Document: WT/DS46/RW/2 Page C-1 ANNEX C SUBMISSIONS OF THIRD PARTIES Contents Page Annex C-1 Submission of the European Communities C-2 Annex C-2 Submission of Korea C-12 Annex C-3 Submission of the United States C-14 Annex C-4 Oral Statement of the European Communities C-20 Annex C-5 Oral Statement of the United States C-25 Annex C-6 Responses of the European Communities to Questions of the Panel C-26 Annex C-7 Responses of Korea to Questions of the Panel C-28 Annex C-8 Responses of the United States to Questions of the Panel C-30
Document codes: WT/DS46/RW/2
Complainant: Canada
Respondent: Brazil
Third parties: Australia, EU, South Korea, U.S.
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. XVI  GATT 1994Art. 3, 27  Subsidies and Countervailing Measures (SCM)

ANNEX C
SUBMISSIONS OF THIRD PARTIES
Contents Page
Annex C-1 Submission of the European Communities C-2
Annex C-2 Submission of Korea C-12
Annex C-3 Submission of the United States C-14
Annex C-4 Oral Statement of the European Communities C-20
Annex C-5 Oral Statement of the United States C-25
Annex C-6 Responses of the European Communities to Questions of the Panel C-26
Annex C-7 Responses of Korea to Questions of the Panel C-28
Annex C-8 Responses of the United States to Questions of the Panel C-30

I. INTRODUCTION
1. The European Communities (hereafter "the EC") makes this third party submission because of
its systemic interest in the correct interpretation of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement").
2. The questions before the Panel are of considerable importance and complexity. The EC
hopes that the comments it offers below will help the Panel in its task. It also hopes that the Parties
will provide it with all their submissions to the first and only meeting of the Panel (including therefore
their second written submission s), as required by Article 10.3 DSU, so that it can make a further
contribution at the meeting with the Panel.
3. As an original signatory of, and a current participant in, the only international undertaking
satisfying the conditions of the second paragraph of item (k) of the Illustrative List in Annex I to the
SCM Agreement, that is the OECD Arrangement, the EC considers its close involvement in the work
of this Panel to be particularly important.
II. SCOPE OF THIS PROCEEDING
4. The EC understands that the present proceeding does not concern contracts covered by
PROEX I and II and that the question before the Panel is whether PROEX III is consistent or not with
the SCM Agreement.1
5. The only basis on which the EC can express an opinion on this issue is from the terms of the
new scheme as described in Section III, paragraphs 7 to 9 of Brazil’s first written submission to the
Panel and the documents referred to therein.
6. The EC notes that the only change in the scheme described by Brazil is the introduction of a
requirement to comply with CIRR and that:2
PROEX III interest rate equalization remains subject to the maximum percentages
established by the Central Bank of Brazil in its Circular Letter No. 002881, dated 19
November 1999. Circular Letter No. 002881 sets the maximum allowable interest
equalization payment at 2.5 percent. 3 This maximum amount is subject to the
stipulation of Article 1, paragraph 1 of Resolution 00279 that interest rate
equalization for regional aircraft must comply with the terms of the CIRR established
under the OECD Arrangement.
In addition, PROEX III interest rate equalization remains subject to the requirement
that interest rate equalization may be provided for only 85 percent of the value of the
sale, pursuant to Article 5, paragraph 1 of Directive number 374 of the Ministry of
Development, Industry, and Foreign Trade, dated 21 December, 1999.
4 Directive 374
also establishes a maximum financing term of 10 years for regional jet aircraft.5
7. Canada seems to agree since it states that: 6

1 First written submission of Canada, paragraph 19.
2 First written submission of Brazil, paragraphs 8 and 9.
3 Brazil’s footnote: The original Portuguese version and the official English translation of Circular
Letter No. 002881 are attached as Exhibit Bra-2.
4 Brazil’s footnote: The original Portuguese version and the official English translation of Directive
374 are attached as Exhibit Bra-3.
5 Brazil’s footnote: Id., Annex, NCM Heading 8802 (attached as Exhibit Bra-3).
6 First written submission of Canada, paragraph 12.

In effect, the only discipline that Resolution 2799 imposes on PROEX payments is
that they must be "in accordance with the CIRR".
8. The EC notes Canada’s view that the scheme allows considerable flexibility and that the new
scheme can be for unlimited periods and for 100% of the contract amount. The EC does not dispose
of the necessary information to express a view on how Brazil does or will apply PROEX III and can
only reserve its position on this question.
III. LEGAL ARGUMENT
9. Brazil makes three arguments in its defence:
- That PROEX III confers no benefit since financing is provided at CIRR which is at or
above the "market rate";
- That PROEX III falls within the "safe haven" of the second paragraph of item (k);
- That PROEX III falls under the a contrario exception of the first paragraph of
item (k).
10. These arguments will be considered in turn.
A. T
HE EXISTENCE OF A SUBSIDY
11. The EC does not agree that interest rate equa lisation in the form offered in PROEX III does
not confer a benefit for the purposes of Article 1 of the SCM Agreement.
12. It is paid to reduce the interest payment of a commercially negotiated contract by up to 2.5%
per annum. It therefore inevitably – indeed ex hypothesi – provides a benefit compared with the
market rate and thus a subsidy.
13. This conclusion is not contradicted by the various statements that Brazil refers to from the
Norwegian export credit agency,7 Mr Stafford and Mr Fumio Hoshi?8
14. These statements relate to whether the CIRRs actually correspond to rates available to first
class borrowers in all cases and in no way support the suggestion that such rates are available to all
borrowers on the market (especially in the absence of a guarantee or other security).
B. T
HE OECD SAFE HAVEN
15. Brazil’s main defence is now that PROEX III falls under the safe haven of the second
paragraph of item (k) of Annex I to the SCM Agreement.
1. The applicable version of the OECD Arrangement
16. Brazil bases its argument in the first instance on text of the 1992 version of the OECD
Arrangement. The EC disagrees that the 1992 version is applicable. The text referred to as the 1998
version9 has replaced that of 1992
17. That the text of the second paragraph of item (k) of Annex I to the SCM Agreement makes a
dynamic reference to the OECD Arrangement as in existence from time to time (rather than a static

7 Paragraph 12.
8 Paragraph 13.
9 The text was agreed in 1997 and published in 1998.

reference to a given version) is made clear by the fact that it provides for the applicability of
successor undertakings. If it had been intended that only a given version of the OECD Arrangement
should be relevant, this would have been specified in the text of item (k) itself. Since a successor
undertaking can be become the basis for the application of this provision, a fortiori the same must be
true of amendments to the OECD Arrangement.
18. The context of the provision, represented by the OECD Arrangement itself, confirms this
interpretation. The OECD Arrangement is a non-binding gentlemen’s agreement that was always
designed to be evolutive in character, developing stricter disciplines and responding to changes in
circumstances. Concretely, this is reflected in the provisions on annual review and on future work
contained in all versions of the OECD Arrangement.10
19. The negotiating history of item (k) also strongly suggests that a dynamic reference was meant.
It was first adopted in 1979 as part of a result of the Tokyo Round negotiations. The fact that the
identical words were adopted as part of the WTO Agreement indicates that it was presumed to have
the same meaning as under the Tokyo Round Code and this can only mean that the references in both
texts were dynamic references to the version of the OECD Arrangement applicable from time to time.
20. The EC notes that the Article 21.5 panel in Canada – Aircraft came to the same conclusion as
the EC that the 1998 version of the understanding was applicable and relevant to assessing the
conformity of export credit practices with the second paragraph of item (k) of Annex I to the SCM
Agreement.
11
21. The first argument that Brazil makes to the contrary is that the words "has been" in the phrase
"a successor undertaking that has been adopted" can only refer to versions that were adopted before
the conclusion of the WTO Agreement.12
22. The EC shares Brazil’s view of the meaning of the perfect tense – that it refers to a "time
regarded as present"13 – but not Brazil’s conclusion. The use of the perfect tense in the parentheses to
the second paragraph of item (k) of Annex I to the SCM Agreement contrasts with the neutral present
used elsewhere in that paragraph and indicates that the successor undertaking (or amendment) must
have been adopted before the export credit measure which is the subject of dispute is taken.
23. That this is the intent is also confirmed by the consideration that Members of the WTO cannot
be expected to comply with undertakings that ha ve not yet entered into force nor with undertakings
that have been recognised as inadequate and thus have been replaced.
24. Brazil’s second argument is that a dynamic reference would imply an amendment of the SCM
Agreement derogating from the Article X of the WTO Agreement and add to WTO obligations
contrary to Article 3.2 DSU.14
25. The EC does not agree that a change in the OECD Arrangement implies an amendment to the
SCM Agreement at all. The text is not changed in any way. What is allowed or not allowed changes –
but this is what the WTO Members agreed when adopting a text that makes a reference to another
understanding. In the same way, what is allowed or not allowed under other provisions of the WTO

10 See Articles 82 to 88 of the 1998 version, Article 21 and Annex IX of the 1992 version of the OECD
Arrangement and paragraph 13 of the original 1978 version.
11 Appellate Body Report, Canada – Measures Affecting the Ex port of Civilian Aircraft ("Canada –
Aircraft"), WT/DS70/AB/R, adopted 20 August 1999, esp. paragraph 5.78. It seems that Brazil had not
contested that 1998 Arrangement was the relevant text. Note the discussion of "successor undertakings " in
footnote 69.
12 First written submission of Brazil, paragraphs 20 to 22.
13 First written submission of Brazil, paragraph 20.
14 Paragraphs 23 to 31.

