Document: WT/DS341/R Page C-1 ANNEX C SECOND SUBMISSIONS BY THE PARTIES Contents Page Annex C-1 Executive Summary of the Second Written Submission of the European Communities
Document codes: WT/DS341/R
Complainant: EU
Respondent: Mexico
Third parties: Canada, China, Japan, Norway, U.S.
Dispute stage: Panel
Agreements cited: Art. VI  GATT 1994Art. 1, 11, 12, 13, 14, 15, 16, 22  Subsidies and Countervailing Measures (SCM)Art. 13, 21.1  Agriculture

ANNEX C

SECOND SUBMISSIONS BY THE PARTIES

Contents Page
Annex C-1 Executive Summary of the Second Written Submission of the
European Communities
C-2
Annex C-2 Executive Summary of the Second Written Submission of Mexico C-10

ANNEX C-1

EXECUTIVE SUMMARY OF THE SECOND WRITTEN
SUBMISSION OF THE EUROPEAN COMMUNITIES

(17 August 2007)

1. The EC's Second Written Submission will address individually the responses that Mexico has
made to the EC's claims, notably in the answers that it has given to Panel's questions.

2. In relation to the claim concerning Article 13.1 of the SCM Agreement
, Mexico's answers
confirm that the Mexican procedure for initiating investigations is entirely automatic once the
Minister has signed the instrument. Consequently, for the purposes of the SCM Agreement , the
investigation is 'initiated' once the Minister has performed that act.

3. Moreover, the timing obligations in Article 13.1 extend not merely to the invitation, but also
include the consultation that follows from that inv itation. The invitation must be made at a point
when it is possible to hold the consultations referred to in the invitation before the investigation is
initiated.

4. This interpretation is appare nt from the text of Article 13.1 which does not simply state an
obligation (to invite for consultations), but provides an aim. The aim is that of 'clarifying the situation
as to the matters referred to in paragraph 2 of Artic le 11 and arriving at a mutually agreed solution'.
The matters referred to in Article 11.2 are those c oncerning the application for an investigation.
However, once the investigation has been commenced its scope is determined by the instrument of
initiation, and the scope and nature of the applicati on becomes a matter of historical interest only.
There would be nothing to be gained at that stage in clarifying the details of the initial application.
Consequently, such clarification can have meaning only if it takes place before initiation at a time
when it is possible to influence the scope of that in itiation, or indeed affect the decision whether there
is to be an investigation. Thus, in accordance w ith the doctrine of 'effet utile' the only interpretation
that gives meaning to Article 13.1 is one that requi res the invitation to consultations to be made in
time for those consultations to be held before the initiation decision is made.

5. This interpretation is reinforced by the fi nal clause of Article 13.1. Whereas a mutually
agreed solution can be reached at any stage of th e investigation (as Article 13.2 makes clear), the
interests of all parties and Members are best serve d by reaching such a solution sooner rather than
later. In this respect, to reach that solution before companies are subjected to an investigation is
obviously the most desirable goal.

6. This obligation is confirmed by the context of Article 13.1. Article 13.2 addresses the 'period
of investigation', which begins with the initiati on, and the opportunity to continue consultations
during that period. Thus, the paragraphs disti nguish two phases in the proceedings, one prior to
initiation and one that follows initiation. The aim of the consultations specified in paragraph 2 is
broader than that of those referred to in paragr aph 1 since paragraph 2 makes no reference to what
aspects of the 'situation' are to be clarified. This distinction serves to underline the specific nature of
the clarification referred to in paragraph 1. More over, the use of the word "continue" in Article 13.2
confirms that consultations should have begun before the initiation of the investigation.

7. Finally, in referring to the c onsultations covered by paragraphs 1 and 2, Article 13.3 refers to
the 'obligation to afford reasonable opportunity for consultation'. Thus, even if it had not already been
implicit in the terms of paragr aph 1, paragraph 3 makes clear that the obligation created by
paragraph 1 is to afford a 'reasonable opportunity for consultation'. The only sense in which such a
reasonable opportunity can be given in the context of paragraph 1 is if the consultation takes place
prior to initiation.

8. The EC notes that neither Mexico's Foreign Trade Act nor its Regulation provide that the
investigating authority shall invite the expor ting country, whose products may be subject to
investigation, to pre-initiation consultations. However, this regulatory lacuna does not justify
Mexico's lack of compliance with its obligations under Article 13.1 of the SCM Agreement.

9. Regarding the failure of the Mexican aut horities to ensure that the application for
countervailing measures was made by or on behalf of the domestic industry , as required by
Article 11.4 of the SCM Agreement , Mexico has still provided no satisfactory explanation of
Economía's failure to examine the extent of the domestic industry and its acceptance, almost without
questioning, of Fortuny's assertion that it comprised that entire industry.

10. The confidential information prov ided in Mexico's most recent exhi bits is also significant. In
its Preliminary and Final Resolution Mexico cited do cuments from the authorities in the state of Baja
California in support of the proposition that Fortuny w as the sole domestic entity with the capacity to
produce olive oil. A letter from the authorities in Baja California of 28 January 2003, while urging
Economía to take action against imports, gives no reason to believe that Fortuny was the only
producer in the state. The letter states that Fortuny's action in ceasing production had a direct and
significant impact in the agricultural areas where olives are grown for the production of oil. Had
Fortuny been the only producer of olive oil the le tter would surely have us ed terms rather more
forceful than 'direct and significant impact'. On the basis of this information Mexico should have
verified the accuracy and adequacy of the figu res provided by Fortuny before initiating an
investigation. The existence of other producers was indeed confirmed at a later stage during the
investigation.

11. Mexico argues that Fortuny's claim that it represented 100 per cent of the domestic industry is
supported by the fact that the figures for Fortuny's production and the figures for national production
were the same. This argument relies on mere asser tions made by the applicant in its own interest.
Mexico should have verified the accuracy and adequacy of these figures before initiating an
investigation on the basis of this information.

12. The EC sees nothing in the response of Mexico to the Panel's questions that adds to its
previous statements on the due restraint obl igation imposed by Article 13(b)(i) of the Agreement on
Agriculture.

13. Mexico repeats its assertion that the 'due restra int' obligation consists merely of a 'reasonable
minimum standard', and is no different from the sta ndard applicable to investigations regarding non-
agricultural productions. However, this is an interpretation which deprives the due restraint obligation
of any meaning, and as such runs contra ry to the interpretative principle of " effet utile", which is well
established in WTO jurisprudence. 'Due restraint' is self-evidently a standard. If Mexico, by
describing it as a minimum standard, seeks to imply that it is a low or easily-satisfied standard then it
should attempt to justify that interpretation. Ho wever, the EC can see nothing in the text of the
provision, or in its context or object and purpose, which would lead an interpreter to such a
conclusion. Even without taking into account the notion of due restraint, the rules for initiating
investigations could not be descri bed as setting a low or easily-sa tisfied standard. And when the
additional factor of due restraint is taken into account the applicable standard must be more
demanding than the normal one. In identifying that standard in the present case the EC's approach has

been to describe the circum stances of the initiation of the investiga tion into olive oil and to show that
they are incompatible with any notion of restraint.

14. In response to the EC's criticisms of Ec onomía for failing to secure the provision of non-
confidential summaries of confidential submissions Mexico pleads ignorance of how such summaries
would have been possible. However, it is co mmon practice in anti-dumping and countervailing duty
investigations for numeric data to be presented in indexed rather than absolute terms in the non-
confidential summary. Such a technique should have been used in regard to numerical data submitted
to Economía in respect of which confidentiality w as claimed. Mexico's argument is in any case
patently inadequate since much of what was treated as confidential was textual rather than numeric in
character.

15. Mexico concludes that interested parties and/ or their legal representatives are entitled to have
access to the confidential record. However, the rele vant element in the Mexican legislation is that
individuals or representatives of legal persons who are not counsels/lawyers ( abogados) only have
access to the confidential record if they are assi sted by a counsel/lawyer (Article 159.II, second
subparagraph of the Foreign Trade Regulation. The EC , therefore, considers that Mexico's legislation
is similar to the US law that the panel considered in US – Oil Country Tubular Goods Sunset Reviews
(Article 21.5 – Argentina) as not satisfying the obligation in Article 12.4.1 of the SCM Agreement.

16. In any case, the panel in Mexico – Steel Pipes and Tubes has also rejected that access to the
confidential file under a protective order replaces th e obligations of an investigating authority in
relation to the treatment of confidential inform ation, including the requirement to provide non-
confidential summaries.

17. As regards the EC's claim under Article 12.8 and the requirement to disclose 'essential facts'

Mexico's responses appear to be premised on the view that the disclosure of such facts can be
achieved informally in the course of the investigati on. The point that the EC wishes to emphasize is
that, as found by the Panel in Guatemala – Cement II, an important aspect of the disclosure is that the
interested party or Member receiving the disclosure should know what is taking place.

18. Thus, even if it were true, as Mexico alleges, that all the essential facts were stated in the
Preliminary Resolution, the interested parties and Members were not informed of this. Moreover,
since Economía was actively engaged in the inves tigation in the period following the Preliminary
Resolution (by holding meetings with interested parties, requesting information and receiving data
and submissions from them) there was every reason to think that additional essential facts were being
obtained. Consequently, at no stage were the essential facts identified as such to interested parties and
Members, and they were in consequence denied the right, guaranteed by Article 12.8, to defend their
interests.

