BRAZIL – CERTAIN MEASURES CONCERNING TAXATION AND CHARGES AB-2017-7 AB-2017-8
Document: Reports of the Appellate Body
Date: 13 December 2018
Document codes: WT/DS472/AB/R; WT/DS497/AB/R
Complainant: EU
Respondent: Brazil
Third parties: Argentina, Australia, Canada, China, Colombia, India, Japan, South Korea, Russia, South Africa, Taiwan, Turkey, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. I:1, III:2, III:4, III:5  GATT 1994Art. 3.1(b), 3.2, 1.1  Subsidies and Countervailing Measures (SCM)Art. 2.1, 2.2  Trade-Related Investment Measures (TRIMs)

BRAZIL – CERTAIN MEASURES CONCERNING TAXATION AND CHARGES
AB-2017-7
AB-2017-8
Reports of the Appellate Body
 •

ABBREVIATIONS USED IN THESE REPORTS
Abbreviation Description
Anti-Dumping
Agreement
Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994
CIDE Contribution of Intervention in the Economic Domain
COFINS Contribution to Social Security Financing
COFINS-Importation Contribution to Social Security Financing applicable to Imports of Goods or Services
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
ECAs economic complementation agreements
ECA No. 2 Economic Complementation Agreement No. 2 between Brazil and Uruguay
ECA No. 14 Economic Complementation Agreement No. 14 between Argentina and Brazil
ECA No. 55 Economic Complementation Agreement No. 55 between MERCOSUR and Mexico
Enabling Clause Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller
Participation of Developing Countries, Decision of 28 November 1979
European Union's
panel request
Request for the Establishment of a Panel by the European Union,
GATT 1994 General Agreement on Tariffs and Trade 1994
GSP Generalized System of Preferences
ICT Information and Communication Technology
ICT products Information and Communication Technology, Automation and Related Goods
ICT programme tax treatment established under the Informatics, PADIS, PATVD, and Digital
Inclusion programmes
INMETRO National Institute of Metrology, Quality and Technology
INOVAR-AUTO
programme
programme of Incentive to the Technological Innovation and Densification of the
Automotive Supply Chain
IPI tax Tax on Industrialised Products
Japan's panel request Request for the Establishment of a Panel by Japan,
LAIA Latin American Integration Association
MDIC Ministry of Development, Industry and Trade
MFN most-favoured nation
NTMs non-tariff measures
PADIS programme programme of Incentives for the Semiconductors Sector
PASEP Civil Service Asset Formation Programme
PATVD Programme of Support to the Technological Development of the Industry of Digital
TV Equipment
PEC programme regime for Predominantly Exporting Companies
PIS Social Integration Programme
PIS/PASEP Social Integration Programme/Civil Service Asset Formation Programme
PIS/PASEP-
Importation
Social Integration and Civil Service Asset Formation Programmes contribution
applicable to Imports of Foreign Goods or Services
PPB Basic Productive Process
PTA preferential trade arrangement
R&D research and development
RECAP programme Special Regime for the Purchase of Capital Goods for Exporting Enterprises
REIMCOMP Special Regime to Incentive Computers for Educational Use
RETAERO Special Regime for the Brazilian Aerospace Industry
RTA regional trade agreement
S&D special and differential treatment
SCM Agreement Agreement on Subsidies and Countervailing Measures
TRIMs Agreement Agreement on Trade-Related Investment Measures
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969,
1155 UNTS 331; 8 International Legal Materials 679
Working Procedures Working Procedures for Appellate Review
WTO World Trade Organization
PANEL EXHIBITS CITED IN THESE REPORTS
Exhibit
No.
Short Title
(if any)
Full Case Title and Citation
BRA-93 1980 Treaty of
Montevideo
Treaty of Montevideo, concluded at Montevideo on 12 August 1980
BRA-100 Law 10,637/2002 Law 10,637 of 30 December 2002
BRA-114 Communication from LAIA to the Chair of the Trade and Development
Committee of the WTO, 19 May 2016 (original version)
WT/DS472/AB/R • WT/DS497/AB/R

Exhibit
No.
Short Title
(if any)
Full Case Title and Citation
BRA-115 Communication from LAIA to the Chair of the Trade and Development
Committee of the WTO, 19 May 2016 (translated version)
JE-7 Decree 5,906/2006 Decree 5,906 of 26 September 2006 (regulating Articles 4, 9, 11, and
16-A of Law 8,248 of 23 October 1991) (Informatics Law)
JE-8 Decree 6,759/2009 Decree 6,759 of 5 February 2009 governing the administration of
customs activities and the inspection, control and taxation of foreign
trade operations
JE-9 Decree 7,212/2010 Decree 7,212 of 15 June 2010 regulating the charging, inspection,
collection and administration of the Industrial Goods Tax (IPI)
JE-31 Interministerial
Implementing Order
93/2013
Interministerial Implementing Order ( Portaria) 93 of 1 April 2013
establishing a Basic Production process for optical splice closures
produced in Brazil
JE-32 Interministerial
Implementing Order
103/2013
Interministerial Implementing Order ( Portaria) 103 of 2 April 2013 on
the Basic Production Process for products for speed alarms, tracking and
control produced in Brazil
JE-71 Law 11,484/2007 Law 11,484, of 31 May 2007 providing for the incentives to the Digital
TV equipment and electronic semiconductor components industries and
on the intellectual property protection of integrated circuit topographies,
establishing the Semiconductor Technological Development Support
Program (PADIS) and Support Program for the Technological
Development of the Digital TV Equipment Industry (PATVD)
JE-73 Decree 6,233/2007 Decree 6,233, of 11 October 2007 establishing the criteria for the
purpose of accreditation to the Semiconductor Technological
Development Support Program (PADIS), which grants income tax
exemption and reduces PIS/PASEP, COFINS and IPI contributions to zero
JE-75 Decree 8,247/2014 Decree 8,247 of 23 May 2014, amending Decree 6,233/2007
JE-76 Regulatory Instruction
RFB 852/2008
Regulatory Instruction RFB 852 of 13 June 2008 laying down procedures
for qualification for the Programme for the Technological Development
of the Semiconductor Industry (PADIS) by Secretary of the Federal
Revenue Department of Brazil
JE-94 Law 10,637/2002 Law 10,637 of 30 December 2002
JE-95 Law 12,715/2012 Law 12,715 of 17 September 2012
JE-132 Decree 7,819/2012 Decree 7,819 of 3 October 2012 regulating Articles 40 to 44 of Law
12,715 of 17 September 2012, which contain provisions on the
Incentive Scheme for Technological Innovation and Consolidation of the
Automotive Supply Chain (INOVAR-AUTO) and Articles 5 and 6 of Law
12,546 of 14 December 2011, which contain provisions on a reduction
of the Industrial Goods Tax, as the case dictates
JE-163
(rev)
Decree 350/1991 Decree 350 of 21 November 1991 on the Treaty for the Formation of a
Common Market between the Republic of Argentina, the Federative
Republic of Brazil, the Republic of Paraguay and the Oriental Republic
of Uruguay (MERCOSUR)
JE-164
(rev)
Decree 4,458/2002 Decree 4,458 of 5 November 2002 on the Economic
Complementation Agreement No. 55 between MERCOSUR and the
United Mexican States
JE-165
(rev)
Decree 6,500/2008 Decree 6,500 of 2 July 2008 on the Economic
Complementation Agreement No. 14 between the Republic of Argentina
and the Federative Republic of Brazil
JE-181 Law 10,865/2004 Law 10,865 of 30 April 2004
JE-182 Law 11,196/2005 Law 11,196 of 21 November 2005 (RECAP)
JE-186 Exporters 2014 study on Brazilian exports – delays in refunds
(original version)
JE-191 Normative Instruction
RFB 948/2009
Normative Instruction (Instrução Normativa) RFB 948 of 15 June 2009
JE-193 Normative Instruction
SRF 595/2005
Normative Instruction SRF 595 of 27 December 2005
JE-203
(rev)
Decree 6,518/2008 Decree 6,518 of 30 July 2008 providing for the implementation of the
68th Additional Protocol to Economic Complementation Agreement
No. 2, signed between the Governments of the Federative Republic of
Brazil and the Oriental Republic of Uruguay
JE-204
(rev)
Decree 7,658/2011 Decree 7,658 of 23 December 2011 laying down provisions concerning
the implementation of the 69th Additional Protocol to Economic
Complementation Agreement No. 2 signed by the Governments of the
Federal Republic of Brazil and the Oriental Republic of Uruguay
WT/DS472/AB/R • WT/DS497/AB/R

CASES CITED IN THESE REPORTS
Short Title Full Case Title and Citation
Argentina – Hides and
Leather
Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and the
Import of Finished Leather, WT/DS155/R and Corr.1, adopted 16 February 2001,
DSR 2001:V, p. 1779
Australia – Automotive
Leather II
Panel Report, Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather, WT/DS126/R, adopted 16 June 1999, DSR 1999:III, p. 951
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon,
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, p. 3327
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft,
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1161
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/R,
adopted 20 August 1999, as modified by Appellate Body Report WT/DS46/AB/R,
DSR 1999:III, p. 1221
Brazil – Retreaded
Tyres
Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres,
WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, p. 1527
Brazil – Taxation Panel Reports, Brazil – Certain Measures Concerning Taxation and Charges,
WT/DS472/R, Add.1 and Corr.1 / WT/DS497/R, Add.1 and Corr.1, circulated to
WTO Members 30 August 2017
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/R, adopted 20 August 1999, upheld by Appellate Body Report
WT/DS70/AB/R, DSR 1999:IV, p. 1443
Canada – Aircraft
(Article 21.5 – Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft
– Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted
4 August 2000, DSR 2000:IX, p. 4299
Canada – Aircraft
Credits and
Guarantees
Panel Report, Canada – Export Credits and Loan Guarantees for Regional Aircraft,
WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III, p. 849
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000,
DSR 2000:VI, p. 2985
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry,
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body
Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043
Canada – FIRA GATT Panel Report, Canada – Administration of the Foreign Investment Review
Act, L/5504, adopted 7 February 1984, BISD 30S, p. 140
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals,
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p. 449
Canada – Renewable
Energy / Canada –
Feed-in Tariff Program
Appellate Body Reports, Canada – Certain Measures Affecting the Renewable
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff
Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I,
p. 7
Chile – Alcoholic
Beverages
Appellate Body Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/AB/R,
WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, p. 281
Chile – Price Band
System
(Article 21.3(c))
Award of the Arbitrator, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products – Arbitration under Article 21.3(c) of the
DSU, WT/DS207/13, 17 March 2003, DSR 2003:III, p. 1237
Chile – Price Band
System (Article 21.5 –
Argentina)
Appellate Body Report, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by
Argentina, WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, p. 513
China – HP-SSST
(Japan) / China –
HP-SSST (EU)
Appellate Body Reports, China – Measures Imposing Anti-Dumping Duties on
High-Performance Stainless Steel Seamless Tubes ("HP-SSST") from Japan /
China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless
Steel Seamless Tubes ("HP-SSST") from the European Union, WT/DS454/AB/R and
Add.1 / WT/DS460/AB/R and Add.1, adopted 28 October 2015, DSR 2015:IX,
p. 4573
WT/DS472/AB/R • WT/DS497/AB/R

Short Title Full Case Title and Citation
China – Publications
and Audiovisual
Products
Appellate Body Report, China – Measures Affecting Trading Rights and Distribution
Services for Certain Publications and Audiovisual Entertainment Products,
WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I, p. 3
China – Rare Earths Appellate Body Reports, China – Measures Related to the Exportation of Rare
Earths, Tungsten, and Molybdenum, WT/DS431/AB/R / WT/DS432/AB/R /
WT/DS433/AB/R, adopted 29 August 2014, DSR 2014:III, p. 805
Colombia – Textiles Appellate Body Report, Colombia – Measures Relating to the Importation of
Textiles, Apparel and Footwear, WT/DS461/AB/R and Add.1, adopted
22 June 2016, DSR 2016:III, p. 1131
Dominican Republic –
Import and Sale of
Cigarettes
Appellate Body Report, Dominican Republic – Measures Affecting the Importation
and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005,
DSR 2005:XV, p. 7367
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and
Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001,
DSR 2001:VII, p. 3243
EC – Bananas III
(Article 21.5 –
Ecuador II) /
EC – Bananas III
(Article 21.5 – US)
Appellate Body Reports, European Communities – Regime for the Importation,
Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU by
Ecuador, WT/DS27/AB/RW2/ECU, adopted 11 December 2008, and Corr.1 /
European Communities – Regime for the Importation, Sale and Distribution of
Bananas – Recourse to Article 21.5 of the DSU by the United States,
WT/DS27/AB/RW/USA and Corr.1, adopted 22 December 2008, DSR 2008:XVIII,
p. 7165
EC – Bed Linen
(Article 21.5 – India)
Appellate Body Report, European Communities – Anti-Dumping Duties on Imports
of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU by
India, WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, p. 965
EC – Chicken Cuts
(Article 21.3(c))
Award of the Arbitrator, European Communities – Customs Classification of Frozen
Boneless Chicken Cuts – Arbitration under Article 21.3(c) of the DSU,
WT/DS269/13, WT/DS286/15, 20 February 2006
EC – Export Subsidies
on Sugar
(Article 21.3(c))
Award of the Arbitrator, European Communities – Export Subsidies on Sugar –
Arbitration under Article 21.3(c) of the DSU, WT/DS265/33, WT/DS266/33,
WT/DS283/14, 28 October 2005, DSR 2005:XXIII, p. 11581
EC – Fasteners
(China)
Appellate Body Report, European Communities – Definitive Anti-Dumping
Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R,
adopted 28 July 2011, DSR 2011:VII, p. 3995
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, p. 135
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the
Importation of Certain Poultry Products, WT/DS69/AB/R, adopted 23 July 1998,
DSR 1998:V, p. 2031
EC – Sardines Appellate Body Report, European Communities – Trade Description of Sardines,
WT/DS231/AB/R, adopted 23 October 2002, DSR 2002:VIII, p. 3359
EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the
Importation and Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R,
adopted 18 June 2014, DSR 2014:I, p. 7
EC – Selected
Customs Matters
Appellate Body Report, European Communities – Selected Customs Matters,
WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, p. 3791
EC – Tariff Preferences Appellate Body Report, European Communities – Conditions for the Granting of
Tariff Preferences to Developing Countries, WT/DS246/AB/R,
adopted 20 April 2004, DSR 2004:III, p. 925
EC – Tube or Pipe
Fittings
Appellate Body Report, European Communities – Anti-Dumping Duties on Malleable
Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted
18 August 2003, DSR 2003:VI, p. 2613
EC and certain
member States –
Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted
1 June 2011, DSR 2011:I, p. 7
EC and certain
member States –
Large Civil Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as
modified by Appellate Body Report WT/DS316/AB/R, DSR 2011:II, p. 685
WT/DS472/AB/R • WT/DS497/AB/R

Short Title Full Case Title and Citation
EC and certain
member States –
Large Civil Aircraft
(Article 21.5 – US)
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the
DSU by the United States, WT/DS316/AB/RW and Add.1, adopted 28 May 2018
EC and certain
member States –
Large Civil Aircraft
(Article 21.5 – US)
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by the
United States, WT/DS316/RW and Add.1, adopted 28 May 2018, as modified by
Appellate Body Report WT/DS316/AB/RW
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding
Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998,
DSR 1998:IX, p. 3767
India – Agricultural
Products
Panel Report, India – Measures Concerning the Importation of Certain Agricultural
Products, WT/DS430/R and Add.1, adopted 19 June 2015, as modified by
Appellate Body Report WT/DS430/AB/R, DSR 2015:V, p. 2663
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2, adopted 23
July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Indonesia – Import
Licensing Regimes
Appellate Body Report, Indonesia – Importation of Horticultural Products, Animals
and Animal Products, WT/DS477/AB/R, WT/DS478/AB/R, and Add.1, adopted 22
November 2017
Italy – Agricultural
Machinery
GATT Panel Report, Italian Discrimination Against Imported Agricultural Machinery,
L/833, adopted 23 October 1958, BISD 7S, p. 60
Japan – Agricultural
Products II
Appellate Body Report, Japan – Measures Affecting Agricultural Products,
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, p. 277
Japan – Alcoholic
Beverages II
Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of Apples,
WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, p. 4391
Korea – Alcoholic
Beverages
Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R,
WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, p. 3
Korea – Alcoholic
Beverages
(Article 21.3(c))
Award of the Arbitrator, Korea – Taxes on Alcoholic Beverages – Arbitration under
Article 21.3(c) of the DSU, WT/DS75/16, WT/DS84/14, 4 June 1999, DSR 1999:II,
p. 937
Korea – Commercial
Vessels
Panel Report, Korea – Measures Affecting Trade in Commercial Vessels,
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, p. 2749
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I,
p. 3
Korea – Various
Measures on Beef
Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and
Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001,
DSR 2001:I, p. 5
Mexico – Corn Syrup
(Article 21.5 – US)
Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn
Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSU by the
United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII,
p. 6675
Mexico – Taxes on
Soft Drinks
Panel Report, Mexico – Tax Measures on Soft Drinks and Other Beverages,
WT/DS308/R, adopted 24 March 2006, as modified by Appellate Body Report
WT/DS308/AB/R, DSR 2006:I, p. 43
Thailand – Cigarettes
(Philippines)
Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from
the Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV, p. 2203
US – Anti-Dumping
Methodologies (China)
Appellate Body Report, United States – Certain Methodologies and Their
Application to Anti-Dumping Proceedings Involving China, WT/DS471/AB/R and
Add.1, adopted 22 May 2017
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain
Corrosion-Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R
and Corr.1, adopted 19 December 2002, DSR 2002:IX, p. 3779
WT/DS472/AB/R • WT/DS497/AB/R

Short Title Full Case Title and Citation
US – Carbon Steel
(India)
Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727
US – Certain EC
Products
Appellate Body Report, United States – Import Measures on Certain Products from
the European Communities, WT/DS165/AB/R, adopted 10 January 2001,
DSR 2001:I, p. 373
US – Countervailing
Measures on Certain
EC Products
Appellate Body Report, United States – Countervailing Measures Concerning
Certain Products from the European Communities, WT/DS212/AB/R, adopted
8 January 2003, DSR 2003:I, p. 5
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p. 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations",
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report
WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC
(Article 21.5 – EC)
Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European Communities,
WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – FSC
(Article 21.5 – EC)
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" –
Recourse to Article 21.5 of the DSU by the European Communities,
WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report
WT/DS108/AB/RW, DSR 2002:I, p. 119
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border
Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005,
DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain
Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001,
DSR 2001:X, p. 4697
US – Large Civil
Aircraft
(2nd complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil
Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7
US – Large Civil
Aircraft (2nd
complaint)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint) , WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Malt Beverages GATT Panel Report, United States – Measures Affecting Alcoholic and Malt
Beverages, DS23/R, adopted 19 June 1992, BISD 39S, p. 206
US – Offset Act (Byrd
Amendment)
Panel Report, United States – Continued Dumping and Subsidy Offset Act of 2000,
WT/DS217/R, WT/DS234/R, adopted 27 January 2003, as modified by Appellate
Body Report WT/DS217/AB/R, WT/DS234/AB/R, DSR 2003:II, p. 489
US – Offset Act (Byrd
Amendment)
(Article 21.3(c))
Award of the Arbitrator, United States – Continued Dumping and Subsidy Offset
Act of 2000 – Arbitration under Article 21.3(c) of the DSU, WT/DS217/14,
WT/DS234/22, 13 June 2003, DSR 2003:III, p. 1163
US – Oil Country
Tubular Goods Sunset
Reviews
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures
on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted
17 December 2004, DSR 2004:VII, p. 3257
US – Section 211
Appropriations Act
Appellate Body Report, United States – Section 211 Omnibus Appropriations Act
of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, p. 589
US – Section 337
Tariff Act
GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/6439,
adopted 7 November 1989, BISD 36S, p. 345
US – Softwood
Lumber IV
Appellate Body Report, United States – Final Countervailing Duty Determination
with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted
17 February 2004, DSR 2004:II, p. 571
US – Softwood
Lumber VI
(Article 21.5 –
Canada)
Appellate Body Report, United States – Investigation of the International Trade
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the
DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1,
DSR 2006:XI, p. 4865
US – Tax Incentives Appellate Body Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/AB/R and Add.1, adopted 22 September 2017
WT/DS472/AB/R • WT/DS497/AB/R

Short Title Full Case Title and Citation
US – Tax Incentives Panel Report, United States – Conditional Tax Incentives for Large Civil Aircraft,
WT/DS487/R and Add.1, adopted 22 September 2017, as modified by
Appellate Body Report WT/DS487/AB/R
US – Tuna II (Mexico) Appellate Body Report, United States – Measures Concerning the Importation,
Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted
13 June 2012, DSR 2012:IV, p. 1837
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Add.1 to
Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate Body Report
WT/DS267/AB/R, DSR 2005:II, p. 299
US – Upland Cotton
(Article 21.5 – Brazil)
Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008,
DSR 2008:III, p. 809
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on Imports
of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted
19 January 2001, DSR 2001:II, p. 717
US – Wool Shirts and
Blouses
Appellate Body Report, United States – Measure Affecting Imports of Woven Wool
Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1,
DSR 1997:I, p. 323
WT/DS472/AB/R • WT/DS497/AB/R

APPELLATE BODY

Brazil – Certain Measures Concerning
Taxation and Charges

Brazil, Appellant/Appellee
European Union,
Other Appellant1/Appellee2/Third Participant3
Japan,
Other Appellant4/Appellee5/Third Participant6

Argentina, Third Participant
Australia, Third Participant
Canada, Third Participant
China, Third Participant
Colombia, Third Participant
India, Third Participant
Korea, Third Participant
Russia, Third Participant
Singapore, Third Participant7
South Africa, Third Participant8
Chinese Taipei, Third Participant9
Turkey, Third Participant
Ukraine, Third Participant10
United States, Third Participant
AB-2017-7
AB-2017-8

Appellate Body Division:

Graham, Presiding Member
Van den Bossche, Member
Zhao, Member

1 INTRODUCTION
1.1. Brazil, the European Union, and Japan each appeal certain issues of law and legal
interpretations developed in the Panel Reports, Brazil – Certain Measures Concerning Taxation and
Charges.11
1.2. On 31 October 2014, the European Union requested the establishment of a panel pursuant to
Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),
Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994), Articles 4.4 and 30
of the Agreement on Subsidies and Countervailing Measures (S CM Agreement), and Article 8 of
the Agreement on Trade-Related Investment Measures (TRIMs Agreement) concerning certain tax
measures adopted by Brazil through various programmes aimed at the information and
communication technology (ICT) and automotive sectors.12 On 17 December 2014, pursuant to the
request of the European Union, a Panel was established to consider this complaint.13
1.3. On 17 September 2015, Japan requested the establishment of a panel pursuant to Articles 4.7
and 6 of the DSU, Article XXIII of the GATT 1994, Articles 4.4 and 30 of the SCM Agreement, and
Article 8 of the TRIMs Agreement concerning certain tax measures adopted by Brazil through various

1 In DS472 only.
2 In DS472 only.
3 In DS497 only.
4 In DS497 only.
5 In DS497 only.
6 In DS472 only.
7 In DS497 only.
8 In DS472 only.
9 In DS472 only.
10 In DS497 only.
11 WT/DS472/R, WT/DS497/R, 30 August 2017.
12 Request for the Establishment of a Panel by the European Union, WT/DS472/5 (European Union's
panel request).
13 Panel Reports, para. 1.5 (referring to the Minutes of the DSB Meeting held on 17 December 2014,
WT/DSB/M/353).
WT/DS472/AB/R • WT/DS497/AB/R

programmes aimed at the ICT and automotive sectors .14 On 28 September 2015, pursuant to the
request by Japan, a Panel was established to consider this complaint.15
1.4. Following the establishment of the Panel upon request from Japan, and pursuant to Article 9.3
of the DSU, the Panels were composed with the same persons and adopted their Joint Working
Procedures and joint timetable on 9 October 2015.16
1.5. The taxes and contributions relevant for the purposes of the present appeals are: (i) the Tax
on Industrialised Products (IPI tax) 17; (ii) the Social Integration Programme/Civil Service Asset
Formation Programme (PIS/PASEP) contribution and the Contribution to Social Security Financing
(COFINS)18; (iii) the Social Integration and Civil Service Asset Formation Programmes contribution
applicable to Imports of Foreign Goods or Services (PIS/PASEP -Importation) and the Contribution
to Social Security Financing applicable to Imports of Goods or Services (COFINS-Importation)19; and
(iv) the Contribution of Intervention in the Economic Domain (CIDE).20
1.6. The measures at issue can be divided into three groups of measur es through which Brazil
provides exemptions, reductions, or suspensions of the federal taxes and contributions mentioned
above. The first group of measures concerns the ICT sector and comprises tax treatment granted
under: (i) the Informatics programme; (i i) the programme of Incentives for the Semiconductors
Sector (PADIS programme); (iii) the programme of Support for the Technological Development of
the Industry of Digital TV Equipment (PATVD programme); and (iv) the programme for
Digital Inclusion (Digita l Inclusion programme). 21 The second group comprises tax treatment
granted under the programme of Incentive to the Technological Innovation and Densification of the
Automotive Supply Chain (INOVAR -AUTO programme), which targets the automotive sector. The
third group of measures comprises tax treatment granted under: (i) the regime for Predominantly

14 Request for the Establishment of a Panel by Japan, WT/DS497/3 (Japan's panel request).
15 Panel Reports, para. 1.9 (referring to Minutes of the DSB Meeting held on 28 September 2015,
WT/DSB/M/368).
16 Panel Reports, paras. 1.14-1.15.
17 The IPI tax is a Brazilian federal tax that applies to all national or foreign industrialized
(i.e. manufactured) products. IPI tax rates are product-specific and linked to the price or value of the
industrialized product on which it is imposed. In the case of domestic products, the taxable base is the
transaction value, while for imported products, the taxable base is the customs value plus the import duties
and charges paid. The IPI tax is not paid directly by the entity bearing the ultimate burden of paying the IPI
tax. In the case of domestic products, the IPI tax is charged by the industrial establishment selling the
industrialized product to the entity that buys the industrialized product. The taxes retained by the industrial
establishment selling the industrialized product must be remitted to the Federal Revenue Service on a monthly
basis. In the case of imported products, the IPI tax is charged by the customs authorities to the importer of the
industrialized product during the customs clearance process. The IPI tax is non-cumulative, and the tax due in
each transaction shall be compensated by the amount charged in previous transactions. This is effected by
means of a credit system, by which the tax due on products entering the facilities of the taxpayer is deducted
from the amount due on the exit of products in the same taxation period, which, in turn, means that when a
taxpayer remits to the government the IPI tax collected for any given transaction, the taxpayer may deduct
the IPI tax paid in earlier stages of the supply chain, thereby ensuring that the tax is levied only on the
value added. (Panel Reports, paras. 2.3-2.20)
18 The PIS/PASEP contribution and the COFINS contribution are Brazilian federal contributions that apply
to gross revenues earned by all types of legal entities. These contributions are subject, as a general rule, to
the non-cumulative regime and operate as taxes on value added, where companies generate credits in relation
to their purchases of taxed products, which they can offset with debits when paying their PIS/PASEP and
COFINS liabilities. The system of tax credits ensures that prior-stage PIS/PASEP and COFINS contributions can
be deducted at each stage of the supply chain. (Panel Reports, paras. 2.21-2.29)
19 The PIS/PASEP-Importation and COFINS-Importation contributions are the import-focused variants of
the PIS/PASEP and COFINS contributions. These contributions apply to individual import transactions and are
levied upon importation of goods. The taxable base is the customs value of the goods. Importers are subject to
the non-cumulative regime, so they can offset the amounts paid upon importation with their domestic
PIS/PASEP and COFINS liabilities. Importers, therefore, pay the contributions only with respect to the value
added, i.e. the difference between the customs value and the importers' sales price. The tax credit mechanism
with respect to the non-cumulative PIS/PASEP and COFINS domestic regime applies equally in the case of
importers. (Panel Reports, paras. 2.30-2.34)
20 The CIDE contribution is a Brazilian federal contribution that applies to remittances/royalty payments
abroad. The tax rate is 10%, and the taxable persons are legal entities holding a license of use or acquiring
technological knowledge, as well as those entering into agreements that imply technological transfer, made
with persons residing or domiciled abroad. The basis of calculation is the amount paid, credited, delivered,
used, or remitted every month to persons residing or domiciled abroad. (Panel Reports, paras. 2.35-2.36)
21 Panel Reports, para. 2.37.
WT/DS472/AB/R • WT/DS497/AB/R

Exporting Companies (PEC programme); and (ii) the Special Regime for the Purchase of Capital
Goods for Exporting Enterprises (RECAP programme).22
1.7. The Informatics programme provides for exemptions and reductions on the IPI tax on the sale
of information technology goods. It also provides for suspensions of the IPI tax on the purchase or
import of raw materials, intermediate goods , and packaging materials used in the production of
information technology, and automation goods incentivi zed under the programme. 23 In order to
benefit from the tax treatment, companies must obtain an accreditation. 24 The eligible companies
under the Informatics programme are companies that: (i ) develop or produce information
technology and automation goods and services in compliance with the relevant Basic Productive
Processes (PPBs) 25; and (ii) invest in information technology research and development (R&D)
activities in Brazil. 26 Moreover, under this programme, products that have obtained the status of
"developed in Brazil" are subject to additional tax reductions.27
1.8. The PADIS programme exempts, through zero rates, accredited companies from paying certain
taxes with respect to semiconductors and information displays, as well as inputs, tools, equipment,
machinery, and software for the production of semiconductors and displays. 28 In order to obtain
accreditation, legal persons must: (i) invest in R&D in Brazil; and (ii) engage in certain activities in
Brazil with respect to semiconductor electronic devices, information displays, and inputs and
equipment intended for the manufacture of electronic semiconductor devices and information
displays.29
1.9. The PATVD programme exempts accredited companies from paying certain taxes with respect
to radio frequency signal transmitting equipment for digital television (digital television transmission
equipment), as well as machinery, apparatus, instruments, equipment, inputs, and software for the
production of digital television transmission equipment (production goods). 30 In order to obtain
accreditation, legal persons must: (i) invest in R&D in Brazil; (ii) engage in developing and
manufacturing activities of digital television transmission equipment; and (iii) either comply with the
relevant PPB or, alternatively, meet the criteria for a product to be considered "developed in Brazil".31
1.10. The Digital Inclusion programme exempts, through zero rates, Brazilian retailers from paying
PIS/PASEP and COFINS contributions with re spect to the sale of certain digital consumer goods
produced in Brazil in accordance with the relevant PPBs.32
1.11. The INOVAR-AUTO programme provides for reduction of the IPI tax burden on certain motor
vehicles either: (i) through presumed IPI tax credits granted to accredited companies; or (ii) through
reduced IPI tax rates on the importation of vehicles originating in certain countries, as well as on
certain domestic vehicles. 33 All companies using presumed IPI tax credits, and certain companies
using reduced IPI tax rates, must obtain one of three forms of accreditation: (i) domestic
manufacturer; (ii) importer/distributor; or (iii) investor.34 In order to obtain accreditation, a

22 Panel Reports, para. 2.37.
23 Panel Reports, para. 2.39.
24 Panel Reports, para. 2.49.
25 The Panel defined a PPB as "the minimum set of operations performed at a manufacturing facility that
characterizes the actual industrialization of a given product". (Panel Reports, para. 2.62 (referring to
Decree 5,906 of 26 September 2006 (regulating Articles 4, 9, 11, and 16-A of Law 8,248 of 23 October 1991)
(Informatics Law) (Decree 5,906/2006) (Panel Exhibit JE-7), Article 16)) In other words, the Panel explained
that PPBs indicate the minimum stages or steps of the manufacturing process of a product that must be
performed in Brazil. (Ibid.) On appeal, the participants do not take issue with the definition of a PPB set out by
the Panel.
26 Panel Reports, para. 2.48.
27 Panel Reports, para. 2.67. For an information technology or automation good to be considered as
"developed in Brazil", two requirements must be met: (i) products must comply with the specifications, rules,
and standards laid out in Brazilian legislation; and (ii) the specifications, projects, and developments must
have been carried out in Brazil by technicians of proven skill in such activities who are residents and domiciled
28 Panel Reports, para. 2.71.
29 Panel Reports, para. 2.76.
30 Panel Reports, para. 2.82.
32 Panel Reports, para. 2.91.
33 Panel Reports, para. 2.97.
34 Panel Reports, paras. 2.112-2.113.
WT/DS472/AB/R • WT/DS497/AB/R

company must comply with certain requirements of both a general and specific natur e. All such
companies must comply with the same two general requirements and also with certain additional
specific requirements that vary by the type of accreditation.35 A company applying for accreditation
as a domestic manufacturer shall comply with the two general requirements36 as well as "three out
of four specific requirements, one of which must be the performance of a minimum number of
defined manufacturing and engineering infrastructure activities in Brazil".37 A company applying for
accreditation as importer/distributor shall comply with the two general requirements and
"the following three specific requirements: (i) investments in R&D in Brazil; (ii) expenditure on
engineering, basic industrial technology and capacity-building of suppliers in Brazil; and,
(iii) participation in the vehicle labelling programme by [the] National Institute of Metrology, Quality
and Technology (INMETRO)".38 A company applying for accreditation as an investor shall submit to
the Mini stry of Development, Industry and Trade (MDIC) an investment project containing a
description and the technical features of the vehicles to be imported and manufactured. Accreditation
shall be granted once the investment project is approved by that Ministr y. An investor shall be
required to apply for a specific accreditation for every factory, plant, or industrial project that it plans
to establish.39
1.12. Under the PEC programme, the IPI tax and the PIS/PASEP, COFINS, PIS/PASEP-Importation,
and COFINS-Importation contributions are suspended with respect to raw materials, intermediate
goods, and packaging materials purchased by predominantly exporting companies. 40 Similarly,
under the RECAP programme, the PIS/PASEP, COFINS, PIS/PASEP -Importation, a nd
COFINS-Importation contributions are suspended with respect to purchases of new machinery, tools,
apparatus, instruments, and equipment by predominantly exporting companies.41
1.13. Additional factual aspects of the measures at issue and the relevant taxes an d contributions
are set forth in greater detail in paragraphs 2.1-2.176 of the Panel Reports.
1.14. Before the Panel, the European Union and Japan raised claims, inter alia, under Articles III:2,
III:4, and III:5 of the GATT 1994; Article 2.1 of the TRIMs Agreement; and Article 3.1(b) of the
SCM Agreement with respect to tax treatment established under the Informatics, PADIS, PATVD,
and Digital Inclusion programmes (the ICT programmes) and the INOVAR-AUTO programme. Brazil
invoked Article XX(a) of the GATT 1994 to justify certain inconsistencies with respect to the PATVD
programme and Articles XX(b) and XX(g) to justify certain inconsistencies with respect to the
INOVAR-AUTO programme. The European Union and Japan also raised claims under Article I:1 of
the GATT 1994 with respect to the INOVAR-AUTO programme, in response to which Brazil invoked
the Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of
Developing Countries, Decision of 28 November 1979 (Enabling Clause) as a defence. With respect
to the PEC and RECAP programmes, the European Union and Japan raised claims under Article 3.1(a)
of the SCM Agreement.42
1.15. In the Panel Reports, circulated to Members of the World Trade Organization (WTO) on
30 August 2017, the Panel f irst addressed two broad defences raised by Brazil concerning the
ICT and INOVAR-AUTO programmes. First, the Panel rejected Brazil's argument that Article III of
the GATT 1994, Article 2 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement are
inapplicable to "pre -market" measures. 43 The Panel found that these provisions are not per se

35 Panel Reports, para. 2.114.
36 The two general requirements that all companies seeking accreditation under the INOVAR-AUTO
programme must meet are: (i) compliance with tax obligations at the federal level; and (ii) commitment to
achieve certain minimum levels of energy efficiency for products marketed in Brazil. (Panel Reports,
para. 2.121)
39 Panel Reports, para. 2.117.
40 Panel Reports, paras. 2.148 and 2.150 (referring to Law 10,637 of 30 December 2002 (PIS/PASEP –
non-cumulative) (Law 10,637/2002) (Panel Exhibits JE-94 and BRA-100), Article 29, section 1.II (for IPI tax);
Law 10,865 of 30 April 2004 providing for the Contribution to Social Integration and the Civil Servants
Investment Programmes and the Contribution to the Financing of Social Security levied on the import of goods
and services and sets forth other provisions (Law 10,865/2004) (Panel Exhibit JE-181), Article 40 (for
PIS/PASEP and COFINS contributions)).
41 Panel Reports, paras. 2.163 and 7.1138. We note the definition of a predominantly exporting
company in paragraphs 5.144-5.145 of these Reports below.
42 Panel Reports, paras. 3.1-3.3.
43 Panel Reports, para. 7.70.
WT/DS472/AB/R • WT/DS497/AB/R

inapplicable to certain measures, in particular "pre -market" measures, directed at producers. 44
Second, the Panel rejected Brazil's argument that the ICT and INOVAR-AUTO programmes constitute
payment of subsidies exclusively to domestic producers within the meaning of Article III:8(b) of the
GATT 1994, and therefore are exempted from the disciplines of Article III of the GATT 1994 and
Article 2.1 of the TRIMs Agreement. To the Panel, those aspects of a measure resulting in product
discrimination are not exempted per se from these disciplines, even if the measure takes the form
of a subsidy paid exclu sively to domestic producers. 45 The Panel also made the following findings
concerning the measures at issue:
a. with respect to the ICT programmes:
i. the production-step requirements under the Informatics, PADIS, PATVD, and Digital
Inclusion programmes; and the requirement for products to obtain the status of
"developed in Brazil", under the Informatics, PATVD, and Digital Inclusion
programmes, result in imported products being subject to internal taxes in excess of
those applied to like domestic products, inconsistently with Article III:2, first sentence,
of the GATT 199446;
ii. the production-step requirements under the Informatics, PADIS, PATVD, and Digital
Inclusion programmes, and the requirement for products to obtain the status of
"developed in Brazil", under t he Informatics, PATVD, and Digital Inclusion
programmes; the aspect of the mechanism for the calculation of the amount of
resources required to be invested in R&D under the Informatics and PADIS
programmes relating to the deductible part; and the lower adm inistrative burden on
companies purchasing domestic incentivi zed intermediate products under the
Informatics and PADIS programmes accord to imported products treatment less
favourable than that accorded to like domestic products, inconsistently with
Article III:4 of the GATT 199447;
iii. it is not necessary to make findings with respect to the complaining parties' claims
under Article III:5 of the GATT 1994 in order to secure a positive solution to this
dispute, and the Panel therefore exercises judicial economy with respect to these
claims48;
iv. the Informatics, PADIS, PATVD, and Digital Inclusion programmes constitute
trade-related investment measures, and the aspects of these programmes found to be
inconsistent with Articles III:2 and III:4 of the GATT 1994 are also inconsistent with
Article 2.1 of the TRIMs Agreement49;
v. the tax exemptions, reductions, and suspensions granted under the Informatics,
PADIS, PATVD, and Digital Inclusion programmes are subsidies within the meaning of
Article 1.1 of the SCM Agreement, which are contingent upon the use of domestic over
imported goods within the meaning of Article 3.1(b) of the SCM Agreement, and thus
are prohibited subsidies, inconsistent with Articles 3.1(b) and 3.2 of the
SCM Agreement50; and
vi. those aspects of the PATVD programme found to be inconsistent with the GATT 1994
and the TRIMs Agreement are not justified under Article XX(a) of the GATT 1994.51

44 Panel Reports, paras. 7.70, 8.2, and 8.13.
45 Panel Reports, paras. 7.87, 8.3, and 8.14.
46 Panel Reports, paras. 7.173-7.174, 8.5.a, and 8.16.a. The Panel exercised judicial economy with
respect to Japan's claim under Article III:2, second sentence, of the GATT 1994. (Panel Reports, paras. 7.180
and 8.16.b)
47 Panel Reports, paras. 7.318, 8.5.b, and 8.16.c.
48 Panel Reports, paras. 7.347, 8.5.c, and 8.16.d.
49 Panel Reports, paras. 7.365, 8.5.d, and 8.16.e.
50 Panel Reports, paras. 7.500, 8.5.e, and 8.16.f.
51 Panel Reports, paras. 7.626, 8.5.f, and 8.16.g. On appeal, Brazil does not challenge this finding by
the Panel.
WT/DS472/AB/R • WT/DS497/AB/R

b. with respect to the INOVAR-AUTO programme:
i. certain aspects of the accreditation process, the system of rules on accrual and
calculation of presumed tax credits, and the rules on the use of presumed tax credits
resulting from expenditure on strategic inputs and tools in Brazil result in imported
products being subject to internal taxes in excess of those applied to like domesti c
products, inconsistently with Article III:2 of the GATT 199452;
ii. certain aspects of the accreditation process, the system of rules on accrual and
calculation of presumed tax credits, and the rules on the use of presumed tax credits
resulting from expenditure on strategic inputs and tools in Brazil; the accreditation
requirement to perform a minimum number of manufacturing steps in Brazil; that
aspect of the rules on accrual of presumed IPI tax credits pertaining to expenditure in
strategic inputs a nd tools; and those aspects of the accreditation requirements to
invest in R&D in Brazil and make expenditures on engineering, basic industrial
technology, and capacity-building of suppliers in Brazil, pertaining to the purchase of
Brazilian laboratory equipment, accord less favourable treatment to imported products
than that accorded to like domestic products, inconsistently with Article III:4 of the
GATT 199453;
iii. it is not necessary to make findings with respect to the complaining parties' claims
under Article III:5 of the GATT 1994 in order to secure a positive solution to this
dispute, and the Panel therefore exercises judicial economy with respect to these
claims54;
iv. the INOVAR-AUTO programme constitutes a trade -related investment measure, and
those aspects of the programme found to be inconsistent with Articles III:2 and III:4
of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement55;
v. tax reductions through presumed tax credits granted under the INOVAR -AUTO
programme are subsidies within the meaning of Article 1.1 of the SCM Agreement and
contingent upon the use of domestic over imported goods within the meaning of
Article 3.1(b) of the SCM Agreement, and thus are prohibited subsidies, inconsistent
with Articles 3.1(b) and 3.2 of the SCM Agreement56;
vi. those aspects of the INOVAR -AUTO programme found to be inconsistent with the
GATT 1994 and the TRIMs Agreement are not justified under Article XX(b) or XX(g) of
the GATT 199457;
vii. the tax reductions accorded to imported products from Mercado Com ún del Sur
(Southern Common Market) ( MERCOSUR) members and Mexico under the
INOVAR-AUTO programme are advantages granted by Brazil to products originating in
those countries, which are not accorded immediately and unconditionally to like
products originati ng in other WTO Members, inconsistently with Article I:1 of the
GATT 199458;
viii. the complaining parties were not under a burden to invoke the Enabling Clause in their
panel requests, and their claims under Article I:1 of the GATT 1994 are therefore
within the Panel's terms of reference59; and

52 Panel Reports, paras. 7.688, 8.6.a, and 8.17.a. The Panel exercised judicial economy with respect to
Japan's claim under Article III:2, second sentence, of the GATT 1994. (Panel Reports, paras. 7.691 and 8.17.b)
On appeal, Brazil, however, does not challenge the Panel's finding under Article III:2, first sentence, of the
GATT 1994.
53 Panel Reports, paras. 7.772-7.773, 8.6.b, and 8.17.c.
54 Panel Reports, paras. 7.792, 8.6.c, and 8.17.d.
55 Panel Reports, paras. 7.806, 8.6.d, and 8.17.e.
56 Panel Reports, paras. 7.847, 8.6.e, and 8.17.f.
57 Panel Reports, paras. 7.965, 7.1011, 8.6.f, and 8.17.g. On appeal, Brazil does not challenge these
findings by the Panel.
58 Panel Reports, paras. 7.1048, 8.6.g, and 8.17.h.
59 Panel Reports, paras. 7.1083, 7.1120, 8.6.h, and 8.17.i.
WT/DS472/AB/R • WT/DS497/AB/R

ix. the tax reductions accorded to imported products from Argentina, Mexico, and Uruguay
and found to be inconsistent under Article I:1 of the GATT 1994 are not justified under
paragraph 2(b) or 2(c) of the Enabling Clause60; and
c. with respect to the PEC and RECAP programmes:
i. the tax suspensions granted thereunder are subsidies within the meaning of Article 1.1
of the SCM Agreement and contingent upon export performance within the meaning
of Article 3.1(a) of the SCM Agreement, and thus are prohibited subsidies, inconsistent
with Articles 3.1(a) and 3.2 of the SCM Agreement.61
1.16. In accordance with Article 19.1 of the DSU, and having found that Brazil acted inconsistently
with its obligations under Articles I:1, III:2, and III:4 of the GATT 1994; Article 2.1 of the
TRIMs Agreement; and Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement with respect to the
measures at issue, the Panel recommended that the Dispute Settlement Body (DSB) request Brazil
to bring its measures into conformity with its obligations under the covered agreements.62 Pursuant
to Article 4.7 of the SCM Agreement, the Panel further recommended that Brazil withdraw the
subsidies found to be WTO-inconsistent within 90 days.63
1.17. On 28 September 2017, Brazil notified the DSB, pursuant to Articles 16.4 and 17 of the DSU,
of its intention to appeal certain issues of law covered in the Panel Reports and certain legal
interpretations developed by the Panel, and filed a Notice of Appeal64 and an appellant's submission
pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures for Appellate Review65
(Working Procedures).
1.18. On 29 September 2017, the Appellate Body Secretariat transmitted the Working Schedule for
Appeal drawn up by the Appellate Body Division hearing these appeals, setting out the deadlines for
filing further written submissions.
1.19. On 3 October 2017, the European Union notified the DSB, pursuant to Articles 16.4 and 17 of
the DSU, of its intention to appeal certain issues of law covered in the Panel Reports and certain
legal interpretations developed by the Panel, and filed a Notice of Other Appeal and an other
appellant's submission66 pursuant to Rule 23 of the Working Procedures. On the same date, Japan
also notified the DSB, pursuant to Articles 16.4 and 17 of the DSU, of its intention to appeal certain
issues of law covered in the Panel Reports and certain legal interpretations developed by the Panel,
and filed a Notice of Other Appeal and an other appellant's submission67 pursuant to Rule 23 of the
Working Procedures.
1.20. On 9 October 2017, the Appellate Body Division hearing these appeals received a joint letter
from Argentina, Australia, Canada, and the United States requesting an extension of the deadline
for the filing of their third participants' submissions in these proc eedings (the joint request).
On 9 October 2017, the Appellate Body Division hearing these appeals invited the participants and
the other third participants, if they so wished, to comment on the joint request by 11 October 2017.
No objections were received. On 12 October 2017, the Appellate Body Division hearing these appeals
issued a Procedural Ruling deciding, in accordance with Rule 16(2) of the Working Procedures, to
extend the deadline for the filing of third participants' submissions by one week to 26 October 2017.
1.21. On 16 October 2017, Brazil, the European Union, and Japan each filed an appellee's
submission.68 On 26 October 2017, Argentina, Australia, and the United States each filed a
third participant's submission. 69 On the same day, Canada, China, Colombia, Korea, Russia,
Singapore, South Africa, the Separate Custo ms Territory of Taiwan, Penghu, Kinmen and

60 Panel Reports, paras. 7.1097, 7.1121, 8.6.i, and 8.17.j.
61 Panel Reports, paras. 7.1238, 8.7, and 8.18.
62 Panel Reports, paras. 8.9 and 8.20.
63 Panel Reports, paras. 8.11 and 8.22.
64 WT/DS472/8; WT/DS497/6.
65 WT/AB/WP/6, 16 August 2010.
66 WT/DS472/9.
67 WT/DS497/7.
68 Pursuant to Rule 22 of the Working Procedures.
69 Pursuant to Rule 24(1) of the Working Procedures.
WT/DS472/AB/R • WT/DS497/AB/R

Matsu (Chinese Taipei), and Turkey each notified its intention to appear at the oral hearing as a
third participant.70 On 15 June 2018, India and Ukraine each notified its intention to appear at the
oral hearing as a third participant.71
1.22. On 24 November 2017, the participants and third participants were infor med that, in
accordance with Rule 15 of the Working Procedures, the Chair of the Appellate Body had notified the
Chair of the DSB of the Appellate Body's decision to authorize Appellate Body Member
Mr Peter Van den Bossche to complete the disposition of these appeals, even though his second term
of office was due to expire before the completion of the appellate proceedings.
1.23. On 27 November 2017, the Chair of the Appellate Body notified the Chair of the DSB that the
Appellate Body would not be able to circulate its Reports in these appeals within the 60 -day period
pursuant to Article 17.5 of the DSU, or within the 90 -day period pursuant to the same provision. 72
The Chair of the Appellate Body explained that this was due to a number of factors, including the
enhanced workload of the Appellate Body in 2017, scheduling difficulties arising from appellate
proceedings running in parallel with an overlap in the composition of the Divisions hearing the
appeals, the number and complexity of the issues raised in this and concurrent appellate
proceedings, together with the demands that these concurrent appeals place on the
WTO Secretariat's translation services, and a shortage of staff in the Appellate Body Secretariat.
Although the appeals in th is dispute were initiated o n 28 September 2017, due to the multiple
appeals pending before the Appellate Body, the reduced number of Appellate Body Members, and
the shortage of staff in the Appellate Body Secretariat, work on these appeals could gather pace
only in March 2018. On 19 November 2018, the Chair of the Appellate Body informed the Chair of
the DSB that the Reports in these proceedings wo uld be circulated no later
than 13 December 2018.73
1.24. The oral hearing was held on 19 and 20 June 2018. The participants and three third
participants (Argentina, Australia, and the United States) made opening statements. The
participants and one third participant (the United States) responded to questions posed by the
Members of the Appellate Body Division hearing these appeals. The participa nts made closing
statements. None of the third participants made closing statements.
2 ARGUMENTS OF THE PARTICIPANTS
2.1. The claims and arguments of the participants are reflected in the executive summaries of their
written submissions provided to the Appellate Body.74 The Notices of Appeal and Other Appeal, and
the executive summaries of the participants' claims and arguments, are contained in Annexes A
and B of the Addendum to these Reports, WT/DS472/AB/R/Add.1, WT/DS497/AB/R/Add.1.
3 ARGUMENTS OF THE THIRD PARTICIPANTS
3.1. The arguments of the third participants that filed a written submission (Argentina, Australia,
and the United States) are reflected in the executive summaries of their written submissions
provided to the Appellate Body75, and are contained in Annex C of the Addendum to these Reports,
WT/DS472/AB/R/Add.1, WT/DS497/AB/R/Add.1.
4 ISSUES RAISED IN THIS APPEAL
4.1. The following issues are raised in these appeals by Brazil:

70 Pursuant to Rule 24(2) of the Working Procedures.
71 Pursuant to Rule 24(4) of the Working Procedures.
72 WT/DS472/10; WT/DS497/8.
73 WT/DS472/11; WT/DS497/9.
74 Pursuant to the Appellate Body's communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).
75 Pursuant to the Appellate Body's communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).
WT/DS472/AB/R • WT/DS497/AB/R

a. with respect to the Panel's findings under Article III:8(b) of the GATT 1994:
i. whether the Panel erred in its interpretation and application of Article III:8(b) of the
GATT 1994 in finding that subsidies that are provided exclusively to domestic
producers pursuant to Article III:8(b) are not per se exempted from the disciplines of
Article III of the GATT 199476;
b. with respect to the Panel's findings under Articles III:2 and III:4 of the GATT 1994 and
Article 2.1 of the TRIMs Agreement:
i. whether the Panel erred in the application of Article III:2 of the GATT 1994 in finding
that imported finished and intermediate Information and Communication Technology,
Automation and Related Goods (ICT products) were taxed in excess of like domestic
finished and intermediate ICT products;
ii. whether the Panel erred in the application of Article III:4 of the GATT 1994 in finding
that the accreditation requirements under the ICT programmes accord treatment less
favourable to imported ICT products than that accorded to like domestic ICT products
inconsistently with Article III:4 of the GATT 1994;
iii. whether the Panel erred in the application of Article III:4 of the GATT 1994 in finding
that the ICT programmes are inconsistent with Article III:4 of the GATT 1994 by virtue
of the lower administrative burden on companies purchasing incentivized domestic
intermediate products;
iv. whether the Panel erred in finding that the PPBs and other production -step
requirements under the ICT programmes are contingent upon the use of domestic
goods, inconsistently with Article III:4 of the GATT 1994;
v. consequently, whether the Panel erred in finding that the above-mentioned aspects of
the ICT programmes are inconsistent with Article 2.1 of the TRIMs Agreement;
vi. whether the Panel erred in the application of Article III:4 of the GATT 1994 in finding
that the accreditation req uirements under the INOVAR -AUTO programme are
inconsistent with Article III:4 because they are more burdensome for companies
seeking accreditation as importers/distributors as opposed to domestic manufacturers;
and
vii. consequently, whether the Panel erred in finding that the above-mentioned aspect of
the INOVAR-AUTO programme is inconsistent with Article 2.1 of the TRIMs Agreement;
c. with respect to the Panel's findings under Article 3.1(a) of the SCM Agreement:
i. whether the Panel erred in the application of Article 1.1(a)(1)(ii) of the
SCM Agreement by identifying the benchmark treatment as the treatment applicable
to non -accredited companies and rejecting the treatment of structural credit
accumulators as the benchmark treatment;
ii. conditionally, in the event that the Appellate Body upholds the Panel's findings
concerning the benchmark treatment, whether the Panel:
• erred in the application of Article 1.1(a)(1)(ii) of the SCM Agreement in its
comparison of the benchmark treatment with the challenged treatment under the
PEC and RECAP programmes;
• erred in finding that "cash availability" and "implicit interest income" are
government revenue "otherwise due" within the meaning of Article 1.1(a)(1)(ii) of
the SCM Agreement; and

76 Panel Reports, para. 7.87.
WT/DS472/AB/R • WT/DS497/AB/R

• failed to conduct an objective assessment of the facts of the case under Article 11
of the DSU in its assessment of a piece of evidence submitted by Brazil;
d. with respect to the Panel's findings under Article 3.1(b) of the SCM Agreement:
i. whether the Panel erred in the application of Article 1.1(a)(1)(ii) of the
SCM Agreement by: (i) failing to compare the tax treatment accorded to the group of
taxpayers in the benchmark treatment with the group of taxpayers under the ICT
programmes; and (ii) finding that "cash availability" and "implicit interest income" are
government revenue otherwise due within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement; and
ii. whether the Panel erred in finding that the PPBs and other production -step
requirements under the ICT programmes and the accreditation requirement to perform
a number of manufacturing steps in Brazil under the INOVAR -AUTO programme
constitute a requirement to use domestic over imported goods under Article 3.1(b) of
the SCM Agreement;
e. with respect to the Panel's findings under Article I:1 of the GATT 1994 and the
Enabling Clause:
i. whether the Panel erred in its interpretation of paragraph 4(a) of the Enabling Clause
in finding that the European Union and Japan did not have the burden to raise the
Enabling Clause in their panel requests; and consequently, whether the Panel erred in
finding that the claims raised by the European Union and Japan under Article I:1 of
the GATT 1994 with regard to the INOVAR-AUTO programme were within its terms of
reference;
ii. whether the Panel erred in its interpretation of paragraph 2(b) of Enabling Clause and
in finding that the differential tax treatment under the INOVAR-AUTO programme was
not justified under that provision; and
iii. whether the Panel erred in its interpretation of paragraph 2(c) of the Enabling Clause
and in finding that the differential tax treatment under the INOVAR-AUTO programme
was not justified under that provision; and
f. with respect to the Panel's findings under Article 4.7 of the SCM Agreement:
i. whether the Panel acted inconsistently with Articles 11 and 12.7 of the DSU in
recommending that Brazil withdraw the prohibited subsidies found to exist within
90 days.
4.2. The following issues are raised in these appeals by the European Union and Japan with respect
to the Panel's findings concerning the in -house scenario under the PPBs and other production -step
requirements:
a. whether the Panel's failure to make findings on the in-house scenario, in its analysis of the
claims under Article III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and
Article 3.1(b) of the SCM Agreement, in relation to the ICT programmes and the
INOVAR-AUTO programme, constitutes false judicial economy and a failure to make an
objective assessment of the matter before the Panel, inconsistent with Article 11 of the
DSU (raised by the European Union and Japan);
b. conditionally, in the event that the Appellate Body finds that the Panel did not exercise
judicial economy, whether the Panel acted inconsistently with Article 11 of the DSU by
failing to provide coherent reasoning for its findings (raised by Japan);
c. in the event that that the Appellate Body considers that the Panel correctly exercised
judicial economy by not making specific findings in the in -house scenario, whether the
Appellate Body should review and modify the Panel's legal i nterpretation and findings to
"make it clearer", pursuant to Article 17.3 of the DSU, that the Panel did not need to rule
WT/DS472/AB/R • WT/DS497/AB/R

on both the "in -house" and "outsourcing" scenarios because the measures at issue are
per se inconsistent with the relevant covered agr eements (raised by the European Union
and Japan); and
d. in the event that the Appellate Body rejects the above -mentioned claims by the
European Union, whether the Panel erred in the application of Article III:4 of the
GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement,
by failing to consider the European Union's claims under these provisions in light of all the
relevant facts of the case (raised by the European Union).
5 ANALYSIS OF THE APPELLATE BODY
5.1 Articles III:2 and III:4 of the GATT 1994
5.1. We begin our analysis with Brazil's claims on appeal concerning Articles III:2 and III:4 of the
GATT 1994, namely that the Panel erred in finding that: (i) the ICT programmes are inconsistent
with Article III:2, first sentence, of the GA TT 1994 because under these programmes imported
ICT products are taxed in excess of like domestic ICT products 77; (ii) the ICT programmes are
inconsistent with Article III:4 of the GATT 1994 because they accord to imported products treatment
less favourable than that accorded to like domestic products 78; and (iii) the accreditation
requirements under the INOVAR -AUTO programme are inconsistent with Article III:4 of the
GATT 1994 because they accord to imported products treatment less favourable than that accorded
to like domestic products.79
5.2. We are, however, mindful of the fact that a substantial part of Brazil's appeal of the Panel 's
findings under Articles III:2 and III:4 of the GATT 1994 is closely connected with Brazil's appeal that
the Panel erred in its interpretation and application of Article III:8(b) of the GATT 1994, given that
Brazil advanced arguments under Article III:8(b) as a "general defence"80 to all of the complaining
parties' claims of inconsistency with Article III. For instance, in its appeal of the Panel's findings
under Articles III:2 and III:4, Brazil contends that the Panel erred in failing to establish, "at the
threshold"81, that the ICT and INOVAR-AUTO programmes constitute the "payment of subsidies to
domestic producers" under Article III:8(b) and therefore are not subject to the disciplines of
Articles III:2 and III:4.82 While Brazil puts forth stand -alone arguments that the Panel erred in its
interpretation of Article III:8(b), it also advances arguments highlighting the Panel's allegedly flawed
understanding of the scope of that provision as part of its appeal of the Panel's findings under
Articles III:2 and III:4. We address all of these connected arguments in section 5.2 of these Reports.
5.3. At this juncture, we also consider it useful to recall certain terminologies employed by the Panel
in th is dispute regarding the categories of products involved under the ICT and INOVAR -AUTO
programmes. We do not understand the participants to take issue or dispute on appeal the Panel's
understanding set out below.
5.4. The Panel noted that the European Union's and Japan's claims with respect to the ICT and
INOVAR-AUTO programmes pertained to two distinct types of products: "incentivised products" and
inputs for the "incentivised products". 83 The Panel further noted that Brazil subcategorized the

77 Brazil's appellant's submission, para. 15.
78 Brazil's appellant's submission, para. 15. We note that Brazil's appeal under Article III:4 of the
GATT 1994 also concerns those aspects of the ICT programmes that allegedly contain local content
requirements that the Panel found to be inconsistent with Article III:4 and, consequently, with Article 2.1 of
the TRIMs Agreement. However, we do not address these aspects of Brazil's claims on appeal in this section.
We address them in section 5.4.2.4 of these Reports when addressing Brazil's claims under Article 3.1(b) of the
SCM Agreement.
79 Brazil's appellant's submission, para. 15. We note that Brazil's appeal under Article III:4 of the
GATT 1994 also concerns those aspects of the INOVAR-AUTO programme that allegedly contain local content
requirements that the Panel found to be inconsistent with Article III:4 and, consequently, with Article 2.1 of
the TRIMs Agreement. However, we do not address these aspects of Brazil's claims on appeal in this section.
We address them in section 5.4.2.4.3 of these Reports when addressing Brazil's claims under Article 3.1(b) of
the SCM Agreement.
80 Panel Reports, para. 7.71.
81 Brazil's appellant's submission, paras. 15 and 42.
82 Brazil's appellant's submission, paras. 15, 42, and 247.
83 Panel Reports, para. 7.23.
WT/DS472/AB/R • WT/DS497/AB/R

"incentivised products" as "intermediate" and "finished" products. 84 The Panel acknowledged that
these terms are not "treaty language", but nonetheless considered that "these distinctions form a
useful analytical tool in understanding the arguments and claims of the parties."85
5.5. The Panel noted that a "finished product", as identified by Brazil, is a product that will not
undergo any further manufacturing and will be "incentivised" if "the company producing them is
accredited under a particular programme ."86 The Panel explained that , "[i]f a finished product is
'incentivised', it means that it receives a particular tax benefit on its sale."87
5.6. "Intermediate products", the Panel explained, will be subject to further manufacturing and will
also be "incentivised" if the company producing them is accredited under a particular programme.88
The Panel noted that, "[i]f an intermediate product is incentivised, it will be subject to a particular
tax benefit on its sale."89 The Panel also recognized that "such intermediate products will be further
used in the production of a 'finished' product."90
5.7. With the aforesaid background in mind , we now turn to address Brazil's claim on appeal that
the Panel erred in finding that imported finished and intermediate ICT products were taxed in excess
of like domestic ICT products inconsistently with Article III:2, first sentence, of the GATT 1994.
5.1.1 Whether the Panel erred in finding that imported finished and intermediate
ICT products were taxed in excess of like domestic finished and intermediate ICT products
inconsistently with Article III:2, first sentence, of the GATT 1994
5.8. Before the Panel, Brazil put forth a broad defence contending that Article III of the GATT 1994
does not apply to the ICT programmes because "the disciplines of Article III govern discrimination
on products, whereas the challenged programmes are not product-related but rather impose process
and production -step requirements" 91 and "concern only pre -market obligations" regarding
production and investment in R&D by producers.92
5.9. The Panel considered that the "plain text" of Article III "is sufficient to refute Brazil's
argument"93 and explained that "there is no reason why a measure directed at a producer rather
than a product could not 'affect' the internal sale, offering for sale, purchase, etc. of domestic and
imported products."94 The Panel concluded that " Article III … is not per se inapplicable to certain
measures, in particular 'pre -market' measures directed at producers" 95 and therefore that the
"general defence by Brazil … fails."96
5.10. Thereafter, the Panel turned to address the European Union's and Japan's claims under
Article III:2, first sentence, of the GATT 1994. The Panel found that the complaining parties have
made a prima facie case that the relevant tax treatment provided for in the ICT programmes was
exclusively based on the origin of the products and that Brazil had fai led to successfully rebut the
prima facie case of likeness made by the complaining parties.97 The Panel then considered whether

84 Panel Reports, para. 7.23.
85 Panel Reports, para. 7.23.
86 Panel Reports, para. 7.24.
87 Panel Reports, para. 7.24.
88 Panel Reports, para. 7.25.
89 Panel Reports, para. 7.25.
90 Panel Reports, para. 7.25.
92 Panel Reports, para. 7.61 (referring to Brazil's first written submission to the Panel, paras. 167, 173,
181, 184, 229, 231-232, 287, 327, 340, 377, 461, 477, 489, 578, 586, and 744 and sections 5.1.2.3.1,
5.2.2.3.1, 5.3.2.3.1, and 5.4.3.2.1 (DS472) and paras. 125, 140, 143, 182, 185-186, 208, 238, 276, 290,
318, 333, 398, 413, 424, 426, 497, 514, and 519 and sections 4.1.2.4.1, 4.2.2.4.1, 4.3.2.4.1, and 4.4.2.4.1
(DS497)).
93 Panel Reports, para. 7.63.
94 Panel Reports, para. 7.63.
95 Panel Reports, para. 7.70.
96 Panel Reports, para. 7.67.
97 Panel Reports, paras. 7.139-7.140.
WT/DS472/AB/R • WT/DS497/AB/R

the relevant tax treatment provided for in the ICT programmes resulted in imported ICT products
being taxed in excess of like domestic ICT products.98
5.11. With respect to finished ICT products, the Panel noted that "neither the complaining parties
nor Brazil question [s] the fact that the challenged programmes establish different levels of
taxation."99 Recalling the relevant requirements under each of the ICT programmes100, the Panel
noted that the tax reductions and exemptions apply to the relevant domestic ICT products, provided
that "the companies that manufacture these products, which must be located (and operate) in Brazil,
fulfil certain requirements."101 The Panel considered that only ICT products manufactured in Brazil
can satisfy the requirements to benefit from the tax reductions or exemptions. 102 As for imported
finished ICT products, the Panel noted that these products will never be a ble to qualify for the tax
reductions and exemptions established in the ICT programmes because "such products are never
manufactured in Brazil by companies located or operating in Brazil; such finished products are never
produced in accordance with the rel evant PPBs or similar production requirements." 103 The Panel
further noted that imported ICT products developed outside of Brazil will never be able to obtain
"the status of being 'developed in Brazil' and thus will never be able to qualify for the additiona l
reductions".104 For these reasons, the Panel found that, contrary to domestic finished ICT products
manufactured in Brazil by accredited companies, "like imported ICT finished products cannot benefit
from the tax reductions and exemptions (including throug h zero rates) established in the
ICT programmes and are , therefore, subject to a higher tax burden than like domestic
ICT products."105
5.12. With respect to intermediate ICT products, the Panel recalled that Brazil contended that "there
is no difference in the tax treatment between intermediate ICT products manufactured by accredited
and non-accredited companies."106 The Panel proceeded to examine "how the Brazilian tax system
applies to both incentivized domestic intermediate ICT products and like imported intermed iate
ICT products in order to determine whether the latter bear a higher tax burden". 107 The Panel
observed that:
In the case of sales of incentivized domestic intermediate ICT products, which are
manufactured by accredited companies , companies purchasing these products do not
pay the IPI tax and PIS/PASEP and COFINS contributions (under the PADIS programme)
or do not pay or pay a reduced IPI tax (under the Informatics programme).
Consequently, they do not obtain any credit (in the case of tax exemptions) o r they
obtain a reduced credit (in the case of tax reductions) to offset against debits when
paying their monthly liabilities.
In the case of sales of imported intermediate ICT products, which are never incentivized
because they are manufactured by companies that cannot get accredited, the
companies purchasing the imported (and, therefore, non -incentivized) intermediate
ICT products must pay the IPI tax and PIS/PASEP and COFINS contributions. As a result
of this payment, they obtain a tax credit that can later be used to offset debits from the
same taxes and contributions, or ask for compensation with other taxes or
reimbursement.108
5.13. The Panel considered that, to the extent the transaction involves the payment of a tax as well
as the granting of a tax credit, "these two elements must be taken into account in order to make an
overall assessment of the actual tax burden imposed on imported intermediate ICT products, on the
one hand, and like domestic incentivized intermediate ICT products, on the other." 109 The Panel