Agreement may depend on decisions taken elsewhere. For example, Article XXI GATT 1994 allows
Members to take action required by resolutions of the Security Council of the United Nations, which
can lead to prohibitions of trade under a sanctions regime.
26. The change in the rights and obligations of Members resulting from changes in the OECD
Arrangement is also analogous to the change resulting from the expiry of Articles 6.1, 8 and 9 of the
SCM Agreement pursuant to its Article 31, which also did not require the application of Article IX of
the WTO Agreement.
27. As for Article 3.2 DSU, this only provides that dispute settlement should not change the rights
and obligations of Members, not that no provision of the WTO Agreement can be construed as
allowing changes to what is permitted and not permitted by those provisions over time.
28. Brazil also argues that "amendment" of item (k) in this way would not be transparent, would
conflict with the object and purpose of the Agreement), 15 that it cannot be presumed that the WTO
Members intended to give a small group of them the right to change the rights and obligations under
the WTO Agreement and that such a power would be manifestly absurd and unreasonable.16
29. The EC disputes that the changes in the OECD Arrangement are untransparent. The current
version of the OECD Arrangement is publicly disclosed by the OECD and is available on the OECD
web site.17
30. It may appear strange that the WTO Members should have agreed to apply a text that could
only be changed by a small number of them.
31. However, it is not unprecedented in the WTO Agreement for a small number of Members to
be in a position to adopt texts that are of significance for all Members. Both the SPS Agreement and
the TBT Agreement18 require Members to base their measures on international standards when these
are available and there are no imperative reasons for doing otherwise. These international standards
can be drawn up by small numbers of WTO Members (and even non-Members) within the framework
of other international organisations, such as Codex Alimentarius Commission in the case of the SPS
Agreement.
32. There are objective reasons for the SCM Agreement to refer to rules established within the
framework of the OECD: it is mainly the OECD Members who use export credits and have the
necessary expertise and interest in developing the disciplines.
33. The EC would also point out that the WTO Secretariat is invited to attend the meetings of the
participants in the OECD Arrangement and thus could be informed of any new development. The
OECD Secretariat would certainly inform the WTO Secretariat of any new version of the OECD
Arrangement.
2. The identification of the "interest rate provisions" of the OECD Arrangement
34. Brazil also disagrees with the Canada – Aircraft panel (recourse to Article 21.5) on the
question of what are the "interest rate provisions" of the arrangement19 and claims that this only refers

15 First written submission of Brazil, paragraphs 32 to 35.
16 Paragraphs 36 to 39 and also paragraph 31.
17 http://www.oecd.org/ech/act/xcred-en.htm
18 Articles 2.4 and 5.4 TBT Agreement and Article 3.1 of the SPS Agreement.
19 Paragraphs 34 to 50, contradicting notably paragraph 5.147 of the Canada – Aircraft Article 21.5
panel Report

to the single provision in the main text and the Sectoral Understanding on Export Credits for Civil
Aircraft that specify the minimum interest rates.20
35. The EC also disagrees with the view expressed by the above panel but for the opposite
reasons. It considers that the Canada – Aircraft panel took too narrow a view of the "interest rate
provisions" of the OECD Arrangement.
36. In particular, the EC submits that that panel failed to take adequately into account the fact that
the OECD Arrangement is a non-binding instrument which is designed to provide a framework for
transparency and fair competition in the field of export credit transactions between the participants
and to be applied flexibly. The EC believes that a failure to take this circumstance into account leads
to the terms of the OECD Arrangement and the scope of the safe haven being interpreted too
narrowly. A notable consequence of this narrow interpretation is that the "matching" of supported
rates, provided for in Article 29 of the OECD Arrangement would not be within the safe haven. The
EC is firmly of the view that matching is in conformity with the OECD Arrangement and that the
provisions that allow it are interest rate provisions and that therefore matching is covered by the
second paragraph of item (k). Matching is specifically envisaged and authorised by the Arrangement
but must comply with a strict set of conditions and procedures.21
37. Although the panel in the Canada – Aircraft case correctly gave a wide interpretation to the
term "export credit practices"22 which implies that that "interest rate buy downs" (that is interest rate
equalisation) were covered by the second paragraph of item (k), it gave an excessively narrow
interpretation to the "interest rate provisions" of the OECD Arrangement.23
38. The EC considers that it makes no sense to cons ider interest rates in isolation from all the
conditions that influence the interest rate. That is why it considers that the reference to the "interest
rate provisions" of the OECD Arrangement refers to all the provisions that may affect the interest rate
– that is all provisions containing substantive rather than procedural obligations.
39. It is, in particular, completely unjustified to consider interest rates in isolation from the
provisions relating to the risk involved and in particular the provisions on premiums.
40. Article 14 of the OECD Arrangement, which immediately precedes the definition of CIRR,
contains a definition of interest that reads as follows:
(c) interest excludes:
any payment by way of premium or other charge for insuring or guaranteeing supplier
credits or financial credits. Where official support is provided by means of direct

20 First written submission of Brazil, paragraph 40.
21 The EC recognises that the procedures of the OECD Arrangement cannot be applied to non-
participants. But this does not mean that non-participants would be disadvantaged. In fact the opposite is the
case. The safe haven only require non-participants in the OECD Arrangement to apply in practice the interest
rate provisions of the OECD Arrangement, which the EC believes means the substantive provisions which can
affect interest rates and not the procedural provisions . Of course non-participants would not receive the
notifications that participants receive but this should not stop them from matching an offer of export credit terms
on a transaction that their companies are competing for. If a non-participant has doubts about the reliability of
the alleged offer of non-Arrangement terms that it is invited to match, it may request confirmation of them from
the offeror. Under the OECD Arrangement participants consider themselves entitled to match after they have
taken appropriate measures to verify the terms (see e.g. Article 53). If non-participants are not required to
follow the procedural requirements of the OECD Arrangement , they are nonetheless able to apply them by
analogy.
22 In paragraph 5.80 of the Report
23 Id. paragraphs 5.80 – 5.92

credits/financing or refinancing, the premium either may be added to the face value of
the interest rate or may be a separate charge; both components are to be specified
separately to the Participants,
any other payment by way of banking fees or commissions relating to the export
credit other than annual or semi-annual bank charges that are payable throughout the
repayment period, and
withholding taxes imposed by the importing country.
41. Article 15 on CIRRs goes on to make clear that
CIRRs should represent final commercial lending interest rates in the domestic
market of the currency concerned,
42. For the EC these provisions together make clear that CIRR is an interest rate based on an
assumption of minimal risk of non-payment.
43. It is important to take into account:
(1) the pure cost of money for a prime borrower in a country with high creditworthiness;
and,
(2) cost elements linked to the financial institution having a good creditworthiness and
providing export credits; and,
(3) remuneration of the debtor risk that the financial institution bears.
44. CIRR was designed for taking care of 1) and 2), while 3) is to be covered by a separate
premium.
45. This is made clear in the provisions in Chapter II of the OECD Arrangement relating to what
is called "pure cover" – that is, Articles 7c), 19b second indent, 25 c as well in the Annex III). These
provisions demonstrate that official support can be restricted to the assumption of the risk element of
an export credit transaction. When official support is given in the form of insurance ("pure cover"),
the loan has to fulfil all provisions for export credit of Chapter II of the Arrangement or of one of its
sector understandings (except the minimum interest rate provisions).
46. It is implicit in these provisions that a payment is required for this assumption of risk.
Article 22 of the OECD Arrangement sets out the disciplines that the are to be respected in calculating
premia. Article 22 integrates the obligations of item (j) of Annex I to the SCM Agreement into the
OECD Arrangement since it requires that premia, as well as being consistent with the level of risk,
shall not be "inadequate to cover the long term operating costs and losses." That this was the
intention is demonstrated by the description of the Schaerer Package contained in Exhibit Bra-8.
47. There is no obligation in the OECD Arrangement to apply for an insurance/guaranty (against
political risks of non-payment of the loan), even if in practice both CIRR financing and credit risk
cover are often linked. Here again it is worthwhile to remember that the main principle of CIRR
financing is to provide buyers with rates close to rates normally given, only, to first class borrower of
high-income OECD countries and then add the premium element.
48. As mentioned above, the level of CIRR does not depend on the creditworthiness of the buyer.
Even if insurance/guarantee is not really compulsory in the OECD Arrangement , almost all

Participants provide such insurance/guarantee in case of CIRR financing in order to minimise the
potential cost for the budget of giving first class borrower rates to riskier countries/buyers.
49. One way of analysing PROEX III is to consider that it effectively compensates for the credit
risk that would normally be charged to the borrower by the lending bank. As such it is equivalent to
the payment of an insurance or guarantee payment and is an interest related official support for export
credit that is not in conformity with these provisions of the OECD Arrangement.
50. The EC agrees with the statement of the Article 21.5 Panel in Canada – Aircraft that:
24
Thus, we conclude that full conformity with the "interest rates provisions" – in
respect of "export credit practices" subject to the CIRR – must be judged on the basis
not only of full conformity with the CIRR but in addition full adherence to the other
rules of the Arrangement that operate to support or reinforce the minimum interest
rate rule by limiting the generosity of the terms of official financing support.
51. The EC therefore disagrees with Brazil’s statement in paragraph 52 of its first written
submission that PROEX III conforms to "Articles 3 through 7 of the main text, and Articles 17
through 22 and Articles 24 and 25 of Annex IV."
C. THE FIRST PARAGRAPH OF ITEM(K)
52. The EC view on the first paragraph of item (k) is already known to the Panel.25
53. On the issue of "material advantage" it would appear that this is now being provided through
the assumption of credit risk without remuneration.
IV. CONSULTATIONS IN ARTICLE 21.5 PROCEEDINGS
54. The EC has always maintained that consultations are an obligatory pre-condition to the
establishment of a panel under Article 21.5 DSU. It repeats its position so as to make clear that it
does not consent to what may be considered an evolving practice.
55. The first occasion when the question of whether consultations were required prior to the
establishment of an Article 21.5 panel was in the context of the Bananas dispute. The EC made clear
26
that it considers consultations under Article 4 of the DSU to be necessary before the establishment of
a panel can be requested under Article 21.5. The reason is the reference contained in Article 21.5 that
any dispute on implementation "shall be decided through recourse to these dispute settlement
procedures". In the view of the EC, "these dispute settlement procedures" include consultations and a
right to an appeal. This is so for reasons related to the multilateral character of the procedures, which
include procedural rights of other WTO Members, particularly potential third parties, and a
standardised dispute settlement procedure the basic features of which may not be amended simply
because that pleases the parties in an individual cases.
56. The EC considers that the obligatory requirements of the DSU can also not be modified by
agreement between the parties.27 If the parties to a dispute were entirely free to develop procedures of

