Document: WT/DS108/RW2 Page D-1 ANNEX D ORAL STATEMENTS, MEETING WITH THE PANEL Contents Page Annex D-1 Oral Statement of the European Communities D-2 Annex D-2 Oral Statement of the United States D-4 Annex D-3 Third Party Oral Statement of Australia D-9
Document codes: WT/DS108/RW2
Complainant: EU
Respondent: U.S.
Third parties: Australia, Barbados, Brazil, Canada, China, India, Jamaica, Japan
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. 1, 3, 8  AgricultureArt. 3.1(a), 3.1(b)  Subsidies and Countervailing Measures (SCM)Art. 9, 10  Agriculture

ANNEX D

ORAL STATEMENTS, MEETING WITH THE PANEL

Contents Page
Annex D-1 Oral Statement of the European Communities D-2
Annex D-2 Oral Statement of the United States D-4
Annex D-3 Third Party Oral Statement of Australia D-9
Annex D-4 Third Party Oral Statement of Brazil D-10
Annex D-5 Third Party Oral Statement of the People's Republic of China D-12

ANNEX D-1

ORAL STATEMENT OF THE EUROPEAN COMMUNITIES

(30 June 2005)

Mr. Chairman, distinguished Members of the Panel,

1. The European Communities would first like to thank you all for agreeing to serve on this
Panel. And we also thank the Secretariat for the a ssistance that it is providing to the Panel in this
case.

2. Although this case is relatively straightforwar d and may appear to relate to a temporary and
residual problem, it is nonetheless important.

3. It is important that adopted recommenda tions and findings in WTO dispute settlement
proceedings are respected and implemented properly and promptly. Moreover, given their inherently
distortive character, it is important that prohibited subsidies are withdrawn without delay. As will no
doubt be clear to you, this has not happened in this case. Indeed, the continuing violations at issue in
this proceeding are either identical or similar in all relevant respects to those that have already been
condemned in the previous Article 21.5 proceedi ng. Long-standing non- compliance situations
operate against the very credibility of the WTO system to the detriment of all Members.

4. The original Panel report in this case was circulated in 1999 and adopted by the DSB on
20 March 2000 after an unsuccessful appeal by the United States. The United States was given a
generous period to withdraw the FSC scheme but simply replaced it with a partly identical scheme
that was duly condemned in turn (as were the tr ansitional and grandfathering provisions that the
United States accorded itself for its original FSC scheme).

5. More than five years after the circulation of the original Panel Report, the United States
finally adopted a measure (the JOBS Act) that, with effect from 1 January 2005, starts to phase out
the export subsides under the ETI scheme.

6. Of course, phasing out is not withdrawal. And the phasing out in this case occurs over an
indefinite period of time. Although new users of this export subsidy scheme can only obtain 80 per
cent of the previously available benefit for transac tions occurring in 2005 and only 60 per cent of the
benefit for transactions occurring in 2006, certain ol d users can continue to obtain the full benefit,
potentially forever, where they can show that the transaction is “pursuant to” a “binding contract”,
entered into on or before 30 September 2000 in th e case of the FSC scheme, and 17 September 2003
in the case of the ETI scheme.

7. Thus, in practice, a US producer of widgets that has a 30 year distribution contract with a
Japanese company to distribute its widgets in Japan, will continue to benefit from these illegal export
subsidies for thirty years. And if the distributio n contract has a renewal option, then, no doubt, the
illegal subsidies will continue for even longer.

8. The United States does not appear to contest th at it is still violating its WTO obligations by
partially maintaining the FSC and ETI schemes. Rather, it confines itself to raising two exceedingly
weak procedural arguments. First, the United States contends, that the Panel can make no finding that

the United States has failed to withdraw its prohi bited subsidy as required by Article 4.7 of the SCM
Agreement because in the previous Article 21.5 proceeding the Panel merely found that the ETI
scheme was inconsistent with the oblig ations of the United States under the SCM Agreement and did
not make a new recommendation under Article 4.7 of the SCM Agreement. Second, the United States
contends that where there is no measure taken to comply (as in the case of the FSC grandfathering
provisions contained in the ETI Act), the continuing violation is not within the Panel’s terms of
reference unless the WTO-inconsistent measure is again included in the Panel request under
Article 21.5.