19. The exhibits presented by Mexico have now revealed the contents of some of
communications to Economía. Thus, on 9 Novemb er 2004, many months after the Preliminary
Resolution, Economía received from Fortuny substantia l information in response to questions that it
had posed. In the versions of the documents that Mexico has provided the confidential information
has been blanked-out, however, even from these docu ments it is possible to see that the information
concerned important aspects of Fortuny's financial and commercial circumstances.

20. Again, on 10 January 2005 Fortuny supplied information in respon se to a request from
Economía. This information consis ted of financial details of Fortuny's business plan for restarting
production of olive oil, which was pe rceived by Economía as a vital part of the assessment of injury.
In this document Fortuny acknowledged that the figures presented on 9 November 2004 (above)
differed from that presented in the response to the 'Prevención' in May 2003 because in the
intervening time some of the data had changed.

21. Finally, during the verification visit to Fortuny in January 2005 Economía obtained a large
number of documents. Although no explanation is provided for th e various tables and documents
contained in this exhibit, it is apparent that th ey include substantial data regarding transactions of
Formex Ybarra and Fortuny. It can hardly be imagined that among these there was not some
information that would not qualify as 'essential facts'.

22. The EC cannot see that Mexico, in its answers to the Panel's questions, has added anything of
substance to the arguments which it has previously presented in its attempt to answer the EC's claim
under Article 11.11. The fact that various parties requested extensions for responding to Economía's
questions is no excuse for exceeding the maximum period. Economía should have organized the
investigation in such a way to avoid a breach of the limit. It should also be recalled that the main
reason for the delay was that the only visit made to the complainant, Fortuny, took place after the 18-
months deadline, whereas the verification of the situ ation of the domestic industry should be an early
step in any investigation.

23. The notion of subsidization
 is addressed in a number of Mexico's responses to the Panel's
questions. As the following examination will s how, these responses do not provide answers to the
EC's complaints. These complaints focus on the fa ilure of Economía to investigate the pass-through
of the subsidy, and on the calculation of the level of subsidy of the individual exporting companies.

24. In its response to the Panel's Question 41 regarding the product on which the subsidy is
bestowed Mexico appears to attach importance to the fact that if th e olive grower brings olives to a
mill but obtains no oil then no aid will be paid. From this it deduces that the subsidy is paid on the oil
rather than on the olives. Olive oil serves only as the basis to calculate the amount of aid granted.
This is underlined by the fact that also the aid for table olives is expressed in terms of "olive oil
equivalent".

25. As the EC has emphasized in its First Written Submission, the central question in this dispute
is whether the olive oil imported into Mexico w as a subsidized import. For that purpose it is
necessary to establish a connection between the origin al subsidy and the import, and show that the
benefit of the subsidy extends to that import. Economía did not carry out such an investigation.

26. Mexico goes on to assert that the oil is sold by exporters at a lower price that would be the
case if there were no subsidy. But this, like Eco nomía's arguments in the Resolutions, is mere
assertion. Economía made no serious attempt to justify its assertion.

27. Mexico purports to correct the EC by saying that the situation is one of a subsidized product
rather than of a subsidy linked to a product. Howe ver, the distinction that Mexico tries to introduce
cannot be attributed to the EC and is in any even t irrelevant. Question 57 only refers to the pass
through analysis which the EC claims that Mexico fail ed to carry out. The EC used the term "link" in
the sense of "pass through" between the imported pr oduct and the subsidy. The EC has repeatedly
explained that the scheme under analysis grants an aid to olive growers which are upstream producers
of the olive oil exported to Mexico and olive o il exporters are even further away from the actual
beneficiary of the aid. The details of that r eality must be taken into account in order for a
determination to be made as to whether there have been 'subsidized imports'. A simple
characterization of olive oil as a 'subsidized pr oduct' will hide this reality and lead to an
oversimplified and mistaken conclusion.

28. Although the question of the 'subsidized product' is difficult to answer, that of the subsidized
person, in the sense of the person to whom the s ubsidy is given in the first instance, is quite
straightforward. And in this particular respect Me xico's error is equally obvious since it says that the
exporter is the person receiving the subsidy. Clearly Mexico is referring to the person who it claims
benefits from the subsidy. But the exporter is not that person, unless Mexico is implying the existence
of a pass-through. The EC, both during the investigation in Mexico and during these proceedings, has

provided good reasons to conclude that no subsidy passed through to the imported olive oil. These
arguments were also raised and substantiated by the exporters. However, as far as these proceedings
are concerned, the issue is not whether pass-thr ough occurred, but whether Economía was obliged to
investigate the issue and if so whether it did so properly. The EC submits that Mexico should have
done a pass-through analysis, and that it failed to do so.

29. Regarding the calculation of the level of subsid y and in particular the use of ex-factory or CIF
prices the EC and the Panel remain in ignorance of whether Economía committed an error. The
reason for this continuing ignorance is Mexico's failure to adequately explain its methodology, despite
the Panel's questions.

30. Finally, with reference to the issue of the articles of the SCM Agreement with which the Panel
may make findings, it should be noted that in the recent Japan – DRAMS case the panel upheld
Korea's claim that Japan's measure was incons istent with Articles 1.1(b) and 14 of the Agreement,
without invoking any other articles.

31. The EC has already given several reasons wh y Economía failed to determine whether Fortuny
constituted the entire domestic industry of olive oil.

32. The letters to Economía from the authorities of Baja California revealed the existence of other
olive oil producers in that state which Economía en tirely ignored. Apart from the letter received prior
to initiation, which is discussed above, a furthe r letter of 17 December 2003 (Exhibit MEX-49-D,
page 3) contained a table that showed the existen ce of several such producers with significant levels
of production. In a further letter of 9 January 2004 (Exhibit MEX-49-F) the state authorities provided
a list of 12 producers. Data from these were arrange d in a table, and they show that some producers
had a capacity for oil and table olives, whereas others were identified with olives only.

33. Despite these clear indications that there were producers of olive oil in addition to Fortuny,
Economía made no further efforts to find out about them. Mexico acknowledges this failure in its
responses to Questions 72 and 73 from the Panel.

34. Further evidence for the existence of olive o il production distinct from Fortuny is to be found
among the data provided by Fortuny during the veri fication visit by Economía in January 2005.
These contain details of purchases of olive oil during the 1999 harvest.

35. In its questions to Mexico the Panel has sought to examine the adequacy of Economía's
investigation of injury
. The discussion of this subject during the first substantive meeting of the Panel
demonstrated the extent of confusion that affected this investigation. In particular, the use of 9-month
periods for collecting data, overlapping with so me data extending over 12 months, added a major
element of unreliability while at the same time introducing needless complexity.

36. The EC does not need to emphasize that th ese proceedings are not intended to provide an
opportunity for Mexico to make good the defects of Economía's investigation. That investigation
must stand or fall by what was done at the time. Mexico's explanations do nothing to detract from the
conclusion that the investigation of injury was beset by errors that deprive its findings of all validity.

37. In its answer to Panel Question 79 the EC undertook to enlarge upon its comments on the
particular aspects of Article 15 that it claims Mexico has violated. The EC has already addressed
Economía's failure to respect Article 15.1 of the SCM Agreement as regards the objective examination
of the effect of imports on prices in the domestic market. This conclusion has now been reinforced by
Mexico's responses to the Questions posed by the Panel, and by the exhibits now made available by
Mexico. In particular, Mexico's responses have failed to remove the conf usion, mentioned above,
regarding the periods for which data were collect ed and consequently as regards the findings on the
prices of imported and domestic olive oil. The nature and extent of this confusion is further examined

below (paragraph 50). Moreover, Mexico's conti nued reference to comparisons with hypothetical
domestic cost of production is out of place, since it is domestic prices alone that are recognized as
relevant in this context by the SCM Agreement.

38. The other provision which the EC has invoked in this context is Article 15.4 of the SCM
Agreement. The EC identified the various factors that should have been considered in accordance
with Article 15.4, and showed how Economía had addressed them inadequately or not at all.
Although provided by the Panel with an opportunity to make a response to this accusation, Mexico
has merely repeated its previous arguments.

39. Finally, the EC would like to address the topic of the period of investigation for injury. It is
well established that when consider ing injury the data will normally be taken from a longer period
than is used in the determination of subsidization (or of dumping). Indeed, in the parallel case of anti-
dumping investigations, the relevant WTO committee has recommended that it should normally be at
least three years, unless a party from whom data are being gathered has existed for a lesser period, and
should include the entirety of the period of data collection for the dumping investigation.

40. As was stated in the Panel report Mexico – Anti-Dumping Measures on Rice , the purpose of
looking at a longer period is to allow an analysis of trends over time of the various factors requiring
investigation. Indeed, providing an indication of what the industry was capab le of achieving in the
absence of allegedly injurious imports would facilitate a finding that the industry was in an injured
state at the time when the determination of subsidi zation was made – i.e., in the last of the three
years.