24 Paragraph 5.114.
25 First written submission of the EC to the original Article 21.5 panel, paragraphs 20 to 26 and oral
statement, paragraphs 43 to 46.
26 Cf. the statement of the EC representative at the DSB meeting of 22 September 1998, doc.
WT/DSB/M/48, p. 7.
27 The EC notes that there is no such agreement in the present case although there was such an
agreement in the original Article 21.5 proceeding. A si milar situation prevailed in the Article 21.5 proceeding
concerning Canada – Aircraft and in the unfortunate and problematic case Australia – Leather , where the

their own choice ( quod non ), this would jeopardise third party rights enshrined in the DSU
(particularly in Articles 4.11 and 10). Nothing would stop the parties from agreeing bilaterally not
only to jump the procedural step of consultations, bu t also to jump other procedural steps such as the
panel stage and to submit their dispute to the Appell ate Body straight away (e.g. in order to "gain
time" and to exclude third parties who cannot participate in Appellate Body procedures if they did not
reserve their right to participate in the preceding panel procedure). It would also mean that the parties
are free to agree among themselves that a panel report under Article 21.5 is not binding and that it
may be subjected to some kind of review by another international body, such as the WHO in a case
concerning human health considerations. It would, therefore, constitute circumvention, indeed, an
undermining, of the system for dispute settlement established by the DSU.
57. The EC believes that these scenarios are not compatible with the multilateral nature of the
procedures under the DSU, the procedural rights of third parties and indeed the general matrix of
procedural checks and balances built into the DS system. The DSU contains sufficient flexibility to
adapt the basic procedural requirements to the needs of the parties in individual disputes. As an
example, Article 4.7 (second sentence) of the DSU allows the parties to shorten the 60-day period on
the basis of a bilateral agreement. If the parties to the dispute agree, a panel under Article 21.5 of the
DSU may be established at the first meeting where the request is considered by the DSB (Article 6.1
of the DSU). The panel may propose special working procedures after consultations with the parties
(Article 12.1 of the DSU). All these provisions indicate that there is some flexibility in the procedures,
which is largely dependent on the agreement of the pa rties to the dispute. None of these provisions
however allows the parties to the dispute to simply omit one of the essential procedural steps before
requesting the next one.
58. The procedural step of holding consultations is of fundamental importance for the dispute
settlement system. Consultations give the parties an opportunity to resolve their differences without
an adjudication of the dispute and will, at the very least, allow the parties to clarify on what precise
issues their disagreement continues. In this way, consultations contribute to discharging panel
proceedings from issues on which there is no real and serious disagreement. In addition, any request
for consultations under Article 4 of the DSU must be circulated to the entire WTO membership in
order to identify and circumscribe the dispute, thus allowing potential third parties to prepare their
request to participate in the procedure. In this regard, it must be recalled that third parties may
participate in consultations requested under any of the provisions cited in Article 4.11 and footnote 4
of the DSU. Thus, third party rights are clearly impaired by the omission of the formal consultation
stage in a dispute settlement procedure.
59. All these important functions of the consultations are undermined if the parties to the dispute
are considered to be free to "jump the gun" and go to a panel procedure without holding formal
consultations under Article 4 of the DSU first. Moreover, consultations must anyhow take place in
order to agree on the procedure to be followed, and it is obvious that this is also an occasion to consult

parties agreed to dispense with Article 4 consultations as well as certain essential procedural guarantees such as
an appeal (cf. doc. WT/DS126/8 of 4 October 1999). In all these cases an explicit agreement was reached
between the parties before the request for the establishment of a panel under Article 21.5 of the DSU was
submitted to the DSB. In the dispute on Australia-Salmon, it appears that no formal consultations were held
before Canada requested the establishment of a panel under Article 21.5 of the DSU. It appears moreover that
the fact that the parties renounced their rights to formal consultations in that case was also the result of an
agreement between the parties, but that agreement was not circulated to WTO Members (cf. doc. WT/DS18/14
of 3 August 1999).
Similarly, in the S hrimp/turtle case, an understanding was reached between Malaysia and the United
States regarding possible proceedings under Artic les 21 and 22 of the DSU (cf. doc. WT/DS58/16 of
12 January 2000). According to this agreement, Malaysia "will consult with the United States before requesting
the establishment of a panel under Article 21.5". While it is not specified whether these consultations will be
held under Article 4 of the DSU, no other relevant provision on consultations of the DSU would seem to be
applicable.

on substantive issues. Thus, in reality no time is gained in jumping this procedural step, except that
third parties are put at a disadvantage and that the panel may have to address issues on which there is
no real disagreement.
60. In conclusion, the EC is firmly of the view that the existing rules of the DSU do not allow
parties to a dispute to agree bilaterally to dispense with consultations under Article 4 of the DSU. Any
other approach leads to unacceptable uncertainty about the limits of the procedural guarantees for
both parties and to a curtailing of third party rights clearly enshrined in the DSU.
61. As stated in the Appellate Body report in the Bananas case
28, "a panel request is normally not
subjected to detailed scrutiny by the DSB". The A ppellate Body concludes that "it is incumbent upon
a panel to examine the request for the establishment of the panel very carefully to ensure its
compliance with both the letter and the spirit of Article 6.2 of the DSU".
V. CONCLUSION
62. The state of the arguments presented by the parties and the information and time for reflection
available to the EC has not allowed it to make as full a contribution to the work of the Panel as it
might have liked. It will therefore supplement its arguments at the Third Party Session in the light of
the other submissions to be presented to the Panel before that meeting.

28 Cf. doc. WT/DS27/AB/R at para. 142.

ANNEX C-2
SUBMISSION OF KOREA AS A THIRD PARTY
(23 March 2001)
I. INTRODUCTION
1. Korea’s interest in this DSU Article 21.5 proceeding is systemic. This has to do with the
permissibility of an a contrario exception from the first paragraph of item (k) of the Illustrative List of
Export Subsidies (the Illustrative List)1.
2. Korea expresses no opinion about other issues and arguments raised by Canada and Brazil in
this proceeding.
II. THE PERMISSIBILITY OF AN A CONTRARIO EXCEPTION
3. Under the first paragraph of item (k) of the Illustrative List, only those export credits that are
used to secure a material advantage are categorized as prohibited export subsidies.
4. As a matter of logic, as well as of textual interpretation, then, an export credit practice that is
not used to secure a material advantage cannot be a prohibited export subsidy within the meaning of
Article 3.1(a) of the SCM Agreement. Rather, it must be a permitted practice. Any other
interpretation renders meaningless item (k)’s limitation.
5. It has been argued that because the Illustrative List is not an exhaustive listing of all possible
prohibited subsidies, an a contrario interpretation is not appropriate.
2 Korea does not share this view.
Two situations should be differentiated: first, when there is a type of subsidy practice not identified in
the Illustrative List; and, second, when, as in this dispute, a subsidy practice is identified and declared
a prohibited export subsidy under certain conditions.
6. In the first situation, one cannot argue a contrario that the absence of a practice from the
Illustrative List establishes that the practice is not a prohibited export subsidy. However, one cannot
extend this argumentation to the second situation. Otherwise, the result would be that a practice, such
as an export credit not used to secure a material advantage, that was excluded from categorization as a
prohibited export subsidy by the text of the Illustrative List would nonetheless be considered one by
virtue of being a prohibited export subsidy that was not included in the Illustrative List. Such a result
is not logical and it violates the interpretive principle of effectiveness.
7. It also has been argued that, by virtue of footnote 5 of the SCM Agreement, the only subsidy
practices that can be categorized as outside the scope of Article 3.1(a) of the SCM Agreement are
those which the Illustrative List expressly asserts are not prohibited export subsidies.
3 Korea does not
agree with this argument either. It would render meaningless situations, such as those under the first
paragraph of item (k) of the Illustrative List, where a practice is declared to be a prohibited export
subsidy only where a specified condition (in this case "secur[ing] a material advantage") is satisfied.
In Korea’s view, the only interpretation that does not render meaningless the conditional application
of item (k) is an interpretation that "referred to," as used in footnote 5, encompasses not only practices

1 Annex I to the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
2 First Submission of Canada, Brazil — Export Financing Programme for Aircraft — Second Recourse
by Canada to Article 21.5 of the DSU, WT/DS46 (2 March 2001) (First Canadian Submission) at paras. 58-59.
3Id. at paras. 47-55.

expressly declared not to be prohibited export subsidies, but also practices that are prohibited export
subsidies only where a specific condition (such as "secur[ing] material advantage") is satisfied.
8. The Appellate Body appears to share the position Korea takes. In its Article 21.5 report, it
states that if Brazil had satisfied its burden of proof, "we [the Appellate Body] would have been
prepared to find that the payments made under the revised PROEX are justified under item (k) of the
Illustrative List."
4
9. Apparently, the above statement by the Appellate Body deals only with the case of "the
payment (of the costs incurred in obtaining credit s)" within the meaning of the first paragraph of
Annex I (K) of the SCM Agreement. Korea pays further attention to the textual interpretation of the
paragraph, according to which this material advantage condition also applies to the other case of "the
grant of export credits," juxtaposed in the same paragraph.5
10. Accordingly, for the reasons set out above, Korea believes that an a contrario interpretation
of the first paragraph of item (k) of the Illustrative List is appropriate so as to give meaning to the
material advantage condition. If an export credit practice, whether it is a grant of credits or a payment
of costs, does not secure a material advantage, that practice must be viewed as a permitted practice.