98 Panel Reports, para. 7.142.
99 Panel Reports, para. 7.149 (referring to Brazil's first written submissions to the Panel, paras. 336,
382, and 485 (DS472) and paras. 286, 324, and 422 (DS497)).
100 Panel Reports, para. 7.150.
103 Panel Reports, para. 7.151.
105 Panel Reports, para. 7.154.
106 Panel Reports, para. 7.157.
107 Panel Reports, para. 7.160.
108 Panel Reports, paras. 7.161-7.162. (fn omitted; emphasis original)
109 Panel Reports, para. 7.164 (referring to Panel Report, Argentina – Hides and Leather, para. 11.184).
WT/DS472/AB/R • WT/DS497/AB/R

found that "there is a different effective tax burden" on imported ICT products vis-à-vis like domestic
ICT products for two reasons: (i) the availability of cash flow for those companies that benefit from
the tax exemption or reduction, and (ii) the "time-value" of money.110 For these reasons, the Panel
concluded that "imported intermediate ICT products, which are never incentivized, are subject to a
higher tax burden than like domestic incentivized intermediate ICT products."111
5.14. As a preliminary matter, we note that, on appeal, Brazil takes issue with the Panel's finding
that " Article III of the GATT 1994 is not per se inapplicable to certain measures, in particular
'pre-market' measures directed at producers." 112 Brazil contends that Article III deals with
non-discrimination between domestic and imported products, "thus being applicable only to
measures which affect a product once it has been produced and enters the marketplace" 113 and
"not to production (pre -market)" measures.114 In response to questioning at t he oral hearing in
these appellate proceedings, Brazil, however, confirmed that it does not wish to pursue any further
this line of argument regarding the inapplicability of Article III to producer-related measures.
5.15. Article III:2, first sentence, of the GATT 1994 stipulates that "[t]he products of the territory
of any Member imported into the territory of any other Member shall not be subject, directly or
indirectly," to internal taxes in excess of those applied to like domestic products. The Appellate Body
has explained that "[t]his language suggests that the provision applies to a broad range of
measures."115 Article III:2, first sentence, thus has a broad scope of application by not only
disciplining internal taxes that directly affect products but also int ernal taxes that indirectly affect
products.116 Moreover, we observe that Article III:1 of the GATT 1994 is couched in broad and
inclusive language referring to among other things internal taxes, other internal charges, laws,
regulations and requirements affecting the internal sale, and the offering for sale of products.
The Appellate Body has explained that "Article III:1 constitutes part of the context of Article III:2,
in the same way that it constitutes part of the context of each of the other paragraphs in
Article III."117 These considerations suggest that, while the focus of Article III:2, first sentence is, in
particular, "on the treatment accorded to 'products'"118, it does not exclude from its scope measures
that are on their face directed at producers , which nevertheless subject the product concerned to
taxation in excess, and thereby have an impact on the conditions of competition.119
5.16. Article III:4 of the GATT 1994 prohibits treatment less favourable to products of foreign origin
imported into the territory of a Member than that accorded to like domestic products. Article III:4
specifies that this obligation is applicable with respect to all laws, regulations, and r equirements
"affecting their internal sale, offering for sale, purchase, transportation, distribution or use". The
Appellate Body has interpreted the word "affecting" as "having a 'broad scope of application'". 120
The Appellate Body has found that "measures that restrict the rights of traders may violate GATT
obligations with respect to trade in goods", recalling, in particular, that "restrictions imposed on
investors, wholesalers, and manufacturers, as well as on points of sale and ports of entry, have been
found to be inconsistent with Article III:4."121 Thus, measures directed at producers that may affect
the "specific transactions, activities and uses" 122 mentioned in Article III:4, such that they modify

110 Panel Reports, para. 7.169.
111 Panel Reports, para. 7.172.
113 Brazil's appellant's submission, para. 264. (emphasis original)
114 Brazil's appellant's submission, para. 265.
115 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 112. (fn omitted)
116 The Appellate Body has found that "[a]ny measure that indirectly affects the conditions of
competition between imported and like domestic products would come within the provisions of Article III:2,
first sentence." (Appellate Body Report, Canada – Periodicals, p. 19)
117 Appellate Body Report, Japan – Alcoholic Beverages II, p. 18.
118 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.62.
119 However, whether measures directed at producers subject the product concerned to taxation in
excess, and thereby have an impact on the conditions of competition, must be determined on the basis of the
facts and circumstances at issue.
120 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 210. The Appellate Body explained that
"[i]t is … not any 'laws, regulations and requirements' which are covered by Article III:4, but only those which
'affect' the specific transactions, activities and uses mentioned in that provision." (Appellate Body Report,
US ‒ FSC (Article 21.5 – EC), para. 208 (emphasis original))
121 Appellate Body Report, China – Publications and Audiovisual Products, para. 227. (fn omitted)
122 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 208.
WT/DS472/AB/R • WT/DS497/AB/R

the conditions of competition to the detriment of imported products vis-à-vis like domestic products,
fall within the scope of Article III:4.123
5.17. With this background in mind, we now turn to address Brazil's claim on appeal that the Panel
erred in finding that imported finished ICT products were taxed in excess of like domestic finished
ICT products inconsistently with Article III:2, first sentence, of the GATT 1994.
5.1.1.1 Whether the Panel erred in finding that imported finished ICT products were
taxed in excess of like domestic finished ICT products
5.18. On appeal, Brazil contends that the Panel failed "to undertake a thorough analysis of the case
presented by complainants and to carefully scrutinize the design, structure and operation of the
ICT programmes in applying Article III:2 … to the facts of this dispute". 124 Instead, according to
Brazil, the Panel completely disregarded the fact that the complaining parties had not submitted any
evidence that "the tax treatment under the ICT programmes resulted in de jure discrimination based
exclusively on the origin of products in a manner contrary to the principles set forth in Article III."125
Brazil submits that " there is nothing in the design, structure and operation of the challenged
measures that by 'necessary implication' would amount to de jure tax discrimination within the
meaning of Article III:2."126
5.19. In response, the European Union submits that " the Panel focused on the impact of the tax
incentives on domestic versus imported products" in order to conclude that imported ICT products,
which are manufactured outside Brazil, wil l never be able to obtain the tax reductions and
exemptions available under the ICT programmes to like domestic ICT products manufactured by
accredited companies. 127 According to the European Union, the Panel found that imported
ICT products will be subject to taxes in excess of those applied to finished domestic ICT products by
"looking into the design, structure and operation of the ICT programmes".128 The European Union
submits that "[n]o more is required to find discrimination under Article III:2, first sentence, of the
GATT 1994."129
5.20. Japan submits that the Panel did not "simply assume" that the ICT programmes were
inconsistent with Article III:2.130 According to Japan, the Panel engaged in a thorough analysis of
Article III:2 and its application to the ICT programmes, ultimately finding that these programmes
led to imported products being taxed in excess of domestic products in violation of Article III:2, first
sentence.131
5.21. We recall that, as part of its analysis concerning "whether the complaining parties … made a
prima facie case that the relevant ICT programmes draw distinctions between the relevant products
based exclusively on origin"132, the Panel noted that, in order for an ICT product to be subject to the
tax treatment provided for in the ICT programmes, companies that manufacture these products
"must be located (and operate) in Brazil"133 and "must comply with one or more"134 of the following
requirements:
a. i nvest in R&D in Brazil (in the case of the Informatics, PADIS, and PATVD
programmes);

123 However, the determination of whether such measures modify the conditions of competition to the
detriment of imported products so as to accord treatment less favourable within the meaning of Article III:4 of
the GATT 1994 must be determined on the basis of the facts and circumstances at issue.
124 Brazil's appellant's submission, para. 87.
125 Brazil's appellant's submission, para. 88.
126 Brazil's appellant's submission, para. 93.
127 European Union's appellee's submission, para. 107 (referring to Panel Reports, para. 7.151).
(emphasis original)
128 European Union's appellee's submission, para. 107.
129 European Union's appellee's submission, para. 107.
130 Japan's appellee's submission, para. 53.
131 Japan's appellee's submission, para. 53 (referring to Panel Reports, paras. 7.154 and 7.172).
132 Panel Reports, para. 7.127.
133 Panel Reports, para. 7.150.
134 Panel Reports, para. 7.134.
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b. manufacture in Brazil in accordance with the relevant PPBs (in the case of the
Informatics, PADIS, PATVD, and Digital Inclusion programmes) or carry out certain
manufacturing steps in Brazil (in the case of the PADIS and PATVD programmes);
and/or
c. develop the products in Brazil (in order to obtain additional tax reductions under the
Informatics programme or to obtain tax exemptions (through zero rates) under the
PATVD programme).135
5.22. With respect to the requirement that ICT products be manufactured in accorda nce with the
relevant PPBs136, the Panel considered that "only ICT products manufactured in Brazil can meet this
requirement given that PPBs require that a certain number of manufacturing operations that
characterize the effective 'production' of a certain p roduct be performed in Brazil." 137 The Panel
further considered that the same applies for the requirement that certain manufacturing steps be
performed in Brazil.138 The Panel found that, "by necessary implication, only a product manufactured
in Brazil can benefit from the tax treatment under the ICT programmes."139 As for the requirement
that products be "developed in Brazil", the Panel recalled that "the relevant Implementing Order
explains that in order to meet this requirement, the 'specifications, projects a nd developments
[of the products benefiting from the relevant tax treatment] must be carried out in Brazil'." 140 The
Panel considered that imported products that have been "developed" outside of Brazil, but are like
domestic products developed in Brazil, "ca n never meet this requirement, and therefore cannot
qualify for the relevant tax treatment".141 The Panel concluded that, for the purposes of Article III:2,
"all incentivized products that receive the tax treatment under the challenged programmes[] can be
considered to be Brazilian domestic products."142 On this basis, the Panel found that the complaining
parties had made a prima facie case that "the differential tax treatment provided for in the challenged
ICT programmes is exclusively based on the origin of the products."143
5.23. Brazil accepts that "[i]t is undisputed that foreign producers cannot be accredited under the
ICT programmes."144 We note that "'finished' products will be 'incentivised' if the company producing
them is accredited under a particular programme" and "[i]f a finished product is 'incentivised', it
means that it receives a particular tax benefit on its sale." 145 Imported finished ICT products are
therefore not eligible for either tax reductions or exemptions under the ICT programmes and
consequently, bear the full tax burden, as opposed to like domestic finished ICT products. The Panel
rightly considered that imported finished ICT products cannot qualify for the relevant tax
treatment146 because they: (i) "are never manufactured in Brazil by companies located or operating
in Brazil [and] … are never produced in accordance with the relevant PPBs or similar production
requirements"; and (ii) "will never be able to obtain the status of being 'developed in Brazil'". 147
This, in our view, demonstrates that the Panel analysed the design, structure, and operation of the
ICT programmes and came to the conclusion that they are designed in such a manner that only
"Brazilian domestic products" 148 can "benefit from the tax reductions or exemptions" 149 to the
exclusion of imported finished ICT products. We, therefore, reject Brazil's argument that there is

136 The Panel defined a PPB as "the minimum set of operations performed at a manufacturing facility
that characterizes the actual industrialization of a given product". (Panel Reports, para. 2.62 (referring to
Decree 5,906/2006 (Panel Exhibit JE-7), Article 16)). In other words, the Panel explained that PPBs indicate
the minimum stages or steps of the manufacturing process of a product that must be performed in Brazil.
(Ibid.) On appeal, the participants do not take issue with the definition of a PPB set out by the Panel.
137 Panel Reports, para. 7.135 (referring to Brazil's first written submissions to the Panel, para. 128
(DS472) and para. 85 (DS497)).
138 Panel Reports, para. 7.135.
139 Panel Reports, para. 7.135.
142 Panel Reports, para. 7.137.
143 Panel Reports, para. 7.139.
144 Brazil's appellant's submission, para. 97.
145 Panel Reports, para. 7.24.
146 Panel Reports, para. 7.136.
147 Panel Reports, para. 7.151.
148 Panel Reports, para. 7.137.
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nothing in the design, structure, and operation of the ICT programmes that would amount to de jure
discrimination based exclusively on the origin of products.150
5.24. Brazil further contends that , "[g]iven the non -cumulative nature of Brazil's indirect taxes",
the application of the credit -debit system to the products manufactured by non -accredited
companies "results in principle in the same tax burden" as for products manufactured by accredited
companies, to which the credit-debit system does not apply.151 Thus, Brazil asserts that "[i]t was …
incumbent upon the Panel to examine evidence of the effects of the ICT programmes on the effective
tax burden borne by the imported products in order to establish a violation of Article III:2."152
5.25. In response, the European Union submits that Brazil "clearly indicated" before the Panel that
its rebuttal based on the functioning of the credit -debit system was "relevant only with regard to
incentivised intermediate products". 153 In any event, the European Union submits that Brazil's
contention regarding imported finished ICT products is "wrong on substance". 154
The European Union explains that the sale of a finished product to a distributor or a consumer
represents the last possible stage of the application of the product taxes in question.
The European Union reasons that , "[i]f at that stage the tax rate is higher for imported products
than for like domestic incentivized products, then the tax burden imposed on the product is higher
for the former products."155
5.26. Japan recalls that the Panel noted that , with respect to finished ICT products, none of the
parties disputed that the ICT programmes establish different levels of taxation, and that only
ICT products manufactured in Brazil could satisfy the requirements to qualify for tax reductions. 156
Japan contends that the Panel conducted a thorough and detailed analysis of the actual tax burden
under the ICT programmes.157
5.27. We note that , with respect to finished ICT products, Brazil argued before the Panel that
"any possible difference in taxation aims at compensating accredited companies for the costs they
must incur in order to meet the requirements provided for in the challenged progra mmes."158 As
noted above, imported finished ICT products are not eligible for either tax reductions or exemptions
because foreign producers cannot be accredited under the ICT programmes and, consequently, bear
the full tax burden, as opposed to like domestic finished ICT products. For intermediate ICT products,
Brazil, however, argued that "there is no difference in the tax burden on imported products compared
to domestic products, because its tax system is neutral in terms of tax collection throughout the
production chain."159 Therefore, it appears that Brazil does not dispute that finished ICT products
are subject to different levels of taxation . Indeed, as noted by the Panel, with respect to finished
products, "neither the complaining parties nor Brazil quest ion[s] the fact that the challenged
programmes establish different levels of taxation "160 and further that the parties " acknowledge[]"
that "the level of taxation on like imported and domestic finished [ICT] products is different because
of the tax reduction s and exemptions provided for in the relevant ICT programmes."161 These
considerations suggest that Brazil is conflating its defence with respect to finished ICT products with
that of intermediate ICT products by drawing arguments that it made in the specifi c context of
intermediate ICT products. In any event, Brazil's justification that "any possible difference in
taxation" under the ICT programmes with respect to domestic finished ICT products is aimed at
"compensating accredited companies for the costs the y must incur in order to meet the
requirements" seems to flow largely from policy reasons and considerations.162 As also noted by the

150 Brazil's appellant's submission, paras. 88 and 93.
151 Brazil's appellant's submission, para. 97.
152 Brazil's appellant's submission, para. 98. (emphasis original)
153 European Union's appellee's submission, para. 96. (emphasis omitted)
154 European Union's appellee's submission, para. 104.
155 European Union's appellee's submission, para. 104.
156 Japan's appellee's submission, para. 56 (referring to Panel Reports, paras. 7.149 and 7.151).
157 Japan's appellee's submission, para. 58.
158 Panel Reports, para. 7.95 (referring to Brazil's first written submissions to the Panel, paras. 156
and 205 (DS472) and paras. 105 and 161 (DS497)).
159 Panel Reports, para. 7.95 (referring to Brazil's first written submissions to the Panel, para. 185
(DS472) and para. 144 (DS497)).
160 Panel Reports, para. 7.149 (referring to Brazil's first written submissions to the Panel, paras. 336,
382, and 485 (DS472) and paras. 286, 324, and 422 (DS497)). (emphasis added)
162 Panel Reports, para. 7.95.
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Panel163, the justification for a measure that is found to be inconsistent with Article III:2, first
sentence, can be assessed, for example, in the context of the general exceptions under Article XX
of the GATT 1994.
5.28. That said, we note that a finished product " is a product that will not undergo any further
manufacturing"164 and therefore the sale of a finished product represents the last stage of a
transaction. In the case of an imported finished ICT product, when an importer sells the imported
finished ICT product to a wholesaler, retailer, or distributor, the importer will charge the IPI tax to
the wholesaler, retailer, or distributor and remit the tax to the Brazilian Government.165 In contrast,
in the case of a like domestic finished ICT product that is subject to IPI tax exemption or reduction
under the ICT programmes, the seller does not charge any tax or charges a reduced tax, as the case
may be, to the wholesaler, retailer, or distributor.166 At this last stage the tax rate is thus higher for
imported finished ICT products than for like domestic finished ICT products, and the tax burden on
the former is necessarily in excess of that on the latter. 167 In other words, imported finished
ICT products bear the full value of the taxes as prescribed under the ICT programmes in comparison
to like domestic finished ICT products. In these circumstances, w e fail to see how the credit -debit
system, as Brazil contends, applies and offsets any tax burden in the case of imported finished
ICT products and "results in principle in the same tax burden" as imposed on like domestic finished
ICT products.168
5.29. Thus, we agree with the Panel that, because imported finished ICT products are "subject to a
higher tax burden than like domestic ICT products", they are consequently "taxed in excess of like
domestic finished ICT products, contrary to Article III:2, first sentence, of the GATT 1994".169
5.1.1.2 Whether the Panel erred in finding that imported intermediate ICT products were
taxed in excess of like domestic intermediate ICT products
5.30. We now turn to intermediate ICT products regarding which Brazil asserts on appeal that the
Panel erred in its assessment of "the impact of the tax suspension and exemptions granted under
the ICT programmes in the beginning or in the middle of the production chain". 170 According to
Brazil, the Panel "opted to ignore the fact that the credit-debit system in a value added tax … ensures
that the amount collected at each step of production is equivalent to the value added at that step".171
Brazil thus submits that "[i]n the end, the tax burden of a product subject to the payment of a tax,
which generates a credit, and a product that is subject to a suspension, but receives no credit, will
be the same."172
5.31. In response, the European Union submits that the Panel did not agree with B razil that
"the suspension or exemption of indirect value-added taxes in the beginning or in the middle of the
production chain does not affect the final amount of tax collected by the tax authorities."173 Instead,
the European Union contends that the Panel clearly indicated that it was concerned with determining
the effective tax burden. The European Union further contends that the Panel clearly stated that it
was required to take account of the functioning of the tax credit -debit system in assessing the
effective tax burden imposed on imported products compared to the burden imposed on incentivized
domestic products.174 The European Union asserts that "Brazil does not take issue with the Panel's
description of the Brazilian tax debit-credit mechanism … which provide[s] the factual basis for the
Panel analysis."175

163 Panel Reports, para. 7.153.
164 Panel Reports, para. 7.24.
165 Panel Reports, para. 2.14.
166 Panel Reports, para. 2.15.
167 European Union's appellee's submission, para. 104.
168 Brazil's appellant's submission, para. 97.
170 Brazil's appellant's submission, para. 100.
171 Brazil's appellant's submission, para. 101.
172 Brazil's appellant's submission, para. 101.
173 European Union's appellee's submission, para. 127 (referring to Brazil's appellant's submission,
para. 101).
174 European Union's appellee's submission, para. 126 (referring to Panel Reports, paras. 7.160
and 7.164).
175 European Union's appellee's submission, para. 132.
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5.32. Japan submits that "the ICT programmes' structure and design impose origin -based
discrimination with respect to tax burdens imposed on products covered by the programmes ."176
According to Japan, the Panel came to this conclusion after "thoroughly analysing the actual tax
burden under the programmes as well as by fully addressing the arguments put forward".177
5.33. The Panel described the functioning of the credit -debit system, in particular, in
paragraphs 2.11-2.13 of the Panel Reports. On appeal, Brazil neither takes issue with the
understanding set out by the Panel in the above -mentioned paragraphs of the Panel Reports, nor
has raised a claim under Article 11 of the DSU. That said, we recall that when comparing the
situations concerning the sale of "incentivized domestic intermediate ICT products", on the one
hand, and "imported … intermediate ICT products", on the other hand, the Panel explained that:
First, the tax exemptions (including through zero rates) … do not involve any payment
by the purchaser of the incentivized domestic intermediate ICT product but, at the same
time, do not generate any tax credit that the purchaser can later use to offset future
tax liabilities (i.e. tax debits). Second, the tax reduc tions … involve a smaller tax
payment by the purchaser of the incentivized domestic intermediate ICT product but,
at the same time, generate a lower tax credit to be used later to offset future tax
liabilities. Third, the situation absent the tax exemptions and/or reductions involves the
full payment of the tax by the purchaser and, at the same time, the granting to the
purchaser of tax credits to be used later to offset tax liabilities.178
5.34. Therefore, when tax exemptions or reductions are applied, no credit o r lower tax credit is
accrued because the tax is not due, or is due at a lower rate, whereas under the credit -debit
non-cumulative system that applies to imported (and, therefore, non -incentivized) intermediate
ICT products, a tax credit (of the same value as the tax paid) is granted to the purchaser. However,
while on the face of it, the tax system may appear to be neutral in terms of tax collection with
respect to intermediate ICT products (whether domestic or imported), the Panel, in our view, rightly
considered that "a thorough look into the operation of the tax holistically is necessary in order to
determine the effective tax burden on the products at issue ."179 This exercise, as the Panel also
noted, would require taking into consideration "the granting of tax credits to purchasers of imported
(and, therefore, non-incentivized) intermediate ICT products following the payment of the tax".180
5.35. Article III:2, first sentence, of the GATT 1994 is concerned with the protection of " the equal
competitive relationship between imported and domestic products".181 The Appellate Body explained
that "the words of the first sentence require an examination of the conformity of an internal tax
measure with Article III" by determining, first, "whether the taxed imported and domestic products
are 'like'" and, second, "whether the taxes applied to the imported products are 'in excess of' those
applied to the like domestic products". 182 With respect to the second element, the Appellate Body
has found that "[e]ven the smallest amount of 'excess' is too much."183 A determination of whether
an infringement of Article III:2, first sentence, exists must be made on the basis of an overall
assessment of the actual tax burdens imposed on imported products, on the one hand, and like
domestic products, on the other hand.184 The Panel was mindful that, under the credit-debit system,
"the same tax rate may be applied"185 but nonetheless considered, and rightly so, that "the fact that
the nominal value of the tax collected may be identical is not deter minant of the tax measure's
consistency under Article III:2."186 The Panel took into account Brazil's argument that the effect of
the tax treatment under the ICT programmes in relation to intermediate products is "neutral"

176 Japan's appellee's submission, para. 64.
177 Japan's appellee's submission, para. 64.
178 Panel Reports, para. 7.163.
179 Panel Reports, para. 7.164.
180 Panel Reports, para. 7.164.
181 Appellate Body Report, Japan – Alcoholic Beverages II, p. 16. (fn omitted) The Appellate Body
explained that "the first sentence of Article III:2 is, in effect, an application of [the] general principle" of
Article III:1 of the GATT 1994. (Ibid., p. 18) We also recall that the panel in Argentina – Hides and Leather
considered that "the purpose of Article III:2, first sentence, … is to ensure 'equality of competitive conditions
between imported and like domestic products.'" (Panel Report, Argentina – Hides and Leather, para. 11.182
(quoting Appellate Body Report, Canada – Periodicals, p. 18))
182 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 18-19.
183 Appellate Body Report, Japan – Alcoholic Beverages II, p. 23.
184 Panel Report, Argentina – Hides and Leather, para. 11.184.
185 Panel Reports, para. 7.167.
186 Panel Reports, para. 7.165.
WT/DS472/AB/R • WT/DS497/AB/R

because "both products covered by the relevant ICT programmes and products outside these
programmes are subject to the same tax burden."187 However, the Panel ultimately found that "there
is a different effective tax burden on imported ICT products vis-à-vis like domestic ICT products for
two reasons: the availability of cash flow for those companies that benefit from the tax exemption
or reduction, and the 'time-value' of money."188
5.36. In this regard, Brazil contends on appeal that the relevant Brazilian taxes are "not paid up
front but are levi ed monthly on the whole of the previous month's activities" and, therefore, "it is
simply not correct to conclude that the payment of taxes necessarily reduces the cash flow
availability of purchasers of non-incentivized products, or that credits lose their value over time, to
the detriment of imported products." 189 Brazil submits that the Panel " improperly concluded" that
the ICT programmes result in a higher tax burden on imported intermediate ICT products because
"the payment of tax up front would limit th e cash availability of the purchaser and generate a tax
credit, the value of which diminishes over time."190
5.37. In response, the European Union explains that "the payment of a tax at the moment of the
purchase of an intermediate product deprives the purchaser o f the sum paid and therefore affects
its cash-flow."191 By the same token, the European Union notes that "money depreciates over time
through the effect of inflation." 192 Thus, the European Union submits that , if the purchase of an
imported intermediate product involves the payment of a tax at the moment of the purchase and
the generation of a tax credit that can be compensated at some later point in time, "it follows
necessarily that the imported intermediate product carries a tax burden that is effectively he avier
[than] that imposed on the purchase of an incentivised domestic intermediate product, which is tax
exempted or subject to a lower tax rate."193
5.38. Japan contends that, during the time lag between purchase of inputs and sale of outputs,
funds related to the payment of taxes are temporarily unavailable. The ICT programmes, according
to Japan, "mitigate the negative financial consequences of this lag, by reducing or eliminating the
required IPI, PIS/PASEP, and COFINS taxes otherwise due" when domestic manufac turers of
intermediate goods purchase inputs covered by the ICT programmes.194 Thus, Japan submits that
"the Panel properly concluded that 'this has the effect of limiting the availability of cash flow by
companies purchasing imported intermediate ICT products and results in a higher effective tax
burden on these products.'"195
5.39. Under the credit -debit system, purchases of non -incentivized imported intermediate
ICT products involve the payment of a tax upfront that is not faced by companies that purchase
incentivized like domestic intermediate ICT products, which are exempted from the relevant
taxes.196 Even in the case of tax reductions, companies purchasing incentivized like domestic
intermediate ICT products have to pay a lower tax as compa red to companies purch asing
non-incentivized imported intermediate ICT products. Indeed, as the Panel also noted, "the tax to
be paid would be lower than the tax for like imported intermediate ICT products, which are not
incentivized."197 We fail to see how these situations do not have the effect of limiting the availability
of cash flow for companies purchasing non-incentivized imported intermediate ICT products.198 The
fact that purchasers of imported intermediate ICT products have to pay the relevant taxes under the

187 Brazil's appellant's submission, para. 102.
188 Panel Reports, para. 7.169 (referring to European Union's second written submission to the Panel,
paras. 57-59 and 331; response to Panel question No. 43, paras. 188-191; Japan's second written submission
to the Panel, para. 143).
189 Brazil's appellant's submission, para. 107. (fn omitted)
190 Brazil's appellant's submission, para. 103.
191 European Union's appellee's submission, para. 134.
192 European Union's appellee's submission, para. 134.
193 European Union's appellee's submission, para. 134.
194 Japan's appellee's submission, para. 62.
196 Panel Reports, para. 7.170.
197 Panel Reports, para. 7.170.
198 We observe that, in the context of its assessment of whether the tax treatment under the
ICT programmes constitutes financial contributions, the Panel noted that "the Brazilian Government … will hold
the advantage of cash availability or cash flow … that could be generated on the full amount of that tax that it
has collected from the seller", noting further the European Union's contention that "the benchmark rate of the
… Central Bank [of Brazil] … was, at the time of writing of its first written submission, 13.25%."
(Panel Reports, para. 7.433 and fn 790 thereto (additional fns to para. 7.433 omitted))
WT/DS472/AB/R • WT/DS497/AB/R

ICT programmes, irrespective of the point in time, compared to purchasers of incentivized like
domestic intermediate ICT products, who do not have to pay the relevant tax or pay a reduced
amount, "limit[s] the availability of cash flow" 199, resulting in a higher effectiv e tax burden on
imported intermediate ICT products.
5.40. Brazil also contends that the "tax credits accrued from the purchase of imported inputs do
not necessarily have to be compensated with debits related to the same tax, and they can be used
before the sale of the final product." 200 Brazil, therefore, submits that no heavier tax burden is
imposed on imported intermediate ICT products.201
5.41. We observe that the Panel noted that "Bra zil has indicated that the time period that it takes
a company to offset its tax cred its can be very short."202 The Panel also noted that in cases where
the IPI tax debits are lower than the IPI tax credits, and the company buying a product cannot offset
the credits with debits after a three-month period, "it can request compensation of the credits with
other taxes, or reimbursement from the Brazilian Government."203 In this regard, we are mindful of
the fact that Brazil also indicated to the Panel that the process for compensation with other taxes or
reimbursement can take a long time. 204 The Panel, in particular, noted that "[t]he reimbursement
process may take from several months to years." 205 The value of the tax credit that is generated
upon the payment of the relevant tax on the sale of a non -incentivized imported intermediate
ICT product will depreciate over time until it is used or adjusted. To that extent, in as much as there
is a time lag between the accrual of the tax credit and the adjustment or use thereof, it necessarily
results in the value of money (in the form of accrued tax credits) depreciating over time. Therefore,
imported intermediate ICT products, the purchase of which is subject to a payment of tax upfront,
bear a higher tax burden than that faced by the incentivized like domestic intermediate ICT products,
which benefit from t ax exemption or reduction. These considerations support the Panel's finding
that, in the case of imported intermediate ICT products, even if credits are generated and can be
offset later in time, they are subject to a higher tax burden than like incentiviz ed domestic
intermediate ICT products purchased from accredited companies, "due to depreciation in the value
of money over time".206
5.42. Accordingly, we agree with the Panel that "imported intermediate ICT products are taxed in
excess of like domestic incentivi zed intermediate ICT products contrary to Article III:2,
first sentence, of the GATT 1994."207
5.1.2 Whether the Panel erred in finding that the ICT programmes are inconsistent with
Article III:4 of the GATT 1994
5.43. We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the
ICT programmes accord to imported products treatment less favourable than that accorded to like
domestic products inconsistently with Article III:4 of the GATT 1994, and, consequently, also erred
in its finding under Article 2.1 of the TRIMs Agreement.
5.44. Before the Panel, the European Union and Japan argued that the conditions for accreditation
necessary for products to obtain the tax advantages under the ICT programmes and the lower
administrative burden on companies purchasing domestic incentivized inter mediate ICT products

199 Panel Reports, para. 7.170.
200 Brazil's appellant's submission, para. 108.
201 Brazil's appellant's submission, para. 108.
202 Panel Reports, para. 7.171.
203 Panel Reports, para. 7.171 (referring to Brazil's second written submission to the Panel, paras. 11-12
and 17).
204 Panel Reports, para. 7.171 (referring to Brazil's closing statement at the first meeting of the Panel,
para. 15; second written submission to the Panel, paras. 185 and 234; comments on para. 2.28 of the draft
descriptive part of the Panel Reports). We observe that Brazil made these statements in the context of
describing the phenomenon of tax credit accumulation. (Brazil's second written submission to the Panel,
paras. 182-185 and 234)
207 Panel Reports, para. 7.172.
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accord less favourable treatment to imported ICT products than that accorded to like domestic
ICT products inconsistently with Article III:4.208
5.45. The Panel first considered the claim with respect to the conditions of accreditation,
i.e. "the conditions that companies must fulfil in respect of particular incentivized products to
become accredited producers of, and thus [become] eligible for the tax incentives on, those
products."209 The Panel noted that "the purpose of complying with the requ irements for
accreditation" is to obtain a tax exemption, reduction, or suspension on the sales or purchases of
products.210 The Panel recalled that "only products produced in Brazil can satisfy the conditions …
for accreditation … and only products develope d in Brazil can satisfy the requirement of being
'developed in Brazil'." 211 Imported like products, the Panel recalled, "cannot satisfy those
requirements, and thus can never qualify for the tax exemptions, reductions or suspensions granted
under the relevant ICT programmes".212 The Panel further recalled that, as a consequence of these
accreditation requirements, "imported finished and intermediate products bear a higher tax burden
than like domestic finished and intermediate products."213 The Panel considered that "the conditions
for accreditation, which when fulfilled create a lower internal tax burden on domestic products than
on like imported products, modify the conditions of competition to the detriment of the imported
products."214 The Panel, therefore, conc luded that "the accreditation requirements of the
ICT programmes, by restricting access to the tax incentives only to domestic products, result in less
favourable treatment being accorded to imported products than to like domestic products."215
5.46. With respect to the claim concerning the lower administrative burden placed on companies
purchasing domestic incentivized intermediate ICT products, the Panel noted that a purchaser of an
incentivized intermediate product subject to a tax exemption or reduction will not need to anticipate
any tax, or will only need to anticipate a reduced amount of tax. 216 However, the Panel considered
that the purchaser of a non -incentivized intermediate ICT product will need to anticipate the full
amount of those taxes when purchasing t he products, and will have to undergo the administrative
procedure to claim a tax credit in relation to those taxes, to request compensation with the same or
other taxes, or to ask for reimbursement.217 The Panel reasoned that, when faced with a decision to
choose from either "a product whose purchase will entail no payment of taxes" or "a product whose
purchase will entail the payment of the tax and the administrative burden that comes with the
procedure of offsetting the tax w ith other debits (or requesting compensation or reimbursement)",
a purchaser, under normal circumstances, "will prefer to avoid the administrative burden that comes
with the payment of the tax" .218 Recalling that an imported intermediate ICT product will never be
eligible for the tax reductions or exemptions, the Panel, therefore, found that "the incentive to avoid
the administrative burden, by purchasing incentivized intermediate products, modifies the conditions
of competition between domestic and like impo rted products, to the detriment of the
imported products."219

208 Panel Reports, para. 7.181. The European Union and Japan also raised a claim regarding the aspect
of the mechanism for the calculation of the amount of resources required to be invested in R&D under the
Informatics and PADIS programmes, where the amounts paid when purchasing incentivized products are
deducted from the calculation. (Ibid.) The Panel found that "the mechanisms under the Informatics and PADIS
programmes for the calculation of the amount of resources required to be invested in R&D accord to imported
products treatment less favourable than that accorded to like domestic products, and thus are inconsistent with
Article III:4 of the GATT 1994." (Panel Reports, para. 7.243) On appeal, Brazil does not challenge this finding
by the Panel. (Brazil's response to questioning at the oral hearing)
209 Panel Reports, para. 7.214.
210 Panel Reports, para. 7.197.
211 Panel Reports, para. 7.223 (referring to Panel Reports, paras. 7.135-7.140).
212 Panel Reports, para. 7.223 (referring to Panel Reports, paras. 7.135-7.140).
213 Panel Reports, para. 7.224 (referring to Panel Reports, paras. 7.154 and 7.172). (emphasis original)
215 Panel Reports, para. 7.225.
216 Panel Reports, para. 7.252.
217 Panel Reports, para. 7.252.
218 Panel Reports, para. 7.253.
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5.1.2.1 Whether the Panel erred in finding that the accreditation requirements under the
ICT programmes accord treatment less favourable to imported products than that
accorded to like domestic products inconsistently with Article III:4 of the GATT 1994
5.47. On appeal, Brazil asserts that the Panel's analysis with respect to the accreditation
requirements under the ICT programmes "conflates tax discrimination, which is under the purview
of Article III:2 … with regulatory discrimination, to which Article III:4 applies".220 Brazil contends
that "the Panel … seems to have found that [the] accreditation requirements under the
ICT programmes are inconsistent with Article III:4 because they allegedly restrict access to the tax
incentives only to domestic products."221 Brazil submits that in order to find a violation of Article III:4
of the GATT 1994, the Panel was required to identify a regulatory discrimination other than the
differences in tax treatment that may result i n a violation of Article III:2 of the GATT 1994.
Therefore, Brazil contends that "[t]o the extent that the Panel's findings that the ICT programmes
violate Article III:4 were based on this flawed reasoning, they should be reversed."222
5.48. In response, the European Union submits that "[t]he conditions for accreditation amount to a
regulatory discrimination since only domestic products are incentivised; that the incentive consists
in lower taxation when compared to imported like products is the consequence of the fact that the
incentives are only granted to domestic products in detriment of imported like products ."223
The European Union further submits that the Panel, having recalled the relevant Appellate Body
jurisprudence, found that the same measure, or certain aspects of the same measures, can fall both
within Articles III:2 and III:4 of the GATT 1994, and that Brazil has not appealed this finding.224
5.49. Japan disagrees with Brazil's claim that the Panel conflated Articles III:2 and III:4 of the
GATT 1994.225 Japan subm its that the Panel determined that , as a result of the accreditation
requirements, imported finished and intermediate ICT products bear a higher tax burden than
domestic finished and intermediate ICT products.226 Japan submits that , "[f]rom this factual
premise, the Panel correctly concluded that the accreditation requirements modify the conditions of
competition to the detriment of imported products."227
5.50. Article III:4 of the GATT 1994 prohibits Members from according treatment less favourable to
products of fo reign origin than that accorded to like domestic products. It specifies that this
obligation is applicable with respect to all laws, regulations, and requirements "affecting their internal
sale, offering for sale, purchase, transportation, distribution or use". The Appellate Body found that
"the mere fact that a Member draws regulatory distinctions between imported and like domestic
products is, in itself, not determinative of whether imported products are treated less favourably
within the meaning of Article III:4."228 Rather, the Appellate Body explained that "what is relevant
is whether such regulatory differences distort the conditions of competition to the detriment of
imported products."229 Thus, according to the Appellate Body, whether a measure involves treatment
less favourable "must be founded on a careful analysis of the contested measure and of its
implications in the marketplace".230
5.51. We note that the aspect of the ICT programmes challenged by the complaining parties as
being inconsistent with Article III:4 concerned the accreditation requirements, the fulfilment of
which enabled the obtaining of the relevant tax exemption, reduction, or suspension on the sales or
purchases of ICT products. Indeed, as the Panel also recogni zed, "[i]n respect of Article III:4, the
complaining parties challenge the laws, regulations and requirements, namely the accreditation
requirements for gaining access to the tax incentives ."231 The Panel further considered that

220 Brazil's appellant's submission, para. 138.
221 Brazil's appellant's submission, para. 139.
222 Brazil's appellant's submission, para. 140.
223 European Union's appellee's submission, para. 176.
224 European Union's appellee's submission, para. 174.
225 Japan's appellee's submission, para. 69.
226 Japan's appellee's submission, para. 68 (referring to Panel Reports, paras. 7.154-7.172).
227 Japan's appellee's submission, para. 68 (referring to Panel Reports, para. 7.225).
228 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 128. (fn omitted)
229 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 128.
230 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 215. The Appellate Body, however,
cautioned that "the examination need not be based on the actual effects of the contested measure in the
marketplace." (Ibid. (emphasis original; fn omitted))
231 Panel Reports, para. 7.220.
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"the aspects challenged by the complaining parties under Article III:4 are different from, albeit
related to, the differential tax treatment of like domestic and imported products that they challenge
under Article III:2."232 We recall that the Panel also noted that "a single measure can be inconsistent
with two or m ore provisions of Article III at the same time" since " multiple features of a single
measure may operate simultaneously " and therefore, in such a situation, "different aspects of the
same measure could be considered to be covered by the disciplines of eith er or both Article III:2
and III:4."233
5.52. As noted, Brazil contends that the Panel's analysis with respect to the accreditation
requirements conflates tax discrimination under Article III:2 with regulatory discrimination under
Article III:4.234 However, the Panel was mindful of the fact that the ICT programmes included both
fiscal and regulatory aspects that were applicable to the products at issue.235 While the accreditation
requirements relate to regulatory aspects 236, the tax exemptions or reductions under the
ICT programmes relate to fiscal aspects. This is evident from the Panel's conclusion that the
conditions for accreditation "modify the conditions of competition to the detriment of the imported
products" by creating "a lower internal tax burden on domestic pr oducts than on like imported
products".237 It is undisputed that , in order to be eligible for the tax exemption, reduction, or
suspension under the ICT programmes, companies must fulfil the accreditation requirements. The
accreditation requirements under the ICT programmes therefore result in less favourable treatment
for imported ICT products in the form of the differential tax burden that imported ICT products are
subjected to by virtue of the fact that " foreign producers cannot be accredited under the
ICT programmes."238 The consequence being, as the Panel also noted, imported ICT products "can
never qualify for the tax exemptions, reductions or suspensions".239
5.53. We note that the aspects of the ICT programmes found to be inconsistent with Article III:2,
first sentence, and Article III:4 are distinct. In the case of Article III:2, first sentence, the aspect of
the ICT programme found to be inconsistent is the differential tax treatment that results in a higher
tax burden on imported ICT products, i.e. imported ICT products are taxed in excess of like domestic
ICT products. Whereas, for the purposes of Article III:4, the aspect of the ICT programmes found to
be inconsistent is the accreditation requirements that result in less favourable treatment in the form
of the differential burden that imported ICT products are subjected to . We do not see why that
cannot be the case since d ifferent aspects of the same measure may be found to be inconsistent
with one or more paragraphs of Article III of the GATT 1994. As the Appellate Body explained in
Thailand ‒ Cigarettes (Philippines), "[a]lthough Thailand may be correct in stating that prior WTO
reports have examined measures consisting of 'administrative requirements relating to the sale of
imported products' under Article III:4", it does not exclude the possibility that "if such requirements
subject imported and like domestic products to internal taxes or other internal charges, the same

232 Panel Reports, para. 7.220. We observe that the Panel also noted that:
The complaining parties allege that certain tax aspects of the programmes, insofar as they apply
to incentivized finished and intermediate products, are discriminatory and inconsistent with
Article III:2. The complaining parties also allege that the specific conditions and criteria to be
satisfied by incentivized finished and intermediate products in order to receive the tax
advantages[] are inconsistent with Article III:4 of the GATT 1994, by consisting of conditions for
obtaining the advantage in respect of the incentivized products.
(Ibid., para. 7.35 (emphasis original))
234 Brazil's appellant's submission, para. 138.
235 Panel Reports, para. 7.35.
236 The Panel, as we recall, found that "the purpose of complying with the requirements for accreditation
is to obtain a tax exemption, reduction or suspension on the sales or purchases of products, so it is clear that
the requirements at issue affect the sale, offering for sale or purchase of products." (Panel Reports,
para. 7.197)
238 Brazil's appellant's submission, para. 97.
239 Panel Reports, para. 7.223.
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measures, or certain aspects of the same measures, could not also be scrut inized under
Article III:2."240
5.54. In light of the foregoing considerations, we agree with the Panel that the accreditation
requirements of the ICT programmes, by restricting access to the tax incentives only to domestic
products, modify the conditions of competition to the detriment of imported products, and result in
less favourable treatment being accorded to imported ICT products than to like domestic
ICT products inconsistently with Article III:4 of the GATT 1994.241
5.1.2.2 Whether the Panel erred in finding that the ICT programmes are inconsistent with
Article III:4 of the GATT 1994 by virtue of the lower administrative burden on companies
purchasing incentivized domestic intermediate products
5.55. We now turn to Brazil's claim on appeal that the Panel erred in fin ding that imported
intermediate ICT products are subject to more onerous administrative requirements than like
domestic intermediate ICT products.242
5.56. On appeal, Brazil asserts that the Panel's reasoning concerning the alleged lower
administrative burden on companies purchasing domestic incentivized intermediate products "has no
grounds, either in law or in the facts of the present dispute". 243 Brazil submits that "[t]he Panel
misconstrued the functioning of the Brazilian tax system and found an administrative burden in the
operation of the debit and credit tax system where there is none." 244 Brazil explains that a "careful
review" of the functioning of the credit-debit system applicable to "IPI, PIS, PASEP and COFINS taxes
under the Brazilian Tax Code shows unequivocally that incentivised domestic intermediate products
are not subject to a lower administrative burden when compared to like imported intermediate
products".245
5.57. In response, the European Union submits that the Panel's reasoning is firmly grounded on the
functioning of the credit-debit system as described in the Panel Reports.246 The European Union adds
that, while Brazil makes the claim that the Panel's findings have no factual or legal ground, "it is
unable to argue that the Panel violated Article 11 of the DSU by failing to make an objective
assessment of the facts of the case when it described the functioning of the Brazilian tax system and
the credit-debit mechanism."247 The European Union recalls that the parties to the dispute agreed
on the basic function ing of Brazil's tax system before the Panel 248 and "it was Brazil itself who
explained that offsetting tax credits in certain situations can be burdensome, and can take years."249
5.58. Japan submits that "Brazil cannot seek a de novo review of the facts at this sta ge of the
proceeding."250 Japan contends that Brazil's argument also fails to account for the "undisputed fact"
that purchasers of non -incentivized imported intermediate ICT products will have to "claim
compensation from the Brazilian Government, which could take years, whereas the purchasers of
incentivized domestic intermediate products do not".251

240 Appellate Body Report, Thailand – Cigarettes (Philippines), fn 144 to para. 114 (quoting Thailand's
appellant's submission, para. 69). (additional text thereto omitted) We also observe that a similar proposition
was considered by the panel in Mexico – Taxes on Soft Drinks where the panel found that the measure at issue
in that dispute (i.e. the Law on the Special Tax on Production and Services (LIEPS) that provided for the soft
drink tax, the distribution tax, and the bookkeeping requirements) was inconsistent with both Articles III:2 and
III:4 of the GATT 1994. (Panel Report, Mexico – Taxes on Soft Drinks, paras. 8.59, 8.96, and 8.123)
Particularly, with respect to the claim under Article III:4, the panel found that "through the soft drink tax, the
distribution tax and the bookkeeping requirements, Mexico accords less favourable treatment to imported
non-cane sugar sweeteners … than that accorded to like products of national origin … inconsistent[ly] with
Article III:4." (Panel Report, Mexico – Taxes on Soft Drinks, para. 8.123)
241 Panel Reports, para. 7.225.
242 Brazil's appellant's submission, para. 121.
243 Brazil's appellant's submission, para. 152.
244 Brazil's appellant's submission, para. 152.
245 Brazil's appellant's submission, para. 153.
246 European Union's appellee's submission, para. 204.
247 European Union's appellee's submission, para. 205.
248 European Union's appellee's submission, para. 206 (referring to Panel Reports, para. 2.1).
249 European Union's appellee's submission, para. 206.
250 Japan's appellee's submission, para. 73.
251 Japan's appellee's submission, para. 73. (fn omitted)
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5.59. We have considered above that the Panel took into account the functioning of the credit-debit
system. We are mindful of Brazil's contention that this "system … operates as a ledger in which both
purchases of inputs and intermediate goods and sales of final goods are recorded, and debits and
credits are offset" 252 and that there is "no[] change in the event of suspensions, reductions or
exemptions of indirect taxes". 253 Brazil's contention would not, however, change the fact that
purchasers of imported intermediate ICT products that are not incentivized under the
ICT programmes will have to anticipate and pay the full amount of tax due on such imported
intermediate ICT products. Although any such tax paid on the purchase of imported intermediate
ICT products will generate a corresponding tax credit in favour of the purchaser, nonetheless,
offsetting this tax credit entails an administrative burden that is not faced and/or faced to a lesser
extent by a purchaser of domestic intermediate ICT products that are incentivized. 254 This is the
case because, under the credit-debit system, "if the tax credit cannot be offset by debits after three
taxation periods", the process of compe nsating the tax credit with other federal taxes, or
reimbursement thereof can "be burdensome fo r companies, and can take years ".255 We therefore
reject Brazil's argument that the Panel erroneously "found an administrative burden in the operation
of the debit and credit tax system" in the context of its analysis under Article III:4.256
5.60. The ICT programmes are designed in a manner that creates incentives for the market
participants, that is, purchasers of intermediate ICT products, to behave in a manner that has the
"direct practical effect"257 of treating imported intermediate ICT products less favourably than like
domestic intermediate ICT products. In this case, by creating an incentive to purchase incentivized
domestic intermediate ICT products in order to be re lieved from and/or to face reduced
administrative burdens. Accordingly, we agree with the Panel that , "when faced with a decision to
choose", a purchaser, "under normal circumstances, will prefer to avoid the administrative burden
that comes with the payme nt of the tax" 258 and thus prefer to purchase incentivized domestic
intermediate ICT products.259
5.61. In light of the foregoing considerations, we agree with the Panel that "the ICT programmes
are inconsistent with Article III:4 of the GATT 1994, because they accord to imported intermediate
products treatment less favourable than that accorded to like domestic intermediate products, due
to the lower administrative burden imposed on firms purchasing incentivised intermediate
products."260
5.1.3 Whether the Panel erred in finding that the ICT programmes are inconsistent with
Article 2.1 of the TRIMs Agreement
5.62. Before the Panel, the European Union and Japan argued that the ICT programmes are
inconsistent with Article 2.1 of the TRIMs Agreement, both independently and in conjun ction with
Article 2.2 and paragraph 1(a) of that Agreement's Illustrative List, because they are inconsistent
with Article III of the GATT 1994.261 Brazil agreed that the ICT programmes are investment
measures, submitting, however, that they do not relate to trade in goods.262
5.63. The Panel found that "the ICT programmes affect, and … are aimed at promoting, investment"
and "also have an impact on trade, by affecting the sale and purchase of imported products, including

252 Brazil's appellant's submission, para. 155.
253 Brazil's appellant's submission, para. 155.
254 In this regard, we note that purchasers of incentivized intermediate domestic ICT products, in most
cases, will not need to anticipate the tax due on the purchase of such intermediate ICT products since the
Informatics, PADIS, PATVD, and Digital Inclusion programmes provide for tax exemptions, through zero rates,
to accredited companies selling domestic intermediate ICT products. It is only in the context of the IPI tax
reduction provided under the Informatics programme that purchasers of domestic intermediate ICT products
may have to anticipate and pay the reduced amount of IPI tax due.
255 Panel Reports, para. 7.251 (referring to Brazil's first written submission to the Panel, para. 702
(DS497)).
256 Brazil's appellant's submission, para. 152.
257 Appellate Body Report, Korea – Various Measures on Beef, para. 145.
258 Panel Reports, para. 7.253.
259 Panel Reports, para. 7.254.
261 Panel Reports, para. 7.348 (referring to European Union's first written submission to the Panel,
paras. 690, 841, 998, and 1118; Japan's first written submission to the Panel, paras. 371, 437, 479-496, and
533-548).
262 Panel Reports, para. 7.351.
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the inputs used in the production of incenti vized finished and intermediate products".263 The Panel
concluded that the ICT programmes are trade-related investment measures within the meaning of
the TRIMs Agreement.264 Having so found, the Panel recalled its findings that certain aspects of the
ICT programmes are inconsistent with Articles III:2 and III:4 of the GATT 1994.265 Therefore, the
Panel found that "those aspects of the ICT programmes found to be inconsistent with Article III:2
and III:4 … are also inconsistent with Article 2.1 of the TRIMs Agreement."266
5.64. On appeal, Brazil does not make any specific arguments in connection with the Panel's finding
under Article 2.1 of the TRIMs Agreement. Rather, Brazil's request for reversal of the Panel's finding
under that provision is premised on us reversing the Panel's findings under Article III:4 of the
GATT 1994.267 We have, however, for the reasons stated above, agreed with the Panel's finding s
that certain aspects of the ICT programmes are inconsistent with Article III:4 of the GATT 1994.
Consequently, we agree with the Panel's finding that those aspects of the ICT programmes found to
be inconsistent with Article III:4 are also inconsistent with Article 2.1 of the TRIMs Agreement.268
5.1.4 Whether the Panel erred in finding that the accreditation requirements under the
INOVAR-AUTO programme are inconsistent with Article III:4 of the GATT 1994 because
they are more burdensome for companies seeking accreditation as importers/distributors
as opposed to domestic manufacturers
5.65. We now turn to Brazil's claim on appeal with respect to Article III:4 of the GATT 1994
concerning the INOVAR-AUTO programme. Brazil contends that the Panel erred in finding that "the
accreditation requirements under the INOVAR -AUTO programme were … discrimina tory because
they would be … more burdensome" for companies seeking accreditation as importers/distributors
than for domestic manufacturers.269 We note that , unlike in the context of the ICT programmes
where foreign manufacturers cannot be accredited270, under the INOVAR-AUTO programme foreign
manufacturers can be accredited as importers/distributors and thus be entitled to the relevant tax
benefits.271 Therefore, the claim of error under Article III:4 with respect to the INOVAR -AUTO
programme is primarily direct ed towards, as Brazil contends, the Panel's alleged erroneous
conclusion that "foreign companies seeking accreditation under the INOVAR-AUTO programme must
go through a more burdensome accreditation process than domestic manufacturers."272
5.66. We recall that with respect to the accreditation requirements under the INOVAR -AUTO
programme, the Panel noted that "the purpose of complying with the requirements for accreditation
is to obtain presumed IPI tax credits on the sale of products ."273 The Panel noted that there are
three types of accreditation that entitle companies to accrue and use presumed IPI tax credits:
(i) accreditation for domestic manufacturers; (ii) accreditation for importers/distributors ; and
(iii) accreditation for investors. 274 The Panel recalled that foreign manufacturers, as such, cannot
obtain accreditation under the INOVAR -AUTO programme, because they are not located or do not
operate in Brazil. 275 The Panel observed that such foreign manufacturers would have to become
accredited as importers/distributors in order for their products to be eligible for the tax benefits. 276
The Panel recalled its earlier conclusion that "this results in a higher tax burden on imported vehicles
manufactured by foreign manufacturers" because "foreign manufacturers are required to be legally

264 Panel Reports, para. 7.361.
265 Panel Reports, para. 7.363 (referring to Panel Reports, paras. 7.174 and 7.318-7.319).
266 Panel Reports, para. 7.363.
267 Having sought reversal of the Panel's findings under Article III:4 of the GATT 1994, specifically with
respect to paragraphs 7.318-7.319, 8.5.b, and 8.16.c of the Panel Reports, Brazil submits that "[a]s a result,
Brazil also requests that the Appellate Body reverse the Panel's finding in paragraphs 7.365, 8.5(d) and
8.16(e) of the Panel Report[s] that in respect of those elements the ICT programmes are inconsistent with
Article 2.1 of the TRIMs Agreement." (Brazil's appellant's submission, para. 172 (emphasis original))
268 Panel Reports, para. 7.363.
269 Brazil's appellant's submission, para. 278.
270 Brazil's appellant's submission, para. 97.
271 Panel Reports, para. 7.731 (referring to Panel Reports, paras. 7.656-7.661).
273 Panel Reports, para. 7.706.
274 Panel Reports, para. 7.656. The Panel noted that "[a]ll accredited companies must comply with two
general requirements and with a series of specific requirements that differ depending on the type of
accreditation." (Ibid. (fn omitted))
275 Panel Reports, para. 7.731.
276 Panel Reports, para. 7.731 (referring to Panel Reports, paras. 7.656-7.661).
WT/DS472/AB/R • WT/DS497/AB/R

established in Brazil" in order to be accredited as importers/distributors, and "foreign manufacturers
seeking accreditation as importers/distributors are required to comply with more accreditation
requirements than domestic manufacturers in order to obtain the tax benefits."277 Consequently, the
Panel considered that "[f]oreign manufacturers … bear a higher burden than domestic manufacturers
in becoming accredited."278
5.67. For these reasons, the Panel found that, "under the INOVAR-AUTO programme, the conditions
for accreditation in order to receive presumed tax credits … accord less favourable treatment to
imported products than that accorded to like domestic products, inconsistently with Article III:4 of
the GATT 1994."279
5.68. On appeal, Brazil takes issue with the Panel's finding that the accreditation requirements
under the INOVAR -AUTO programme are discriminatory because "they would be allegedly more
burdensome to 'importers/distributors' than to 'domestic manufacturers'" and therefore result in less
favourable treatment being accorded to imported finished motor vehicles. 280 Brazil submits that, in
reaching its conclusions on the discriminatory impact of the types of accreditation provided under
the INOVAR-AUTO programme, "the Panel limited itself to conducting a quantitative analysis of the
requirements provided under INOVAR-AUTO [programme] (number of requirements)."281 According
to Brazil, the "mere difference in the number of requirements" to be fulfilled by domestic
manufacturers and importers/distributors was "enough" for the Panel to find that the accreditation
requirements were inconsistent with Article III:4.282 Brazil contends that, in order to find a "potential
discriminatory impact", the Panel was required to have conducte d a " qualitative analysis of the
requirements taking into account the actual and relative weight of such requirements in terms of
the overall burden imposed to companies – foreign and domestic alike – that request accreditation
to the programme".283
5.69. In response, the European Union recalls that, in order to be eligible for the presumed IPI tax
credits, "companies must obtain accreditation, and in order to obtain accreditation companies must
comply with certain requirements." 284 The European Union notes that the Panel distinguished two
different consequences flowing from this design of the INOVAR -AUTO programme. First, according
to the European Union, the Panel "rightly noted that the requirement with respect to domestic
manufacturing activities is automatically c omplied with by domestic manufacture[r]s, whereas
foreign manufacturers should comply with three (instead of two) different requirements".285 Second,
in the European Union's view, "the Panel considered that foreign companies seeking to establish
themselves in Brazil face a supplementary burden in comparison to domestic producers already
established in Brazil" in as much as "compliance with the accreditation criteria necessarily entails
establishing in Brazil, with a corresponding administrative and economic b urden."286 Thus, the
European Union submits that "no more was required" for the Panel to determine that the
accreditation requirements modify the conditions of competition to the detriment of imported motor
vehicles and in favour of like domestic motor vehicles.287
5.70. Japan notes that Brazil asserts that "the Panel should have conducted a ' qualitative analysis
of the requirements taking into account the actual and relative weight of such requirements in terms
of the overall burden imposed to companies – foreign and domestic alike – that request accreditation
to the programme.'"288 Japan submits that Brazil, however, does not provide any legal authority for
this proposition, and, "beyond generalized assertions, fails to explain why the Panel's thorough
analysis of the burden imposed on foreign products was inadequate". 289 According to Japan, the

277 Panel Reports, para. 7.731 (referring to Panel Reports, paras. 7.656-7.661).
278 Panel Reports, para. 7.731 (referring to Panel Reports, paras. 7.656-7.661).
279 Panel Reports, para. 7.772.
280 Brazil's appellant's submission, para. 278 (referring to Panel Reports, para. 7.732).
281 Brazil's appellant's submission, para. 287. (emphasis original)
282 Brazil's appellant's submission, para. 287.
283 Brazil's appellant's submission, para. 288. (emphasis original)
284 European Union's appellee's submission, para. 359 (referring to Panel Reports, paras. 2.113-2.122).
285 European Union's appellee's submission, para. 362.
286 European Union's appellee's submission, para. 363 (quoting Panel Reports, para. 7.660
(fns omitted)).
287 European Union's appellee's submission, para. 364.
288 Japan's appellee's submission, para. 114 (quoting Brazil's appellant's submission, para. 288
(emphasis original)).
289 Japan's appellee's submission, para. 114.
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Panel properly reached the conclusion that the INOVAR-AUTO programme, through the accreditation
requirements, favours domestic over imported products and it performed an analysis that included
all relevant elements.290
5.71. We begin by recalling that , under the INOVAR -AUTO programme, "all companies using
presumed IPI tax credits, and certain companies using reduced IPI tax rates, must obtain one of
three forms of accreditation" 291: (i) dom estic manufacturers; (ii) importers/distributors; or
(iii) investors.292 The "purpose" of complying with the requirements for accreditation is "to obtain
presumed IPI tax credits on the sale of products". 293 Thus, in order to enjoy a reduction on IPI tax
liability on a product, in this case motor vehicles, companies "must comply with a set of
requirements"294, for example, the performance of a minimum number of defined manufacturing
and engineering infrastructure activities in Brazil, or investments in R&D in Brazil.
5.72. It is undisputed that, in order for companies to obtain any sort of accreditation that entitles
them to accrue and use presumed IPI tax credits, they must either be located and operate in Brazil,
in the case of domestic manufacturers and importers/distributors, or be in the process of establishing
in the country as domestic manufacturers, in the case of investors. 295 This in turn implies, as the
Panel also acknowledged, that "foreign companies exclusively located outside Brazil that
manufacture products imported into Brazil cannot, per se, get accredited and, consequently, cannot
accrue and use presumed IPI tax credits." 296 The only viable way for foreign manufacturers to be
able to enjoy the benefit of the presumed IPI tax credits in reducing their IPI tax liability under the
INOVAR-AUTO programme is to become accredited as importers/distributors. 297 However, in order
to do so, foreign manufacturers must, first and foremost, be located and operate in Brazil. 298 This
indicates that foreign manufacturers seeking accreditation as importers/distributors face a
corresponding burden that necessarily comes with having to operate, or estab lish themselves, in
Brazil, unlike domestic manufacturers, who already operate or are established in Brazil. We,
therefore, agree with the Panel that "unlike for domestic manufacturers, for foreign manufacturers
compliance with the accreditation criteria n ecessarily entails establishing in Brazil, with a
corresponding administrative and economic burden."299
5.73. Moreover, we note that, in order to become accredited as importers/distributors, a company
must comply with the following three specific requirements: (i) investments in R&D in Brazil;
(ii) expenditure on engineering, basic industrial technology, and capacity -building of suppliers in
Brazil; and (iii) participation in the vehicle -labelling programme by INMETRO. 300 A fourth
requirement also exists, which calls for the performance in Brazil of certain manufacturing steps.301
These activities cannot be considered to be typical for foreign manufacturers seeking to import motor
vehicles into Brazil. The fact that foreign manufacturers have to undertake these activiti es to get
accredited as importers/distributors implies that foreign manufacturers face a burden that domestic
manufacturers do not face. We also see merit in the Panel's reasoning that foreign manufacturers
that are accredited as importers/distributors do not carry out manufacturing activities in Brazil, and
there is no reason "why they would purchase strategic inputs and tools in Brazil for the manufacture
of motor vehicles"302 or, for that matter, invest in R&D or make expenditures on engineering, basic
industrial technology, and capacity-building of suppliers in Brazil.
5.74. On the other hand, we observe that, in order to be accredited, domestic manufacturers need
to comply with three out of four specific requirements. One of these must be the performance of a
minimum number of defined manufacturing and engineering infrastructure activities in Brazil. 303

290 Japan's appellee's submission, para. 114.
291 Panel Reports, para. 2.112.
292 Panel Reports, para. 2.113.
293 Panel Reports, para. 7.706.
294 Brazil's appellant's submission, para. 266.
295 Panel Reports, para. 7.657 (referring to Brazil's responses to Panel questions Nos. 28 and 57).
296 Panel Reports, para. 7.657.
297 The Panel noted that Brazil acknowledged that accreditation as investors is "a temporary
accreditation which eventually becomes an accreditation as a manufacturer in Brazil". (Panel Reports, fn 1053
to para. 7.657 (referring to Brazil's response to Panel question No. 28))
298 Panel Reports, para. 7.660 (referring to Brazil's response to Panel question No. 57).
299 Panel Reports, para. 7.660.
300 Panel Reports, para. 7.658.
302 Panel Reports, para. 7.733 (referring to Panel Reports, paras. 7.662-7.672).
303 Panel Reports, para. 7.658.
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The other two requirements must be among the following three: (i) investments in R&D in Brazil;
(ii) expenditure on engineering, basic industrial technology, and c apacity-building of suppliers in
Brazil; or (iii) participation in the vehicle -labelling programme by INMETRO. 304 Almost all of these
requirements can be considered to be typical of the nature of activity carried out by a domestic
manufacturer. Indeed, any domestic manufacturer will carry out and perform a minimum number of
manufacturing activities in Brazil, and in that process is also likely to make investments in R&D in
Brazil and make expenditures in the categories indicated in the INOVAR -AUTO programme.305 To
that extent, we agree with the Panel that the performance of a minimum number of manufacturing
activities in Brazil "is inherent to any domestic manufacturer". 306 This in turn, as the Panel rightly
noted, results in domestic manufacturers being subject de facto to only two other specific
requirements.307
5.75. Therefore, the INOVAR-AUTO programme is designed in such a manner that the accreditation
requirements thereunder adversely modify the "equality of competitive conditions for imported
products"308 compared to like domestic products. This is so because , first, foreign manufacturers
seeking accreditation as importers/distributors in order to enjoy a reduction on IPI tax liability have
to operate or establish themselves in Brazil with the corresponding burden unli ke domestic
manufacturers, who already operate and are established in Brazil. Second, foreign manufacturers
seeking accreditation as importers/distributors are required to comply with more accreditation
requirements and undertake certain activities prescri bed under the INOVAR -AUTO programme,
which are, in any event, as we have considered above, not typical for foreign manufacturers seeking
to import motor vehicles into Brazil. Brazil contends that " the Panel limited itself to conducting a
quantitative analysis"309 and instead should have "conducted a qualitative analysis of the
[accreditation] requirements". 310 Brazil does not, however, elaborate on the type or kind of
qualitative analysis that the Panel should have undertaken. In any event, the Panel, in our vi ew,
conducted a qualitative analysis in as much as it recognized that " even if it were to consider that
the number of requirements imposed on domestic manufacturers and importers/distributors is the
same", foreign manufacturers bear a higher burden since "compliance with the accreditation criteria
necessarily entails establishing in Brazil, with a corresponding administrative and economic burden",
which is not faced by domestic manufacturers who are already established in Brazil. 311 These
considerations are sufficient to support the conclusion that "[f]oreign manufacturers … bear a higher
burden than domestic manufacturers in becoming accredited" in order for "their products to be
eligible for the tax benefits". 312 Thus, the accreditati on requirements "modify the conditions of
competition to the detriment of imported motor vehicles and in favour of like domestic motor
vehicles".313
5.76. For these reasons, we agree with the Panel that , "under the INOVAR-AUTO programme, the
conditions for accredi tation in order to receive presumed tax credits … accord less favourable
treatment to imported products than that accorded to like domestic products" within the meaning of
Article III:4 of the GATT 1994.314
5.1.5 Whether the Panel erred in finding that the INOVAR -AUTO programme is
inconsistent with Article 2.1 of the TRIMs Agreement
5.77. Before the Panel, the European Union and Japan argued that the INOVAR-AUTO programme
is inconsistent with Article 2.1 of the TRIMs Agreement, both independently and in conjunction with
Article 2.2 and paragraph 1(a) of that Agreement's Illustrative List, because it is inconsistent with

305 We observe that the Panel also considered that one of the other requirements involving "investing in
R&D in Brazil" is also "linked to the development of their manufacturing activity in the country".
(Panel Reports, para. 7.659)
306 Panel Reports, para. 7.659.
307 Panel Reports, para. 7.659.
308 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 126. (fn omitted)
309 Brazil's appellant's submission, para. 287. (emphasis original)
310 Brazil's appellant's submission, para. 288. (emphasis omitted)
311 Panel Reports, para. 7.660.
312 Panel Reports, para. 7.731.
313 Panel Reports, para. 7.732.
314 Panel Reports, para. 7.772.
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Article III of the GATT 1994.315 Brazil agreed that the INOVAR -AUTO programme is an investment
measure, submitting, however, that it does not relate to trade in goods.316
5.78. The Panel found that the INOVAR -AUTO programme constitutes a trade -related investment
measure within the meaning of the TRIMs Agreement.317 The Panel further recalled that it had found
that "the INOVAR-AUTO programme is inconsistent with Article III:2 and III:4 of the GATT 1994."318
The Panel therefore considered that "those aspects of the INOVAR -AUTO programme found to be
inconsistent with Article III:2 and III:4 … are also inconsistent with Article 2.1 of the
TRIMs Agreement."319
5.79. On appeal, Brazil does not make any specific arguments in connection with the Panel's finding
under Article 2.1 of the TRIMs Agreement. Rather, as we understand it, Brazil's request for reversal
of the Panel's finding under Article 2.1 of the TRIMs Agreement is premised on us reversing the
Panel's findings under Article III:4 of the GATT 1994.320 We have, however, for the reasons stated
above, agreed with the Panel's finding s that certain aspects of the INOVAR -AUTO programme are
inconsistent with Article III:4 of the GATT 1994. Consequently, we agree with the Panel's finding
that those aspects of the INOVAR-AUTO programme found to be inconsistent with Article III:4 of the
GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement.321
5.2 Article III:8(b) of the GATT 1994322
5.2.1 Introduction
5.80. We now address Brazil's appeal of the Panel's interpretation and application of Article III:8(b)
of the GATT 1994. Before examining the complainants' claims of inconsistencies under Article III of
the GATT 1994, the Pan el addressed the two "general defences" put forth by Brazil. 323 Rejecting
Brazil's first defence that the product-based disciplines of Article III are not applicable to measures
directed at producers, the Panel found that " Article III of the GATT 1994 is not per se inapplicable
to certain measures, in particular 'pre-market' measures directed at producers."324 With respect to
Brazil's second defence that the measures at issue fall under Article III:8(b), the Panel found that
"subsidies that are provided exclusi vely to domestic producers pursuant to Article III:8(b) of the
GATT 1994 are not per se exempted from the disciplines of Article III of the GATT 1994."325 Instead,
in the Panel's view, "aspects of a subsidy resulting in product discrimination (including requirements
to use domestic goods, as prohibited by Article 3.1 of the SCM Agreement) are not exempted from
the disciplines of Article III pursuant to Article III:8(b)."326 The Panel thus turned to assess the
consistency of the challenged measures with Article III of the GATT 1994 and Article 2.1 of the
TRIMs Agreement. The Panel found, inter alia , that certain aspects of the ICT programmes are
inconsistent with Article III:2, first sentence, and Article III:4327, and that the accreditation
requirements under the INOVAR-AUTO programme are inconsistent with Article III:4.328 Flowing
from its findings of inconsistency under Articles III:2 and III:4, the Panel also found the same

