 of Article 12". Paragraph 7
explains that "the main purpose of the on -the-spot investigation is to verify information provided
or to obtain further details". 371 It further explains that " it should be standard practice prior to the
visit to advise the firms concerned of the general nature of the information t o be verified and of
any further information which needs to be provided, though this should not preclude requests to
be made on the spot for further details to be provided in the light of information obtained." 372 The
word "verify" is defined as " [t]o prove to be true; to confirm or establish the truth or truthfulness
of; to authenticate" 373, "[s]how to be true by demonstration or evidence; confirm the truth or
authenticity of; substantiate", and "[a]scertain or test the accuracy or correctness of, esp. by
examination or comparison of data … check or establish by investigation". 374 The main purpose of
verification is, therefore, to enable investigating authorities to confirm the accuracy of information
supplied.375 It follows, therefore, that the "results" of a verification visit should reflect the extent to
which information supplied was ascertained to be accurate.
7.170. Other provisions of the SCM Agreement provide contextual support for this interpretation.
In particular, Article 12.5 of the SCM Agreement, which immedia tely precedes Article 12.6,
provides that " the authorities shall during the course of an investigation satisfy themselves as to
the accuracy of the information supplied by interested Members or interested parties upon which
their findings are based." Verif ication visits appear a means by which to accomplish this general
obligation vis-à-vis the information supplied. 376 We conclude, therefore, that the "results" of a
verification visit should reflect the "outcomes" of the process of verifying information suppl ied. The

368 We note that one panel report – which, at this writing, is subject to appeal – addressed a materially
similar situation in the context of the Anti-Dumping Agreement. Our analysis herein is substantially in
accordance with that panel's analysis and conclusions. (Panel Report, EU – Fatty Alcohols (Indonesia),
paras. 7.219-7.236 (appeal pending)).
369 Black's Law Dictionary, 10th edn, B. A. Garner (ed.) (Thomson Reuters, 2009), p. 1509.
370 Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007),
Vol. 2, p. 2554.
371 Emphasis added.
372 Emphasis added.
373 Black's Law Dictionary, 10th edn, B. A. Garner (ed.) (Thomson Reuters, 2009), p. 1793.
374 Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007),
Vol. 2, p. 3517.
375 Because Annex VI(7) states that "the main purpose of the on-the-spot investigation is to verify
information provided or to obtain further details", it appears that the purpose(s) of a particular
on-spot-investigation may, to at least some degree, need to be ascertained on a case-by-case basis. (emphasis
added)
376 Previous reports discussing Article 6.6 of the Anti-Dumping Agreement, which is analogous to
Article 12.5 of the SCM Agreement, are consistent with this proposition. (See, e.g. Panel Reports, US – DRAMS,
para. 6.78 (discussing Article 6.6 of the Anti-Dumping Agreement and stating that "Members could 'satisfy
themselves as to the accuracy of the information' in a number of ways"); and Argentina – Ceramic Tiles,
para. 6.57 ("Article 6.6 of the AD Agreement thus places the burden of satisfying oneself of the accuracy of the
information on the investigating authority. As a general rule, the exporters are therefore entitled to assume
that unless otherwise indicated they are not required to also automatically and in all cases submit evidence to
demonstrate the accuracy of the information they are supplying")).