4 Brazil — Export Financing Programme for Aircraft — Recourse by Canada to Article 21.5 of the
DSU, WT/DS46/AB/RW (21 July 2000) at para. 80.
5 Attention should be paid to the use of comma in front of "in so far as …" and the subject in the plural
("they") in the phrase of ", in so far as they are used to secure a material advantage …" (SCM Agreement
Annex I(K)).

I. INTRODUCTION
1. The United States welcomes this opportunity to present its views in the second Article 21.5
proceeding requested by Canada to review Brazil 's implementation of the Dispute Settlement Body's
("DSB") recommendations and rulings in Brazil - Export Financing Programme for Aircraft ,
WT/DS46/R, 14 April 1999 ("Panel Report"); WT /DS46/AB/R, 2 August 1999 ("Appellate Body
Report").
2. Canada claims that the revisions made by Brazil on 6 December 2000 in respect of the
Programma de Financiamento às Exportações ("PROEX") do not bring PROEX into conformity with
the WTO Agreement on Subsidies and Countervailing Measures ("SCM Agreement") and the
findings and recommendations of the Panel and the Appellate Body. Brazil argues in response that
PROEX is not a subsidy under the SCM Agreement and that, even if it is a subsidy, it is not a
prohibited subsidy. Due to the importance of various issues that the parties raise, the United States
wishes to make certain brief observations that it hopes will assist the Panel in reaching its own
determinations.
II. THE A CONTRARIO ISSUE
3. As it has in the past, Canada argues that the first paragraph of item (k) of the Illustrative List
is not susceptible to an a contrario interpretation. Brazil disagrees with Canada's position. The
United States has commented on this issue on numerous occasions over the course of these
proceedings. For purposes of the present dispute, however, the United States takes no position on this
issue other than to agree with Canada's statement that the second paragraph of item (k), footnote 59,
item (h), and item (i) are all covered by footnote 5 of the SCM Agreement.
1
III. THE RELEVANT OECD ARRANGEMENT REFERRED TO IN THE SECOND
PARAGRAPH OF ITEM (K) IS THE VERSION OF THE OECD ARRANGEMENT IN
EFFECT WHEN THE EXPORT CREDIT IS GRANTED
4. Brazil claims that the "relevant undertaking" referenced in the second paragraph of item (k) is
limited to the version of the OECD Arrangement in effect on the date that the SCM Agreement
entered into force (specifically, the 1992 version of the Arrangement). Brazil's argument is based on
an erroneous interpretation of item (k). In the view of the United States, a proper textual analysis of
the applicable language of item (k) demonstrates that the version of the OECD Arrangement in effect
on the date that a Member grants the export credit at issue is the "relevant undertaking" with which
the Member must comply.
5. The first sentence of the second paragraph of item (k) refers to "a successor undertaking
which has been adopted by those original Members . . . ." Brazil claims that the term "has been" is
central to a proper interpretation of this issue, on the grounds that the ordinary meaning of the term
"has been" refers to a "'time regarded as present' when the text became effective on 1 January 1995."
2
In Brazil's view, the term "is a reference to a successor undertaking already in existence – an
undertaking that 'has been adopted.'"3 Brazil is mistaken.
6. The basis of Brazil's error is its belief that the term "has been" adopted refers to the time
"regarded as present" when the text of item (k) became effective on 1 January 1995. In actuality, the
term refers to the time "regarded as present" when a Member grants the export credit in question. The
purpose of the second paragraph of item (k) was to create a safe harbor for Members who comply
with the terms and conditions of the OECD Arrangement in their granting of export credits. Thus, the

1 See Canada submission at ¶ 54 and n.42.
2 Brazil submission at ¶ 20.
3 Id.

relevant question for determining the availability of the safe harbor is whether, at the time a Member
grants the export credit in question, it is doing so in conformity with the relevant provisions of the
Arrangement then in effect. To paraphrase the second paragraph of item (k), if a Member is a party to
the latest version of the OECD Arrangement that has been adopted, or if in practice a Member applies
the interest rate provisions of that agreement, then an export credit practice which is in conformity
with those provisions shall not be considered a prohibited export subsidy.
7. A contrary interpretation of this language would be illogical, since it would suggest that a
Member could grant export credits that are not in compliance with the most recent version of the
Arrangement, and yet still benefit from the safe harbor in item (k). This would undermine the entire
purpose of the safe harbor.
8. The drafting history of item (k) also demonstrates that Brazil's interpretation of this issue is
mistaken. The final sentence of item (k) was inserted by the Tokyo Round negotiators of the
Subsidies Code. The language in the Tokyo Round ve rsion of item (k) was virtually identical to the
language in the present version, including the reference to parties "as of 1 January 1979".
4 Since the
Tokyo Round Subsidies Code was completed in 1979, the drafters used the term "as of 1 January
1979" to refer to the version of the OECD Arrangement that was in effect at the time that the text of
the Subsidies Code became effective, and the term "or a successor undertaking" to refer to future
versions of the Arrangement.5 As one authority has noted, "[t]he wording in question thus provided a
safe harbor while allowing other signatories of the [Subsidies] code to follow the same practices and
allowing for changes in the Arrangement. 6 The second paragraph of item (k) contemplates and
provides for revisions to the OECD Arrangement, and there is, therefore, no basis to Brazil's claim
that interpreting item (k) to include post-1995 versions of the Arrangement would effectively result in
an amendment of the SCM Agreement. 7 On the contrary, it is Brazil's interpretation that would
effectively amend the SCM Agreement by reading the "successor understanding" provision out of
item (k).
9. Finally, Brazil suggests that it would not be fair to interpret the second paragraph of item (k)
as applying to successor versions of the Arrangement because not all WTO Members are participants
in the Arrangement. The United States observes, however, that the sole purpose of the relevant
provision is to create a safe harbor from the prohibition in the first paragraph. Under the terms of
Article 27 of the SCM Agreement, the export subsidy prohibition does not even apply to developing
country Members until 2003, subject to compliance with the provisions of paragraph 4 of Article 27.
Accordingly, item (k) is not even relevant to developing country Members unless they fail to adhere
to the requirements of that paragraph. In any event, the fact that not all WTO Members are
participants in the Arrangement cannot be legally determinative since neither were they all
participants in the Arrangement at the time that item (k) was approved as an integral component of the
SCM Agreement.

4 The only difference is the use of the term "signatory" or "signatories" where the present version uses
"Member" or "Members".
5 Brazil asserts that if the drafters had intended the safe harbor to apply to future versions of the
Arrangement, they would have used the future tense "will" or "may" be adopted. On the contrary, the drafters'
use of the term "has been adopted" demonstrates that the drafters did contemplate that the Arrangement would
be changed. If the drafters had intended the second paragraph of item (k) to refer solely to the version of the
Arrangement in effect on the date that the Uruguay Round Agreements entered into force, they would have said
so.
6 John E. Ray, Managing Official Export Credits 38 (1995) (emphasis added), attached hereto as U.S.
Exhibit 1. Mr. Ray headed the Division of Financin g and Other Export Questions in the Trade Directorate of
the OECD from 1985 until 1993. He was an Assistant U.S. Trade Representative from 1979 to 1985, and with
the U.S. Treasury Department prior to that date.
7 Accordingly, Brazil's long discussion of the process of amendments under the WTO Agreement (at
paras. 31) is beside the point.

10. In sum, the United States agrees with Brazil that the law of treaties states that governments
may agree to be bound by the provisions of a future treaty. The language of the second paragraph of
item (k) states that if a Member is party to an international undertaking on official export credits or "a
successor undertaking", then an export credit practice which conforms with the provisions of that
undertaking is not an export subsidy prohibited by the SCM Agreement. 8 The term "successor
undertaking" in the second paragraph of item (k) demonstrates an intent to be bound by successor
undertakings, which logically include an amended OECD Arrangement. The drafters of the SCM
Agreement, keenly aware of the need for flexibility to update agreements, included the realistic
possibility of an updated OECD Arrangement in the language "a successor undertaking." The
item (k) safe harbor is an important part of the package of rights and obligations that Members
accepted when they agreed to the WTO Agreements, and there is no basis to limit it in the manner that
Brazil asserts.
IV. INTEREST RATE SUPPORT AT OR ABOVE CIRR DOES NOT IPSO FACTO
MEAN THE RECIPIENT RECEIVES NO BENEFIT
11. Brazil claims that "interest rate support at or above CIRR does not confer a benefit." 9 The
United States takes no position on whether Brazil's use of CIRR, in conjunction with other export
credit terms, confers a benefit. Rather, the United States wishes to note only that interest rate support
at or above CIRR does not, ipso facto, mean no benefit is conferred.
12. Brazil relies on the Appellate Body's designation of CIRR as a commercial rate.
10 Brazil's
reliance is mistaken because the Appellate Body mentioned CIRR as a commercial rate in the context
of the OECD Arrangement.11 Brazil then tries to establish CIRR as a market rate by noting that some
Canadian and Norwegian commercial rates below CIRR may not confer a benefit. In addition, Brazil
points to a Norwegian loan with similar terms to the terms offered by PROEX. Yet Brazil's analysis
focuses entirely on the interest rate and loan maturity. Brazil makes no mention of the
creditworthiness of the borrower. The true test in determining if an export credit practice confers a
benefit is whether all of the loan terms, in their entirety, confer a benefit on the recipient.
13. A benefit is conferred if the Member grants interest rate support at a rate lower than the
recipient could obtain on the open market. This concept is embedded in the SCM Agreement. The
Appellate Body referred to Article 14 in Part V of the SCM Agreement as "relevant context for the
interpretation of 'benefit' in Article1.1(b)". 12 Article 14(b) defines a benefit to include the difference
in payment between a government loan and "a co mparable commercial loan which the firm could
actually obtain on the market" (emphasis added).13
14. Accordingly, to determine whether an export credit practice confers a benefit, one must
evaluate whether that recipient could obtain such a loan, on such terms, from a commercial lender. In
a previous analysis, the Appellate Body considered the type of product being financed, the interest
rate, and whether the Member offered a loan guarantee or interest rate equalization payments.
14
Under such a thorough analysis, consideration of the interest rate alone (CIRR or any other rate) does
not determine whether an export credit confers a benefit.