41. It is thus the period of time when the injury a nd subsidy investigations overlap, that is crucial.
Consequently, in the EC's view, unless there is output (allowing for temporary interruptions) during
that overlapping period no finding of the existence of injury or domestic industry can be made.

42. Regarding the examination of "o ther factors" in injury causation
, Mexico has on a number of
occasions presented the movements of the price of olive oil from the EC in the form of a graph. The
distinctive U shape of the graph is explicitly u sed to portray the EC exporters as having sharply
lowered prices until the sole identified Mexican pr oducer ceased its activities, and then raising their
prices again. It would seem that Mexico is ac cusing the EC exporters of having engaged in a
deliberate attempt to drive Fortuny out of business and then exploiting the absence of competition.

43. The fallacy of this argument lies in the no tion that competition in the Mexican market for
olive oil was maintained solely by the presence of Fortuny. Howeve r, oil from Mexican olives never
constituted more than a minor part of the Mexican market, and the various EC exporters were engaged
here, as elsewhere, in vigorous competition among themselves.

44. The overall price trends clearly show that Me xico's insinuations as to the deliberate lowering
of prices of the EC exporters in order to attack the Mexican producers is without foundation. The
olive oil price is influenced by a number of factors such as harvests, production volumes, supply and
demand. Since the EC is the biggest producer and exporter, EC export prices to all third country
markets follow the same trends as prices in th e EC. Even though the EC had submitted detailed
information on these issues since the beginning of th e investigation, Mexico has not taken them into
account. The prices in Italy and Spain show similar fluctuations as the export prices to Mexico, to the
US and the average EC export prices: they all u nderwent a dip in the years 2000 and 2001, when the
complainant reduced its production.

45. Moreover, a comparison of the exchange rate movements on a monthly basis with the price
movements shown in Mexico's graph reveals even mo re clearly that much of the alteration in price
can be attributed to the temporary increase in the value of the dollar.

46. Economía seems to have made no effort to examine the above described movements in world
prices of olive oil which enhances the doubts as to the soundness of the causal link analysis.

47. The new exhibits provided by Mexico serve to confirm the EC's argument that Economía
failed to adequately investigate the known 'other factor' constituted by Fortuny's high prices.

48. According to the Final Resolution, Distri buidora Ybarra explained that it had ceased to
purchase products from Fortuny because of its prices. However, what Distribuidora Ybarra actually
said in its submission of 9 January 2004 was that it had ceased to buy from Fortuny because Fortuny's
prices were higher than those that had been charged by its predecessor Formex Ybarra. This comment
was omitted from the 'non-confidential' version of th e text. Furthermore, Mexico does not mention
that Distribuidora Ybarra went on to say that, with (now) an unknown trademark, Fortuny's prices
were too high to attract buyers.

49. The increase in Fortuny's prices is confirmed by Mexico's answers to the Panel's Question 86,
in which it gives figures for national (i.e. Fortun y) prices in the nine-month periods (from April to
December) in 2000 and 2001. In 2000 the figure is $5.51, in 2001 $7.41.

50. In any event, the data which Mexico has pr esented to the Panel throw considerable doubt on
its calculation of prices of Mexican olive oil. Appendix 24 to Fortuny's response of 7 May 2003 to
Economía's Prevención, which provided the basis for Economía's calculations, shows almost arbitrary
monthly variations in prices. Prices apparently ch anged by a factor of up to three from one month to
another. According to Economía th ese data were verified by compar ing them with data covering the
same transactions from Distribuidora Ybarra. The la tter data are contained in Distribuidora Ybarra's
submission of 9 January 2004. The Distribuidora Ybarra figures show a steady decline in prices
between January and August 2000, but the monthl y Fortuny figures show no overall trend, and the
August figure is higher than that for January. Howeve r, it should be said that the exact nature of the
data presented by Mexico in these documents is not clear. The EC requests the Panel to call on
Mexico to explain fully what data they contain, and to provide the data supplied by Distribuidora
Ybarra for the period after August 2000. For exampl e, the table does not contain prices for the first
three months of 2002, nor it seems to take into account the relation between Distribuidora Ybarra, on
the one hand, and Formex and Fortuny, on the othe r, before and after the division of the group to
which both Formex and Distribuidora used to belong.

51. The EC has also referred to the inadequacy of the way in which Economía dealt with the
extent to which the abandonment of the Ybarra trademark had been the cause of its problems. During
the course of the investigation the importance of marks in the selling of olive oil in Mexico was raised
by the EC in its letter of 9 January 2004. In the same letter the EC provided details of the trademarks
used by EC exporters.

52. The point was also brought to Economía's attention by Distribuidora Ybarra, first in its
submission of 9 January 2004, and at greater le ngth in its submission of 5 August 2004. There
Distribuidora Ybarra described in detail the importa nce of marks, and the amounts which companies
were prepared to pay in royalties for the use of marks. It went further by encouraging Economía to
question the owners and licensees of marks pertaining to olive oil about their value.

53. It now appears that Fortuny itself acknowle dged this problem. In its response to the
Prevención Fortuny noted that the mark had remained with Distribuidora Ybarra, and that Fortuny
could no longer sell its product with this mark, and had to go to the market with a new mark which, it
said, was practically like going with a new product.

54. Furthermore, Mexico has now provided the mark et survey referred to in paragraph 327 of the
Preliminary Resolution. Contrary to the impressi on created by Mexico, this document reveals the
dominance of the Ybarra brand in the Mexican mark et: 78 per cent of olive oil buyers usually buy

this brand, and 91 per cent have bought it at one time or another. In addition, the survey shows that
this popularity is strongly associated with the brand, and has very little to do with price since only a
small minority of buyers regarded it as cheap and those who bought another brand were not put off
Ybarra by the price.

55. Mexico failed to reply adequately to the Pa nel's questions with regard to the impact of
Fortuny's high costs . In paragraph 350 of the Final Resolution the Ministry observed that in the
period under analysis Fortuny had considerable operating losses throughout the company. This
clearly suggests that the overall situation of the complainant was critical and the economic difficulties
were not limited to its olive oil activity. Furthe rmore, Distribuidora Ybarra explains that it stopped
buying from Fortuny because its prices were higher that those of Formex-Ybarra before the split.
Distribuidora adds that Fortuny's high fixed and vari able costs are due to an inefficient administration
of this company.

56. This factor was not taken into account by Ec onomía whereas it has an impact on the whole
picture: as stated by Distribuidora, high costs cau sed the exclusion of Fortuny from the market since
wholesalers and distributors did not accept to pay such high prices for an unknown brand.

ANNEX C-2

EXECUTIVE SUMMARY OF THE SECOND WRITTEN
SUBMISSION OF MEXICO

(27 August 2007)

LEGAL ARGUMENTS

A. CLAIMS CONCERNING PROCEDURAL VIOLATIONS ALLEGEDLY COMMITTED
BEFORE OR DURING THE COURSE OF THE INVESTIGATION

1. Mexico complied with Article 13.1 of the Agreement on Subsidies and Countervailing
Measures (SCM) in inviting the European Communities (EC) to hold consultations
before initiating its investigation

1. To avoid repeating previous arguments, Mexico reaffirms the claims it made in this
connection in its First Written Submission (FWS), its first oral statement and its replies.

2. It appears that as stated by the EC during its oral statement and its reply to question 1, Mexico
and the EC agree that the invitation to hold cons ultations under Article 13. 1 of the SCM Agreement
should be extended as soon as possible – that is to say, without wasting any time – once the
application for the initiation has been accepted, as actually happened in the case of this investigation.

3. However, the two governments have different in terpretations with respect to the moment of
acceptance and the moment of initiation of an inv estigation. Judging from the EC's replies to
questions 2, 3 and 4, under the EC system an a pplication is accepted when submitted by the applicant
and received by the investigating authority (IA), wh ile the formal action initiating the investigation is
publication in the Official Journal of the European Union, from which moment presumably the
investigation clock begins to run.

4. In Mexico, the applicant files his applicati on and the IA merely receives it and stamps it to
acknowledge receipt, which does not imply that it h as been accepted, only received for examination,
since there has been no evaluation of its content. In fact, the application is often incomplete, and the
authority has to ask the applican t for further data. Once the IA has analysed the information, it
determines whether or not to draw up a draft accepta nce of the document. If the authority considers
the application pertinent, it sends this draft to the Minister for the Economy, who can decide whether
or not to accept the application. If the Minister decides to accept the application, he signs the
document which is then sent to the Official Jour nal (DOF) for publication as an Initiating Resolution
(IR). If for some reason the document is not publis hed, it will have no legal force whatsoever. In
fact, under the laws in force, the investigation clock does not begin to run until the day following
publication. The Minister's signature does not mean the initiation of the investigation. If this were
the case, the periods would have to begin to run at that date, which is not wh at happens. As in the
European system, if the document is not published, the periods do not begin to run.

5. The "formal action by which an investigation is initiated" means that the investigation process
begins in every respect, especially with regard to the time-limits imposed on the interested parties and
the authority and with regard to inquiries. In Me xico, the clock begins to run from the publication of
the IR and never until then. Consequently, it is in congruous to consider th at the signature of the

Minister is the formal act of initiation. We consid er that in Mexico, as happens in the EC, the formal
action by which the investigation is initiated is the publication of the notice of initiation in the Official
Journal.