9. Mr. Chairman, distinguished Members of th e Panel, one only needs to restate these
procedural arguments to realise they are unfounded. The European Communities has set out in its
rebuttal submission detailed reasons why they are wit hout merit and should be dismissed accordingly.
The European Communities does not wish to repeat the arguments it has made in writing but would
stress two points:

 • First, an Article 21.5 panel need not make ne w recommendations since its purpose is to rule
on a disagreement as to whether previous reco mmendations and rulings have been complied
with. In the first Article 21.5 proceeding, th e Panel ruled that they had not been and the
United States has not advanced any arguments in the present proceeding as to why they have
been complied with (manifestly, there are none). In any event, the obligation to withdraw a
prohibited subsidy is created by Art. 4.7 of the SCM Agreement as such, not by the panel
recommendations foreseen in the same provision . This clearly results from the Appellate
Body Report in the first Article 21.5 proceeding;
1

 • Second, where, as here, the Article 21.5 proceeding relates to the failure to remove
previously found violations of the WTO Agreement, the provisions that give rise to these
violations need not be repeated in the request for the establishment of a panel. In any case,
the US measure of purported compliance (section 101 of the Jobs Act) fails to remove the
FSC grandfathering provisions and is mentioned in the request for an Article 21.5 panel.

10. As already observed, the United States does not seek to defend itself on substance. In
particular, it gives no arguments as to why the subsidies that it continues to provide are no longer
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement, Articles 10.1, 8 and 3.3 of the
Agreement on Agriculture and Article III:4 of the GATT 1994. It also does not respond to the EC
demonstration of violations of Articles 19.1 and 21.1 of the DSU.

 Mr Chairman, Members of the Panel, thank yo u for your attention. We look forward to
responding to any questions the Panel may have.

ANNEX D-2

ORAL STATEMENT OF THE UNITED STATES

(30 June 2005)

Mr. Chairman, members of the Panel:

1. At the outset, on behalf of the United States, I would like to express our appreciation for your
willingness to serve on this Panel. In particular, I would like to thank the Chairman for agreeing to
step in at this stage in this dispute.

2. However, while we are grateful for your w illingness to serve, it is unfortunate that you had to
do so. In enacting the American Jobs Creation Act – or "AJCA" – US officials consulted closely with
EC officials, and we believed the legislation addressed the EC’s primary concerns. Unfortunately, the
EC has chosen to prolong this dispute involving a subsidy that, if this were a countervailing duty
proceeding, would be regarded as de minimis.

3. In light of the speculation in the press that the EC decision to prolong this dispute was linked
to the US decision to challenge the massive subs idies provided to Airbus, the United States cannot
help but note that in its counter-case against Boeing aircraft, the EC appears to have included a claim
that the FSC tax exemption and the ETI Act tax ex clusion have caused adverse effects within the
meaning of Article 5 of the SCM Agreement.
1 While the United States continues to hope that the
aircraft disputes can be resolved without recourse to litigation, we must confess that we find
tantalizing the prospect of the EC being requi red for the first time to demonstrate how these de
minimis tax exemptions and exclusions have caused harm to EC trade interests.

4. In any event, the EC has deci ded that we need to get together again, so here we are. Today,
we will focus on two issues: (1) the EC’s clai ms under Article 4.7 of the SCM Agreement; and (2)
the EC’s claims regarding the transition provision s for the FSC tax exemption contained in section 5
of the ETI Act.