8 SCM Agreement, Annex I, item (k).
9 Brazil submission at ¶ 15.
10 Id. at ¶ 11.
11 The Appellate Body stated, "Under the OECD Arrangement , a CIRR is the minimum commercial
rate available in that range for a particular currency." Appellate Body Report at ¶ 182.
12 Canada -Measures Affecting the Export Of Civilian Aircraft , WT/DS70/AB/R (2 August 1999),
Report of the Appellate Body at ¶ 155 ("Canada-Aircraft").
13 SCM Agreement, Article 14(b).
14 See Brazil-Export Financing Programme for Aircraft - Recourse by Canada to Article 21.5 of the
DSU, WT/DS46/AB/RW (21 July 2000), Report of the Appellate Body at ¶ 74.

V. USE OF CIRR ALONE IS INSUFFICIENT TO MEET THE "SAFE HARBOR" OF
THE SECOND PARAGRAPH OF ITEM (K) IN ANNEX I OF THE SCM
AGREEMENT
15. Brazil claims that PROEX satisfies the requirement for the "safe harbor" under the second
paragraph of item (k) because PROEX uses CIRR and thus applies the interest rate provisions of the
OECD Arrangement.
15 The United States disagrees that use of CIRR alone qualifies Brazil for the
"safe harbor" exemption under item (k).
16. According to the Panel, a Member must conform to all of the terms, conditions and accepted
practices of the OECD Arrangement to benefit from the "safe harbor" exemption under item (k).16 To
claim exemption under the "safe harbor," CIRR must be applied in conjunction with the entire
framework of the OECD Arrangement . Applying CIRR alone is insufficient to claim exemption
under the "safe harbor" of item (k). Thus unless Brazil applies all of the accompanying terms,
conditions and accepted practices of the OECD Arrangement, it will not benefit from the "safe
harbor" under item (k).
VI. INTEREST RATE BUY-DOWNS CONSTITUTE THE "PAYMENT BY
[GOVERNMENTS] OF ALL OR PART OF THE COSTS INCURRED BY
EXPORTERS OR FINANCIAL INSTITUTIONS IN OBTAINING CREDITS"
17. Canada claims that PROEX payments are not "payments" under the first paragraph of item (k)
because interest rate buy-downs are excluded from the scope of the payment clause of item (k). 17
While Canada cites the Panel's attempt to rule that Brazil's PROEX was not within the payment clause
of item (k), the Appellate Body later declared those Panel findings moot.
18
18. Brazil argues in response that PROEX is a "payment by [Brazil] of all or part of the costs
incurred by exporters or financial institutions in obtaining credits." 19 The United States agrees with
Brazil that interest rate buy-downs such as PROEX do fall within the scope of the payments clause of
item (k).
19. The United States believes that the Panel should interpret the payment clause of item (k)
within the context of the SCM Agreement and general export credit practice. Despite changing export
subsidy practices, the text of item (k) remains essentially unchanged since its inception in 1958.
20
Very little guidance exists on the interpretation of th e payment clause of item (k). Thus the intent of
the payment clause of item (k) should be viewed within the context of general export credit practice
and the SCM Agreement. Viewed as such, it is clear that the intent of the payments clause is to
reduce the risk to the exporter or financial institution lending money to a borrower.
20. While buying-down interest rates does not constitute a direct payment, it does reduces the risk
incurred by the exporter or financial institution. Through measures such as insurance, guarantees, and
interest make-up, a Member can remove the risk that the financial institution or exporter would

15 See Brazil submission at ¶ 18.
16 The Panel stated that a Member benefits from the "safe harbor" if it "applies the interest rate
provisions" of the OECD Arrangement "in conformity with those [ i.e., the interest-rate] provisions." Brazil-
Export Financing Programme for Aircraft - Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW (9
May 2000), Report of the Panel at ¶ 6.61 ("Article 21.5 Panel Report").
17 Canada submission at ¶ 68.
18 Brazil-Export Financing Programme for Aircraft - Recourse by Canada to Article 21.5 of the DSU,
WT/DS46/AB/RW (21 July 2000), Report of the Appellate Body at ¶ 78.
19 Brazil submission at ¶ 67.
20 In 1958, the OEEC expanded its list of prohibited measures to include the costs born by governments
in paying all or part of the costs incurred by exporters in obtaining credits. John E. Ray, Managing Official
Export Credits 38 (1995) (emphasis added), attached hereto as U.S. Exhibit 1.

normally incur in lending money. Reduced risk results in lower lending costs. Without the Member's
payment, the exporter or financial institution woul d have to charge higher rates to cover the risk
themselves. Instead, the Member bears the cost of the credit and the exporter or financial institution
saves from the reduced risk costs. The savings ga ined from reduced risk constitutes the "payment ...
of all or part of the costs incurred by exporters or financial institutions." Thus buying-down interest
rates is within the scope of the payment clause in the first paragraph of item (k).
VII. ADDITIONAL COMMENTS ON BRAZIL - EXPORT FINANCING PROGRAMME
FOR AIRCRAFT OF 9 MAY 2000
21. The United States would like to bring to the attention of the Panel several statements by the
Panel in its report Brazil - Export Financing Programme for Aircraft , WT/DS46/RW, 9 May 2000
("Article 21.5 Panel Report"), which the United States believes misconstrue the relationship between
the OECD Arrangement and item (k) of the Illustrative List. These statements were dicta, and were
not within the scope of the appeal of that case to the Appellate Body. Nevertheless, from a systemic
perspective, the United States would like to present its views on these issues.
22. In footnote 68, the Panel narrowly defines the "interest rate provisions" of the Arrangement to
exclude guarantees in "pure cover" transactions. 21 The Panel also states that when a Participant
matches the terms and conditions of non-conforming transactions offered by Participants or non-
Participants, "it cannot be said that such matching credit "is 'in conformity with' the interest rate
provisions of the Arrangement."
22
23. In the view of the United States, for the purposes of the second paragraph of item (k), the
term "interest rate provisions" should be seen as a form of "shorthand" for encompassing all of the
terms and conditions of the Arrangement. It would defeat the logic of the Arrangement if a WTO
Member were unable to make use of the matching provisions of the Arrangement -- its key
enforcement provision -- for fear that such acti on might be deemed an export subsidy under the SCM
Agreement.
24. The United States also observes that a non-Participant that seeks the protection of paragraph 2
of item (k) by applying "an export credit practice which is in conformity with those provisions" must
also conform with the transparency provisions of the Arrangement.
23 These provisions require
notification to other Participants of non-conforming terms. Participants can then seek to consult with
the Participant offering non-conforming terms and, if appropriate, match the non-conforming credit.
Participants are unable to react to a credit offered by a non-Participant if they are not advised as to the
terms being offered. Non-Participants should not be given a "free ride" to pick and choose which
provisions of the Arrangement they choose to follow if they expect to enjoy the protection of the
second sentence of item (k).
VIII. CONCLUSION
25. The United States thanks the Panel for providing an opportunity to comment on the important
issues at stake in this proceeding, and hopes that its comments will prove to be useful.