6. Moreover, we do not understand how the EC can consider that an application is accepted at
the precise moment at which it is submitted to th e IA without its having undergone any examination
as to whether it is appropriate or not. In our opinion, the application needs to be examined to find out
whether it contains sufficient information and hen ce whether it should be accepted or not. This is
why the Mexican IA examines the application before accepting it. Thus, the mere submission of the
petition only implies that the authority can begin examining the viability of the document, and does
not imply that the application has been accepted.

7. As we indicated in our FWS, footnote 37 to the SCM Agreement states that initiation is the
formal action by which an investigation is commen ced, which, in our opinion, may vary according to
the legal system of each WTO Member. We do not understand why at the first hearing the EC
maintained that questions of this kind cannot be le ft to the legal systems of each country. In our
opinion, each Member is free to define the requirement s that must be met for the investigation to be
considered to have been commenced. Nor do we understand why, if the invitation to hold
consultations has to be issued as soon as possible after the application has been accepted, the EC takes
between 15 and 20 days to extend the invitation to th e Member concerned, as indicated in their reply
to the Panel's question 3 (paragraph 10).

8. In Mexico, if an application is not accep ted, then there are no grounds for holding
consultations on initiation, as the application would have been rejected. For this reason, the invitation
is issued once an application has been accepted by the Minister for the Economy through his
signature. Hence the invitation was sent to the EC immediately after that signature.

9. We disagree with the interpretation in the EC 's replies according to which the consultations
under Article 13.1 of the SCM Agreement must be held before the investigation is initiated. This is
contrary to what they said during the first hearing, namely that the obligation contained therein was
limited to inviting a Member to hold consultations , since there is no way of forcing a Member to
attend them. Accordingly, this new interpretation would imply the possibility of a Member invited to
hold consultations being able to decline or ignore th e invitation, and afterwards claim before a panel
that the failure to hold consultations was a violation committed by the responding Member.

10. Thus, as an exporting Member cannot be forced to hold consultations, we consider that
Article 13.2 of the SCM Agreement simply establish es that regardless of when those consultations
may have been begun, the importing Member should a fford a reasonable opportunity for them to be
continued. In fact, Article 13.3 of the SCM Agreem ent states that the consultations are not intended
to prevent the expeditious initiation of the investig ation, which confirms that there cannot be any
binding obligation to hold consultations before initiation, since that would obstruct initiation.

11. On the other hand, in its reply to question 6 the EC maintains: (a) that introducing a new
concept (legal commencement of the investigation), not found in footnote 37 to the SCM Agreement,
raises the question of whether the legal system appli cable is that of Mexico or that of the WTO;
(b) that the date on which the investigation lega lly commenced under Mexican law is not necessarily
the same as the date of the procedural action by which the investigation is formally commenced and
that Mexico contends that the "legal commencement" of the investigation occurs on the day following
its publication, but no procedural action occurs on that day.

12. With regard to the first point, the EC a ppears erroneously to assume that the WTO has a
completely self-sufficient legal system. There is no complete theory of the concept, nature and scope
of the administrative action per se in the WTO legal system. Thus, the WTO only provides guidelines
that are more or less general, depending on the case, concerning certain aspects, but it is necessary to

examine, case by case, whether the authority acted appropriately. Accordingly, the AB recognized
that the SCM Agreement was silent on many aspects and that this had some meaning (paragraphs 65
and 74 of the AB report in United States – Carbon Steel ). Likewise, it recognized that one of the
objectives of the SCM Agreement was to establish a fra mework of rights and obligations and a set of
rules that must be respected in the use of such ri ghts. Among the rules applicable to the use of the
rights established in the SCM Agreem ent, there are none that define the specific administrative action
by which the investigation is commenced. On th e contrary, what was established was merely a
guideline.

13. The EC has merely repeated that the signatu re of the Minister for the Economy constitutes the
formal act of commencement, without explaining why this is the case. Taken to the extreme, its
argument would mean that the pre-initiation actions taken by the IA to determine whether or not an
application is appropriate w ould have to be treated as part of th e investigation, and that consequently
the formal act of commencement would be receipt of the application, which we do not think that the
EC itself accepts, given that it considers that an investigation commences with publication in its
Official Journal. Therefore, there can be no co nfusion as to whether the Mexican or the WTO legal
system should be used, since the SCM Agreement does not specifically establish what the act of
commencement is; and as there are not two sets of rules applicable, there can be no conflict.

14. With regard to the EC's second point, there is no basis for the date on which the investigation
legally commenced being different from the formal date of its commencement. Likewise, the
presence or absence of procedural action has abso lutely no effect on the moment at which the
investigation should be regarded as having commenced. An admini strative action does not
necessarily produce its effects immediately. Thus, we refer to our previous plea to the effect that
there is nothing in the SCM Agreement to support the EC's claim.

2. Mexico initiated its subsidy investigation on the basis of an application made by the
domestic industry, in compliance with Article 11.4 of the SCM Agreement

15. In its reply to question 13, the EC insists on arguing that the term "domestic industry" alludes
exclusively to the producer that is producing at the tim e his application is filed, an interpretation with
which we disagree. The EC refers only to an ar gument in its FWS based on a literal reading of
Articles 11.4 and 16 of the SCM Agreement, an argument which Mexico rebutted in its own FWS.
Mexico rejects the EC's interpretation of Article s 11 and 16 of the SCM Agreement. In its FWS,
Mexico argued that these articles could not be interpreted so literally, since that would have
unacceptable consequences. The fact that Fortuny was not producing at the time of initiation has no
effect on whether it can be regarded as a domestic producer, inasmuch as it is an enterprise that has
existed for decades, was actually producing, has all the material resources necessary to resume
production and has the appropriate le gal status. It had to suspend production because of the injury
inflicted by subsidized imports from the EC, injury which was continuing to be caused insofar as the
company was being prevented from recommencing production.

16. With respect to the EC's reply to question 14 , Mexico considers that the notion of material
retardation of the establishment of a domestic industr y is important for the Panel's analysis in that
Article 11.4 of the SCM Agreement applies to all modes of injury. The EC has not explained how the
concept of "production" could be used as a factor to be analysed if the injury suffered by the domestic
industry is the material retardation of its establis hment. Therefore, we repeat that the literal
interpretation it gives of this article is inappr opriate. The EC does not go beyond the definition of
"establishment" given in an English dictionary which, in our opinion, does not say much about the
meaning of this word and even less about the sc ope of the expression "establishment of a domestic
industry" used in the SCM Agreement. However, the EC concludes that "[t] hus, when applied in a
commercial context, the term does not refer to the point of starting up a business, but to the
achievement of a level of maturity ." According to the dictionary of the Spanish Royal Academy of
Language, "to establish" means "to found or institute. To open for one's own account a commercial or

industrial establishment", from which it is clear that "to establish" means founding or starting a
commercial or industrial business. In other words, the establishment of an industry does relate to its
being commenced. As distinct from the Oxford Dictionary, that of the Spanish Royal Academy
contextualizes its definition by referring to commercial or industrial activities, which is why we prefer
to use it. However, this dictionary provides no basis at all for the EC's interpretation.

17. Even supposing, for the sake of argument, th at "to establish" means "to achieve a level of
maturity", we do not see how a company which produced olive oil for many years could not be
regarded as already being mature, and, being a matu re company, it could not be assumed to be a new
industry. Nor is it clear to us how a company that is producing could be regarded as not being
established. The concept of "maturity" is not cont emplated in the SCM Agreement and therefore its
use could give rise to an infinity of interpreta tions. If it were the fundamental concept to be
considered in the case of material retardation, then investigations for material retardation could be
initiated even if the industry were already produc ing, since it may not have reached "maturity", a
conclusion which seems to us untenable.

18. The EC claims to find justification for its re ply to question 14 in paragraph 174 of its FWS.
However, that paragraph cannot constitute a justification for its reply, as it is merely an assertion. The
EC is attempting to base one assertion on another. Even so, we consider it important to point out once
again that the analysis made by the IA and the cr iterion on which it based its final determination was
material injury (being prevented from recommencing operations) and not material retardation.

19. In fact, the above is closely related with the EC 's reply to question 16. It should be noted that
Mexico's FWS explains why the fact that the dome stic producers were not producing at a particular
time does not mean that they cannot be regarded as producers.

20. In its replies, as at the first substantive mee ting, the EC points out that regardless of whether
an investigation is initiated as a result of an app lication or ex officio, domestic production must
necessarily exist. We again find the EC ignor ing those cases in which there is no domestic
production. According to its interpretation, there would be no possibility of a new domestic industry
being established, an argument which is untenable. If the EC's claim were valid, there would be no
need for the material retardation requirement – material injury would suffice. The EC has not
explained what treatment would have to be give n to those cases where production is temporarily
suspended for planned or unforeseen stoppages, or to a cyclical or seasonal industry, to cite a few
examples.