Article 4.7 of the SCM Agreement

5. Starting with Article 4.7, the EC’s claim that the transition provisions of the AJCA are
inconsistent with Article 4.7 is premised on the no tion that the ETI Act tax exclusion was found to be
inconsistent with the DSB recommendation under Article 4.7 to withdraw the FSC subsidies. The US
response to this claim is straightforward: no su ch finding was ever made, nor did the DSB make a
recommendation under Article 4.7 that the ETI Act tax exclusion be withdrawn. Thus, the premise of
the EC’s claim is simply in error.

6. Insofar as the ETI Act tax exclusion is concer ned, the only findings made were that the tax
exclusion was inconsistent with Article 3.1(a) of the SCM Agreement, Articles 3.3, 8 and 10.1 of the
Agriculture Agreement, and Article III:4 of th e GATT 1994. The corresponding recommendations of
the DSB were that the United States bring the ETI measure into conformity with its obligations under
these provisions. There was no finding that the ETI Act tax exclusion was inconsistent with the

1 WT/DS317/2 (3 June 2005).

DSB’s recommendation under SCM Article 4.7 to wit hdraw the FSC subsidies, nor was there a DSB
recommendation under Article 4.7 to withdraw the ETI Act tax exclusion.

7. Contrary to what the EC asserts, this is not a mere "procedural" argument. No Member can be
found to have failed to comply with a non-existe nt recommendation. The EC’s assertion to the
contrary raises important substantive and systemic issues.

8. In this regard, the EC errs when it suggests th at the US argument regarding Article 4.7 leads to
the conclusion that the repeal of the ETI Act was a gratuitous act on the part of the United States.
2 To
the contrary, as we will discuss later, repeal was appr opriate in order to comply with the findings and
recommendations that the United States bring the ETI measure into conformity with provisions of the
WTO agreements other than SCM Article 4.7. Ho wever, the fact that implementation obligations
existed with respect to these other provisions do es not mean that there was an obligation under
Article 4.7.

9. In its first written submission, the United St ates described the scope of the findings of the
Article 21.5 Panel and the Appellate Body under Article 4.7, and e xplained how those findings were
limited to the transition provisions in section 5 of the ETI Act that allowed for the continued use of
the FSC tax exemption. Unfortunately, in its re buttal submission, the EC presents an inaccurate
version of the prior history of this dispute. According to the EC, the Appellate Body made a finding
in the first Article 21.5 proceeding that the ETI Ac t tax exclusion resulted in non-compliance with the
recommendation of the original Panel under Article 4.7 to withdraw the FSC subsidies.

10. The EC assertion is incorrect. In order to set the record straight, it is necessary to go over the
prior history of this dispute one more time.

The Recommendations of the Article 21.5 Panel a nd the Appellate Body Under Article 4.7 Were
Limited to Section 5 of the ETI Act

11. In its rebuttal submission, the EC refers to "[t]he Appellate Body’s recognition that, by passing
the ETI Act, the United States had not withdrawn its prohibited subsidy, and thus had not complied
with the recommendations and ru lings under Article 4.7 of the SCM Agreement contained in the
original Panel Report ... .
3 However, the Appellate Body recognized no such thing, because its
finding and recommendation under Article 4.7 were limited to the transition provisions of the ETI Act
that allowed for the continued use by taxpayers of the FSC tax exemption. The Appellate Body did
not find that the ETI Act tax exclusion itself constitu ted a failure to comply with the recommendation
under Article 4.7. Indeed, the EC did not even argue that the enactment of the ETI Act tax exclusion
was inconsistent with that recommendation.

12. In the EC’s first recourse to Article 21.5 of the DSU, the EC challenged various provisions of
the ETI Act, alleging that they were inconsiste nt with one or more provisions of the WTO
agreements. However, with respect to the issue of compliance with the DSB’s recommendation under
Article 4.7 of the SCM Agreement to withdraw the su bsidy, the EC’s claims were limited to section 5
of the ETI Act.