21 Article 21.5 Panel Report, Report of the Panel at ¶ 6.65 n.68.
22 Id.
23 OECD Arrangement, e.g. Articles 42-53.

• Faced with the evidence produced by Canada that Brazil in fact provides PROEX on more
favourable terms than allowed under the OECD Arrangement, the Panel may consider it
necessary to seek confirmation or refutation of these allegations from Brazil. In this respect it
would also be important for the Panel to clarify the legal status of Circular Letter No 002881
and Directive 374 referred to by Brazil in paragraphs 8 and 9 of its first submission;
• In the absence of cooperation by Brazil, the Panel should draw the necessary inferences from
the evidence that it does have and the refusal of Brazil to confirm or refute it, as explained by
the Appellate Body in its report in the proceeding Canada – Aircraft.2
III. THE OECD SAFE HAVEN
5. Brazil's main defence is now that PROEX III falls under the safe haven of the second
paragraph of item (k) of Annex I to the SCM Agreement.
A. THE APPLICABLE VERSION OF THE OECD ARRANGEMENT
6. As the Panel is aware, the European Communities is firmly of the view that the 1998 version
of the OECD Arrangement3 is the only one relevant to the present dispute.
7. The OECD Arrangement is an evolving understanding that is regularly revised to take
account of changing circumstances and the second paragraph of item (k) of Annex I to the SCM
Agreement makes a dynamic reference to the OECD Arrangement applicable at the time the measure
under consideration is taken. This is clear from the language and the reference to successor
undertakings.
8. An interpretation of the second paragraph of item (k) of Annex I to the SCM Agreement that
froze the text of the OECD Arrangement as it was on the day the WTO Agreement was concluded
would lead to unacceptable results:
• It could allow the development of trade-distortive export subsidies through the exploitation of
lacunae in the frozen version of the OECD Arrangement. Export credits is a field where new
practices are constantly being developed and the evolution of the OECD Arrangement is
indeed characterised by the need to adopt rules to deal with new practises and factual
circumstances in the market place;
• It could lead to the participants to the OECD Arrangement being put in a situation where it
would be impossible to fulfil both their obligations under the WTO and their commitments
under the OECD Arrangement. Moreover such situation could lead to obvious distortions of
competition. This could arise for example if a new OECD Arrangement were to contain
obligations relating to the maximum repayment terms or the repayment profile that differ
from the obligations under the frozen version.
9. As Canada has remarked4 the circumstances in which item (k) was originally drafted confirms
this view. The Tokyo Round subsidies code was adopted a year after the first OECD arrangement and
it cannot have been anticipated at that time that there would already be a successor undertaking in
existence when the subsidies code was concluded. Therefore, the reference to a "successor
undertaking which has been adopted by those original members" can only have been intended to refer

2 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft ( "Canada –
Aircraft"), WT/DS70/AB/R, adopted 20 August 1999, paras. 200 – 205.
3 The text was agreed in 1997 and published in 1998.
4 Second written submission of Canada, paragraph 64.

to successor undertakings adopted after conclusion of the Tokyo Round subsidies code and before the
measure under consideration.
B. THE IDENTIFICATION OF THE "INTEREST RATE PROVISIONS" OF THE OECD ARRANGEMENT
10. The European Communities explained in its written submission 5 that it makes no sense to
consider interest rates in isolation from all the conditions that influence the interest rate and that the
reference to the "interest rate provisions" of the OECD Arrangement must refer to all the provisions
that may affect the interest rate – that is all provisions containing substantive rather than procedural
obligations.
11. The panel in the Canada – Aircraft Article 21.5 proceeding took a very restrictive view of the
"interest rate provisions" but later in its report came to the (correct) view that
.. the Arrangement seems to recognize that financing terms and conditions must be
treated as a package, and that derogation from one will undercut the others.
6
12. Which led it conclude that:
… full conformity with the "interest rates provisions" – in respect of "export credit
practices" subject to the CIRR – must be judged on the basis not only of full
conformity with the CIRR but in addition full adherence to the other rules of the
Arrangement that operate to support or reinforce the minimum interest rate rule by
limiting the generosity of the terms of official financing support.7
13. These other provisions that "support or reinforce" those that the panel identified as "interest
rate provisions" include:
… the amount of the cash down payment, the maximum repayment term, the timing
of principal and interest payments, maximum "holding periods" or lock-in periods for
interest rates, risk premiums, and similar terms.8
14. The Canada – Aircraft panel therefore seemed to be of the view that only those provisions
that directly relate to minimum interest rates constitute "the interest rate provisions" whereas
conformity with "the interest rate provisions" requires conformity with all those provisions that
"support or reinforce" those "interest rate provisions."
15. The European Communities considers that this is an artificial construct that finds no support
in the text of item (k). The logic of the Canada – Aircraft panel report in fact leads to the conclusion
that all the provisions that "support or reinforce" the minimum interest rate disciplines are to be
considered included within the term "interest rate provisions." As noted above, they include the
provisions on premia.
16. As the European Communities explained in its written statement, one way of analysing
PROEX III is to consider that it effectively compensates for the credit risk that would normally be
charged to the borrower by the lending bank. As such it is equivalent to the payment of an insurance
or guarantee payment and is an interest related official support for export credit that is not in
conformity with the interest rate provisions of the OECD Arrangement
9 9

5 Third Party Submission of the European Communities, paragraphs 38 and 39.
6 Paragraph 5.112 in fine.
7 Paragraph 5.114.
8 Paragraph 7.109.
9 Written Submission of the European Communities, paragraphs 40 to 48.

C. EXPORT CREDIT GUARANTEES ARE COVERED BY THE SAFE HAVEN
17. A further consequence of the European Communities' position is that export credit guarantees
are covered by the safe haven provided that they satisfy the conditions set out in Article 22 of the
OECD Arrangement – one of which is that they are at rates "not inadequate to cover long term
operating costs and losses." The European Communities draws the Panel's attention to the fact that
Article 22 has integrated the conditions set out in item (j) of the Illustrative List in annex I to the SCM
Agreement into the OECD Arrangement. It has also developed the conditions of item (j) by including
other conditions, not found in item (j), within the OECD Arrangement.
D. M
ATCHING
18. The above considerations also lead to the conclusion that the "matching" provisions of the
OECD Arrangement are also part of the "interest rate provisions". They also serve to "support and
reinforce" the other interest rate provisions. The European Communities would refer the Panel to the
comments it made in its written submission.
10
19. The Canada – Aircraft panel did not share this view. 11 The textual basis for this conclusion
appears very weak – the panel reasoned that matching – although allowed by the OECD Arrangement
– could not be considered to be "in conformity" with it since matching was a "derogation". This is
strained reasoning that ignores the informal and "gentleman's agreement" character of the OECD
Arrangement.
20. A more teleological reason for the panel's conclusion was its view that matching would
"directly undercut the real disciplines on official support for export credits."12 That view, however, is
not shared by the Participants to the Arrangement themselves, who obviously regard matching as
being compatible with effective disciplines on export credits.
21. A further reason for not considering "matching" to be part of the " interest rate provisions"
seems to be the panel's concern that
… a reading that would, for example, include within the safe haven in the second
paragraph of item (k) a transaction involving matching of a derogation, would put all
non-Participants at a systematic disadvantage as they would not have access to the
information about the terms and conditions being offered or matched by
Participants.
13
22. The European Communities considers that this concern is unfounded. Although the
procedures of the OECD Arrangement cannot be applied to non-participants, this does not mean that
non-participants would be disadvantaged. In fact the opposite is the case. The second paragraph of
item (k) only requires non-participants to the OECD Arrangement to apply in practice the interest rate
provisions of the OECD Arrangement , which the European Communities believes means the
substantive provisions which can affect interest rates and not the procedural provisions. Of course,
non-participants would not receive the notifications that participants receive, but this should not stop
them from matching an offer of export credit terms on a transaction that their companies are
competing for. If a non-participant has doubts about the reliability of the alleged offer of non-
Arrangement terms that it is invited to match, it may request confirmation of them from the offeror.
Under the OECD Arrangement participants consider themselves entitled to match after they have
taken appropriate measures to verify the terms (see e.g. Article 53). If non-participants are not

10 Written Submission of the European Communities, paragraph 36.
11 Paragraphs 5.120 et seq.
12 Panel report, para. 5.125.
13 Paragraph 5.132.

required to follow the procedural requirements of the OECD Arrangement, they are nonetheless able
to apply them by analogy.
IV. THE FIRST PARAGRAPH OF ITEM (K)
23. The European Communities did not discuss the first paragraph of item (k) in its written
submission to the Panel, stating that it maintained its previously expressed views that were already
known to the Panel from the previous proceeding.14
24. There appears to be one issue on which the European Communities has not stated its view –
that of the kinds of measure that may fall under the first paragraph of item (k).
25. Whereas the second paragraph of item (k) covers all "export credit practices," a broad term,
the scope of the first paragraph of item (k) is defined differently. It covers:
The grant by governments … of export credits … or the payment by them of all or
part of the costs incurred by exporters or financial institutions in obtaining credits ….
26. Interest rate equalisation payments are not export credits. The only question is whether they
can be "payment by them of all or part of the costs incurred by exporters or financial institutions in
obtaining credits."
27. The Panel was of the view in the first Article 21.5 proceeding that payments to a lender that
amount to interest rate support cannot reasonably be understood to be payments of all or part of the
costs of obtaining export credits.
15
28. The Appellate Body considered that it did not need to consider this issue and that the Panel's
findings on this issues were "moot, and, thus, of no legal effect.16
29. The European Communities considers that the interpretation of the first paragraph of Item (k)
should not turn on who formally receives the payment or incurs the cost. Such an approach would
allow circumvention of the disciplines. The purpose underlying both paragraphs of item (k) and the
OECD Arrangement is to avoid distortions of competition arising out of export credit practices so that
competition between exporters can relate to the other conditions they are being able to offer buyers. It
is therefore the resulting attractiveness of the packag e for the buyer that is important – not the details
of the payments between the various actors. A payment to one of these actors can reduce the burden
on another – in other words be considered an indirect payment to that other.
V. CONCLUSION
30. The European Communities hopes that these remarks are helpful and wishes the Panel well in
its consideration of the complex and difficult issues that are before it.
Thank you for your attention.

14 Written submission to the Panel, paragraph 52 referring to the first written submission of the
European Communities to the original Article 21.5 panel, paragraphs 20 to 26 and oral statement, paragraphs 43
to 46.
15 Article 21.5 Panel Report, paragraphs 6.71 to 6.73.
16 Article 21.5 Appellate Body Report, paragraph 78.

ANNEX C-5
ORAL STATEMENT OF THE UNITED STATES
(5 April 2001)
1. Mr. Chairman, members of the Panel, I am pleased to have this opportunity to appear before
you today in this Article 21.5 proceeding. We know the Panel has carefully reviewed our written
submission, so I will not repeat those statements here. Instead, I will limit my comments today to a
brief observation on the second paragraph of item (k) of the Illustrative List.
2. Mr. Chairman, the purpose of the OECD Arrangement is to provide for the orderly use of
officially supported export credits. The second paragraph of item (k) of the illustrative list establishes
a safe harbor for export credit practices that comply with all of the terms and conditions of the
Arrangement. A Member cannot comply with just some of the terms and conditions, such as CIRR,
and claim the protections of the safe harbor. A contrary conclusion would undermine the entire
purpose of the Arrangement.
3. This concludes my presentation.