3. The investigating authority complied with its obligations under Article 13(b)(i) of the
Agreement on Agriculture

21. With respect to its obligations under Artic le 13(b)(i) of the Agreement on Agriculture,
Mexico reiterates the arguments cont ained in paragraphs 45 to 77 of its FWS and 8 to 11 of its oral
statement at the first hearing, as well as in its replies to questions 20 to 22.

22. Judging from the EC's reply to question 20, both Members appear to agree that the due
restraint clause applies only to the period prior to the initiation of the investigation and not to the
imposition of countervailing duties. We therefore conclude that the EC has abandoned its claim to the
effect that due restraint must be applied to th e imposition of countervailing duties, and consequently
we request the Panel to disregard this claim.

23. Nor do we believe that there is any foundati on for the assertion that the imports were exempt
from the imposition of countervailing measures. We can find no support in the SCM Agreement or in
the Agreement on Agriculture for such an interpretation.

24. In the event that the EC is suggesting – as in its FWS – that the imposition of countervailing
measures is incompatible with the Agreement on Agriculture because such measures could not be
adopted on the basis of an application that clai med material retardation, we repeat that the
investigation was not initiated for material retardation
, but on the basis of injury in the general sense,
and was concluded on the basis of material injury, namely prevention of the resumption of production.
There is no provision in the SCM Agreement that says that an IA must adhere strictly to the terms of
the application for initiation. In this connection, we refer to paragraphs 124 to 128 of our FWS.

25. The IA considered that it was not possible to initiate an investigation for material retardation
with respect to a company which, as already mentio ned in this dispute, had existed since the 1940s,
was producing olive oil, had all the production fac ilities it needed to operate and had never been
involved in any proceedings that might imply its being shut down or could affect its operations
(liquidation or insolvency proceedings, re-registratio n, change of corporate purpose, etc). Thus, the
IA determined that the most appropriate course of action would be to initiate the investigation without
specifying the particular mode of injury suffered by the applicant. Consequently, there is no violation
whatsoever of the SCM Agreement or the Agreement on Agriculture.

26. In its reply to question 22, the EC refuses to say what is meant by due restraint under the
Agreement on Agriculture and merely argues that the actions of the IA lacked restraint. We do not
understand how the EC can refuse to explain a concept and then claim that the IA acted in a manner
contrary to that unexplained concept. At the same time, the EC argues that due restraint is "clearly"
an additional obligation for Members, but, it should be emphasized, does not explain why it
constitutes an obligation additional to that of mainta ining a reasonable standard. It seems to us that
these assertions do not constitute a prima facie presum ption of a violation on the part of Mexico, and
we therefore request that they be dismissed.

27. We repeat that, in our opinion, due restraint is a concept that relates to an appropriate and
reasonable standard for allowing an investigation to be initiated. It does not involve doing anything
differently in cases of agricultural, as compared w ith non-agricultural, products. Furthermore, the IA
took measures which demonstrate the application of a reasonable standard (such as sending the
applicant a request for information, so-called " prevención", before initiating the investigation). Here
we refer to paragraphs 53 and 58 to 77 of our FWS.

28. In its reply to question 25 the EC states that if an investigation was initiated prior to the
expiry of the implementation period, then Article 13(b)(i) of the Agreement on Agriculture applies to
any determination, in the course of that investig ation. Once again, we can find no support for this
claim. As pointed out in paragra phs 47 and 48 of our FWS, for a rule to be violated two elements
must be present: (a) a rule in force; and (b) an action at variance with that rule.

29. The due restraint was only applicable to th e initiation because Article 13(b)(i) so provides and
because after that it was no longer in effect. As re gards initiation for retardation, we repeat that the
investigation was not initiated for this mode of injury. Accordingly, we cannot see why the due
restraint clause would have to be applied to the determinations
 issued during the olive oil
investigation.

4. Argument relating to the claims co ncerning Article 12.4.1 and 12.8 of the
SCM Agreement

(a) Mexico acted in conformity with Article 12.4 of the SCM Agreement

30. In paragraphs 56 and 57 of its first oral stat ement, the EC alleges that Mexico's argument
concerning systematic access to all the confidential in formation was rejected in the panel reports in
United States – OCTG (Article 21.5 – Argentina) and Mexico – Steel Pipes and Tubes . We do not
agree.

31. With respect to United States – OCTG (Article 21.5 – Argentina) , the EC bases its argument
on paragraph 7.137 of the Panel report, which menti ons that the United States system is inadequate
because access to confidential information is given exclusively to counsel, and it cannot be used by
the parties themselves. This determination is not applicable to the Mexican legal system, which does
not function that way. Under the Mexican system, a legal representative is not necessarily "counsel",
but may be anyone legally authorized to act on behalf and as the representative of another.

32. Clearly, if an interested party is a company, the only way in which it can exercise a right is
through a legal representative, who does not necessarily have to be counsel. Thus, the representative
could be one of the members of the company's board of directors or its equivalent. In fact, this
situation is recognized in Article 51 of the Foreig n Trade Law (FTL). If an interested party is a
natural person, then clearly he may appear for himself or through a representative. Thus, the
interested party can have access to confidential information.

33. We refer in this connection to Article 80 of the FTL and Articles 147 and 159 of the
Regulations thereto, which, taken together, state that: (a) interested parties and/or their
representatives are granted access to the confidential in formation; (b) if the interested party is a
company, it always acts through a representative, since a company is an association of capital and
persons; (c) the representative of the company may be anyone legally authorized to represent it,
including a member of the board of directors or its e quivalent; (d) if the interested party is a natural
person, he has every right to access the confidential information himself or through a representative;
(e) if the one granted access to the confidential information (interested party or representative) is not a
lawyer, he must be accompanied by a lawyer. Un like what happens in other countries, under the
Mexican legal system the interested parties and/or their legal representatives are always granted
access to all the confidential information. Conseque ntly, in the olive oil investigation the impairment
of due process for the parties on which the panel focused in United States – OCTG (Article 21.5 –
Argentina) did not exist.

34. On the other hand, the EC also argues that paragraph 7.398 of the panel report in Mexico –
Steel Pipes and Tubes confirms the findings in paragr aph 7.137 of the panel report in United States –
OCTG (Article 21.5 – Argentina). We consider this to be incorrect.

35. As can be seen in paragr aphs 7.373, 7.382, and 7.391 to 7.398 of the panel report in Mexico –
Steel Pipes and Tubes , the panel's findings concer n two different aspects: first, whether or not the
non-confidential summaries of some confidential doc uments permit a reasonable understanding of the
confidential data; and second, the standard of review applicable to the decisions of the IA concerning
the granting of confidential treatment to specific information and whether or not that information
could be summarized, as well as the way in which the IA should have communicated these decisions.

36. In our view, the panel determined that th e non-confidential summaries were inadequate, but
as Mexico had acted in a manner consistent with Articles 6.5 and 6.5.1 of the AD Agreement as
regards the evaluation and granting of confidential treatment, the evaluation of the assertions to the
effect that it was not possible to make non-confiden tial summaries of certain confidential information,
and maintaining a system of access to confidential information that permitted the effective legal
representation of an interested party and could serve as a supplement to fulfilment of the provisions of
Article 6.5 of the AD Agreement, there had been no violation of Mexico's obligations under the
AD Agreement. Thus, it is necessary to take into account the panel's entire analysis and not just
isolated findings. Mexico considers that the pane l's determinations are not applicable to this
particular case, in the way that the EC suggests. Ho wever, we note that even if they were, the report
supports Mexico's position in the present dispute.

37. At the same time, we note that in paragraph 104 of its FWS, the EC makes the same claim as
did Guatemala in Mexico – Steel Pipes and Tubes , to the effect that the AI did not evaluate whether

"good cause" had been demonstrated for certain inform ation to be considered confidential. In this
connection, we repeat that in the aforementioned di spute, the panel determined that this claim was
unfounded (see paragraphs 7.3 82, 7.393 and 7.394) because there was no provision in the
SCM Agreement establishing what process the IA should follow when it considered that a request for
confidential treatment was justified, other than to treat the corresponding information as confidential.
Therefore, we respectfully request the Panel to reject these claims by the EC.

38. In addition, there are other aspects that cannot be ignored, for example the difference between
the documents about which Guatemala complained in Mexico – Steel Pipes and Tubes and those
submitted in the olive oil investigation, and the fact that in the olive oil investigation, what happened
was the same as indicated in footnote 451 to the final panel report in Mexico – Steel Pipes and Tubes ,
in the sense that both the applicant and the exporters and importers used exactly the same system for
presenting their non-confidential summaries.

39. On the other hand, as already noted in our FWS, the EC alleged that its and its exporters' due
process rights were prejudiced. With respect to its e xporters, we repeat that they had every right to
examine the confidential information, as in fact they did. In the case of the EC, even though it had the
right to examine that information, for reasons unkno wn to us, it refrained from exercising that right
and now maintains that this amounts to a Mexican vi olation of the SCM Agreement. This cannot be
attributed to the IA. For the above reasons, we request that the Panel dismiss the EC's claims.

40. Likewise, in its reply to question 26, the EC states that its complaint relates to the non-
existence of non-confidential summaries and not to their adequacy. We take this change of position to
mean that the EC is waiving its claim concerni ng the adequacy of the non-confidential summaries
contained in paragraph 104 of its FWS, and therefore request that the claim concerning the alleged
inadequacy of the summaries be dismissed.