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most notable such information in the case of verification visits to an investigated firm will, in our
view, be information contained in its questionnaire response.
7.171. We further note certain statements in previous adopted panel reports discussing Article 6.7
of the Anti-Dumping Agreement, which is analogous to Article 12.6 of the SCM Agreement in this
context. In particular, although the context in which the issue arose differs somewhat from the
present dispute, the panel report in Korea – Certain Paper stated:
[T]he purpose of … Article 6.7 is to make sure that exporters, and to a certain extent
other interested parties, are informed of the verification results and can therefore
structure their cases for the rest of the investigation in light of those results. It is
therefore important that such disclosure contain adequate information regarding all
aspects of the verification, including a description of the information which was not
verified as well as of information which was verified successfully . This is because, in
our view, information which was verified successfully, just as information which was
not verified, could well be relevant to the presentation of the interested
parties' cases.377
7.172. At this point, we consider it appropriate to recall that the European Union advocates that
the Panel interpret the term "results" of verification visits in light of Article 12.8 and its obligation
to disclose "essential facts". In other words, because Article 12.6 allows communication of results
of verification vis its "pursuant to" Article 12.8, Article 12.8 should substantively bear on what
constitutes disclosure of "results" in Article 12.6. We consider that, contrary to the
European Union's position, the cross -reference to Article 12.8 in Article 12.6 does not re flect a
substantive relationship of this nature between the two provisions for four main reasons:
a. First, the SCM Agreement contains the obligation to communicate results of verification
visits, on the one hand, and disclose essential facts, on the other ha nd, in different and
non-sequential provisions (i.e. Article 12.6 and Article 12.8, respectively). This indicates
the two provisions are substantively distinct.
b. Second, only the second of the two communication options in Article 12.6
cross-references Article 12.8, but both options require the provision of the same thing,
i.e. the "results" of verification visits. It thus appears unreasonable to us to interpret
Article 12.8 as substantively modifying the term "results" in the manner proposed by the
European Union under either both options, as only one refers to Article 12.8, or only
under the second option, in which case the concept of a disclosed "result" would
fundamentally differ in the two instances. 378 We believe, rather, the more reasonable
position is that the term "result" should be interpreted consistently in Article 12.6.
c. Third, the only limitation on the scope of "results" in Article 12.6 is that the information
pertains to a verification visit. In contrast, the scope of disclosure under Article 12.8 is
limited to "essential facts under consideration which form the basis for the decision
whether to apply definitive measures". 379 This indicates that the results of verification

377 Panel Report, Korea – Certain Paper, para. 7.192 (emphasis added). Based on such reasoning and its
earlier review of the facts, the panel found that Korea had insufficiently disclosed the results of a certain
verification visit in violation of Article 6.7 of the Anti-Dumping Agreement. We note, however, that in that
dispute the parties did not actively dispute what "results" of verification visits are. This statement, therefore,
although necessary to the panel's finding that a violation of Article 6.7 occurred, did not appear to be the
consequence of extensive discussion during the proceedings.
378 We recall the European Union's position that the first communication option in Article 12.6 indicates
that investigating authorities can provide "detailed reports" (European Union's response to Panel question
No. 87, para. 6), while the second option basically allows investigating authorities to do what the Commission
did here, i.e. to disclose essential facts under Article 12.8 and allow their content to reflect the results of
verification visits.
379 The "essential facts" contemplated in Article 6.9 of the Anti-Dumping Agreement were described by
the Appellate Body in China – GOES as "those facts that are significant in the process of reaching a decision as
to whether or not to apply definitive measures". (Appellate Body Report, China – GOES, para. 240).