13. This can be seen from the first written submission of the EC in the first Article 21.5
proceeding. In the "Legal Analysis" section of the EC submission, the only reference by the EC to an
alleged failure to withdraw the s ubsidy under Article 4.7 was made in connection with the transition

2 Rebuttal Submission of the European Communities , 16 June 2005, para. 15 (hereinafter "EC
Rebuttal").
3 EC Rebuttal, para. 15.

provisions of section 5 of the ETI Act.
4 Likewise, in the "Conclusion" section, wherein the EC laid
out the specific findings that it wanted the Article 21.5 Panel to make, the only finding sought by the
EC with respect to Article 4.7 related to the transition provisions of section 5 of the ETI Act.
5

14. Not surprisingly, the Article 21.5 Panel took the EC at its word. The Article 21.5 Panel’s
finding of a failure to comply with the DSB reco mmendation under Article 4.7 to withdraw the FSC
subsidies was limited to section 5 of the ETI Act. In paragraph 8.170 of the Article 21.5 Panel
Report, which was contained in the section entitled "Transitional Issues", the Article 21.5 Panel found
that the United States had not " fully withdrawn the FSC subsidies . . . and has therefore failed to
implement the recommendations and rulings of th e DSB made pursuant to Article 4.7 of the SCM
Agreement."6 This finding was repeated in paragra ph 9.1(e) of the Article 21.5 Panel Report. 7 This
was the only finding by the Article 21.5 Panel under Article 4.7. The Panel did not find that any other
portion of the ETI Act constituted a failure to with draw the FSC subsidies within the meaning of
Article 4.7.

15. Neither party appealed the fact that the Ar ticle 21.5 Panel limited its findings under Article 4.7
to the transition provisions of secti on 5 of the ETI Act. In the case of the EC, how could it appeal?
The Article 21.5 Panel had done exactly what the EC requested.

16. The lack of an appeal of this issue is relevant, because the EC makes the extraordinary
assertion that the Appellate Body’s findings regardi ng the ETI Act in general were closely linked to
the original recommendations under SCM Article 4.7.
8 However, this assertion is belied by the fact
that the Appellate Body upheld, rather than modified, the findings of the Article 21.5 Panel under
Article 4.7. In paragraph 256(f) of its report, the Appellate Body stated that it

upholds the Panel’s finding, in paragraphs 8. 170 and 9.1(e) of the Panel Report, that
the United States has not fully withdrawn the subsidies . . . and that the United States
has, therefore, failed fully to implement the recommendations and rulings of the DSB
made pursuant to Article 4.7 of the SCM Agreement ... .9

As previously noted, paragraphs 8.170 and 9.1( e) of the Article 21.5 Panel Report pertained to
section 5 of the ETI Act.

17. In paragraph 257 of the Appe llate Body report, the Appellate Body drew upon the language in
paragraph 256 to recommend "that the DSB request the United States to implement fully the
recommendations and rulings of the DSB in US – FSC , made pursuant to Article 4.7 of the SCM
Agreement".
10 Contrary to the EC’s assertions11, this recommendation has nothing to do with the ETI
Act tax exclusion. Instead, the Appellate Body referenced the recommendations and rulings in US –
FSC, which were made before the ETI Act tax exclusion even existed.

4 Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to
Article 21.5 of the DSU by the European Communities , WT/DS108/RW, adopted 29 January 2002, as modified
by the Appellate Body Report, WT/DS108/AB/RW, Annex A-1, para. 241 (hereinafter "US – FSC (Article 21.5)
(Panel)").
5 US – FSC (Article 21.5) (Panel), Annex A-1, para. 259, sixth bullet.
6 US – FSC (Article 21.5) (Panel), paras 8.170 (emphasis added).
7 US – FSC (Article 21.5) (Panel), para. 9.1(e).
9 Appellate Body Report, United States – Tax Treatment for "For eign Sales Corporations" – Recourse
to Article 21.5 of the DSU by the European Communities , WT/DS108/AB/RW, adopted 29 January 2002,
para. 256(f) (emphasis added) (hereinafter "US – FSC (Article 21.5) (AB)").
10 US – FSC (Article 21.5) (AB), para. 257 (emphasis added).
11 EC Rebuttal, para. 13.