41. Now, assuming this new EC position, if Mexi co can show that non-confidential summaries of
the confidential information do exist, then it w ill necessarily follow that the EC's claim is unfounded.
Moreover, the claim concerning the alleged inad equacy of the non-confidential summaries having
been abandoned, it would be appropriate to dismiss all the EC's claims in this respect. Thus, as noted
in Exhibit MEX 38 (Index), it is not true that there are no such summaries. These exhibits show that
non-confidential summaries of all the documents in connection with which confidential treatment was
accorded are contained in the record of the inve stigation. The fact that the non-confidential
summaries do not take the form requested by the EC does not mean that they do not exist. The
summaries are there and if there is any problem with them it clearly cannot be their non-existence.

42. We further recall that the SCM Agreement offe rs no guidance with regard to the form which a
non-confidential summary should take. In any case, if the summaries do not satisfy the condition of
permitting a reasonable understanding of the confidentia l information, the problem would be one of
sufficiency and not of existence – a claim which th e EC has withdrawn and which, even if they had
maintained it, would have been without foundation. For all of the above reasons, we respectfully
request this Panel to reject the EC's argument.

(b) Mexico acted in a manner consistent with Article 12.8 of the SCM Agreement

43. We repeat what was stated in paragraphs 91 to 95 of our FWS, where we explained why
Mexico maintains that it complied with Article 12.8 of the SCM Agreement in disclosing the essential
facts of the investigation in its PR.

44. We reiterate that the EC has failed to show th at the PR issued by the Ministry was insufficient
to acquaint the parties with the essential facts consid ered during the investigation, so that it has not
established a prima facie presumption of violation by Mexico. In its reply to question 33, the EC only
states that a provisional measure could hardly provide adequate disclosure of essential facts. As noted

in paragraphs 92 to 94 of Mexico's FWS, this point was examined by the panel in Argentina –
Ceramic Tiles, which establishes very clear guidelines con cerning the disclosure of essential facts and
describes various ways of disclosing them. Consequently, we request that the EC claim be dismissed.

45. As we asserted in our reply to question 35, the reason why Mexico maintains that the essential
facts were disclosed in the PR is that, during the procedural stages follo wing the Resolution, no
information came to hand that could be includ ed within the scope of Article 12.8 of the
SCM Agreement. As already indicated in our repli es to questions 32 to 35, the facts which must be
disclosed are the most important ones and must ha ve served as the basis for the decision to apply
definitive measures. Thus, not all the facts sub sequently obtained automatically constitute essential
facts under Article 12.8 of the SCM Agreement. Th is was not the case with the information gathered
subsequent to the PR which, at best, only conf irmed the relevance of the essential facts which were
already known prior to the PR and were disclosed th erein (as in the case of the verification report on
Fortuny or the requests made by the IA to other pa rties). Thus, as it was not new information which
affected the authority's decision, there was no obligation to disclose it.

5. Mexico acted in a manner consistent with Article 11.11 of the SCM Agreement

46. The EC claims that Mexico acted in a manner inconsistent with Article 11.11 of the
SCM Agreement because, as it maintains, Mexico failed to explain why the circumstances were
"special", thereby justifying the extension from 12 to 18 months and, moreover, exceeded the absolute
limit of 18 months for concluding the investigation. In addition, the EC tries to excuse the lack of
cooperation on the part of both its exporters and the EC itself, suggesting that as a consequence of the
above they were placed in the "dilemma" that if they wished to defend their interests they would have
to "condone" the Ministry's failure to respect Artic le 11.11, and thus, that the IA should not have
resorted to the facts available.

47. With respect to the obligation to notify the r easons for the special circumstances, we repeat
that there is no such obligation in the SCM Agreement.

48. With regard to the exceeding of the 18-mont h limit under the SCM Agreement, we refer to
paragraphs 100 to 104 of Mexico's FWS and our replies to questions 39 and 40, where we indicate the
reasons why – and the documents that support our as sertions – the IA decided to extend the period for
the investigation, by giving priority to the need to gather more information and afford the parties an
adequate opportunity to defend themselves and by gr anting the extensions they requested, and explain
the relevance of carrying out the administrative acti ons requested by the parties (such as the on-the-
spot investigation). We repeat that these extensions , the verification visit to the applicant's premises,
and the actions taken by the IA in response to the questions raised by the parties themselves were the
cause of the delay in the proceedings.

49. We consider that Article 11.11 of the SCM Ag reement is designed to protect the interested
parties from any unjustified delay or inaction, by en suring that they are not left defenceless and that
the delay does not work in favour of one of the par ties. We do not see the IA as having breached this
guarantee or undermined any due process rights. The EC's claim is not based on any specific and
genuine impairment of its rights of defence or tho se of its exporters – it is merely an excuse for not
supplying the information that the IA requested of it.

50. Therefore we reaffirm what we said in pa ragraph 106 of our FWS and request the Panel to
take these circumstances into consideration in its an alysis, since the delay was due not to negligence
on the part of the IA but to a desire to obtain the best information possible, as requested by the
interested parties themselves.

51. As already pointed out in our FWS, we cons ider that there is no foundation at all for the
EC's attempts to excuse the lack of cooperation on its part and on that of its exporters (we recall that

the EC itself has admitted that it did not respond to the requests for information made after the public
hearing). Accordingly, we repeat what was stated in paragraphs 108 to 110 of our FWS.

52. It would appear that the EC's only objectiv e in arguing the exceeding of the limit is precisely
to justify its failure to fulfil its obligations unde r the olive oil investigation procedure in order
subsequently to mbaintain that the IA was wrong to apply the "available facts". However, we note
that the SCM Agreement does not provide for any ex ception to the application of the available facts
on the grounds that the investigation has taken mo re time than indicated in Article 11.11 of the
Agreement. We fail to understand the nature of the EC's alleged "dilemma" in responding to the
requests for information.

53. Furthermore, we repeat what was said in pa ragraph 110 of Mexico's FWS, to the effect that
assuming the behaviour of the EC and its exporters to have been justified would be tantamount to
handing over control of the investigation to the parties, which we consider unacceptable.

B. ARGUMENTS CONCERNING THE CON DUCT OF THE INVESTIGATION AND THE
FINAL AFFIRMATIVE DECISION

1. Mexico did provide an adequate and reasoned explanation of the existence of
subsidization, calculation of the benefit conferred on the exporters of the product
investigated and the method used in each particular case, as required by Articles 1.1 and
14 of the SCM Agreement

54. In its reply to question 42, the EC states th at the recipient of the benefit under the subsidies
programme is the olive grower and that this is c onsistent with Article 5 of Council Regulation (EC)
No. 1638/98, amending Regulation No. 136/66/EEC. It also claims that in paragraph 100 of the FR in
this investigation part of this Article was deliberately omitted.

55. Contrary to what the EU claims in its repl y to question 42, there was no omission in the FR.
The FR never referred to Article 5 of Council Re gulation (EC) No. 1638/98, but to Article 5 of
Regulation No. 136/66/EEC, and did not omit any subs tantive part thereof. In any case, we do not
detect any element in Article 5 of Council Regula tion No.1638/98 that could be used to support the
claim that the subsidization program me was not directed at olive oil. On the contrary, that Article
also indicates that it is a subsidized good.

56. As stated earlier, the EC's subsidiza tion programme is covered by Regulation No.
136/66/EEC, and was notified by the EC to the WTO's Committee on Agricult ure as a subsidization
mechanism. Consequently, it is a subsidy whose ex istence, validity and application are not open to
question. Moreover, it is directed, in Article 5 of both Regulations, towards encouraging the
production of olive oil. Both regulations are categor ical in this respect. It was therefore assumed,
quite correctly, that the subsidy was specifically given for the production of olive oil.

57. Regarding the alleged need to undertake a pass-through analys is of the subsidy's benefit, we
once again state that in the SCM Agreement there are no grounds for the EC's argument. There is no
provision in this Agreement indicating that such an analysis should be made, so we once again request
the Panel to reject this claim. Moreover, we do not see why a pass-through analysis of the benefit
should have been made when the subsidy is granted for the product investigated.

58. Furthermore, we note that in its reply to question 46, the EC explains its claim that the
absence of a reasoned explanation of the existence of subsidization and the failure to carry out a
pass-through analysis of the subsidy's benefit co nstitute violations of Articles 1 and 14 of the
SCM Agreement. We see no basis in these articles for its claim.

59. In its reply to question 53, the EC claims that Mexico failed to provide a transparent and
adequate explanation of the method used to calculate the amount of the subsidy. This claim has no
substance. There is no obligation in Article 14 of the SCM Agreement to explain the calculation of
the amount of the subsidy, but rather the benefit conferred. It cannot therefore be claimed that
Mexico violated an obligation that does not exist in the SCM Agreement. In addition, paragraphs 126
to 178 of the FR set out the methodology used to determine both the amount of the subsidy and its
effect on olive oil prices and the resulting benefit.