ANNEX C-6
RESPONSES BY THE EUROPEAN COMMUNITIES
TO QUESTIONS OF THE PANEL
(17 April 2001)
Q26. Please discuss your understanding of the meaning of the term "interest rate support" as
used in Article 2 of the 1998 OECD Arrangemen t. Are PROEX III payments "interest rate
support" within the meaning of the 1998 OECD Arrangement?
1. Article 2 of the OECD Arrangement starts by stating that it applies to all "official support" for
exports with a term of two years or more. It then specifies the categories of measure covered. These
are "direct credits/financing or refinancing, interest rate support, guarantee or insurance." It therefore
appears that "interest rate support" is a residual category of "official support" for exports, that is, not
in the form of direct credits/financing or refinancing or guarantees or insurance. It covers measures
by which "official" bodies support interest rates without directly financing or refinancing transactions
or providing guarantees or insurance.
2. PROEX III is a government (or "official") measure that allows the effective rate of interest for
purchasers of certain Brazilian goods to be lower than it would otherwise be. It is therefore interest
rate support within the meaning of Article 2.
Q27. Please discuss, how, if at all, the concept of minimum premium as reflected in Article 20
of the 1998 OECD Arrangement applies to interest rate support. Why is interest rate support
not identified in Article 20 of the 199 8 OECD Arrangement? Are minimum premium
benchmarks under the 1998 OECD Arrangement available to non-Participants?
3. The EC explained in paragraph 49 of its written submission to the Panel and in paragraph 16
of its Oral Statement that it considered interest rate support in the form of an interest rate buy-down
such as that provided by PROEX III to be the economic equivalent of a security or a guarantee.
4. According to Article 15 of the OECD Arrangement, CIRR corresponds to the interest rate
payable by "first class" borrowers, that is, those for which the risk of non-repayment is the smallest.
The interest rate that a borrower such as an airlin e must actually pay on financing will defend on the
risk of non-repayment that the lender incurs and therefore on the security that is offered to guarantee
repayment. Providing security involves a cost for the borrower. For example, if a borrower provides
security in the form of a mortgage on its assets, it will be restricted in its freedom to use those assets
and in particular to pledge those same assets to other lenders. If it provides the lender with a
guarantee from a third party with better credit, such as a bank or the state, it will have to pay a
premium for this guarantee and offer security or undertake obligations towards the guarantor.
5. In the field of both marketable and officially supported export credits three cost elements are
charged to the borrower: the pure cost of money, the handling/administrative costs linked to the
provision of financing and the cost of the risk of not being paid back by the debtor (see paragraph 43
of the EC written submission). Usually, the market charges an all-in rate covering those three cost
elements, while the "officially suported sector" charges them separately (cf. Article 14c) of the 1998
OECD Arrangement). The CIRR rate (being gove rnment bond yields plus a 100/120 basis point
margin) is deemed to cover the first two cost el ements, whereas the minimuM premium is deemed to
cover the third cost element (cf. Article 20 of the 1998 Arrangement).
6. Interest rate and premium, as well as their re lated disciplines, are complementary within the
1998 OECD Arrangement. Therefore, "interest rate support" is not identified in Article 20, devoted to

officially supported insurance/guarantee, just like insurance/guarantee is not identified in Article 15,
devoted to officially supported financing. Direct credits/financing and refinancing are identified in
both articles so as to avoid confusion because in those export credit techniques financing and
insurance are mixed being specified that official support may be provided to only one part of the deal.
7. The fact that interest rate support is not expressly mentioned in Article 20 of the OECD
Arrangement does not mean that it can be concluded that a practice such as PROEX III having the
effect described above is consistent with the OECD Arrangement. The OECD Arrangement is
described in the section "status" of the introduction as a "gentleman's agreement". One consequence
of this is that circumvention of its provisions is not considered legitimate.
8. The benchmarks have not yet been published. If the Panel considers that the non-publication
of the benchmarks is a reason why the minimum premia provisions cannot be considered part of the
provisions that non-participants should apply "in practice" in order to benefit from the safe haven of
the second paragraph of item (k), the EC would invite it to state this expressly so that it can be clear to
all that once the benchmarks are published these provisions will be among those that non-participants
must apply "in practice" in order to benefit from the safe haven.

ANNEX C-7
RESPONSES OF THE REPUBLIC OF KOREA
TO QUESTIONS OF THE PANEL
(17 April 2001)
The Panel posed two questions to the third parties in this dispute. The responses of the
Republic of Korea follow.
Q26. Please discuss your understanding of the meaning of the term "interest rate support" as
used in Article 2 of the 1998 OECD Arrangemen t. Are PROEX III payments "interest rate
support" within the meaning of the 1998 OECD Arrangement?
1. Article 2 of the 1998 OECD Arrangement deals with the scope of application of the
Arrangement. It identifies five means by which official support for exports can be given – direct
credits/financing, refinancing, interest rate suppor t, guarantee or insurance. Korea believes that the
Panel in the original recourse to Article 21.5 of the DSU in this dispute gave an accurate illustration of
"interest rate support." At note 53 of its Report, the Panel stated:
To take a hypothetical and highly simplified example, imagine that the yield on the
relevant US Government bonds (and thus the US Government's cost of borrowing) is
5 per cent. Brazil's cost of borrowing is 10 per cent and the interest rate on
commercial export credits is 8 per cent. Because it is constructed based on the
relevant US Government bond yields plus 1 percentage point, the US dollar CIRR
would be 6 per cent. While developed countr ies could afford to borrow at 5 per cent
and provide export credits at 6 per cent, Brazil could only do so by providing direct
export financing at 4 percentage points below its own cost of borrowing, an
expensive proposition. It would be much less costly to Brazil to allow a commercial
lender to provide the export credits, and pay the lender 2 percentage points in the
form of interest rate support. 1 In other words, a government can provide either:
(i) direct export credit financing; or (ii) interest rate support by buying down
financing provided by a commercial lender (reducing the interest rates charged to the
borrower to the level allowed by the OECD Arrangement).
2. Korea chooses not to provide views on whether PROEX III payments are "interest rate
support" within the meaning of the 1998 OECD Arrangement.
Q27. Please discuss how, if at all, the concept of minimum premiums as reflected in Article 20
of the 1998 OECD Arrangement applies to interest rate support. Why is interest rate support
not identified in Article 20 of the 1998 OECD Arrangement? Are minimum premium
benchmarks under the 1998 OECD Arrangement available to non-Participants?
3. The concept of minimum premiums does not apply to interest rate support. The text of
Article 20(a) lists only four of the five means, set out in Article 2, by which official support for
exports can be given; interest rate support is not included. The Panel Report in this dispute confirmed
this and, in Korea's opinion, provided a sound explanation of why interest rate support is not included:
Paragraph 20, however, excludes "interest rate support" from the categories of official
support for which a minimum premium must be charged, presumably because in the
case of interest rate support the government does not bear the risk of loss in the case

1 Brazil-Export Financing Programme for Aircraft-Recourse by Canada to Article 21.5 of the DSU ,
WT/DS46/RW (9 May 2000) at paragraph 6.53, note 53 (emphasis added).

of default. In any event, these premia relate to the risk relating to the country of the
buyer/borrower, not that of the lender.2
4. The Panel in Brazil's DSU Article 21.5 recourse regarding Canada's aircraft financing support
also noted that the concept of minimum premiums does not apply to interest rate support:
Moreover, we note that the Arrangement establishes explicit rules concerning
guarantees and insurance, specifically by establishing minimum premium
benchmarks. The minimum benchmarks are set with respect to adequacy of
premiums to cover the "sovereign" and "country" credit risk involved in supported
transactions. These benchmarks also apply explicitly to official financing support.
Thus, both the minimum premium rule and the minimum interest rate rule on their
faces make clear whether or not they apply to guarantees and insurance.3
5. Thus, interest rate support is not subject to the minimum premium provisions of Article 20 of
the 1998 OECD Arrangement. Wher e a Participant provides interest rate support, unlike the other
four types of support, the commercial lender, not the government, bears the risk of loss in the case of
default. Thus, there is no need to ensure adequacy of premiums to cover the government's credit risk.
6. The Canadian Article 21.5 Panel Report also answers the third part of the Panel's
Question 27 – minimum premium benchmarks are not available to non-Participants. As the Panel
stated:
We note that, by contrast, no information is published on the minimum premium
benchmarks. Thus, only Participants have access to this information. Given this, it is
at present impossible for a non-Participant to have any idea whether a given
transaction respects the rules concerning minimum premiums. Thus, until such time
as the Participants make this informatio n publicly available, non-Participants should
be presumed to be respecting the minimum premium rules in the context of any
analysis under the second paragraph of item (k). Canada also has recognized this
issue and come to the same conclusion. In particular, Canada states that "it would be
unreasonable to expect a non-OECD WTO Member to charge a premium level which
is unknown to such Member, in order for th at Member to be in full compliance with
the interest rates provisions of the Arrangement. Canada is prepared to accept the
consequence that in relation to premiums and for the purpose of the second paragraph
of Item (k), a higher threshold is imposed on those WTO Members that are also
OECD Participants" (Canada's reply to the Panel's Canada Account question 3(h)).
4

2 Brazil—Export Financing Programme for Aircraft—Report of the Panel , WT/DS46/R
(14 April 1999) at paragraph 7.31, note 206 (emphasis in original).
3 Canada-Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the
DSU, WT/DS70/RW (9 May 2000) at paragraph 5.100 ( Canada-21.5). See also, Export Credits and Related
Facilities, Background Paper by the Secretariat, G/AG/NG/S/13 (26 June 2000) at paragraph 27(f).
4 Canada—21.5 at paragraph 5.134, note 118 (emphasis added).