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visits are neither limited to the "essential" results of such investigations no r limited to
facts that form the basis of the decision to impose definitive CVDs.380
d. Fourth, it will be recalled that Article 12.6 provides that the investigating authority "may
make such results available to the applicants." The "essential facts", however, must be
disclosed to all interested parties, which include the applicants. It would appear odd,
therefore, for Article 12.6 to broach the possibility of providing "results" of verification
visits to applicants if the applicants would receive disclosure the reof upon receipt of the
"essential facts". This further indicates the substantive separateness of the two
provisions.
7.173. If the connection between Articles 12.6 and 12.8 is not substantive, however, this begs the
question as to what the cross-reference to Article 12.8 in Article 12.6 means. We conclude that the
presence of the two communication options in Article 12.6 clarifies two main procedural aspects
regarding the provision of results of verification visits:
a. First, the two communication options in Articl e 12.6 make clear that there is flexibility
regarding how to communicate the results of verification visits. The first option for
communicating results of verification visits in Article 12.6 is to "make … available" such
results. The second option is to "provide disclosure thereof" pursuant to Article 12.8. The
use of different terms in describing how the "results" of verification visits may be
communicated suggests that the two reflect different methods in which this may be
accomplished.381 We therefore note that it is undisputed that providing a separate
verification report is a means by which to satisfy the first disclosure option in
Article 12.6, i.e. to "make … available" the results of verification visits.382 Disclosing such
results pursuant to Article 12.8, however, suggests that the means used to disclose
essential facts is also the procedural vehicle by which to communicate such results,
i.e. the disclosure of the results of verification visits may accompany the disclosure of
the essential facts. This method may well not involve the provision of a separate report.
b. Second, the two options make clear that there is flexibility regarding when to
communicate results of verification visits. If only the first option were present in
Article 12.6, the question may arise as to when the results should be made available,
perhaps leading to an interpretation that communication had to occur relatively soon
after the visit. If only the second option were present in Article 12.6, it would appear to
limit the investigating authority's discretion to communicate the results of verification
visits before the disclosure of essential facts. Including both options, therefore, indicates
that investigating authorities might make the results known relatively soon after the
verification visit occurs, but if it wishes, it could wait as late as the disclosure of essential
facts to do so.
7.174. We conclude, therefore, that the two communication options in Article 12.6 clarify that
there is flexibility regarding how and when to communicate resu lts of verification visits to relevant
parties. The task still remains, however, to formulate an understanding of what the term "results"
of verification visits means such that we may effectively apply this term in the case at hand. We
formulate this understanding in light of three main considerations:
a. First, the purpose of verification visits, which, as discussed above, indicates that the
results should reflect the "outcomes" of the process of verifying information supplied.
Relatedly, and further regardin g the scope of such "outcomes", we recall that one
adopted panel report has explained that it is important that "such disclosure contain
adequate information regarding all aspects of the verification, including a description of

380 We therefore agree with Pakistan that "[t]he results of the verification visit may include matters that
are ultimately not essential to the final determination". (Pakistan's response to Panel question No. 84,
para. 5.15).
381 Panel Report, Korea – Certain Paper, para. 7.188 (asserting that Article 6.7 of the
Anti-Dumping Agreement "requires that the verification results be disclosed to the investigated exporters
without specifying the format in which such disclosure is to be made").
382 This is not to say that there may be other ways to "make available" the results.

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the information which was no t verified as well as of information which was verified
successfully".383
b. Second, the pervasive theme in the SCM Agreement of maintaining a record regarding
interactions between the investigating authority and parties particularly as to the
exchange of evide nce. In this respect we note that the SCM Agreement places strong
emphasis on the provision of written information and the reduction of evidence given
orally to writing384, and also provides that "[a]ny decision of the investigating authorities
can only be b ased on such information and arguments as were on the written record of
this authority".385
c. Third, and relatedly, the rights of the parties to an investigation. As the panel in Korea –
Certain Paper indicated, receiving relatively particularized information regarding the
results of verification visits may bear on parties' due process rights by affecting how the
parties structure their cases and the effectiveness of judicial review.386
7.175. Our analysis indicates a minimum standard under Article 12.6 encompassing the provision
of specific enough disclosures as to allow the interested parties to discern387:
a. the information in the questionnaire response or other information supplied for which
supporting evidence was requested, and whether such evidence was provided;
b. whether the investigating authority requested further information at the verification visit,
and whether such information was provided;
c. whether the investigating authority collected requested documents, and if so what
documents388; and
d. whether the investigating authorities verified the information for which supporting
evidence was requested. This is not to say, however, that the results of the verification
visit must necessarily include conclusions as to the ultimate suitability of the data
checked for use in a final determination in the investigation.
7.176. It would appear unnecessary, however, for investigating authorities to address all
arguments and evidence presented during the verification or to prepare minutes of the verification.
Based on the above discussion, w e must therefore disagree with the European Union that the
"results" of verification visits are only the essential factual outcomes of the verification.