60. Likewise, in its reply to question 54, the EC does not explain why it considers that the
necessary adjustments to the amount of the subsid y granted were not made. We cannot give any
further details in this respect because the EC's argu ment is not clear. Nevertheless, we repeat the
explanations given in paragraphs 137 to 146 of our FWS and in our replies to questions 59 and 61.

2. Mexico correctly defined its domestic industry

61. The EC claims that Mexico did not identif y its domestic industry on the basis of positive
evidence and thereby violated Article 15.1 of the SCM Agreement.

(a) The Ministry adequately determined that Fortuny was the only domestic producer

62. The EC's reply to question 64 incites two cons iderations: (a) The EC does not indicate what
concrete action should have been ta ken by the IA during the investigation into the domestic industry;
(b) it specifically states that its claim in paragr aph 173 of its FWS was made to "illustrate the
consequences of the non-existence of the domestic industry, rather than as an attempt to claim an
inadequate inquiry into the extent of the domestic industry".

63. However, what paragraph 173 appeared to cl aim was precisely that there was an inadequate
inquiry. What it is now contending its reply to ques tion 64 is that this paragraph is not a claim that
the enquiry was inadequate, but rather an illustrati on of the consequences of the non-existence of the
domestic industry. In other words, the EC sets aside its claim regarding an alleged inadequate enquiry
into the extent of the domestic industry and in stead adopts the position that the domestic industry did
not exist. There are therefore basically two consequences: (1) there is no reason whatsoever to take
into account the claim in paragraph 173 of the EC's FWS inasmuch as the EC itself has set this aside;
and (2) because its claim is based on the non-existen ce of the domestic industry, it is enough to show
that the domestic industry did exist in order to invalidate its claim.

64. Despite the foregoing, however, we repeat that paragraphs 212 to 255 of the FR set out the
reasons why the IA confirmed that Fortuny did meet the requirements of representativeness and
legitimacy in order to request and proceed with the investigation, in accordance with Articles 11.4 and
16 of the SCM Agreement (the issue of the scope of these two Articles will be dealt with below).
This section describes the efforts that were made by the authority to determine whether there were
other domestic producers.

65. In addition, in paragraphs 27, 28 and 29 of the summary of its first oral statement, the EC
claims the following: (a) even though Maprinsa di d not produce olive oil, this was not sufficient
reason to abandon further enquiries; (b) the Minist ry did not investigate the existence of the two
domestic producers indicated by Oliverara Tulyehua lco; (c) the Ministry decided not to make
enquiries into Aceites Navarra, even though it was a bo ttler, or into Llanos de San Francisco, which
might have moved on from the experimental stage; (d) the National Association of Edible Oils and
Fats Manufacturers (ANIAME) only reported that Fo rtuny was registered with it; and (e) in this
dispute the Ministry did not present the reply from the Mexican Institute of Industrial Property (IMPI)
and did not request information from the authorities of Baja California and Sonora, where olives are
grown.

66. In this respect, we repeat what is stated in paragraphs 154 to 209 of Mexico's first written
submission and even though the EC has indicated some other possible additional inquiries, these do
not suffice to disregard the authority's evaluation of the extent of the domestic industry. The large
amount of evidence in the record enables it to be reasonably determined th at Fortuny constituted 100
per cent of the domestic industry. In this respect, Mexico considers it important to reiterate that, as
provided in paragraphs 97 and 99 of the AB report in the US – Softwood Lumber VI (21.5) dispute, the
review of the IA's findings should be based on in formation contained in the record as well as the
considerations contained in its resolutions.

67. Each one of the specific claims set forth a bove was refuted both in Me xico's FWS and in its
rebuttal submission, which also reflect the comple xity of the inquiries and the proactive and unbiased
attitude of the IA. In most cases, these inquiries were indeed carried out (for example Maprinsa and
its suppliers, although they did not produce olive oil), while in other cases there were sufficient
reasons and evidence in the record to suggest th at the inquiries were not necessary (according to
official data, Llanos de San Francisco was still at the experimental stage; Aceites Navarra, according
to the exporters themselves and according to official data, did not produce olive oil; and the State of
Sonora did not produce olive oil). Moreover, attention was drawn to the relevance of the reply by the
ANIAME and to the IA's evaluation of the replies given by the different authorities.

68. On this point, we repeat that, in order to obtain further information, requests for information
were also sent to non-party companies, as indicated in paragraphs 191 and 1 93 of Mexico's FWS, and
again it was not possible to infer from their replies that there was any other domestic producer.

69. Far from having acted negligently, the IA undertook all possible inquiries. We do not
consider that the fact that suppliers of canola oil we re not investigated or that requests for information
were not sent to a State whose production was non-exis tent according to official data are sufficient
grounds for determining that Mexico acted incons istently with the SCM Agreement. We repeat,
moreover, that the IA did not only have the inform ation collected but also took into account the fact
that no other company came forward as a domestic producer.

70. We recall that both the interested parties and non-party entities, local governments and
government offices were unable to provide informat ion on a single domestic producer other than the
applicant, and therefore, the IA's conclusion was fully justified. All this information cannot be
considered as circumstantial or insufficient evid ence and we fail to see how it can reasonably be
assumed that, despite the foregoing, there must neces sarily have been domestic producers other than
the applicant. We cannot see what is the EC's basis for assuming this. The EC relies on the
unfounded premise that they exis t and no proper search was made for them, but it does not indicate
what the IA should have done to find them.

71. In addition, assuming, for the sake of argumen t, that there was another domestic producer, it
would not be likely either, in view of all the ev idence contained in the record, that its level of
production was such that it nullifie d Fortuny's legitimate status as the entity which acted for or on
behalf of the domestic industry or had a decisive impact on the examination of injury caused by the
subsidized import.

72. In this connection, attention should first be drawn to what is laid down in Articles 16.1 and
11.4 of the SCM Agreement, which are the rules di rectly applicable to this case. We know from
Article 16.1 of the SCM Agreement that the term "domestic industry" has two meanings: (a) all
domestic producers of like products; or (b) domes tic producers whose products constitute a major
proportion of the domestic production of like products.

73. In other words, there are two ways of meeting the obligation to examine the domestic
industry: by examining all producers or by examining a major proportion of them. In this regard,
Article 11.4 of the SCM Agreement gives us th e guidance for determining whether the domestic

producers requesting the initiation of the investigation can be deemed sufficient to consider that the
application is being made "by or on behalf of the domestic industry": when it is supported by
domestic producers whose collective output constitut es more than 50 per cent of the total production
of the like product produced by that portion of th e domestic industry expressing either support for or
opposition to the application.

74. Consequently, if an application is made by a domestic producer constituting more than 50 per
cent of the total domestic industry expressing s upport for or opposition to the application and
accounting for at least 25 per cent of the country's total production, this shall be understood to mean
that the investigation is being requested by the domestic industry and, as a result, the comprehensive
examination to determine the existence of injury may focus solely and exclusively on that producer
without this being considered as lacking objectivity. The EC itself, in its reply to question 65, stated
that by representing 100 per cent of domestic produc tion, there was in fact no need to examine the
concept of "collective output".

75. In addition, we also recall that, acco rding to the data in the article in " Claridades
Agropecuarias", information also submitted by the EC, Mexico's total annual output of olive oil was
around 1,000 tonnes, and according to the correction submitted in our reply to question 18 and the
corresponding explanations, Fortuny produced a very similar amount. Assuming for the sake of
argument that there were other domestic producers of olive oil, these additional producers' output
would not be sufficient to nullify the conclusions reach ed by the Ministry regarding Fortuny's right to
request the initiation of the investigation and the analysis of injury caused by the subsidized imports.

(b) The domestic industry does exist and suffered material injury

76. The EC has stated that if a domestic indus try ceases to produce during an investigation, the
procedure would conclude without the imposition of measures. For Mexico, the rigid application of
such a criterion could mean that even where domestic producers had suffered the maximum degree of
injury during the investigation and because of this had ceased to produce, they would be left to their
own devices and the domestic industry would end up by disappearing. Imports that are the subject of
unfair practices would then have destroyed the domestic producers' market.

77. Contrary to what is stated by the EC, th e important point regarding the existence of a
domestic industry is not simply to determine whethe r in fact it is producing or not or if it produced
before the investigation was initiated or once it ha d commenced. The point is to determine, on the
basis of various factors, whether the domestic indus try exists or not and once it has been determined
that it does exist to examine whether the suspension of production is the result of the injury suffered
because of imports of products that are the subject of an unfair practice.

78. In our view, in its reply to question 68 the EC bases itself on two premises that are not
substantiated in the SCM Agreement: (1) there mu st exist an industry-production level correlation
throughout the period analysed in order to determine the existence of injury; and (2) the analysis
should focus solely and exclusively on what occu rred during the investigation period in order to
calculate the subsidies, in other words, in this pa rticular case, the nine months for which the subsidy
margins were calculated.

79. We consider that the first of these premi ses is based on an erroneous assumption because, as
we explained on several occasions, it is possible for industries to exist but not to produce at a
particular time owing to various circumstances, (f or instance if, for climatic reasons, there is no
harvest in a particular year, which is no reason why they should be considered to have disappeared.
In this respect, the EC's premise cannot in our view be sustained. Mexico considers that there should
be a more detailed analysis of the causes that in cited an industry to suspend production, whether the
suspension is definitive or whether operations could be resumed under certain circumstances.