315 Panel Reports, paras. 7.793 (referring to European Union's first written submission to the Panel,
paras. 435-451; Japan's first written submission to the Panel, paras. 253-266).
316 Panel Reports, para. 7.795.
317 Panel Reports, para. 7.802.
318 Panel Reports, para. 7.804 (referring to Panel Reports, paras. 7.645, 7.688, and 7.772-7.773).
319 Panel Reports, para. 7.804.
320 Having sought reversal of the Panel's findings under Article III:4 of the GATT 1994, specifically with
respect to paras. 7.773, 8.6.b, and 8.17.c of the Panel Reports, Brazil submits that:
As a result, Brazil further requests that the Appellate Body reverse the Panel's consequential
finding in paragraphs 7.806, 8.6(d) and 8.17(e) of the Panel Report that these aspects of [the]
INOVAR-AUTO [programme] are inconsistent with Article 2.1 of the TRIMs Agreement.
(Brazil's appellant's submission, para. 294 (emphasis original))
321 Panel Reports, para. 7.804.
322 One Member of the Division expressed a separate opinion regarding the scope of the term "payment
of subsidies" in Article III:8(b) of the GATT 1994. This separate opinion can be found in subsection 5.2.5 of
these Reports.
323 Panel Reports, para. 7.53.
325 Panel Reports, para. 7.87.
326 Panel Reports, para. 7.88.
327 Panel Reports, paras. 7.173-7.174, 7.230, 7.243, and 7.255.
328 Panel Reports, para. 7.772.
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aspects of the ICT and INOVAR -AUTO programmes to be inconsistent with Article 2.1 of the
TRIMs Agreement.329
5.81. On appeal, Brazil takes issue with the Panel's analysis of its second defence and claims that
the Panel erred in its interpretation of Article III:8(b) in finding that "subsidies that are provided
exclusively to domestic producers pursuant to Article III:8(b) of the GATT 1994 are not per se
exempted from the disciplines of Article III of the GATT 1994."330 Brazil further contends that the
Panel, premised on its erroneous interpretation331, also erred in its application of Article III:8(b) in
finding that: (i) the ICT programmes are inconsistent with Article III:2, first sentence, and
Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement; and (ii) the accreditation
requirements under the INOVAR -AUTO programme are inconsistent with Article III:4 of the
GATT 1994 and Article 2.1 of the TRIMs Agreement.332 We begin our analysis by discussing, briefly,
the legal standard under Article III:8(b) of the GATT 1994 before addressing Brazil's claims of error
on appeal.
5.2.2 The legal standard under Article III:8(b) of the GATT 1994
5.82. Article III:8 of the GATT 1994 provides as follows:
(a) The provisions of this Article shall not apply to laws, regulations or requirements
governing the procurement by governmental agencies of products purchased for
governmental purposes and not with a view to commercial resale or with a view to use
in the production of goods for commercial sale.
(b) The provisions of this Article shall not prevent the payment of subsidies exclusively
to domestic producers, including paym ents to domestic producers derived from the
proceeds of internal taxes or charges applied consistently with the provisions of this
Article and subsidies effected through governmental purchases of domestic products.
5.83. Article III:8(b) states that the provisio ns of Article III "shall not prevent"333 the payment of
subsidies exclusively to domestic producers. This language is comparable to the chapeau of
Article XX of the GATT 1994, which states, in relevant part, that "nothing in this Agreement shall be
construed to prevent the adoption or enforcement by any Member of measures" enumerated in
paragraphs (a)-(j) of Article XX.334 It is well established that Article XX is an affirmative defence and
sets out the "general exceptions" to the obligations contained in other provisions of the
GATT 1994.335 In other words, recourse to Article XX serves as a justification for WTO Members to
adopt and enforce measures that are found to be inconsistent with other provisions of the
GATT 1994.
5.84. In contrast to the opening clause of Article III:8(b), Article III:8(a) begins with the words
"[t]he provisions of this Article shall not apply to " the measures enumerated thereunder. 336 The
Appellate Body in Canada – Renewable Energy / Canada – Feed-in Tariff Program explained that:
The opening clause of Article III:8(a) uses the term "apply" in the negative, thus
precluding the application of the other provisions of Article III to measures that meet
the requirements of that paragraph. Article III:8(a) therefore establishes a derogation
from the national treatment obligation of Article III for government procurement
activities falling within its scope. Measures satisfying the requirements of Article III:8(a)
are not subject to the national treatment obligations set out in other paragra phs of
Article III. Article III:8(a) is a derogation limiting the scope of the national treatment

329 Panel Reports, paras. 7.363 and 7.804.
330 Brazil's appellant's submission, paras. 5 and 16 (quoting Panel Reports, para. 7.87). See also ibid.,
paras. 31 and 34.
331 Brazil's appellant's submission, para. 35.
332 Brazil's appellant's submission, paras. 35-36 (referring to Panel Reports, paras. 7.174, 7.318-7.319,
7.365, 7.688, 7.772-7.773, 7.806, 8.5.a-b, 8.5.d, 8.6.a-b, and 8.6.d).
333 Emphasis added.
334 Emphasis added.
335 Appellate Body Report, Indonesia – Import Licensing Regimes, para. 5.42 (referring to
Appellate Body Report, US – Wool Shirts and Blouses, p. 16, DSR 1997:I, p. 337). See also Appellate Body
Report, Thailand ‒ Cigarettes, para. 177.
336 Emphasis added.
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obligation and it is not a justification for measures that would otherwise be inconsistent
with that obligation.337
The opening clause of Article III:8(a) thus makes clear that the provision is a derogation limiting the
scope of the national treatment obligation by making it inapplicable to certain government
procurement activities. By contrast, the differently worded opening clause of Article III:8(b), which
is similar to the text of the chapeau of Article XX, suggests to us that the provision is akin to an
exception to the national treatment obligation and serves as a justification or affirmative defence for
measures that would otherwise be in consistent with that obligation .338 Thus, while Article III:8(a)
precludes the application of the national treatment obligation in Article III to government
procurement activities falling within its scope, Article III:8(b) provides a justification for measures
that would otherwise be inconsistent with the national treatment obligation in Article III.339
5.85. Turning to the term "payment of subsidies" used in Article III:8(b), we note that neither
"payment" nor "subsidies" is defined in the GATT 1994. Although the t erm "subsidies" is used in
several other provisions of the GATT 1994, and Article 1.1 of the SCM Agreement defines what
constitutes a "subsidy", Article III:8(b) uses the term " payment of subsidies", and not "subsidies"
alone. The interpretative issue at h and therefore relates not to the definition of "subsidies" under
the GATT 1994 generally or under the SCM Agreement, but focuses instead on the precise scope of
the term "payment of subsidies" as used in Article III:8(b), in particular.
5.86. The dictionary mea nings of "payment" include "[a] sum of money (or equivalent) paid or
payable" and "the remuneration of a person with money or its equivalent".340 We note that whereas
the conduct made permissible by Article III:8(b) is the "payment of subsidies", other provisions of
the GATT 1994, including Article XVI, and the SCM Agreement, dealing with subsidies, use the terms
"grant" or "maintain" when referring to subsidies.341 This difference in language suggests to us that
the term "payment of subsidies" in Article III:8(b) encompasses a narrower range of conduct than
that covered by the terms "subsidy" or the "granting" or "maintaining" of a subsidy, as used
elsewhere in the GATT 1994 and in the SCM Agreement.
5.87. In Canada – Periodicals, the Appellate Body was tasked with determining whether the reduced
postal rates for certain eligible Canadian publishers constituted a "payment of subsidies" within the
meaning of Article III:8(b).342 Answering in the negative, the Appellate Body concluded that
Article III:8(b) "was intended to exempt from the obligations of Article III only the payment of
subsidies which involves the expenditure of revenue by a government". 343 In this regard, the
Appellate Body quoted and expressly agreed with the GATT panel in US – Malt Beverages that:
Article III:8(b) limits, therefore, the permissible producer subsidies to "payments" after
taxes have been collected or payments otherwise consistent with Article III. This
separation of tax rules, e.g. on tax exemptions or reductions, and subsidy rules makes
sense economically and politically. Even if the proceeds from non-discriminatory product

337 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.56
(referring to Appellate Body Reports, China – Raw Materials, para. 334).
338 See Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program,
339 It is in this vein that the Appellate Body in US – Tax Incentives observed that Article III:8(b)
"exempts from the national treatment obligation in Article III 'the payment of subsidies exclusively to domestic
producers'". (Appellate Body Report, US – Tax Incentives, para. 5.16)
340 Oxford English Dictionary online, definition of "payment",
http://www.oed.com/view/Entry/139189?rskey=9c29D2&result=1#eid.
341 Article XVI:1 of the GATT 1994, for example, provides, in relevant part:
If any Member grants or maintains any subsidy, including any form of income or price support,
which operates directly or indirectly to increase exports of any product from, or to reduce
imports of any product into, its territory, it shall notify the WTO in writing of the extent and
nature of the subsidization, of the estimated effect of the subsidization on the quantity of the
affected product or products imported into or exported from its territory and of the
circumstances making the subsidization necessary. In any case in which it is determined that
serious prejudice to the interests of any other Member is caused or threatened by any such
subsidization, the Member granting the subsidy shall, upon request, discuss with the other
Member or Members concerned, or with the WTO, the possibility of limiting the subsidization.
(emphasis added)
342 Appellate Body Report, Canada – Periodicals, pp. 33-34.
343 Appellate Body Report, Canada – Periodicals, p. 34.
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taxes may be used for subsequent subsidies, the domestic producer, like his foreign
competitors, must pay the product taxes due. The separation of tax and subsidy rules
contributes to greater transparency. It also may render abuses of tax policies for
protectionist purposes more difficult, as in the case where producer aids require
additional legislative or governmental decisions in which the different interests involved
can be balanced.344
5.88. Turning to the immediate context of the term "payment of subsidies", Article III:8(b) defines
this term as "including payments to domestic producers derived from the proceeds of internal taxes
or charges applied consistently with the provisions of [ Article III]". It also includes "subsidies
effected through governmental purchases of domestic products ". Although the use of the word
"including" makes clear that these two examples in Article III:8(b) are not meant to provide an
exhaustive list of what constitutes the "payment of subsidies", the Appellate Body in
Canada – Periodicals considered that they nonetheless "exemplify the kinds of programmes which
are exempted from the obligations of Articles III:2 and III:4 of the GATT 1994".345 These examples
must therefore be given due importance in the interpretation of the term "payment of subsidies".
5.89. The text of the first example, namely, "payments to domestic producers derived from the
proceeds of internal taxes or charges applied consistently with the provisions of [Article III]", makes
it clear that it is not the payment of subsidies that must be consistent with the obligations under
Article III of the GATT. Instead, it is the internal taxes applied to products, the proc eeds of which
are used for the payment of subsidies, which must be consistent with the obligations under
Article III.346 When these internal taxes are applied in a manner consistent with Article III, the
proceeds derived from such taxes may be used for payments of subsidies exclusively to domestic
producers, and such payments of subsidies , as well as any resulting discrimination against like
imported products, will be justified under Article III:8(b).347 However, when the internal ta xes are
higher on imported products than on like domestic products, or otherwise accord less favourable
treatment to imported products, and are thus inconsistent with Article III, the payment of subsidies
derived from the proceeds of such GATT -inconsistent taxes would not be justified under
Article III:8(b). In other words, the text of the first example suggests that subsidies that are paid
through the proceeds of discriminatory internal taxes applied, directly or indirectly, on products
continue to be subj ect to the obligations in Article III.348 We note in this regard that the
Appellate Body in Canada – Periodicals agreed with the GATT panel in US – Malt Beverages that,
"[e]ven if the proceeds from non -discriminatory product taxes may be used for subsequent
subsidies, the domestic producer, like his foreign competitors, must pay the product taxes due."349
5.90. In addition to the immediate context, we consider that Article III:2, which sets out the
national treatment obligation with respect to internal tax measures, also provides relevant context
for the interpretation of the term "payment of subsidies". As we see it, the prohibition against
discriminatory internal taxes in Article III:2 may be rendered ineffective if discriminatory internal
taxes on imported products could be justified as subsidies for competing domestic producers in terms

344 Appellate Body Report, Canada – Periodicals, p. 34 (quoting GATT Panel Report, US ‒ Malt
Beverages, para. 5.10).
345 Appellate Body Report, Canada – Periodicals, pp. 33-34.
346 We note that subsidies to domestic producers can be paid in product markets other than those from
which the tax proceeds are derived.
347 Insofar as the payments of subsidies are derived from the general budget, and cannot be traced to a
particular tax, they would, of course, be justified under III:8(b).
348 Giving due importance to the examples means that one cannot accept that the opposite of
the situation reflected in the first example, namely the payment of subsidies derived from proceeds of taxes
applied inconsistently with Article III, would also be covered by Article III:8(b). One cannot but understand
the inclusion in the scope of Article III:8(b) of payments of subsidies derived from proceeds of taxes consistent
with Article III as the exclusion from the scope of Article III:8(b) of payments of subsidies derived from
proceeds of taxes inconsistent with Article III.
349 Appellate Body Report, Canada – Periodicals, p. 34 (quoting GATT Panel Report, US ‒ Malt
Beverages, para. 5.10, where the GATT panel further explained that "[t]he separation of tax and subsidy rules
contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more
difficult, as in the case where producer aids require additional legislative or governmental decisions in which
the different interests involved can be balanced.").
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of Article III:8(b).350 For example, instead of applying differential tax rates on imported and like
domestic products, a WTO Member could apply the same tax rate to imported and like domestic
products and subsequently provide for a reduction of the tax rate for products produced by domestic
producers, but not those produced by foreign producers. Indeed, if the scope of "payment of
subsidies" is seen as encompassing a n exemption or red uction of internal product taxes that are
"otherwise due", it would allow WTO Members to circumvent Article III:2 and adopt discriminatory
tax measures by disguising them in the form of a scheme of exemption or reduction of internal
product taxes for domestic producers alone.
5.91. Our above discussion is supported by the negotiating history of Article III:8(b), which was
also relied on by the Appellate Body in Canada – Periodicals.351 Specifically, we consider relevant
the following discussion from the Report s of the Committees and Principal Sub -Committees of the
Interim Commission for the International Trade Organization concerning Article 18 of the
Havana Charter, which corresponds to Article III of the GATT 1994:
This sub-paragraph [i.e. what is now Article III:8(b) of the GATT 1994] was redrafted
in order to make it clear that nothing in Article [III] could be construed to sanction
[i.e. to allow for] the exemption of domestic products from internal taxes imposed on
like imported products or the remission o f such taxes. At the same time the
Sub-Committee recorded its view that nothing in this sub -paragraph or elsewhere in
Article [III] would override the provisions [of Article XVI].352
5.92. An examination of the text and context of Article III:8(b), as supported b y its negotiating
history, therefore suggests that the term "payment of subsidies" in Article III:8(b) does not include
within its scope the exemption or reduction of internal taxes applied, directly or indirectly, on
domestic products. Instead, as the Appellate Body has observed, Article III:8(b) "was intended to
exempt from the obligations of Article III only the payment of subsidies which involves the
expenditure of revenue by a government".353
5.93. Regarding the phrase "exclusively to domestic producers", we note that the dictionary
meaning of "exclusively" is "[s]o as to exclude all except some particular object, subject, etc.;
solely."354 Placed in its context, the use of the term "exclusively" therefore indicates that
Article III:8(b) exempts from the discipl ines of Article III those "payments of subsidies" that are
made solely to domestic producers, to the exclusion of foreign producers. Subsidies provided
exclusively to domestic producers will often, if not always, have an impact on the conditions of
competition between the product produced by the subsidized domestic producers (for example, by
lowering the cost of production of such products) and the like imported product produced by foreign
producers that are not paid the subsidy. 355 In the absence of Article III:8(b), such subsidies paid
exclusively to domestic producers could therefore be seen as being inconsistent with the broadly
worded national treatment obligation in Article III insofar as they alter the conditions of competition
in favour of the product produced by the domestic producer to whom the subsidy is paid.356

350 See e.g. GATT Panel Report, US – Malt Beverages, para. 5.9. The GATT panel further noted that an
"expansive interpretation of Article III:8(b) …, if carried to its logical conclusion, … would virtually eliminate the
prohibition in Article III:2 of discriminatory internal taxation by enabling contracting parties to exempt all
domestic products from indirect taxes." Ibid., para. 5.12.
351 Appellate Body Report, Canada – Periodicals, p. 34.
352 Interim Commission for the International Trade Organization, Reports of the Committees and
Principal Sub-Committees: ICITO I/8, Geneva, September 1948, p. 66. Article 18 and Section C of Chapter IV
of the Havana Charter for an International Trade Organization correspond, respectively, to Article III and
Article XVI of the GATT 1947. See also Appellate Body Report, Canada – Periodicals, p. 34.
353 Appellate Body Report, Canada – Periodicals, p. 34.
354 Oxford English Dictionary online, definition of "exclusively",
http://www.oed.com/view/Entry/65834?redirectedFrom=exclusively#eid.
355 In US – Tax Incentives, the Appellate Body observed that "[s]ubsidies that relate to domestic
production … can ordinarily be expected to increase the supply of the subsidized domestic goods in the relevant
market". (Appellate Body Report, US – Tax Incentives, para. 5.15)
356 In this regard, we note that the chair of the working party of Sub-Committee A, which redrafted
Article 18 of the Havana Charter (which corresponds to Article III of the GATT 1994), acknowledged that the
text of Article III:8(b) was added "because it was felt that if subsidies were paid on domestic and not on
imported products, it might be construed that Members were not applying the 'national treatment' rule."
(E/CONF.2/c.3/A/W.49, p. 2)
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5.94. In US – Tax Incentives, the Appellate Body observed that Article III:8(b) "makes clear that
the provision of subsidies to domestic producers only, and not to foreign ones, does not in itself
constitute a breach of Article III."357 Insofar as the payment of a subsidy only to domestic producers,
to the exclusion of foreign producers, affects the conditions of competition in the relevant product
market(s), Article III:8(b) carves out an exce ption for the payment of such subsidies from the
national treatment obligation under Article III. In other words, to the extent that the payment of
subsidies exclusively to domestic producers of a given product affects the conditions of competition
between such a product and the like imported product, resulting in an inconsistency with the national
treatment obligation in Article III, such a payment would be justified under the exception contained
in Article III:8(b), provided that the conditions thereunder are met.358
5.95. Moreover, besides the effect of the payment of subsidies exclusively to domestic producers
on the conditions of competition in the relevant product market(s), there will often be conditions for
eligibility that attach to such payments. For instance, insofar as Article III:8(b) justifies the payment
by WTO Members of subsidies exclusively to domestic producers, conditions for eligibility that define
the class of eligible "domestic producers" by reference to their activities in the subsidized prod ucts'
markets would be justified under Article III:8(b). By contrast, a requirement to use domestic over
imported goods in order to have access to the subsidy may , however, not be covered by the
exception in Article III:8(b) and would therefore continue to be subject to the national treatment
obligation in Article III. This is because, while the payment of subsidies and certain eligibility criteria
may affect the conditions of competition between the product produced by the producer receiving
the subsidy and the like imported products, a requirement to use domestic products in order to have
access to the subsidy would impact the conditions of competition between a different set of domestic
and like imported products , namely, the domestic product whose use is mandated and the like
imported product.359
5.96. Turning to the term "do mestic producers", as used in Article III:8(b), we note that the
dictionary meaning of "producer" is "[a] person who … produces (in various senses)".360 The scope
of Article III:8(b) suggests that the focus of inquiry under that provision ought to be on whether the
domestic entity at issue is a producer of the product with respect to which a violation of the national
treatment obligation arising from the "payment of subsidies" is alleged. This is because
Article III:8(b) serves as a justification only for dis crimination resulting from the effects of the
payment of a subsidy on the conditions of competition in the relevant product market(s). Therefore,
whether a domestic entity is a "domestic producer" within the meaning of Article III:8(b) is a
question that m ust be answered in light of the specific facts and circumstances of a given case,
including the nature of discrimination that is alleged.
5.2.3 Whether the Panel erred in its interpretation and application of Article III:8(b) of
the GATT 1994
5.97. Having set out the legal standard under Article III:8(b), we now turn to address Brazil's claim
that the Panel erred in its interpretation and application of Article III:8(b) of the GATT 1994. Brazil
claims that the Panel erred in its interpretation of Article III:8(b) in finding that "subsidies that are
provided exclusively to domestic producers pursuant to Article III:8(b) of the GATT 1994 are not per
se exempted from the disciplines of Article III of the GATT 1994."361 Brazil further contends that the
Panel, premised on its erroneous interpretation362, also erred in its application of Article III:8(b) in
finding that: (i) the ICT programmes are inconsistent with Article III:2, first sentence, and
Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement; and (ii) t he accreditation

357 Appellate Body Report, US – Tax Incentives, para. 5.16. (emphasis added)
358 That said, the payment of such subsidies and the effects thereof would continue to be regulated by
other relevant provisions of the GATT 1994 and the SCM Agreement.
359 The Appellate Body in US – Tax Incentives observed that, "[t]o the extent that 'domestic producers'
may generally be expected to manufacture a certain amount of 'domestic goods' in a Member's territory,
Article III:8(b) comports with our reading of Article 3.1(b) under which something more than mere
subsidization of domestic production is required for finding an import substitution subsidy." (Appellate Body
360 Oxford English Dictionary online, definition of "producer",
http://www.oed.com/view/Entry/151981?redirectedFrom=producer#eid.
361 Brazil's appellant's submission, paras. 5 and 16 (quoting Panel Reports, para. 7.87). See also ibid.,
paras. 31 and 34.
362 Brazil's appellant's submission, para. 35.
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requirements under the INOVAR -AUTO programme are inconsistent with Article III:4 of the
GATT 1994 and Article 2.1 of the TRIMs Agreement.363
5.98. According to Brazil, the Panel's interpretation and application of Article III:8(b) erroneously
"conflate[] the distinction between the product-related disciplines of Article III and the provisions of
the covered agreements concerning subsidies provided to domestic producers, which should be
assessed under the SCM Agreement".364 Brazil takes the overarching position that Article III:8(b)
"delineat[es]", in a mutually exclusive manner, the respective scopes of application of the
"product-related" disciplines of Article III, on the one hand, and the disciplines of Article XVI and the
SCM Agreement concerning "producer subsidy measures", on the other hand. 365 In Brazil's view, a
"harmonious interpretation"366 of these different provisions requires any panel evaluating claims
under Article III to determine, as a "threshold analysis", 367 whether the measure at issue is a
"product-related" measure subject to the disciplines of Article III or whether the measure provides
a subsidy to domestic producers and is therefore subject to the disciplines of the SCM Agreement.368
Brazil faults the Panel for not undertaking such a "threshold inquiry".369 In support of its claim, Brazil
advances several arguments focusing on different interpretative elements of Article III:8(b),
including the introductory clause, the scope of the term "payment of subsidies", an d the examples
set out in that provision.
5.99. The European Union responds that Brazil's "formalistic interpretation", drawing a "strict line"
between the discipline under Article III and the provisions relating to subsidies, goes against the
principle of "coherent interpretation".370 Given that the disciplines under Article III of the GATT 1994
and the SCM Agreement are not mutually exclusive, the European Union maintains that a measure
may be found to be inconsistent with both sets of disciplines, as in the present case.371 Moreover, in
the European Union's view, Article III:8(b) cannot be interpreted as excluding the manner in which
WTO Members condition the granting of subsidies to domestic producers only because the subsidies
are given only to domestic producers . Thus, although the European Union agrees that the
product-related effects of payments granted exclusively to domestic producers cannot result in
discrimination contrary to Article III, it disagrees that the provision of subsidies containing a
requirement to use domestic over imported inputs as a condition to benefit from the subsidy can fall
under the carve-out in Article III:8(b).372 According to the European Union, there was no intention
to "compartmentalise" the obligations in case of measures consisting of subsidies exclusively within
Article XVI of the GATT 1947, nor was that the intention of negotiators during the Uruguay Round
when agreeing to Article 3.1(b) of the SCM Agreement.373
5.100. Japan asserts that the ordinary meaning of the text of Article III:8(b) renders it clear that
the provision does not constitute a blanket exemption for subsidies paid exclusively to domestic
producers. Instead, for Japan, measures that take the form of subsidies paid exclusively to domestic
producers may still be subject to the disciplines under Article III if they, or certain elements thereof,
result in discrimination between products.374 For Japan, therefore, if a subsidy is not only contingent
on the fact that the recipient is a domestic producer, but also on the use of local content, then this
"element" discriminating between foreign and domestic products would be a violation of the national
treatment obligation.375 Moreover, Japan also considers that Article III:8(b) applies to not all, but
only "some types" of, subsidies to domestic producers.376
5.101. We begin by recalling our discussion above that the national treatment obligation under
Article III of the GATT 1994, by the terms of that provision, has a broad scope of application. In

363 Brazil's appellant's submission, paras. 35-36 (referring to Panel Reports, paras. 7.174, 7.318-7.319,
7.365, 7.688, 7.772-7.773, 7.806, 8.5.a-b, 8.5.d, 8.6.a-b, and 8.6.d).
364 Brazil's appellant's submission, para. 26.
365 Brazil's appellant's submission, para. 25.
366 Brazil's appellant's submission, para. 26.
367 Brazil's appellant's submission, para. 33.
368 Brazil's appellant's submission, para. 26.
369 Brazil's appellant's submission, para. 30.
370 European Union's appellee's submission, para. 42.
371 European Union's appellee's submission, para. 44.
372 European Union's appellee's submission, para. 57.
373 European Union's appellee's submission, para. 45.
374 Japan's appellee's submission, paras. 17-19 (referring to Panel Report, Indonesia – Autos,
para. 14.43)
375 Japan's appellee's submission, para. 20.
376 Japan's appellee's submission, para. 42.
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particular, a discussion of the relevant WTO jurisprudence reveals that, although the national
treatment obligation in Articles III:2 and III:4 is made effective in the context of "products", this
does not ipso facto suggest that measures that are primarily directed at "producers" are excluded
from that obligation.377 We thus agree with the Panel's view that, based on the plain text of Article III
and relevant WTO jurisprudence, " Article III of the GATT 1994 is not per se inapplicable to certain
measures, in particular 'pre -market' measures directed at producers."378 The Panel, in our view,
correctly observed that, "if the formalistic approach … were correct, it would be simple to entirely
avoid the bedrock national treatment requirement of the multilateral trading system."379
5.102. Having agreed with the Pane l that the text of Articles III:2 and III:4 does not , in and of
itself, exclude from the scope of the national treatment obligation measures that are directed at
"producers", we turn to Brazil's argument that Article III:8(b) "delineat[es]", in a mutually exclusive
manner, the respective scopes of application of the "product-related" disciplines of Article III, on the
one hand, and the disciplines of Article XVI and the SCM Agreement concerning "producer subsidy
measures", on the other hand.380 On this basis, Brazil claims that the Panel erred in its interpretation
of Article III:8(b) in finding that "subsidies that are provided exclusively to domestic producers
pursuant to Article III:8(b) of the GATT 1994 are not per se exempted from the disciplines of
Article III of the GATT 1994."381
5.103. The Panel began its analysis under Article III:8(b) of the GATT 1994 by noting, first, that
"at a minimum" the text of the provision makes it clear that "subsidies given exclusively to domestic
producers do not per se and for that reason alone violate Article III of the GATT 1994."382 The Panel
explained that, in fact, "subsidies as such are not regulated by Article III, but rather by the provisions
of Article XVI of the GATT 1994 and by the SCM Agreement."383 The Panel fur ther noted that,
"without Article III:8(b), Article III as a whole, and Article III:4 in particular, might be seen as
prohibiting all subsidization that was provided only to domestic, and not to foreign, producers. This
is because both Article III:1 … and Article III:4 speak of, and discipline, inter alia regulatory
measures 'affecting' the sale, offering for sale, purchase, trans portation, distribution, or use , of
products."384 The Panel considered it "clear that a subsidy is a form of regulatory measure that can
and often does 'affect' the sale, purchase, etc. of products in ways that create advantages in the
domestic market vis-à-vis products that have not benefited from the subsidy, including for example
imported products".385 In the Panel's view, providing a "competitive advantage" in relation to market
conditions is, in fact, the "typical intention" behind subsidization.386
5.104. For the Panel, "the 'adverse effects' provisions of the subsidy disciplines in Article XVI of the
GATT 1994 and the SCM Agreement are 'precisely aimed' at the adverse trade effects that can be
caused by the competitive advantages provided by subsidization."387 Thus, the Panel explained that,
"in the absence of a provision such as Article III:8(b), Article III:4 might be read to require
governments of importing Members to provide subsidies to foreign competitor firms whenever they
subsidize their own domestic firms; or alternatively to prohibit all subsidies provided only to domestic
and not also to foreign producers."388 For the Panel, "[s]uch an approach would be inconsistent with
the very existence of the SCM Agreement, which in principle permits subsidies, except for two
precise types of prohibited subsidies (namely export contingent subsidies and import substitution
subsidies), and contains no requirement that subsidies, to be permitted, must be provided to foreign
as well as domestic recipients. "389 On this basis, the Panel found that the exclusive provision of
subsidies to domestic producers (or any eventual effects thereof in the domestic m arket) does not

377 Appellate Body Report, China – Publications and Audiovisual Products, para. 227; GATT Panel Report,
US – Section 337 Tariff Act, para. 5.10; Panel Report, Argentina – Hides and Leathers, para. 11.211;
Appellate Body Report, Thailand – Cigarettes (Philippines), para. 114. See also paragraphs 5.14-5.16 above.
378 Panel Reports, para. 7.70.
379 Panel Reports, para. 7.63.
380 Brazil's appellant's submission, para. 25.
381 Brazil's appellant's submission, paras. 16, 31, and 34 (quoting Panel Reports, para. 7.87).
382 Panel Reports, para. 7.77.
383 Panel Reports, para. 7.77.
384 Panel Reports, para. 7.78.
385 Panel Reports, para. 7.78.
386 Panel Reports, para. 7.78.
387 Panel Reports, para. 7.78.
388 Panel Reports, para. 7.78.
389 Panel Reports, para. 7.78.
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by itself constitute discriminatory treatment with respect to imported products, as prohibited by
Article III.390
5.105. Next, the Panel addressed Brazil's argument that "Article III:8(b) effectively exempts all tax
and regulatory discrimination bet ween imported and domestic products from the disciplines of
Article III to the extent that the measures in question are subsidies to domestic producers. "391 The
Panel noted, first, that "multilateral rules on subsidies have coexisted with those on national
treatment – including the proviso in Article III (Article III:8(b)) that clarifies the nature of that
coexistence – since the entry into force of the GATT 1947. "392 According to the Panel, the adoption
of the SCM Agreement did not alter this "basic harmonious coexistence".393 The Panel considered
that "the negotiating history of the Uruguay Round suggest [ed] that the intention of Article 3.1(b)
of the SCM Agreement was simply to codify the already existing prohibition, pursuant to Article III:4
of the GATT 1994, of subsidies contingent upon the use of domestic over imported goods. "394 The
Panel also noted that "the provisions on discrimination in Article III of the GATT 1994 and the
provisions of the SCM Agreement can apply to the same measure simultaneously."395
5.106. Concerning the element of discrimination that could be introduced by a subsidy, the Panel
viewed the text of Article III:8(b) as confirming that, "even if a measure is a subsidy that is provided
exclusively to domestic producers, this fact is not sufficient to remove the measure from the
application of Article III."396 Specifically, with respect to tax-based measures, the Panel noted that
Article III:8(b) allows WTO Members to provide subsidies exclusively to domestic products using the
proceeds of internal taxes or charges, as long as those taxes or charges are applied consistently
with Article III.397 For the Panel, therefo re, if "Article III:8(b) exempts tax discrimination from the
scope of Article III, the reference in Article III:8(b) itself to 'taxes and charges applied consistently
with the provisions of [Article III]' would be meaningless."398 On this basis, the Panel concluded that
"Article III:8(b) does not change the applicability of Article III to discriminatory application of a
product tax, even where such a discriminatory application constituted a subsidy exclusively to
domestic producers."399 The Panel found support for its conclusion in the travaux préparatoires of
the Havana Charter.400 Furthermore, the Panel was of the view that discriminatory non -tax
regulatory measures that involve the provision of a subsidy exclusively to domestic producers are
also, for that reas on alone, not outside the disciplines of Article III:4, given that the text of
Article III:8(b) refers to Article III in its entirety and not just Article III:2.401
5.107. Having agreed with the panel in Indonesia – Autos that "a subsidy to domestic producers
that introduces discrimination between imported and domestic like products is covered by – and
inconsistent with – the provisions of Article III"402, the Panel thus concluded that "subsidies that are
provided exclusively to domestic producers pursuant to Article III:8(b) of the GATT 1994 are not
per se exempted from the disciplines of Article III of the GATT 1994."403 Specifically, the Panel
considered that the "aspects of a subsidy resulting in product discrimination (including requirements

390 Panel Reports, para. 7.79.
391 Panel Reports, para. 7.80.
392 Panel Reports, para. 7.82.
393 Panel Reports, para. 7.82.
394 Panel Reports, para. 7.82.
395 Panel Reports, paras. 7.39-7.49 and 7.82.
396 Panel Reports, para. 7.85.
397 Panel Reports, para. 7.85.
398 Panel Reports, para, 7.85.
399 Panel Reports, para. 7.85.
400 Panel Reports, para. 7.85 and fn 479 thereto (referring to E/CONF.2/C.3/6, p. 17;
E/CONF.2/C.3/A/W.32, p. 2). The Panel observed that:
The Reports of the Committees and Principal Sub-Committees of the Interim Commission for the
International Trade Organization concerning the provision of the Havana Charter for an
International Trade Organization that corresponds to Article III:8(b) of the GATT 1994 state that:
"nothing in Article 18 could be construed to sanction the exemption of domestic products from
internal taxes imposed on like imported products or the remission of such taxes".
(Ibid. (quoting Interim Commission for the International Trade Organization, Reports of the Committees and
Principal Sub-Committees: ICITO I/8, Geneva, September 1948, p. 66))
401 Panel Reports, para. 7.86.
402 Panel Reports, para. 7.83 (referring to Panel Report, Indonesia – Autos, paras. 14.43-14.46).
403 Panel Reports, para. 7.87.
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to use domestic goods, as prohibited by Article 3.1 of the SCM Agreement) are not exempted from
the disciplines of Article III pursuant to Article III:8(b)."404
5.108. We recall that, in US – Tax Incentives, the Appellate Body stated that "Article III:8(b) makes
clear that the provision of subsidies to domestic producers only, and not to foreign ones, does not
in itself constitute a breach of Article III."405 As explained in paragraph 5.94 above, insofar as the
payment of subsidies exclusively to domestic producers, to the exclusion of foreign producers, affects
the conditions of competition in the relevant product market(s), the resulting inconsistency with the
national treatment obligation in Article III will be justified under the exception contained in
Article III:8(b), provided that the conditions thereunder are met. 406 We therefore agree with the
Panel's view that the "exclusive provision of subsidies (or any eventual effects therefrom in the
domestic market) does not by itself constitute discriminatory treatment in respect of imported
products of the type prohibited by Article III."407 That said, as discussed above, we note that other
aspects of a measure directed at producers that go beyond the mere payment of subsidies
exclusively to domestic producers 408, such as, for example, an additional requirement to use
domestic over imported goods in order to have access to the subsidy, may not be covered by the
exception in Article III:8(b) and would therefore continue to be subject to the national treatment
obligation in Article III.
5.109. Although we agree with the Panel's preliminary observations that discrimination resulting
from the payment of subsidies exclusively to domestic producers and the market effects thereof may
be justified under Article III:8(b), we have several concerns about the Panel's subsequent analysis
leading to its conclusion that "aspects of a subsidy resulting in product discrimination (including
requirements to use domestic goods, as prohibited by Article 3.1 of the SCM Agreement) are not
exempted from the discipline s of Article III pursuant to Article III:8(b)."409 We note, in particular,
the Panel's unqualified reference to "aspects of a subsidy", as well as its use of the term "including",
when referring to domestic content requirements in the statement quoted above. The Panel adopts
a similar view when describing the findings of the panel in Indonesia – Autos, noting that the "panel
found that Article III:8(b) confirms that subsidies to domestic producers do not violate Article III so
long as they do not have any com ponent that introduces discrimination between imported and
domestic products".410
5.110. The Panel's interpretation appears to contradict its earlier finding that the "exclusive
provision of subsidies (or any eventual effects thereof in the domestic market) does no t by itself
constitute discriminatory treatment in respect of imported products of the type prohibited by
Article III."411 As part of our analysis above, we have agreed with this statement by the Panel, as
well as with its observation that "providing a competitive advantage in relation to market conditions
is a typical intention behind subsidization". 412 Accepting the Panel's conclusion would suggest that
virtually all of the subsidies paid exclusively to domestic producers would be subject to the national
treatment obligation set out in the other paragraphs of Article III and would not be justifiable under
Article III:8(b). This is because, as the Panel itself acknowledged, subsidies provided to domestic
producers will almost always have an impact on the condit ions of competition between the product
produced by the subsidized domestic producers and the like imported product produced by foreign

404 Panel Reports, para. 7.88.
405 Appellate Body Report, US – Tax Incentives, para. 5.16. (emphasis added)
406 We recall that the chair of the working party of Sub-Committee A, which redrafted Article 18 of the
Havana Charter (which corresponds to Article III of the GATT 1994), acknowledged that the text of
Article III:8(b) was added "because it was felt that if subsidies were paid on domestic and not on imported
products, it might be construed that Members were not applying the 'national treatment' rule".
(E/CONF.2/c.3/A/W.49, p. 2)
407 Panel Reports, para. 7.79. We also agree with the Panel that "providing a competitive advantage in
relation to market conditions is a typical intention behind subsidization". (Ibid., para. 7.78)
408 As discussed above, insofar as Article III:8(b) justifies the payment by WTO Members of subsidies
exclusively to domestic producers, conditions for eligibility that define the class of eligible "domestic producers"
by reference to their activities in the subsidized products' markets may also be justified under Article III:8(b).
409 Panel Reports, para. 7.88.
410 Panel Reports, para. 7.83 (referring to Panel Report, Indonesia – Autos, paras. 14.43-14.46).
(emphasis added)
411 Panel Reports, para. 7.79.
412 Panel Reports, para. 7.78.
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producers that are not in receipt of the subsidy.413 In other words, the Panel's interpretation, taken
to its logical conc lusion, denies effect to the exception contained in Article III:8(b), because,
following the Panel's logic, in order to justify discrimination inconsistent with the national treatment
obligations in Article III pursuant to Article III:8(b), the "payment of subsidies exclusively to
domestic producers" must not be discriminatory in the first place. Seen in this light, the Panel's
conclusion embodies a circular logic inasmuch as it delimits the scope of Article III:8(b) – an
exception to the national treatment obligation for certain specific types of subsidies – on the basis
of the discriminatory effects of the subsidies themselves.
5.111. To be clear, while we agree with the Panel that certain elements of a subsidy, such as a
requirement conditioning access to the subsidy based on the use of domestic over imported goods,
may violate the national treatment obligation under Article III in ways other than subsidization, this
does not mean that the mere payment of a subsidy, in and of itself, is not justifiable under
Article III:8(b).414 In our view, although the Panel correctly noted that discrimination resulting from
requirements to use domestic over imported goods, as prohibited under Article 3.1(b) of the
SCM Agreement, is not justified under Article III:8(b), the Panel's unqualified reference to "aspects
of a subsidy resulting in product discrimination" not being exempted under Article III:8(b) is overly
broad and deprives that provision of any effect because, as acknowledged by the Panel, the very act
of subsidization will, in and of itself, often result in product discrimination. Similarly, we find
problematic the Panel's endorsement of the panel's conclusion in Indonesia – Autos that
"Article III:8(b) confirms that subsidies to domestic producers do not violate Article III so long as
they do not have any component that introduces discrimination between imported and domestic
products."415
5.112. Because of the aforementioned shortcomings in the Panel's reasoning, we reverse the Panel's
overly broad and unqualified finding s that "subsidies that are provided exclusively to domestic
producers pursuant to Article III:8(b) of the GATT 1994 are not per se exempted from the disciplines
of Article III of the GATT 1994"416 and that "aspects of a subsidy resulting in product discrimination
(including requirements to use domestic goods, as prohibited by Article 3.1 of the SCM Agreement)
are not exempted from the disciplines of Article III pursuant to Article III:8(b)."417 Instead, based
on the proper interpretation of Article III:8(b) set out above, insofar as the payment of subsidies
exclusively to domestic producers of a given product affects the conditions of competition between
such a product and the like imported product, resulting in an inconsistency with the national
treatment obligation in Article III, such a payment would be justified under Article III:8(b), provided
that the conditions thereunder are met. Moreover, conditions for eligibility for the payment of
subsidies that define the class of eligible "domestic producers" by reference to their activities in the
subsidized products' markets would be justified under Article III:8(b). By contrast, a requirement to
use domestic over imported goods in order to have access to the subsidy would not be covered by
the exception in Article III:8(b) and would therefore continue to be subject to the national treatment
obligation in Article III.
5.113. The consequences of the Panel's erroneous conclusion that "subsidies that are provided
exclusively to domestic producers pursuant to Article III:8(b) are not per se exempted from the

413 We recall that in US – Tax Incentives the Appellate Body observed that "[s]ubsidies that relate to
domestic production … can ordinarily be expected to increase the supply of the subsidized domestic goods in
the relevant market…." (Appellate Body Report, US – Tax Incentives, para. 5.15)
414 As discussed above, we consider that conditions for eligibility for a subsidy that relate to the
producer's activities in the subsidized products markets are justified under Article III:8(b). In this regard, we
note Brazil's argument that:
A logical consequence of the right to provide subsidies under WTO law is that Members must be
free to define what constitutes a domestic producer for the purposes of participating in subsidies
programmes. It is typical for regulations authorizing a subsidy to define the basic requirements
and qualifying conditions for identifying domestic producers to ensure that only domestic
producers – and not foreign producers – benefit from the subsidy. It would therefore be
inappropriate to consider that those requirements per se violate Article III:4 of the GATT 1994.
(Brazil's appellant's submission, para. 136)
415 Panel Reports, para. 7.83 (referring to Panel Report, Indonesia – Autos, paras. 14.43-14.46).
(emphasis added)
416 Panel Reports, para. 7.87.
417 Panel Reports, para. 7.88.
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disciplines of Article III" manifest themselves in its analysis under Article III:4.418 Having reached
the interpretative conclusion above, the Panel turned to determine "whether the product -related
aspects of any subsidies that it may find to exist under the challenged measures are discriminatory
in a manner inconsistent with Article III:2, III:4, and III:5 of the GATT 1994".419 With respect to the
consistency of the conditions of accreditation under the ICT programmes with Article III:4, the Panel
found "that the conditions of accreditation, which when fulfilled create a lower internal tax burden
on domestic products than on like imported products, modify the conditions of competition to the
detriment of the imported products" .420 Thus, the aspect of the ICT programmes found to be
inconsistent is the accreditation requirements that result in less favourable treatment in the form of
the differential tax treatment for imported ICT products. Crucially, this aspect of the subsidy tha t
the Panel found to be inconsistent with Article III:4 was the very aspect of the alleged subsidization
sought to be justified by Brazil under Article III:8(b), but never examined by the Panel. In this
manner, the Panel's interpretation of Article III:8(b) obviated the need for it to consider whether
the "differential tax treatment" arising out of the ICT programmes constitutes the "payment of
subsidies" and whether the conditions of accreditation are legitimate conditions for eligibility that
are limited to ensuring that such payments are made "exclusively to domestic producers" within the
meaning of Article III:8(b).
5.114. Having reversed the Panel's findings under Article III:8(b), we turn to Brazil's argument that
the term "subsidies" in Article III:8(b) encompasses all types of subsidies listed in Article 1.1 of the
SCM Agreement.421 Because the exemption or remission of "indirect taxes" is a "subsidy" within the
meaning of the SCM Agreement, for Brazil, it is also a subsidy for the purpose of Article III:8(b) of
the GATT 1994.422 Brazil alleges that the Panel's interpretation, therefore, fails to give effect to the
definition of a "subsidy" contained in Article 1.1 of the SCM Agreement.423 Brazil argues that the
Appellate Body's interpretation of the term "payment" in the context of Article III:8(b) in Canada –
Periodicals is in "direct contradiction" with the Appellate Body's interpretation of the term "payment",
in the context of Article 9.1(c) of the Agreement on Agriculture, in Canada – Dairy.424 Moreover,
recalling that the Appellate Body in Canada – Periodicals stated that Article III:8(b) was "intended
to exempt from the obligations of Article III only the payment of subsidies which involves the
expenditure of revenue by a government"425, Brazil asserts that "when a government foregoes the
collection of a known amount of tax revenue that it would otherwise collect, it expends revenue in
that amount", and "these expenditures are commonly referred to as 'tax expenditures'".426 Finally,
Brazil considers that "the benefit to a domestic producer of a subsidy in the form of a 'grant' is
equivalent to the benefit of an exemption of indirect taxes in the corresponding ratio", such that a
narrow interpretation of Article III:8(b) that limits its scope to certain types of subsidies only would
be "void of any economic logic" and would "elevate form over substance".427
5.115. The European Union submits that the Panel did not need to discuss the overlap between the
meaning of the term "subsidy" in Article III:8(b) of the GATT 1994 and the definition provided in
Article 1.1 of the SCM Agreement because "[t]he Panel excluded the application of Article III:8(b)
on the basis that th at provision does not carve out subsidies provided to domestic producers
per se."428 Thus, the European Union submits that the Appellate Body need not address Brazil's
arguments concerning the interpretation of the term "subsidy" in Article III:8(b) as this did not form
a part of the Panel's reasoning. 429 Nonetheless, referring to the Appellate Body Report in
Canada ‒ Periodicals, the European Union submits that a reduction or exemption of tax does not

418 Panel Reports, para. 7.87. Our discussion of the Panel's analysis under Articles III:2 and III:4 of the
GATT 1994 does not indicate an endorsement of the Panel's order of analysis with respect to these provisions
and Article III:8(b).
419 Panel Reports, para. 7.88.
420 Panel Reports, para. 7.225.
421 Brazil's appellant's submission, heading B.1.
422 Brazil's appellant's submission, para. 52.
423 Brazil's appellant's submission, para. 55.
424 Brazil's appellant's submission, para. 60 (referring to Appellate Body Report, Canada – Dairy,
paras. 110 and 112).
425 Brazil's appellant's submission, para. 61 (quoting Appellate Body Report, Canada ‒ Periodicals,
p. 34).
426 Brazil's appellant's submission, para. 61 (referring to OECD, Tax Expenditures in OECD Countries
(2010), p. 12; Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813).
427 Brazil's appellant's submission, paras. 62-63.
428 European Union's appellee's submission, para. 66.
429 European Union's appellee's submission, para. 66.
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amount to "the payment of subsidies" under Article III:8(b).430 The European Union also relies on
the term "payment" used in Article III:8(b), as opposed to "granting " or "subsidies" used in
Article XVI of the GATT 1994, to highlight the limited scope of Article III:8(b).431 For these reasons,
the European Union submits that Article III:8(b) "only carves out 'the payment of subsidies…' (and
not any type of subsid ies such as revenue foregone ), to the extent that such payments do not
contain aspects resulting in product discrimination, such as the requirement to use domestic over
imported goods."432
5.116. Japan considers Brazil's argument concerning the term "payment of subsid ies" in
Article III:8(b) to be "entirely circular" inasmuch as it states that because revenue foregone is
included in the definition of a subsidy under the SCM Agreement, it must therefore also fall within
the scope of Article III:8(b).433 As to Brazil's rel iance on the Appellate Body Report in
Canada ‒ Dairy, Japan points out that the Appellate Body's interpretation of the term "payment" in
that dispute related to "very specific language " of a provision in a different covered agreement434
and ignores the Appellate Body's "very specific language" in Canada – Periodicals.435
5.117. We note the European Union's argument that the Panel did not need to discuss the overlap
between the meaning of the term "subsidy" in Article III:8(b) and the definition provided in
Article 1.1 of the SCM Agreement because "[t]he Panel excluded the application of Article III:8(b)
on the basis that such provision does not carve out subsidies provided to domestic producers
per se."436 The European Union submits that the Appellate Body need not address Brazil's arguments
concerning the interpretation of the term "payment of subsidies" in Article III:8(b) as it did not form
part of the Panel's reasoning.437 We agree with the European Union that one reason why the Panel
may not have felt compelled to inte rpret the terms "payment of subsidies exclusively to domestic
producers" could have been its finding that such p ayments are, in any event, not per se exempt
from the national treatment obligation under Article III. As discussed, however, this line of reasoning
embodies a circular logic and denies effect to the terms of Article III:8(b). Having reversed that
finding by the Panel, we consider it appropriate to address Brazil's claim on appeal relating to the
interpretation of the term "payment of subsidies" in Article III:8(b).
5.118. Brazil argues that, "[b]ecause the exemption or re mission of indirect taxes is a ' subsidy'
within the meaning of the SCM Agreement, it is also a 'subsidy' for purposes of Article III:8(b) of
the GATT 1994."438 As the European Union rightly points out, however, the issue at hand relates not
to the definition of a "subsidy", in the abstract, but, instead, to the scope of the term "payment of
subsidies" in Article III:8(b).439 Even if the exemption of indirect product taxes is a "subsidy" within
the meaning of Article 1.1 of the SCM Agreement, this does not answer the question whether such
exemption constitutes the "payment of subsidies" under Article III:8(b).440
5.119. As discussed above, while the conduct made permissible by Article III:8(b) is the "payment
of subsidies", other provisions of the GATT 1994, including Article XVI, and the SCM Agreement,

430 European Union's appellee's submission, paras. 67-68 (referring to Appellate Body Report,
Canada ‒ Periodicals, p. 34).
431 European Union's appellee's submission, para. 70.
432 European Union's appellee's submission, para. 74.
433 Japan's appellee's submission, para. 43.
434 Japan's appellee's submission, para. 45 (referring to Appellate Body Report, Canada ‒ Dairy,
para. 110).
435 Japan's appellee's submission, para. 46 (quoting Appellate Body Report, Canada ‒ Periodicals,
p. 34).
436 European Union's appellee's submission, para. 66.
437 European Union's appellee's submission, para. 66.
438 Brazil's appellant's submission, para. 52.
439 European Union's appellee's submission, para. 70.
440 Moreover, we recall our discussion above that the definition of a subsidy provided in Article 1.1 of the
SCM Agreement is "for the purposes of this Agreement", i.e. the SCM Agreement, and does not apply to the
GATT 1994.
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dealing with subsidies, use the terms "grant" or "maintain" when referring to subsidies. 441 This
difference in terminology su ggests that the term "payment of subsidies" in Article III:8(b)
encompasses a narrower range of conduct than that covered by the terms "subsidy" or the "granting"
or "maintaining" of a subsidy elsewhere in the GATT 1994 and the other covered agreements.
5.120. We recall our discussion above of the first example of what constitutes the "payment of
subsidy" under Article III:8(b), namely, "payments to domestic producers derived from proceeds of
internal taxes or charges applied consistently with the provisions of [ Article III]". If subsidies
provided in the form of an exemption or reduction of taxes that are "otherwise due" are seen as
being within the scope of Article III:8(b), then such discriminatory taxation effectuated through a
scheme of foregoing revenue that reduces the tax burden on like domestic products or otherwise
affects the conditions of competition to the detriment of the imported products would be justified
under Article III:8(b). However, subsidies that are paid through the proceeds of discriminator y
taxation would fall outside the scope of the exception in Article III:8(b) by virtue of the first example
and would therefore continue to be subject to the national treatment obligation. We further note in
this regard that the Appellate Body in Canada – Periodicals expressly agreed with the GATT panel in
US – Malt Beverages that "[e]ven if the proceeds from non -discriminatory product taxes may be
used for subsequent subsidies, the domestic producer, like his foreign competitors, must pay the
product taxes due."442 Moreover, the prohibition of discriminatory internal taxes in Article III:2 would
also be rendered ineffective if discriminatory internal taxes on imported products could be justified
as subsidies for competing domestic producers in terms of Article III:8(b).443 Indeed, if the scope of
"payment of subsidies" is seen as encompassing a reduction or exemption in internal product taxes
that are "otherwise due", it would allow WTO Members to adopt discriminatory tax measures by
disguising them in the form of a scheme of exemption or reduction of taxes for domestic producers
alone.
5.121. We note Brazil's argument that, in Canada – Dairy, the Appellate Body interpreted the term
"payment", in relation to subsidies, as including "revenue foregone".444 That dispute addressed the
issues of whether the provision of discounted milk to processors or exporters under a Canadian
scheme constitutes an export subsidy within the meaning of Article 9.1(c) of the Agreement on
Agriculture. The Appellate Body's interpretation of the term "payment " in Article 9.1(c) in that
dispute was guided by the language of that provision and was specific to the context in which it
appears. For instance, the Appellate Body in Canada – Dairy agreed with the panel that "none of the
export subsidies listed in Article 9.1 is restricted to grants made solely in money form and several
expressly involve subsidies granted in a form other than money ."445 The Appellate Body also
considered Article 1(c) of the Agreement on Agriculture as providing relevant context and explained
that "[i]n terms of that provision [i.e. Article 1(c)], 'revenue foregone' is to be taken into account in
determining whether 'budgetary outlay' commitments, made with respect to export subsidies as
listed in Article 9.1, have been exceeded." 446 For the Appellate Body in Canada – Dairy, "if a

441 Article XVI:1 of the GATT 1994, for example, provides, in relevant part:
If any Member grants or maintains any subsidy, including any form of income or price support,
which operates directly or indirectly to increase exports of any product from, or to reduce
imports of any product into, its territory, it shall notify the WTO in writing of the extent and
nature of the subsidization, of the estimated effect of the subsidization on the quantity of the
affected product or products imported into or exported from its territory and of the
circumstances making the subsidization necessary. In any case in which it is determined that
serious prejudice to the interests of any other Member is caused or threatened by any such
subsidization, the Member granting the subsidy shall, upon request, discuss with the other
Member or Members, or with the WTO, the possibility of limiting the subsidization.
(emphasis added)
442 Appellate Body Report, Canada – Periodicals, p. 34 (quoting GATT Panel Report, US ‒ Malt
Beverages, para. 5.10). The GATT panel further explained that "[t]he separation of tax and subsidy rules
contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more
difficult, as in the case where producer aids require additional legislative or governmental decisions in which
the different interests involved can be balanced." (Ibid.)
443 See e.g. GATT Panel Report, US – Malt Beverages, para. 5.9. The GATT panel further noted that an
"expansive interpretation of Article III:8(b) …, if carried to its logical conclusion, … would virtually eliminate the
prohibition in Article III:2 of discriminatory internal taxation by enabling contracting parties to exempt all
domestic products from indirect taxes." (Ibid., para. 5.12)
444 Brazil's appellant's submission, para. 60 (quoting Appellate Body Report, Canada – Dairy, paras. 110
and 112).
445 Appellate Body Report, Canada – Dairy, para. 109 (referring to Panel Report, Canada ‒ Dairy,
para. 7.95). (emphasis original)
446 Appellate Body Report, Canada – Dairy, para. 110.
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restrictive reading of the words 'payments' were adopted, such that 'payments' under Article 9.1(c)
had to be monetary, no account could be taken, under Article 9.1(c), of 'revenue foregone'" and this
would "prevent a proper assessment of the commitments made by WTO Members under Article 9.2,
as envisaged by Article 1(c)".447 Given the Appellate Body's context-specific interpretation of the
term "payment" in Article 9.1(c) of the Agreement on Agriculture, we consider it s observations to
be of limited relevance to the interpretation of the term "payment of subsidies" in Article III:8(b).
5.122. An examination of the text and context of Article III:8(b), in light of its object and purpose
and as confirmed by the negotiating history, therefore suggests that the term "payment of subsidies"
in Article III:8(b) does not include within its scope the exemption or reduction of internal taxes
affecting the conditions of competition between like products. Instead, as noted by the
Appellate Body in Canada – Periodicals, Article III:8(b) "was intended to exempt from the obligations
of Article III only the payment of subsidies which involves the expenditure of revenue by a
government".448
5.2.4 Conclusion with respect to Article III:8(b)
5.123. Although the Panel did, at an early stage of its analysis, acknowledge that the payment of
subsidies exclusively to domestic producers (and the resulting market effects) does not by itself
constitute discriminatory treatment with respect to imported products of the type prohibited by
Article III449, the Panel's interpretation of Article III:8(b) and its application to the measures at issue
obfuscate the distinction between the effects of the payment of a subsidy to a domestic producer on
the conditions of compet ition in the relevant product market(s) and the conditions for eligibility
attaching thereto, on the one hand, and any other effects arising from requirements to use domestic
over imported inputs in the production process, on the other hand. Moreover, at n o stage did the
Panel undertake an assessment of whether the measures at issue constitute the "payment of
subsidies exclusively to domestic producers" within the meaning of Article III:8(b). Because of these
shortcomings in the Panel's reasoning, we reverse the Panel's overly broad and unqualified findings
that "subsidies that are provided exclusively to domestic producers pursuant to Article III:8(b) of
the GATT 1994 are not per se exempted from the disciplines of Article III of the GATT 1994"450 and
that "aspects of a subsidy resulting in product discrimination (including requirements to use domestic
goods, as prohibited by Article 3.1 of the SCM Agreement) are not exempted from the disciplines of
Article III pursuant to Article III:8(b)."451
5.124. Article III:8(b) carves out from the national treatment obligation in Article III the payment
of subsidies exclusively to domestic producers. Insofar as the payment of subsidies exclusively to
domestic producers of a given product affects the conditions of competition between such a product
and the like imported product, resulting in an inconsistency with the national treatment obligation
in Article III, such a payment would be justified under Article III:8(b), provided that the conditions
thereunder are met. Moreover, conditions for eligibility for the payment of subsidies that define the
class of eligible "domestic producers" by reference to their activities in the subsidized products'
markets would also be justified under Article III:8(b). By contrast, a requirement to use domestic
over imported goods in order to have access to the subsidy would not be covered by the exception
in Article III:8(b) and would therefore continue to be subject to the national treatment obligation in
Article III. Furthermore, an examination of the text and context of Article III:8(b), in light of its
object and purpose and as confirmed by the negotiating history, suggests that the term "payment
of subsidies" in Article III:8(b) does not include within its scope the exemption or redu ction of
internal taxes affecting the conditions of competition between like products. Instead, as noted by
the Appellate Body in Canada – Periodicals, Article III:8(b) "was intended to exempt from the
obligations of Article III only the payment of subsidies which involves the expenditure of revenue by
a government".452 Under a proper interpretation of Article III:8(b), none of the measures at issue in
this dispute is capable of being justified under that provision because they all involve the exemption
or re duction of internal taxes affecting the conditions of competition between like products and
therefore cannot constitute the "payment of subsidies" within the meaning of Article III:8(b).