ANNEX C-8
RESPONSES OF THE UNITED STATES
TO QUESTIONS OF THE PANEL
(18 April 2001)
For Third Parties
Q26. Please discuss your understanding of the meaning of the term "interest rate support" as
used in Article 2 of the 1998 OECD Arrangemen t. Are PROEX III payments "interest rate
support" within the meaning of the 1998 OECD Arrangement?
1. The term "interest rate support" as used in Article 2 of the 1998 OECD Arrangement refers to
practices under which a government enters into an agreement on interest rates with a commercial bank
that is providing the export credit financing for an export transaction. The purpose of the agreement
is to allow the commercial bank to provide fixed rate financing at the appropriate CIRR rate.
Commercial banks typically fund themselves on a floating interest rate basis such as LIBOR. In order
for the bank to avoid losses associated with mismatched funding (i.e., funding itself at a floating rate
and lending at a fixed rate), the government interest rate support provides the bank with a payment to
compensate the bank for the funding risk. Typical of most OECD governments offering interest rate
support, the government agrees that the commercial bank will receive a minimum return above its
cost of funds to cover overhead and a normal profit margin on its services. On each semiannual
repayment date under the loan, the difference between the bank's funding base plus the interest make-
up margin and the CIRR rate is calculated. If the CIRR provides an interest rate that is lower than the
commercial bank's funding rate plus the interest make-up margin, then the government pays the
shortfall to the commercial bank. Thus, the interest rate support allows the commercial bank to offer
CIRR financing without the interest rate risk associated with its funding at a floating rate. In addition,
interest rate support allows commercial banks to help provide CIRR financing.
2. The United States is not sufficiently familiar with the facts of PROEX III to opine on whether
PROEX III payments, as applied, constitute "interest rate support." As a general matter, the United
States would consider interest rate support to be consistent with the OECD Arrangement if (a) the
interest rate that the borrower sees after the interest rate support is the appropriate CIRR rate; and (b)
the interest rate support is not offered in a manner or at a level that is used to cover other borrower
costs associated with the transaction (such as the risk premium or the cost of the exported item).
Q27. Please discuss how, if at all, the concept of minimum premiums as reflected in Article 20
of the 1998 OECD Arrangement applies to interest rate support. Why is interest rate support
not identified in Article 20 of the 1998 OECD Arrangement? Are minimum premium
benchmarks under the 1998 Arrangement available to non-Participants?
3. The minimum premiums reflected in Article 20 of the 1998 OECD Arrangement apply to all
transactions in which a government provides support that shifts the repayment risk of the borrower
from the lender to the government providing support. Interest rate support, in and of itself, does not
shift the repayment risk of the borrower to th e government providing the support because the
government does not take on the risk of repayment. Hence, interest rate support is not mentioned in
Article 20. Under Article 20, when a government does offer interest rate support in conjunction with
insurance or a guarantee, the government must charge the appropriate minimum premium rate
because it is providing insurance or guarantee cover.
4. Virtually all of the information regarding the minimum premium benchmarks under the 1998
OECD Arrangement is available to non-Participants. This information is available on the OECD web

site (at http://www.oecd.org/ech). The only piece of information not currently available is the country
classifications. Discussions are underway within the Participants to post these classifications on the
OECD web site, thereby making all information necessary to apply the minimum premium
benchmarks publicly available. However, for transactions with borrowers in High-Income OECD
countries, the Arrangement provides that the minimum premium benchmarks do not apply. Rather,
the premium charged shall not undercut the pricing of the private market. 1 Thus, for these countries,
there are transparent rules for the application of risk premiums – market rates apply.
For the United States
Q28. The United States contends that "buying down interest rates . . . reduces the risk
incurred by the exporter or financial institution" (US third-party submission, para. 24).
Interest rate buy-downs are not however necessarily accompanied by an assumption of risk by
the government/export credit agency. Please comment.
5. Interest rate buy-downs reduce the financial risk of the transaction by reducing the cost of the
credit and the debt service impact on the borrower. All things being equal, buy-downs enhance the
borrower's net cash flow position by the amount of the foregone or avoided interest payments,
improving its ability to service any given level of debt service, and thereby reducing the risk of the
transaction.
6. Interest rate buy-downs do not necessarily involve an assumption of risk on the part of the
government or export credit agency, because, in making the interest rate buy-down, the government or
export credit agency assumes no additional legal obligation to make payments to the exporter or
commercial lender in the event the borrower fails to make timely payment on the loan.
Q29. The United States argues that non-Part icipants which want to use the safe haven
provided by the second paragraph must also conform with the transparency provisions of the
Arrangement (US third-party submission, para. 24). Is the United States suggesting that non-
Participants would be obliged to make notifications of non-conforming terms to Participants?
Do Participants make notifications of non-conforming terms available to non-Participants?
7. At a minimum, all countries invoking item (k) protection must be obligated to respond
bilaterally to a query from a competitor as to whether all the terms it is offering conform to the
Arrangement and to respond in a timely and meaningful manner. Transparency minimizes the chance
of premature or incorrect matching and the transparency obligation also inhibits the initiation of non-
conforming offers. While the Participants do not currently make notifications of non-conforming
terms available to non-Participants, the United Stat es would be willing to support the transparent
exchange among all governments of prior notified non-conforming terms.
Q30. With reference to the U.S. oral statement, could the United States elaborate on why it
believes that the reference to "interest rates provisions" in the second paragraph of item (k) is a
reference to all of the terms and conditions of the OECD Arrangement? In particular, if the
second paragraph of item (k) referred to all of the terms and conditions of the OECD
Arrangement, why does it not refer to the "provisions of the relevant undertaking" (as opposed
to the "interest rates provisions of the relevant undertaking")?
8. The first paragraph of item (k) describes a certain type of government practice that constitutes
a prohibited export subsidy. Thus, in interpreting the second paragraph of item (k), the treaty
interpreter must keep in mind that the practice at issue is one that normally, but for the second
paragraph of item (k), would be prohibited by the SCM Agreement.

1 See Arrangement Article 22 b.

9. The OECD Arrangement itself also provides relevant context for resolving this issue. The
purpose of the OECD Arrangement is:
to provide a framework for the orderly use of officially supported export credits. The
Arrangement seeks to encourage competition . . . based on quality and price of goods
and services exported rather than on the most favorable officially supported terms.
2
10. The premise of the item (k) safe harbor is that Members create a level playing field in the use
of officially supported export credits by complying with the terms and conditions of the Arrangement.
It would not be logical to read the second clause of the second paragraph of item (k) as permitting a
Member to comply with something less than all of the terms and conditions of the Arrangement and
still qualify for the safe harbor, since to do so would undermine the disciplines of the Arrangement,
which is the entire basis of the safe harbor. In interpreting the language at issue, the Panel should
keep in mind the object and purpose of the Arrangement and the safe harbor, as well as the absurd
consequences that would result from interpreting th e relevant language in a narrow manner. As the
United States noted in its written submission, the wording of the second paragraph of item (k) was
meant "to provide[] a safe harbor while allowing other signatories of the code to follow the same
practices," not to permit other signatories to benefit from the safe harbor without applying all of the
terms and conditions of the Arrangement.3
11. Furthermore, the only way to make sense of the second paragraph of item (k) is to read it as
requiring the application of all of the substantive rules of the Arrangement, because every piece of the
Arrangement implicitly assumes all of the others. The Arrangement defines the reference point of a
level playing field as the cost of export credits from the borrower's perspective. The borrower's
perspective is of an all in-cost. The term "all in-cos t" refers to the cost to the borrower, in net present
value terms, of the financing costs at the time the exporter ships the export item to the buyer. The all
in-cost depends on the interest rate charged, any up-front fees, and the average life of the transaction
(made up of the tenure and repayment pattern of the transaction). Without taking all of these factors
into consideration, there is no way to determine, from the borrower's perspective, what the real cost of
the export credit is.
12. For example, a ten-year export credit at CIRR is very different from a 100-year export credit
at CIRR, just as a ten-year export credit at CIRR with equal semiannual repayments is very different
from a ten-year export credit at CIRR with a single bullet payment at the end of the ten years.
Likewise, financing a maximum of 85 percent of the export credit value at CIRR, with the remaining
15 percent financed with cash or privately on market terms, is different from a financing on
Arrangement terms for one hundred percent of the transaction. In addition, fees and interest rates are
interchangeable – with up-front fees being converted into interest rate spreads or interest rate spreads
being converted into up-front fees. Thus, the CIRR regime only makes sense in the context of all of
the other Arrangement rules, such as maximum repayment terms, repayment profiles, and risk
premiums.
4

2 OECD, The Arrangement on Guidelines for Officially Supported Export Credits (Paris: OECD,
1998), Introduction.
3 United States written submission at para. 8, citing U.S. Exhibit 1 at 38 (emphasis added).
4 In fact, the Arrangement sets the CIRR based on the repayment terms of the transaction.

13. The Appellate Body has stated that "[t]he duty of a treaty interpreter is to examine the words
of the treaty to determine the intentions of the parties."5 The wording of the second paragraph of
item (k) indicates an intention on the part of the drafters to create a limited safe harbor from the
prohibition in the first paragraph of item (k) for Members who comply with the terms and conditions
of the OECD Arrangement.
WT/DS141/AB/R, Report of the Appellate Body at para. 83.