18. In summary, the original Article 21.5 pro cess resulted in two different sets of findings and
recommendations. One set pertained to section 5 of the ETI Act and the transition provisions for the
FSC tax exemption and involved a finding and r ecommendation under Article 4.7. The other set
pertained to the ETI Act tax exclusion. With r espect to the tax exclusion, there was no finding or
recommendation under Article 4.7. Thus, the EC is simply incorrect when it asserts that the Appellate
Body made a finding that the enactment of the ETI Act tax exclusion resulted in non-compliance with
the DSB’s recommendation under Article 4.7 to withdraw the FSC subsidies.

The Panel Should Reject the EC’s Claims Under Article 4.7 of the SCM Agreement

19. To sum up, the EC’s claim under Article 4.7 is based on the notion that the United States had
an obligation under Article 4.7 to withdraw the ETI Act tax exclusion. According to the EC, the
transition provisions of sections 101(d) and (f) of the AJCA are inconsistent with this obligation
because they permit the continued use of the tax exclusion.

20. Insofar as the ETI Act tax exclusion itself is concerned, the United States had an obligation to
bring the measure into conformity with Article 3.1( a) of the SCM Agreement, Articles 3.3, 8 and 10.1
of the Agriculture Agreement, and Article III:4 of the GATT 1994. However, the United States did
not have an obligation under Article 4.7 of the SCM Agreement with respect to the ETI Act tax
exclusion. As the United States has demonstrated, the first Article 21.5 proceeding did not result in
any findings that the ETI Act tax exclusion resulted in a failure to comply with Article 4.7.

Section 5 of the ETI Act Is Not Within the Panel’s Terms of Reference

21. The United States now would like to turn to the EC’ s claims regarding section 5 of the ETI
Act. Section 5, as the Panel will recall, is the tran sition provision in the ETI Act that allowed for the
continued use of the FSC tax exemption for a peri od of time. As previously explained by the
United States, section 5 is not within the Panel’s terms of reference for several reasons. First, the only
provisions of the AJCA identified by the EC in it s panel request were sections 101(d) and (f), which
are the transition provisions for the ETI Act tax exclusion and which do not concern the FSC tax
exemption. Second, section 5 of the ETI Act was not mentioned in the EC’s panel request.
12

22. According to the EC, the US position is wrong because the "United States considers the
subsections of the [AJCA] expressly mentioned in a particular part of the request for the establishment
of the Panel to be the sole subject of litigation in this proceeding." 13 Well, the United States must
admit that it did rely on the fact that in Section 2 of the EC’s panel request the EC was, in fact,
purporting to identify the subject of the dispute. The United States reached the conclusion that it did
because Section 2 is entitled "THE SUBJECT OF THE DISPUTE". Apparently, according to the EC,
the title to Section 2 actually means "A SUBJECT OF THE DISPUTE".

23. Section 2, consistent with the plain English reading of its title, identifies as the subject of the
dispute sections 101(d) and (f), referring to them as "provisions which will allow US exporters to
continue benefiting from the tax exemptions ... ."
14 However, the only tax exemption that these
provisions allow to continue to be used is the ETI Act tax exclusion. Therefore, the only fair reading
of the EC panel request is that the EC’s claims re lated to the transition provisions for the ETI Act tax
exclusion, and not the FSC tax exemption.

24. Thus, the EC’s discussion of the nature of Article 21.5 proceedings and what can and cannot
be raised therein is irrelevant.
15 Even if the EC could have made a claim regarding section 5 of the

12 First Written Submission of the United States, 2 June 2005, para. 20.
14 WT/DS108/29, page 2.
15 See, e.g., EC Rebuttal, paras. 21-23.