447 Appellate Body Report, Canada – Dairy, para. 110.
448 Appellate Body Report, Canada – Periodicals, p. 34.
449 Panel Reports, para. 7.79.
450 Panel Reports, para. 7.87.
451 Panel Reports, para. 7.88.
452 Appellate Body Report, Canada – Periodicals, p. 34.
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5.2.5 Separate opinion of one Appellate Body Member on Article III:8(b) of the
GATT 1994
5.125. While I agree with the majority's reversal of the Panel's "overly broad and unqualified"
findings in paragraphs 7.87 and 7.88 of its Reports 453, despite our best efforts to arrive at a
consensus, I part company with my distinguished colleagues holding the majority view on the
interpretation of the term "payment of subsidies" in Article III:8(b) of the GATT 1994 for the reasons
set out below.
5.126. While neither Article III:8(b) nor any other provision of the GATT 1994 dealing with
subsidies, including Article XVI, define s a "subsidy" , a detailed definition of what constitut es a
"subsidy" is found in Article 1.1 of the SCM Agreement. Although the chapeau of Article 1.1 states
that the definition of a subsidy under that provision is "[f]or the purpose of this Agreement", i.e. the
SCM Agreement, I note that Article 1.1 contains several textual references to the provision of the
GATT 1994 dealing expressly with subsidies, namely Article XVI. In indicating that "a subsidy sh all
be deemed to exist if: … (a)(1)(ii) government revenue that is otherwise due is foregone or not
collected (e.g. fiscal incentives such as tax credits)", footnote 1 to Article 1.1(a)(1)(ii) clarifies that:
In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and
the provisions of Annexes I through III of this Agreement, the exemption of an exported
product from duties or taxes borne by the like product when destined for domestic
consumption, or the remission of such duties or taxes in amounts not in excess of those
which have accrued, shall not be deemed to be a subsidy.454
Article 1.1(a)(2) further states that a "subsidy shall be deemed to exist if: … (a)(2) there is any form
of income or price support in the sense of Article XVI of the GATT 1994".455 There are thus explicit
textual linkages between the definition of a subsidy set out in Article 1 of the SCM Agreement and
Article XVI of the GATT 1994 dealing with subsidies.
5.127. Moreover, the main object of the SCM Agreement, taken as a whole, is "to increase and
improve GATT disciplines relating to the use of both subsidies and countervailing measures" .456
Indeed, I do not consider that, for the regulation of subsidies, the provisions of the GATT 1994 and
the SCM Agreement operate in isolation; instead, the relevant provisions of the GATT 1994 and the
SCM Agreement together define and reflect the whole package of rights and obligations of
WTO Members with respect to subsidies. 457 Besides the various textual linkages between th e
GATT 1994 and the SCM Agreement, I consider that the General Interpretative Note to Annex 1A to
the WTO Agreement, which clarifies that "in the event of conflict between … the [GATT] 1994 and …
another agreement in Annex 1A, … the other agreement shall prevail to the extent of the conflict",
further supports the existence of a package of rights and obligations of WTO Members as reflected
in the covered agreements.
5.128. For purposes of this package of rights and obligations, " [t]he SCM Agreement defines the
concept of 'subsidy'."458 Given the textual linkages between the definition of a subsidy set out in
Article 1.1 of the SCM Agreement and the provisions of the GATT 1994 dealing with subsidies, as
well as the object and purpose of the SCM Agreement and its relationship with the GATT 1994, I see
no reason why the term "subsidies" under the GATT 1994, including in Article III:8(b), should have
a different meaning than the definition of a subsidy set out in Article 1.1 of the SCM Agreement.459
5.129. I now turn to consider t he implication of the use of the term "payment" in Article III:8(b),
as opposed to "granting" or "maintaining" as used in other provisions dealing with subsidies. As
noted by the majority, t he dictionary meanings of "payment " include "[a] sum of money

453 See paragraph 5.123 above.
454 Emphasis added.
455 Emphasis added.
456 Appellate Body Report, US – Carbon Steel, para. 73.
457 See Appellate Body Report, Brazil – Desiccated Coconut, pp. 12-13 and 17.
458 Appellate Body Report, US – Carbon Steel, para. 73. (emphasis added)
459 As discussed further below, ascribing different definitions to the term "subsidies" under the
GATT 1994 and the SCM Agreement may also alter the carefully constructed balance between the rights and
obligations with respect to the provision of subsidies under the covered agreements. See paras. 5.136-5.137
above.
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(or equivalent) paid or payable" or "the remuneration of a person with money or its equivalent".460
Importantly, the reference to "money" or its " equivalent" in these dictionary definitions suggests
that the scope of "payment" is not limited to direct monetary transfers, but may also include other
transfers having an "equivalent" value or effect. I recall in this regard that, having considered the
dictionary meaning of "payment"461, which is independen t of the context within which the term is
used, the Appellate Body in Canada – Dairy observed that "according to these meanings, a 'payment'
could be made in a form, other than money, that confers value, such as by way of goods or
services."462 I also recall that the Appellate Body in Canada ‒ Periodicals stated that Article III:8(b)
"was intended to exempt from the obligations of Article III only the payment of subsidies which
involves the expenditure of revenue by a government". 463 While I agree that the "pay ment of
subsidies" must involve the "expenditure of revenue by a government" in order for it to be justified
under Article III:8(b), I do not consider that the Appellate Body's statement in Canada – Periodicals
quoted above establishes that the only way through which a government can expend revenue is by
means of a direct monetary transfer. Instead, I consider that this was clarified by the Appellate Body
in its subsequent report in Canada – Dairy, where it explained that a "payment made in the form of
goods or services is also 'financed' in the same way as a money payment, and, likewise, 'a charge
on the public account' may arise as a result of a payment, or a legally binding commitment to make
payment by way of goods or services, or as a result of revenue foregone."464 Indeed, inasmuch as
a charge on the public account is also an expenditure of revenue by the government, I consider that
"payments" involving the expenditure of revenue by a government may take various forms and are
not necessarily limited to di rect monetary transfers. As the Appellate Body explained in
Canada ‒ Dairy, the foregoing of revenue, such as through a reduction, exemption, or suspension
of taxes "otherwise due", incurs a charge on the public account and therefore involves the
expenditure of revenue by a government.
5.130. I now address the contextual relevance of the first example of what constitutes the "payment
of subsidies" set out under Article III:8(b), namely "payments to domestic producers derived from
the proceeds of internal taxes or charges applied consistently with the provisions of [Article III] …".
I note that the text of the first example serves as the lynchpin of both the Panel's analysis as well
as my fellow Division Members' interpretation of Article III:8(b). Essentially, they reason that "if …
Article III:8(b) exempts tax discrimination from the scope of Article III, the reference in
Article III:8(b) itself to ' taxes and charges applied consistently with the provisions of [ Article III]'
would be meaningless."465 I note, however, that the reference in Article III:8(b) to "taxes or charges
applied consistently with the provisions of [Article III]" is not an independent or express requirement
for all measures falling within the scope of Article III:8(b). Instead, this reference is made in the
context of the first of the two examples of the "payment of subsidies" contained in that provision,
which reads, in relevant part: "the payment of subsidies exclusively to domestic producers, including
payments to domestic producers derived from the proceeds of internal taxes or charges applied
consistently with the provisions of [ Article III] and subsidies effected through governmental
purchases of domestic products".466 As my distinguished colleagues forming the majority note, the
use of the word "including" makes clear that these examples are "not an exhaustive list" of the kind
of programmes that would qualify as "payment of subsidies exclusively to domestic producers". 467
The treaty text relied on by the Panel, namely, "taxes or charges appl ied consistently with the
provisions of [ Article III]", is, by the terms of that provision, a requirement only in the case of
"payments to domestic producers derived from the proceeds of internal taxes or charges".468 Given

460 Oxford English Dictionary online, definition of "payment",
http://www.oed.com/view/Entry/139189?rskey=9c29D2&result=1#eid. (emphasis added)
461 We note that the Appellate Body in Canada – Dairy referred to definitions of "payment" that are
similar to the ones used by us: "[T]he Oxford English Dictionary … defines 'payment' as 'the remuneration of a
person with money or its equivalent'. … Similarly, the Shorter Oxford English Dictionary describes a 'payment'
as a 'sum of money (or other thing) paid'." (Appellate Body Report, Canada – Dairy, para. 107 (quoting
Panel Report, Canada – Dairy, para. 7.92, in turn quoting The Shorter Oxford English Dictionary, C.T. Onions
(ed.) (Guild Publishing, 1983), Vol. II, p. 1532) (emphasis added by the Appellate Body; fns omitted))
462 Appellate Body Report, Canada – Dairy, para. 107.
463 Appellate Body Report, Canada – Periodicals, p. 34. Although the Appellate Body in
Canada ‒ Periodicals relied on the GATT panel report in US – Malt Beverages, I consider that report to be of
limited relevance as it was issued before the coming into force of the SCM Agreement, in general, and the
definition of a subsidy set out in Article 1.1 of the SCM Agreement, in particular.
464 Appellate Body Report, Canada – Dairy, para. 108. (emphasis added)
465 Panel Reports, para. 7.85.
466 Emphasis added.
467 Appellate Body Report, Canada – Periodicals, pp. 33-34.
468 Emphasis added.
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the non-exhaustive nature of the l ist, I do not consider that this text can be divorced from the
context of one specific example in Article III:8(b) and be regar ded as an independent and
stand-alone requirement that definitively delimits the scope of Article III:8(b) and applies to all
instances of "payment of subsidies" that could possibly fall within the scope of that provision. In
particular, subsidies provided through the foregoing of government revenue that is otherwise due,
such as tax exemptions, are, by definition, not "derived from the proceeds of internal taxes or
charges", thereby rendering the first example of limited relevance in such cases.
5.131. Instead of regarding the textual reference in the first example set out in Article III:8(b) as
controlling under all circumstances, a proper understanding of the scope of Article III:8(b) ought to
be grounded in the interpretation of the term "payment of subsidies" in accordance with the
customary international rules of treaty interpretation.
5.132. As for the contextual relevance of Article III:2 of the GATT 1994, I am not entirely convinced
that interpreting "payment of subsidies" as including "revenue foregone" would necessarily render
the prohibition against tax discrimination in Article III:2 meaningless. In this regard, I note that
Article 1.1(a)(1)(ii) of the SCM Agreement provides that there is a "financial contribution" by a
government, sufficient to fulfil that element in the definition of a subsidy, where "government
revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax
credits)."469 The Appellate Body has explained that:
[T]he "foregoing" of revenue "otherwise due" implies that less revenue has been raised
by the government than would have been raised in a different situation, or, that is,
"otherwise". Moreover, the word "foregone" suggests that the government has given up
an entitlement to raise revenue that it could "otherwise" have raised . This cannot,
however, be an entitlement in the abstract, because governments, in theory, could tax
all revenues.470
According to the Appellate Body, there must therefore be "some defined, normative benchmark
against which a comparison can be made between the revenue actually raised and the revenue that
would have been raised 'otherwise'".471 In US – FSC, the Appellate Body agreed with the panel that
"the basis of comparison must be the tax rules applied by the Member in question."472
5.133. The Appellate Body's interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement therefore
suggests that the notion of financial contribution in the form of "revenue foregone" that is "otherwise
due" is narrower than just any form of discriminatory taxation which may be prohibited under
Article III:2, in the abstract. In particular, revenue foregone must be "otherwise due" under the tax
rules applied by the Member in question. I consider that a scheme applying discriminatory taxes to
imported products and like domestic products would not constitute "revenue foregone" in as much
as the lesser tax burden on domestic products would not, in and of itself, suggest that the
government would have given up an entitlement to raise revenue that it could "otherwise" have
raised as there would be no such entitlement under the tax rules in the first place. Seen in this light,
"revenue foregone" is a narr ower concept than tax discrimination in general , such that not all tax
discrimination would ipso facto amount to "revenue foregone" and would thereby not be justified
under Article III:8(b).
5.134. Therefore, far from rendering the prohibition against discriminatory taxation in Article III:2
redundant, an interpretation of the term "payment of subsidies" as including revenue foregone gives
meaning and effect to the terms of both Articles III:2 and III:8(b), while at the same time respecting
the carefully negotiated balance of rights and obligations under the SCM Agreement. As the majority
correctly notes, the fact that a measure qualifies as the "payment of subsidies exclusively to
domestic producers" and the resulting inconsistency with the national treat ment obligation under
Article III is therefore justified under Article III:8(b) does not suggest that such a measure would
not be subject to the other relevant provisions of the GATT 1994 and the SCM Agreement. This was
confirmed by the Appellate Body in US – Tax Incentives, where it explained that "even if the granting
of a subsidy is exempt from the GATT national treatment obligation by virtue of it being paid
exclusively to domestic producers withi n the meaning of Article III:8(b) of the GATT 1994, it may

469 Emphasis added; fn omitted.
470 Appellate Body Report, US – FSC, para. 90. (emphasis original)
471 Appellate Body Report, US – FSC, para. 90.
472 Appellate Body Report, US – FSC, para. 90.
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still be found to be contingent upon the use by those producers of domestic over imported goods
under Article 3.1(b) of the SCM Agreement."473 Thus, in my view, the payment of subsidies
exclusively to domestic producers through a reduction or exemption of internal taxes , though
covered by the exception under Article III:8(b), would continue to be subject to the other relevant
provisions of the GATT 1994 and the SCM Agreement.
5.135. The GATT 1994 and the SCM Agreement are both a part of a single treaty, namely, th e
WTO Agreement. The Appellate Body in Korea – Dairy explained that:
In light of the interpretive principle of effectiveness, it is the duty of any treaty
interpreter to "read all applicable provisions of a treaty in a way that gives meaning
to all of them, harmoniously". An important corollary of this principle is that a treaty
should be interpreted as a whole, and, in particular, its sections and parts should be
read as a whole. Article II:2 of the WTO Agreement expressly manifests the intention
of the Ur uguay Round negotiators that the provisions of the WTO Agreement and the
Multilateral Trade Agreements included in its Annexes 1, 2 and 3 must be read as a
whole.474
To me, the restrictive interpretation of "payment of subsidies" as excluding "revenue forego ne"
arrived at by the majority denies effect to the key legal terms of the SCM Agreement.
5.136. As discussed, with the establishment of the WTO, the relevant provisions of the GATT 1994
and the SCM Agreement together define and reflect the whole package of right s and obligations of
WTO Members with respect to subsidies.475 The object and purpose of the SCM Agreement includes
strengthening and improving the GATT disciplines relating to the use of both subsidies and
countervailing measures, while, recognizing at the same time, the right of Members to impose such
measures under certain conditions. 476 The SCM Agreement does not prohibit all subsidies, but
instead contains detailed and intricate rules disciplining their use. 477 While some subsidies are
"prohibited" under Part II of the Agreement, Part III makes it clear that others are only "actionable"
and must be withdrawn (or their "adverse effects" removed), if they are "specific", within the
meaning of Article 2 of the SCM Agreement, and when they cause "adverse effects" 478 to the
interests of other Members.479 In contrast to the detailed provisions of the SCM Agreement that, in
disciplining the use of "actionable" subsidies, including revenue foregone, take into account the trade
effects of the alleged subsidization, Article III:2 of the GATT 1994 sets out the national treatment
obligation with respect to internal taxes and charges. Under Article III:2 any tax, however small,
that is borne by products imported into the territory of a WTO Member, but not by the domestic like
products would, without more, lead to a breach of that obligation. 480 Importantly, it is well
established that the actual effects of such differential tax burden on imports are irrelevant to the
analysis under Article III:2 of the GATT 1994.481 The focus on the trade effects of subsidization,
including through revenue foregone, which pervades the SCM Agreement disciplines concerning the
use of "actionable" subsidies is therefore absent in the context of Article III:2 of the GATT 1994.
5.137. An interpretation of "payment of subsidies" in Article III:8(b) as excluding revenue foregone
would undermine, inconsistently with Article 3.2 of the DSU as well as the fundamental principle of

473 Appellate Body Report, US – Tax Incentives, para. 5.16. (emphasis added)
474 Appellate Body Report, Korea – Dairy, para. 81. See also Appellate Body Report,
Argentina ‒ Footwear (EC), para. 81.
475 See Appellate Body Report, Brazil – Desiccated Coconut, p. 17.
476 Appellate Body Report, US – Softwood Lumber IV, para. 64. The Appellate Body went on to note that
"[i]t is in furtherance of this object and purpose that Article 1.1(a)(1)(iii) recognizes that subsidies may be
conferred, not only through monetary transfers, but also by the provision of non-monetary inputs." (Ibid.)
477 In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body found it "worth recalling that the
granting of a subsidy is not, in and of itself, prohibited under the SCM Agreement. Nor does granting a
'subsidy', without more, constitute an inconsistency with that Agreement. The universe of subsidies is vast. Not
all subsidies are inconsistent with the SCM Agreement. The only 'prohibited' subsidies are those identified in
Article 3 of the SCM Agreement." (Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47)
478 Article 5 of the SCM Agreement defines "adverse effects" as including "injury" to the domestic
industry of another WTO Member, "nullification or impairment" of benefits accruing to other Members, and
"serious prejudice" to the interests of another Member.
479 See e.g. Panel Report, US – Offset Act (Byrd Amendment), para. 7.106.
480 Appellate Body Report, Japan – Alcoholic Beverages II, p. 23, DSR 1996:I, p. 97; see also
Appellate Body Report, Thailand – Cigarettes (Philippines), para. 112.
481 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 16-17, DSR 1996:I, pp. 109-110.
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effectiveness in treaty interpretation, the careful balance of rights and obligations under the
SCM Agreement with respect to an entire category of measures that are expressly included within
the definition of a subsidy in Article 1.1, namely, the foregoing of government revenue that is
otherwise due. In other words, the majority's interpretation of the term "payment of subsidies" in
Article III:8(b) would fundamentally alter the carefully constructed balance of rights and obligations
under the SCM Agreement and the GATT 1994 with respect to subsi dies and would risk rendering
redundant the actionable subsidies disciplines of the SCM Agreement insofar as subsidies in the form
of the foregoing of revenue are concerned.
5.138. For the above reasons, I am of the view that the term "payment of subsidies" in
Article III:8(b) refers to the provision by a WTO Member, whether through monetary or
non-monetary transfers having an equivalent effect , of a subsidy, as defined in Article 1.1 of the
SCM Agreement. In my view, this is the only interpretation that, consistently with the customary
rules of treaty interpretation, gives meaning and effect to the precise terms of Article III:8(b), while
at the same time respecting the carefully negotiated balance of rights and obligations under the
SCM Agreement, which forms part of the single package under the WTO Agreement. Insofar as they
constitute the "payment of subsidies exclusively to domestic producers"482, the measures at issue in
this dispute, as well as any conditions for eligibility for the payment of subsidies that define the class
of eligible "domestic producers" by reference to their activities in the subsidized products' markets,
would, in my view, be justified under Article III:8(b).
5.3 Article 3.1(a) of the SCM Agreement
5.3.1 Article 1.1(a)(1)(ii) of the SCM Agreement: PEC and RECAP programmes
5.3.1.1 Introduction
5.139. We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the tax
suspensions granted under the PEC programme and the RECAP programme are subsidies within the
meaning of Article 1.1(a)(1)(ii) of the SCM Agreement and are contingent upon export performance
under Article 3.1(a) of the SCM Agreement.483
5.140. Brazil contends that the Panel erred in the application of Article 1.1(a)(1)(ii) of the
SCM Agreement by failing to use the tax treatment of companies that are structural tax accumulators
as the benchmark treatment. 484 Brazil argues, in particular, that , "[i]nstead of examining the
principles and structure of Brazil's taxation regime and identifying what constitutes 'comparably
situated taxpayers', the Panel erroneously focused on identifying a 'general rule of taxation' and its
potential exemptions."485 In the event that we were to conclude that the Panel did not err in its
identification of the relevant benchmark treatment, Brazil submits three alternative claims of error.
First, Brazil claims that the Panel erred in its comparison of the selected benchmark treatment with
the challenged treatment under the PEC and RECAP programmes by "arbitrarily distinguish[ing]
between taxpayers situated within the benchmark". 486 Second, Brazil submits that the Panel erred
in concluding that the possible cash availability a nd implicit interest income that the Brazilian
Government could generate , had the tax been paid in advance and not offset , constitute
"government revenue that is otherwise due" under Article 1.1(a)(1)(ii) of the SCM Agreement.487
Finally, Brazil contends that the Panel failed to make an objective assessment of the matter before
it pursuant to Article 11 of the DSU by "misreading" and disregardi ng data in a table submitted
by Brazil.488

482 As correctly noted by the majority, in addition to the scope of "payment of subsidies", the focus of
inquiry under Article III:8(b) is also on whether the domestic entity at issue is a producer of the product with
respect to which a violation of the national treatment obligation arising from the "payment of subsidies" is
alleged.
483 Brazil's Notice of Appeal, para. 26; Brazil's appellant's submission, para. 307.
484 Brazil's appellant's submission, paras. 309 and 324.
485 Brazil's appellant's submission, para. 316.
486 Brazil's appellant's submission, para. 327. (emphasis omitted)
487 Brazil's appellant's submission, para. 333
488 Brazil's appellant's submission, paras. 345, 351, and 360. Specifically, Brazil argues that, "[i]n direct
contradiction to Brazil's explanation that the study was elaborated with data 'from all companies', the Panel
found that the study 'appears to reflect the situation of 22 companies'." (Ibid., para. 351)
WT/DS472/AB/R • WT/DS497/AB/R

5.141. The European Union and Japan request that we reject Brazil's claims.489 With respect to the
Panel's identification of a benchmark for comparison, the European Union and Japan argue that the
Panel did not try to identify a "general rule" 490, as suggested by Brazil, but instead was examining
"the structure of [Brazil's] domestic tax reg ime and its organising principles". 491 With respect to
Brazil's alternative claims, the European Union and Japan first submit that the Panel did not
disregard the treatment of a particular group of taxpayers (i.e. those that normally offset tax credits
during the same taxation period) within the benchmark when making a comparison.492 Instead, the
Panel weighed "all the scenarios to conclude that there was revenue foregone or not collected in the
'rather frequent scenario' where taxpayers cannot offset their tax credits within the same taxation
period".493 Second, the European Union and Japan contend that the Panel did not make an error in
considering that the cash availability and implicit interest income that the Brazilian Government
foregoes or does not collect by virtue of tax suspensions under the PEC and RECAP programmes
amount to a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement.494 Finally, the
European Union and Japan assert that Brazil has failed to show that the Panel made an error under
Article 11 of the DSU in assessing the table submitted by Brazil.495
5.142. We begin with an overview of the relevant aspects of the PEC and RECAP programmes. We
also include a summary of the relevant Panel findings and our understanding of Article 1.1(a)(1)(ii)
of the SCM Agreement.
5.3.1.2 PEC and RECAP programmes
5.143. With respect to the programmes at issue, the Panel explained that, under the
PEC programme, the IPI tax and the PIS/PASEP, COFINS, P IS/PASEP-Importation, and
COFINS-Importation contributions are suspended with respect to raw materials, intermediate goods,
and packaging materials purchased by predominantly exporting companies. 496 The tax suspension
applies either at the time when the product leaves the industrial establishment (for purchases in the
domestic market) or at the time of the customs clearance (for imports). 497 The suspension expires
and the tax becomes definitively non -due upon exportation or sale in the domestic market of the
final good incorporating the raw materials, intermediate goods, and packagi ng materials for which
the taxes were suspended.498
5.144. For purposes of the IPI tax suspension under the PEC programme, a predominantly exporting
company is a legal person whose gross revenue derived from exports to other countries during the
calendar year immediately prior to the year of purchase of the covered products, exceeded 50% of
its total gross revenue from the sales of goods and services over the same period, after taxes and
other contributions levied on sales.499
5.145. For purposes of the suspensions of the PI S/PASEP, COFINS, PIS/PASEP -Importation, and
COFINS-Importation contributions under the PEC programme, a predominantly exporting company

489 European Union's appellee's submission, para. 369; Japan's appellee's submission, para. 126.
490 European Union's appellee's submission, para. 398; Japan's appellee's submission, para. 133.
491 European Union's appellee's submission, para. 398 (quoting Appellate Body Report, US – Large Civil
492 European Union's appellee's submission, para. 409; Japan's appellee's submission, para. 135.
493 European Union's appellee's submission, para. 412.
494 European Union's appellee's submission, para. 428; Japan's appellee's submission, para. 137.
495 European Union's appellee's submission, para. 439; Japan's appellee's submission, para. 138.
496 Panel Reports, paras. 2.148 and 2.150 (referring to Law 10,637/2002 (Panel Exhibits JE-94 and
BRA-100), Article 29, section 1.II (for IPI tax); Law 10,865/2004 (Panel Exhibit JE-181), Article 40
(for PIS/PASEP and COFINS contributions)).
497 Panel Reports, para. 2.151 (referring to Normative Instruction (Instrução Normativa) RFB 948 of
15 June 2009 (Normative Instruction RFB 948/2009) (Panel Exhibit JE-191), Articles 12 and 13; Normative
Instruction SRF 595 of 27 December 2005 (Normative Instruction SRF 595/2005) (Panel Exhibit JE-193),
Article 8; and Decree 6,759 of 5 February 2009 governing the administration of customs activities and the
inspection, control and taxation of foreign trade operations (Decree 6,759/2009) (Panel Exhibit JE-8),
Article 247).
498 Panel Reports, para. 2.152 (referring to Law 10,637/2002 (Panel Exhibits JE-94 and BRA-100),
Article 29, section I.II; Law 10,865/2004 (Panel Exhibit JE-181), Article 40; Normative Instruction RFB
948/2009 (Panel Exhibit JE-191), Article 20; Normative Instruction SRF 595/2005 (Panel Exhibit JE-193),
Article 9).
499 Panel Reports, paras. 2.156 and 7.1136 (referring to Law 10,637/2002 (Panel Exhibits JE-94 and
BRA-100), Article 29, section 3).
WT/DS472/AB/R • WT/DS497/AB/R

is a legal person whose gross revenue from exports, in the calendar year immediately prior to the
year of purchase of the covered products, was equal to or greater than 50% of its total gross revenue
from the sale of goods and services in the same period, after taxes and other contributions levied
on sales.500
5.146. Under the RECAP programme, the PIS/PASEP, COFINS, PIS/PASEP-Importation, and
COFINS-Importation contributions are suspended with respect to purchases of new machinery, tools,
apparatus, instruments, and equipment by predominantly exporting companies. 501 As the Panel
explained, "[t]he suspension becomes a zero rate once the export commitments have been
achieved."502
5.147. For purposes of the RECAP programme, a predominantly exporting company is a legal person
whose gross revenue from exports, in the calendar year immediately before the year in which it
became a member of the programme, was equal to or greater than 50% of its total gross revenue
from the sale of goods and services over the same period, and who commits to maintaining that
percentage of exports for a period of two calendar years.503
5.3.1.3 Whether the Panel erred in the applicat ion of Article 1.1(a)(1)(ii) of the
SCM Agreement in determining the benchmark treatment
5.148. Brazil claims that the Panel erred in finding that the tax suspensions granted under the PEC
and RECAP programmes are subsidies within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement. As a first ground of its appeal, Brazil considers that the Panel erred in its
determination of the benchmark for comparison. In the event that we uphold the Panel's benchmark
determination, Brazil submits three alternative claims. As noted above, Brazil argues that the Panel:
(i) erred in its comparison of the selected benchmark treatment with the challenged treatment under
the PEC and RECAP programmes; (ii) erred in finding that the possible cash availability and implicit
interest income constitute "government revenue that is otherwise due"; and (iii) failed to make an
objective assessment of the matter before it pursuant to Article 11 of the DSU by disregarding certain
evidence submitted by Brazil.504
5.149. We recall that, in its analysis, the Panel first examined whether the tax suspensions granted
under the PEC and RECAP programmes constituted financial contributions in the form of government
revenue that is otherwise due, which is foregone or not collected.
5.150. The Panel noted that the ch allenged tax treatment comprised the following categories:
(i) the IPI tax suspensions on purchases of raw materials, intermediate goods , and packaging
materials (for purposes of the PEC programme); (ii) the suspensions of the PIS/PASEP and COFINS
contributions, or PIS/PASEP -Importation and COFINS -Importation contributions, on purchases of
raw materials, intermediate goods, and packaging materials (for purposes of the PEC programme);
and (iii) the suspensions of the PIS/PASEP and COFINS contributions, or PIS/PASEP-Importation and
COFINS-Importation contributions, on purchase s of new machinery, apparatus, instruments, and
equipment incorporated into the fixed assets of the accredited company (for purposes of the RECAP
programme).505 The Panel found that there was "evidence demonstrating that the objective reasons

500 Panel Reports, paras. 2.157 and 7.1137 (referring to Law 10,865/2004 (Panel Exhibit JE-181),
Article 40, section 1). In addition, companies that are just starting activities in Brazil, or that have not achieved
the export percentage required in the previous year, may be entitled to the PIS/PASEP and COFINS
contribution suspensions if they commit to reach and maintain the required export level for a period of three
calendar years. (Ibid., paras. 2.158 and 7.1137 (referring to Normative Instruction SRF 595/2005
(Panel Exhibit JE-193), Article 3, section 1))
501 Panel Reports, paras. 2.163 and 7.1138.
502 Panel Reports, para. 7.1138.
503 Panel Reports, paras. 2.170 and 7.1139. Companies that are starting activities in Brazil, or that have
not reached the export percentage required in the previous year, may be entitled to the suspensions if they
commit to reach and maintain the required export level for a period of three calendar years. (Ibid., para. 2.171
(referring to Law 11,196 of 21 November 2005 establishing the special scheme for the acquisition of capital
goods for exporting companies (RECAP) (Law 11,196/2005) (Panel Exhibit JE-182), Article 13, section 2)).
504 Brazil's appellant's submission, paras. 326-327, 333, 345, 351, and 361.
505 Panel Reports, para. 7.1156.
WT/DS472/AB/R • WT/DS497/AB/R

behind the tax treatment [are] to tackle the problem of credit -accumulation, and in so doing to
increase the competitiveness of Brazilian companies".506
5.151. In its identification of the benchmark treatment for each of the three categories of the
identified tax treatments, the Panel rejected Brazil's argument that tax suspensions are the
benchmark treatment for structurally credit -accumulating companies, including the predominantly
exporting companies.507 The Panel agreed with Brazil that there are other companies, in addition to
predominantly exporting companies , that are entitled to the suspension of relevant taxes. 508 The
Panel considered, however, that nothing in the evidence on the record seemed to suggest that "other
companies to which the tax suspensions apply are structural credit accumulators, or that the tax
suspensions … were created to tackle the problem of structural credit accumulation for these
companies."509
5.152. The Panel furthe r noted that there are producers of low -taxed products, which are more
likely to accumulate tax credits , that are not entitled to tax suspensions, on the one hand, and
producers of higher taxed products, which are less likely to accumulate tax credits, that are entitled
to such tax suspensions, on the other hand.510 The Panel found, with respect to the three categories
of tax treatment, that "the benchmarks to be applied are the economy -wide tax treatments from
which the suspensions are taken or, in other words, the tax treatment applicable to non-accredited
companies."511
5.153. The Panel then compared the challenged treatment with the "rather frequent" scenario, in
which companies are not able to offset their credits and have to request compensation or
reimbursement.512 The Panel considered that, "under the challenged treatment, the Government will
never be able to benefit from the cash availability and implicit interest income, which could have
lasted from the moment of importation (in the case of imported products) o r from one taxation
period (in the case of domestic products) to 360 days after the request for compensation or
reimbursement, under the benchmark treatment."513 The Panel thus concluded, with respect to the
three categories of tax treatment at issue, that , "under this rather frequent scenario, the
Government is foregoing revenue in the form of the implicit interest on the tax revenue collected
where the offsetting credits have not (yet) been used."514 The Panel also concluded that the subsidies
at issue confer a benefit and that they thus constitute subsidies within the meaning of Article 1 of
the SCM Agreement.515 Subsequently, the Panel found that the subsidies granted under the PEC and
RECAP programmes are contingent upon export performance within the meaning of Article 3.1(a) of
the SCM Agreement, and thus prohibited under Articles 3.1(a) and 3.2 of the SCM Agreement.516
5.154. We start by addressing Brazil's claim that the Panel erred in determining the benchmark for
comparison. In Brazil's view, the Panel erroneously rejected the tax treatment of structural credit
accumulators as a benchmark for comparison and instead concluded that the proper benchmark was
the treatment applicable to purchases by non -accredited companies, i.e. the obligation to pay the
full amount of the applicable tax.517 Brazil submits that "[t]he Panel erroneously sought to ascertain
whether a 'general rule' of taxation existed under Brazilian law pursuant to which all suspensions

506 Panel Reports, para. 7.1162.
507 Panel Reports, paras. 7.1171, 7.1186, and 7.1199.
508 Panel Reports, para. 7.1167 (referring to Law 10,637/2002 (Panel Exhibit JE-94) and to Brazil's
response to Panel question No. 21). See also Panel Reports, para. 7.1183 (referring to Brazil's response to
Panel question No. 21).
509 Panel Reports, para. 7.1167.
510 Panel Reports, paras. 7.1168, 7.1184, and 7.1199.
511 Panel Reports, para. 7.1164. See also paras. 7.1172, 7.1187, and 7.1200.
512 Panel Reports, paras. 7.1174, 7.1189, and 7.1202. The Panel explained that "[i]t is fairly common
that companies are not able to offset the full amount of their credits and have to request compensation or
reimbursement, so this scenario seems rather frequent." (Ibid. (referring to Brazil's first written submission,
para. 758 (DS472) and para. 691 (DS497))). In this case, "the Brazilian Government will retain the amount of
tax paid by the seller until the non-accredited company buying the products is able to offset it (during
subsequent taxation periods); or until the Brazilian Government compensates or reimburses the face amount
of the credit, without interest, to the non-accredited company buying the products (within 360 days of the date
of the request for compensation or reimbursement)." (Panel Reports, paras. 7.1175, 7.1190, and 7.1203)
513 Panel Reports, paras. 7.1179, 7.1194, and 7.1207. (fns omitted)
514 Panel Reports, paras. 7.1179, 7.1194, and 7.1207.
515 Panel Reports, paras. 7.1212 and 7.1223.
516 Panel Reports, para. 7.1237.
517 Brazil's appellant's submission, paras. 307 and 309.
WT/DS472/AB/R • WT/DS497/AB/R

and exemptions of taxes on inputs and capital goods relate to the prob lem of structural credit
accumulation"518, despite the Appellate Body's reservations, expressed in US – FSC
(Article 21.5 – EC) and US – Large Civil Aircraft (2nd complaint), about panels trying to identify such
a "general rule of taxation".519 Brazil recalls that, "in identifying the relevant benchmark treatment,
a panel is required to 'develop an understanding of the tax structure and principles that best explains
that Member's tax regime, and to provide a reasoned basis for identifying what c onstitutes
comparable income of comparably situated taxpayers.'"520
5.155. Brazil also maintains that, in order to avoid structural accumulation of indirect taxes, it
created "an alternative taxation method for the income of structural credit accumulators", which
applies "to companies of many different sectors of the economy which have no or low taxation on
their sales".521 In particular, Brazil points out that Article 29 of the Law 10,637/2002 "exempts from
the payment of taxes on inputs a wide variety of sectors of the Brazilian economy whose products
are subject to low or no taxation, including producers of animal and vegetable products and oils,
foodstuffs, chemicals, footwear, auto and aircraft parts, informatics products, and predominantly
exporting companies".522 In Brazil's view, the appropriate benchmark treatment for comparison is
the tax treatment afforded to other structural credit accumulators.523
5.156. The European Union and Japan contend that the Panel properly applied the test developed
by the Appellate Body in US – Large Civil Aircraft (2 nd complaint) to determine the benchmark
treatment.524 They also submit that, contrary to Brazil's allegations, the Panel did not attempt to
identify a "general rule" of taxation pursuant to which all suspensions and exemptions of t axes on
inputs and capital goods would relate to a problem of structural credit accumulation, but rather was
addressing Brazil's own argument about the existence of such a rule.525
5.157. We recall that, before the Panel, as well as on appeal, Brazil has argued that the appropriate
benchmark for comparison with the tax suspensions and exemptions under the PEC and
RECAP programmes is the treatment granted to companies that tend to structurally accumulate
credits.526 In its analysis of the benchmark treatment with respe ct to the IPI tax suspensions 527,
"[t]he Panel agree[d] with Brazil that there are other companies, in addition to the companies
accredited or registered as predominantly exporting companies, which are entitled to the IPI tax
suspension on the purchase of ra w materials, intermediate goods and packaging materials." 528
Specifically, the Panel noted that, pursuant to Article 29 of Law 10,637/2002, the tax suspension
also applies to: (i) establishments dedicated primarily to the manufacture of products classified i n
chapters 2, 3, 4, 7, 8, 9, 10, 11, 12, 15, 16, 17, 18, 19, 20, 23, 28, 29, 30, 31, and 64 (21 chapters
in total) of the Industrial Goods Tax Classification Table, as well as under codes 2209.00.00 and
2501.00.00, and at positions 21.01 to 21.05.00 of the Industrial Goods Tax Classification Table;
(ii) industrial establishments that primarily manufacture components, chassis, bodies, parts , and
pieces of automotive products; (iii) industrial establishments that primarily manufacture parts and
pieces intende d for the aerospace industry; and (iv) industrial establishments that primarily
manufacture the goods benefiting from the Informatics programme.529 Moreover, the Panel observed
that "[t]he suspension also applies to companies qualified under the Special Regime for the Brazilian
Aerospace Industry [(RETAERO)] and the Special Regime to Incentive Computers for Educational
Use (REIMCOMP)."530

518 Brazil's appellant's submission, para. 309 (quoting Panel Reports, paras. 7.1167, 7.1169, and
7.1183). (fn omitted; emphasis omitted)
519 Brazil's appellant's submission, para. 310 (referring to Appellate Body Reports, US – FSC
520 Brazil's appellant's submission, para. 310 (quoting Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 813). (emphasis omitted)
521 Brazil's appellant's submission, para. 312.
522 Brazil's appellant's submission, para. 313.
523 Brazil's appellant's submission, para. 315.
524 European Union's appellee's submission, para. 395; Japan's appellee's submission, para. 129.
525 European Union's appellee's submission, para. 398; Japan's appellee's submission, para. 133.
526 Panel Reports, para. 7.1165; Brazil's second written submission to the Panel, para. 216; Brazil's
appellant's submission, para. 309.
527 We recall that the Panel subsequently applied this analysis to other categories of the tax treatment.
528 Panel Reports, para. 7.1167.
529 Panel Reports, para. 7.1167.
530 Panel Reports, para. 7.1167 (referring to Brazil's response to Panel question No. 21).
WT/DS472/AB/R • WT/DS497/AB/R

5.158. The Panel, however, considered that the selection of companies entitled to the tax
suspensions "d[id] not seem to be directl y linked to the problem of credit -accumulation, so as to
create a general rule for structurally or predominantly credit accumulating companies" .531 In the
Panel's view, the evidence on the record did not demonstrate that companies to which the
suspension applied were structural credit accumulators.532 The Panel observed that, on the one hand,
there are producers of low-taxed products, which are more likely to accumulate tax credits, that are
not entitled to tax suspensions and, on the other hand, producers of h igher taxed products, which
are less likely to do so, that were entitled to the suspensions.533 The Panel further referred to Japan's
observation that "companies that export products but do not reach the 50% threshold of gross
revenue derived from export s can be credit accumulators and yet cannot benefit from the tax
suspensions", which, in the Panel's view, "puts further into question the existence of a general rule
for credit accumulators".534 The Panel was "not convinced" that the availability of suspensions for
other companies, in addition to the predominantly exporting companies, was "sufficient to prove the
existence of a general rule for structurally or predominantly credit accumulating companies".535 The
Panel thus found that Brazil has not demonstrated th at the tax suspensions were the benchmark
treatment for structurally credit -accumulating companies and, instead, defined the benchmark as
"the treatment applicable to purchases by non-accredited companies of raw materials, intermediate
goods and packaging materials used in the manufacture of their products".536
5.159. The Panel subsequently relied on these findings in determining the benchmark for
comparison with the suspensions of the PIS/PASEP and COF INS contributions and
PIS/PASEP-Importation and COFINS -Importation contributions on purchases of raw materials,
intermediate goods, and packaging materials (for purposes of PEC)537, as well as the suspensions of
the PIS/PASEP and COFINS contributions and PIS/PASEP -Importation and COFINS -Importation
contributions on purchases of new machinery, apparatus instruments, and equipment (for purposes
of RECAP).538 For these two categories of treatment, the Panel also determined the benchmark to
be the treatment applicable to purchases by non -accredited companies, i.e. the obligatio n to pay
the full amount of the applicable tax.539
5.160. On appeal, the participants disagree as to whether, in determining the benchmark treatment,
the Panel erroneously sought to ascertain the existence of a "general rule of taxation" instead of
examining the organizing principles and structure of Brazil's taxation regime and identifying what
constitutes comparable income of comparably situated taxpayers.540

531 Panel Reports, para. 7.1167.
532 Panel Reports, para. 7.1167.
533 Panel Reports, para. 7.1168. The Panel observed that "an examination of the products for which the
IPI tax is suspended or exempted pursuant to Article 29 of Law 10,637/2002 indicates that there is no pattern
of suspending the IPI tax only for products with no or low taxation." (Ibid.) In particular, the Panel noted that
"many of the products that are subject to special regimes are subject to a tax rate of 5%, 10%, 20% and
even 30% and, for instance, Chapters 50 to 54 of the [Table of Application of the Tax on Industrialised
Products (TIPI)] are subject to 0% rate and are not covered by Article 29 of Law 10,637/2002." (Ibid.
(referring to European Union's response to Panel question No. 41, para. 156))
534 Panel Reports, para. 7.1169.
535 Panel Reports, para. 7.1170.
536 Panel Reports, para. 7.1172.
537 Panel Reports, paras. 7.1181-7.1187.
538 Panel Reports, paras. 7.1197-7.1200.
539 Panel Reports, paras. 7.1186-7.1187 and 7.1200. With respect to the suspension of PIS/PASEP and
COFINS contributions and their importation equivalents on purchases of new machinery, apparatus,
instruments, and equipment (for purposes of PEC), the Panel observed that "the selection by the Brazilian
Government of companies entitled to the suspensions of PIS/PASEP and COFINS contributions, or
PIS/PASEP-Importation and COFINS-Importation contributions, does not seem to be directly linked to the
problem of credit-accumulation, so as to create a general rule for structurally or predominantly credit
accumulating companies." (Ibid., para. 7.1183) With respect to the suspension of PIS/PASEP and COFINS
contributions and their importation equivalents on purchases of new machinery, apparatus, instruments, and
equipment (for purposes of RECAP), the Panel observed that "the accredited and non-accredited companies
purchasing the new machinery, apparatus, instruments and equipment used to manufacture products are
identically situated, except for the fact of accreditation." (Ibid., para. 7.1200)
540 Brazil's appellant's submission, paras. 309-310, 317, and 323; European Union's appellee's
WT/DS472/AB/R • WT/DS497/AB/R

5.161. Article 1.1(a)(1)(ii) of the SCM Agreement provides:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where:
 …
 (ii) government revenue that is otherwise due is foregone or not
 collected (e.g. fiscal incentives such as tax credits)[.]541
5.162. The Appellate Body has previously explained that a panel examining a claim under
Article 1.1(a)(1)(ii) of the SCM Agreement must: (i) identify the tax treatment that applies to the
income of the alleged subsidy recipients 542; (ii) identify a benchmark for comparison 543; and
(iii) compare the challenged tax treatment and the reasons for it with the benchmark tax
treatment.544 The Appellate Body has also expressed reservations about a panel seeking to identify
a general rule and exception relationship in determining the existence of a revenue otherwise due
that is for egone or not collected under Article 1.1(a)(1)(ii). The Appellate Body explained that,
"[g]iven the variety and complexity of domestic tax systems, it will usually be very difficult to isolate
a 'general' rule of taxation and 'exceptions' to that 'general' rule"545, and that an examination under
Article 1.1(a)(1)(ii) "must be sufficiently flexible to adjust to the complexities of a Member's
domestic rules of taxation".546 In fact, "a domestic tax system may be so replete with exceptions "
that the rate applicable to the general category of income would no longer represent a general rule
but, rather, an exception.547 In seeking to identify a general rule and an exception, "a panel might
artificially create a rule and an exception where no such distinction exists."548
5.163. The determination of a benchmark for comparison entails , instead, identifying "the tax
treatment of comparable income o f comparably situated taxpayers ".549 This exercise "involves an
examination of the structure of the domestic tax regime and its organizing principles" and requires
the panel "to develop an understanding of the tax structure and principles that best explains that
Member's tax regime". 550 Such an examination must be conducted on the basis of the "rules of
taxation that each Member, by its own choice, establishes for itself". 551 In its identification of a
benchmark, a panel must be aware of the limitations inherent in identifying and comparing a general
rule of taxation and an exception from that rule since such an approach "could result in a finding
that government revenue otherwise due has been foregone anytime the tax rate applicable to a
recipient is lowered".552
5.164. In addressing Brazil's contention t hat the suspension of taxes for credit -accumulating
companies, including the predominantly exporting companies, is the benchmark treatment, the
Panel agreed with Brazil that there were other companies, in addition to those accredited or
registered as predominantly exporting companies, for which the IPI tax was suspended.553 We recall
the Panel's finding that those were companies referred to in Article 29 of the Law 10,637/2002 and

541 Fn omitted.
542 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812. The Appellate Body has
observed that "[i]dentifying such tax treatment will entail consideration of the objective reasons behind that
treatment and, where it involves a change in a Member's tax rules, an assessment of the reasons underlying
that change." (Ibid.)
543 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
544 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814. The Appellate Body has
explained that "[s]uch a comparison will enable a panel to determine whether, in the light of the treatment of
the comparable income of comparably situated taxpayers, the government is foregoing revenue that is
otherwise due in relation to the income of the alleged recipients." (Ibid.)
545 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 91.
546 Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66 to para. 91.
547 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
548 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
549 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
550 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
551 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813 (quoting Appellate Body
Report, US – FSC, para. 90).
552 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
553 Panel Reports, para. 7.1167.
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under the RETAERO554 and REIMCOMP regimes.555 We note that, pursuant to Article 29 of the Law
10,637/2002, tax suspensions apply to companies that are dedicated primarily to the manufacture
of products classified under 21 chapters and codes 2209.00.00 and 2501.00.00, and positions 21.01
to 21.05.00 of the Industrial Classification Table, as well as companies that primarily manufacture:
(i) components, chassis, bodies, parts , and pieces of automotive products; (ii) parts and pieces
intended for the aerospace industry; and (iii) goods benefiting from the Informatics programme.556
5.165. Notwithstanding this observation, the Panel rejected the treatment of companies that are
subject to tax suspensions as a benchmark because, in its view, "the IPI tax suspensions d[id] not
seem to be directly linked to the problem of credit -accumulation, so as to create a general rule for
structurally or predominantly credit accumulating companies." 557 In reaching this conclusion, the
Panel found that there were: (i) producers of low -taxed products, which are more likely to
accumulate tax credits, that were not entitled to the suspensions; and (ii) producers of higher taxed
products, which are less likely to accumulate tax credits, that were entitled to the suspensions. 558
Thus, the fact that, on the one hand, not all actual or potential credit accumulators were entitled to
the suspensions and, on the other hand, some of the companies entitled to the suspensions were
unlikely to accumulate credits, confirmed the Panel's vie w that there was no "general rule"559 for
structurally or predominantly credit-accumulating companies. The Panel further mentioned Brazil's
argument that "it is not possible to predict as a general rule and for all situations when a company
that accumulates credits becomes a structurally credit accumulating company."560 Having said that,
the Panel concluded again that it was "not convinced" that the availability of tax suspensions for
other companies, in addition to the predominantly exporting companies, was "sufficient to prove the
existence of a general rule for structurally or predominantly credit accumulating companies".561
5.166. In its analysis, the Panel sought to determine the existence of a "general rule" for companies
that structurally accumulate credits.562 The Panel considered that such a general rule would exist if
the tax suspensions were to apply to all the actual or potential credit accumulators and were not to
apply to companies that do not or are unlikely to accumulate credits. The Panel rejected the tax
suspensions as the benchmark treatment because it considered that some companies to which the
tax suspensions applied were not actual or potential credit accumulators, and because some
companies to which the suspensions did not apply were accumulating credits. As a result, the Panel
could not establish the existence of a "general rule" of taxation.
5.167. However, as noted, in determining a benchmark for comparison, a panel must be cognizant
of the limitations inherent in seeking to identify a general rule of taxat ion and an exception from
that rule, because such an approach may lead to an overly narrow conception of which rules are
relevant in identifying a benchmark.563 It is not sufficient, once a general rule of taxation has been
identified, to conduct an analysis limited to the determination that, but for the challenged measure,
a higher tax liability would have attached by virtue of a general rule.564 Rather, even if scrutiny of a
Member's tax regime indicates the presence of a general rule and an exception relationship, a panel
would be expected "to further examine the structure of the domestic tax regime and its organising
principles"565 in order to determine what is "the tax treatment of comparable income of comparably

554 Before the Panel, Brazil explained that RETAERO is aimed at addressing the issue of credit
accumulation within suppliers of aerospace inputs by providing a zero rate or suspension of indirect taxes for
such inputs. (Brazil's first written submission to the Panel, para. 768 (DS472))
555 Panel Reports, para. 7.1167. Brazil explained before the Panel that REIMCOMP was aimed at avoiding
tax credit accumulation by computer-equipment manufacturers that win the public bidding process required to
sell computers to public schools. (Brazil's first written submission to the Panel, para. 770 (DS472)).
556 Panel Reports, para. 7.1167 (referring to Law 10,637/2002 (Panel Exhibit JE-94)).
558 Panel Reports, paras. 7.1168-7.1169.
559 Panel Reports, paras. 7.1167 and 7.1169-7.1170.
560 Panel Reports, para. 7.1170 (quoting Brazil's response to Panel question No. 21). (emphasis added)
561 Panel Reports, para. 7.1170. (emphasis added) In the similar vein, in its analysis of the benchmark
treatment for the suspensions of the PIS/PASEP and COFINS contributions and their importation equivalents,
the Panel observed that the selection of companies entitled to the tax suspensions did not seem to be directly
linked to the problem of structural credit accumulation, so as to create a general rule for structurally or
predominantly credit-accumulating companies. (Panel Reports, para. 7.1183)
562 Panel Reports, paras. 7.1167 and 7.1169-7.1170.
563 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 815 and 818.
564 Appellate Body Reports, US – FSC, para. 91; US – Large Civil Aircraft (2nd complaint), paras. 815
and 818.
565 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
WT/DS472/AB/R • WT/DS497/AB/R

situated taxpayers".566 The Panel commenced its analysis with an examination of Brazil's domestic
tax regime by identifying categories of companies subject to tax suspensions. The Panel determined,
in this respect, that there were other companies, in addition to those qualified as predominantly
exporting companies, that were entitled to the relevant tax suspensions. Having done so, however,
the Panel ultimately limited its analysis to seeking to identify the existence of a general rule of
taxation to which the challenged treatment would be an exception. By doing so, the Panel effectively
predetermined a finding of the existence of the revenue otherwise due that is for egone or not
collected under Article 1.1(a)(1)(ii) of the SCM Agreement.
5.168. In our view, instead of seeking to determine the existence of a general rule whereby the tax
suspensions would only apply to companies structurally accumulating credits, the Panel should have
determined the tax treatment of comparably situated taxpayers.
5.169. We recall, with respect to the IPI tax suspensions, that Article 29 of the Law 10,637/2002,
which grants tax suspensions to predominantly exporting companies, also provides for tax
suspensions for several other categories of companies. 567 The range of companies covered by
Article 29 is wide, given that the tax suspensions apply, in particular, to companies that primarily
manufacture: (i ) products classified under 21 chapters of the Indust rial Classification Table;
(ii) components, chassis, bodies, parts , and pieces of automotive products; (iii) parts and pieces
intended for the aerospace industry; and (iv) goods benefiting from the Informatics programme.568
In addition, as the Panel found, the IPI tax suspensions apply to companies accredited under the
RETAERO and REIMCOMP regimes. 569 Likewise, with respect to the suspensions of PIS/PASEP and
COFINS contributions and their importation equivalents for the purposes of the PEC programme, the
Panel found that, in addition to the predominantly exporting companies, such suspensions also apply
to other companies. These are the companies that: (i) manufacture certain products when such
products are destined for direct public administration bodies; (ii) are accredited under PADIS and
PATVD; and (iii) are qualified under the REPES, RETAERO, RETID, and REIMCOMP regimes.570
5.170. Thus, the companies that are entitled, or potentially entitled, to the suspension of taxes fall
into many categories, each covering a broad number of entities. In our view, the Panel should have
considered in detail the treatment of these categories of companies to determine whether they are
comparably situated to the predominantly exporting companies rather than seeking to identify the
existence of a general rule of taxation for structurally credit-accumulating companies.
5.171. The European Union and Japan argue that the Panel did not seek to establish the existence
of a general rule for credit -accumulating companies, but rather was responding to Brazil's own
argument that there was a "rule" for credit -accumulating companies providin g for the tax
suspensions on their supplies. 571 We note, in this respect, that the Panel is not bound by the
arguments raised by a party and can use those arguments freely to develop its own legal reasoning
to supports its findings and conclusions in the mat ter under consideration. Moreover, if the panel's
analysis was shaped solely by the parties' arguments, the panel may not be able to conduct an
objective assessment of the matter, as required under Article 11 of the DSU. 572 It was therefore
incumbent upon the Panel to identify the benchmark for comparison in accordance with the legal

566 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
567 Panel Reports, para. 7.1167 (referring to Law 10,637/2002 (Panel Exhibit JE-94)).
568 Panel Reports, para. 7.1167 (referring to Law 10,637/2002 (Panel Exhibit JE-94)). Similarly, in its
determination of the benchmark treatment for the suspensions of the PIS/PASEP and COFINS contributions, or
PIS/PASEP-Importation and COFINS-Importation contributions on purchases of raw materials, intermediate
goods, and packaging materials for purposes of the PEC programme, the Panel observed that, in addition to
the predominantly exporting companies, the relevant suspensions or exemptions apply to: (i) manufacturers of
certain products when such products are destined for direct public administration bodies; (ii) companies
accredited under PADIS and PATVD; (iii) companies qualified under the Special Tax Regime for the Exportation
Platform of Information Technology Services (REPES); (iv) companies qualified under the RETAERO;
(v) companies qualified under the Special Regime for the Defense Industry (RETID); and (vi) companies
qualified under the REIMCOMP. (Panel Reports, para. 7.1183 (referring to Brazil's response to Panel question
No. 21))
569 Panel Reports, para. 7.1167.
570 Panel Reports, para. 7.1183 (referring to Brazil's response to Panel question No. 21).
571 European Union's appellee's submission, para. 398; Japan's appellee's submission, para. 133.
572 Appellate Body Reports, EC – Hormones, para. 156; Korea – Dairy, para. 139; US – Certain EC
Products, para. 123.
WT/DS472/AB/R • WT/DS497/AB/R

standard under Article 1.1(a)(1)(ii) of the SCM Agreement, regardless of how Brazil had presented
its arguments on this issue.573
5.172. In light of the above, we reverse the Panel's conclusions, in paragraphs 7.1171 and 7.1172
of the Panel Reports, that "Brazil has not demonstrated that the tax suspensions are the benchmark
treatment for structurally credit -accumulating companies"574 and that "the treatment applicable to
purchases by non -accredited companies of raw materials, intermediate goods and packaging
materials … can be considered as the benchmark treatment or normal rule of general application."575
We recall that the Panel relied on its reasoning and findings concerning the IPI tax sus pensions in
identifying the benchmark treatment for the remaining two categories of the challenged tax
treatment.576 We therefore also reverse the Panel's findings, in paragraphs 7.1186 -7.1187
and 7.1199-7.1200 of the Panel Reports, that Brazil has not demonstrated that the tax suspensions
are the benchmark for comparison and that the appropriate benchmark is, instead, the treatment
applicable to purchases by non-accredited companies of the relevant products. As a result, we also
reverse the Panel's findings, in paragraphs 7.1211, 7.1223, and 7.1238, as well as in paragraphs
8.7 and 8.18 , of the Panel Reports, that the tax suspensions granted to registered or accredited
companies under the PEC and RECAP programmes constitute financial contributions in the form of
government revenue otherwise due that is foregone or not collected and are hence subsidies within
the meaning of Article 1.1 of the SCM Agreement that are contingent upon export performance
under Article 3.1(a) of the SCM Agreement.
5.173. Having reversed the Panel's findings concerning the identification of the benchmark for
comparison, we do not need to further address Brazil's alternative claims concerning the application
of Article 1.1(a)(1)(ii) of the SCM Agreement and the Panel's asses sment of evidence under
Article 11 of the DSU.
5.174. We now turn to consider whether we can complete the analysis in finding whether the tax
suspensions granted to registered or accredited companies under the PEC and RECAP programmes
constitute a financial contribution in the form of government revenue otherwise due that is foregone
or not collected under Article 1.1(a)(1)(ii) of the SCM Agreement. We recall that, in previous
disputes, the Appellate Body has completed the analysis with a view to facilitating the prompt
settlement and effective resolution of the dispute 577 and has completed the analysis where the
factual findings in the panel report and undisputed facts on the panel record provided it with a
sufficient basis for conducting its own analysis.578 The Appellate Body has declined to complete the
analysis in light of the complexity of issues, the absence of full exploration of the issues before the
panel, and considerations pertaining to the parties' due process rights.579
5.175. We recall that the Panel's assessment under Article 1.1(a)(1)(ii) of the SCM Agreement was
based on the benchmark that the Panel considered to be correct, i.e. the treatment applicable to
purchases by non-accredited companies. Thus, we first have to determine whether we can complete

573 We also note that the main point of Brazil's arguments before the Panel was that "an appropriate
comparison under Article 1.1(a)(1)(ii) should be made between the fiscal treatment of predominantly exporting
companies and other companies that tend to structurally accumulate credits." (Brazil's second written
574 Panel Reports, para. 7.1171.
575 Panel Reports, para. 7.1172.
576 We recall that these are: (i) the suspensions of the PIS/PASEP and COFINS contributions, or
PIS/PASEP-Importation and COFINS-Importation contributions, on purchases of raw materials, intermediate
goods, and packaging materials (for purposes of PEC); and (ii) the suspensions of the PIS/PASEP and COFINS
contributions, or PIS/PASEP-Importation and COFINS-Importation contributions, on purchases of new
machinery, apparatus, instruments, and equipment incorporated into the fixed assets of the accredited
company (for purposes of RECAP). (Panel Reports, paras. 7.1181-7.1187 and 7.1197-7.1200)
577 See Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1178;
578 See Appellate Body Reports, Australia – Salmon, paras. 241 and 255; Korea – Dairy, para. 102;
US ‒ Large Civil Aircraft (2nd complaint), para. 653; US – Section 211 Appropriations Act, para. 343;
EC ‒ Asbestos, para. 78; China – HP-SSST (Japan) / China – HP-SSST (EU), para. 5.135; US ‒ Anti-Dumping
Methodologies (China), paras. 5.163-5.164.
579 See Appellate Body Reports, Korea – Dairy, para. 102; Canada – Renewable Energy / Canada –
Feed-in Tariff Program, para. 5.224; EC ‒ Seal Products, paras. 5.63 and 5.69; US – Anti-Dumping
Methodologies (China), para. 5.178.
WT/DS472/AB/R • WT/DS497/AB/R

the analysis and determine for ourselves the benchmark treatment for the three categories of the
tax treatment under the PEC and RECAP programmes identified by the Panel.
5.176. We note that the Panel acknowledged that there are other companies , in addition to the
predominantly exporting companies, that are entitled to the tax suspensions.580 The Panel, however,
did not examine in detail and did not make specific findings concerning the conditions of eligibility
for the tax exemptions of these other companies and their operation. Moreover, in their arguments
on appeal, the participants focused on whether the Panel erroneously determined the benchmark by
focusing on identifying the general rule of taxation, rather than on the identification of the c orrect
benchmark. In these circumstances, we cannot complete the analysis to find whether there exists a
financial contribution in the form of government revenue otherwise due that is foregone or not
collected within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. Accordingly, we are
unable to complete the analysis to find whether the tax suspensions granted under the PEC and
RECAP programmes constitute subsidies under Article 1.1 of the SCM Agreement.
5.4 Article 3.1(b) the SCM Agreement
5.4.1 Article 1.1(a)(1)(ii) of the SCM Agreement: ICT programmes
5.4.1.1 Introduction
5.177. We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the tax
treatment of intermediate products and inputs under the ICT programmes constitutes a subsidy
under Article 1.1 of the SCM Agreement.581 Brazil contends that the Panel erred in finding that the
"implicit interest income" with respect to intermediate products and inputs constitutes government
revenue otherwise due that is for egone under Article 1.1(a)(1)(ii) of the SCM Agreement for two
reasons. First, Brazil claims that "the Panel failed to compare the treatment accorded to the group
of taxpayers in the benchmark treatment with the group of taxpayers under the challenged
treatment."582 Second, Brazil contends that "the Panel erroneously found that the 'implicit interest
income' that Brazil purportedly 'foregoes' in respect of intermediate products and inputs under the
ICT programmes constitutes 'government revenue' that is otherwise 'due' under Article 1.1(a)(1)(ii)
of the SCM Agreement."583 At the oral hearing, Brazil stated that it also takes issue with the Panel's
determination of the benchmark treatment for the comparison with the challenged treatment of
intermediate products and inputs.584
5.178. The European Union and Japan submit that the Panel did not err in finding the existence of
a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement for certain categories of the
tax treatment under the ICT programmes.585 In particular, the European Union and Japan note that
the Panel did not disregard within the benchmark the treatment of a group of taxpayers that normally
offset tax credits within the same taxation period. 586 Rather, the Panel took, according to the
European Union, a "balanced approach" and weighed "all the scenarios that may arise under the
normal operation of Brazil's tax system and notably the credit -debit mechanism to conclude that
there was revenue foregone or not collected in the 'rather frequent scenario' where taxpayers cannot
offset their tax credits within the same taxation period ".587 The European Union and Japan further
disagree with Brazil's claim that the Panel erred in the interpretation and application of

580 Panel Reports, paras. 7.1167 and 7.1183 (referring to Brazil's response to Panel question No. 21).
581 Brazil's appellant's submission, para. 177.
582 Brazil's appellant's submission, para. 180. (emphasis original)
583 Brazil's appellant's submission, para. 180. Should we agree with Brazil and reverse the relevant
findings, Brazil requests that we also reverse the Panel's consequential finding that "the exemption, reduction
and suspension of taxes on sales of intermediate goods and on purchases of raw materials, intermediate
goods, packaging materials, inputs, capital goods and computational tools under the ICT programmes confer a
'benefit' on the recipient under Article 1.1(b) of the SCM Agreement." (Ibid., para. 242) Brazil further requests
that we reverse the Panel's ultimate finding that the relevant tax reductions and exemptions constitute
subsidies under Article 1 of the SCM Agreement and declare moot and of no legal effect the Panel's
recommendation under Article 4.7 of the SCM Agreement that Brazil withdraw the ICT programmes in 90 days.
(Ibid., paras. 242-244 (referring to Panel Reports, paras. 7.489-7.490, 7.493-7.495, 7.500, 8.5.e, 8.11,
8.16.f, and 8.22))
584 Brazil's response to questioning at the oral hearing.
586 European Union's appellee's submission, para. 279; Japan's appellee's submission, para. 90.
587 European Union's appellee's submission, para. 282. See also Japan's appellee's submission,
paras. 92-94.
WT/DS472/AB/R • WT/DS497/AB/R

Article 1.1(a)(1)(ii) of the SCM Agreement in finding that the possible cash availability and implicit
interest income that the Brazilian Government could earn (had the tax been paid in advance and not
offset) constitute revenue otherwise "due" by the taxpayer.588
5.4.1.2 Panel's findings
5.179. At the outset of its analysis, the Panel recalled the Appellate Body's statement in US – Large
Civil Aircraft (2nd complaint) that, in order to determine whether there is a financial contribution in
the form of government revenue otherwise due that is for egone or not collect ed under
Article 1.1(a)(1)(ii) of the SCM Agreement, a panel must: (i) identify the treatment applicable to the
alleged recipients of the subsidy and the objective reasons behind it; (ii) identify a benchmark for
comparison; and (iii) compare the challenge d treatment, and its reasons, to the benchmark
treatment.589
5.180. First, the Panel identified the challenged tax treatment applicable to the accredited
companies and the objective reasons behind that treatment. 590 The Panel noted that "each of the
examined programmes provides a different package of exemptions, reductions, and/or suspensions
from one or more particular types of tax." 591 The Panel then classified the different tax treatments
at issue on the basis of: (i) the tax at issue; (ii) whether the tax treatment is on the purchase of
products by accredited companies or on their sale of incentivized products; and (iii) the degree of
transformation of the incentivized products. Based on these criteria, the Panel grouped the tax
treatments into ten categories.592
5.181. The Panel then identified a benchmark for each category of tax treatment. In every instance,
the Panel found that "the benchmarks to be applied are the economy -wide tax treatments from
which the exemptions, reductions and suspensions are taken." 593 Having compared the challenged
tax treatments to the benchmark treatments, the Panel concluded that each of the challenged tax
reductions, exemptions, and suspensions granted to accredited companies on the sales of:
(i) finished goods that they produce (under the Infor matics, PATVD , and Digital Inclusion
programmes); (ii) intermediate goods that they produce (under the Informatics and PADIS
programmes); and (iii) raw materials, intermediate goods , and packaging materials (under the
Informatics programme) and inputs, cap ital goods, and computational tools (under the PADIS and
PATVD programmes) constitute s financial contributions where "government revenue that is
otherwise due is foregone or not collected."594
5.182. In its analysis with respect to the various tax exemptions and reductions on the sales of the
intermediate goods and raw materials, intermediate goods and packaging materials and inputs, and
capital goods and computational goods, the Panel followed the same analytical approach for all the
challenged categories of tax treatment.595
5.183. In particular, regarding the IPI tax exemptions and reductions on sale of incentivized
intermediate goods (for purposes of the Informatics and PADIS programmes), the Panel observed
that, under the benchmark treatment, the non -accredited company selling the non -incentivized
product would charge the relevant tax to the buyer and would transmit it to the Federal Revenue
Service, while the buyer would accrue a credit that it would be allowed to use to offset its IPI debits
during the same (i.e. when it pays its monthly liabilities on the twenty -fifth day of the month
following the transaction) or subsequent taxation periods. If the buyer is not able to offset the credit
after three taxation periods, it could ask the Brazilian Government for compensati on with other

588 European Union's appellee's submission, paras. 266 and 289; Japan's appellee's submission,
para. 99.
589 Panel Reports, paras. 7.394-7.395 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), paras. 812-815).
590 Panel Reports, para. 7.401.
591 Panel Reports, para. 7.406.
592 Panel Reports, para. 7.406.a-j. On appeal, Brazil takes issue with the Panel's analysis under
para. 7.406.d-h. (Brazil's appellant's submission, para. 185 (referring to Panel Reports, paras. 7.430-7.475))
593 Panel Reports, para. 7.414.
594 Panel Reports, paras. 7.488-7.490. We thus set out the summary of the Panel's findings with respect
to the IPI tax exemptions and reductions on the sale of incentivized intermediate goods (for purposes of the
Informatics and PADIS programmes) as an example.
595 Panel Reports, paras. 7.430-7.475.
WT/DS472/AB/R • WT/DS497/AB/R

federal debits or reimbursement.596 The Panel noted that "[i]t is fairly common that companies are
not able to offset the full amount of their credits and have to request compensation or
reimbursement, so this scenario seems rather frequent."597
5.184. The Panel observed that, "under the best case scenario for the buyer of the non-incentivized
intermediate products, the Government will receive the full amount of IPI tax due from the
non-accredited company selling the non-incentivized intermediate products and the buyer … will be
able to offset the amount of IPI tax paid during the same taxation period." 598 The Panel further
observed that, when the buyer of the non-incentivized products is unable to offset the credit during
the same taxation period, the Brazilian Government will retain the amount of the tax paid by the
non-accredited company selling the non -incentivized product until the buyer is able to offset it or
until the Brazilian Government compensates or reimburses the face amount of the credit, without
interest, to the buyer. The Panel considered that, under the second scenario (i.e. the scenario under
which the buyer is unable to offset the tax credit during same taxation period ), the Brazilian
Government would "hold the advantage of cash availability or cash flow, along with the associated
implicit interest income (revenue) that could be generated on the full amount of that tax that it has
collected from the seller".599 The cash availability and implicit interest could last from one taxation
period (i.e. one month) to 360 days. If the reimbursement is made to the buyer within 360 days
after the request, the Brazilian Government does not have to pay any interest on the use of the
buyer's money.600
5.185. By contrast, the Panel noted that, under the challenged treatment, the accredited seller
would not charge the tax to the buyer and would not remit it to the Brazilian Government, while the
buyer would not accrue any tax credits.601 The Panel considered that, in the scenario where the tax
is paid to the Brazilian Government and offset during the same taxation period, there would be no
revenue foregone for the Brazilian Government. However, in the Panel's view, in the "rather frequent
scenario" when the buyer is not able to offset the tax credit during the same taxation period, the
Brazilian Government would forego revenue in the form of the implicit interest on the tax revenue
collected where the offsetting credits have not been used. 602 The Panel n oted that, even though
ultimately the Brazilian Government would collect the same nominal amount of tax, this would not
diminish or eliminate the advantage that the buyer of the incentivized intermediate products, rather
than the Brazilian Government, would enjoy in the form of cash availability and the implicit interest
income due to not having to pay the tax.603
5.186. The Panel further recalled that several panels had previously concluded that, whenever there
is revenue foregone by the government, a benefit is co nferred.604 Thus, having concluded that the
tax treatments at issue constituted financial contributions where "government revenue that is
otherwise due is foregone or not collected", the Panel also concluded that the tax measures at issue
conferred a benefit because the buyers of the incentivized products under the relevant programmes
are better off with the exemptions and reductions than in the benchmark scenario.605 The Panel thus
concluded that the measures at issue constitute subsidies within the meaning of Article 1 of the
SCM Agreement.606

596 Panel Reports, para. 7.432. See also Panel Reports, paras. 7.440, 7.449, 7.458, and 7.468.
597 Panel Reports, para. 7.432. (fn omitted) See also Panel Reports, paras. 7.440, 7.449, 7.458,
and 7.468.
598 Panel Reports, para. 7.433. See also Panel Reports, paras. 7.441, 7.450, 7.459, and 7.469.
599 Panel Reports, para. 7.433. (fn omitted) See also Panel Reports, paras. 7.441, 7.450, 7.459,
and 7.469. The Panel remarked that, "[a]ccording to the European Union, the benchmark rate of the … Central
Bank [of Brazil] … was, at the time of writing of its first written submission, 13.25%." (Panel Reports, fn 790 to
para. 7.433 (referring to European Union's first written submission to the Panel, fn 883 to para. 1201))
600 Panel Reports, para. 7.433. See also Panel Reports, paras. 7.441, 7.450, 7.459, and 7.469.
601 Panel Reports, para. 7.434. See also Panel Reports, paras. 7.442, 7.451, 7.461, and 7.471.
602 Panel Reports, para. 7.436. See also Panel Reports, paras. 7.444, 7.454, 7.463, and 7.473.
603 Panel Reports, para. 7.437. See also Panel Reports, paras. 7.445, 7.455, 7.464, and 7.474.
604 Panel Reports, para. 7.491 (referring to Panel Reports, US – Large Civil Aircraft (2nd complaint),
paras. 7.169-7.171; Canada – Renewable Energy / Canada – Feed-in Tariff Program, fn 509 to para. 7.271;
US – FSC, para. 7.103; US – FSC (Article 21.5 – EC), paras. 8.44-8.48; Appellate Body Reports, US – FSC,
605 Panel Reports, paras. 7.493-7.494.
606 Panel Reports, para. 7.495.
WT/DS472/AB/R • WT/DS497/AB/R

5.4.1.3 The Panel's benchmark determination
5.187. Before turning to address Brazil's claims regarding the Panel's comparison of the benchmark
treatment with the challenged treatment, we address Brazil's statement, made at the oral heari ng,
that it takes issue with the Panel's determination of the benchmark in the context of its analysis
under the ICT programmes. We recall that, in its Notice of Appeal, Brazil did not expressly raise a
claim concerning the Panel's determination of the ben chmark treatment as relevant to its findings
under Article 3.1(b) of the SCM Agreement.607 Furthermore, in its appellant's submission, Brazil has
argued that "[t]he Panel … correctly held that the appropriate benchmark treatment is 'the treatment
applicable to sales … by non -accredited companies' ."608 In response to questioning at the oral
hearing, however, Brazil stated that it takes issue with the Panel's identification of the benchmark
for comparison with the challenged treatment of intermediate goods and in puts under the
ICT programmes.609 The European Union responded that, since this claim was not raised by Brazil
in its Notice of Appeal and its appellant's submission, we should dismiss it.610
5.188. We recall, in this respect, that Rule 20(2)(d) and Rule 21(2)(b) of the Working Procedures
set out the requirements for the Notice of Appeal and the appellant's submission, respectively. In
particular, in accordance with Rule 20(2)(d), the Notice of Appeal "shall include" a brief statement
of the nature of the appeal, comp rising: (i) "identification of the alleged errors in the issues of law
covered in the panel report and legal interpretations developed by the panel"; (ii) "a list of the legal
provision(s) of the covered agreements that the panel is alleged to have erred i n interpreting or
applying"; and (iii) "an indicative list of the paragraphs of the panel report containing the alleged
errors".611 Pursuant to the Rule 21(2)(b)(i) of the Working Procedures, the appellant's submission
"shall" set out, inter alia, "a precise statement of the grounds for the appeal, including the specific
allegations of errors in the issues of law covered in the panel report and legal interpretations
developed by the panel, and the legal arguments in support thereof".612
5.189. Rule 20(2)(d) of the Wor king Procedures serves an important due process function as it
helps to ensure the balance "that must be maintained between the right of Members to exercise the
right of appeal meaningfully and effectively, and the right of appellees to receive notice through the
Notice of Appeal of the findings under appeal, so that they may exercise their right " to respond.613
The Appellate Body has also cautioned that, if a particular claim of error is not raised by the appellant
in the Notice of Appeal, then that claim is "not properly within the scope of the appeal, and the
Appellate Body will not make findings thereon". 614 With regard to the appellant's submission, the
Appellate Body has stated that, compared to the Notice of Appeal, this submission "must be more
specific", in that it "must be precise as to the grounds of appeal, the legal arguments which support
it, and the provisions of the covered agreements and other legal sources upon which the appellant
relies".615

607 Brazil's Notice of Appeal, para. 16. We recall that, by contrast, Brazil raised a claim concerning the
Panel's determination of benchmark treatment under the PEC and RECAP programmes. See section 5.3 of
these Reports.
608 Brazil's appellant's submission, para. 186.
609 Brazil's response to questioning at the oral hearing.
610 European Union's response to questioning at the oral hearing.
611 Working Procedures, Rule 20(2)(d).
612 Working Procedures, Rule 21(2)(b)(i).
613 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 62.
614 Appellate Body Report, EC – Fasteners (China), para. 582 (referring to Appellate Body Reports,
US ‒ Countervailing Measures on Certain EC Products, para. 72; EC – Bananas III (Article 21.5 – Ecuador II) /
EC – Bananas III (Article 21.5 – US), para. 285; Japan – Apples, paras. 124-128).
615 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 59.
WT/DS472/AB/R • WT/DS497/AB/R

5.190. We recall that Brazil's Notice of Appeal provides, in relevant part:
The Panel erred in finding that the tax exemptions, suspensions and reductions granted
under the ICT programmes both on the sales of intermediate goods and on the
purchases of raw materials, intermediate goods, packaging materials, inputs, ca pital
goods and computational tools constitute financial contributions, in the form of
government revenue otherwise due that is foregone or not collected, within the meaning
of Article 1.1(a)(1)(ii) of the SCM Agreement;[*]616
[*fn original] 11 See Panel Report[s], paras. 7.432-7.433; 7.444-7.445; 7.454 -7.455;
7.463-7.464; 7.473-7.474; and 7.495.
5.191. In its Notice of Appeal, Brazil thus framed its claim under Article 1.1(a)(1)(ii) of the
SCM Agreement in broad terms by stating that "[t]he Panel erred in finding that [the tax treatments
at issue] constitute financial contributions, in the form of government revenue otherwise due that is
foregone or not collected ." We note, however, that the indicative list of paragraphs in the
Panel Reports containing the alleged errors provided by Brazil in footnote 11 of its Notice of Appeal
does not refer to paragraphs in which the Panel addressed the benchmark determination. Moreover,
we note that, in its appellant's submission, Brazil stated, in several instances, that it agreed with
the Panel's determination of the benchmark treatment. In particular, Brazil affirmed that "the Panel
began by correctly stating, in broad terms, the appropriate benchmark for comparison." 617 Brazil
also stated, to the same effect, that the Pa nel "correctly held that the appropriate benchmark
treatment is 'the treatment applicable to sales … by non-accredited companies, i.e. the obligation to
pay the full amount of the applicable tax'".618
5.192. Thus, in its Notice of Appeal, Brazil formulated its cla im under Article 1.1(a)(1)(ii) of the
SCM Agreement in broad terms, which, in principle, could include the Panel's identification of the
benchmark treatment. However, in its appellant's submission, which is supposed to be "more
specific" and "precise as to the grounds of appeal"619, Brazil clearly indicated that it agreed with the
Panel's identification of the benchmark treatment. Accordingly, Brazil's Notice of Appeal, read
together with Brazil's appellant's submission, demonstrates that, until the oral hear ing, Brazil did
not raise a claim regarding the Panel's benchmark determination as it related to its findings under
Article 3.1(b) of the SCM Agreement. Moreover, at the oral hearing, Brazil did not develop
argumentation in support of that claim.
5.193. In these circumstances, we consider that Brazil's claim that the Panel erred in its
determination of the benchmark in the context of its analysis under the ICT programmes was not
properly raised before us and hence is not within the scope of this appeal. We thus pr oceed to
address the claims that Brazil has properly raised on appeal.
5.4.1.4 Whether the Panel erred in its comparison of the benchmark treatment with the
challenged treatment
5.194. Brazil claims that the Panel erred in its comparison of the treatment of intermediate goods
and inputs under the ICT programmes with the benchmark treatment by "arbitrarily distinguish[ing]
between taxpayers situated within the benchmark".620 Specifically, Brazil points out that "the Panel
failed to compare the treatment accorded to the group of taxpayers in the benchmark treatment
with the group of taxpayers under the challenged treatment." 621 In Brazil's view, the Panel
"dismissed as a mere 'best case scenario' the treatment" 622 applicable to the companies offsetting
the entire amount of taxes p aid during the same taxation period and opted to compare the
challenged treatment to a small group of taxpayers within the benchmark, i.e. those that are unable
to offset the full amount of tax credits during the same taxation period. 623 Brazil considers that the
comparison that the Panel should have undertaken is analogous to the assessment of less favourable