80. Regarding the second premise, in our view it is not possible to omit an analysis of historical
trends in the industry, including those prior to th e period investigated, in order to determine the
existence of subsidization, when the relevant info rmation is available, to examine how these changed
or were modified during the period investigated, a nd to analyse the reasons for those changes. It
could also be relevant to analyse any important event that occurred during the investigation,
subsequent to the period investigated (for example, to determine its causes and examine whether these
events are in any way linked to what occurred during the period inv estigated or their effect on the
investigation itself). We do not, therefore, think that an investigation into injury should be limited to
the situation prevailing during the period investig ated in which subsidization was determined.
Examination of injury should go further.

81. We agree with the EC's final indication to th e effect that the process cannot be automatic but
that the merits of each case should be taken into account. In the investigation into olive oil it was
shown that the reason why the domestic industry c ould not resume operations was the presence of
subsidized imports. Consequently, according to the me rits of this case, it was considered that, even
though there was no output during the period inv estigated, there was a domestic industry – a
determination that was reached after various factor s had been analyzed, as stated on several occasions
during this dispute.

82. We consider that a domestic producer does not necessarily have to be producing at the time of
submitting an application or during the investigation because in trade a producer may possibly have to
suspend production of the article in question temporarily without this meaning that it loses its status as
a domestic producer. This circumstance has to be analysed on a case-by-case basis.

3. Mexico made a proper definition of in jury in accordance with Article 15 of the
SCM Agreement

83. The EC would appear to cont end, in its reply to question 80, that when production reaches
zero this cannot be considered a decline. In ou r view, the word "decline" implies that a specific
indicator has moved downward over a lapse of time. It is not possible validly to contend that if this
decrease reaches zero, it should be excluded as a "decline", and the EC does not explain how such a
situation could be considered. To accept the EC's interpretation would be tantamount to awarding a
premium for unfair imports because the maximum degree of injury has been achieved (inciting the
domestic industry to cease production).

84. Furthermore, in our view the EC's argumen ts are contradictory for the following reasons:
(1) it claims that the decline in output to zero is not r eally a decline; it has al so stated that a domestic
industry that is not producing simply does not exis t; (2) nevertheless, in its reply to question 80 it
states that provisional suspension of a domestic industry may be considered as an injury factor; (3) if
it claims that decline in output to zero is not properly speaking a decline, then it is not clear to us how
such decline could be analyzed as an injury factor; (4) if it claims that a domestic industry that is not
producing does not exist, then we do not understand how it could be considered as a factor in the
decline in output to zero since, according to what the EC has claimed, this industry does not exist.

85. In our opinion, the decline in output means a decrease over time, and if such decrease reaches
zero, this simply means that the in jury factor has reached its maximum level. It is indisputable that
once it has been determined that a domestic industry exists and that it has scaled down or suspended
operations as a result of the unfair practice, this constitutes a highly relevant factor in the injury
analysis. Regarding the emphasis that the EC ha s given to the fact that the domestic industry
suspended production one year before making its request , we repeat that the material injury consisted
of the obstacle caused by unfair imports, which did not allow domestic producers to resume
operations, making it necessary to examine the trend in production. It is thus obvious that the decline
in Fortuny's output had to be taken into account in th is examination. Furthermore, the EC's statement
does not appear to us to be relevant, in that th e EC does not take into account various steps that

companies undertake before requesting an inves tigation and the burden this imposes. Firstly,
particularly in the case of small companies, when they are faced with unfair practices they try to
expand their sales through other channels (new client s, new channels of distribution, etc.) and only
afterwards do they turn to legal channels. Then there is a lapse of time during which the company
contacts an office or expert to prepare their app lication for an investigation, which is not easy.
Consequently, the lapse of time between the susp ension of operations and the submission of an
application for initiation may be as much as one year or even more.

86. In its reply to question 81, the EC indicates th at the word "potential" in Article 15.4 of the
SCM Agreement does not have great significance, at l east as regards investigations that are based on
an allegation of material injury. Mexico considers that an investigation into material injury should
take into consideration the potential situation of the industry in the immediate future in order to
examine whether the unfair practice could persist and continue to cause injury, and to assess the future
situation of the domestic industry, as well as to dete rmine what would be the alternative situation if
there were no subsidized imports (for example, wh at might have been the level of domestic output " if
it had not been for " the imports investigated). We see no groun ds for the claim that it would only be
relevant to examine the potential situation of the domestic industry in cases of threat of injury and that
even then it is questionable. Article 15.4 of the SCM Agreement clearly indicates that there should be
an examination of "actual and potential decline" of the factors enumerated therein and makes no
distinction as to whether the potential examination only applies to cases of threat of injury.

87. Moreover, Article 15.2 of the SCM Agreement provi des that, in order to consider the effect of
the subsidized imports on prices, the authority shou ld consider whether there is price undercutting,
prices are depressed or price increases prevented. In a situation where price increases are prevented,
we do not see how the relevant analysis can be made without potential aspects and the EC has not
explained this. Moreover, the injury suffered by a domestic industry at the present time does not
produce all its effects immediately. As it is usuall y a question of trends, these effects can occur in the
future and can serve to carry out a proper examina tion of injury. We do not therefore accept that the
word "potential" is of marginal or no importance in Article 15.4 of the SCM Agreement, and in a
proper examination, we do not see how injury could be double counted.

88. Likewise, we consider that paragraph 7.77 of the Panel report in the Mexico – Corn Syrup
dispute does not support the EC's statement. This paragraph merely indicates that in cases of threat of
injury it is relevant to include projections in the application
, but failure to include them does not
suffice to reject the application. The Panel's finding did not refer to the material injury examination
but to the application for initiation in which the threat of material injury is claimed. It is therefore
important to include proj ections in the application regarding threat of injury because the injury
claimed implies future developments; but this does not mean that potential data should only be
considered in the case of applications regarding threat of injury.

89. As already stated, to consider that there is no domestic industry because production has been
suspended would be tantamount to giving unfair imports a premium for having inflicted extreme
injury on domestic producers, in that under this interpretation it would be impossible for domestic
producers to request an investigation. For Mexico, the fact that this industry was unable to resume
operations for a year shows the injury it suffered.

90. With regard to the EC's assertions concerni ng models, we note that any model or estimate is
by nature an approximation of something, inasmuch as the results of its application are not real data
but information that reflects the "possible reality" to a greater or lesser degree of accuracy. In fact, the
exactitude of any model can be verified a posteriori once its greater or lesser accuracy in predicting
the future has been proven. We do not, ther efore, understand how one can advocate the use of
models, projections or estimates and then question them.

91. At the same time, it is incongruous for the EC to maintain that there is no information on
injury and in the next line to indicate that this is because the Mexican industry had ceased to produce,
when what is being claimed is that the Mexican industry's production fell to zero as a result of the
practice of exporting subsidized products from Europe. It is also important, as indicated in Mexico's
replies concerning the price undercutting under which the imports from th e EC entered, that the Panel
should bear in mind that this examination was not only made in relation to the costs estimated by
Fortuny in its business plan. In fact, the examination also covered the real-historical costs incurred by
Formex, Fortuny's predecessor. In any event, the prices of the subs idized imports from the EC were
also well below Fortuny's production costs. Furtherm ore, it is important to bear in mind that there
was also an examination of what would occur if the subsidies were eliminated, and the finding was
that the Mexican product could have been more co mpetitive in comparison with the imports from the
EC.

4. There was proper consideration of any known factors other than the subsidized imports
which at the same time could have caused injury to the domestic industry, in accordance
with Article 15.5 of the SCM Agreement

92. As mentioned in our FWS, the EC originally claimed that various factors (loss of the
distribution network, loss of the Ybarra brand, high costs, etc.) were specifi c reasons for the injury
suffered by the applicant, and that the IA had failed to carry out a proper
 analysis of these factors. In
contradiction to the foregoing, the EC claims that these factors were not examined by the IA and that
this is inconsistent with the SCM Agreement. In other words, the EC first asserts that the analysis
was not proper and then claims that there was no analysis at all.

93. Regarding the alleged absence of analysis, we already stated in our FWS that this statement
would be invalidated if it were shown that these factor s were in fact analysed. We also explained in
our FWS what was involved in that analysis, which in our opinion was proper. We therefore request
the Panel to reject this claim by the EC.

94. Regarding the alleged lack of a proper analysis , we reiterate what is stated in our first written
submission (paragraphs 273 to 290), namely that these (and other) factors were properly analysed.
These paragraphs clearly show what was involved in the aforementioned analysis and the reasons why
the Ministry made the determinations contained in the FR.

95. In addition, the EC has provided no evidence th at these factors did in fact have any effect on
the domestic industry, still less that the evidence sufficed for this purpose. As we have already stated,
simple assertions cannot constitute a prima facie presumption of violation on Mexico's part.

96. We repeat that the IA did not only properly analyse the factors indicated by the EC but, in
addition, also examined all those aspects which it considered might affect the situation of the
domestic industry, therefore, the EC's argument is without substance.