ETI Act and the continued use of the FSC tax exemption, the fact is that it did not do so in its request
for the establishment of a panel. Therefore, the Pa nel must find that these claims are not within its
terms of reference.

Conclusion

25. Mr. Chairman, that concludes our oral statem ent. The US delegation stands ready to respond
to any questions you may have.

ANNEX D-3

THIRD PARTY ORAL STATEMENT OF AUSTRALIA

(1 July 2005)

Mr Chairman, Members of the Panel

 Australia welcomes the opportunity to present its views to the Panel in this dispute.

 I will not repeat the points Australia has made in its written submission other than to reiterate
the importance that Australia places on an interpreta tion of the DSU that ensures prompt compliance
with the recommendations and rulings of the DSB. As stated in Article 21.1of the DSU, such
compliance is "essential in order to ensure effect ive resolution of disputes to the benefit of all
Members".

 Australia looks forward to participating furthe r in the panel’s consideration of the issues
before it.

ANNEX D-4

THIRD PARTY ORAL STATEMENT OF BRAZIL

(1 July 2005)

Mr. Chairman and Distinguished Members of the Panel,

1. Brazil welcomes the opportunity to appear befo re you today at this third party session of the
meeting with the Panel in the present dispute.

2. In light of the conciseness of the submissions presented by the parties and third parties in this
proceeding, it would not come as a surprise to the Panel if Brazil says that it will briefly touch on
some of the issues in question in this case. As you will see, we will give the word briefly its full
ordinary meaning, by any test according to the Vienna Convention on Treaty Law.

3. Not only will this intervention be short, but it will also be reiterative of what Brazil has
already put forward in its submission of 9 June. As a third party, Brazil has had no access to whatever
the United States and the European Communities (EC) might have submitted to the Panel after their
rebuttal briefs of 16 June, particular ly in terms of the EC’s claims of violation under Article 3 of the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), Articles 3, 8 and 10 of
the Agreement on Agriculture ("AoA"), Article III: 4 of the General Agreement on Tariffs and Trade
1994 ("GATT 1994"), and Articles 19 and 21 of the DSU.

4. Introductory explanations given, Brazil takes the opportunity to emphasize the following
points we raised on 9 June:

 (a) Prompt compliance as a central elemen t for the appropriate functioning of the WTO
dispute settlement system; and

 (b) The continuation of a non-compliance situation through the American Jobs Creation
Act of 2004 ("AJCA").

Prompt Compliance

5. Reduced to its essence, the central argument of the United States in the present case is that a
WTO Member would be allowed to maintain a subs idy previously found to be prohibited pursuant to
WTO law insofar as a compliance panel does not make a recomme ndation under Article 4.7 of the
SCM Agreement to the effect that that WTO Member withdraw a subsidy with respect to which there
already existed a multilateral recommendation by the DSB that it be withdrawn without delay.

6. To say the least, it is hard to reconcile such an argument with the basic principles of WTO
dispute settlement, especially that of prompt compliance.

7. Even though the mere fact that this argume nt is made may suggest otherwise, Brazil does not
believe it necessary to reproduce here the text of several provisions in the DSU requiring Members to
promptly comply with DSB’s rulings and recommendations.

8. Brazil only notes that the adjective the drafters of the DSU choose to signify the relevance to
be attached to this principle is essential. Among its meanings, we will find those of necessary,
fundamental, indispensable. It is not a light word, for sure.

9. The drafters, however, did not use the term only once. In two DSU provisions – Articles 3.3
and 21.1 – this adjective appear to qualify the obligation of prompt compliance. A meaning must be
attached to this. Unlike Brazil in this statement, the drafters were not simply reiterative. By recurring
twice to this word, the drafters emphasized how important prompt compliance is for the appropriate
operation of the multilateral dispute settlement system.

10. As Brazil expressed in its submission, this is not only a DSU-case. It involves prohibited
subsidies, as defined by the SCM Agreement. There, the prompt compliance principle is even further
reinforced through especial remedies, as those established by Article 4.7.