616 Brazil's Notice of Appeal, para. 16 and fn 11 thereto.
617 Brazil's appellant's submission, para. 185.
618 Brazil's appellant's submission, para. 186 (quoting Panel Reports, paras. 7.430, 7.438, 7.447, 7.456,
and 7.466).
619 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 59.
620 Brazil's appellant's submission, para. 189. (emphasis omitted)
621 Brazil's appellant's submission, para. 180. (emphasis original)
622 Brazil's appellant's submission, para. 188.
623 Brazil's appellant's submission, para. 189.
WT/DS472/AB/R • WT/DS497/AB/R

treatment under Article III:4 of the GATT 1994.624 Specifically, Brazil contends that, "[i]n order to
establish that the ICT programmes involved the foregoing of revenue otherwise due, the Panel was
required to compare the treatment of the group of taxpayers under those programmes with the
group of taxpayers in the benchmark treatment."625
5.195. The European Union and Japan submit that the Panel did not commit an error in comparing
the treatment provided under the ICT programmes with the tax treatment granted to the
non-accredited companies. 626 Rather, as the European Union explains, the Panel conducted an
"overall a ssessment of the tax treatment provided to similarly situated taxpayers, i.e. including
those more frequently accumulating tax credits". 627 Japan adds that the Panel "made a carefully
considered determination that, at least in some factual situations, accredited companies … are better
off than those within the benchmark , and the Brazilian Government, by contrast, is foregoing
revenue that would be otherwise due".628
5.196. The foregoing (or non-collection) of revenue otherwise due under Article 1.1(a)(1)(ii) of the
SCM Agreement implies that less (or no) revenue has been raised by the government than would
have been raised in a different situation. 629 As noted above, the Appellate Body has previously
explained that a panel should follow a three -step test in order to dete rmine whether the revenue
that is otherwise due is foregone or not collected under Article 1.1(a)(1)(ii) of the
SCM Agreement.630 Specifically, a panel examining a claim under Article 1.1(a)(1)(ii) of the
SCM Agreement must: (i) identify the tax treatment that applies to the income of the alleged subsidy
recipients631; (ii) identify a benchmark for comparison632; and (iii) compare the challenged treatment
and reasons for it with the benchmark tax treatment.633 Brazil takes issue with the Panel's analysis
under the third step of the test, i.e. the comparison of the challenged treatment and its reasons with
the benchmark tax treatment. 634 We recall that the Appellate Body observed, in this respect, that
"[s]uch a comparison will enable a panel to determine whether, in t he light of the treatment of the
comparable income of comparably situated taxpayers, the government is foregoing revenue that is
otherwise due in relation to the income of the alleged recipients."635
5.197. We note that the structure and operation of the tax exemptions and suspensions under the
various categories of the tax treatments identified by the Panel are similar. Moreover, the Panel's
comparison of the benchmark treatment follows the same logic and st ructure for all the relevant

624 Brazil's appellant's submission, para. 190 (referring to Appellate Body Report, EC – Asbestos,
para. 100).
625 Brazil's appellant's submission, para. 191. (emphasis original)
626 European Union's appellee's submission, para. 284; Japan's appellee's submission, para. 95.
627 European Union's appellee's submission, para. 284.
628 Japan's appellee's submission, para. 94.
629 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to
Appellate Body Report, US – FSC, para. 90).
630 See paragraph 5.162 above.
631 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812. The Appellate Body has
observed that "[i]dentifying such tax treatment will entail consideration of the objective reasons behind that
treatment and, where it involves a change in a Member's tax rules, an assessment of the reasons underlying
that change." (Ibid.)
632 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
633 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
634 Brazil's appellant's submission, para. 191.
635 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
WT/DS472/AB/R • WT/DS497/AB/R

categories of tax treatment of intermediate products and inputs. 636 We thus review the Panel's
analysis with respect to the IPI tax exemptions and reductions on the sales of the incentivized
intermediate goods under the Informatics and PADIS programmes as an example.637
5.198. We recall that, having identified the benchmark treatment as the treatment of
non-accredited companies, the Panel proceeded to examine how the relevant general rules of
taxation operate with respect to the non-accredited companies. The Panel explained that, under the
benchmark treatment, the buyer of the non -incentivized product would pay the tax to the
non-accredited seller, who would transmit it to the Brazilian Government. The buyer, in turn, would
accrue a tax credit, which it would be able to offset against its future tax liabilities, i.e. tax debits.
It would be able to do so within the same taxation period or within three months since the date of
the transaction. If the company is unable to do so, it could reque st the Brazilian Government to
compensate or reimburse the taxes that could not be offset. The Brazilian Government has 360 days
to respond to such a request, and if it does not do so within that time, the buyer of the
non-incentivized products will be ent itled to compensation or reimbursement a nd the interest
generated.638 The Panel then noted that "[i]t is fairly common that companies are not able to offset
the full amount of their credits and have to request compensation or reimbursement, so this scenario
seems rather frequent."639
5.199. In comparing "the challenged treatment with the best case scenario for the buyer of the
non-incentivized products at issue under the benchmark treatment" (i.e. the scenario where the tax
is paid to the Brazilian Government and offset during the same taxation period), the Panel found
that "there would be no revenue forgone by the Brazilian Government, as the government would
not earn the implicit interest on unused credits."640
5.200. By contrast, the Panel noted that, under the "rather frequent scenario", the buyer of the
non-incentivized products would not be able to offset the tax credit it has accrued during the same
taxation period in which the tax is paid. 641 According to the Panel, in this scenario, the Brazilian
Government would retain the amount of tax paid by the non-accredited company until the buyer is
able to offset it during the subsequent taxation periods, or until the Brazilian Government
compensates or reimburses the amount of the credit to the buyer within 360 days from the request
for compensation or reimbursement.642 Having compared this scenario to the challenged treatment,
the Panel concluded that, "under this rather frequent scenario, the Brazilian Government is foregoing
revenue in the form of the implicit interest on the tax revenue collected where the offsetting credits
have not (yet) been used."643
5.201. In Brazil's view, the Panel "dismissed as a mere 'best case scenario' the treatment generally
applicable to taxpayers in the benchmark", i.e. offsetting the entire amount of taxes paid during the
same taxation period, and "opted to compare" the tax treatment at issue with what it considered to

636 Panel Reports, paras. 7.430-7.475. We recall that Brazil takes issue with the Panel's analysis with
respect to the following categories of the tax treatment: (i) the IPI tax exemptions (including through zero
rates) and reductions granted to accredited companies on their sales of the incentivized intermediate goods
that they produce (for purposes of the Informatics and PADIS programmes); (ii) the exemptions (through zero
rates) of the PIS/PASEP and COFINS contributions granted to accredited companies on their sales of the
incentivized intermediate goods that they produce (for purposes of the PADIS programme); (iii) the IPI tax
suspensions on purchases of raw materials, intermediate goods, and packaging materials (for purposes of the
Informatics programme) and IPI tax exemptions (through zero rates) on purchases of inputs (for purposes of
the PADIS and PATVD programmes) used to manufacture the incentivized products; (iv) the exemptions
(though zero rates) of the PIS/PASEP and COFINS contributions or PIS/PASEP-Importation and
COFINS-Importation contributions on purchases of inputs (for purposes of the PADIS and PATVD programmes)
used to manufacture the incentivized products; and (v) the exemptions (through zero rates) of the PIS/PASEP
and COFINS contributions or PIS/PASEP-Importation and COFINS-Importation contributions on purchases of
certain capital goods and computational tools (for purposes of the PADIS and PATVD programmes) used to
manufacture the incentivized products that will be incorporated into the fixed assets of the accredited
company. (Brazil's appellant's submission, para. 185)
637 Panel Reports, paras. 7.431-7.437.
638 Panel Reports, para. 7.432.
639 Panel Reports, para. 7.432 (referring to Brazil's first written submission to the Panel, para. 758
(DS472) and para. 691 (DS497); Exporters 2014 study on Brazilian exports – delays in refunds (Panel Exhibit
JE-186), p. 55; European Union's first written submission to the Panel, fn 849 to para. 1172).
640 Panel Reports, para. 7.436.
641 Panel Reports, paras. 7.432-7433.
642 Panel Reports, para. 7.433.
643 Panel Reports, para. 7.436.
WT/DS472/AB/R • WT/DS497/AB/R

be the " 'rather frequent ' scenario".644 By doing so, in Brazil's view, the Panel "arbitrarily
distinguish[ed] between taxpayers situated within the benchmark".645
5.202. We disagree with Brazil's characterization of the Panel's approach to comparing the
challenged treatment to the selected benchmark treatment. As we see it, the Panel did not treat
only one subset of taxpayers (i.e. those that are unable to offset the amount of the tax paid during
the same taxation period) as the benchmark for the purposes of comparison. Rather, having
explained in detail how the mechanism of credits and debits under the principle of non-accumulation
works, the Panel concluded that, under the normal rule of general application of Brazil's tax system,
there are two possible factual scenarios: one in which the buyer of non-incentivized products will be
able to offset the amount of the tax paid during the same taxation pe riod, and the other one when
this would not be possible. The Panel then reached a conclusion as to whether the Brazilian
Government overall foregoes revenue otherwise due based on both scenarios.
5.203. In our view, the Panel did not "dismiss", as Brazil argues, the scenario in which the buyer of
non-incentivized products is able to offset the amount of the tax paid during the same taxation
period. Rather, the Panel made an express finding that, under this scenario, "there would be no
revenue forgone by the Brazil ian Government."646 We consider that, in comparing the challenged
tax treatment to the benchmark treatment, the Panel correctly examined both possible factual
scenarios that result from the application of the normal rules of Brazil's tax system.
5.204. Brazil also takes issue with the Panel's characterization of the scenario in which the buyer is
not able to offset the amount of the tax paid during the same taxation period as a "rather frequent
scenario".647 Brazil points out that "normally" taxpayers offset the taxes paid during the same
taxation period and that the group of taxpayers that do es not is "exceedingly small". 648 According
to Brazil "between 18.5 and 22.5% of exporting c ompanies tend to accumulate credits ."649 We
understand credit accumulation to occur when the tax liability is very low or subject to a zero rate,
so that companies that have acquired tax credits by purchasing inputs and components would not
have sufficient tax debits to offset them.650
5.205. As we see it, the Panel's finding that "[i]t is fairly common that companies are not able to
offset the full amount of their credits and have to request compensation or reimbursement" 651 was
based on the evidence on the record, including that submitted by Brazil. In particular, the Panel
explained that:
Brazil acknowledges that "many sectors of the economy have their products subject to
low or no taxation, reflecting the selective nature and the extra -fiscal character of
indirect taxes in Brazil. These sectors tend to accumulate tax credits, as the tax debits
due are lower than the credit acquired in the previous step of the production chain."652
5.206. Indeed, before the Panel, Brazil explained that, while normally companies offset their tax
credits within the same taxation period, "many sectors " of the economy "tend to accumula te"
them.653 Brazil made this statement in the context of the PEC and RECAP programmes, which were
challenged under Article 3.1(a) of the SCM Agreement. In that context, Brazil argued that certain
sectors of the Brazilian economy tend to accumulate credits. However, we consider that this

644 Brazil's appellant's submission, para. 188.
645 Brazil's appellant's submission, para. 189. (emphasis original)
646 Panel Reports, para. 7.436.
647 Panel Reports, para. 7.432.
648 Brazil's appellant's submission, para. 192 and fn 128 thereto.
649 Brazil's appellant's submission, fn 128 to para. 192. (emphasis original)
650 For example, as Brazil explained before the Panel, in the context of its claims under Article 3.1(a) of
the SCM Agreement, the national defence sector accumulates credits because industrial defence products and
services are subject to zero PIS/COFINS rates when destined for use by the army. (Brazil's first written
651 Panel Reports, para. 7.432.
652 Panel Reports, fn 789 to para. 7.432. Footnote 789 continues: "Also, for instance, according to a
2014 Study by the Brazilian Industry Confederation, 'a little more than one third of the surveyed exporting
companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS accumulated and not refunded for
a period over three months.' (22.5% of the companies possess tax credits under the PIS/COFINS contributions
and 18.5% possess tax credits under the IPI tax)." See Exporters 2014 study on Brazilian exports – delays in
refunds (Panel Exhibit JE-186), p. 55; European Union's first written submission, fn 849.
653 Brazil's first written submission to the Panel, para. 758 (DS472) and para. 691 (DS497).
WT/DS472/AB/R • WT/DS497/AB/R

statement is also relevant to the ICT programmes. This is because structural accumulation may
occur whenever taxes on added value are lower than those on inputs or intermediate products, with
the effect that the buyer would not owe enough taxes to make use of its accumulated tax credits.
5.207. We further note Brazil's argument that the Panel should have undertaken a comparison akin
to the assessment of less favourable treatment under Article III:4 of the GATT 1994. Specifically,
Brazil refers to the Appellate Body Report in EC ‒ Asbestos, in which the Appellate Body stated that,
in assessing the existence of less favourable trea tment, imported products as a group must be
compared to the group of like domestic products.654
5.208. We do not see how this legal test, used for determining less favourable treatment under
Article III:4 of the GATT 1994, could be transplanted into the analysis under Article 1.1(a)(1)(ii) of
the SCM Agreement. We recall that, under Article III:4 of the GATT 1994, the less favourable
treatment must affect the group of imported products, as compared to the group of like domestic
products. There is an inconsistency un der Article III:4 only if imported products from the
complaining Member, as a group, are treated less favourably than the group of like domestic
products.655
5.209. By contrast, a subsidy is always conferred upon certain recipients. The Appellate Body has
observed that, in determining the existence of the revenue otherwise due that is for egone under
Article 1.1(a)(1)(ii), "like will be compared with like", and that it is important to ensure that the
examination under Article 1.1(a)(1)(ii) "involves a comparison of the fiscal treatment of the relevant
income for taxpayers in comparable situations". 656 Thus, to determine whether the revenue that is
otherwise due is foregone, the challenged treatment must be compared to an objectively identifiable
benchmark. This does not presuppose, however, that such a comparison should necessarily be made
between the group of the entities that allegedly benefit s from a subsidy, on the one hand, and the
group of all the other entities, on the other hand. Accordingly, even if not all taxpayers in the
benchmark group are paying the full amount of the relevant tax, this would not necessarily mean
that there is no revenue foregone with respect to the taxpayers benefiting from a subsidy.
5.210. Thus, while both the analysis of less favourable treatment under Article III:4 and the
examination under Article 1.1(a)(1)(ii) involve comparisons, this does not mean that the same
analytical framework that applies to the examination of less favourable treatment under Article III:4
of the GATT 1994 is also applicable mutatis mutandis to the comparison of the benchmark tax
treatment and the challenged tax treatment for purposes of determining whether revenue foregone
under Article 1.1(a)(1)(ii) of the SCM Agreement exists.
5.211. In any event, comparing the fiscal treatment of taxpayers in comparable situations is exactly
what the Panel did by comparing the treatment applicable to sales by non -accredited companies of
non-incentivized products to tha t of the accredited companies. The fact that some non -accredited
companies are able to offset their tax credits while others are not stems from the application of the
normal rules of the Brazilian tax system, including the functioning of the credit -debit mechanism.
We see nothing improper with the manner in which the Panel addressed both possible scenarios in
its analysis.
5.4.1.5 Whether the Panel erred in finding that cash availability and implicit interest
constitute revenue "otherwise due"
5.212. Brazil claims that "t he Panel failed to give adequate meaning to the terms 'government
revenue' and 'otherwise due' in Article 1.1(a)(1)(ii) of the SCM Agreement" by considering that the
cash availability and the implicit interest on unused credits that the Brazilian Government earns in
the situations when tax credits were not offset within the same taxation period fall under the scope
of these terms.657 Brazil contends that "the alleged 'implicit interest' is not a form of 'government

654 Brazil's appellant's submission, para. 190 (referring to Appellate Body Report, EC – Asbestos,
para. 100).
655 Appellate Body Report, EC – Asbestos, para. 100.
656 Appellate Body Report, US – FSC (Article 21.5 – EC), paras. 90 and 92.
657 Brazil's appellant's submission, para. 195.
WT/DS472/AB/R • WT/DS497/AB/R

revenue' that is 'due' to the Brazilian gove rnment by the taxpayer."658 In Brazil's view, due to the
functioning of the credit-debit mechanism, the Brazilian Government is not due to benefit from any
cash availability or any implicit interest income in relation to the time when the tax is collected.659
5.213. In response, the European Union and Japan submit that Brazil's narrow interpretation of the
"government revenue … otherwise due [that] is foregone or not collected" should be rejected. The
European Union considers that the foregoing of the cash availabilit y and implicit interest by the
Brazilian Government is akin to tax deferrals, which constitute the revenue for egone.660 The
European Union points out that "paragraph (e) in Annex I to the SCM Agreement explicitly
contemplates the 'deferral' of direct taxes o r social welfare charges as an illustration of what can
amount to an export subsidy."661 Japan submits that it sees "no basis" for Brazil's argument that the
interest foregone by the Brazilian Government, even if implicit, "is not … a form of current or future
revenue".662
5.214. The United States, as a third participant, recalls that the Appellate Body stated in US – Large
Civil Aircraft (2nd complaint) that "'the foregoing of revenue otherwise due implies that less revenue
has been raised by the government than woul d have been raised in a different situation ,' and that
'the word "foregone" suggests that the government has given up an entitlement to raise revenue
that it could "otherwise" have raised.'"663 To the United States, "if a measure exempts taxes that
would otherwise have to be paid but for the measure, a financial contribution has been provided:
government revenue, otherwise due, is clearly foregone."664 Likewise, "if a measure suspends taxes
that are later paid further down the production chain, a financial contribution has still been provided:
at the time in which government revenue would otherwise be due, it is foregone (albeit
temporarily)."665
5.215. Turning to Brazil's claim, we recall that, in conducting its comparison of the challenged
treatment to the benchmark treatment, the Panel considered that, under a "rather frequent "
scenario666, non-accredited companies will not be able to offset the full amount of their tax credits
during the same taxation period and would have to: (i) offset them during the subsequent taxation
periods; or (ii) request compensation or reimbursement from the government. 667 As the Panel
observed, in these circumstances, the government "will retain the amount of tax paid by the
non-accredited company selling the non -incentivized intermediate pr oduct until the buyer of the
non-incentivized products is able to offset it (during subsequent taxation periods); or until the
Brazilian Government compensates or reimburses the face amount of the credit, without interest, to
the buyer of the non-incentivized products".668
5.216. By contrast, when the challenged tax exemptions and reductions apply, the buyer of the
intermediate products or raw and packaging materials, inputs, capital goods, or computational tools
does not pay the IPI tax and does not obtain a tax cr edit, while the seller does not transmit any
money to the Brazilian Government. Only after the industrialized finished or intermediate product is
sold to the wholesaler will the industrial establishment transfer the amount of tax to the
Brazilian Government.669
5.217. In the scenario when a non -accredited company is not able to offset its tax credits during
the same taxation period, the key difference between the situation when the tax exemptions and
reductions apply and the benchmark treatment is the time when the Brazilian Government obtains

658 Brazil's appellant's submission, para. 199. Brazil also points out that "[g]overnments are not akin to
financial institutions and do not recognize 'float' interest that accrues between the time of collection and
payment of taxes as a revenue against which public expenses are met." (Ibid., para. 198)
659 Brazil's appellant's submission, para. 200.
660 European Union's appellee's submission, paras. 289-291 (referring to Panel Report, US ‒ FSC,
661 European Union's appellee's submission, para. 290. (emphasis original)
662 Japan's appellee's submission, para. 99.
663 United States' third participant's submission, para. 25 (quoting Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 806).
664 United States' third participant's submission, para. 25. (emphasis original)
665 United States' third participant's submission, para. 25. (emphasis original)
667 Panel Reports, paras. 7.432-7.433.
668 Panel Reports, para. 7.433.
669 Panel Reports, paras. 7.434, 7.442, 7.452, 7.461, and 7.471.
WT/DS472/AB/R • WT/DS497/AB/R

the tax from the seller of the product. Under the benchmark treatment, this would be at the
beginning of the industrialization process, i.e. when the non -accredited seller transmits the tax to
the Brazilian Government. By contr ast, when the taxes are exempted or reduced, the Brazilian
Government would receive the applicable amount of the tax when the industrialized product is sold
to the wholesaler.
5.218. Under the credit-debit mechanism pursuant to the principle of non-accumulation, the amount
of the tax paid by the non-accredited company ultimately will be offset either against its tax debits
(within three taxation periods) or compensated or reimbursed by the Brazilian Government within
360 days (or later, in which case interest will apply).670 In the meantime, however, the Brazilian
Government will retain the amount of the tax transmitted to it. The Panel explained, with respect to
the position of the Government in these circumstances, the following:
[T]he Brazilian Government thus wil l hold the advantage of cash availability or cash
flow, along with the associated implicit interest income (revenue) that could be
generated on the full amount of that tax that it has collected from the seller. This cash
availability and associated implici t interest can last from one taxation period (if the
buyer is able to offset the credit during the second taxation period) to 360 days after
the request for compensation or reimbursement (if the buyer has to request it). During
this period, the government is able to make use of the taxes received (i.e., "earning"
implicit interest). So long as the compensation or reimbursement is made to [the] buyer
of the non -incentivized products within 360 days after the request, the Brazilian
Government will not have to pay the buyer of the non-incentivized products any interest
on the use of the buyer's money during that period. Only if 360 days are surpassed is
the government obligated to compensate or repay to the buyer of the non-incentivized
products not just the face amount of the credit but also the associated interest. Thus,
it is only after 360 days that the government would no longer enjoy the implicit interest
revenue from the free use of the buyer's money that is blocked in the form of its
credit.671
5.219. Indeed, as the Panel explained, under the benchmark treatment, the Brazilian Government
will collect the tax and retain the amount of the tax paid for a period that can last from one month
to 360 days. During this period of time, the Brazilian Government will be able to use it and generate
interest on it until the non-accredited company is able to offset its tax credits or until the Brazilian
Government compensates or reimburses the amount of the tax paid. In this respect, the amount of
the tax and the potential impli cit interest that could be generated constitutes what is "due" to the
Brazilian Government under the benchmark treatment. We note that, in its analysis, the Panel
referred to the European Union's observation that the benchmark interest rate of the Central Bank
of Brazil was, at the time of writing of its first written submission to the Panel, 13.25%, a rate that
appears to be significant.672 As noted, while the amount of the tax that is collected by the Brazilian
Government under the challenged treatment and under the benchmark scenario may nominally be
the same, the timing of the tax collection will differ. When the relevant taxes are exempted or
reduced, the payment of the tax will be postponed until the final stage of the production chain, when
the industrialized product is sold to the wholesaler.
5.220. A government foregoes or does not collect the "revenue that is otherwise due" in a situation
where it gives up or relinquishes its entitlement to collect revenue that is owed or payable in other
circumstances.673 In the present dispute, when the tax exemptions and reductions apply, the
Brazilian Government does not collect in full the tax revenue when it normally would, or collects it
in part. The fact that, ultimately, the amount of the tax collected under the benchm ark treatment
and the challenged treatment may nominally be the same does not detract from the fact that, under
the benchmark treatment, in the scenario when non-accredited companies are unable to offset their
credits immediately, the Brazilian Government would collect and retain, for a certain period, the
amount of tax payable to it. During this period of time, the Brazilian Government can enjoy the cash

670 Panel Reports, para. 7.433.
672 Panel Reports, fn 790 to para. 7.433 (referring to the European Union's first written submission to
673 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to
Appellate Body Report, US – FSC, para. 90).
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available to it and earn interest on it. 674 By contrast, when tax exemptions and reductions are
applied, the Brazilian Government collects the tax later in time and does not enjoy the availability
of cash as it otherwise would under the benchmark treatment. Thus, under the challenged treatment,
the Brazilian Government would not collect the tax at the time it normally would under the
benchmark treatment. By doing so, in our view, the Brazilian Government would not collect the
revenue that would be otherwise due to it.675
5.221. Accordingly, in the scenario where the buyer is unable to offset the credit during the same
taxation period, the non-collection of the tax revenue by the Brazilian Government at the time when
it normally would do so amounts to "government revenue that is otherwise due" being "foregone or
not collected" within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
5.222. On the basis of the above, we do not consider that the Panel erred in finding that the tax
treatment of intermediate products and inputs under the ICT programmes constitutes a subsidy
under Article 1.1 of the SCM Agreement. We thus uphold the Panel's findings, in paragraphs 7.436,
7.444, 7.454, 7.463, 7.473, 7.489 -7.490, and 7.495 of the Panel Reports, that each of the
challenged tax exemptions, reductions, and suspensions granted to accredited companies on (i) the
sales of intermediate goods that they produce, and (ii) the purchases of raw materials, intermediate
goods, and packaging materials (under the Informatics programme) and inputs, capital goods, and
computational goods (under the PADIS and PATVD programmes) constitutes financial contributions
where "government revenue that is otherwise due is foregone or not collected" under
Article 1.1(a)(1)(ii) of the SCM Agreement.
5.4.2 Article 3.1(b) the SCM Agreement – import substitution
5.4.2.1 Introduction
5.223. We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the PPBs
and other production -step requirements under the four ICT programmes (Informatics, PADIS,
PATVD, and Digital Inclusion programmes) are contingent upon the use of domestic goods,
inconsistently with Article III:4 of the GATT 1994, and that they also constitute a contingency on
the use of domestic over imported goods within the meaning of Article 3.1(b) of the
SCM Agreement.676
5.224. Brazil submits that the Panel's finding s under Article III:4 of the GATT 1994 imply that
"whenever the requirement to perform certain manufacturing steps in Brazil as a condition to receive
the subsidy involves the production of a specific input, part or component that could have been
sourced f rom foreign producers, there would be ipso facto, and without further examination,
discrimination within the meaning of Article III:4."677 Moreover, Brazil considers that the Panel found
that the ICT programmes are inconsistent with Article 3.1(b) simply because the subsidy at issue is
contingent upon production in Brazil. In this respect, Brazil contends that the Panel's reasoning is
inconsistent with the Appellate Body's findings under Article 3.1(b) of the SCM Agreement in
US ‒ Tax Incentives.678 In Brazil's view, the Panel "simply presumed that because PPBs can result
in the production of inputs and components and that some of the production steps can be outsourced,
the subsidy granted under the ICT programmes will always be de jure conditioned upon the use of
domestic over imported goods, despite the fact that the PPBs do not contain any language requiring,
either in explicit terms or by necessary implication … the use of products, whether domestic or
imported".679 Brazil underscores that the PPBs and similar production -step requirements relate to

674 We recall, in this respect, the Panel's observation that, according to the European Union, the
benchmark interest rate of the Central Bank of Brazil was, at the time of the first written submission to the
Panel, 13.25%. (Panel Reports, fn 790 to para. 7.433)
675 Taxes are deferred when they are collected later in time than they would normally be. We note that
paragraph (e) of Annex I to the SCM Agreement refers to "[t]he full or partial exemption remission, or deferral
specifically related to exports, of direct taxes or social welfare charges paid or payable by industrial or
commercial enterprises" as an example of what could constitute an export subsidy.
676 Brazil's appellant's submission, paras. 157 and 240.
677 Brazil's appellant's submission, para. 159.
678 In Brazil's view, the statements of the Appellate Body in that dispute "apply with equal force in the
context of Article III:4 of the GATT 1994". (Brazil's appellant's submission, para. 163)
679 Brazil's appellant's submission, para. 220.
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the location of certain manufacturing steps in Brazil and do not prevent the possibility of using
imported products.680
5.225. The European Union and Japan respond that the Panel's analysis under Article III:4 focused
on the "conditions for companies to obtain accreditation and thereby be eligible for the tax
exemptions, reductions or suspensions under the programmes".681 With respect to Brazil's claim that
the Panel erred in finding that the tax exemptions and reductions granted under the ICT programmes
constitute prohibited subsidies under Article 3.1(b) of the SCM Agreement, the European Union and
Japan submit that the Panel did not base its findings on the effects of the subsidies , but on the
conditions of eligibility for them, which impose the use of domestic components under the guise of
production-step requirements.682 In the European Union's view, by doing so, the Panel correctly
applied the legal standard under Article 3.1(b) as elaborated by the Appellate Body in US – Tax
Incentives. The European Union notes that, in US – Tax Incentives, the Appellate Body observed
that "the term 'use' may also refer to incorporating a component into a separate good and that it
may refer to any type of good that may be used by the subsidy recipient, including parts or
components that are incorporated into another good."683 In the European Union's view, this is exactly
the situation in the present case. For its part, Japan considers that what the Pa nel found to be
problematic was not the outsourcing of the production steps, but the structure of accreditation under
which PPBs and other production-step requirements condition the receipt of the subsidies on the use
of domestic over imported goods under Article 3.1(b) of the SCM Agreement.684
5.226. Before addressing the issues raised on appeal, we provide a summary of the relevant Panel
findings and set out the legal standard under Article 3.1(b) of the SCM Agreement.
5.4.2.2 Panel's findings
5.227. Before the Panel, the Europ ean Union and Japan raised claims under Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement in relation to the four ICT programmes.
In particular, the complainants claimed that the ICT programmes: (i) introduce regulatory
discrimination against imported inputs, in the form of incentives to use domestically produced
components and subassemblies in the production of finished or intermediate products, inconsistently
with Article III:4 of the GATT 1994; and (ii) constitute prohibited subsidies contingent upon the use
of domestic over imported products, inconsistent with Article 3.1(b) of the SCM Agreement.685
5.228. The European Union and Japan explained before the Panel that, to receive the relevant tax
benefits under the ICT programmes, manufacturer s must comply with certain production -step
requirements. According to the complainants, the process of complying with each required
production step specified in PPBs or otherwise results in the creation of an "input" good that then
must be "used" in an ens uing step or steps in the production of the incentivized finished or
intermediate product. 686 The complainants made this argument regardless of whether a single
company itself performs all of the production steps and thus itself creates the inputs in question (the
"in-house" scenario), or instead outsources some production steps to third parties, by acquiring from

680 Brazil's appellant's submission, para. 222.
681 European Union's appellee's submission, para. 259 (quoting Panel Reports, para. 7.193) (emphasis
omitted). The European Union notes that the Panel found that the PPBs are a set of product-specific production
steps that must be performed in Brazil in order for a company to benefit from the tax incentives with respect to
that product. (Ibid.) See also Japan's appellee's submission, para. 79 (referring to Panel Reports, para. 7.313).
682 European Union's appellee's submission, para. 320; Japan's appellee's submission, paras. 103 and
108. The European Union recalls, in particular, the Panel's finding that any accredited company has to comply
with production steps "in order to obtain accreditation and then [to] obtain the relevant tax benefits".
(European Union's appellee's submission, para. 319 (quoting Panel Reports, para. 7.277) (emphasis omitted))
The European Union also notes that the Panel focused on the element of contingency when examining the
nested PPBs. (Ibid.)
683 European Union's appellee's submission, para. 321 (referring to Appellate Body Report, US – Tax
Incentives, paras. 5.8-5.9). (fns omitted)
684 Japan's appellee's submission, para. 102.
685 Panel Reports, paras. 7.2, 7.271, and 7.366.
686 Panel Reports, para. 7.271. The complainants considered that "'the requirement to perform certain
manufacturing steps in Brazil [in all cases] is tantamount to requiring the incorporation of domestic content
into the finished product', whenever the performance of those manufacturing steps results in the creation of a
product." (Ibid., para. 7.272 (quoting Japan's first written submission to the Panel, para. 296; referring to
European Union's first written submission to the Panel, para. 600))
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them the outputs of those production steps, which it then incorporates as inputs into its production
of the incentivized product (the "outsourcing" scenario).687
5.229. The Panel observed that a finding that the alleged requirement to use domestic goods exists
would "lead ipso facto to the further finding of inconsistency with Article III:4 of the GATT 1994"688,
and would also constitute a finding of contingenc y in the sense of Article 3.1(b) of the
SCM Agreement.689
5.230. The Panel noted that all four ICT programmes refer to production -step requirements
contained in PPBs or in other legal instruments. 690 Depending on the PPB, certain production steps
must be performed by the accredited company producing the incentivized finished or intermediate
product at issue, while others may be performed by "third parties" based in Brazil. 691 The Panel
examined how PPBs operate in practice in the ICT programmes, including through two illustrative
examples692, namely, the PPB for Optical Splice Closures and th e one for Speed Alarms, Tracking
and Control, which it considered "broadly representative of how the PPBs as a whole operate".693
5.231. With respect to the PPB for Optical Splice Closures, the Panel observed that Article 1 of that
PPB requires that all of the relevant steps "must be undertaken in Brazil". 694 The Panel observed
that the envisaged production processes "consist of fundamental manufacturing from basic inputs",
as opposed to simple assembly of components and subassemblies, which would not satisfy the
PPB.695 Similarly, the Panel noted that all of the steps outlined in Article 1 of the PPB for Speed
Alarms, Tracking and Control must be undertaken in Brazil. The Panel underscored that "these are
not mere assembly operations but fundamental manufacturing processes from basic inputs."696 The
Panel further observed that the PPB for Speed Alarms, Tracking and Control contains an additional
element, "namely a PPB within a PPB (a so -called 'nested PPB')", according to which "at least 90%
of the GSM modules used to produce any of the products for speed alarms, tracking and control
listed in the Annex to the PPB must be produced in compliance with their own PPB."697 According to
the Panel, a nested PPB is analytically similar to that of the production -step requirements, with the
key difference from main PPBs being that there is "an implicit presumption that the products that
are subject to the nested PPBs [would] be outsourced".698
5.232. The Panel noted that "in every case the PPBs allow the accredited company to outsource at
least some of the required production steps to third parties, so long as those third parties themselves
comply with the requirements of the PPB in respect of the steps they perform."699 Thus, a producer
of a given incentivized product does not necessarily have to perform all the steps by itself in order
to retain its accreditation, although it "takes responsibility for all of the production steps required in

687 Panel Reports, para. 7.271.
688 Panel Reports, para. 7.258 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC),
para. 220; GATT Panel Reports, Canada – FIRA, paras. 5.7-5.11; Italy – Agricultural Machinery, para. 13).
689 Panel Reports, para. 7.259. The Panel also noted, in footnote 646 of its Reports, that, although its
discussion of the alleged imposition under PPBs or other similar requirements of an obligation to use domestic
inputs in the production of the incentivized products is limited to issues related to Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement, this did not mean that such discussion would not also be
relevant to the claims under Article 2.1 of the TRIMs Agreement. (Ibid., fn 646 to para. 7.256)
690 Panel Reports, para. 7.279. A PPB is defined as "the minimum set of operations, in a manufacturing
establishment, which characterizes the effective industrialization of [a] given product". (Ibid., para. 7.280
(referring to Decree 5,906/2006 (Panel Exhibit JE-7), Article 16))
691 Panel Reports, para. 7.281.
692 Panel Reports, paras. 7.286-7.287 and 7.289. We reproduce the text of these PPBs in
paras. 5.264-5.265.
693 Panel Reports, para. 7.286 (referring to Interministerial Implementing Order (Portaria) 93 of
1 April 2013 establishing a Basic Production Process for optical splice closures produced in Brazil
(Interministerial Implementing Order 93/2013) (Panel Exhibit JE-31); Interministerial Implementing Order
(Portaria) 103 of 2 April 2013 on the Basic Production Process for products for speed alarms, tracking and
control produced in Brazil (Interministerial Implementing Order 103/2013) (Panel Exhibit JE-32)).
694 Panel Reports, para. 7.288.
695 Panel Reports, para. 7.288.
696 Panel Reports, para. 7.290.
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the respective PPB, and correspondingly … receives the tax advantages in respect of that incentivized
product".700
5.233. In examining the Informatics programme, the Panel noted that there seemed to be "no
theoretical disagreement among the parties that at least in the case in which a company is required,
when it acquires a product from an outside source, to only acquire a domestic product, there would
be a requirement to use domestic goods in the sense covered by Article III:4 of the GATT 1994 and
Article 3.1(b) of the SCM Agreement."701 The Panel considered that, given these views of the parties,
it would be "useful to separately analyse the two possible scenarios for compliance with the PPBs":
the in-house scenario and the outsourcing scenario.702
5.234. The Panel first examined the outsourcing scenario with respect to main PPBs that contain
nested PPBs, and began by recalling its earlier finding that the products that are the subject of the
challenged measures are "domestic products".703 On this basis, the Panel found that the incentivized
products produced in accordance with nested PPBs, which are used as components and
subassemblies in the production of the products covered by the main PPBs, constituted Brazilian
domestic products in their o wn right.704 The Panel further noted that, because components and
subassemblies that are the subject of nested PPBs are in most cases outsourced rather than
produced "in -house", the requirements that at least a certain proportion of products subject to
nested PPBs comply with their respective PPBs constituted "explicit requirements to use domestic
goods", in the sense of Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.705
Therefore, according to the Panel, whenever a producer of a product covered by a main PPB obtained
components or subassemblies covered by their own nested PPB, it was obtaining "domestic
goods".706 Furthermore, according to the Panel, because nested PPBs imposed a mandatory
minimum amount of such "domestic goods" to be used in producing the product subject to the main
PPB, the only way to satisfy the requirement, when outsourcing, is to acquire and use domestic
goods.707 Thus, the Panel concluded that "every PPB with a nested PPB inside contains an explicit
requirement to use domestic goods in the cases where the goods covered by the nested PPB are
outsourced."708
5.235. The Panel further observed that "[t]his analysis also holds true for the basic production step
requirements of all PPBs under the Informatics programme, which typically are set forth in the PPBs'
Article 1."709 The Panel elaborated that all PPBs "contain outsourcing provisions that require that
outsourced production steps comply with the respective requirements of the PPBs, and in every case
at least some of those outsourcing provisions apply to production steps for the creation of
manufactured components or subassemblies from basic components and raw materials which, as
the Panel has found, are for that reason domestic products".710 The Panel considered that, similarly
to nested PPBs, the outsourcing provisions under the main PPBs give rise to a requirement to use
domestic goods under Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.711
5.236. The Panel added that, even if certain PPBs contain "alternati ve options to compliance with
certain production -steps in the PPBs", the "mere existence of options for compliance that are
potentially WTO-consistent could not preclude a finding of inconsistency in respect of the PPBs as a
whole", so that the existence o f alternative, potentially WTO-consistent options, would not "alte r[]

700 Panel Reports, para. 7.292.
701 Panel Reports, para. 7.297.
702 Panel Reports, para. 7.298.
703 Panel Reports, para. 7.299 (referring to Panel Reports, para. 7.117). The Panel considered that the
"manufacturing process, starting with basic materials and resulting in an intermediate or finished good to be
sold on the market", which must take place in Brazil, "leaves no doubt that these products are Brazilian
domestic products". (Ibid., para. 7.117) The Panel thus found that "all products produced in accordance with a
PPB are, as such, Brazilian domestic products, by virtue of having been produced in Brazil from basic raw
materials and other inputs through a specified mandatory manufacturing process." (Ibid., para. 7.299)
704 Panel Reports, para. 7.299.
705 Panel Reports, para. 7.299.
706 Panel Reports, para. 7.300.
707 Panel Reports, para. 7.300.
708 Panel Reports, para. 7.300.
709 Panel Reports, para. 7.301.
710 Panel Reports, para. 7.301.
711 Panel Reports, para. 7.301.
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the inconsistency … of an option that requires the use of domestic products over imported
products".712
5.237. The Panel applied this reasoning to the other three ICT programmes. With respect to the
PATVD programme, the Panel concluded, for the same reasons, that "the PPBs in the PATVD
programme require the use of domestic goods in the sense covered by Article III:4 of the GATT 1994
and Article 3.1(b) of the SCM Agreement."713 In the case of the PADIS programme, the Panel found
that a company seeking accreditation had to comply with different production -step requirements
depending on the type of products, and that for certain products, no PPBs have been adopted yet.714
In this respect, the Panel noted that "to the extent that any futu re PPBs adopted under the
PADIS programme contain outsourcing provisions or nested PPBs in respect of manufactured
components and subassemblies that operate in the same manner as those in the Informatics and
PATVD programmes, such PPBs would require the use of domestic goods ."715 With respect to the
existing production -step requirements, the Panel concluded, for the same reasons as under the
Informatics programme, that they require the use of domestic goods under Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement.716
5.238. With respect to the Digital Inclusion programme, the Panel noted that it is different from
other ICT programmes in that, under this programme, "the tax benefits are in respect of sales of
certain products by retailers, rather than in respect of production of certain products by
producers."717 Under the Digital Inclusion programme, retailers that sell in Brazil certain digital
consumer goods produced in accordance with their respective PPBs qualify for certain tax benefits.718
Having recalled its earlier finding that all products produced in accordance with PPBs are Brazilian
domestic products, the Panel concluded that the only goods eligible for the tax benefits under the
Digital Inclusion programme would be domestic goods.719 Thus, for the same reasons as under other
ICT programmes, the Panel found that the Digital Inclusion programme is inconsistent with
Article III:4 of the GATT 1994 and that it involves a contingency on the use of domestic over
imported goods within the meaning of Article 3.1(b) of the SCM Agreement.720
5.239. The Panel thus concluded that the PPBs and other production -step requirements of the
ICT programmes "accord to imported products treatment less favourable than that accorded to like
domestic products, inconsistently with Article III:4 of the GATT 1994" and that "the same aspects
of these programmes give rise to contingency on the use of domestic over imported goods in the
sense of Article 3.1(b) of the SCM Agreement."721
5.4.2.3 Article 3.1(b) of the SCM Agreement
5.240. Article 3.1(b) of the SCM Agreement reads:
Except as provided in the Agreement on Agriculture, the following subsidies, within the
meaning of Article 1, shall be prohibited:
…
(b) subsidies contingent, whether solely or as one of several other conditions, upon
the use of domestic over imported goods.
Article 3.2 adds that "[a] Member shall neither grant nor maintain subsidies referred to in
paragraph 1."

712 Panel Reports, para. 7.303.
713 Panel Reports, para. 7.308.
714 Panel Reports, paras. 7.309 and 7.312.
715 Panel Reports, para. 7.312.
716 Panel Reports, para. 7.311.
717 Panel Reports, para. 7.316.
718 Panel Reports, para. 7.315.
720 Panel Reports, para. 7.317.
721 Panel Reports, para. 7.319.
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5.241. Article 3.1(b) of the SCM Agreement prohibits subsidies the granting of which is
"contingent … upon the use of domestic over imported goods". The legal standard for establishing
the existence of "contingency" under Article 3.1(b) is the same as under Article 3.1(a) of the
SCM Agreement.722 Since the ordinary meaning of "'contingent' is 'conditional' or 'dependent for its
existence on something else'", a subsidy would be prohibited under Article 3.1(b) if it is "conditional"
or "dependent for its existence" on the use of domestic over imported goods.723 Therefore, a subsidy
would be "contingent" upon the use of domestic over imported goods where the use of those goods
is a condition, in the sense of a requirement724, for receiving the subsidy.725
5.242. The Appellate Body in US – Tax Incentives noted that the term "use" in Article 3.1(b) refers
to the actio n of using or employing something 726 and "may, depending on the particular
circumstances, refer to consuming a good in the process of manufacturing, but may also refer to,
for instance, incorporating a component into a separate good, or serving as a tool in the production
of a good".727 The Appellate Body also noted that the term "goods" in Article 3.1(b) is qualified by
the adjectives "domestic" and "imported", which implies that the "goods" concerned should be at
least potentially tradable. 728 Finally, the term "over" expresses a preference between two things
and, in the context of the phrase "contingent … upon the use of domestic over imported goods",
refers to the use of domestic goods in preference to, or instead of, imported goods.729
5.243. The term "contingency" under Article 3.1(b) covers contingency both in law and in fact. The
legal standard expressed by the term "contingent" is the same for both. 730 The Appellate Body has
said that a subsidy will be de jure contingent upon the use of domestic over imported goods "when
the existence of that condition can be demonstrated on the basis of the very words of the relevant
legislation, regulation or other legal instrument constituting the measure", or can "be derived by
necessary implication from the words actually used i n the measure".731 The existence of de facto
contingency "must be inferred from the total configuration of the facts constituting and surrounding
the granting of the subsidy, none of which on its own is likely to be decisive in any given case". 732
The Appellate Body has observed that proving de facto contingency "is a much more difficult task".733
5.244. Where an analysis of contingency does not yield a finding of inconsistency under
Article 3.1(b) on the basis of the words actually used in the measure, or any necessar y implication
therefrom, the existence of a requirement to use domestic over imported goods may still be found
de facto on the basis of the factual circumstances that form part of the total configuration of the

722 Appellate Body Report, Canada – Autos, para. 123.
723 Appellate Body Report, Canada – Autos, para. 123 (referring to Appellate Body Report,
Canada ‒ Aircraft, para. 166).
724 For instance, the Appellate Body observed in Canada – Autos that the measure at issue in that case
would be inconsistent with Article 3.1(b) if "the use of domestic goods [was] a necessity and thus … required
as a condition for eligibility" under the measure. (Appellate Body Report, Canada – Autos, para. 130 (emphasis
original))
725 Appellate Body Report, Canada – Autos, para. 126. The link between "contingency" and
"conditionality" is also borne out by the text of Article 3.1(b), which states that import substitution contingency
can be either the sole or "one of several other conditions". (Appellate Body Report, Canada – Aircraft,
para. 166 (emphasis added by the Appellate Body)) As with Article 3.1(a), this "relationship of conditionality or
dependence" lies at the "very heart" of the legal standard in Article 3.1(b) of the SCM Agreement.
(Appellate Body Reports, Canada – Aircraft, para. 171; Canada – Aircraft (Article 21.5 – Brazil), para. 47)
726 Appellate Body Report, US – Tax Incentives, para. 5.8 (referring to Appellate Body Report,
US ‒ Carbon Steel (India), para. 4.374 and fn 1009 thereto, in turn referring to Shorter Oxford English
Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 2, p. 3484).
727 Appellate Body Report, US – Tax Incentives, para. 5.8.
728 Appellate Body Report, US – Tax Incentives, para. 5.9. The Appellate Body explained that this term
may refer to any type of good that may be used by the subsidy recipient, including parts or components that
are incorporated into another good, material, or substance that are consumed in the production process of
another good, or tools or instruments that are used in the production process. (Ibid.)
729 Appellate Body Report, US – Tax Incentives, para. 5.11.
731 Appellate Body Report, Canada – Autos, paras. 100 and 123. (fn omitted)
732 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original) Factors that may be
relevant in this regard include the design and structure of the measure granting the subsidy, the modalities of
operation set out in such a measure, and the relevant factual circumstances surrounding the granting of the
subsidy that provide the context for understanding the measure's design, structure, and modalities of
operation. (Appellate Body Report, US – Tax Incentives, para. 5.12 (referring to Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 1046))
733 Appellate Body Report, Canada – Aircraft, para. 167.
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facts constituting and surrounding the granti ng of the subsidy. 734 The Appellate Body in US – Tax
Incentives noted that the analysis of de jure and de facto contingency under Article 3.1(b), in light
of the above -mentioned factors and circumstances, should be understood as a continuum, and a
panel should conduct a holistic assessment of all relevant elements and evidence on the record.735
5.245. Accordingly, Article 3.1(b) prohibits those subsidies that are de jure or de facto contingent
such that they require the use of domestic goods in preference to, or instead of, imported goods as
a condition for receiving the subsidy. While the distinction between de jure and de facto contingency
lies in the "evidence [that] may be employed to prove" that a subsidy is contingent upon the use of
domestic over imported goods 736, in both its de jure and de facto analyses, a panel assesses the
consistency of the granting of a subsidy under Article 3.1(b) with the same obligation and against a
single legal standard of contingency.
5.246. The Appellate Body in US – Tax Incentives further observed that, insofar as, by its terms,
Article 3.1(b) does not prohibit the subsidization of domestic "production" per se, but rather the
granting of subsidies contingent upon the use of domestic over imported goods, subsidies that relate
to domestic pr oduction are not, for that reason alone, prohibited under Article 3 of the
SCM Agreement.737 In particular, such subsidies can ordinarily be expected to increase the supply
of the subsidized domestic goods in the relevant market, thereby increasing the use of these goods
downstream and adversely affecting imports, without necessarily requiring the use of domestic over
imported goods as a condition for granting the subsidy.738
5.247. With regard to the relevance of Article III:8(b) of the GATT 1994, we note that this provision
excepts from the national treatment obligation in Article III "the payment of subsidies exclusively to
domestic producers", and thus makes clear that the provision of subsidies only to domestic
producers, and not to foreign producers, does not in itself constitute a breach of Article III.739 The
Appellate Body in US – Tax Incentives observed that, while Article III:8(b) of the GATT 1994
comports with a reading of Article 3.1(b) of the SCM Agreement under which something more than
mere subsidization of domestic production is required for finding an import substitution subsidy , a
subsidy e xcepted from the Article III national treatment obligation by virtue of it being paid
exclusively to domestic producers within the meaning of Article III:8(b) of the GATT 1994 may still
be found to be contingent upon the use by those producers of domestic over imported goods under
Article 3.1(b) of the SCM Agreement.740
5.248. As the Appellate Body observed in US – Tax Incentives, the relevant question in determining
the existence of contingency under Article 3.1(b) is not whether the eligibility requirements under a
subsidy may result in the use of more domestic and fewer imported goods. Rather, the question is
whether a condition requiring the use of domestic over imported goods can be discerned from the
terms of the measure itself or inferred from its design, str ucture, modalities of operation, and the
relevant factual circumstances constituting and surrounding the granting of the subsidy that provide
context for understanding the operation of these factors.741

734 Appellate Body Report, US – Tax Incentives, para. 5.13. In that report, the Appellate Body
mentioned that, for instance, factual circumstances potentially relevant to an assessment of whether a subsidy
is de facto contingent may include the existence of a multi-stage production process, the level of specialization
of the subsidized inputs, or the level of integration of the production chain in the relevant industry. (Ibid., fn 49
to para. 5.13)
735 Appellate Body Report, US – Tax Incentives, para. 5.13.
736 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), fn 46 to para. 47 (quoting
Appellate Body Report, Canada – Aircraft, para. 167).
737 Appellate Body Report, US – Tax Incentives, para. 5.15 (referring to Appellate Body Report,
738 Appellate Body Report, US – Tax Incentives, para. 5.15.
739 See Appellate Body Report, US – Tax Incentives, para. 5.16.
740 Appellate Body Report, US – Tax Incentives, para. 5.16.
741 Appellate Body Report, US – Tax Incentives, para. 5.18. The Appellate Body further explained that,
to the extent that no condition requiring the use of domestic over imported goods exists, but the effect of the
subsidy is to displace or impede, or otherwise cause adverse effects to imports, those effects are disciplined
under Part III of the SCM Agreement. (Ibid.)
WT/DS472/AB/R • WT/DS497/AB/R

5.4.2.4 Whether the Panel erred in finding that the PPBs and ot her production -step
requirements under the ICT programmes are inconsistent with Article 3.1(b) of the
SCM Agreement and Article III:4 of the GATT 1994
5.249. On appeal, Brazil takes issue with the Panel's finding that t he PPBs or analogous
production-step require ments in the ICT programmes are explicitly contingent upon the use of
domestic goods, within the meaning of Article III:4 of the GATT 1994 and Article 3.1(b) of the
SCM Agreement.742 Brazil argues that the Panel erroneously considered that "whenever the
requirement to perform certain manufacturing steps in Brazil as a condition to receive the subsidy
involves the production of a specific input, part or component that could have been s ourced from
foreign producers, there would be ipso facto, and without further examination, discrimination within
the meaning of Article III:4."743 In a similar vein, with respect to the Panel's finding under
Article 3.1(b), Brazil submits that the PPBs and o ther production-step requirements "establish the
production process of specific products and leave no doubt that the tax incentives under the
ICT programmes are contingent on domestic production"744, which, according to the Appellate Body
in US – Tax Incentives, is "insufficient to establish a prohibited import substitution subsidy under
Article 3.1(b) of the SCM Agreement".745 Thus, in Brazil's view, the Panel erroneously equated
a condition that certain production activities take place domestically with a contingency on the use
of domestic over imported goods.746
5.250. In addition, Brazil contends that the Panel made "a sweeping finding" that all
ICT programmes are contingent upon the use of domestic over imported goods despite the fact that
not all of these measures require compliance with production steps as a necessary condition for
payment of subsidies.747 Brazil submits that this is particularly the case with respect to the PADIS
and PATVD programmes, both of which allow accreditation for companies regardless of whether they
comply with PPBs.748
5.251. The European Union and Japan contend that the Panel did not err in its findings under
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement. The European Union
disagrees with Brazil's contention that "the Pan el based its findings on the effects of the subsidies ,
or on the fact that accredited companies would likely use more domestic products in their
downstream production activities."749 Rather, in the European Union's view, "[t]he Panel focused on
the conditions of eligibility for the subsidies, and found that those conditions impose the use of
domestic components and subassemblies, under the guise of production step [] requirements, in
order to obtain the subsidy."750
5.252. Japan submits that, "because of the very struc ture of the measure involved, the
requirements that covered ICT products be produced in accordance with PPBs can only be satisfied
if the final products are domestic, and certain inputs are domestic as well", which "means that the
use of … imported inputs can disqualify a final product for eligibility under the ICT programmes".751
Japan agrees with the proposition that "granting subsidies to firms so long as they engage in
domestic production activities, without more, should not be equated to making those sub sidies
contingent on the use of domestic over imported goods and hence prohibited ."752 However, in
Japan's view, in the present case, the ICT programmes are not mere production subsidies because
they condition the receipt of the tax advantages upon use of domestic over imported goods through
production-step requirements.753

742 Panel Reports, paras. 7.313 and 7.317.
743 Brazil's appellant's submission, para. 159.
744 Brazil's appellant's submission, para. 221. (emphasis original)
745 Brazil's appellant's submission, para. 221 (referring to Appellate Body Report, US – Tax Incentives,
para. 5.16). (emphasis original)
746 Brazil's opening statement at the oral hearing.
747 Brazil's opening statement at the oral hearing.
748 Brazil's opening statement at the oral hearing.
749 European Union's appellee's submission, para. 295.
750 European Union's appellee's submission, para. 295.
751 Japan's appellee's submission, para. 78.
752 Japan's appellee's submission, para. 79 (quoting Panel Report, EC and certain member
States ‒ Large Civil Aircraft (Article 21.5 – US), para. 6.785).
753 Japan's appellee's submission, para. 79.
WT/DS472/AB/R • WT/DS497/AB/R

5.253. We recall that the Panel addressed the question whether the ICT programmes contain a
requirement to use domestic goods in the section of the Panel Reports addressing the complainants'
claims under Article III:4 and subsequently referred to this analysis in its examination under
Article 3.1(b).754 The Panel considered that a finding that the production-step requirements listed in
PPBs and other legal instruments required the use of domestic components and subassemblies in
the manufacturing of incentivized products as a condition to obtain a subsidy would entail an
inconsistency under Article III:4 of the GATT 1994 and would satisfy the contingency element under
Article 3.1(b) of the SCM Agreement.755
5.254. We note that the legal standard under Article 3.1(b) of the SCM Agreement is not the same
as that under Article III:4 of the GATT 1994. In order to establish an inconsistency with Article 3.1(b)
of the SCM Agreement, a measure must be "contingent … upon the use of the domestic over
imported goods". By contrast, to find an inconsistency with Article III:4 of the GATT, it is sufficient
that the measure at issue alters the conditions of competition to the detriment of the imported
products by providing an incentive to use domestic goods. Establishing the existence of a
contingency requirement to use domestic o ver imported products under Article 3.1(b) of the
SCM Agreement is thus a more demanding standard than demonstrating that an incentive to use
domestic goods exists under Article III:4 of the GATT 1994. Accordingly, while establishing that a
measure provides an incentive to producers to use domestic goods would be sufficient to find an
inconsistency with Article III:4 of the GATT 1994, it would not suffice to also find that the same
measure is contingent upon the use of domestic over imported goods under Article 3.1(b) of the
SCM Agreement.
5.255. Nevertheless, we consider that the Panel's reliance on its findings of inconsistency of the
ICT programmes with Article III:4 of the GATT 1994 to find the existence of the requirement to use
domestic over imported goods wi thin the meaning of Article 3.1(b) of the SCM Agreement is not
necessarily, for that reason alone, incorrect. This is so if the findings under Article III:4, on which
the Panel relied in its analysis under Article 3.1(b), establish the existence of a conti ngency
requirement to use domestic over imported goods. In other words, as long as the Panel made
findings of inconsistency with Article III:4 due to the existence of a contingency requirement, as
opposed to a mere incentive, to use domestic goods, it could rely on these findings as a basis for its
findings of inconsistency with Article 3.1(b) of the SCM Agreement. However, if we were to find that
the Panel relied in its analysis under Article 3.1(b) on findings it made under Article III:4 that merely
establish the existence of an incentive to favour domestic over imported goods, such reliance would
be incorrect.756
5.256. Brazil has set out its claims of error regarding the Panel's findings that the ICT programmes
require the use of domestic components and subassemb lies in the sense of Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement in separate subsections of its appellant's
submission. The essence of Brazil's arguments with respect to both claims of error is, however, the
same and concerns whe ther the Panel correctly found that the PPBs and similar production -step
requirements require accredited producers to use domestic goods. Moreover, Brazil's arguments
under both provisions rely preponderantly on the Appellate Body's findings in US – Tax Incentives.
In our assessment, we will focus on whether the Panel was correct in finding that the PPBs and other
production-step requirements of the four ICT programmes establish a requirement to use domestic
over imported goods in the sense of Article 3.1(b) of the SCM Agreement. To the extent that they
do, this would also be inconsistent with Article III:4 of the GATT 1994. If, however, we establish
that the Panel made a finding of inconsistency under Article 3.1(b) merely because it considered
that the relevant measures provide an incentive to use domestic over imported goods, this would
not be consistent with the legal standard under Article 3.1(b) of the SCM Agreement.
5.257. As noted, the European Union and Japan contend that the Panel correctly found that the
PPBs and other production -step requirements explicitly require the use of domestic over imported
goods.757 By contrast, Brazil considers that the Panel equated a production requirement with the
requirement to use domestic over imported goods. 758 All the p articipants refer, in their

754 Panel Reports, paras. 7.313, 7.319, and 7.386.
755 Panel Reports, paras. 7.258-7.259.
756 We recall, in this respect, that the Panel found that imported products alleged to be discriminated
against are similar to the domestic products at issue. (Panel Reports, para. 7.269) This finding is not
challenged on appeal.
757 European Union's appellee's submission, para. 295; Japan's appellee's submission, paras. 78-79.
758 Brazil's appellant's submission, paras. 159 and 221.
WT/DS472/AB/R • WT/DS497/AB/R

argumentation, to the Appellate Body Report in US – Tax Incentives. We recall that, in that report,
the Appellate Body explained that both import substitution subsidies and other subsidies that relate
to domestic production may have detrimental effects with respect to imported goods. Subsidies
contingent upon import substitution, by their nature, adversely affect the competitive conditions of
imported goods. Yet also subsidies that relate to the production of certain goods in a M ember's
domestic territory can ordinarily be expected to increase the supply of the subsidized goods in the
relevant market, which would have the consequence of increasing the use of subsidized domestic
goods downstream and adversely affecting imports. How ever, while such subsidies may foster the
use of subsidized domestic goods and affect imported goods, such effects do not, in and of
themselves, demonstrate the existence of a requirement to use domestic over imported goods. 759
As observed, the relevant question in determining the existence of contingency under Article 3.1(b)
is not whether conditions for eligibility and access to the subsidy may result in the use of more
domestic and fewer imported goods, but whether the measure reflects a condition requiring the use
of domestic over imported goods.760
5.258. We note that the Panel did not expressly indicate whether it conducted a de jure or a de facto
analysis of inconsistency with Article 3.1(b) of the SCM Agreement.761 We understand the Panel,
however, to have made a de jure finding of inconsistency. First, the Panel relied on the text of the
relevant legal instruments and its own understanding of the operation of the PPBs and other
production-step requirements. The Panel did not examine the factual circumstances surrounding the
granting of the subsidy. Second, the Panel stated that it was analysing "the specific provisions of
the PPBs" and that the PPBs contain "an explicit requirement to use domestic goods". 762 Finally, in
response to questions at the oral hearing, the participants agreed that the Panel made a finding of
de jure inconsistency with Article 3.1(b) of the SCM Agreement with respect to the
ICT programmes.763
5.259. In setting out its understanding of Article 3.1(b) of the SCM Agreement, the Panel noted that
"a subsidy is 'contingent upon the use of domestic over imported goods', and thus, prohibited under
Article 3.1(b) of the SCM Agreement, if the use of domestic goods is required or necessary in order
to receive the s ubsidy."764 We thus consider that the Panel understood the legal standard under
Article 3.1(b) correctly and sought to determine, in its analysis, whether the PPBs and other
production-step requirements require the use of domestic goods. Indeed, the Panel co ncluded that
certain aspects of the ICT programmes are inconsistent with Article 3.1(b) of the SCM Agreement
precisely because, in its view, they constitute requirements to use domestic goods, and not because
it considered that they condition the receipt of the subsidy upon production in Brazil.
5.4.2.4.1 Informatics programme
5.260. We start our examination of Brazil's claims of error concerning the Panel's findings under
the Informatics programme by recalling the relevant aspects of the Panel's analysis that led it to
reach the finding that the PPBs and other production -step requirements in the ICT programmes
require the use of domestic over imported goods. We note that the Panel's description of the
operation of PPBs and other production-step requirements is not challenged on appeal.
5.261. The Panel started by setting out the relevant factual aspects of "the PPBs and other
production step requirements themselves". 765 As noted above, the Panel explained that "a PPB is
essentially a set of product-specific production steps that must be performed in Brazil, in order for
a company to benefit from the tax incentives in respect of that product under the relevant

759 Appellate Body Reports, US – Tax Incentives, para. 5.49; EC and certain member States – Large Civil
Aircraft (Article 21.5 – US), para. 5.65.
760 Appellate Body Reports, US – Tax Incentives, para. 5.18; EC and certain member States – Large Civil
Aircraft (Article 21.5 – US), para. 5.65.
761 Panel Reports, paras. 7.285 and 7.300.
762 Panel Reports, paras. 7.285 and 7.300.
763 Brazil's, the European Union's, and Japan's responses to questioning at the oral hearing.
765 Panel Reports, para. 7.274.
WT/DS472/AB/R • WT/DS497/AB/R

programme(s)."766 The Panel also found that all products produced in accordance with PPBs are
Brazilian domestic products.767 Brazil does not challenge this finding on appeal.768
5.262. The Panel further noted that not all production -step requirements are contained in PPBs.
In particular, there are no PPBs for some of the products covered by the PADIS programme; instead
there are "production -step details". 769 Under the PATVD programme, the tax benefits can be
obtained either by complying with the production steps in the PPBs, or by meeting the criteria for
the product to be considered "developed in Brazil". 770 Finally, the Panel specified that "not all PPBs
or other production step requirements are relevant under all of the ICT programmes."771
5.263. The Panel did not analyse in detail each of the numerous PPB s and other relevant
production-step requirements under the ICT programmes in addressing the complainants' claims.
Instead, the Panel summarized the details of each PPB and other production -step requirements in
the Appendix to the Panel Reports772 and, "by way of example", examined the PPB for Optical Splice
Closures and the PPB for Speed Alarms, Tracking and Control, which, in the Panel's view, "are broadly
representative of how the PPBs as a whole operate".773
5.264. The Panel reproduced the wording of the two PPBs. The PPB for Optical Splice Closures
provides, in relevant part:
Article 1. Establishes the following Basic Production Process for OPTICAL SPLICE
CLOSURES:
I - manufacture of the moulds for the injection of the plastic parts;
II - injection of the plastic parts;
III - stamping of the metal parts;
IV - assembly of the air valve and closure kit sub-assemblies and base items;
V - final integration of the product; and
VI - product impermeability test.
Sole Paragraph. Provided that the Ba sic Production Process is complied with, the
activities or operations required in the production stages may be carried out by third
parties in Brazil, except with regard to stages V and VI which may not be conducted by
third parties.
Article 2. Whenever duly corroborated technical or economic factors so determine, any
stage of the Basic Production Process may be temporarily suspended or changed
through a joint Implementing Order issued by the Ministers of State for Development,
Industry and Foreign Trade and Science, Technology and Innovation. 774
5.265. In turn, the PPB for Speed Alarms, Tracking and Control provides, in relevant part:
Article 1. The Basic Production Process for PRODUCTS FOR SPEED ALARMS,
TRACKING AND CONTROL industrialized in Brazil, as set out in the Annex to

766 Panel Reports, para. 7.280.
767 Panel Reports, paras. 7.115 and 7.299. The Panel explained that, "to qualify as an incentivized
product, the production process, all of which must be carried out in Brazil, starts with basic raw materials and
components unassembled and in many cases unmanufactured." (Ibid., para. 7.116) The Panel explained that,
because the "manufacturing process, starting with basic materials and resulting in an intermediate or finished
good to be sold on the market, must take place in Brazil", there is "no doubt that these products are Brazilian
domestic products". (Ibid., para. 7.117)
768 Brazil's response to questioning at the oral hearing.
769 Panel Reports, para. 7.276.
770 Panel Reports, para. 7.282.
771 Panel Reports, para. 7.283. The Panel noted that "a large number of PPBs are relevant under the
Informatics programme, and a subset of these is relevant under the Digital Inclusion programme. Other PPBs
are relevant, respectively, under the PADIS and PATVD programmes. In addition, only PADIS has production
step requirements that are not contained in separate PPBs." (Ibid.)
772 Panel Reports, paras. 9.1-9.323.
773 Panel Reports, para. 7.286.
WT/DS472/AB/R • WT/DS497/AB/R

Interministerial Implementing Order MDIC/MCT No 14 of 22 January 2007, shall now
read as follows:

I - stamping, cutting, folding and surface treatment of metal parts, when applicable;
II - injection of the housing's plastic parts, when applicable;
III - manufacture of the printed circuits from laminate;
IV - assembly and soldering, or equivalent process, of all components on the printed
circuit boards;
V - assembly of the electrical and mechanical parts, totally separated, at a basic
component level; and
VI - integration of the printed circuit boards and the electrical and mechanical parts in
the formation of the final product, in accordance with indents I to V above.

§ 1 Provided that the Basic Production Process is complied with, the activities or
operations required in the production stages may be carried out by third parties, except
with regard to the stage set out in indent VI which may not be conducted by third
parties.

§ 2 Liquid crystal, plasma and other display technologies are temporarily exempted
from assembly.

§ 3 The following assembled modules and sub -assemblies are temporarily exempted
from compliance with the stages set out in indents III and IV, of the header paragraph
to this Article:

I - Frequency Modulation (FM) communication modules;
II - Pager communication modules;
III - Global Positioning System (GPS) communication modules;
IV - satellite communication modules;
V - thermal printer mechanisms; and
VI - Code Division Multiple Access (CDMA) communication modules.