383 Panel Report, Korea – Certain Paper, para. 7.192.
384 See, e.g. SCM Agreement, Articles 11.1 and 11.2 (providing, inter alia, for a "written application" by
a domestic industry and the information to be included therein), 12.1 ("Interested Members and all interested
parties in a countervailing duty investigation shall be given notice of the information which the authorities
require and ample opportunity to present in writing all evidence which they consider relevant in respect of the
investigation in question"), and 12.2 ("Where such information is provided orally, the interested Members and
interested parties subsequently shall be required to reduce such submissions to writing").
385 SCM Agreement, Article 12.2.
386 Panel Reports, Korea – Certain Paper, para. 7.192 (explaining that "information which was verified
successfully, just as information which was not verified, could well be relevant to the presentation of the
interested parties' cases"); and Mexico – Steel Pipes and Tubes, paras. 7.124-7.129 (using verification report
to determine reasonableness of statements made in final anti-dumping determination). It will be recalled that
Article 12.6 envisions the results of verification visits being supplied not just to the investigated firm, but also
to the applicants. It appears plausible that the results of verification visits could have implications for both
types of parties. We also take special note that in order to determine whether an investigating authority's
decision to resort to the use of facts available under Article 12.7 is consistent with Article 12.7, it must be
evident from the record of the investigation the extent to which the strictures of Annex II of the Anti-Dumping
Agreement were adhered.
387 No qualification exists in Article 12.6 such that the results of verification visits must be provided to
an investigated firm only if non-provision would infringe a party's due process rights. It is thus immaterial
whether or not Novatex's ability to defend itself in the investigation was compromised due to the manner in
which the European Union claims the Commission disclosed the results of the Novatex visit.
388 We do not mean to suggest that each and every document be individually described. Rather,
categories of documents could be described within a reasonable level of specificity.

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7.177. With this in mind, we turn to consider whether the Commission complied with its obligation
to provide the results of the Novatex verification visit.
7.6.4.2 Whether the Commission provided the results of the Novatex verification visit to
Novatex
7.178. It will be recalled that the Commission conducted a verification visit at Novatex in Karachi
on 17-19 December 2009. The European Union argues that it complied with Article 12.6 because it
disclosed the results of this visit to Novatex via the second communication option in Article 12.6,
i.e. "in the context of the disclosure of the essential facts". 389 We therefore discuss the relevant
disclosure documents of the investigation below to determine to what degree they contain the
"results" of the verification visit.
7.179. On 1 June 2010, the Commission sent a letter to Novatex that, along with its enclosures,
"constitute[d] disclosur e of the essential facts and considerations on the basis of which the
European Commission has imposed provisional countervailing duties". 390 The enclosures were:
(a) a copy of the Provisional Determination; (b) explanations regarding subsidy calculations
concerning Novatex; (c) explanations regarding undercutting and underselling calculations
concerning Novatex; and (d) explanations regarding comments on initiation. In the Provisional
Determination, the Commission explained that "[t]he Commission sought and v erified all
information deemed necessary for the determination of subsidisation, resulting injury and Union
interest", and confirmed that the Commission had conducted the verification visit at Novatex. 391
The Provisional Determination made certain statements pertaining to the degree to which the
Commission verified the effectiveness of the procedures relating to Novatex's import -duty
remissions obtained under the MBS during the visit. 392 Pakistan accepts that such discussions
contain some of the "outcomes" of t he verification visit to Novatex, and we see no reason to
disagree.393 Beyond such statements, however, the European Union points to, and we discern, no
other content of the letter and its enclosures that specifically discuss the visit.
7.180. On 26 July 2010, the Commission sent a letter to Novatex that, along with its enclosures,
"constitute[d] disclosure of the essential facts and considerations on the basis of which it is
intended to recommend the imposition of definitive anti -subsidy duties".394 The enclosures we re:
(a) explanations of definitive subsidy and injury methodology and calculations; (b) explanations of
definitive subsidy and undercutting -underselling calculations; and (c) a general disclosure