Non-compliance

11. To avoid additional repetitions, Brazil – on the issues of the extension and "grandfathering" –
will only highlight the argument presented in paragra phs 19 to 21 of our thir d party submission and,
in slightly different terms, captured in paragraph 12 of the EC’s rebuttal submission.

12. In analyzing this case, one should bear in mind that the extension and "grandfathering"
provisions in the AJCA simply extend subsidies held WTO-inconsistent in two previous proceedings.
This constitutes a delay of the long-overdue impl ementation of the recommendations deriving from
the original proceedings on the Foreign Sales Corporations subsidies.

13. In this respect, by asserting that the United St ates is under no obligation to withdraw the ETI
Act subsidies because no recommendation pursuant to Article 4.7 of the SCM Agreement was made
by the first compliance panel is tantamount to argui ng for a new deadline for implementation. In our
view, should a compliance panel, having found that the WTO-in consistencies remain, be required to
reward the non-compliant Member with a new time- period for implementation, Articles 3.2 and 19.2
of the DSU would be depleted of any significance.

Conclusion

14. In our view, this Panel should conclude that the United States has not yet complied with the
DSB’s recommendations and rulings concerning this matter in the sense that the United States has not
yet fully withdrawn prohibited subsidies found by previous related proceedings to be inconsistent with
the multilateral rules.

 Thank you.

ANNEX D-5

THIRD PARTY ORAL STATEMENT OF
THE PEOPLE'S REPUBLIC OF CHINA

(1 July 2005)

1. Thank you, Mr. Chairman, and members of the Panel. China appreciates this opportunity to
present its views on the issues raised in this Panel proceeding.

2. In regard to the situation in this case, Ch ina cannot share the view that "the United States has
not failed to comply with the DSB’s recommendations and rulings, and the transition provisions of the
AJCA are not inconsistent with Article 4.7 of the SCM Agreement, for the simple reason that, …
there was no DSB recommendation or ruling under Artic le 4.7 to withdraw the subsidy insofar as the
ETI Act tax exclusion is concerned."
1

3. The DSB made recommendations and rulings under article 4.7 when adopting the panel and
Appellate Body report on 20 March 2000, which re quested the US to withdraw the FSC subsidies
within certain time-period. Subsequently, the Un ited States enacted the ETI Act with a view to
complying with the recommendations and rulings of the DSB in US-FSC. In the first compliance
panel proceeding, the ETI scheme was found inconsis tent with article 3.1(a) of the SCM Agreement
and the US was requested to bring it into conform ity with its obligations under relevant Agreement,
including the SCM Agreement.
2

4. Article 4.7 of the SCM Agreement requires prohibited subsidies to be withdrawn "without
delay", and provides that a time-period for such withdrawal shall be specified by the panel. 3 T h e
obligation to withdraw prohibited subsidies without delay is not released simply because the first
compliance panel did not specify a time-period in its conclusion. The party concerned failed to fully
implement the DSB recommendations and rulings by introducing transition period and grandfathering
provisions for FSC scheme, an export subsidy measure. How can transition period and grandfathering
provisions for another prohibited subsidy measure be justified?

5. The Appellate Body has made it clear why a long transition period and grandfathering
provision are not in conformity with the obligat ion to withdraw the prohibited subsidies without
delay. A Member's obligation under Article 4.7 of the SCM Agreement to withdraw prohibited
subsidies "without delay" is unaffected by contract ual obligations that the Member itself may have
assumed under municipal law. Likewise, a Memb er's obligation to withdraw prohibited export
subsidies, under Article 4.7 of the SCM Agreement , cannot be affected by contractual obligations
which private parties may have assumed inter se in reliance on laws conferring prohibited export
subsidies.
4

6. China would like to conclude its submissi on by recalling that the primary objective of the
dispute settlement mechanism is to secure the wit hdrawal of the measures found to be inconsistent
with the covered agreements.

 Thank you, Mr. Chairman.