Article 2. 90% of the total number of Global System for Mobile Communications (GSM)
communication modules used in the production of PRODUCTS FOR SPEED ALARMS,
TRACKING AND CONTROL as set out in the Annex to this Implementing Order shall be
produced in accordance with their respective Basic Production Process in the calendar
year.775

5.266. With respect to both PPBs, the Panel noted that all of the production steps outlined in
Article 1 must be undertaken in Brazil. According to the Panel, these steps are not mere assembly
operations, but "fundamental manufacturing" processes from basic inputs, and a product produced
through simple assembly of components and subassemblies would not satisfy the condit ions of the
PPBs.776 We have reservations with respect to the Panel's unqualified statement that all the steps
outlined in Article 1 of these PPBs are not assembly operations, but fundamental manufacturing
processes. It is not clear whether certain of the steps listed in these PPBs constitute manufacturing
or assembly operations (for example, the injection of the plastic parts in the process of
manufacturing the optical splice closures, and the injection of the housing's plastic parts and
assembly and soldering, or equivalent process, of all components on the printed circuit boards in the
production of speed alarms, tracking and contro l products). More generally, we have reservations
as to whether a clear line can be drawn between manufacturing and assembly, and as to its relevance
to the question whether a measure requires the use of domestic over imported goods.
5.267. Notwithstanding, we recall that, in order to find a de jure inconsistency with Article 3.1(b)
"a condition requiring the use of domestic over imported goods [must] be discerned from the terms
of the measure itself", or by necessary implication therefrom.777 Thus, for purposes of analysis, the
distinction between manufacturing and assembly, while instructive, is not determinative. What

776 Panel Reports, paras. 7.288 and 7.290.
777 Appellate Body Report, US – Tax Incentives, para. 5.18. (emphasis original)
WT/DS472/AB/R • WT/DS497/AB/R

matters, instead, is whether the measure reflects a condition requiring the use of domestic over
imported goods.
5.268. The Panel also noted that both PPB s allow for outsourcing of some production steps to the
third parties.778 However, unlike the PPB for Optical Splice Closures, the PPB for Speed Alarms,
Tracking and Control contains an additional feature, "a PPB within a PPB", which the Panel termed a
"nested PPB".779 Specifically, Article 2 of that PPB provides that at least 90% of the GSM modules
used to produce any of the products for speed alarms, tracking and control listed in the Annex to
the PPB must be produced in compliance with their own PPB. The Pan el explained that this means
that a separate PPB exists for GSM modules, and that this separate PPB must be complied with for
at least 90% of the GSM modules used in production of speed alarms, tracking and control products
listed in the Annex.780
5.269. In its analysis in the context of the Informatics programme, the Panel separately addressed
the case of the "main" PPBs that contain nested PPBs and the case of basic production -step
requirements for all PPBs. With respect to the nested PPBs, the Panel first noted that all products
produced in accordance with PPBs, including those that are produced in accordance with nested
PPBs, are domestic products. Moreover, the Panel recalled that at least some proportion of the
components and subassemblies covered by the neste d PPBs must be produced in accordance with
those nested PPBs. Finally, the Panel recalled that, in most cases, the components and
subassemblies subject to the nested PPBs will be outsourced. 781 On this basis, the Panel arrived at
the conclusion that, "where products subject to nested PPBs are outsourced, the requirements that
(at least a certain proportion of) such products comply with their respective PPBs thus constitute
explicit requirements to use domestic goods – the components and subassemblies covered by the
nested PPBs – in the sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the
SCM Agreement."782 The Panel then elaborated that:
[W]henever a producer of a product covered by a main PPB obtains components or
subassemblies covered by their own nested PPB it is obtaining domestic goods. Because
the nested PPB imposes a mandatory minimum amount of such domestic goods to be
used in producing the product subject to the main PPB, the only way to satisfy this
requirement, when outsourcing, is by acquiring and using domestic goods. Thus, every
PPB with a nested PPB inside contains an explicit requirement to use domestic goods in
the cases where the goods covered by the nested PPB are outsourced.783
According to the Panel, the same analysis holds true for the basic production-step requirements of
all PPBs, all of which contain outsourcing provisions. The Panel concluded that "the outsourcing of
production steps for the manufacture in Brazil of components and subassemblies from basic
components and raw materials gives rise to a requirement to use domestic goods in the sense
covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement."784
5.270. We recall that PPBs are defined as a "minimum set of operations performed at a
manufacturing facility that characterizes the actual industrialization of a given product".785 The Panel
characterized the PPBs as "a set of product -specific production steps that must be performed in
Brazil, in order for a company to benefit from the tax incentives". 786 In other words, to obtain tax
incentives under the relevant ICT programmes, a company has to manufacture a given product in
accordance with the requirements of the PPBs or other production-step requirements.

778 The PPB for Optical Splice Closures allows an accredited producer to outsource steps I-IV, i.e.
manufacture the injection moulds, inject the plastic parts, stamp the metal parts, and assemble the air valve
and closure kit subassemblies and base items. Under PPB for Speed Alarms, Tracking and Control, the
accredited producer can outsource all of the production steps other than the final step of integrating the
printed circuit boards, and all of the electrical and mechanical parts to form the final product. (Panel Reports,
para. 7.293)
780 Panel Reports, para. 7.291.
781 Panel Reports, para. 7.299.
782 Panel Reports, para. 7.299.
783 Panel Reports, para. 7.300.
784 Panel Reports, para. 7.301.
786 Panel Reports, para. 7.280.
WT/DS472/AB/R • WT/DS497/AB/R

5.271. The Panel started its analysis by examining the "ne sted" PPBs, i.e. those PPBs that contain
an additional PPB within a main PPB. As the Panel observed, "the main PPBs that contain nested
PPBs require that at least some minimum proportion of the components and subassemblies of the
type covered by the nested PPBs must have been produced in accordance with those nested PPBs."787
We understand the Panel to have seen "nested" PPBs as an explicit manifestation of the requirement
to use domestic goods over imported products. For example, Article 2 of the PPB for Speed Alarms,
Tracking and Control requires that "90% of the total number of Global System for Mobile
Communications (GSM) communication modules used in the production of PRODUCTS FOR SPEED
ALARMS, TRACKING AND CONTROL … shall be produced in accordance with t heir respective
[PPB]."788 The PPB for GSM communication modules is thus "nested" into the main PPB for Speed
Alarms, Tracking and Control.
5.272. The main PPB mandates that 90% of the GSM communication modules used in the
production of products for speed alarms, tracking and control be produced in accordance with their
own (nested) PPB. Pursuant to the Panel's findings that are not contested on appeal, goods produced
in accordance with PPBs are Brazilian domestic goods. 789 The GSM communication modules
manufactured in line with their respective PPBs will thus be Brazilian domestic products. Accordingly,
it follows that 90% of the GSM communication modules used in the production of products for speed
alarms, tracking and control "shall be"790 Brazilian domestic goods. Thus, by requiring that 90% of
the GSM communication modules used in the production of products for speed alarms, tracking and
control be produced in accordance with their respective PPBs, the PPB at issue effectively requires
that 90% of GSM communication m odules used in the production of speed alarms, tracking and
control be of domestic origin.
5.273. We recall that a subsidy is de jure contingent upon the use of domestic over imported goods
when the existence of that condition can be demonstrated on the basis of the very words of the
measure, or can be derived by necessary implication from them.791 The above-mentioned example
demonstrates that, the nested PPBs within the main PPBs, by their very words, or at least by
necessary implication therefrom, require that a certain percentage of inputs used in the production
steps performed in accordance with the main PPB be sourced domestically. Thus, the use of domestic
components and subassemblies, for which there is a nested PPB, in the production of the products
covered by the main PPB will not be merely incidental. 792 Rather, it is a condition that must be
fulfilled in order for the relevant product to benefit from the tax incentives under the
ICT programmes.
5.274. The main PPBs that incorporate a nested PPB thus contain a condition requiring the use of
domestic over imported goods in the sense of Article 3.1(b) of the SCM Agreement that stems from
the very text of the nested PPBs, or at least by necessary implicatio n therefrom. As a consequence
of that condition, the nested PPBs also provide less favourable treatment to imported goods than to
like domestic products within the meaning of Article III:4 of the GATT 1994.
5.275. We thus agree with the Panel's conclusion that the main PPBs that incorporate nested PPBs
contain a requirement to use domestic goods, i.e. the components and subassemblies covered by
the nested PPBs, in the sense of Article 3.1(b) of the SCM Agreement and Article III:4 of the
GATT 1994.793 Accordingly, w e uphold the Panel's findings, in paragraphs 7.299 -7.300, 7.302,
7.313, 7.319, 8.5.b, 8.5.e, 8.16.c, and 8.16.f of the Panel Reports, that the main PPBs that
incorporate nested PPBs under the Informatics programme are inconsistent with Article 3.1(b) of the
SCM Agreement and Article III:4 of the GATT 1994.

787 Panel Reports, para. 7.299.
788 Panel Reports, para. 7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).
789 Panel Reports, paras. 7.117 and 7.299.
790 Panel Reports, para. 7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).
791 Appellate Body Report, Canada – Autos, paras. 100 and 123.
792 As the Appellate Body observed in US – Tax Incentives, production subsidies "can ordinarily be
expected to increase the supply of the subsidized domestic goods in the relevant market, thereby increasing
the use of these goods downstream and adversely affecting imports". This, however, does not necessarily
indicate the existence of a requirement to use domestic over imported goods as a condition for granting the
subsidy. (Appellate Body Report, US – Tax Incentives, para. 5.15)
793 Panel Reports, para. 7.299.
WT/DS472/AB/R • WT/DS497/AB/R

5.276. We now turn to examine the main PPBs that do not contain nested PPBs. 794 We recall that
PPBs are defined as the "minimum set of operations, in a manufacturing establishment, which
characterizes the effectiv e industrialization of [a] given product".795 The PPBs prescribe "a set of
product-specific production steps that must be performed in Brazil, in order for a company to benefit
from the tax incentives in respect of that product under the relevant programme(s )".796 In its
analysis, the Panel observed that all PPBs "contain outsourcing provisions that require that
outsourced production steps comply with the respective requirements of the PPBs, and in every case
at least some of those outsourcing provisions apply to production steps for the creation of
manufactured components or subassemblies from basic components and raw materials which, as
the Panel has found, are for that reason domestic products" .797 The Panel considered that "the
outsourcing of production steps for the manufacture in Brazil of components and subassemblies from
basic components and raw materials gives rise to a requirement to use domestic goods."798 Thus, to
the Panel, the possibility to outsource the production of components and subassemblies in Br azil
under the PPBs amounted to a requirement to use domestic over imported goods under Article 3.1(b)
of the SCM Agreement.
5.277. We recall that a subsidy is said to be de jure contingent upon the use of domestic over
imported goods "when the existence of that condition can be demonstrated on the basis of the very
words of the relevant legislation, regulation or other legal instrument constituting the measure". 799
A requirement to use domestic over imported products that is not set out expressly in the relevant
legislation may nevertheless be derived by necessary implication if it results inevitably from the
words actually used in the legislation, or if any other interpretation would be unreasonable. 800 In
addition, while production subsidies "can ordinarily be expec ted to increase the supply of the
subsidized domestic goods in the relevant market, thereby increasing the use of these goods
downstream and adversely affecting imports", this does not necessarily indicate the existence of a
requirement to use of domestic over imported goods as a condition for granting the subsidy.801
5.278. The Panel considered that compliance with the PPBs is possible by either outsourcing the
performance of production steps to a third party in Brazil or by perf orming such production steps
in-house in Brazil.802 In the Panel's view, the possibility to outsource the production of components
and subassemblies in Brazil under the PPBs "g[ave] rise to a requirement to use domestic goods"803
under Article 3.1(b). We disagree with the Panel that the mere possibility of outsourcing under PPBs
of production steps to be performed by a third party in Brazil, in and of itself, gives rise to a
requirement to use domestic over imported goods under Article 3.1(b) of the SCM Agreement.
Instead, the Panel should have explored, when establishing whether there was de jure inconsistency
with Article 3.1(b), how the text of the PPBs gives rise to a requirement to use domestic over
imported goods or how such a requirement c an be derived from the text of the PPBs by necessary
implication.
5.279. Moreover, in reaching its conclusion, the Panel observed that, "when an accredited company
outsources components and subassemblies it can only comply with the PPB in question if the
production step requirements for those components and subassemblies are respected, and
respecting those requirements in turn means that those components and subassemblies must be

794 We note that the Panel refers to them also as "basic production step requirements". (Panel Reports,
para. 7.301)
795 Panel Reports, para. 7.280 (referring to Decree 5,906/2006 (Panel Exhibit JE-7), Article 16).
796 Panel Reports, para. 7.280.
797 Panel Reports, para. 7.301.
798 Panel Reports, para. 7.301.
799 Appellate Body Report, Canada – Autos, para. 100.
800 The panel in US – Tax Incentives explained that, for the purpose of the de jure determination,
including by necessary implication, the relevant facts are therefore the text of the legislation at issue and any
additional facts that can assist the Panel in understanding the meaning of the terms as used in that legislation.
For example, such facts could include relevant context within the legislation itself, or other clarifications of legal
meaning within the domestic legal system in question (such as the interpretation of pertinent terms by
domestic courts, or administrative regulations directly implementing the legislation). However, any such facts
would serve to illuminate the meaning of words used in the legislation and would not extend to other factual
circumstances surrounding the granting of the subsidy that provide the context for understanding the
measure's design, structure, and modalities of operation. (Panel Report, US ‒ Tax Incentives, para. 7.273 and
fn 556 thereto)
801 Appellate Body Report, US – Tax Incentives, para. 5.15.
802 Panel Reports, para. 7.298.
803 Panel Reports, para. 7.301.
WT/DS472/AB/R • WT/DS497/AB/R

Brazilian domestic goods." 804 The focus of this statement is on the domestic origin of the goods
produced in accordance with production -step requirements under the PPBs. Article 3.1(b) of the
SCM Agreement indeed prohibits subsidies contingent "upon the use of domestic over imported
goods".805 Brazil has not challenged the Panel's finding that components and subassemblies
produced in accordance with PPBs will be Brazilian domestic goods. 806 However, the mere fact that
goods produced in accordance with the production -step requirements under the PPBs will be
domestic does not indicate the existence of a condition requiring the use of domestic over imported
goods. We recall, in this respect, that under the Siting Provisions, which were part of the measure
at issue in US – Tax Incentives , it was uncontested, but not determinative, that the wings and
fuselages that had to be produced in Washington State, and the planes that had to be assembled in
Washington State, were of US origin because of the location where these production and assembly
steps took place. We further emphasize, as the Appellate Body explained in US – Tax Incentives,
that the relevant question in determining the existence of a contingency under Article 3.1(b) is
"whether a condition requiring the use of domestic over imported goods can be discerned" from the
measure.807
5.280. As noted, the PPBs are defined as "a minimum set of operations, in a manufacturing
establishment, which characterizes the effective industrialization of a given product". 808 It follows
that, to characterize the actual industrialization of a given product and to qualify for th e tax
incentives, the steps outlined in the PPBs, such as manufacture of components and subassemblies,
product testing, and final integration, must be performed in Brazil. For instance, the PPB for Optical
Splice Closures provides that the following production steps be performed in Brazil: (i) manufacture
of the moulds for the injection of the plastic parts; (ii) injection of the plastic parts; (iii) stamping of
the metal parts; (iv) assembly of the air valve and closure kit subassemblies and base items; (v) final
integration of the product; and (vi) product impermeability test. 809 Similarly, steps I-V of the PPB
for Speed Alarms, Tracking and Control PPB require performance in Brazil of certain production
steps, in particular: (i) stamping, cutting, folding and surface treatment of metal parts; (ii) injection
of the housing's plastic parts; (iii) manufacture of the printed circuits from laminate; (iv) assembly
and soldering, or equivalent process , of all components on the printed circuit boards; and
(v) assembly of the electrical and mechanical parts, totally separated, at a basic component level.
Production step VI of this PPB further provides for "integration of the printed circuit boards and the
electrical and mechanical parts in the formation of the final product" in accordance with steps I-V of
that PPB.810
5.281. The PPBs thus set out a number of sequential production steps, starting from manufacturing
of components and subassemblies and ending with the final assembly and testing of the product. As
the Panel put it , "[i]n terms of their content, all of the PPBs consist of a collection of production
steps, most of which involve the conversion through a manufacturing process of basic raw materials
in completely disaggregated form into a component or set of components or subassemblies, with
the final step or steps involving the integration of all of these components or subassemblies into the
final product along with, in some cases, testing and other final steps." 811 The structure of the PPBs
suggests that the subsidy reci pients will likely "use" in a subsequent production step the domestic
components and subassemblies that were manufactured in a previous production step. For example,
production step I under the PPB for Optical Splice Closures provides for the "manufacture of the
moulds for the injection of the plastic parts", while production step II envisages the "injection of the
plastic parts".812 Thus, the moulds produced for the injection of the plastic parts in accordance with
the first production step are likely to be used in the injection of the plastic parts under the second
production step. Subsequently, the moulds and the components and subassemblies resulting from
the ensuing production steps are likely to be incorporated into the incentivized product as part of
final integration under production step V. However, while such use of domestic goods may be a likely
consequence of the eligibility requirements for the tax incentives under the Informatics programme,

804 Panel Reports, para. 7.301.
805 Emphasis added.
806 Brazil's response to questioning at the oral hearing.
807 Appellate Body Report, US – Tax Incentives, para. 5.18. (emphasis original)
808 Panel Reports, para. 7.280 (quoting Decree 5,906/2006 (Panel Exhibit JE-7), Article 16).
809 Panel Reports, para. 7.287 (quoting Interministerial Implementing Order 93/2013 (Panel Exhibit
JE-31)).
810 Panel Reports, para. 7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).
811 Panel Reports, para. 7.285.
812 Panel Reports, para. 7.287 (quoting Interministerial Implementing Order 93/2013 (Panel Exhibit
JE-31), Article 1).
WT/DS472/AB/R • WT/DS497/AB/R

this does not, in and of itself, indicate the existence of a condition requiring the use of domestic over
imported products.
5.282. Article 3.1(b) does not prohibit per se conditioning eligibility for tax incentives on conducting
certain production, processing , or assembly steps domestically. 813 Inherent effects of prod uction
subsidies are not sufficient for a finding of contingency upon import substitution. 814 Instead, as the
Appellate Body explained in US – Tax Incentives, the key question for a measure to be found de jure
inconsistent with Article 3.1(b) of the SCM Agreement is whether "a condition requiring the use of
domestic over imported goods" can be discerned from its very words or by necessary implication
therefrom.815
5.283. In this respect, we do not consider that the main PPBs that do not contain nested PPBs
provide for more than "a collection of production steps", which must be carried out in Brazil, in order
for a company to benefit from the tax incentives with respect to the product subject to the PPB under
the relevant programme. 816 Although compliance with the pr oduction steps set out in the PPBs is
likely to result in the use of domestic components and subassemblies, this is not sufficient for a
de jure finding of inconsistency to be made under Article 3.1(b) of the SCM Agreement.817 Such use
of domestic products will be a consequence of the requirement to perform the production steps in
Brazil, but this does not mean that a contingency requirement not to use imported products can be
discerned from the wording of the PPBs or by necessary implication therefrom.
5.284. The Panel also found that the main PPBs that do not contain nested PPBs are inconsistent
with Article III:4 of the GATT 1994 because it considered that they give rise to a requirement to use
domestic over imported goods. We recall that, in an inquiry under Article III:4 of the GATT 1994,
"what is relevant is whether … regulatory differences distort the conditions of competition to the
detriment of imported products".818 Thus, an examination of whether a measure involves treatment
less favourable "must be founded o n a careful analysis of the contested measure and of its
implications in the marketplace" .819 As noted, while the existence of an incentive to use domestic
over imported goods will not be sufficient to establish an inconsistency with Article 3.1(b) of the
SCM Agreement, it will suffice to find less favourable treatment under Article III:4 of the GATT 1994.
We recall that compliance with the PPBs is mandatory in order for a company to receive tax benefits
under the ICT programmes.820 We also recall that the Panel found that "the products alleged by the
complaining parties to be disadvantaged are like the products that are allegedly favoured."821 As we

813 As the Appellate Body noted, in agreeing with the panel in US – Tax Incentives, "while the terms of
the First Siting Provision could result in the use by Boeing of some wings and fuselages produced in
Washington, this did not necessarily mean that the provision, by its terms, requires Boeing to use domestic
over imported wings and fuselages." (Appellate Body Report, US – Tax Incentives, para. 5.27 (fn omitted)) The
panel in US – Tax Incentives also concluded that "[t]he contingency on siting certain production activities
within the state of Washington [under the First Siting Provision] does not entail any explicit, or any necessarily
implied, requirement to use domestic goods", and that "[n]o express or obvious contingency results from the
terms used in the [Second Siting Provision], nor can one be derived inevitably from its terms." (Panel Report,
US ‒ Tax Incentives, paras. 7.296 and 7.310)
814 In this vein, the Appellate Body concurred in US – Tax Incentives with "the panel's conclusions that
the First and Second Siting Provisions are not de jure contingent under Article 3.1(b) were based on [the
Panel's] findings that: (i) the contingencies set out in the terms of these provisions relate to the location of
certain assembly operations within Washington; (ii) the provisions are silent as to the use of domestic or
imported goods; and (iii) the terms of the provisions do not, by necessary implication, prevent the possibility of
using imported goods." (Appellate Body Report, US – Tax Incentives, para. 5.30)
815 Appellate Body Report, US – Tax Incentives, para. 5.18. (emphasis original) Indeed, in US – Tax
Incentives, in the context of its de jure analysis of the First Siting Provision, the Appellate Body found that,
even if Boeing was "likely [to] use some amount of domestically produced wings and fuselages, this
observation [was] not in itself sufficient to establish the existence of a condition, reflected in the measure's
terms or arising by necessary implication therefrom, requiring the use of domestic over imported goods".
(Ibid., para. 5.40)
816 Panel Reports, para. 7.285.
817 As discussed above, we note that, in response to questioning at the oral hearing, the participants
agreed that the Panel's findings under the ICT programmes were of a de jure nature. (Brazil's,
the European Union's, and Japan's responses to questioning at the oral hearing)
818 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 128.
819 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 215. The Appellate Body, however,
cautioned that "the examination need not be based on the actual effects of the contested measure in the
marketplace". (Ibid. (emphasis original))
820 Panel Reports, para. 7.280.
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observed above, given the structure of the PPBs, which comprises a number of sequential production
steps, it is likely that components and subassemblies produced in compliance with PPBs will be used
as inputs in the subsequent production steps. Accordingly, given that compliance with the PPBs is
mandatory in order for a company to qualify for the tax incentives and tha t, in complying with the
PPBs, the producers of an incentivized product will be likely to use domestic components and
subassemblies, we consider that the main PPBs without nested PPBs provide an incentive to use
domestic over imported goods. By doing so, t he main PPBs in the Informatics programme accord
treatment less favourable to imported goods than that accorded to like domestic goods inconsistently
with Article III:4 of the GATT 1994. We thus agree with the Panel, albeit for different reasons, that
the main PPBs that do not contain nested PPBs under the Informatics programme are inconsistent
with Article III:4 of the GATT 1994.
5.285. In light of the above, with respect to the main PPBs that do not incorporate nested PPBs, we
consider that the Panel erred in fi nding that, "under the Informatics programme, regarding the
outsourcing requirements in respect of the production step requirements for components and
subassemblies used in the production of an incentivized product, the PPBs require the use of
domestic goods."822 Accordingly, we reverse the Panel's findings, in paragraphs 7.301-7.302, 7.313,
7.319, 8.5.e, and 8.16.f of the Panel Reports, that the main PPBs without nested PPBs under the
Informatics programme are contingent upon the use of domestic over imported goods within the
meaning of Article 3.1(b) of the SCM Agreement. However, we uphold, albeit for different reasons,
the Panel's fi ndings, in paragraphs 7.301 -7.302, 7.313, 7.319, 8.5.b, and 8.16.c of the
Panel Reports, that the main PPBs that do not incorporate nested PPBs under the Informatics
programme are inconsistent with Article III:4 of the GATT 1994.
5.4.2.4.2 PADIS, PATVD, and Digital Inclusion programmes
5.286. Brazil further argues that the Panel made "a sweeping finding" that all ICT programmes are
contingent upon the use of domestic over imported goods despite the fact that the PADIS and PATVD
programmes allow accreditation regardless of w hether companies comply with PPBs. 823 We recall
that, in order to obtain accreditation and the relevant tax benefits under the PATVD programme, a
company must either comply with the relevant PPBs or meet the criteria for the product to be
"developed in Brazi l".824 We understand Brazil to take issue with the fact that the Panel made a
finding of inconsistency with respect to the PPBs operating under the PATVD programme despite the
fact that complying with PPBs is only one of the options for obtaining accreditation under the PATVD
programme. We note, in this respect, that the Panel considered the possibility of accreditation under
the PATVD programme by virtue of meeting the criteria for a product to be "developed in Brazil" as
"a potentially WTO-consistent alternative option for compliance", which, in its view, did not alter its
conclusion that the PPBs in the PATVD programme required the use of domestic goods under
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.825
5.287. Indeed, the Panel found that "the PPBs in the PATVD programme require the use of domestic
goods in the sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the
SCM Agreement."826 Accordingly, we understand the Panel to have made findings of inconsistency
only with r espect to the PPBs, in the scenario when a company obtains accreditation by virtue of
complying with the relevant PPB, and not with respect to the criteria for a product to be "developed
in Brazil". The Panel found that the PPBs in the PATVD programme require the use of domestic goods
under Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement "[f]or the same
reasons [as it gave] in respect of the Informatics programme".827
5.288. We understand that the PPBs under the PATVD programme follow the sam e structure and
logic as those under the Informatics programme. 828 Above, we have agreed with the Panel's

822 Panel Reports, para. 7.302.
823 Brazil's opening statement at the oral hearing.
825 Panel Reports, para. 7.308.
827 Panel Reports, para. 7.308.
828 As the Panel observed, "all of the PPBs consist of a collection of production steps, most of which
involve the conversion through a manufacturing process of basic raw materials in completely disaggregated
form into a component or set of components or subassemblies, with the final step or steps involving the
integration of all of these components or subassemblies into the final product along with, in some cases,
testing and other final steps." (Panel Reports, para. 7.285)
WT/DS472/AB/R • WT/DS497/AB/R

conclusion that the main PPBs that incorporate nested PPBs contain "explicit requirements to use
domestic goods", i.e. the components and subassemblies covered by the nested PPBs, under
Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994. For the same reasons, to
the extent the PPBs under the PATVD programme incorporate nested PPBs, we consider them to
require de jure the use of domesti c over imported goods inconsistently with Article 3.1(b) of the
SCM Agreement and Article III:4 of the GATT 1994. With respect to the main PPBs that do not
incorporate nested PPBs, however, we have reversed the Panel finding that they reflect a condition
requiring the use of domestic over imported goods under Article 3.1(b). This is so because, even if
compliance with the production steps set out in the PPBs is likely to result in the use of more domestic
components and subassemblies, this is not sufficient for a finding of inconsistency under
Article 3.1(b) of the SCM Agreement.
5.289. We thus uphold the Panel's findings of inconsistency under Article 3.1(b) of the
SCM Agreement concerning the PATVD programme, in paragraphs 7.308, 7.313, 7.317, 7.319,
8.5.e, and 8.16.f of the Panel Reports, to the extent they relate to the main PPBs that contain nested
PPBs, and we reverse the Panel's findings, contained in the same paragraphs of the Panel Reports,
to the extent they relate to the main PPBs that do not contain nested PPBs.
5.290. Under the PADIS programme accredited companies are exempted from paying certain taxes
with respect to semiconductors and information displays, as well as to inputs, tools, equipment,
machinery, and software for the production of semiconductors and displays. 829 In order to become
accredited under the PADIS progr amme, a company must, in particular, engage in certain
manufacturing activities in Brazil that depend on the products for which a company is seeking tax
benefits.830 Specifically, with respect to semiconductor electronic devices, a company must perform:
(i) concept, development, and design; (ii) diffusion or physical-chemical processing; or (iii) cutting,
encapsulation, and testing. 831 With respect to information displa ys, a company must perform:
(i) concept, development , and design; (ii) manufacture of photose nsitive, photo , or
electroluminescent elements and light -emitting diodes; or (iii) final assembly of displays and
electrical and optical testing. 832 Finally, with respect to inputs and equipment intended for the
manufacture of electronic semiconductor device s and information displays, the company must
manufacture those products in accordance with the relevant PPBs.833
5.291. We note that, in order to be accredited with respect to semiconductor electronic devices or
information displays, it is sufficient for a company to comply with one of the listed production -step
requirements.834 For example, in order to receive tax benefits for manufacturing semiconductor
electronic devices, a company must perform either concept, development, and design ; diffusion or
physical-chemical processing; or cutting, encapsulation , and testing in Brazil. While the company
could, in principle, engage in all of these activities and be accredited under the PADIS programme,

829 Panel Reports, para. 2.71.
830 Panel Reports, para. 7.309.
831 Panel Reports, para. 2.76. (referring to Law 11,484 of 31 May 2007 providing for the incentives to
the Digital TV equipment and electronic semiconductor components industries and on the intellectual property
protection of integrated circuit topographies, establishing the Semiconductor Technological Development
Support Program (PADIS) and Support Program for the Technological Development of the Digital TV Equipment
Industry (PATVD) (Law 11,484/2007) (Panel Exhibit JE-71), Article 2(I), as amended by Law 12,715 of
17 September 2012 (Law 12,715/2012) (Panel Exhibit JE-95), Article 57; Decree 6,233 of 11 October 2007
establishing the criteria for the purpose of accreditation to the Semiconductor Technological Development
Support Program (PADIS), which grants income tax exemption and reduces PIS/PASEP, COFINS and IPI
contributions to zero (Decree 6,233/2007) (Panel Exhibit JE-73), Article 6(I), as amended by Decree 8,247 of
23 May 2014, amending Decree 6,233/2007 (Decree 8,247/2014) (Panel Exhibit JE-75), Article 1; Regulatory
Instruction RFB 852 of 13 June 2008 laying down procedures for qualification for the Programme for the
Technological Development of the Semiconductor Industry (PADIS) by Secretary of the Federal Revenue
Department of Brazil (Regulatory Instruction RFB 852/2008) (Panel Exhibit JE-76), Article 4(I); Decree
6,759/2009 (Panel Exhibit JE-8), Article 283(I); Decree 7,212 of 15 June 2010 regulating the charging,
inspection, collection and administration of the Industrial Goods Tax (IPI) (Decree 7,212/2010) (Panel Exhibit
JE-9), Article 150, section 1(I)).
832 Panel Reports, para. 2.76. (referring to Law 11,484/2007 (Panel Exhibit JE-71), Article 2(II);
Decree 6,233/2007 (Panel Exhibit JE-73), Article 6(II), as amended by Decree 8,247/2014 (Panel Exhibit
JE-75), Article 1; Normative Instruction RFB 852/2008 (Panel Exhibit JE-76), Article 4(II); Decree 6,759/2009
(Panel Exhibit JE-8), Article 283(II); Decree 7,212/2010 (Panel Exhibit JE-9) Article 150, section 1(II)).
833 Panel Reports, para. 2.76 (referring to Law 11,484/2007 (Panel Exhibit JE-71), Article 2, section 3,
as amended by Law 12,715/2012 (Panel Exhibit JE-95), Article 57; Decree 6,233/2007 (Panel Exhibit JE-73),
Article 6, section 3, as amended by Decree 8,247/2014 (Panel Exhibit JE-75), Article 1).
834 Panel Reports, para. 7.310.
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performing just one of them would suffice to get accreditation. Thus, in contrast to some PPBs that
require incorporation of components and subassemblies produced in accordance with the PPBs in
the ensuing stage of production, the PADIS programme does not reflect such a requirement. It is
possible that, in the scenario when a com pany seeking accreditation complies with all or several
requirements under the PADIS programme, it would use the inputs produced in accordance with the
PADIS programme in the ensuing stage of production. In our view, however, this would be a result
of the eligibility requirements under the PADIS programme rather than a condition requiring the use
of domestic over imported goods. As the Appellate Body noted in US – Tax Incentives, production
subsidies "can ordinarily be expected to increase the supply of the subsidized domestic goods in the
relevant market, thereby increasing the use of these goods downstream and adversely affecting
imports, without necessarily requiring the use of domestic over imported goods as a condition for
granting the subsidy."835 Such effects of eligibility criteria for tax incentives are not sufficient for a
finding of contingency upon the use of domestic over imported goods.
5.292. Accordingly, we agree with the Panel that the eligibility requirements under the PADIS
programme are inconsiste nt with Article III:4 of the GATT 1994 because these eligibility
requirements provide an incentive to use domestic ICT products and accord treatment less
favourable to like imported ICT products covered under the PADIS programme. We do not consider,
however, that these eligibility requirements under the PADIS programme also constitute a
contingency requirement to use domestic over imported goods under Article 3.1(b) of the
SCM Agreement.
5.293. We further note Brazil's argument that no PPBs have been developed un der the PADIS
programme for inputs and equipment intended for the manufacture of electronic semiconductor
devices and information displays. 836 We note that the Panel expressly recognized this fact in its
analysis.837 The Panel further stated that, although the PADIS programme contemplates the adoption
of PPBs in the future, the Panel could not "make findings in respect of production-step requirements
that do not (yet) exist".838 The Panel also remarked that it sufficed for it to note that, "to the extent
that any future PPBs adopted under the PADIS programme contain outsourcing provisions or nested
PPBs in respect of manufactured components and subassemblies that operate in the same manner
as those in the Informatics and PATVD programmes, such PPBs would require t he use of domestic
goods."839 We consider the Panel's statement unfortunate and unnecessary given that it concerned
a potential WTO-inconsistency of a measure that Brazil had not taken. While the Panel made this
statement, the Panel was clear in that it was not making a finding of inconsistency with respect to
the PPBs under the PADIS programme that have not been adopted. We thus reject Brazil's argument
that the Panel erroneously made a finding of inconsistency with respect to the PPBs that do not exist.
5.294. In light of the above, we reverse the Panel's findings, in paragraphs 7.313, 7.319, 8.5.e,
and 8.16.f of the Panel Reports , that the PADIS programme requires the use of domestic over
imported goods inconsistently with Article 3.1(b) of the SCM Agreement.
5.295. Finally, we recall that, "[t]he Digital Inclusion programme provides for zero rates with
respect to PIS/PASEP and COFINS contributions for companies that sell in Brazil at retail level certain
digital consumer goods produced in accordance with the relevant PPB s."840 As the Panel observed,
"the role of PPBs under the Digital Inclusion programme depart s from that under the other
ICT programmes … because under this programme the tax benefits are in respect of sales of certain
products by retailers, rather than in re spect of production of certain products by producers ."841
Having recalled its finding that all products produced in accordance with PPBs are Brazilian domestic
products, the Panel found that only domestic goods are eligible for the tax benefits under the Digital
Inclusion programme.842 The Panel concluded that "this is a straightforward situation of incentives
that are provided in respect of a preference (in this case by retailers) for domestic over imported
goods."843 In the Panel's view, for the same reasons as with respect to the Informatics programme,

835 Appellate Body Report, US – Tax Incentives, para. 5.15.
836 Brazil's response to questioning at the oral hearing.
837 Panel Reports, para. 7.312. The Panel noted that, in reviewing the evidence before it, it found that
"no PPBs have as yet been adopted in respect of these particular products." (Ibid.)
838 Panel Reports, para. 7.312.
839 Panel Reports, para. 7.312.
840 Panel Reports, para. 2.95.
841 Panel Reports, para. 7.316.
842 Panel Reports, para. 7.316.
843 Panel Reports, para. 7.317.
WT/DS472/AB/R • WT/DS497/AB/R

the Digital Inclusion programme is inconsistent with Article III:4 of the GATT 1994 and "involves a
contingency on the use of domestic over imported goods in the sense covered by Article 3.1(b) of
the SCM Agreement".844
5.296. As the Panel noted, the Digital Inclusion programme provides a tax incentive to the retailers
"in respect of a preference … for domestic over imported goods". 845 In our view, such a preference
results in the less favourable treatment under Article III:4 of the GATT 1994 for like imported digital
consumer products due to the differential tax burden that imported products are subjected to by
virtue of the fact that foreign producers cannot be accredited under that programme. We thus agree
with the Panel that the accreditation requirements under the Digital Inclusion programme are
inconsistent with Article III:4 of the GATT 1994 since they provide an incentive to use domestic over
imported goods.
5.297. We note, however, that no inconsistency with Article 3.1(b) of the SCM Agreement arises
unless the granting of a subsidy is found to be contingent "upon the use of domestic over imported
goods". We recall, in this respect, that the Panel found that the Digital Inclusion programme presents
"a straightforward situation of incentives that are provided in respect of a preference (in this case
by retailers) for domestic over imported goods". 846 On that basis, the Panel found that the Digital
Inclusion programme is inconsistent both with Article III:4 of the GATT 1994 and with Article 3.1(b)
of the SCM Agreement. While the existence of an incentive to buy and resell like domestic goods
may be sufficient to meet the legal standard under Article III:4 of the GATT 1994, it is not sufficient
to establish an inconsistency with Article 3.1(b). Instead, in order to find an inconsistency with
Article 3.1(b) of the SCM Agreement, a measure must be found to contain "a condition requiring the
use of domestic over imported goods".847
5.298. We observe, in addition, that the Panel stated that it was reaching its findings "for the same
reasons as outlined in [s ection 7.3.2.2.4.1 of its Report s]".848 That section of the Panel Reports,
however, merely sets out the factual background of the operation of the PPB s and other
production-step requirements. We thus fail to see how the discussion in that section could provide
the reasons for the Panel's finding that the Digital Inclusion programme contains a contingency
requirement that is inconsistent with Article 3.1(b) of the SCM Agreement.
5.299. In light of the above, we consider that the Panel did not have a proper basis to conclude that
the Digital Inclusion programme contains a requirement to use domestic over imported goods under
Article 3.1(b) of the SCM Agreement. We thus reverse the Panel's findings, in paragraph s 7.317,
7.319, 8.5.e, and 8.16.f of the Panel Reports, as they relate to the Digital Inclusion programme,
that the Digital Inclusion programme involves a contingency upon the use of domestic over imported
goods that is inconsistent with Article 3.1(b) of the SCM Agreement.
5.300. We, however, agree with the Panel that the PPBs and other production -step requirements
under the PATVD, PADIS, and Digital Inclusion programmes provide an incentive to use domestic
ICT products. We therefore uphold the Panel's findings, in paragraphs 7.308, 7.311, 7.313, 7.317,
7.319, 8.5.b, and 8.16.c of the Panel Reports, that the Informatics, PATVD, PADIS, and Digital
Inclusion programmes accord less favourable treatment to imported ICT products than that accorded
to like domestic products, inconsistently with Article III:4 of the GATT 1994.
5.4.2.4.3 INOVAR-AUTO programme
5.301. Brazil further requests, "[t]o the extent that the Panel's findings are based on the erroneous
assumption that production step requirements are sufficient to establish a contingency upon the use
of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement"849,
that we reverse the Panel's findings that certain aspects of the INOVAR-AUTO programme constitute
a prohibited import substitution subsidy under Articles 3.1(b) and 3.2 of the SCM Agreement.850

844 Panel Reports, para. 7.317.
845 Panel Reports, para. 7.317.
846 Panel Reports, para. 7.317.
847 Appellate Body Report, US – Tax Incentives, para. 5.18. (emphasis original)
848 Panel Reports, para. 7.317.
849 Brazil's Notice of Appeal, para. 25.
850 Brazil's Notice of Appeal, para. 25 (referring to Brazil's appellant's submission, para. 295;
Panel Reports, paras. 7.751, 7.823, 7.847, 8.6.e, and 8.17.f).
WT/DS472/AB/R • WT/DS497/AB/R

Brazil, however, has not developed any argumentation in support of this claim. In respons e to
questioning at the oral hearing, Brazil explained that it requests the Appellate Body to reverse those
findings to the extent the Appellate Body would reverse the corre sponding findings under the
ICT programmes.
5.302. The Panel made a finding of inconsistency with Article 3.1(b) of the SCM Agreement with
respect to: (i) the accreditation requirement to perform a minimum number of manufacturing steps
in Brazil; (ii) the rules on accrual of presumed tax credits, with respect to purchas es of strategic
inputs and tools; and (iii) the accreditation requirements with respect to expenditure and investment
in R&D in Brazil, pertaining to the purchase of Brazilian laboratory equipment. 851 We understand
that Brazil's claim concerns the Panel's findings relating to the accreditation requirements to perform
a minimum number of manufacturing steps in Brazil.
5.303. In its reasoning concerning the accreditation requirement to perform a minimum number of
manufacturing steps in Brazil, the Panel relied on its previous analysis with respect to the PPBs and
other production -step requirements under the ICT programmes. 852 The Panel observed that the
"production step requirements under the INOVAR -AUTO programme operate in an analogous
manner" to those under the ICT programmes.853 As we see it, the requirement to perform a minimum
number of manufacturing steps in Brazil operates in a way similar to the main PPBs that do not
incorporate nested PPBs under the ICT programmes. The Panel's findings under the INOVAR -AUTO
programme, similarly to those under the ICT programmes, also concern manufacturing steps that
must be performed in Brazil in order to qualify for certain tax benefits.
5.304. Above, we have reversed the Panel's findings of inconsistency with Article 3.1(b) of the
SCM Agreement with respect to the main PPBs that do not incorp orate nested PPBs under the
ICT programmes. As noted, the production-step requirements under the INOVAR-AUTO programme
operate in a similar manner to the main PPBs that do not incorporate nested PPB s and, in reaching
its findings of inconsistency with respect to the production -step requirements under the
INOVAR-AUTO programme, the Panel relied on its analysis under the ICT programmes. Accordingly,
having reversed the Panel's findings with respect to the main PPBs that do not incorporate nested
PPBs under the ICT programmes, we also reverse the Panel's findings of inconsistency with
Article 3.1(b) with respect to the requirement to perform a minimum number of manufacturing steps
under the INOVAR-AUTO programme contained in paragraphs 7.751, 7.823, 7.847, 8.6.e, and 8.17.f
of the Panel Reports.
5.4.3 The European Union's and Japan's appeal concerning the in-house scenario
5.4.3.1 Introduction
5.305. We now turn to consider the European Union's and Japan's claims on appeal. The
European Union and Japan submit that, by not making specific findings on the in -house scenario,
the Panel exercised false judicial economy and failed to make an objective assessment of the matter
before it under Article 11 of the DSU. 854 The European Union and Japan contend that they have
challenged the production -step requirements of the ICT and INOVAR -AUTO programmes "as a
whole", without distinguishing between the in -house and outsourcing scenarios 855, such that the
matter referred to the Panel "comprised both" scenarios.856 The European Union and Japan request
that we reverse the relevant Panel findings and complete the legal analysis to find that the
production-step requirements in the ICT and INOVAR -AUTO programmes are inconsistent with

851 Panel Reports, para. 7.773.
852 Panel Reports, paras. 7.747-7.750 and 7.770 (referring to Panel Reports, paras. 7.290-7.304 and
7.307-7.313).
853 Panel Reports, para. 7.747.
854 European Union's other appellant's submission, para. 36; Japan's other appellant's submission,
paras. 20, 31, and 50.
855 European Union's other appellant's submission, para. 36; Japan's other appellant's submission,
paras. 35-36 and 51.
856 European Union's other appellant's submission, paras. 56 and 63. See also Japan's other appellant's
submission, paras. 18-19.
WT/DS472/AB/R • WT/DS497/AB/R

Article III:4 of the GATT 1994, Article 2.1 of the TRIM s Agreement, and Article 3.1(b) of the
SCM Agreement under both the in-house and outsourcing scenarios.857
5.306. In the alternative, if we were to consider that the Panel correctly exercised judicial economy
by not making spe cific findings in the in -house scenario, the European Union requests that we
"review, pursuant to Article 17.6 of DSU, the legal interpretations developed by the Panel and
modify, pursuant to Article 17.13 of DSU, the findings … so as to make it clearer that the Panel
indeed did not need to rule twice on the production -step requirements (in the in -house and
outsourcing scenarios) because [it] had already found that those steps are per se inconsistent with
the covered agreements".858 Similarly, if we were to find that the Panel actually made a finding with
respect to the ICT and INOVAR -AUTO programmes "as a whole", Japan requests that we review,
pursuant to Article 17.6 of the DSU, the legal interpretations developed by the Panel, and modify,
pursuant to Article 17.13 of the DSU, the relevant findings, to the extent they may be understood
as referring solely to the outsourcing scenario. 859 Should we decide that the Panel did not exercise
judicial economy at all with respect to the in-house scenario, Japan also claims that the Panel acted
inconsistently with Article 11 of the DSU because it failed to provide "coherent reasoning" under that
provision.860
5.307. Finally, the European Union raises "a subordinate claim of error, subject to the
Appellate Body rejecting" both of the above-mentioned claims.861 The European Union requests that
we "find that the Panel, by failing to consider the European Union's claims under Article III:4 of [the]
GATT 1994, Article 2.1 of [the] TRIMs Agreement and Article 3.1(b) of [the] SCM Agreement in light
of all the relevant facts of the case (which included both the in -house and outsourcing scenarios),
erred in the application of those provisions."862
5.308. In response, Brazil claims that the other appellants' claims of error under Article 11 of the
DSU should be rejected.863 Brazil argues that the issue of judicial economy is "only relevant to the
manner in which a panel deals with a party's claims"864, and that the in -house scenario was not a
claim but an argument. 865 Brazil considers, how ever, that the Panel duly examined and made
findings with respect to all of the legal claims raised by the European Union and Japan under the ICT
and the INOVAR -AUTO programmes under Article III:4 of the GATT, Article 2.1 of the
TRIMs Agreement, and Article 3.1(b) of the SCM Agreement.866 Accordingly, Brazil considers that
the Panel "did not act inconsistently with Article 11 of the DSU by not addressing the European Union
and Japan's argument that in the in -house scenario the ICT programmes and INOVAR-AUTO gave
rise to a requirement to use domestic over imported goods within the meaning of Article III:4 of the
GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement".867
5.4.3.2 Panel's findings
5.309. We note that the other appeals in this dispute relate to a specific aspect of the ICT and
INOVAR-AUTO programmes, namely, the in -house scenario in the context of compliance with the
production-step requirements contained in PPBs or other instruments under the relevant
programmes. In section 5.4.2.2 above, we have summarized the Panel's findings concerning the
inconsistency of the PPBs and other production-step requirements under the ICT programmes with

857 The European Union requests we reverse the Panel findings in paragraphs 6.10-6.11, 6.13, 7.314,
7.749, and 8.5 of the Panel Reports. (European Union's other appellant's submission, para. 125) Japan
requests that we reverse the Panel findings in paragraphs 7.302, 7.308, 7.314, and 7.317 of the Panel Reports.
(Japan's other appellant's submission, paras. 52-53)
858 European Union's other appellant's submission, para. 125. (emphasis original)
859 Japan's other appellant's submission, paras. 30 and 49.
860 Japan's other appellant's submission, para. 21.
861 European Union's other appellant's submission, para. 125.
862 European Union's other appellant's submission, para. 125. (fn omitted) The European Union thus
requests that we reverse the Panel's findings, complete the legal analysis with regard to the in-house scenario
and find that the production-step requirements contained in the ICT and INOVAR-AUTO programmes are
inconsistent with Article III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the
SCM Agreement also under the in-house scenario. (Ibid.)
863 Brazil's appellee's submission, para. 29.
864 Brazil's appellee's submission, para. 6 (quoting Appellate Body Report, EC – Fasteners (China),
para. 511 (emphasis original)).
865 Brazil's appellee's submission, para. 8.
866 Brazil's appellee's submission, para. 7.
867 Brazil's appellee's submission, para. 12.
WT/DS472/AB/R • WT/DS497/AB/R

Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.868 In the summary below,
we recall the Panel's findings relevant for the in-house scenario under the ICT and the INOVAR-AUTO
programmes.
5.310. Before the Panel, the complainants argued, inter alia, that the production-step requirements
with which manufacturers must comply to receive the tax incentives under the four ICT programmes
involve requirements to use domestic inputs in the production of the incentivized products 869, and
that "the requirement to perform certain manufacturing steps in Brazil [in all cases] is tantamount
to requiring the incorporation of domestic content into the finished product", whenever the
performance of those manufacturing steps results in the creation of a product.870 The Panel observed
that the complainants "ma[de] this argument without regard for whether a sing le company itself
performs all of the production steps and thus itself creates the 'inputs' in question (so -called
'in-house' production), or instead outsources some production steps to third parties, by acquiring
from them the outputs of those production steps, which it then incorporates as 'inputs' into its
production of the incentivized product."871
5.311. The Panel observed that, depending on the PPB, "[c]ertain production -step requirements
must be performed by the company accredited as the producer of the incen tivized finished or
intermediate product that is subject of the PPB, while other production -step requirements may be
performed by 'third parties' based in Brazil." 872 The Panel further noted that, in the complainants'
view, the production -step requirements " on their own" constituted requirements to use domestic
goods in the production of incentivized products, without regard to whether those requirements are
met "in-house" or through outsourcing some of those steps.873 The Panel further observed that Brazil
had argued that production-step requirements had "exclusively to do with production and in no case
require the use of domestic goods". 874 Nevertheless, the Panel sta ted that there seemed to be
"no theoretical disagreement among the parties that at least in the case in which a company is
required, when it acquires a product from an outside source, to only acquire a domestic product,
there would be a requirement to use domestic goods in the sense covered by Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement."875 The Panel considered that "[g]iven these
views of the parties", it would be "useful to separately analyse the two possible scenarios for
compliance with the PPBs … : the in-house scenario and the outsourcing scenario".876
5.312. With respect to the outsourcing scenario, the Panel found that, because nested PPBs imposed
a mandatory minimum amount of such "domestic goods" to be used in producing the product subject
to the main PPB, the only way to satisfy the requirement, when outsourcing, was to acquire and use
domestic goods.877 The Panel further considered that "[t]his analysis also holds true for the basic
production step requirements of all PPBs under the Informatics programme."878
5.313. The Panel added that, even if certain PPBs contained alternative opti ons to comply with
certain production steps in those PPBs, the "mere existence of options for compliance that are
potentially WTO-consistent could not preclude a finding of inconsistency in respect of the PPBs as a
whole", so that the existence of alternat ive, potentially WTO-consistent options would not "alte[r]
the inconsistency … of an option that requires the use of domestic products over imported

868 See section 5.4.2.2 above.
869 Panel Reports, para. 7.256.
870 Panel Reports, para. 7.272 (quoting Japan's first written submission to the Panel, para. 296;
referring to European Union's first written submission to the Panel, para. 600).
871 Panel Reports, para. 7.271.
872 Panel Reports, para. 7.281. (emphasis omitted; fn omitted)
874 Panel Reports, para. 7.297.
875 Panel Reports, para. 7.297.
876 Panel Reports, para. 7.298.
877 Panel Reports, para. 7.300.
878 Panel Reports, para. 7.301. The Panel applied this reasoning to each of the four ICT programmes and
concluded for each of them that, "regarding the outsourcing requirements" with respect to the production-step
requirements for components and subassemblies used in the production of an incentivized product, the PPBs or
analogous production-step requirements in the ICT programmes require the use of domestic goods, in the
sense covered by Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement. (Panel Reports,
paras. 7.302, 7.308, 7.311, and 7.316)
WT/DS472/AB/R • WT/DS497/AB/R

products".879 In light of this, and given the parties' "divergent views in respect of the in -house
scenario for complying with the PPBs", the Panel found i t "unnecessary" to address the in-house
scenario.880 In the Panel's v iew, even if it found that the in-house scenario did not involve a
requirement to use domestic goods, this would not alter its finding with respect to the outsourcing
scenario that such measures are inconsistent with Article III:4 of the GATT 1994 and Article 3.1(b)
of the SCM Agreement.881
5.314. With respect to the INOVAR-AUTO programme, the Panel noted that, to be eligible for the
tax benefits under this programme, a company must comply with a minimum number of defined
manufacturing and engineering infrastructure activities that "must be performed in Brazil either by
the accredited company or through third parties". 882 Further, the performance of these steps must
cover at least 80% of manufactured vehicles, and is subject to a schedule of the minimum number
of activities to be performed, which varies by calendar year and type of vehicle manufactured. 883
The Panel then recalled its analysis regarding the ou tsourcing scen ario in the context of the
ICT programmes, and considered that the production -step requirements in the INOVAR -AUTO
programme operated in an "analogous manner". 884 Thus, the Panel concluded that, in the
outsourcing scenario , the production -step requirements under the INOVAR -AUTO programme
require the use of domestic goods under Article III:4 and Article 3.1(b).885
5.315. Furthermore, the Panel considered that for the same reasons as under the ICT programmes,
it did not need to examine "whether under the 'in-house' scenario the production step requirements
also would constitute a requirement to use domestic goods". 886 The Panel added that it did not
consider that the existence of an alternative, WTO-consistent option for compliance would alter the
fact that the option that requires the use of domestic over imported goods is inconsistent with
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.887
5.316. In its comments on the Interim Report, the European Union, raising concerns about
paragraphs 7.314 and 7.747 of the Report, argued that "the Panel's completion of its legal analysis
in respect of the 'in-house scenario' is 'essential to secure a positive solution' to the dispute", because
otherwise, "the 'complainants would be compelled to start a new panel procedure and repeat their
legal claims, even though those legal claims [were] properly before [the] Panel .'"888
The European Union thus requested the Panel to complete its legal analysis with regard to the
in-house scenario, or to include elements in the Panel Reports that would allow the Appellate Body
to do so.889
5.317. In responding to the European Union's request, the Panel first recalled the Appellate Body's
statement in EC – Fasteners (China), that:
[A] panel has the discretion " to address only those a rguments it deems necessar y to
resolve a particular claim" and "the fact that a particular argument relating to that claim
is not specifically addressed in the 'Findings' section of a panel report will not, in and of
itself, lead to the conclusion that that panel has failed to make the 'objective assessment
of the matter before it' required by Article 11 of the DSU."890
5.318. For the Panel, its findings that the "relevant aspects of the programmes concerning
production-step requirements, as challenged by the complaining parties in this dispute", are

879 Panel Reports, para. 7.303. See also ibid., paras. 7.304, 7.308, 7.311, and 7.314. In the Appendix to
its Report, the Panel set out its analysis regarding individual production-step requirements that must be
complied with to benefit from tax treatments under the four ICT programmes, in the outsourcing scenario. The
Panel did not set out the potentially WTO-consistent alternative options referred to above. (Ibid., para. 9.4)
880 Panel Reports, para. 7.314.
881 Panel Reports, para. 7.314.
882 Panel Reports, para. 7.743.
883 Panel Reports, para. 7.743.
884 Panel Reports, para. 7.747.
885 Panel Reports, para. 7.748.
886 Panel Reports, para. 7.749.
887 Panel Reports, para. 7.750.
888 Panel Reports, para. 6.9 (quoting European Union's comments on the Interim Report, para. 26).
889 Panel Reports, para. 6.9 (quoting European Union's comments on the Interim Report, para. 26).
890 Panel Reports, para. 6.10 (quoting Appellate Body Report, EC – Fasteners (China), para. 511, in turn
referring to Appellate Body Report, EC – Poultry, para. 135).
WT/DS472/AB/R • WT/DS497/AB/R

inconsistent with certain provisions of the covered agreements makes it unnecessary to address the
complainants' argument that the relevant production steps are inconsistent with the exact same
provisions, for reasons other than those identified by the Panel. 891 The Panel further noted that
"its factual findings are sufficient should t he Appellate Body decide to rule on this issue", and that
"should the Appellate Body want to review the Panel's analysis, it will be able to benefit from the
descriptive part of the Report, the exhibits contained in the Panel record (and identified in the
descriptive part), and the Appendix attached to the Report." 892 Finally, the Panel considered it
"inappropriate at this stage to prejudge the manner in which Brazil may come into compliance with
[its] obligations", and found that issues pertaining to the man ner of Brazil's compliance can be
addressed in Article 21.5 proceedings.893 Thus, the Panel refused to make additional findings on the
in-house scenario.
5.4.3.3 Analysis
5.319. The European Union and Japan maintain that they have challenged the production -step
requirements of the ICT and the INOVAR -AUTO programmes "as a whole", without distinguishing
between the in -house and outsourcing scenarios 894, such that the matter referred to the Panel
"comprised both" scenarios. 895 They also raise before us a series of alternative cl aims concerning
the Panel's findings regarding the in-house scenario under the ICT and INOVAR-AUTO programmes.
5.320. As noted, the European Union and Japan submit that the Panel, by deciding not to make
specific findings on the in -house scenario, exercised fals e judicial economy and failed to make an
objective assessment of the matter before it contrary to the requirements of Article 11 of the DSU.896
In the European Union's and Japan's view, by distinguishing between the in -house scenario and
outsourcing scenarios on its own volition and by making specific findings only with regard to the
latter scenario, the Panel failed to secure "a positive solution" to the dispute, in the sense of
Article 3.7 of the DSU.897
5.321. As an alternative to this claim, the European Union and Japan each raise a similar claim
predicated on different conditions. If we were to consider that the Panel correctly exercised judicial
economy by not making findings concerning the in -house scenario, the European Union requests
that we "review, pursuant to Article 17.6 of [the] DSU, the legal interpretations developed by the
Panel and modify, pursuant to Article 17.13 of [the] DSU, the findings … so as to make it clearer
that the Panel indeed did not need to rule twice on the production step requirements (in the in-house
and in the outsourcing scenarios) because [it] had already found that those steps are per se
inconsistent with the covered agreements". 898 Japan makes a similar request conditioned upon us
concluding that the Panel actually made a finding w ith respect to the ICT and INOVAR -AUTO
programmes "as a whole".899 In the alternative, if we were to decide that the Panel did not exercise
judicial economy at all with respect to the in -house scenario, Japan claims that the Panel acted
inconsistently with Article 11 of the DSU because it failed to provide "coherent reasoning" under that
provision.900
5.322. Finally, the European Union also raises "a subordinate claim of error", subject to us rejecting
both of the above -mentioned claims. 901 The European Union thus requests that we reverse the

891 Panel Reports, para. 6.11 (referring to sections 7.3.2.2.4, 7.3.4, 7.4.2.4.2, and 7.4.5 of the
Panel Reports).
892 Panel Reports, para. 6.12.
893 Panel Reports, para. 6.13.
894 European Union's other appellant's submission, para. 36; Japan's other appellant's submission,
paras. 35-36 and 51.
895 European Union's other appellant's submission, paras. 56 and 63. See also Japan's other appellant's
submission, paras. 18-19.
896 European Union's other appellant's submission, para. 36; Japan's other appellant's submission,
paras. 20, 31, and 50.
897 Japan's other appellant's submission, para. 20; European Union's other appellant's submission,
para. 48.
898 European Union's other appellant's submission, para. 125. (emphasis original)
899 Japan's other appellant's submission, paras. 30 and 49.
900 Japan's other appellant's submission, para. 21.
901 European Union's other appellant's submission, para. 125. In particular, the European Union submits
that "the Panel made an error in the application of Article III:4 of [the] GATT 1994, Article 2.1 of [the]
TRIMs Agreement and Article 3.1(b) of [the] SCM Agreement by failing to consider those provisions in light of
all the relevant facts of the case, i.e. the in-house scenario." (Ibid., para. 122. (emphasis omitted))
WT/DS472/AB/R • WT/DS497/AB/R

Panel's findings and complete the legal analysis with regard to the in -house scenario and find that
the production -step requirements contained in the ICT and INOVAR -AUTO programmes are
inconsistent with Article III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and
Article 3.1(b) of the SCM Agreement under both the in-house and outsourcing scenarios.902
5.323. The European Union and Japan submit that the lack of clarity concerning the
WTO-consistency of the in-house scenario could prevent effective implementation of the Panel's
recommendations and rulings in this dispute. 903 The European Union considers that the
Panel Reports could be understood as "not requiring Brazil to amend in any way the challenged
measures, in so far as applicable to the in -house scenario", and leaving the participants and other
WTO Members "in a situation of legal uncertainty" as regards the compatibility of the in -house
scenario with the relevant WTO provisions. 904 Similarly, Japan ar gues that the lack of findings
regarding the in -house scenario may lead to future disagreement as to whether Brazil is still
permitted to maintain the measure s at issue with respect to the in-house scenario. Furthermore,
because a compliance panel's terms of reference are limited to measures taken to comply with the
recommendations and rulings of the DSB, and it is unclear whether the Panel 's findings,
recommendations, and rulings (and thus Brazil's future compliance obligations) extend to the
accreditation requirement as a whole, a positive solution to the dispute is not secured.905
5.324. For its part, Brazil does not contest that the European Union and Japan, in making their
claims before the Panel, did not distinguish between in -house and outsourcing scenarios. 906 Brazil
also agrees with the European Union and Japan that the scope of the Panel's findings at issue is
unclear.907 Brazil, however, claims that the issue of judicial economy is "only relevant to the manner
in which a panel deals with a party's claims"908, and that the in-house scenario was not a claim, but
an argument.909 Hence, in Brazil's view, the European Union's and Japan's claims of error under
Article 11 of the DSU should be rejected because judicial economy cannot be exercised improperly
with respect to arguments.910
5.325. Brazil submits that the Panel was not required to "address every conceivable 'factual
situation'" in which the European Union and Japan considered that the measures at issue are
inconsistent with the covered agreements, and neither was the Pan el's decision not to address the
in-house scenario "internally contradictory with any interpretative finding made by the Panel, as
Japan incorrectly posits".911 Rather, the Panel simply "considered all of the arguments put forward
… but effectively decided t o attribute to the in -house scenario the weight and significance it
considered appropriate", within the bounds of its discretion under Article 11.912
5.326. As we see it, at the heart of the European Union's and Japan's appeal is the concern that,
due to an alleged lack of clarity in the Panel's findings concerning the in -house scenario, the
implementation of the Panel's recommendations and rulings in this dispute may be compromised
and certain issues may be left unresolved. 913 We thus start our analysis by examining whether the
Panel's findings cover the in-house scenario.
5.327. We recall that, prior to its analysis of the ICT programmes, the Panel noted that there
seemed to be "no theoretical disagreement among the parties" that, in case a company is required,
when it acquires a product from an outside source, to only acquire a domestic product, there would
be a requirement to use domestic goods. 914 The Panel, however, also noted that, while the

902 European Union's other appellant's submission, para. 125.
903 European Union's and Japan's responses to questioning at the oral hearing.
904 European Union's other appellant's submission, para. 85.
905 Japan's other appellant's submission, paras. 38-39. See also European Union's other appellant's
submission, para. 86.
906 Brazil's responses to questioning at the oral hearing.
907 Brazil's responses to questioning at the oral hearing.
908 Brazil's appellee's submission, para. 6 (quoting Appellate Body Report, EC – Fasteners (China),
para. 511 (emphasis original)).
909 Brazil's appellee's submission, para. 8.
910 Brazil's appellee's submission, para. 29.
911 Brazil's appellee's submission, para. 11 (referring to European Union's other appellant's submission,
para. 77; Japan's other appellant's submission, para. 21, in turn referring to Appellate Body Report,
Colombia – Textiles, para. 5.27).
912 Brazil's appellee's submission, para. 12.
913 European Union's and Japan's responses to questioning at the oral hearing.
914 Panel Reports, para. 7.297.
WT/DS472/AB/R • WT/DS497/AB/R

complainants considered that "the production -step requirements on their own const itute
requirements to use domestic goods", Brazil argued that production -step requirements have
exclusively to do with production and do not require the use of domestic goods. 915 The Panel
therefore considered that it would be "useful" to separately analyse the two possible scenarios,
starting with the outsourcing one.916 Accordingly, the Panel's subsequent analysis explored how the
production-step requirements may result in a "requirement to use domestic goods" in the context
of the "outsourcing scenario".917 The Panel observed, in particular, that, whenever a producer of a
product covered by a main PPB obtained components or subassemblies covered by its own nested
PPB, it was obtaining "domestic goods". Furthermore, in the Panel's view, because nested PPBs
imposed a mandatory minimum amount of such "domestic goods" to be used in producing the
product subject to the main PPB, the only way to satisfy the requirement, when outsourcing, was to
acquire and use domestic goods.918
5.328. In addition, with regard to three out of four of the ICT programmes (i.e. the Informatics,
PATVD, and PADIS programmes), the Panel found that, "regarding the outsourcing requirements in
respect of the production step requirements for components and subassemblies" 919 used in the
production of an incentivized product, the PPBs required the use of domestic goods in the sense of
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.920 The explicit references
to the outsourcing scenario in those findings may be viewed as suggesting that the Panel's findings
of inconsistency, in paragraphs 7.302, 7.308, and 7.311-7.314 of its Report, concern the measures
only as they apply in the outsourcing scenario, without prejudice to how they may apply in the
in-house scenario.921 Similarly, with regard to the INOVAR-AUTO programme, the Panel found that,
in the outsourcing scenario, the production-step requirements under the INOVAR-AUTO programme
require the use of domestic goods under Article III:4 of the GATT 1994 and Article 3.1(b) of the
SCM Agreement.922
5.329. Other elements of the Panel's analysis, however, can be understood as covering the in-house
scenario. In particular, in its analysis under the ICT programmes, the Panel repeatedly observed
that, even if certain PPBs contain "alternative options to compliance with certain production-steps in
the PPBs", the "mere existence of options for compliance that are potentially WTO -consistent could
not preclude a finding of inconsistency in respect of the PPBs as a whole", so that the existence of
alternative, potentially WTO-consistent options, would not "alte[r] the inconsistency … of an option
that requires the use of domestic products over imported products". 923 The Panel subsequently
referred to these observations in its analysis of the consistency of the INOVAR -AUTO programme
with Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreement.924 These statements
by the Panel may be seen as suggesting that the in-house scenario could be a "potentially
WTO-consistent" option, had the Panel examined it. 925 We also note that the Panel is unclear in
stating, on the one hand, that "potentially WTO-consistent [options] could not preclude a finding of
inconsistency in respect of the PPBs as a whole ", and, on the other hand, that pote ntially

915 Panel Reports, para. 7.297.
916 Panel Reports, para. 7.298.
917 Panel Reports, paras. 7.298-7.314 and 7.746-7.751.
918 Panel Reports, para. 7.300.
920 Panel Reports, paras. 7.302, 7.308, 7.311, and 7.316. In the case of the PADIS programme, the
Panel found that a company seeking accreditation had to comply with different production-step requirements
depending on the type of products, and that for certain products, no PPBs have been adopted yet. In this
respect, the Panel noted that "to the extent that any future PPBs adopted under the PADIS programme contain
outsourcing provisions or nested PPBs in respect of manufactured components and subassemblies that operate
in the same manner as those in the Informatics and PATVD programmes, such PPBs would require the use of
domestic goods." (Ibid., para. 7.312 (emphasis added))
921 We note that, for the Digital Inclusion programme, however, the Panel did not make such explicit
references to the outsourcing scenario, because it applies to sales of certain products by retailers. The Panel
simply found that "this programme involves a contingency on the use of domestic over imported goods in the
sense covered by Article 3.1(b) of the SCM Agreement." (Panel Reports, para. 7.317)
922 Panel Reports, para. 7.748.
924 Panel Reports, paras. 7.749-7.750 (referring to Panel Reports, paras. 7.303-7.304) and 7.770
(referring to Panel Reports, paras. 7.258, 7.303, and fn 648 to para. 7.258).
925 Panel Reports, para. 7.314.
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WTO-consistent options would not "alte[r] the inconsistency … of an option that requires the use of
domestic products over imported products".926
5.330. We also note that the Panel's overall conclusions regarding the ICT and INOVAR -AUTO
programmes under Article III:4 of the GATT 1994 appear to suggest that the Panel's findings of
inconsistency cover the measures as a whole. In particular, the Panel found, with respect to the
ICT programmes, that:
[T]he production -step requirements and the requirement for pr oducts to obtain the
status of "developed" in Brazil under the Informatics, PADIS, and PATVD programmes,
and certain eligibility requirements under the Digital Inclusion programme … accord to
imported products treatment less favourable than that accorded t o like domestic
products, inconsistently with Article III:4 of the GATT 1994.927
5.331. Similarly, in the conclusions regarding the INOVAR-AUTO programme under Article III:4 of
the GATT 1994, the Panel found that, "under the INOVAR -AUTO programme, the conditions fo r
accreditation in order to receive presumed tax credits … accord less favourable treatment to imported
products than that accorded to like domestic products, inconsistently with Article III:4 of the
GATT 1994."928 Thus, in its overall conclusions on those two programmes, the Panel did not specify
the factual scenarios in which the relevant production -step requirements and analogous
requirements are WTO-inconsistent. Neither did the Panel refer to such distinction in the conclusions
and recommendations of its Reports.929
5.332. In its overall conclusions and recommendations, the Panel may be seen as having made a
finding of inconsistency with the relevant provisions for the measures as a whole, without
distinguishing between the two factual scenarios used by the Panel in its analysis.
5.333. Our examination of the relevant Panel's analysis and findings thus reveals that some aspects
of the Panel's reasoning and conclusions appear to refer to the outsourcing scenario, while excluding
the in-house scenario. Other aspects of th e Panel's analysis, including the overall conclusions and
recommendations can be understood as cove ring measures as a whole and thu s extending to the
in-house scenario. In this respect, we share the concern of the European Union and Japan that the
lack of clarity with respect to the scope of the Panel's findings may compromise the effective
implementation of the recommendations and rulings in this dispute. This would not contribute to
achieving a positive solution to this dispute, as required under Article 3.7 of the DSU.
5.334. We recall, that the Panel reached its findings of inconsistency under Article III:4 of the
GATT 1994 and Article 3.1(b) of the SCM Agreement with respect to the ICT programmes because
it considered that the PPBs and other production -step requirements require the use of domestic
goods.930 Subsequently, the Panel referred to its analysis under the ICT programmes in reaching
findings of inconsistency under Article III:4 of the GATT 1994 and Article 3.1(b) of the
SCM Agreement with respect to the accreditation requirement to perform certain manufacturing
steps in Brazil under the INOVAR -AUTO programme.931 The Panel also relied on these findings to
reach its findings of inconsistency under Article 2.1 of the TRIMs Agreement with respect to the ICT
and INOVAR-AUTO programmes.932 Accordingly, the Panel used its findings of the existence of the
requirement to use domestic goods under Article III:4 of the GATT and Article 3.1(b) of the
SCM Agreement under the ICT programmes as a basis for its subsequent findings.
5.335. We also recall that the participants agree that the Panel's finding of inconsistency with
respect to the PPBs and other production -step requirements under the ICT programmes was of a
de jure nature.933 In its analysis, under the ICT programmes, the Panel relied on the text of the
relevant legal instruments and its own understanding of the operation of the PPBs and other
production-step requirements and did not examine the factual circumstances surroundi ng the