389 European Union's opening statement at the first meeting of the Panel, para. 55. See also
European Union's response to Panel question No. 87, para. 5 (restating position). We note the following
additional two pieces of evidence in the record that were not part of the disclosure of essential facts but were
discussed by the parties in this context: (a) the pre-verification letter that the Commission sent to Novatex on
9 December 2009 (Pre-verification Letter dated 9 December 2009 from the Commission to Novatex, (Exhibit
PAK-19)); and (b) a document the Commission created containing a list of some but not all of the documents
reviewed at the Novatex verification visit, and all of the documents collected by the Commission at the visit
(List of Exhibits regarding Novatex's on-spot verification, (Exhibit EU-10)). Regarding the former, because it
was created before the verification visit, it logically cannot contain the "results" of the visit. Regarding the
latter, there is no evidence in the record indicating that this document was ever provided to Novatex during the
investigation, and thus it cannot be a means by which the "results" of the visit were provided to Novatex.
390 European Commission, Provisional company-specific disclosure, 1 June 2010, (Exhibit PAK-32) (BCI),
p. 1.
391 Provisional Determination, (Exhibit PAK-1), paras. 12-14. The Provisional Determination does not
state how all such information was verified. We note the European Union's statement that verification visits are
"only one of several ways for investigating authorities to verify information". (European Union's opening
statement at the first meeting of the Panel, para. 58). We agree. Thus, a simple statement that the
"Commission sought and verified all information deemed necessary for the determination of subsidisation,
resulting injury and Union interest" is too ambiguous to meaningfully provide results of verification visits. The
presence of verified information in the disclosed essential facts, statements that certain information was
verified as a result of deficiency letters, or that certain information had not been verified at all, cannot convey
the results of verification visits in a manner to satisfy Article 12.6. Such statements, by their very nature,
pertain to a completed verification process. Article 12.6, in this context, is designed to provide details
regarding a specific stage of that process.
392 See Provisional Determination, (Exhibit PAK-1), para. 68 et seq.
393 See, e.g. Pakistan's comments on the European Union's response to Panel question No. 103,
para. 6.3 (stating that "paragraphs 68-72 of the Provisional Determination contain some results of the
verification [visit]").
394 European Commission, Definitive company-specific disclosure, 26 July 2010, (Exhibit PAK-33) (BCI),
p. 1.

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document, i.e. a draft of the Definitive Determination. The general disclosure document again
made reference to verification of Novatex's procedures relating to the MBS that the Provisional
Determination had previously indicated occurred at the visit. Again, we accept that such content
contains "outcomes" of the ve rification visit. Beyond such statements, however, the
European Union points to, and we discern, no other content of the letter and its enclosures that
specifically discuss the visit.395
7.181. Thus, the "results" that were provided to Novatex via the disclosure do cuments related
only to certain observations concerning the MBS. We cannot find that this constituted adequate
provision of the "results" of the verification visit to Novatex. Such limited discussions fail to
sufficiently communicate the information in the questionnaire response or other information
supplied for which supporting evidence 396 was requested (and whether such evidence was
provided), whether the Commission requested further information at the verification visit (and
whether such information was pr ovided), what comprised the universe of documents the
Commission collected, and whether the Commission confirmed the accuracy of the information for
which supporting evidence was requested.397
7.6.4.3 Conclusion
7.182. In accordance with our reasoning above, we find that t he Commission acted inconsistently
with Article 12.6 of the SCM Agreement because it failed to adequately provide the "results" of the
Novatex verification visit to Novatex.

395 See European Commission, General Definitive Disclosure, (Exhibit PAK-36), paras. 43 and 47. The
European Union appears to suggest at times that because Novatex representatives were present at the
verification visit, and allowed access to documents to the Commission at the visit, this process might be a way
to comply with Article 12.6. (See, e.g. European Union's first written submission, para. 256). First, as this
process occurs before the disclosure of essential facts, and the European Union expressly argues that the
Commission complied with Article 12.6 "in the context of the disclosure of the essential facts", we do not
consider that the European Union actually argues that this is a way in which the Commission complied with
Article 12.6 in this particular case. (European Union's opening statement at the first meeting of the Panel,
para. 55. See also European Union's response to Panel question No. 87, para. 5 (restating position)). Rather,
we interpret it as an observation as to why Novatex's rights were not compromised due to the absence of more
specific disclosures regarding the results of the verification visit. Second, we would reject such an argument
even if it were made. Article 12.6 places the burden of providing the "results" of verification visits squarely on
the investigating authority. It thus endures regardless of whether circumstances exist through which an
investigated firm might otherwise become aware of such results. We could not therefore accept that an
investigated firm's mere participation in the verification visit itself signifies compliance with Article 12.6 in this
context.
396 We note that such evidence may not always take the form of documentation. For instance, the
Commission examined the organization of Novatex's manufacturing facilities during the verification visit. (See
Provisional Determination, (Exhibit PAK-1), paras. 68-72; Annex II(II)(1) and III(II)(2) of the SCM Agreement
(envisioning on-the-spot investigations being conducted to test the reliability of duty drawback verification
procedures)). The European Union has explained, however, that the examination essentially informed its
understanding of whether it could rely on Novatex's documentation purportedly indicating the quantities of
imported production inputs that it used to produce exported PET. (European Union's second written
submission, para. 39). Thus, we interpret the examination of the manufacturing facilities as essentially
evidence used to attempt to verify other information supplied by Novatex.
397 We note that it would be plainly unreasonable to assume that the limited MBS-related subjects
discussed in the disclosure documents (identified above) formed the entirety of the subjects investigated at the
verification visit, and the European Union never claims that this was so. Indeed, the content of Novatex's
questionnaire response went beyond such matters, the pre-verification letter that the Commission sent to
Novatex indicated that documents pertaining to the full scope of data provided in the questionnaire response
were to be made available at the visit (Pre-verification Letter dated 9 December 2009 from the Commission to
Novatex, (Exhibit PAK-19)), and other evidence indicates that documents were collected at the visit that
appear to have little or nothing to do with the MBS. (See, e.g. List of Exhibits regarding Novatex's on-spot
verification, (Exhibit EU-10), item 1, "Accounts July 2008 to June 2009", referring to, as Pakistan has
explained, Novatex's annual reports for those years). We further note that, because we have previously
observed that results of verification visits are neither limited to the "essential" results of such investigations
nor limited to facts that form the basis of the decision to impose definitive CVDs, there is no guarantee that the
scope of the subject matter addressed by essential facts fully covers that of the results of verification visits.