927 Panel Reports, para. 7.318.
928 Panel Reports, para. 7.772.
929 Panel Reports, paras. 8.5.b, 8.5.d-e, 8.6b, 8.6.d-e. 8.16.c, 8.16.e-f, 8.17.c, and 8.17.e-f.
930 Panel Reports, paras. 7.313 and 7.319.
931 Panel Reports, paras. 7.747-7.751.
932 Panel Reports, paras. 7.364 and 7.805.
933 Participants' responses to questioning at the oral hearing.
WT/DS472/AB/R • WT/DS497/AB/R

granting of the subsidy.934 Moreover, in examining the claims concerning the ICT programmes, the
Panel indicated that it was analysing "the specific provisions of the PPBs"935 and that the PPBs contain
"an explicit requirement to use domestic goods". 936 Similarly, in the context of the INOVAR -AUTO
programme, the Panel considered "that the accreditation requirements to invest in R&D in Brazil and
make expenditure[s] in engineering, basic industrial technology and capacity -building of suppliers
in Brazil, with respect to laboratory equipment used in performing R&D in Brazil, by the necessary
implication of the wording of the measure, require the use of domestic over imported goods in order
to be accredited and obtain the tax benefits." 937 Likewise, in our analy sis above, we have focused
on whether the PPBs and other production-step requirements under the ICT programmes contain in
their very terms, or by necessary implication therefrom, a requirement to use domestic over
imported goods under Article 3.1(b) and provide less favourable treatment under Article III:4 of the
GATT 1994.938
5.336. We further recall that the legal standard under Article 3.1(b) of the SCM Agreement and
Article III:4 of the GATT is not the same. While an inquiry under Article 3.1(b) of the SCM Agreement
focuses on whether there is a condition requiring the use of domestic over imported goods, an
incentive to use domestic goods is sufficient to find an inconsistency with Article III:4 of the
GATT 1994.939
5.337. We recall that the legal standard under Article 3.1(b) of the SCM Agreement requires that
a condition requiring the use of domestic over imported goods be discerned from the terms of the
measure itself, or inferred from its design, structure, modalities of operation, and the relevant factual
circumstances constituting and surrounding the granting of the subsidy that provide context for
understanding the operation of these factors. 940 Accordingly, for purposes of establishing an
inconsistency with Article 3.1(b) of the SCM Agreement, whet her a company prod uces goods
in-house or whether it outsources its production is not decisive. What matters, instead, is whether
such a measure reflects a condition requiring the use of domestic over imported goods.941
5.338. By contrast, local content requirements that alter the conditions of competition to the
detriment of the imported products by providing an incentive to use domestic goods will be found to
be inconsistent with Article III:4 of the GATT 1994.942 For purposes of analysis under Article III:4 of
the GATT, as well as under Article 2.1 of the TRIMs Agreement, whether a company produces goods
in-house or whether it outsources its production would not be determinative. Instead, the relevant
inquiry is whether the meas ure accords to imported products treatment less favourable than that
accorded to the domestic products.943
5.339. In light of the above, we consider that it did not matter, for purposes of the Panel's analysis,
what factual scenarios were available for compliance with the requirements under the ICT and
INOVAR-AUTO programmes. The Panel's bifurcation of its analysis into the two possible factual
scenarios was thus unnecessary. Moreover, as noted, for purposes of establishing an inconsistency

934 Panel Reports, para. 7.285.
935 Panel Reports, para. 7.285.
936 Panel Reports, para. 7.300.
938 See section 5.4.2.4.1 above.
939 See paragraph 5.254 above.
940 Appellate Body Report, US – Tax Incentives, para. 5.18.
941 We recall, however, that, in US – Tax Incentives, the Appellate Body explained that "the existence of
de facto contingency 'must be inferred from the total configuration of the facts constituting and surrounding
the granting of the subsidy, none of which on its own is likely to be decisive in any given case'."
(Appellate Body Report, US – Tax Incentives, para. 5.12 (quoting Appellate Body Report, Canada – Aircraft,
para. 167. (emphasis original))) Such "factual circumstances potentially relevant to an assessment of whether
a subsidy is de facto contingent may include the existence of a multi-stage production process, the level of
specialization of the subsidized inputs, or the level of integration of the production chain in the relevant
942 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 220.
943 We also recall that the Panel considered that the in-house scenario is one of "the two possible
[factual] scenarios for compliance with the PPBs" under the ICT programmes. (Panel Reports, para. 7.298) We
note, in this respect, that, for purposes of a de jure analysis, the factual circumstances surrounding the
measure are of limited importance. Rather, a subsidy will be de jure contingent upon the use of domestic over
imported goods under Article 3.1(b) of the SCM Agreement when the existence of that condition can be
demonstrated on the basis of the very words of the measure, or can be derived from them by necessary
implication. (Appellate Body Report, Canada – Autos, paras. 100 and 123)
WT/DS472/AB/R • WT/DS497/AB/R

with Article 3.1(b) of t he SCM Agreement, Article III:4 of the GATT 1994, and Article 2.1 of the
TRIMs Agreement, the possible factual scenarios existing under the measure are not decisive. What
matters, instead, is whether the respective legal standard has been met.
5.340. In light of the above, we reverse the Panel's findings, in paragraphs 7.303-7.304 and 7.314
of the Panel Reports, made in the context of its analysis under ICT programmes, to the extent that
they can be understood as suggesting that the in -house scenario was not cove red by the Panel's
findings. We also reverse the Panel's findings, in paragraphs 7.749 -7.750 and 7.770 of the
Panel Reports, made in the context of INOVAR -AUTO programme and referring to the mentioned
Panel's findings under the ICT programmes, to the exten t that they can also be understood as
suggesting that the in -house scenario was not covered by the Panel's findings. We thus consider
that the Panel's findings, in paragraphs 7.319, 7.772 -7.773, 8.5.e, 8.6.b, 8.6.e, 8.16.c, 8.16.f,
8.17.c, and 8.17.f of the Panel Reports, apply also in the in-house scenario. For these reasons, we
need not further address the European Union's and Japan's claims raised on appeal.
5.5 Article I:1 of the GATT 1994 and the Enabling Clause
5.341. We now turn to consider Brazil's claim on ap peal that the Panel erred in finding that the
claims raised by the European Union and Japan under Article I:1 of the GATT 1994 were within its
terms of reference and that the differential and more favourable treatment in the form of internal
tax reductions accorded to imports from Argentina, Mexico, and Uruguay under the INOVAR -AUTO
programme was not justified under paragraphs 2(b) and 2(c) of the Enabling Clause.944 We will begin
by examining whether the Panel erred in its interpretation and application of p aragraph 4(a) of the
Enabling Clause. In so doing, we will first address the notification requirement in paragraph 4(a).
We then review whether the differential tax treatment under the INOVAR-AUTO programme was
notified pursuant to paragraph 4(a) as having been adopted under paragraphs 2(b) and 2(c) of the
Enabling Clause, such that the complaining parties could be considered to have been on notice and,
consequently, could have been expected to raise the Enabling Clause and identify the relevant
provision(s) thereof in their panel requests. We then examine whether the Panel erred in its
interpretation and application of paragraph 2(b) of the Enabling Clause, where we first examine the
scope of that provision. Next, we review whether, as claimed by Brazil, the differential tax treatment
under the INOVAR -AUTO programme falls within the scope of paragraph 2(b) and is therefore
substantively justified under that provision. Finally, we examine Brazil's claim on appeal that the
Panel erred in finding that Brazil has not identified any arrangement adopted under paragraph 2(c)
that has a genuine link to the internal tax reductions under the INOVAR-AUTO programme such that
the differential and more favourable treatment at issue can be substant ively justified under that
provision.
5.5.1 Whether the Panel erred in finding that the claims raised by the European Union
and Japan under Article I:1 of the GATT 1994 were within its terms of reference
5.342. Before the Panel, the European Union and Japan raised cla ims under Article I:1 of the
GATT 1994 with respect to certain aspects of the INOVAR-AUTO programme. The European Union
and Japan argued that Brazil accords an advantage in the form of internal tax reductions
implemented through Articles 21 and 22(I) of Decree 7,819/2012 to motor vehicles imported into
Brazil from a member-country of MERCOSUR and Mexico that is not accorded to like motor vehicles
imported into Brazil from other WTO Members, including the European Union and Japan.945
5.343. The Panel found that the t ax reductions accorded to motor vehicles imported from
MERCOSUR members and Mexico under the INOVAR-AUTO programme are advantages granted by
Brazil to products originating in those countries that are not accorded immediately and
unconditionally to like products originating in other WTO Members, inconsistently with Article I:1 of
the GATT 1994.946
5.344. The Panel then turned to consider Brazil's defences under the Enabling Clause. Brazil argued
that the differential tax treatment accorded to Argentina, Mexico, and U ruguay under the
INOVAR-AUTO programme was justified under both paragraphs 2(b) and 2(c) of the Enabling Clause

944 GATT Document L/4903, 28 November 1979, BISD 26S/203.
945 Panel Reports, para. 7.1012 (referring to European Union's first written submission to the Panel,
paras. 346-365; Japan's first written submission to the Panel, paras. 274-281).
946 Panel Reports, para. 7.1048.
WT/DS472/AB/R • WT/DS497/AB/R

and was notified to the WTO, as required under paragraph 4(a) of the Enabling Clause.947 Brazil
further argued that the European Union and Japan had the burden of invoking the Enabling Clause
in their panel requests and "since they did not do so, they cannot challenge the right of Brazil to
invoke paragraph[s] 2(b) and 2(c) of the Enabling Clause to justify the inconsistency of the
INOVAR-AUTO programme with Article I:1 of the GATT 1994."948
5.345. The Panel began by examining who had the burden of in voking the Enabling Clause.
The Panel stated that the issue of whether the Enabling Clause has been properly invoked pertains
to the jurisdiction of the Panel, and specifically "whether the complaining parties' claim under
Article I:1 of the GATT 1994 is within the Panel's terms of reference".949
5.346. The Panel noted Brazil's argument that the Appellate Body has established that
"a complaining party has the burden of indicating in its panel request that a particular challenged
measure is not consistent with the relevant provisions of the Enabling Clause."950 The Panel
considered that the Appellate Body's statements in EC – Tariff Preferences were made in the specific
context of that dispute. 951 According to the Panel, the Appellate Body's findings indicated that
"the burden of invoking the Enabling Clause is placed on the complaining party in situations where
the complaining party is on notice that the challenged measure was adopted (and in the view of the
adopting member, justified) under the Enabling Clause."952 The Panel, therefore, considered that in
situations where a WTO Member has notified a particular arrange ment imposing discriminatory
treatment as adopted or modified under the Enabling Clause, other WTO Members are presumed to
be aware that the specific discriminatory treatment was adopted pursuant to the Enabling Clause.953
The Panel concluded that a complain ing party does not have the burden to invoke the
Enabling Clause in its panel request, unless that complaining party is informed that the responding
party considers the challenged measure to have been adopted pursuant to the Enabling Clause.954
5.347. The Panel next considered "whether the challenged measures and their related justifications
were notified to the WTO"955 such that the complaining parties were on notice and therefore had the
burden to invoke the relevant provisions of the Enabling Clause in their panel requests.
5.348. The Panel recalled that Brazil submitted that the differential tax treatment under the
INOVAR-AUTO programme was notified to the WTO, as required under paragraph 4(a) of the
Enabling Clause.956 Brazil argued that the notification requirement was satisfied because "the 1980
Treaty of Montevideo establishing the Latin American Integration Association (LAIA) was notified to
the WTO under [paragraph] 2(c) of the Enabling Clause"957 and that the differential tax treatment
granted to Argentina, Mexico, and Uruguay is based on economic complementation agreements
(ECAs) negotiated under the auspices of the 1980 Treaty of Montevideo. 958 Brazil also argued that
the "ECAs 'are implementation measures of the {1980} Treaty of Montevideo and [we]re notified to

947 Panel Reports, para. 7.1054. The Panel noted that Brazil did not invoke the Enabling Clause with
respect to the differential and more favourable treatment accorded to motor vehicles imported from Paraguay
and Venezuela. (Ibid.) In response to questioning at the oral hearing in these appellate proceedings, Brazil
confirmed that it does not challenge the Panel's findings contained in paragraphs 7.1048, 8.6.g-h, and 8.17.h-i
of the Panel Reports that the internal tax reductions under the INOVAR-AUTO programme are inconsistent with
Article I:1 of the GATT 1994 to the extent they concern Paraguay and Venezuela. (Brazil's response to
questioning at the oral hearing)
948 Panel Reports, para. 7.1054 (referring to Brazil's first written submissions to the Panel,
paras. 694-742 (DS472) and paras. 627-674 (DS497); second written submission to the Panel,
paras. 166-181; response to Panel questions Nos. 4 and 53-55; comments on other parties' responses to Panel
questions Nos. 53-55).
949 Panel Reports, para. 7.1062.
950 Panel Reports, para. 7.1057 (referring to Brazil's response to Panel question No. 4, in turn referring
to Appellate Body Report, EC – Tariff Preferences, para. 110).
951 Panel Reports, para. 7.1063.
952 Panel Reports, para. 7.1064.
953 Panel Reports, para. 7.1066.
954 Panel Reports, para. 7.1068. We note that, although one panelist appended a separate opinion, this
panelist, however, does not disagree with this standard articulated by the Panel. (Panel Reports, para. 7.1130)
955 Panel Reports, para. 7.1068.
956 Panel Reports, para. 7.1069.
957 Panel Reports, para. 7.1072.
958 Panel Reports, para. 7.1072 (referring to Brazil's first written submissions to the Panel,
paras. 706-707 (DS472) and paras. 638-639 (DS497)).
WT/DS472/AB/R • WT/DS497/AB/R

the WT O'" and that the differential tax treatment under the INOVAR-AUTO programme is
"the corollary of these ECAs and does not require further notification".959
5.349. The Panel noted that the 1980 Treaty of Montevideo was notified to the WTO by Uruguay on
behalf of the LAIA on 1 July 1982, "as adopted pursuant to paragraph 2(c) of the
Enabling Clause".960 The Panel, however, stated that "no explicit notification in respect of
paragraph 2(b) ha[d] been identified by any party, or submitted to the Panel as evidence." 961
Therefore, in order to determine whether the complaining parties were on notice that the challenged
measure was adopted under paragraph 2(b) and, accordingly, whether or not they were required to
invoke this provision of the Enabling Clause in their panel requests, the Panel turned to the question
whether a notification of an arrangement adopted pursuant to paragraph 2(c) could also serve as a
notification of an arrangement adopted pursuant to paragraph 2(b) of the Enabling Clause.962
The Panel found that a notific ation of a regional trade agreement (RTA) adopted under
paragraph 2(c) of the Enabling Clause, even if valid, is not sufficient to serve as a notification of a
preferential trade arrangement (PTA) adopted under paragraph 2(b) of the Enabling Clause and that
"there was no notification made under [paragraph] 4(a) to support a justification under
paragraph 2(b)."963 The Panel concluded that "Brazil has not demonstrated that any arrangement
providing for the differential and more favourable treatment at issue was notified to the WTO as
adopted pursuant to paragraph 2(b)."964
5.350. The Panel next considered whether the notification of the 1980 Treaty of Montevideo and
the ECAs could substantively serve as a notification of the adoption under paragraph 2(c) of the
Enabling Clause of the arrangement introducing the differential and more favourable treatment
found to be inconsistent with Article I:1 of the GATT 1994, i.e. the differential tax treatment under
the INOVAR -AUTO programme. 965 The Panel stated that "the differential a nd more favourable
treatment sought to be justified under paragraph 2(c) must have a close and genuine link to the
arrangement notified to the WTO such as to put other WTO Members on notice as to the adoption
of the differential and more favourable treatme nt pursuant to the Enabling Clause."966 The Panel
found that "none of the provisions cited to in the [1980] Treaty of Montevideo bear the slightest
relation[,] in and of themselves, to the internal tax reductions found to be inconsistent with
Article I:1 of the GATT 1994."967 The Panel also found that Brazil had failed to point to "a single
provision of any ECA that would attest to the fundamental premise of Brazil's argument, namely that
the INOVAR-AUTO programme is implementing the objectives of the ECAs".968 Accordingly, the Panel
found that "Brazil has not demonstrated how the relevant tax reductions found to be inconsistent
under Article I:1 of the GATT 1994" are related to the 1980 Treaty of Montevideo or the ECAs that
were notified as having been adopted pursuant to paragraph 2(c).969

959 Panel Reports, para. 7.1072 (quoting Brazil's second written submission, para. 181; referring to
Brazil's response to Panel question No. 53; Communication from LAIA to the Chair of the Trade and
Development Committee of the WTO, 19 May 2016 (Panel Exhibits BRA-114 and BRA-115)). (curly brackets
added) The Panel noted:
[T]he MERCOSUR agreement was allegedly notified on 5 March 1992 in document L/6985;
ECA No. 55 [between MERCOSUR and Mexico] was allegedly notified on 21 November 2012 in
document WT/COMTD/77; the 38th Additional Protocol to ECA No. 14 [between Argentina and
Brazil] and the 68th Additional Protocol to ECA No. 2 [between Brazil and Uruguay] were
allegedly notified on 8 November 2010, in document WT/COMTD/72; and the 69th Additional
Protocol to ECA No. 2 [between Brazil and Uruguay] was allegedly notified on 25 October 2013 in
document WT/COMTD/82.
(Panel Reports, fn 1443 to para. 7.1080 (referring to Communication from LAIA to the Chair of the Trade and
Development Committee of the WTO, 19 May 2016 (Panel Exhibits BRA-114 and BRA-115)))
961 Panel Reports, para. 7.1074.
962 Panel Reports, para. 7.1075.
963 Panel Reports, para. 7.1081. The Panel considered that paragraph 4(a) of the Enabling Clause "does
not … permit[] notification of a measure adopted under one provision of the Enabling Clause to serve equally
as a notification of that measure being adopted under another provision of the Enabling Clause, unless
indicated in the notification itself". (Panel Reports, para. 7.1079)
965 Panel Reports, para. 7.1105.
967 Panel Reports, para. 7.1112.
968 Panel Reports, para. 7.1112.
969 Panel Reports, para. 7.1115.
WT/DS472/AB/R • WT/DS497/AB/R

5.351. Thus, the Panel concluded that the challenged measure and its related justifications under
the Enabling Clause (i.e. under paragraphs 2(b) and 2(c) thereof) were not notified to the WTO
pursuant to paragraph 4(a) of the Enabling Clause, such that the complaining parties could be
considered to have been on notice. Consequently, the Panel found that there was no burden on the
complaining parties to invoke paragraphs 2(b) and 2(c) of the Enabling Clause in their panel
requests, and therefore their claims under Article I:1 of the GATT 1994 were within the Panel's terms
of reference.970
5.5.1.1 Whether the Panel erred in its interpretation of paragraph 4(a) of the
Enabling Clause
5.352. On appeal, Brazil takes issue with the Panel's finding that " the obligation to invoke the
Enabling Clause would only apply if the complaining party had been 'appropriately informed that the
responding party considers the challenged measure to have been adopted pursuant to (and justified
under) the Enabling Clause.'"971 According to Brazil, the Panel considered that "a disagreement
regarding whether the notification was deemed appropriate suffices to waive the complainants'
burden of invoking the Enabling Clause in their panel requests."972 In Brazil's view, "[t]his logic, if it
were to stand, would raise important systemic questions", because "a disagreement on the method
of notification could justify ex post the lack of inclusion of the Enabling Clause" in a complainant's
panel request.973 Therefore, Brazil submits that , by conflating the substantive obligation to notify
properly the measures and the threshold presumption of being informed that a Member considers a
measure to be justified under the Enabling Clause, the Panel's understanding deprives of any
meaningful effect the Appellate Body's finding that it is incumbent on the complaining party to raise
the Enabling Clause in its panel request.974
5.353. In response, the European Union submits that the Appellate Body's findings in EC – Tariff
Preferences have to be understood in the context of that particular case and of the specific provision
of the Enabling Clause at issue. 975 The European Union explains that measures taken pursuant to
paragraph 2(a) of the Enabling Clause "are different from measures taken pursuant to other
paragraphs of the Enabling Clause, and in particular those pertaining to regional trade
agreements".976
5.354. Japan contends that the present dispute can be distinguished from that in EC ‒ Tariff
Preferences, which involved tariff preferences for developing countries adopted pursuant to
paragraph 2(a) of the Enabling Clause, as opposed to issues relating to RTAs.977 According to Japan,
"[i]n the case of a preference accorded pursuant to a Generalized System of Preferences ('GSP') it
can be expected that the legal disput e would revolve around the (in)application of the
Enabling Clause" and thus the complaining party "has to 'present the problem clearly' as required

970 Panel Reports, paras. 7.1083 and 7.1120. One Panelist appended a separate opinion on Brazil's
defence under paragraph 2(c) of the Enabling Clause. According to this Panelist, references in the relevant
ECAs to "tariff preferences [were] sufficient to put Members on notice that, at a minimum, motor vehicles
imported into Brazil from Mexico, Argentina and Uruguay will be treated differently to motor vehicles imported
into Brazil from other Members." (Ibid., para. 7.1127) In the view of this Panelist, it was therefore "reasonable
for Members to assume that such preferences would not be limited to fiscal measures applied at the border,
but could potentially include internal fiscal measures" and Members could be considered to have been informed
that "motor vehicles imported into Brazil from Mexico, Argentina and Uruguay may be subject to a differential
tax burden". (Ibid.) Accordingly, this Panelist considered that "the ECAs are … substantively sufficient to satisfy
the notification obligation in paragraph 4(a) of the Enabling Clause." (Ibid., para. 7.1128) Moreover, this
Panelist was of the view that "Brazil has at a minimum demonstrated that the European Union and Japan were
informed that the Treaty of Montevideo, the MERCOSUR Agreement, and the relevant ECAs were adopted
pursuant to paragraph 2(c) of the Enabling Clause." (Ibid., para. 7.1129) This Panelist therefore considered
that "the European Union and Japan were sufficiently on notice that the Enabling Clause might be invoked by
Brazil, a signatory to those ECAs, as a defence to a claim under Article I:1 of the GATT 1994, in respect of
preferences granted to the signatories to those ECAs." (Ibid.) For these reasons, this Panelist concluded that
the European Union and Japan were under an obligation to have included the relevant provisions of the
Enabling Clause within their respective panel requests and the failure to do so "mean[t] that their claims under
Article I:1 of the GATT 1994 [were] outside the Panel's terms of reference". (Ibid., para. 7.1131)
972 Brazil's appellant's submission, para. 376.
973 Brazil's appellant's submission, para. 377.
974 Brazil's appellant's submission, para. 378.
975 European Union's appellee's submission, para. 451.
976 European Union's appellee's submission, para. 453.
977 Japan's appellee's submission, paras. 153 and 155.
WT/DS472/AB/R • WT/DS497/AB/R

under Article 6.2 of the DSU by referring to the Enabling Clause explicitly in its panel request". 978
However, Japan submits that, in a dispute such as the present one, a complaining party cannot be
expected to assume that the "measures were adopted pursuant to the Enabling Clause (particularly
when the responding Member has never said so and never made any notification of the sort to
the WTO)."979
5.355. We begin our analysis with the text of paragraph 4(a) of the Enabling Clause, which
provides, in relevant part:
Any Member taking action to introduce an arrangement pursuant to paragraphs 1, 2
and 3 above or subsequently t aking action to introduce modification or withdrawal of
the differential and more favourable treatment so provided shall:[*]
(a) notify the WTO and furnish [Members] with all the information they may deem
appropriate relating to such action[.]
[*fn original]4 Nothing in these provisions shall affect the rights of Members under the
General Agreement.
5.356. Paragraph 4(a) of the Enabling Clause thus deals with the requirement to notify any action
by a Member seeking to introduce, modify, or withdraw differential and more favourable
arrangements adopted pursuant to paragraphs 1 throug h 3 of the Enabling Clause.
The Appellate Body has described paragraph 4 as setting forth "procedural conditions for the
introduction, modification, or withdrawal of a preferential measure for developing countries".980
5.357. The use of the word "shall" indicates that paragraph 4(a) imposes an obligation on a Member
according differential and more favourable treatment to notify the WTO of the arrangement it has
adopted. In addition to the obligation to notify the introduction of an arrangement, paragraph 4(a)
also imposes an obligation on Members to notify any modification or the withdrawal of the
arrangement according differential and more favourable treatment. Paragraph 4(a) thus envisages
that, at all times, Members are kept informed of any changes to, including the withdrawal of , an
arrangement according differential and more favourable treatment.
5.358. Moreover, we observe that paragraph 4(a) provides that a Member adopting an arrangement
according differential and more favourable treatment "furnish" Members "with all the information
they may deem appropriate" relating to the introduction, modification, or withdrawal of the
arrangements adopted. This requirement to furnish " all"981 the information s uggests that a
notification pursuant to paragraph 4(a) should be sufficiently detailed so as to put the Members on
notice regarding any "action" taken pursuant to paragraphs 1 through 3 of the Enabling Clause. The
need for notifications under paragraph 4(a) to be sufficiently detailed is also borne out by the
requirement to notify not only the introduction or withdrawal of an arrangement according
differential and more favourable treatment but also of any modifications thereof.
5.359. Turning to the immediate cont ext provided by paragraph 4(b) of the Enabling Clause, we
observe that paragraph 4(b) stipulates that a Member introducing, modifying, or withdrawing an
arrangement according differential and more favourable treatment shall "afford adequate
opportunity for prompt consultations at the request of any interested Member with respect to any
difficulty or matter that may arise" in connection with the adopted arrangement. Paragraph 4(b)
thus builds upon the notification issued pursuant to paragraph 4(a) of the Enabling Clause by calling
upon the WTO Member adopting an arrangement according differential and more favourable
treatment to "afford adequate opportunity" for "prompt consultations" as may be requested by any
other WTO Member in connection with the adopted arrangement.
5.360. A notification pursuant to paragraph 4(a) of the Enabling Clause thus speaks to and has a
direct bearing on a complaining party's knowledge and, consequently, on the question whether it is

978 Japan's appellee's submission, para. 155. (fn omitted)
979 Japan's appellee's submission, para. 155.
980 Appellate Body Report, EC – Tariff Preferences, para. 112.
981 Emphasis added.
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required to raise the Enabling Clause and identify th e relevant provision(s) thereof in its panel
request.
5.361. We recall that although the dispute in EC – Tariff Preferences did not involve the notification
requirement in paragraph 4(a) specifically, the Appellate Body set out relevant considerations
concerning the interpretation of the Enabling Clause. The Appellate Body considered that the
Enabling Clause is not a "typical 'exception', or 'defence'". 982 The Appellate Body stated that, when
a complaining party considers that a preference scheme of another Member does not meet one or
more of the requirements set forth in the Enabling Clause, "the specific provisions of the
Enabling Clause with which the scheme allegedly falls afoul[] form critical components of the 'legal
basis of the complaint' and, therefore, of the 'matter' in dispute."983 However, at the same time, the
Appellate Body cautioned that "[t]he responsibility of the complaining party in such an instance …
should not be overstated."984 Although the Appellate Body found that "it is insufficient in WTO dispute
settlement for a complainant to allege inconsistency with Article I:1 of the GATT 1994 if the
complainant seeks also to argue that the measure is not justified under the Enabling Clause"985, the
Appellate Body also explained that "[t]his is especially so if the challenged measure … is plainly
taken pursuant to the Enabling Clause."986
5.362. However, the Appellate Body's statements in EC – Tariff Preferences concerning the burden
on the complaining party to raise the Enabling Clause and identify the relevant provision(s) thereof
in its panel request should be read in the context of the challenged measure at issue in that dispute,
i.e. the tariff preference scheme, which as the Appellate Body itself indicated, was " plainly taken
pursuant to the Enabling Clause".987 The Appellate Body further noted that the challenged measure
in that dispute was " unmistakably a preferential tariff scheme, granted by a developed -country
Member in favour of developing countries, and proclaiming to be in accordance with the GSP". 988
Thus, the Appellate Body found it "clear, on the face of the Regulation and from official,
publicly-available explanatory documentation", that the "Drug Arrangements" at issue in that dispute
were "part of a preferential tariff scheme implemented by the Europea n Communities pursuant to
the authorization in paragraph 2(a) of the Enabling Clause".989 Accordingly, in that dispute, the
Appellate Body noted that India would have been "well aware" that the Drug Arrangements must
comply with the requirements of the Enabl ing Clause, and that "the European Communities was
likely to invoke the Enabling Clause in response to a challenge of inconsistency with Article I:1."990
5.363. Paragraph 4(a) of the Enabling Clause envisages a degree of specificity in the notification
adopted thereunder. At a minimum, a notification pursuant to paragraph 4(a) should state under
which provision of the Enabling Clause the differential and more favourable treatment has been
adopted. Paragraph 4(a) indicates that arrangements or measures adopted under different
subparagraphs of paragraph 2 would have to be notified to the WTO so as to put other Members on
notice regarding the relevant differential and more favourable treatment sought to be accorded and
justified under the Enabling Clause. In such circu mstances, the mere procedural propriety of the
notification itself, for example, in terms of "whether such notification was … sent by the right actor
or body, under the right procedure, at the right time, etc."991, is, however, not sufficient to dislodge
the presumption that the complaining party is on notice that the responding party has adopted an
arrangement or a measure that may be inconsistent with its obligations under Article I:1 of the
GATT 1994, but that may nonetheless be justified under the Enabling Clause.
5.364. Moreover, paragraph 4(a) does not exclude the possibility that a single notification can state
that the notifying Member considers an arrangement or a measure to have been adopted pursuant
to one or more subparagraphs of paragraph 2 of the Enabling Clause. We do not detect anything in
the text of paragraph 4(a) that indicates otherwise. To the contrary, paragraph 4 is broadly worded

982 Appellate Body Report, EC – Tariff Preferences, para. 106.
983 Appellate Body Report, EC – Tariff Preferences, para. 113 (quoting Article 6.2 of the DSU;
Appellate Body Report, US – Carbon Steel, para. 125, in turn referring to Appellate Body Report,
Guatemala ‒ Cement I, paras. 69-76).
984 Appellate Body Report, EC – Tariff Preferences, para. 115.
985 Appellate Body Report, EC – Tariff Preferences, para. 110.
986 Appellate Body Report, EC – Tariff Preferences, para. 110.
987 Appellate Body Report, EC – Tariff Preferences, para. 110. (emphasis added)
988 Appellate Body Report, EC – Tariff Preferences, para. 116. (emphasis added)
989 Appellate Body Report, EC – Tariff Preferences, para. 117. (emphasis added)
990 Appellate Body Report, EC – Tariff Preferences, para. 117.
991 Panel Reports, para. 7.1105.
WT/DS472/AB/R • WT/DS497/AB/R

in providing that any "action to introduce an arrangement pursuant to paragraphs 1, 2 and 3" of the
Enabling Clause be notified to the WTO. 992 However, in the absence of any such indication in the
notification issued under paragraph 4(a), it cannot be taken for granted that a complaining party is
on notice of those subparagraphs of paragraph 2 that the notifying Member considers applicable.
5.365. A complaining party is therefore required to raise the Enabling Clause and identify the
relevant provisions thereof in its panel request when a measure according differential and more
favourable treatment is: (i) plainly taken pursuant to the Enabling Clause, or when it is clear from
the face of the measure itself that it has been adopted pursuant to t he Enabling Clause; and/or
(ii) notified pursuant to paragraph 4(a) of the Enabling Clause. How ever, the complaining party
"is merely to identify those provisions of the Enabling Clause with which the [measure] is allegedly
inconsistent, without bearing the burden of establishing the facts necessary to support such
inconsistency".993 Thus, while it is for the complaining party to identify th e relevant provision(s) of
the Enabling Clause in its panel request, the burden to " prove" that the measure "satisf[ies] the
conditions set out in the Enabling Clause" 994 still "remains on the responding party" relying on
"the Enabling Clause as a defence".995
5.366. In light of the foregoing considerations, we agree with the Panel that, in situations where a
Member has notified a particular arrangement imposing discriminatory treatment as adopted or
modified under the Enabling Clause, other Members would be considered to be aware that the
specific discriminatory treatment was adopted pursuant to the Enabling Clause.996 Therefore, to the
extent that the Panel conditioned a complaining party's knowledge of an arrangement or a measure
according differential and more favourable treatment as having been adopted under the
Enabling Clause to the notification by the responding party of that arrangement or measure pursuant
to paragraph 4(a), we see no reason to disagree with this standa rd articulated by the Panel.
As explained, a notification pursuant to paragraph 4(a) of the Enabling Clause speaks to and has a
direct bearing on a complaining party's knowledge and , consequently, on its burden to raise the
Enabling Clause and identify the relevant provision(s) thereof in its panel request. We, therefore,
uphold the Panel's finding that a complaining party has to raise the Enabling Clause and identify the
relevant provision(s) thereof in its panel request "in situations where the complaining party is on
notice that the challenged measure was adopted (and in the view of the adopting member, justified)
under the Enabling Clause".997
5.5.1.2 Whether the Panel erred in finding that the differential tax treatment under the
INOVAR-AUTO programme was not notified pursuant to paragraph 4(a) as having been
adopted under paragraph 2(b) of the Enabling Clause
5.367. We now turn to review whether the measure at issue (the differential tax treatment under
the INOVAR-AUTO programme in the form of internal tax reductions accorded to some but not other
Members) was notified pursuant to paragraph 4(a) of the Enabling Clause as having been adopted
under paragraph 2(b) thereof, such that the complaining parties could be considered to have been
on notice and, consequently, had the burden to raise and identify paragraph 2(b) in their panel
requests.
5.368. We recall that Decree No. 7,819/2012 is one o f the instruments that administers the
INOVAR-AUTO programme998 and provides for the differential and more favourable treatment at
issue in the form of internal tax reductions on imports of motor vehicles from certain countries.
5.369. Brazil's case before the Pan el rested on its contention that , since the 1980 Treaty of
Montevideo and the relevant ECAs were notified to the WTO as having been adopted under
paragraph 2(c), the notification requirement in paragraph 4(a) with respect to the differential tax

992 Emphasis added.
993 Appellate Body Report, EC – Tariff Preferences, para. 115. (emphasis original)
994 Appellate Body Report, EC – Tariff Preferences, para. 105. (emphasis original)
995 Appellate Body Report, EC – Tariff Preferences, para. 115.
996 Panel Reports, para. 7.1066.
997 Panel Reports, para. 7.1064.
998 Panel Reports, para. 2.100 (referring to Decree 7,819 of 3 October 2012 regulating Articles 40 to 44
of Law 12,715 of 17 September 2012, which contain provisions on the Incentive Scheme for Technological
Innovation and Consolidation of the Automotive Supply Chain (INOVAR-AUTO) and Articles 5 and 6 of
Law 12,546 of 14 December 2011, which contain provisions on a reduction of the Industrial Goods Tax, as the
case dictates (Decree 7,819/2012) (Panel Exhibit JE-132), Articles 11-19).
WT/DS472/AB/R • WT/DS497/AB/R

treatment under the INOVAR -AUTO programme stood satisfied. 999 However, in its defence, Brazil
contended that the differential tax treatment under the INOVAR-AUTO programme was justified not
only under paragraph 2(c)1000, but also under paragraph 2(b).1001 We therefore understand, as did
the Panel, Brazil to have contended that the differential tax treatment under the INOVAR -AUTO
programme was adopted pursuant to both paragraphs 2(b) and 2(c) of the Enabling Clause and did
not require additional notification, since the 1980 Treaty of Montevideo and the relevant ECAs were
notified as adopted pursuant to paragraph 2(c).
5.370. It is undisputed that the differential tax treatment under the INOVAR -AUTO programme,
which is the measure at issue in this case, was not specifically notified to the WTO pursuant to
paragraph 4(a) as having been adopted under paragraph 2(b). The Panel, as we recall, noted that
"no explicit notification in respect of paragraph 2(b) ha[d] been identified by any party, or submitted
to the Panel as evidence."1002 The Panel therefore considered that its task was to determine whether
a notification of an arrangement adopted pursuant to paragraph 2(c) could also serve as a
notification of an arrangement adopted pursuant to paragraph 2(b).1003 As a second step, the Panel
considered that if the answer to the first question was in the positive, it would then determine
whether the notification under paragraph 2(c) could substantively serve as a notification of the
specific differential and more favourable treatment sought to be justified under paragraph 2(b).1004
5.371. Unlike what Brazil seems to contend1005, the Panel did not consider the question before it to
concern the procedural propriety of the notification. Rather, the Panel's enquiry focused on whether
or not the complaining parties c ould be considered to have been on notice that the differential tax
treatment under the INOVAR -AUTO programme was notified as having been adopted pursuant to
paragraph 2(b) by virtue of the notification under paragraph 2(c). The analysis of whether or not an
arrangement or a measure alleged to be adopted under paragraph 2(b) was notified pursuant to
paragraph 4(a) was necessary in determining the complaining partie s' burden to raise the
Enabling Clause and identify the relevant provisions(s) thereof in their panel requests and allege the
inconsistency of the differential tax treatment under the INOVAR -AUTO programme with these
relevant provisions of the Enabling Clause, including paragraph 2(b). However, in so doing, neither
do we nor did the Panel pre judge the question whether the differential tax treatment under the
INOVAR-AUTO programme was notified pursuant to paragraph 4(a) as having been adopted under
paragraph 2(c).1006 Indeed, that is the question we address in the next section of these Reports
when we r eview Brazil's claim on appeal that the Panel erred in finding that the differential tax
treatment under the INOVAR -AUTO programme was not notified pursuant to paragraph 4(a) as
having been adopted under paragraph 2(c).
5.372. Brazil also challenges the Panel's finding that "a notification of an RTA adopted under
paragraph 2(c) of the Enabling Clause, even if valid, is not sufficient to serve as a notification of a
PTA adopted under paragraph 2(b) of the Enabling Clause."1007 Brazil asserts that the Panel's
reasoning was based on the provisions of the Transparency Mechanism for Preferential Trade
Arrangements1008 and the Transparency Mechanism for Regional Trade Agreements1009, which the
Panel found to constitute subsequent agreements within the meaning of Article 31(3)(a) of the
Vienna Convention on the Law of Treaties (Vienna Convention) regarding the interpretation of the

999 Panel Reports, para. 7.1072. See also Brazil's appellant's submission, para. 395.
1000 Panel Reports, para. 7.1099 (referring to Brazil's second written submission to the Panel,
para. 181).
1001 Panel Reports, para. 7.1069.
1002 Panel Reports, para. 7.1074.
1003 Panel Reports, para. 7.1075.
1004 Panel Reports, para. 7.1075.
1005 We note that Brazil argues that "the Panel concluded that because the challenged tax treatment was
not notified in a specific format, Brazil had not met the notification requirements under the Enabling Clause,
and the complainants could not have been presumed to be informed that the challenged measures were
adopted under the Enabling Clause." (Brazil's appellant's submission, para. 375)
1006 The Panel, as we recall, eventually concluded that "a notification of an RTA adopted under
paragraph 2(c) of the Enabling Clause, even if valid, is not sufficient to serve as a notification of a PTA adopted
under paragraph 2(b) of the Enabling Clause." (Panel Reports, para. 7.1081 (italics original; underlining
added))
1007 Brazil's appellant's submission, para. 398 (quoting Panel Reports, para. 7.1081). (emphasis original)
1008 Transparency Mechanism for Preferential Trade Arrangements, General Council Decision of
14 December 2010, WT/L/806.
1009 Transparency Mechanism for Regional Trade Agreements, General Council Decision of
14 December 2006, WT/L/671.
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notification obligation under the Enabling Clause.1010 In particular, Brazil asserts that the Panel found
that the Transparency Mechanisms indicate that " Members notifying an RTA or PTA must specify
under which precise provision of the Enabling Clause the RTA or PTA is being notified."1011 According
to Brazil, "the Transparency Mechanisms both explicitly state that they do not affect the 'substance
and timing of the notifications required under … the Enabling Clause' in the case of the Transparency
Mechanism for RTAs"1012 nor "the 'substance of the relevant provisions of the Enabling Clause' in the
case of the Transparency Mechanism for PTAs".1013
5.373. The European Union contends that Brazil "misrepresents the Panel's findings and attempts
to create the impression that the Panel based its decision on a flawed interpretation of the
Transparency Mechanisms".1014 The European Union submits that the Panel made it clear that it had
already reached its conclusions by analysing the provisions of paragraph 4(a) and that
"the Transparency Mechanisms were assessed only in order to confirm its conclusions." 1015
The European Union adds that even documents that were not found by previous panels to constitute
"subsequent agreements regarding the interpretation of the treaty or the application of its
provisions" under Article 31(3)(a) of the Vienna Convention were nevertheless considered as
providing useful guidance.1016 Accordingly, the European Union submits that, "even if Brazil would
be right (quod non), the Transparency Mechanisms would still be able to play a useful interpretative
role on the notification issue."1017
5.374. Similarly, Japan submits that "Brazil appears to make much of the fact" that the Panel
referred to the Transparency Mechanisms as "subsequent agreements regarding the interpretation
of the treaty or the application of its provisions" under Article 31(3)(a) of the Vienna Convention.1018
5.375. In interpreting paragraph 4(a), we have considered that this provision envisages a degree
of specificity in the notification adopted thereunder and, at a minimum, a notification pursuant to
paragraph 4(a) should state under which provision of the Enabling Clause the differential and more
favourable treatme nt has been adopted. At the same time, we have also considered that
paragraph 4(a) does not exclude the possibility that a single notification can state that the notifying
Member considers an arrangement or a measure to have been adopted pursuant to one or more
subparagraphs of paragraph 2. However, we have also explained that in the absence of any such
indication, it cannot be taken for granted that a complaining party is on notice that the notifying
Member considers the notified arrangement or measure to have been adopted pursuant to one or
more subparagraphs of paragraph 2. Therefore, to the extent that the Panel observed that
paragraph 4(a) "does not explicitly indicate what precisely is required to be notified" 1019,
we disagree.
5.376. That said, we note that the Panel ultimately found that paragraph 4(a) "does not … permit[]
notification of a measure adopted under one provision of the Enabling Clause to serve equally as a
notification of that measure being adopted under another provision of the Enabling Clause, unless
indicated in the notification itself".1020 We agree with this conclusion of the Panel.
5.377. Contrary to what Brazil contends, in reaching this conclusion, the Panel did not base its
reasoning exclusively on the provisions of the Transparency Mechanisms. Rat her, the Panel found
that "the Transparency Mechanisms serve to further confirm" that paragraph 4(a) does not permit
a notification of a measure adopted under one provision of the Enabling Clause to function as a

1010 Brazil's appellant's submission, para. 397 (referring to Panel Reports, fn 1443 to para. 7.1080).
1011 Brazil's appellant's submission, para. 397.
1012 Brazil's appellant's submission, para. 399 (quoting Transparency Mechanism for Regional
Trade Agreements, General Council Decision of 14 December 2006, WT/L/671, para. 1).
1013 Brazil's appellant's submission, para. 399 (quoting Transparency Mechanism for Preferential Trade
Arrangements, General Council Decision of 14 December 2010, WT/L/806, Article A.2).
1014 European Union's appellee's submission, para. 486 (referring to Brazil's appellant's submission,
para. 397).
1015 European Union's appellee's submission, para. 485 (referring to Panel Reports, fn 1443 to
para. 7.1080). (emphasis original)
1016 European Union's appellee's submission, para. 488 and fns 465-466 thereto (referring to
Appellate Body Report, US – Tuna II (Mexico), para. 372; Panel Report, India – Agricultural Products, fn 1197
to para. 7.679).
1017 European Union's appellee's submission, para. 490.
1018 Japan's appellee's submission, para. 163.
1019 Panel Reports, para. 7.1106.
1020 Panel Reports, para. 7.1079.
WT/DS472/AB/R • WT/DS497/AB/R

notification of adoption of that same measu re under another provision of the Enabling Clause.1021
The Panel further recalled that it had " concluded … without reference to the Transparency
Mechanisms" that paragraph 4(a) does not permit notification of a measure adopted pursuant to
one provision of the Enabling Clause to suffice as notification of that same measure being adopted
pursuant to a different provision of the Enabling Clause.1022 Thus, having already reached a
conclusion on what is permitted under paragraph 4(a), the Panel found added support for its
conclusion from the provisions of the Transparency Mechanisms.
5.378. Brazil further contends that "in the case of developing country Members, paragraphs 2(a)
and 2(b) of the Enabling Clause are both contained in paragraph 2(c)."1023 According to Brazil, under
paragraph 2(c) "[ d]eveloping country Members may adopt tariff preferences vis-à-vis other
developing country Members without having to create a Generalized System of Preferences." 1024
Similarly, under that provision "a developing country Member may adopt preferential treatment with
regard to non-tariff measures."1025 Therefore, Brazil submits that the fact that a given agreement
has been notified under paragraph 2(c), as was the case in t he present dispute, suffices for the
complaining parties to have been on notice that the measures at issue fell under the
Enabling Clause.1026
5.379. Paragraph 2 of the Enabling Clause provides, in relevant part:
2. The provisions of paragraph 1 apply to the following:
(a) Preferential tariff treatment accorded by developed country Member s to
products originating in developing countries in accordance with the
Generalized System of Preferences;
(b) Differential and more favourable treatment with respect to the provis ions
of the General Agreement concerning non-tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of
the GATT;
(c) Regional or global arrangements entered into amongst developing country
Members for the mut ual reduction or elimination of tariffs and, in
accordance with criteria or conditions which may be prescribed by the WTO,
for the mutual reduction or elimination of non-tariff measures, on products
imported from one another[.]1027

5.380. Subparagraphs (a) to (c) of paragraph 2 of the Enabling Clause provide for differential and
more favourable treatment with respect to which the authorization of paragraph 1 of the
Enabling Clause applies. Paragraph 2(a) provides for differential and more favourable treatment in
the form of preferential tariff treatment accorded by developed -country Members to products
originating from developing countries. Paragraph 2(b) provides for differential and more favourable
treatment concerning non -tariff measures. Unlike paragraph 2(a), wh ich specifically speaks of
"[p]referential tariff treatment accorded by developed country Members to … developing countries",
paragraph 2(b) does not define either the grantor or the beneficiary of the differential and more
favourable treatment. Paragraph 2(c), unlike both paragraphs 2(a) and 2(b), provides for differential
and more favourable treatment concerning tariff and non -tariff measures between developing
country Members pursuant to "[r]egional or global arrangements".
5.381. As noted above, Brazil assert s that "in the case of developing country Members,
paragraphs 2(a) and 2(b) … are both contained in paragraph 2(c)."1028 Even assuming it to be so, it
does not necessarily follow that the notification of a measure as having been adopted under

1021 Panel Reports, para. 7.1080. (emphasis added) The Panel noted this to be the case "at least in
respect of those alleged notifications that took place subsequent to the adoption of one or both transparency
mechanisms". (Ibid. (emphasis original))
1022 Panel Reports, fn 1443 to para. 7.1080. (emphasis added) The Panel noted that "with respect to
those alleged notifications that occurred prior to the adoption of the transparency mechanisms, it [was]
sufficient for the Panel's purposes to note that its interpretation of paragraph 4(a) of the Enabling Clause is not
contradicted by the Transparency Mechanisms." (Ibid. (emphasis original))
1023 Brazil's appellant's submission, para. 400.
1024 Brazil's appellant's submission, para. 400.
1025 Brazil's appellant's submission, para. 400.
1026 Brazil's appellant's submission, para. 400.
1027 Fns omitted.
1028 Brazil's appellant's submission, para. 400.
WT/DS472/AB/R • WT/DS497/AB/R

paragraph 2(c) would suffice for the purposes of paragraph 2(b) insofar as the complaining party's
burden to raise and identify paragraph 2(b) of the Enabling Clause in its panel request is concerned.
This would be the case in circumstances where, as we have explained and as the Panel also noted,
it is "indicated in the notification itself". 1029 As we have explained, a notification pursuant to
paragraph 4(a) speaks to and has a direct bearing on a complaining party's knowledge and,
consequently, on its burden to raise the Ena bling Clause and identify the relevant provision(s)
thereof in its panel request.
5.382. In light of the foregoing considerations, we uphold the Panel's findings , in
paragraphs 7.1082-7.1083 of the Panel Reports, that Brazil has not demonstrated that the
differential tax treatment under the INOVAR-AUTO programme was notified to the WTO as adopted
pursuant to paragraph 2(b), and therefore, in the circumstances of this case, the complaining parties
were not required to raise and identify paragraph 2(b) of the Enabling Clause in their panel requests.
5.5.1.3 Whether the Panel erred in finding that the differential tax treatment under the
INOVAR-AUTO programme was not notified pursuant to paragraph 4(a) as having been
adopted under paragraph 2(c) of the Enabling Clause
5.383. We now turn to review whether the differential tax treatment under the INOVAR -AUTO
programme was notified pursuant to paragraph 4(a) of the Enabling Clause as having been adopted
under paragraph 2(c) of the Enabling Clause, such that the complaining parties could be considered
to have been on notice and, consequently, had the burden to raise and identify paragraph 2(c) in
their panel requests.
5.384. Before the Panel, Brazil contended that "the complainants were sufficiently 'on notice' that
the challenged measure was a dopted (and justified) under the Enabling Clause because the 1980
Treaty of Montevideo … was notified to the WTO under paragraph 2(c) of the Enabling Clause."1030
Brazil further submitted that the differential and more favourable treatment granted to Argentin a,
Mexico, and Uruguay (in the form of internal tax reductions) is based on ECAs that were negotiated
under the auspices of the 1980 Treaty of Montevideo and that in turn "were also notified to the
WTO".1031 Brazil contended that the differential tax treatmen t at issue under the INOVAR -AUTO
programme is "a corollary of these ECAs, and thus did not require additional notification".1032
5.385. The Panel stated that it should first decide "whether the notification of the [1980] Treaty of
Montevideo and the ECAs could subs tantively serve as a notification of the adoption under
paragraph 2(c) … of the arrangement introducing the differential and more favourable treatment
(in the form of tax treatment) found to be inconsistent with Article I:1 of the GATT 1994".1033
The Panel considered that "the differential and more favourable treatment sought to be justified
under paragraph 2(c) must have a close and genuine link to the arrangement notified to the WTO
such as to put other WTO Members on notice as to the adoption of the diffe rential and more
favourable treatment pursuant to the Enabling Clause."1034
5.386. The differential tax treatment under the INOVAR -AUTO programme was not specifically
notified to the WTO pursuant to paragraph 4(a) of the Enabling Clause as having been adopted under
paragraph 2(c). In order to determine that the complaining parties could be considered to have been
on notice that the differential tax treatment under the INOVAR -AUTO programme was taken
pursuant to arrangements adopted under paragraph 2(c), the Panel needed to determine whether
the notification of the 1980 Treaty of Montevideo and the ECAs could substantively serve as a

1029 Panel Reports, para. 7.1079.
1030 Brazil's appellant's submission, para. 395. (fn omitted)
1031 Brazil's appellant's submission, para. 395 (referring to Brazil's first written submission to the Panel,
para. 742 (DS472)). The Panel, as we recall, noted that the ECAs were allegedly notified at various times
between 1992 and 2013. (Panel Reports, fn 1443 to para. 7.1080)
1032 Brazil's appellant's submission, para. 395 (referring to Brazil's second written submission to the
Panel, para. 181; first written submission to the Panel, paras. 638-639 (DS 472)).
1033 Panel Reports, para. 7.1105.
1034 Panel Reports, para. 7.1108. (emphasis omitted) As explained below in section 5.5.3 of these
Reports, it suffices that the differential and more favourable treatment sought to be justified under
paragraph 2(c) has a "genuine" link or a rational connection with the arrangement notified to the WTO.
Therefore, we disagree with the Panel to the extent it considered that in order for any differential and more
favourable treatment to be justified under paragraph 2(c), there must exist both a "close" and "genuine" link to
the arrangement notified to the WTO.
WT/DS472/AB/R • WT/DS497/AB/R

notification of the adoption under paragraph 2(c) of the differential tax treatment under the
INOVAR-AUTO programme found to be inconsis tent with Article I:1 of the GATT 1994.1035 In so
doing, the Panel rightly considered the question to be whether Brazil had demonstrated that "the RTA
notified to the WTO put the rest of the Membership on notice as to the adoption of the particular
differential and more favourable treatment sought to be justified under paragraph 2(c)."1036
5.387. We recall that Decree No. 7,819/2012 is the instrument that provides for the differential tax
treatment under the INOVAR -AUTO programme, the measure at issue in this case. 1037 Articles 21
and 22(I) of Decree 7,819/2012, respectively, provide for a 30 -percentage-point reduction of the
IPI tax rates on certain categories of motor vehicles if:
a. Under Article 21, those motor vehicles are imported into Brazil by companies
accredited as "domestic manufacturers" or "investors" under the INOVAR -AUTO
programme, and the motor vehicles are imported from "countries that are signatories
to the agreements established by Legislative Decree 350 of 21 November 1991,
Decree 4,458 of 5 November 2002 and Decree 6[,]500 of 2 July 2008"; or
b. Under Article 22(I), those motor vehicles are imported into Brazil by any company
(whether accredited or unaccredited) under the INOVAR -AUTO programme, and the
motor vehicles are imported "under the agreement est ablished by Decree 6,518 of
30 July 2008 and Decree 7,658 of 23 December 2011".1038
5.388. Decree 350 of 21 November 1991, referred to in Article 21 of Decree 7,819/2012, provides
for the implementation of the MERCOSUR Treaty for the formation of a common market bet ween
Argentina, Brazil, Paraguay, and Uruguay. 1039 Decree 4,458 of 5 November 2002, referred to in
Article 21 of Decree 7,819/2012, provides for the implementation of the Economic
Complementation Agreement No. 55 between MERCOSUR and Mexico (ECA No. 55).1040
Decree 6,500 of 2 July 2008, referred to in Article 21 of Decree 7,819/2012, provides for the
implementation of the 38th Additional Protocol to Economic Complementation Agreement No. 14
between Argentina and Brazil (ECA No. 14).1041 Decree 6,518 of 30 July 2008, referred to in
Article 22(I) of Decree 7,819/2012, provides for the implementation of the 68th Additional Protocol
to Economic Complementation Agreement No. 2 between Brazil and Uruguay (ECA No. 2). 1042
Decree 7,658 of 23 December 2011, referred to in Article 22(I) of Decree 7,819/2012, lays down
provisions concerning the implementation of the 69th Additional Protocol to Economic
Complementation Agreement No. 2 between Brazil and Uruguay.1043
5.389. Brazil submits that the 1980 Treaty of Montevideo and the ECAs "have a n ample scope
comprising internal tax reduction measures". 1044 Brazil refers to Articles 3(c), 3(e), and,
in particular, Article 9(g) of the 1980 Treaty of Montevideo. 1045 Brazil asserts that Article 21 of

1035 Panel Reports, para. 7.1105.
1036 Panel Reports, para. 7.1108.
1037 Panel Reports, para. 2.100 (referring to Decree 7,819/2012 (Panel Exhibit JE-132)).
1038 Panel Reports, para. 7.1014. (emphasis omitted; fns omitted)
1039 Panel Reports, fn 246 to para. 2.102 (referring to Decree 350 of 21 November 1991 on the Treaty
for the Formation of a Common Market between the Republic of Argentina, the Federative Republic of Brazil,
the Republic of Paraguay and the Oriental Republic of Uruguay (MERCOSUR) (Degree 350/1991) (Panel Exhibit
JE-163 (rev))).
1040 Panel Reports, fn 246 to para. 2.102 (referring to Decree 4,458 of 5 November 2002 on the
Economic Complementation Agreement No. 55 between MERCOSUR and the United Mexican States
(Decree 4,458/2002) (Panel Exhibit JE-164 (rev))).
1041 Panel Reports, fn 246 to para. 2.102 (referring to Decree 6,500 of 2 July 2008 on the Economic
Complementation Agreement No. 14 between the Republic of Argentina and the Federative Republic of Brazil
(Decree 6,500/2008) (Panel Exhibit JE-165 (rev))).
1042 Panel Reports, fn 255 to para. 2.102 (referring to Decree 6,518 of 30 July 2008 providing for the
implementation of the 68th Additional Protocol to Economic Complementation Agreement No. 2, signed
between the Governments of the Federative Republic of Brazil and the Oriental Republic of Uruguay
(Decree 6,518/2008) (Panel Exhibit JE-203 (rev))).
1043 Panel Reports, fn 255 to para. 2.102 (referring to Decree 7,658 of 23 December 2011 laying down
provisions concerning the implementation of the 69th Additional Protocol to Economic
Complementation Agreement No. 2 signed by the Governments of the Federal Republic of Brazil and the
Oriental Republic of Uruguay (Decree 7,658/2011) (Panel Exhibit JE-204 (rev))).
1044 Brazil's appellant's submission, para. 422.
1045 Brazil's appellant's submission, para. 422.
WT/DS472/AB/R • WT/DS497/AB/R

Decree 7,819/2012 "makes an explicit reference to these legal instruments" 1046, and therefore
"the tax treatment at issue under [the] INOVAR-AUTO [programme] was a corollary of these ECAs,
and thus did not require additional notification."1047
5.390. In response, Japan submits that the 1980 Treaty of Montevideo "does not contemplate the
specific preferential tax treatment conferred by Articles 21 and 22 of Decree 7,819".1048
The European Union adds that the references to the three decrees in Article 21 of
Decree 7,819/2012 "nowhere mention the provisions in those decrees referring to preferential tax
treatment".1049 Both the European Union and Japan further contend that Brazil makes reference to
those decrees in Article 21 of Decree 7,819/2012 simply because it wants to avoid referring to the
beneficiary countries directly by name.1050
5.391. We recall that the Panel examined the provisions of the 1980 Treaty of Montevideo to
determine if the internal tax reductions under the INOVAR-AUTO programme, i.e. the differential tax
treatment at issue, had a genuine link to the 1980 Treaty of Montevideo that had been notified as
adopted under paragraph 2(c) of the Enabling Clause. The Panel, in particular, reviewed Articles 3(c)
and 3(e)1051, Article 91052, and Article 111053 of the 1980 Treaty of Montevideo and, based on its

1046 Brazil's appellant's submission, para. 382.
1047 Brazil's appellant's submission, para. 395. (fn omitted) See also Panel Reports, para. 7.1072
(referring to Brazil's second written submission to the Panel, para. 181). We observe that the Panel noted that
"Brazil maintains that the tax reductions under Article 21 of Decree 7,819/2012 'are not accorded because of
the MERCOSUR Treaty'". (Panel Reports, para. 7.1031 (quoting Brazil's comments to other parties' responses
to Panel question No. 52)) On appeal, Brazil does not take issue with this statement by the Panel.
1048 Japan's appellee's submission, para. 160.
1049 European Union's appellee's submission, para. 515.
1050 European Union's appellee's submission, para. 515; Japan's appellee's submission, para. 175.
1051 Article 3 of the 1980 Treaty of Montevideo provides, in relevant part:
In the implementation of this Treaty and in the advance towards its final objective, the member
countries shall bear in mind the following principles:
…
(c) Flexibility, characterized by the capacity to allow the conclusion of partial agreements,
regulated in a manner compatible with the gradual achievement of their convergence and with
the strengthening of ties of integration;
…
(e) Multiplicity, to make possible various types of agreement between member countries in
harmony with the objectives and functions of the integration process, using all instruments
capable of activating and expanding regional markets.
(Panel Reports, para. 7.1110 and fn 1472 thereto (quoting the 1980 Treaty of Montevideo (Panel Exhibit
BRA-93), Article 3; referring to Brazil's response to Panel question No. 52))
1052 Article 9 of the 1980 Treaty of Montevideo provides:
Partial agreements shall be subject to the following general rules:
(a) They shall be open for accession, after prior negotiations, to the other member countries;
(b) They shall contain clauses advocating convergence so that their benefits extend to all
member countries;
(c) They may contain clauses advocating convergence with other Latin American countries, in
conformity with the mechanisms established in this Treaty;
(d) They shall recommend different treatment for the three categories of countries recognized by
this Treaty; each agreement shall specify the kind of treatment to be applied and negotiation
procedures for its periodic revision at the request of any member country which considers itself
at a disadvantage;
(e) Tariff reductions may be applied to the same products or tariff sub-items and on the basis of
a percentage reduction in the tariffs on imports originating from non-participating countries;
(f) They shall be applied for a minimum period of one year; and
(g) They may include, among others, specific rules regarding origin, safeguard clauses, non-tariff
restrictions, withdrawal of concessions, renegotiation of concessions, denunciation, co-ordination
and harmonization of policies. In the event that such specific rules have not been adopted,
account will be taken of the provisions adopted by member countries on the matters in question.
(Panel Reports, para. 7.1110 and fn 1473 thereto (quoting the 1980 Treaty of Montevideo (Panel Exhibit
BRA-93), Article 9; referring to Brazil's second written submission to the Panel, para. 179))
1053 Article 11 of the 1980 Treaty of Montevideo provides:
The economic complementarity agreements shall be designed inter alia to promote the maximum
utilization of the factors of production, to stimulate economic complementarity, to ensure
equitable conditions of competition, to facilitate the competitiveness of products on the
international market and to encourage the balanced and harmonious development of member
countries.
These agreements shall be subject to the specific rules to be established for this purpose.
WT/DS472/AB/R • WT/DS497/AB/R

review, found that "none of the provisions cited to in the [1980] Treaty of Montevideo" had any
relation "in and of themselves" to the differential tax treatment under the INOVAR-AUTO programme
(in the form of interna l tax reductions accorded to some but not other Members) found to be
inconsistent with Article I:1 of the GATT 1994.1054
5.392. Articles 21 and 22(I) of Decree 7,819/2012, which provide for the differential tax treatment
under the INOVAR -AUTO programme at issue , do not refer to th e 1980 Treaty of Montevideo.
We observe that Article 4 of the 1980 Treaty of Montevideo provides for the conclusion of partial
agreements, which in turn, pursuant to Article 9(g), "may include … specific rules regarding …
non-tariff restrictions". Article 3 of the 1980 Treaty of Montevideo enumerates the "principles" that
signatories shall bear in mind and includes in subparagraph (e) the principle of "[m]ultiplicity",
pursuant to which signatories are "to make possible various types of agre ement between member
countries in harmony with the objectives and functions of the integration process, using all
instruments capable of activating and expanding regional markets". The 1980 Treaty of Montevideo
thus does not itself specify any rules regarding internal tax reductions. We therefore see no reason
to disagree with the Panel's finding that "none of the provisions cited to in the [1980] Treaty of
Montevideo" have any relation, "in and of themselves", to the differential tax treatment under the
INOVAR-AUTO programme (in the form of internal tax reductions accorded to some but not other
Members) found to be inconsistent with Article I:1 of the GATT 1994.1055
5.393. That said, we note that Articles 21 and 22(I) of Decree 7,819/2012 fall under Chapter VII
thereof, entitled "Tax Rates and Suspension of IPI". As noted, Articles 21 and 22(I) of
Decree 7,819/2012 provide for a reduction of the IPI tax rates on certain categories of motor vehicles
when they are imported into Brazil from the countries that are signato ries to the above-mentioned
ECAs. The reference to the ECAs in Articles 21 and 22(I) of Decree 7,819/2012, in our view, is limited
to identifying the countries, imports from which benefit from the IPI tax reduction. These ECAs, in
turn, do not, however, in and of themselves, refer to internal taxation. In this regard, we recall that
the Panel reviewed the provisions of the relevant ECAs to determine if the internal tax reductions
(in the form of IPI tax reductions) under the INOVAR-AUTO programme had a genuine link to these
ECAs that had been notified as adopted under paragraph 2(c) of the Enabling Clause.
5.394. The Panel noted that "Brazil has not pointed to a single provision of any ECA" that would
attest to "the fundamental premise of Brazil's argument, namely that the INOVAR-AUTO programme
is implementing the objectives of the ECAs".1056 Based on its review, the Panel found that it "could
not discern any such relationship".1057
5.395. We observe that, in reaching this conclusion, the Panel noted that , while "ECA No. 55,
between MERCOSUR and Mexico, indicates that its objective is to 'lay the f oundations for the
establishment of free trade in the motor vehicle sector and to promote the productive integration
and complementation of their respective motor vehicle sectors'", the definition of "free trade" is
limited to "tariff reductions", and the term "tariff" is defined as c oncerning "taxes or charges
'in connection with importation of goods'". 1058 With respect to the 38th Additi onal Protocol to
ECA No. 14 between Argentina and Brazil, the Panel noted that this Additional Protocol indicates that
"automotive goods shall be placed on the market between the parties with a 100% preferential tariff
(0% of ad valorem tariff within the area) provided that the origin requirements and the conditions
laid down in the Agreements have been met."1059 Similarly, we observe that with respect to the 68th
Additional Protocol to ECA No. 2 between Brazil and Uruguay, the Panel noted that this Additional
Protocol indicates that "motor vehicle products shall be sold bet ween the Parties with 100%
(one hundred) preference (0% ( zero) 'ad valorem' intra-zone tariff), whenever they meet the

(Panel Reports, para. 7.1110 and fn 1474 thereto (quoting the 1980 Treaty of Montevideo (Panel Exhibit
BRA-93), Article 11; referring to Brazil's first written submissions to the Panel, para. 706 (DS472) and
para. 638 (DS497)))
1054 Panel Reports, para. 7.1112.
1055 Panel Reports, para. 7.1112.
1056 Panel Reports, para. 7.1112.
1057 Panel Reports, para. 7.1112.
1058 Panel Reports, para. 7.1113 (quoting Decree 4,458/2002 (Panel Exhibit JE-164 (rev)), Articles 1
and 2).
1059 Panel Reports, para. 7.1113 (quoting Decree 6,500/2008 (Panel Exhibit JE-165 (rev)), Article 9).
WT/DS472/AB/R • WT/DS497/AB/R

requirements of origin and the conditions set out in this Agreement."1060 The Panel thus found that
"these provisions are indicative of tariff preferences … [and] do not refer to internal taxation."1061
5.396. On appeal, Brazil has not identified any provisions of the ECAs that would support its
contention that "the [differential] tax treatment … under [the] INOVAR -AUTO [programme is] a
corollary of these ECAs."1062 Neither do we find Brazil to have demonstrated that there is a rational
connection between the IPI tax reduction provided under the INOVAR -AUTO programme and the
above-mentioned ECAs, save to the extent of identifying the countries that are signatories to these
ECAs. To the contrary, the above -mentioned ECAs, in our view (and as also noted by the Panel),
provide for the adoption of tariff preferences in the automotive sector and do not refer to internal
taxation and therefore have no genuine link to the differential tax treatment in the form of IPI ta x
reductions under the INOVAR-AUTO programme. In the absence of a genuine link with the ECAs, we
do not see how the INOVAR -AUTO programme according the differential and more favourable
treatment in the form of IPI tax reductions could be considered to have been notified as having been
adopted under paragraph 2(c), pursuant to paragraph 4(a), of the Enabling Clause. Accordingly, we
agree with the Panel that "Brazil has not demonstrated how the … tax reductions found to be
inconsistent under Article I:1 of the GATT 1994 are related to the RTA that Brazil has notified to the
WTO (the [1980] Treaty of Montevideo) or the ECAs allegedly implementing that RTA."1063
5.397. In light of the foregoing considerations, we uphold the Panel's finding, in paragraph 7.1119
of the Panel Reports, that the differential and favourable treatment (i.e. the differential tax
treatment in the form of internal tax reductions) under the INOVAR -AUTO programme was not
notified as adopted under paragraph 2(c) of the Enabling Clause , as required pur suant to
paragraph 4(a). Consequently, we also uphold the Panel's finding , in paragraph 7.1120 of the
Panel Reports, that, in the circumstances of this case, there was no burden on the complaining
parties to raise and identify paragraph 2(c) of the Enabling Clause in their panel requests.
5.5.2 Whether the Panel erred in its interpretation of paragraph 2(b) of the
Enabling Clause and in finding that the differential tax treatment under the INOVAR-AUTO
programme was not justified under that provision
5.398. Having upheld the Panel's finding that the complaining parties' claims were within its terms
of reference, we now turn to address Brazil's claim on appeal that the Panel erred in its interpretation
and application of the Enabling Clause in the present dispute, starting with paragraph 2(b) of the
Enabling Clause.1064 In so doing, we first examine the scope of paragraph 2(b), particular ly the
phrase "non-tariff measures governed by the provisions of instruments multilaterally negotiated
under the auspices of the GATT", following which we review the Panel's finding of whether the
differential tax treatment under the INOVAR -AUTO programme falls within the scope of that
provision.
5.399. Before the Panel, Brazil argued that "the tax reductions challenged by the complaining
parties fall within the scope of paragraph 2(b)."1065 Brazil submitted that the internal tax reductions
at issue "are non-tariff measures (NTMs) because they constitute internal taxes subject to Article III
of the GATT 1994 and, consequently, are subject to the [most-favoured nation] MFN obligation under
Article I:1 of the GATT 1994".1066 Brazil further submitted that "internal taxes a re NTMs 'governed
by the provisions of instruments multilaterally negotiated under the auspices of the GATT' because
the GATT 1947 (and subsequently the GATT 1994) are relevant multilaterally -negotiated
instruments covering internal taxation, and there is no specific agreement covering internal
taxes."1067