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8 FINDINGS AND CONCLUSIONS
8.1. For the reasons set forth in this Report, the Panel concludes as follows:
a. In respect of the European Union's objections under Article 6.2 of the DSU:
i. the Panel finds that Pakistan's claim that the Commission acted inconsistently with
Annex II(II)(1) and/or Annex III(II)(2) of the SCM Agreement "because it fai led to
examine the 'generally accepted commercial [practices]' prevailing in Pakistan when
examining the verification system and procedures under the MBS" is outside the
Panel's terms of reference as the panel request failed to present the problem clearly;
ii. the Panel rejects the European Union's objection to Pakistan's claim under
Article 1.1(a)(1)(ii) of the SCM Agreement, and thus finds that this claim is within
the Panel's terms of reference;
iii. the Panel rejects the European Union's objection to Pakistan's claim under
Article 12.6 of the SCM Agreement, and thus finds that this claim is within the
Panel's terms of reference; and
iv. the Panel finds that the remaining objections raised by the European Union have
become moot and therefore the Panel does not address them.
b. In respect of Pakistan's claims regarding the MBS:
i. the Panel finds that the Commission acted inconsistently with Article 1.1(a)(1)(ii) of
the SCM Agreement by failing to provide a reasoned and adequate explanation for
why the entire amount of remi tted duties was "in excess of those which have
accrued" within the meaning of footnote 1 of the SCM Agreement;
ii. the Panel finds that the Commission also acted inconsistently with Article 3.1(a) of
the SCM Agreement by improperly finding the existence of a " subsidy" that was
contingent on export performance; and
iii. the Panel exercises judicial economy or finds that, for other reasons, it need not
address Pakistan's claims that the Commission: (a) failed to investigate whether
Pakistan's duty drawback system veri fication mechanisms were based on generally
accepted commercial practices in Pakistan; (b) failed to provide Pakistan with the
opportunity to assist the Commission's determination of the excess amount; (c)
failed to take into account evidence regarding the amount of any excess drawback;
(d) failed to make normal allowance for waste; (e) violated Annexes II(II) and III(II)
"as a whole"; (f) violated Annex I(i); (g) violated Articles 1.1(b), 10, 19, and 32 of
the SCM Agreement; and (h) violated Article VI of the GATT 1994.
c. In respect of Pakistan's claims regarding the LTF-EOP:
i. the Panel finds that the Commission acted inconsistently with Article 14(b) of the
SCM Agreement by failing to properly identify what Novatex would have paid on a
"comparable commercial loan" in calculating the benefit conferred by the LTF -EOP
Loan;
ii. the Panel finds that the Commission acted inconsistently with Article 1.1(b) of the
SCM Agreement as a consequence of having acted inconsistently with Article 14(b) of
the SCM Agreement;
iii. the Panel finds that the Commission acted inconsistently with the chapeau of
Article 14 of the SCM Agreement by failing to transparently and adequately explain
how it identified a "comparable commercial loan"; and
iv. the Panel exercises judicial economy in respec t of Pakistan's claims that as a result
of violating Article 14(b) of the SCM Agreement and/or the chapeau of Article 14 of

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the SCM Agreement, the Commission acted inconsistently with Articles 10, 19 and 32
of the SCM Agreement, and Article VI of the GATT 1994.
d. In respect of Pakistan's claims under Article 15.5 of the SCM Agreement:
i. the Panel finds that Pakistan failed to establish that the Commission's use of the
"break the causal link" methodology in this case was inconsistent with Article 15.5 of
the SCM Agreement;
ii. the Panel finds that Pakistan failed to establish that the Commission acted
inconsistently with Article 15.5 of the SCM Agreement by failing to conduct a proper
non-attribution analysis of imports from Korea;
iii. the Panel finds that Pakistan faile d to establish that the Commission acted
inconsistently with Article 15.5 of the SCM Agreement by failing to conduct a proper
non-attribution analysis of the economic downturn;
iv. the Panel finds that the Commission acted inconsistently with Article 15.5 of the SCM
Agreement with respect to its analysis of competition from non -cooperating
producers; and
v. the Panel finds that the Commission acted inconsistently with Article 15.5 of the SCM
Agreement with respect to its analysis of oil prices.
e. In respect of Paki stan's claim under Article 12.6 of the SCM Agreement, the Panel finds
that the Commission acted inconsistently with Article 12.6 of the SCM Agreement
because it failed to adequately provide the "results" of the Novatex verification visit to
Novatex.
8.2. Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We conclude that, to the extent that the measure s at issue have been
found to be inconsistent with the SCM Agreement, they have nullified or impaired benefits accruing
to Pakistan under that agreement. The European Union asserts that because the challenged
measures in this dispute expired, the measures cannot nullify or impair Pakistan's rights under the
WTO agreements. The European Union thus considers that it has rebutted the presumption of
nullification or impairment referenced in Article 3.8 of the DSU. 398 We reject the European Union's
argument. Becau se the expiry of the measures had no retroactive effect, such expiry cannot
eliminate any nullification or impairment existing at the time of the Panel's establishment. 399
Moreover, the legal status of a measure and the presence of actual impacts resulting f rom its
WTO-inconsistency are, in our view, conceptually distinct and should not be equated without
further evidence.400 Further, we do not know what the condition of the EU PET market would be if
the WTO-inconsistent measures had not been imposed.401
8.3. Given that the measures at issue in this dispute have expired, we make no recommendation
to the DSB pursuant to Article 19.1 of the DSU.402