1060 Panel Reports, para. 7.1113 (quoting Decree 6,518/2008 (Panel Exhibit JE-203 (rev)), Article 3).
1061 Panel Reports, para. 7.1114.
1062 Brazil's appellant's submission, para. 395.
1063 Panel Reports, para. 7.1115.
1064 Brazil's appellant's submission, paras. 387-388.
1065 Panel Reports, para. 7.1086.
1066 Panel Reports, para. 7.1086 (referring to Brazil's first written submissions to the Panel,
paras. 708-709 and 729 (DS472) and paras. 640-641 and 661 (DS497); second written submission to the
Panel, paras. 167-171).
1067 Panel Reports, para. 7.1086 (quoting Brazil's second written submission to the Panel,
paras. 167-175).
WT/DS472/AB/R • WT/DS497/AB/R

5.400. The Panel noted that the issue before it included "whether internal taxes are 'non-tariff
measures governed by the provisions of instruments multilaterally negotiated under the auspices of
the GATT'".1068 The Panel, however, did not consider it necessary to define the term "non -tariff
measures" in isolation from the rest of paragraph 2(b)1069, and considered instead the question of
"[w]hether the alleged non -tariff measures at issue … have been demonstrated to be w ithin the
scope of [paragraph] 2(b)".1070 Accordingly, the Panel proceeded to assess whether paragraph 2(b)
applies to non-tariff measures governed exclusively by those provisions of the GATT 1994 that were
incorporated from the GATT 1947.1071
5.401. The Panel considered that paragraph 2(b), in referring to "[d]ifferential and more favourable
treatment with respect to the provisions of the General Agreement concerning non-tariff measures
governed by the provisions of instruments multilaterally negotiated under the auspi ces of the
GATT{}" at the time the Enabling Clause was adopted, "meant non-tariff measures other than those
non-tariff measures governed exclusively by the provisions of the GATT 1947".1072 Recalling that the
Enabling Clause was adopted by the GATT Contracting Parties during the Tokyo Round when a
number of plurilateral agreements covering certain non -tariff measures were concluded 1073, the
Panel considered that "the intended application of paragraph 2(b) must have been limited to the
discrimination explicitly pr ovided for in specific [special and differential (S&D)] provisions of the
Tokyo Round Codes."1074 The Panel noted that the provisions of the GATT 1994 that Brazil relied on,
namely Articles III:2 and III:4, "do not introduce any special and differential treatment for taxes in
the form of non-tariff measures" and "are substantively identical to provisions in the GATT 1947".1075
Accordingly, the Panel concluded that "a non-tariff measure within the scope of paragraph 2(b) must
be governed by specific provisions on special and differential treatment[] that are distinct from the
provisions of the GATT 1994 incorporating the GATT 1947."1076
5.402. For these reasons, the Panel found that "the tax reductions accorded to imported products
from Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994
are not justified under paragraph 2(b) of the Enabling Clause."1077
5.403. On appeal, Brazil disagrees that "instruments multilaterally negotiated under the auspices
of the GATT" must be "'distinct from the provisions of the GATT 1994 incorporating the GATT 1947'
because the GATT 1994 itself is an instrument which was multilaterally negotiated under the
auspices of the GATT (institution)".1078 Brazil argues that "[t]he GATT 1994 is the covered agreement
that governs internal taxation, in Article III" and the Enabling Clause itself "as it was incorporated
to the WTO as part of the GATT 1994, is, therefore, an 'instrument multilaterally negotiated under
the auspices of the GATT. '"1079 Brazil contends that the Panel inter preted paragraph 2(b) to apply
"only to specific Special and Differential (S&D) provisions present in the covered agreements other
than the GATT itself". 1080 Brazil submits that , according to the Panel's reasoning, if the
Enabling Clause is incorporated in the GATT 1994 but only applies to provisions outside of the GATT,
"it also follows that the S&D provisions prevail over the GATT and therefore the Enabling Clause

1068 Panel Reports, para. 7.1088.
1069 Panel Reports, para. 7.1088. The Panel further considered that paragraph 2(b) when read as a
whole does not refer to "non-tariff measures" generally, but rather refers to a limited category of non-tariff
measures, namely "non-tariff measures governed by the provisions of instruments multilaterally negotiated
under the auspices of the GATT". Therefore, the Panel considered that "[i]t would be unnecessary and
inappropriate … to interpret only one part of paragraph 2(b) without reference to the rest of the provision."
(Ibid., fn 1449 thereto) We note that, to the extent that the Panel chose not to define the term "non-tariff
measures" and determine whether internal taxes are "non-tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT", on appeal, none of the participants take
issue with the Panel's approach.
1071 Panel Reports, para. 7.1088.
1072 Panel Reports, para. 7.1089. (emphasis original; curly brackets added)
1073 Panel Reports, para. 7.1092.
1074 Panel Reports, para. 7.1093.
1075 Panel Reports, para. 7.1096. The Panel further noted that Brazil conceded that other than the
GATT 1994 there is no specific covered agreement dealing with internal taxation. (Ibid.)
1077 Panel Reports, para. 7.1097.
1079 Brazil's appellant's submission, para. 410.
1080 Brazil's appellant's submission, para. 408 (referring to Panel Reports, para. 7.1096).
WT/DS472/AB/R • WT/DS497/AB/R

itself, according to [the general interpretative note to] Annex 1A of the Marrakesh Agreement."1081
Brazil therefore asserts that "[t]he Panel's interpretation renders the text of paragraph 2(b) of the
Enabling Clause inutile."1082 Brazil therefore seeks reversal of the Panel's conclusion that a non-tariff
measure within the scope of paragraph 2(b) must b e governed by specific provisions on S&D
treatment that are distinct from the provisions of the GATT 1994 incorporating the GATT 1947.1083
Brazil also seeks reversal of the Panel's "consequential finding" that the internal tax reductions
accorded to imported products from Argentina, Mexico, and Uruguay and found to be inconsistent
under Article I:1 of the GATT 1994 are not justified under paragraph 2(b) of the Enabling Clause1084
and requests the Appellate Body to complete the analysis and find that "the differential tax treatment
is justified under paragraph 2(b) and complies with the requirements of paragraph 3 of the
Enabling Clause."1085
5.404. In response, the European Union asserts that "Brazil's over-creative reading", according to
which paragraph 2(b) refers to "al l the provisions of the GATT relating to non -tariff measures as
being negotiated under the auspices of the GATT (or of the WTO), does not find any support in the
text, context or the object and purpose of the Enabling Clause".1086 The European Union points to
the Panel's explanation that the Enabling Clause was adopted by the GATT CONTRACTING PARTIES
during the Tokyo Round in the context of which a number of plurilateral agreements governing
certain non-tariff measures were concluded.1087 The European Union submits that it is in this context
that the reference in paragraph 2(b) to "instruments multilaterally negotiated under the auspices of
the GATT" should be understood.1088
5.405. Japan submits that paragraph 2(b) "does not endorse exceptions to t he MFN principle with
respect to 'non-tariff measures' themselves" but instead "pertains to differential and more favourable
treatment with respect to 'the provisions of the General Agreement concerning non-tariff measures
governed by the provisions of ins truments multilaterally negotiated under the auspices of the
GATT'".1089 According to Japan, the Panel carefully interpreted those terms and confirmed that they
mean "since 'Article III:2 and III:4 of the GATT 1994 [] do not introduce any special and differential
treatment for taxes in the form of non -tariff measures'" and "there is no specific WTO Agreement
dealing with internal taxation, Brazil's measures cannot be substantially covered by
paragraph 2(b)."1090
5.406. We begin by analysing the scope of the phrase "non -tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of the GATT" as it appears in
paragraph 2(b) of the Enabling Clause. This paragraph provides, in relevant part:
2. The provisions of paragraph 1 apply to the following:
…
(b) Differential and more favourable treatment with respect to the provisions of the
General Agreement concerning non -tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT[.]1091
5.407. Paragraph 2(b) thus identifies a certain form of differential and more favourable treatment
to which the authorization of paragraph 1 of the Enabling Clause applies. In other words, a measure
that a Member claims to be excepted from a finding of inconsisten cy with Article I of the

1081 Brazil's appellant's submission, para. 412. (fn omitted)
1082 Brazil's appellant's submission, para. 412. (emphasis original)
1083 Brazil's appellant's submission, para. 431 (referring to Panel Reports, para. 7.1096).
1084 Brazil's appellant's submission, para. 431 (referring to Panel Reports, paras. 7.1097, 8.6.i,
and 8.17.j).
1085 Brazil's appellant's submission, para. 432.
1086 European Union's appellee's submission, para. 496.
1087 European Union's appellee's submission, para. 494.
1088 European Union's appellee's submission, para. 494.
1089 Japan's appellee's submission, para. 168 (quoting paragraph 2(b) of the Enabling Clause).
(emphasis added by Japan)
1090 Japan's appellee's submission, para. 168 (quoting Panel Reports, para. 7.1096; referring to
para. 7.1097).
1091 Fn omitted.
WT/DS472/AB/R • WT/DS497/AB/R

"General Agreement" "must fit within" 1092 the meaning of paragraph 2(b). To this effect,
paragraph 2(b) provides for the adoption of a limited category of differential and more favourable
treatment, namely treatment that concerns "non -tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT [as an institution]". The text
of paragraph 2(b) does not, however, support a reading of that provision as extending to the
adoption of differential and more favourable treatment concerning non-tariff measures governed by
"provisions of the General Agreement" itself. Indeed, had it been so, the latter part of paragraph 2(b)
in referring to "provisions of instruments multilaterally negotiated under the auspices of the GATT"
would be deprived of any meaning.
5.408. We find support for this reading from the contextual history surrounding the adoption of the
Enabling Clause. We recall that the Enabling Clause was adopted in 1979 during the Tokyo Round of
multilateral trade negotiations, which also witnessed the conclusion of a number of plurilateral
agreements governing various non -tariff measures, i.e. the Tokyo Round Codes. 1093 The Tokyo
Round Codes were "negotiated under the auspices of the GATT [as an institution]". We observe that
a number of these plurilateral agreements sought to further the objectives of and/or build upon
existing provisions of the GATT 1947 , and contained provisions on S&D treatment for developing
countries. The reference in paragrap h 2(b) to differential and more favourable treatment "with
respect to the provisions of the General Agreement concerning non-tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of the GATT" was in relation
to these plurilateral agreements that were negotiated under the auspices of the GATT, as an
institution and furthered the objectives of and/or built upon existing provisions of the GATT 1947.
Moreover, in using the phrase "provisions of instruments multilaterally negotiated under the auspices
of the GATT" 1094, as opposed to "instruments multilaterally negotiated under the auspices of the
GATT", paragraph 2(b) referred to specific provisions of these plurilateral agreements, in particular,
the S&D treatment provisions, and not the entire agreements themselves.
5.409. We find additional support from contemporaneous decisions adopted during the Tokyo Round
of multilateral trade negotiations. In particular, we recall the decision entitled "Action by the
CONTRACTING PARTIES on the Multilateral Trade Negotiations"1095, which recognized in paragraph 2
thereof that "as a result of the Multilateral Trade Negotiations, a number of Agreements covering
certain non-tariff measures … have been drawn up."1096 We observe that paragraph 1 of that decision
provided that the CONTRACTING PARTIES "reaffirm their intention to ensure the unity and
consistency of the GATT system, and to this end they shall oversee the operation of the system as
a whole and take action as appropriat e".1097 Paragraph 3, in particular, stated that "[t]he
CONTRACTING PARTIES also note that existing rights and benefits under the GATT of contracting
parties not being parties to these Agreements, including those derived from Article I, are not affected
by these Agreements."1098
5.410. In other words, the GATT CONTRACTING PARTIES addressed the issue of MFN treatment
arising out of Article I of the GATT 1947 by reaffirming "their intention to ensure the unity and
consistency of the GATT system" and expressly confirming t hat the benefits of the Tokyo Round
plurilateral agreements were to accrue to all the contracting parties to the GATT, even those that
were not parties to the plurilateral agreements, insofar as the subject matter of those agreements
were covered by Article I of the GATT 1947. Therefore, at the time of the conclusion of the Tokyo

1092 Appellate Body Report, EC – Tariff Preferences, para. 112.
1093 The Tokyo Round witnessed the conclusion of (i) the Agreement on Technical Barriers to Trade
(TBT Agreement); (ii) the Agreement on Government Procurement; (iii) the Agreement on Interpretation and
Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade (Subsidies and
Countervailing Duties); (iv) the Agreement on Implementation of Article VII of the General Agreement on
Tariffs and Trade (Customs Valuation Agreement); (v) the Agreement on Import Licensing Procedures;
(vi) the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade
(Anti-Dumping Agreement); (vii) the Agreement on Trade in Civil Aircraft; (viii) the International
Dairy Agreement; and (ix) the International Bovine Meat Agreement.
1094 Emphasis added.
1095 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting
Parties of 28 November 1979, GATT Document L/4905, BISD 26S/201.
1096 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting
Parties of 28 November 1979, GATT Document L/4905, BISD 26S/201, para. 2.
1097 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting
Parties of 28 November 1979, GATT Document L/4905, BISD 26S/201, para. 1.
1098 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting
Parties of 28 November 1979, GATT Document L/4905, BISD 26S/201, para. 3.
WT/DS472/AB/R • WT/DS497/AB/R

Round Codes, absent the Enabling Clause, a Contracting Party who was not a party to a Tokyo Round
plurilateral agreement could have challenged a measure taken by a party to that pl urilateral
agreement pursuant to a S&D treatment provision thereof in favour of a developing country as being
inconsistent with Article I of the GATT 1947.
5.411. The adoption of the Enabling Clause, particularly paragraph 2(b), addressed this situation.
Paragraph 2(b) provided an umbrella by excepting differential and more favourable treatment
concerning non-tariff measures governed by the provisions of instruments multilaterally negotiated
under the auspices of the GATT, i.e. differential and more favourable tr eatment accorded pursuant
to the S&D treatment provisions of the Tokyo Round Codes, from the purview of a challenge under
Article I of the GATT 1947.
5.412. The foregoing considerations therefore suggest that the phrase "non -tariff measures
governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT"
in paragraph 2(b), at the time of the adoption of the Enabling Clause, concerned non-tariff measures
taken pursuant to the S&D treatment prov isions of the Tokyo Round Codes and not the provisions
of the GATT 1947.
5.413. We note that with the entry into effect of the WTO Agreement, the Tokyo Round Codes are
no longer in force. The Enabling Clause, however, stands incorporated as an "integral part" of the
GATT 1994.1099 The Appellate Body considered in EC – Tariff Preferences that "Members reaffirmed
the significance of the Enabling Clause … with [its] incorporation … into the GATT 1994."1100 The
Uruguay Round of multilateral trade negotiations culminated in the establishment of the WTO,
following which GATT as an institution was replaced by the WTO. Article II:1 of the WTO Agreement
expressly recognizes that "[t]he WTO shall provide the common institutional framework for the
conduct of trade relations among its Members in matters related to the agreements and associated
legal instruments included in the Annexes to [the WTO] Agreement".1101 The Enabling Clause as an
"integral part" of the GATT 1994 falls within the scope of Article II:1 of the WTO Agreement.
Therefore, while at the time of its adop tion, paragraph 2(b) of the Enabling Clause speaks of
"instruments multilaterally negotiated under the auspices of the GATT" as an institution, following
the entry into force of the WTO Agreement, paragraph 2(b) refers to "instruments multilaterally
negotiated under the auspices of the [WTO]" as an institution. 1102 Paragraph 2(b) of the Enabling
Clause, following the entry into force of the WTO Agreement, thus provides for the adoption of a
limited category of differential and more favourable treatment, namely treatment that concerns
non-tariff measures governed by provisions of instruments multilaterally negotiated under the
auspices of the WTO. The GATT 1994, while an integral part of the WTO Agreement, was not
negotiated under the auspices of the WTO as an institution.
5.414. These considerations, read in light of the text, context, and circumstances surrounding the
adoption of the Enabling Clause and thereafter the establishment of the WTO, indicate that
paragraph 2(b) does not concern non-tariff measures governed by the provisions of the GATT 1994.
Instead, paragraph 2(b) speaks to non-tariff measures taken pursuant to S&D treatment provisions
of "instruments multilaterally negotiated under the auspices of the [WTO]". 1103 Brazil's contention
that paragraph 2(b) appli es to non -tariff measures taken pursuant to the provisions of the
GATT 1994 incorporating the GATT 19471104, in our view, calls for paragraph 2(b) to be given a
meaning that was not ascribed to it either at the time of its adoption or thereafter with the
establishment of the WTO. We therefore uphold the Panel's finding , in paragraph 7.1096 of the

1099 Appellate Body Report, EC – Tariff Preferences, para. 90.
1100 Appellate Body Report, EC – Tariff Preferences, para. 108 (referring to paragraph 1(b)(iv) of the
language of Annex 1A to the WTO Agreement incorporating the GATT 1994 into the WTO Agreement).
1101 Article II:1 of the WTO Agreement. We also note that Article III:2 of the WTO Agreement states in
relevant part that "[t]he WTO shall provide the forum for negotiations among its Members concerning their
multilateral trade relations in matters dealt with under the agreements in the Annexes to [the WTO]
Agreement." (Article III:2 of the WTO Agreement)
1102 We note Brazil's contention that the terms "under the auspices of the GATT" in paragraph 2(b) of
the Enabling Clause, "at present, should be read 'under the auspices of the WTO'". (Brazil's appellant's
submission, para. 410 (quoting Brazil's second written submission to the Panel, para. 174))
1103 This reading of paragraph 2(b) of the Enabling Clause does not, however, affect the S&D treatment
provisions contained in the other multilateral agreements on trade in goods in Annex 1A to the
WTO Agreement. The S&D treatment provisions of these multilateral agreements on trade in goods apply in
their own right in the context of their respective agreements as among all WTO Members.
1104 Brazil's appellant's submission, para. 410.
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Panel Reports, that "a non-tariff measure within the scope of paragraph 2(b) must be governed by
specific provisions on special and differential treatment, that are distinct from the provisions of the
GATT 1994 incorporating the GATT 1947."1105
5.415. Turning to the Panel's application of paragraph 2(b) of the Enabling Clause, we recall that
the Panel found that the provisions of the GATT 1994 relied o n by Br azil, namely Articles III:2
and III:4, "do not introduce any special and differential treatment for taxes in the form of non-tariff
measures".1106 We have considered above that paragraph 2(b) of the Enabling Clause did not apply,
at the time of its adoption, with respect to Articles III:2 and III:4 of the GATT 1947, and following
the entry into force of the WTO Agreement, does not apply with respect to Articles III:2 and III:4 of
the GATT 1994. Thus, subjecting like products of different WTO Members to different internal taxes
inconsistently with Article I:1 of the GATT 1994 cannot be justified under paragraph 2(b) of the
Enabling Clause. We therefore uphold the Panel's finding, in paragraph 7.1097 of the Panel Reports,
that the internal tax reductions under the INOVAR-AUTO programme accorded to imported products
from Argentina, Mexico, and Uruguay and found to be inconsistent under Article I:1 of the
GATT 1994 are not justified under paragraph 2(b) of the Enabling Clause.1107
5.5.3 Whether the Panel erred in its interpretation of paragraph 2(c) of the
Enabling Clause and in finding that the differential tax treatment under the INOVAR-AUTO
programme was not justified under that provision
5.416. We now turn to paragraph 2(c) of the Enabling Clause. We recall that we have a greed with
the Panel to the extent the Panel found that there is no genuine link or a rational connection between
differential tax treatment under the INOVAR -AUTO programme and the notified arrangements
adopted under paragraph 2(c). Consequently, we have upheld the Panel's finding that the differential
and favourable treatment (i.e. the differential tax treatment in the form of internal tax reductions
accorded to some but not other Members) under the INOVAR-AUTO programme was not notified as
adopted under paragraph 2(c), as required pursuant to paragraph 4(a) of the Enabling Clause . In
this section, we review whether the Panel erred in finding that the differential tax treatment under
the INOVAR-AUTO programme was not substantively justified under paragraph 2(c).
5.417. The Panel recalled that , to satisfy the notification requirement in paragraph 4(a), any
differential and more favourable treatment adopted under paragraph 2(c) must have "a close and
genuine link to an RTA sufficient to alert other WTO Members to th e adoption of such differential
and more favourable treatment pursuant to the Enabling Clause".1108 The Panel considered that a
"similar standard" applies with respect to the substantive justification under paragraph 2(c) itself.1109
Thus, the Panel found that , "[i]n order for any differential and more favourable treatment to be
justified under paragraph 2(c) of the Enabling Clause, there must exist a close and genuine link to
a 'regional arrangement entered into amongst less-developed contracting parties'."1110 In this case,
the Panel found that Brazil ha d not identified an RTA with a close and genuine link to the internal
tax reductions at issue.1111 The Panel stated that, while "Brazil has made assertions regarding the
[1980] Treaty of Montevideo and the ECAs", Brazi l has not pointed to a provision providing for tax
preferences in those RTAs nor "demonstrated how the tax reductions at issue are related to those
RTAs", and therefore how the relevant differential and more favourable treatment could be justified
under paragraph 2(c).1112 The Panel therefore found that "Brazil has not met its burden of proof in
respect of the substantive requirements of paragraph 2(c)."1113

1106 Panel Reports, para. 7.1096. In particular, the Panel noted that "Brazil concedes that other than the
GATT 1994 there is no specific WTO covered agreement dealing with internal taxation." (Ibid. (referring to
Brazil's second written submission to the Panel, para. 174))
1107 Panel Reports, para. 7.1097.
1109 Panel Reports, para. 7.1117.
1110 Panel Reports, para. 7.1117.
1111 Panel Reports, para. 7.1118.
1113 Panel Reports, para. 7.1118.
WT/DS472/AB/R • WT/DS497/AB/R

5.418. For these reasons, the Panel concluded that "the tax reductions accorded to imported
products from Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the
GATT 1994 are not justified under paragraph 2(c) of the Enabling Clause."1114
5.419. On appeal, Brazil contends that the Panel's substantive evaluation of paragraph 2(c)
"is essentially indistinguishable from its evaluation of whether the notification was sufficient under
paragraph 4(a)".1115 Brazil submits that the Panel rested its finding on its "flawed conclusion that
because the [1980] Treaty of Montevideo and the provisions of the relevant ECAs do not expressly
make reference to internal taxation, they did not have a genuine link with paragraph 2(c)" and
therefore "WTO Members could not have been expected to be informed that Brazil intended to accord
internal tax reductions to motor vehicle s from Argentina, Mexico and Uruguay". 1116 Brazil further
submits that the Panel's finding that "Brazil has not demonstrated 'how the tax reductions at issue
are related to [the] RTAs'"1117 is "directly contradicted by the facts on the record".1118 Brazil asserts
that the 1980 Treaty of Montevideo, the relevant ECAs, and LAIA have "an ample scope comprising
internal tax reduction measures".1119 Accordingly, Brazil requests the Appellate Body to reverse the
Panel's conclusion that Brazil did not meet its burden of proof with respect to the substantive
requirements of paragraph 2(c)1120 and to complete the analysis and find that "the differential tax
treatment is justified under paragraph 2(c) and complies with the requirements of paragraph 3 of
the Enabling Clause."1121
5.420. In response, the European Union asserts that what Brazil "in essence" claims in its appeal is
that "the Panel failed to make an objective assessment of the matter before it, while Brazil has not
raised a claim under Article 11 of DSU." 1122 Thus, the European Union submits that
"the Appellate Body can and should … dismiss this part of Brazil's appeal." 1123 That said, the
European Union disagrees with Brazil's contention that Article 21 of Decree 7,819/2012 contains the
necessary references and argues instead that the article does not mention the provisions in the
relevant decrees referring to preferential tax treatment.1124
5.421. Japan submits that "Brazil's claim appears to be that the Panel did not properly analyse and
weigh the facts."1125 Japan contends that "[s]uch a claim … cannot be raised by Brazil at this stage
(at least not under any other basis than potentially a DSU Article 11 claim, which Brazil did not
raise)."1126 That said, Japan submits that the Panel reached the correct conclusion concerning
paragraph 2(c) of the Enabling Clause.1127 Japan submits that Article 21 of Decree 7,819/2012 refers
to "vehicles […] originating from countries that are signatories to the agreements" established by
the relevant decrees.1128 According to Japan, "[t]he references to the relevant decrees do not identify
the provisions in those decrees referring to preferential tax treatment." 1129 Japan contends that
"Brazil makes reference to those decrees … because it wants to avoid referring to the beneficiary
countries directly by name."1130

1114 Panel Reports, para. 7.1121.
1115 Brazil's appellant's submission, para. 414.
1116 Brazil's appellant's submission, para. 419 (referring to Panel Reports, para. 7.1115).
1118 Brazil's appellant's submission, para. 422.
1119 Brazil's appellant's submission, para. 422.
1120 Brazil's appellant's submission, para. 433 (referring to Panel Reports, para. 7.1118).
1121 Brazil's appellant's submission, para. 434.
1122 European Union's appellee's submission, para. 508. (fn omitted)
1123 European Union's appellee's submission, para. 508.
1124 European Union's appellee's submission, para. 515.
1125 Japan's appellee's submission, para. 171.
1126 Japan's appellee's submission, para. 171.
1127 Japan's appellee's submission, paras. 172-174.
1128 Japan's appellee's submission, para. 175 (quoting Decree 7,819/2012 (Panel Exhibit JE-132),
Article 21).
1129 Japan's appellee's submission, para. 175.
1130 Japan's appellee's submission, para. 175.
WT/DS472/AB/R • WT/DS497/AB/R

5.422. Paragraph 2 of the Enabling Clause provides, in relevant part:
The provisions of paragraph 1 apply to the following:
…
(c) Regional or global arrangements entered into amongst developing country Members
for the mutual reduction or elimination of tariffs and, in accordance with criteria or
conditions which may be prescribed by the [WTO Members], for the mutual reduction
or elimination of non-tariff measures, on products imported from one another[.]1131
5.423. Paragraph 2(c) excepts differential and more favourable treatment accorded pursuant to
"[r]egional or global arrangements entered into amongst" developing country Members from a
finding of inconsistency with Article I of the GATT 1994. Paragraph 2(c) limits the kind of differential
and more favourable treatment to the: (i) mutual reduction or elimination of tariffs; and (ii) mutual
reduction or elimination of non-tariff measures. In case of the latter, paragraph 2(c) adds that the
"mutual reduction or elimination of non -tariff measures" have to be "in accordance with criteria or
conditions which may be prescribed" by the WTO Members. Paragraph 2(c) does not exclude the
possibility that developing country Members that are parties to regional or global arrangements may
adopt such instruments that they may deem appropriate for the mut ual reduction or elimination of
tariffs and non -tariff measures. However, it suffices that the instrument adopted that way, to be
justified under paragraph 2(c) for the differential and more favourable treatment it accords, has a
"genuine" link or a rational connection with the regional or global arrangement adopted and notified
to the WTO. Therefore, we disagree with the Panel to the extent it considered that, in order for any
differential and more favourable treatment to be justified under paragraph 2(c), there must exist
both a "close" and "genuine" link to a "regional arrangement entered into amongst" developing
country Members.1132
5.424. As noted, Brazil submits that the Panel rested its finding on its "flawed conclusion that
because the [1980] Treaty of Montevideo and the provisions of the relevant ECAs do not expressly
make reference to internal taxation, they did not have a genuine link with paragraph 2(c)".1133 We
consider that Brazil mischaracterizes the Panel's finding. The Panel did not find, as Brazil contends,
that the 1980 Treaty of Montevideo and the relevant ECAs do not bear a genuine link with the
requirements of paragraph 2(c).1134 Instead, the Panel found that "Brazil has not demonstrated how
the relevant tax reductions [under the INOVAR-AUTO programme] found to be inconsistent under
Article I:1 of the GATT 1994 are related to the RTA that Brazil has notified to the WTO (the Treaty
of Montevideo) or the ECAs allegedly implementing that RTA."1135 Consequently, the Panel was not
satisfied "how the relevant differential and more favourable treatment could be justified under
paragraph 2(c)".1136 In reaching this conclusion, the Panel examined the provisions of
the 1980 Treaty of Montevideo and found that "none of the provisions cited to in the [1980] Treaty
of Montevideo" had any relation "in and of themselves" to the differential tax treatment under the
INOVAR-AUTO programme (in the form of internal tax reductions accorded to some b ut not other
Members) found to be inconsistent with Article I:1 of the GATT 1994.1137 Turning to the relevant
ECAs referred to in Articles 21 and 22(I) of Decree 7,819/2012, the Panel noted that it "could not
discern any … relationship" that would attest to " the fundamental premise of Brazil's argument,
namely that the INOVAR-AUTO programme is implementing the objectives of the ECAs".1138
5.425. The Panel was required to undertake this analytical exercise given that, as Brazil explains
on appeal, it contended before the Panel that "the tax treatment accorded within the framework of
[the] INOVAR-AUTO [programme] … is inscribed in the context of the implementation process of
the … [ECAs] negotiated … under the umbrella of the 1980 Treaty of Montevideo."1139 Consequently,

1131 Fn omitted.
1132 Panel Reports, para. 7.1117.
1133 Brazil's appellant's submission, para. 419 (referring to Panel Reports, para. 7.1115).
1134 Brazil's appellant's submission, para. 418.
1137 Panel Reports, para. 7.1112.
1138 Panel Reports, para. 7.1112.
1139 Brazil's appellant's submission, para. 367.
WT/DS472/AB/R • WT/DS497/AB/R

as B razil further explains, the differential tax treatment was not only justified under
paragraph 2(c)1140 but also "did not require additional notification".1141
5.426. We have considered above the question whether or not the differential tax treatment under
the INOVAR-AUTO programme was notified pursuant to paragraph 4(a) of the Enabling Clause as
having been adopted under paragraph 2(c) by virtue of the notification of the 1980 Treaty of
Montevideo and the relevant ECAs under paragraph 2(c). In so doing, we have noted that Articles 21
and 22(I) of Decree 7,819/2012 do not refer to the 1980 Treaty of Montevideo and that
the 1980 Treaty of Montevideo does not itself specify any rules regarding internal tax reductions.
We have also considered that, while Articles 21 and 22(I) of Decree 7,819/2012 refer to the relevant
ECAs, those ECAs provide for the adoption of tariff preferences in the automotive sector and do not
refer to internal taxation. Accordingly, in the absence of a genuine link between the differential tax
treatment under the INOVAR -AUTO programme, on the one hand, and the 1980 Treaty of
Montevideo and the relevant ECAs, on the other hand, we have agreed with the Panel's finding that
"Brazil has not demonstrated how the … tax reductions found to be inconsistent under Article I:1 of
the GATT 1994 are related to the RTA that Brazil has notified to the WTO (the [1980] Treaty of
Montevideo) or the ECAs allegedly implementing that RTA." 1142 Therefore, to the extent that the
Panel relied on its earlier analysis concerning whether or not the INOVAR-AUTO programme, which
accords the differential and more favourable treatment (i.e. the differential tax treatment in the form
of internal tax reductions accorded to some but not other Members), had a genuine link to
"the arrangement notified to the WTO"1143 in determining if the differential and more favourable tax
treatment was substantively justified under paragraph 2(c), we find no error in the Panel's approach.
The considerations outlined by the Panel in that part of its analysis were bound to have a substantial
bearing on whether or not the differential and more favourable treatment under the INOVAR -AUTO
programme was substantively justified under paragraph 2(c), given the manner in which Brazil
framed its arguments before the Panel. Indeed, if there is no genuine link between the measure at
issue according the differential and more favourable treatment and the arrangements notified to the
WTO, it is difficult to see how the measure at issue could be substantively justified under
paragraph 2(c).
5.427. In light of the foregoing considerations, we uphold the Panel's finding, in paragraph 7.1118
of the Panel Reports, to the extent that the Panel found that Brazil has not identified any
arrangement with a genuine link to the differential tax treatment envisaged under the INOVAR-AUTO
programme. Consequently, we also uphold the Panel's finding , in paragraph 7.1121 of the
Panel Reports, that the internal tax reductions accorded under the INOVAR -AUTO programme to
imported products from Argentina, Mexico, and Uruguay and found to be inconsistent under
Article I:1 of the GATT 1994 are not justified under paragraph 2(c) of the Enabling Clause.
5.5.4 Conclusion with respect to the Enabling Clause
5.428. Paragraph 4(a) of the Enabling Clause envisages a degree of specificity in the notification
adopted thereunder. At a minimum, a notification pursuant to paragraph 4(a) should state under
which particular provision of the Enabling Clause the differential and more favourable treatment has
been adopted so as to put other Members on notice. Paragraph 4(a) does not exclude the possibility
that a single notification can state that the notifying Member considers an arrangement or a measure
to have been adopted pursuant to one or more subparagraphs of paragraph 2 of the Enabling Clause.
However, in the absence of any such indication, it cannot be taken for granted that a complaining
party is on notice of those subparagraphs of paragraph 2 that the notifying Member considers to be
applicable. A notification pursuant to paragraph 4(a) therefore speaks to and has a direct bearing
on a complaining party's knowledge. Consequently, it speaks to whether the complaining party is
required to rais e the Enabling Clause and identify the relevant provision(s) thereof in its panel
request and assert that an arrangement or a measure adopted by the responding party is
inconsistent not only with Article I:1 of the GATT 1994, but also with the relevant provisions of the
Enabling Clause. While it is for the complaining party to raise the Enabling Clause and identify the
relevant provision(s) thereof in its panel request, the burden to prove that the measure satisfies the

1140 Brazil's appellant's submission, para. 367.
1141 Brazil's appellant's submission, para. 395. (fn omitted)
1142 Panel Reports, para. 7.1115.
1143 Panel Reports, para. 7.1108.
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conditions set out in the Enabling Cl ause remains on the responding party relying on the
Enabling Clause as a defence.
5.429. With regard to whether the measure at issue (i.e. differential tax treatment under the
INOVAR-AUTO programme in the form of internal tax reductions accorded to some but not other
Members) was notified pursuant to paragraph 4(a) as having been adopted under paragraph 2(b) of
the Enabling Clause, our review of the Panel's findings indicates that Brazil has not demonstrated
that the differential tax treatment under the INOVAR-AUTO programme was notified to the WTO as
adopted under paragraph 2(b), as required pursuant to paragraph 4(a) of the Enabling Clause. We
therefore uphold the Panel's finding, in paragraphs 7.1082-7.1083 of the Panel Reports, that Brazil
has not demonstrated that the differential tax treatment under the INOVAR-AUTO programme was
notified to the WTO as adopted pursuant to paragraph 2(b), and therefore, in the circumstances of
this case, there was no burden on the complaining parties to raise and identify parag raph 2(b) of
the Enabling Clause in their panel requests.
5.430. With regard to whether the measure at issue (i.e. the differential tax treatment under the
INOVAR-AUTO programme in the form of internal tax reductions accorded to some but not other
Members) was notified pursuant to paragraph 4(a) as having been adopted under paragraph 2(c) of
the Enabling Clause, our review of the Panel's findings indicates that Brazil has not demonstrated
that the 1980 Treaty of Montevideo and the ECAs notified to the WTO have a genuine link to the
INOVAR-AUTO programme providing for the differential and more favourable treatment at issue,
and, consequently, the differential and more favourable treatment at issue was not notified to the
WTO as adopted under paragraph 2(c), as requ ired pursuant to paragraph 4(a) of the
Enabling Clause. We therefore uphold the Panel's finding, in paragraph 7.1119 of the Panel Reports,
that the differential tax treatment under the INOVAR-AUTO programme was not notified as adopted
under paragraph 2(c), as required pursuant to paragraph 4(a). Consequently, we also uphold the
Panel's finding, in paragraph 7.1120 of the Panel Reports, that, in the circumstances of this case,
there was no burden on the complaining parties to raise and identify paragraph 2(c) of the
Enabling Clause in their panel requests.
5.431. In light of the foregoing considerations, we uphold the Panel's findings, in paragraphs 8.6.h
and 8.17.i of the Panel Reports, that there was no burden on the complaining parties to raise and
identify the relevant provisions of the Enabling Clause in their panel requests, and their claims under
Article I:1 of the GATT 1994 were therefore within the Panel's terms of reference.
5.432. With respect to paragraph 2(b) of the Enabling Clause, we note that paragraph 2(b) provides
for the granting of "[d]ifferential and more favourable treatment with respect to the provisions of
the General Agreement concerning non-tariff measures governed by the provisions of instruments
multilaterally negotiated under the auspices of the GATT". Paragraph 2(b) provides for the adoption
of a limited category of differential and more favourable treatment, namely treatment that concerns
"non-tariff measures governed by the provisions of instruments multilaterally negotiated under the
auspices of the GATT" as an institution. The phrase "non-tariff measures governed by the provisions
of instruments multilaterally negotiated under the auspices of the GATT", at the time of the adoption
of the Enabling Clause, concerned non -tariff measures taken pursuant to the S&D treatment
provisions of the Tokyo Round Codes, and not the provisions of the GATT 1947. Following the entry
into force of the WTO Agreement, paragraph 2(b) of the Enabling Clause provides for the adoption
of a limited category of differential and more favourable treatment, namely treatment that concerns
non-tariff measures governed by the provisions of instruments multilaterally negotiated under the
auspices of the WTO. The GATT 1994, while an integral part of the WTO Agreement, was not
negotiated under the auspices of the WTO. These considerations read in light of the text, context,
and circumstances surrounding the adoption of the Enabling Clause and thereafter the establishment
of the WTO indicates that paragraph 2(b) does not concern non-tariff measures governed by the
provisions of the GATT 1994. Instead, paragraph 2(b) speaks to non-tariff measures taken pursuant
to S&D treatment provisions of "instruments multilaterally negot iated under the auspices of
the [WTO]".
5.433. We therefore uphold the Panel's finding , in paragraph 7.1096 of the Panel Reports, that
"a non-tariff measure within the scope of paragraph 2(b) must be governed by specific provisions
on special and differential treatment, that are distinct from the provisions of the GATT 1994
incorporating the GATT 1947."1144 We also uphold the Panel's findings, in paragraphs 7.1097, 8.6.i,

WT/DS472/AB/R • WT/DS497/AB/R

and 8.17 .j of the Panel Reports, that the tax reductions accorded under the INOVAR -AUTO
programme to imported products from Argentina, Mexico, and Uruguay and found to be inconsistent
under Article I:1 of the GATT 1994 are not justified under paragraph 2(b) of the Enabling Clause.
5.434. With respect to paragraph 2(c) of the Enabling Clause, we note that paragraph 2(c) excepts
differential and more favourable treatment accorded pursuant to "[r]egional or global arrangements
entered into amongst" developing country Members from a finding of inconsistency with Article I of
the GATT 1994. Paragraph 2(c) does not exclude the possibility that developing country Members
that are parties to regional or global arrangements may adopt such instruments that they may deem
appropriate for the mutual reduction or elimination of tariffs and non -tariff measures. However, it
suffices that the instrument adopted that way, to be justified under paragraph 2(c) for the differential
and more favourable treatment it accords, has a "genuine" link or a rational connection with the
regional or global arrangement adopted and notified to the WTO.
5.435. Our review of the Panel's findings indicates th at the Panel did not find, as Brazil contends,
that the 1980 Treaty of Montevideo and the relevant ECAs do not bear a genuine link with the
requirements of paragraph 2(c). Instead, the Panel found that Brazil has not demonstrated how the
internal tax reduc tions under the INOVAR -AUTO programme found to be inconsistent under
Article I:1 of the GATT 1994 are related to the RTA (the 1980 Treaty of Montevideo) that Brazil has
notified to the WTO or the ECAs allegedly implementing that RTA. Consequently, the Panel was not
satisfied how the relevant differential and more favourable treatment under the INOVAR -AUTO
programme could be justified under paragraph 2(c). Therefore, to the extent that the Panel relied
on its earlier analysis concerning whether or not the IN OVAR-AUTO programme, according the
differential and more favourable treatment (i.e. the differential tax treatment in the form of internal
tax reductions accorded to some but not other Members), had a genuine link to "the arrangement
notified to the WTO" i n determining if the differential and more favourable treatment was
substantively justified under paragraph 2(c), we find no error in the Panel's approach. Indeed, if
there is no genuine link between the measure at issue according the differential and more favourable
treatment and the arrangements notified to the WTO, we find it difficult to see how the measure at
issue could be substantively justified under paragraph 2(c).
5.436. We therefore uphold the Panel's finding, in paragraph 7.1118 of the Panel Reports, to the
extent that the Panel found that Brazil has not identified any arrangement with a genuine link to the
differential tax treatment envisaged under the INOVAR -AUTO programme. Consequently, we also
uphold the Panel's findings, in paragraphs 7.1121, 8.6 .i, and 8.17.j of the Panel Reports, that the
tax reductions accorded under the INOVAR-AUTO programme to imported products from Argentina,
Mexico, and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not
justified under paragraph 2(c) of the Enabling Clause.
5.6 Articles 11 and 12.7 of the DSU and Article 4.7 of the SCM Agreement
5.6.1 Introduction
5.437. In this section, we address Brazil's claim that the Panel acted inconsistently with Articles 11
and 12.7 of the DSU in recommending, pursuant to Article 4.7 of the SCM Agreement, that Brazil
withdraw the prohibited subsidies identified by the Panel within 90 days.1145 To recall briefly, during
the interim review stage of the Panel proceedings, the European Union and Japan requested that
the Panel spec ify in its recommendations the time period within which the measures must be
withdrawn, pursuant to Article 4.7 of the SCM Agreement.1146 On 6 December 2016, the Panel thus
submitted an additional question to the parties regarding the appropriate time period that the Panel
should specify in its recommendations. The Panel received the parties' responses to this question

1145 Brazil's appellant's submission, para. 436. Brazil's claim is conditional upon us upholding the Panel's
findings that the measures at issue are prohibited subsidies under Articles 3.1(a) and 3.1(b) of the
SCM Agreement. (Ibid., para. 436) Having partially upheld the Panel's findings under Article 3.1(b) of the
SCM Agreement in section 5.4 above, we are therefore called upon to address Brazil's claim under Articles 11
and 12.7 of the DSU and Article 4.7 of the SCM Agreement.
1146 Panel Reports, para. 6.15. Article 4.7 of the SCM Agreement specifies that "the panel shall
recommend that the subsidizing Member withdraw the subsidy without delay". (emphasis added)
WT/DS472/AB/R • WT/DS497/AB/R

and the parties' comments on each other's responses on 9 December 2016 and 12 December 2016,
respectively.1147
5.438. In its Report s, the Panel noted th at previous pane ls addressing the specific time period
contemplated under Article 4.7 of the SCM Agreement have "tended" to specify 90 days as the time
period in which the subsidy must be withdrawn.1148 The Panel considered it "difficult" to "reconcile"
the "'reasonable period of time' (ostensibly up to 15 months, subject to the arbitrator's discretion)"
contemplated in Article 21.3(c) of the DSU and the requirement to withdraw prohibited subsidies
"'without delay' (i.e. typically 90 days)" under Article 4.7 of the SCM Agreement.1149 Recalling the
Appellate Body's statements in Canada – Renewable Energy / Canada – Feed-in Tariff Program that
"the expedited remedy provided under Article 4.7 … is an 'important consideration'", the Panel
decided to "respect the speci fic remedy contemplated in Article 4".1150 The Panel thus added
paragraphs 8.11 and 8.22 to its Report, wherein, "[t]aking into account the procedures that may be
required to implement [its] recommendation on the one hand, and the requirement that Brazil
withdraw its subsidies 'without delay' on the other", the Panel recommended that the prohibited
subsidies identified by it be withdrawn within 90 days.1151
5.439. On appeal, Brazil claims that the Panel acted inconsistently with Articles 11 and 12.7 of the
DSU because it failed to engage with the arguments put forward by the parties and to provide a
"reasoned and adequate explanation" or a "basic rationale" for its conclusion that the prohibited
subsidies at issue be withdrawn within 90 days.1152 Noting that the Panel's reasoning was limited to
a single paragraph of its Report s, Brazil asserts, in particular, that the Panel was required – but
failed – to "explain why 90 days was appropriate in light of the 'nature of the measures' and the
'procedures that may be required to implement [the panel's] recommendation'".1153
5.440. We begin our analysis by discussing, briefly, the relevant legal standards under Articles 11
and 12.7 of the DSU as well as Article 4.7 of the SCM Agreement. Subsequently, we consider whether
the Panel acted inconsistently with Articles 11 and 12.7, as alleged by Brazil.
5.6.2 Relevant legal standards under Articles 11 and 12.7 of the DSU and Article 4.7 of
the SCM Agreement
5.441. Article 11 of the DSU provides, in relevant part, that:
[A] panel should make an objective assessment of the matter before it, including an
objective assessment of the facts of the case and the applicability of and conformity
with the relevant covered agreements, and make such other findings as will assist the
DSB in making the recommendations or in giving the rulings provided for in the covered
agreements.
The provision requires a panel to make an objective assessment of the matter before it, which
includes a requirement that the panel provide a "'reasoned and adequate' explanation" and coherent
reasoning for its findings as the initial trier of facts. 1154 A panel is required to "consider all the
evidence presented to it, assess its credibility, determine its weight, and ensure that its factual

1147 Panel Reports, para. 6.16.
1148 Panel Reports, para. 6.17 (referring to Panel Reports, Australia – Automotive Leather II, para. 10.7;
1149 Panel Reports, para. 6.17.
1150 Panel Reports, para. 6.17 (referring to Appellate Body Reports, Canada – Renewable Energy /
Canada – Feed-in Tariff Program, para. 5.7, in turn referring to Appellate Body Report, EC – Export Subsidies
on Sugar, paras. 332-335).
1151 Panel Reports, paras. 8.11 and 8.22.
1152 Brazil's appellant's submission, paras. 437, 443, and 445.
1153 Brazil's appellant's submission, para. 453 (referring to Panel Reports, Australia ‒ Automotive
EC and certain member States – Large Civil Aircraft, para. 8.6; Korea ‒ Commercial Vessels, para. 8.5;
US ‒ Tax Incentives, para. 8.6).
1154 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 881 (quoting and
referring to Appellate Body Reports, US – Softwood Lumber VI (Article 21.5 – Canada), para. 97; US – Upland
WT/DS472/AB/R • WT/DS497/AB/R

findings have a proper basis in that evidence".1155 Thus, when called on to review a panel's analysis,
the Appellate Body "cannot base a finding of inconsistency under Article 11 simply on the conclusion
that [it] might have reached a different factual finding from the one the panel reached".1156 Neither
does a pane l err simply because it declines to accord to the evidence the weight that one of the
parties believes should be accorded to it.1157
5.442. Article 12.7 of the DSU provides that "the report of a panel shall set out the findings of fact,
the applicability of relevant provisions and the basic rationale behind any findings and
recommendations that it makes." What constitutes a "basic rationale" is not defined in the covered
agreements. In Mexico – Corn Syrup (Article 21.5 – US), the Appellate Body noted that Article 12.7
"establishes a minimum standard for the reasoning that panels must provide in support of their
findings and recommendations" .1158 However, the Appellate Body cautioned that it was neither
possible nor desirable "to determine, in the abstract, the minimum st andard of reasoning that will
constitute a 'basic rationale' for the findings and recommendations made by a panel." 1159 Instead,
whether a basic rationale has been set out should be decided on a case -by-case basis, taking into
account the "facts of the case, the specific legal provisions at issue, and the particular findings and
recommendations made by a panel" .1160 In all circumstances, panels must set forth explanations
and reasons sufficient to disclose the "essential, or fundamental, justification" for their findings and
recommendations.1161 In particular, panels must identify the relevant facts and the applicable legal
norms. In applying those legal norms to the relevant facts, the reasoning of the panel must reveal
how and why the law applies to the facts. In t his way, panels will, in their reports, disclose the
essential or fundamental justification for their findings and recommendations. 1162 This does not,
however, necessarily imply that Article 12.7 requires panels to expound at length on the reasons for
their findings and recommendations. There may, for example, be instances where a panel's "basic
rationale" could be found in reasoning that is set out in other documents, such as in previous panel
or Appellate Body reports – provided that such reasoning is quoted or, at a minimum, incorporated
by reference.1163
5.443. We now consider the legal standard under Article 4.7 of the SCM Agreement, which is the
specific legal provision applied by the Panel in the present dispute. Article 4.7 provides:
If the measure in question is found to be a prohibited subsidy, the panel shall
recommend that the subsidizing Member withdraw the subsidy without de lay. In this
regard, the panel shall specify in its recommendation the time -period within which the
measure must be withdrawn.
5.444. Through the use of the word "shall", Article 4.7 requires a panel to recommend that
prohibited subsidies found to exist be withdr awn "without delay".1164 Further, Article 4.7 mandates
that a panel must specify the time period within which such withdrawal must occur.1165

1155 Appellate Body Reports, China – Rare Earths, para. 5.178 (quoting Appellate Body Report,
Brazil ‒ Retreaded Tyres, para. 185, in turn referring to Appellate Body Report, EC – Hormones,
paras. 132-133). See also Appellate Body Reports, Australia – Salmon, para. 266; EC – Asbestos, para. 161;
EC – Bed Linen (Article 21.5 – India), paras. 170, 177, and 181; EC – Sardines, para. 299; EC – Tube or Pipe
Korea ‒ Alcoholic Beverages, paras. 161-162; Korea – Dairy, para. 138; US – Carbon Steel, para. 142;
US ‒ Gambling, para. 363; US – Oil Country Tubular Goods Sunset Reviews, para. 313; EC – Selected Customs
Matters, para. 258.
1156 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1317 (quoting
Appellate Body Report, US – Wheat Gluten, para. 151).
Korea ‒ Alcoholic Beverages, para. 164.
1158 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 106.
1159 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 108 (referring to
Appellate Body Report, Korea – Alcoholic Beverages, para. 168).
1160 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 108. See also Appellate Body
Report, US – Carbon Steel (India), para. 4.194.
1161 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 106.
1162 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 108 (referring to
Appellate Body Report, Chile – Alcoholic Beverages, para. 78).
1163 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), paras. 108-109.
1164 Appellate Body Report, Brazil – Aircraft, para. 192.
1165 Appellate Body Report, Brazil – Aircraft, paras. 191-192.
WT/DS472/AB/R • WT/DS497/AB/R

5.445. The remedy under Article 4.7 of the SCM Agreement to withdraw prohibited subsidies
"without delay" is distinct from the remedy contemplated under Article 21 of the DSU. Paragraph 1
of Article 21 of the DSU requires "prompt compliance with recommendations or rulings of the DSB",
and paragraph 3 thereof allows the implementing Member "a reasonable period of time" to
implement the recommendations or rulings of the DSB, where it is impracticable to comply
"immediately".1166 We note in this regard that Article 4.7 of the SCM Agreement is listed in
Appendix 2 to the DSU as a "special or additional rule or procedure" on dispute settlement, and the
provisions of Article 21.3 of the DSU therefore "are not relevant in determining the period of time
for implementation of a finding of inconsistency with the prohibited subsidies provisions of Part II of
the SCM Agreement".1167
5.446. As regards the meaning of "without delay" in Article 4.7, the dictionary meanings of "delay"
include, as a noun, "procrastination … ; waiting, lingering"1168, and as a verb, "[t]o put off to a later
time; to defer, postpone".1169 As to the context, we note that, in requiring that prohibited subsidies
be withdrawn "without delay", Article 4.7 states that panels have to specify the time period within
which the measures must be withdrawn. Furthermore, Article 4.10 requires the DSB to grant
authorization to the compl aining Member to take appropriate countermeasures in the event the
recommendations of the DSB are not followed within the time period specified by a panel pursuant
to Article 4.7. The text and the context of Article 4.7 therefore suggest to us that the term "without
delay" in Article 4.7 is not used in the sense of requiring immediate compliance. Nor does the term
"without delay", combined with the requirement that the panel specify a time period, impose a single
standard or time period applicable in all cases. Instead, Article 4.7 requires a panel to specify a time
period that constitutes "without delay" within the realm of possibilities in a given case and
considering the domestic legal system of the implementing Member. In determining the time period
under Article 4.7 that constitutes "without delay", a panel should typically take into account the
nature of the measure(s) to be revoked or modified and the domestic procedures available for such
revocation or modification. These domestic procedures include a ny extraordinary procedures that
may be available within the legal system of a WTO Member.1170
5.447. Finally, we consider it useful to contrast the text of Article 4.7 of the SCM Agreement with
that of Article 21.3(c) of the DSU. Article 21.3 of the DSU specifies t hat, "[i]f it is impracticable to
comply immediately with the recommendations and rulings, the Member concerned shall have a
reasonable period of time in which to do so." Article 21.3(c) of the DSU in turn provides that an
arbitrator may be appointed where a reasonable time period c annot be agreed on, and that
"a guideline for the arbitrator should be that the reasonable period of time … should not e xceed
15 months from the date of adoption", although that time period "may be shorter or longer,
depending upon the particular circumstances". 1171 By contrast, Article 4.7 of the SCM Agreement
contains no reference to flexibilities depending on "circumstances". Article 4.7 simply mandates that
"the panel shall recommend that the subsidizing Member withdraw the subsidy without delay" and
that "the panel shall specify in its recommendation the time period within which the measure must
be withdrawn." Therefore, in contrast to Article 21.3(c) of the DSU, the use of the term "without
delay" in Article 4.7 constrains the latitude available to a panel in specifying the time period under
that provision.

1166 Appellate Body Report, Brazil – Aircraft, para. 191.
1167 Appellate Body Report, Brazil – Aircraft, para. 192.
1168 Oxford English Dictionary online, definition of "delay" (noun),
http://www.oed.com/view/Entry/49277?rskey=23TzlE&result=1&isAdvanced=false#eid.
1169 Oxford English Dictionary online, definition of "delay" (verb),
http://www.oed.com/view/Entry/49278?rskey=23TzlE&result=2&isAdvanced=false#eid.
1170 By contrast, we note that the existence of, and recourse to, extraordinary procedures within the
domestic legal system of a WTO Member State is a factor that is generally not taken into account in
determining the "reasonable period of time" under Article 21.3(c) of the DSU. See Award of the Arbitrator,
EC – Chicken Cuts (Article 21.3(c)), para. 49 (referring to Award of the Arbitrator, Korea – Alcoholic Beverages
(Article 21.3(c)), para. 42; Award of the Arbitrator, Chile – Price Band System (Article 21.3(c)), para. 51;
Award of the Arbitrator, US – Offset Act (Byrd Amendment) (Article 21.3(c)), para. 74).
1171 The three governing principles applicable to an arbitrator's determination of the reasonable period of
time under Article 21.3(c) of the DSU are as follows: (i) the reasonable period of time should be the shortest
period of time possible within the legal system of the implementing Member; (ii) the implementing Member
must utilize all the flexibility and discretion available within its legal and administrative system in order to
implement within the shortest period of time possible; and (iii) the "particular circumstances" of the case must
be taken into account in determining the reasonable period of time. (Award of the Arbitrator, EC – Export
Subsidies on Sugar (Article 21.3(c)), para. 61)
WT/DS472/AB/R • WT/DS497/AB/R

5.6.3 Whether the Panel acted inconsistently with Articles 11 and 12.7 of the DSU i n
recommending that Brazil withdraw the prohibited subsidies within 90 days
5.448. On appeal, Brazil claims that the Panel acted inconsistently with Articles 11 and 12.7 of the
DSU in recommending that Brazil withdraw the prohibited subsidies found to exist in th e present
dispute within 90 days. 1172 In Brazil's view, the Panel failed to engage with the arguments put
forward by the parties and to provide a "reasoned and adequate explanation" or a "basic rationale"
for its conclusion that the recommended timeframe of 9 0 days was adequate, as required under
those provisions. 1173 Brazil alleges that the Panel did not explain why "respect[ing] the specific
remedy contemplated in Article 4 of the SCM Agreement" necessitated the granting of only 90 days,
when other panels have afforded considerably more than 90 days when making specific
recommendations under Article 4.7.1174 In Brazil's view, in order to provide a "reasoned and
adequate explanation" or "basic rationale" for its conclusion, the Panel was required to explain why
90 days was appropriate in light of the "nature of the measures" 1175 and the "procedures that may
be required to implement [the panel's] recommendation". 1176 By failing to provide such an
explanation, Brazil alleges that the Panel acted inconsistently with its oblig ations under Articles 11
and 12.7 of the DSU. 1177 Consequently, Brazil requests us to reverse the Panel's findings, in
paragraphs 8.11 and 8.22 of its Report s, and to complete the legal analysis and recommend that
Brazil withdraw the prohibited subsidies at issue within 18 months from the adoption of the
recommendations and rulings of the DSB.1178
5.449. Requesting the Appellate Body to reject Brazil's claim 1179, the European Union and Japan
observe that panels do not need to address in their reports every argument or all evidence raised
by the parties 1180, and the fact that panels are required to set forth explanations and reasons
"sufficient to disclose the essential, or fundamental, justification" for their findings and
recommendations does not necessarily imply that Article 12.7 requires panels "to expound at length
on the reasons for their findings and recommendations".1181 In the appellees' view, the Panel came
to its conclusion after considering the parties' views and had "taken into account the procedures that
may be required to implement the recommendation", on the one hand, and the requirement under
Article 4.7 of the SCM Agreement that prohibited subsidies be withdrawn "without delay", on the
other hand. 1182 The European Union further notes that the Panel supported its co nclusion by
observing a trend to specify 90 days in previous cases.1183 Moreover, the European Union considers
that Brazil "appears to disagree with the Panel's conclusion" and that this does not mean that the
Panel has failed to provide a basic rationale for its recommendation.1184 Japan makes a similar
argument that Brazil's claim on appeal "appears to be simply an effort to relitigate the question that
the Panel already raised and on which it carefully considered all of the parties' views, as reflected in
Panel question 83 to the Parties". 1185 The European Union observes that panels in previous cases
"have motivated the 90-days period on the same basis [as the Panel], i.e. without the need to go

1172 Brazil's appellant's submission, para. 436.
1173 Brazil's appellant's submission, paras. 437, 443, and 445.
1174 Brazil's appellant's submission, para. 447 (referring to Panel Reports, US – Upland Cotton,
1175 Brazil's appellant's submission, para. 453 (quoting Panel Reports, Australia – Automotive Leather II,
US ‒ Tax Incentives, para. 8.6).
1176 Brazil's appellant's submission, para. 453 (quoting Panel Reports, Brazil – Aircraft, para. 8.5;
1177 Brazil's appellant's submission, para. 453.
1178 Brazil's appellant's submission, paras. 454 and 461.
1179 European Union's appellee's submission, para. 532; Japan's appellee's submission, para. 184.
1180 European Union's appellee's submission, para. 528; Japan's appellee's submission, para. 181.
1181 European Union's appellee's submission, para. 528 (referring to Appellate Body Report,
Mexico ‒ Corn Syrup (Article 21.5 – US), paras. 108-109); Japan's appellee's submission, para. 181 (referring
to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), paras. 108-109).
1182 European Union's appellee's submission, para. 529; Japan's appellee's submission, para. 182.
1183 European Union's appellee's submission, para. 529.
1184 European Union's appellee's submission, para. 530.
1185 Japan's appellee's submission, para. 184. Panel question No. 83 to the parties stated: "in light of the
reference in Article 4.7 of the SCM Agreement to withdrawal of a subsidy 'without delay', could the parties
please indicate what they consider is the time period within which the relevant subsidies in this dispute should
be withdrawn, as well as their reasons for indicating such a time period?".
WT/DS472/AB/R • WT/DS497/AB/R

into a detailed reasoning to support their conclusions" 1186, and conside rs that, in any event, the
Panel did not err in recommending a timeframe of 90 days, because Brazil " can withdraw the
prohibited subsidies immediately through provisional measures ( Medida Provisória) which are
adopted by the executive branch".1187
5.450. The main issue before us in the present case is whether the Panel provided a "reasoned and
adequate explanation" or "basic rationale", in accordance with Articles 11 and 12.7 of the DSU, for
its recommendation, in paragraphs 8.11 and 8.22 of its Reports, that Brazil withdraw the prohibited
subsidies found to exist within 90 days. We do not share the appellees' view that Brazil simply
appears to take issue with the Panel's conclusion and is thus merely recasting its arguments before
the Panel in the guise of a claim under Article 11 of the DSU.1188 Although Brazil also disagrees with
the Panel's final conclusion regarding the time period of 90 days, we note that its appeal is directed
at the Panel's analysis in its Reports and whether that analysis constituted a "reasoned and adequate
explanation" or "basic rationale" for its conclusion that 90 days is the appropriate time. We thus do
not consider that Brazil is simply recasting factual arguments made before the Panel in the guise of
an Article 11 claim.1189 Rather, the issue that Brazil raises on appeal concerns the Panel's treatment
of information on the record and, in particular, whether its failure to engage with the parties'
arguments and to "explain why 90 days was appropriate in light of the 'nature of the measures' and
the 'procedures that may be required to implement [the panel's] recommendation'" constitute errors
under Article 11 and Article 12.7 of the DSU.1190
5.451. Turning to the Panel's analysis, we note that the Panel referred to the practice of previous
panels and noted that they have "tended" to specify 90 days as the time period under Article 4.7 of
the SCM Agreement.1191 The Panel further considered the difference s between the timeframe
contemplated under Article 21.3 of the DSU and Article 4.7 of the SCM Agreement and observed
that:
[A] local content requirement in a subsidy would need to be remedied "without delay"
(i.e. typically 90 days) when challenged as a p rohibited subsidy under the
SCM Agreement, whereas the same local content requirement in the same instruments
when challenged under the GATT 1994 would need to be remedied within a "reasonable
period of time" (ostensibly up to 15 months, subject to the arbitrator's discretion). It is
difficult for the Panel to reconcile these provisions.1192
Noting the Appellate Body's statements in Canada ‒ Renewable Energy / Canada – Feed-in Tariff
Program "that the expedited remedy provided under Article 4.7 … is an 'import ant
consideration'"1193, the Panel decided to "respect the specific remedy contemplated in Article 4"1194
and added paragraphs 8.10, 8.11, 8.21, and 8.22 to its conclusions. In those paragraphs, the Panel
recommended that Brazil withdraw the subsidies identified by the Panel "without delay". 1195
Furthermore, "[t]aking into account the procedures that may be required to implement [the Panel's]
recommendation on the one hand, and the requirement that Brazil withdraw its subsidies 'without

1186 European Union's appellee's submission, para. 530 (referring to Panel Reports,
Australia ‒ Automotive Leather II, para. 10.7; Brazil – Aircraft, para. 8.5; Canada – Aircraft Credits and
Incentives, para. 8.6).
1187 European Union's appellee's submission, para. 531. The European Union incorporated by reference
its arguments in response to Panel question No. 83 and its comments on Brazil's response to Panel question
No. 83. (Ibid., fn 510 thereto)
1188 European Union's appellee's submission, para. 530; Japan's appellee's submission, para. 184.
1189 Appellate Body Report, EC – Fasteners (China), para. 442.
1190 Brazil's appellant's submission, para. 453 (referring to Panel Reports, Australia ‒ Automotive
EC and certain member States – Large Civil Aircraft, para. 8.6; Korea ‒ Commercial Vessels, para. 8.5;
US ‒ Tax Incentives, para. 8.6).
1191 Panel Reports, para. 6.17 (referring to Panel Reports, Australia – Automotive Leather II, para. 10.7;
1192 Panel Reports, para. 6.17.
1193 Panel Reports, para. 6.17 (quoting Appellate Body Reports, Canada – Renewable Energy /
Canada ‒ Feed-in Tariff Program, para. 5.7, in turn referring to Appellate Body Report, EC – Export Subsidies
on Sugar, paras. 332-335).
1194 Panel Reports, para. 6.17.
1195 Panel Reports, paras. 8.10 and 8.21.
WT/DS472/AB/R • WT/DS497/AB/R

delay' on the other", the Panel specified a time period of 90 days for the withdrawal of the subsidies
at issue.1196
5.452. The Panel's analysis under Article 4.7 proceeded in three steps. First, referring to the practice
of previous panels, the Panel considered that the time period for a recommendation under Article 4.7
of the SCM Agreement was "typically" 90 days. As the second step, referring to the Appellate Body's
statements in Canada ‒ Renewable Energy / Canada – Feed-in Tariff Program, the Panel considered
that, because the specific remed y under Article 4.7 of the SCM Agreement is an "important
consideration"1197, the stricter time period of "typically 90 days" under Article 4.7 of the
SCM Agreement should prevail over the possibly longer time frame of up to 15 months contemplated
under Article 21.3(c) of the DSU. Finally, "[t]aking into account the procedures that may be required
to implement [the Panel's] recommendation on the one hand, and the requirement that Brazil
withdraw its subsidies 'without delay' on the other", the Panel specified a time period of 90 days for
the withdrawal of the subsidies at issue.1198
5.453. The Appellate Body has found that a panel provides a "basic rationale" where it incorporates,
as part of its findings, a reference to past jurisprudence supporting its reasoning.1199 In the present
case, the Panel referred to prior panel reports specifying 90 days as the time period under Article 4.7
as well as the Appellate Body Reports in Canada ‒ Renewable Energy / Canada – Feed-in Tariff
Program. Beginning with the latter, we do n ot consider that the Panel's reference to the
Appellate Body's observations in Canada ‒ Renewable Energy / Canada ‒ Feed-in Tariff Program is
germane to the issue at hand in the present dispute. In those earlier disputes, the Appellate Body's
statement tha t the "specific remedy provided under Article 4.7 of the SCM Agreement is an
important consideration" related to the issue of whether the panel had erred in the sequence of its
analysis by choosing not to start with the claims under the SCM Agreement.1200 We fail to see how
the Appellate Body's statement in Canada – Renewable Energy / Canada – Feed-in Tariff Program,
although not incorrect, serves as reasoning underpinning the Panel's in dication of 90 days as the
time period under Article 4.7 in light of the specific facts and circumstances of this case.
5.454. Next, we turn to the Panel's observation that "previous pane ls addressing the specific time
period under Article 4.7 of the SCM Agreement have tended to specify 90 days as the time period in
which the subsidy must be withdrawn ."1201 In considering whether the Panel's reference to the
practice of prior panels specifying 90 days as the time period under Article 4.7 constitutes sufficient
reasoning for its conclusions in the present case, we note that the Panel it self acknowledged that
the time period specified by prior panels was "typically 90 days".1202 Indeed, while many panels have
tended to specify 90 days as the time period for withdrawal of prohibited subsidies "without delay",
other panels have specified longe r periods under Article 4.7.1203 This is in line with our discussion
above that the use of the term "without delay" in Article 4.7 does not establish a bright-line standard
of 90 days to be specified in all cases under that provision. Instead, a panel's duty under Article 4.7
is to specify the time period taking into account the facts and circumstances of each case, such that
it applies the "without delay" standard in Article 4.7 on a case -by-case basis. Although there may
well be a trend of 90 days as the tim e period for the withdrawal of prohibited subsidies, this does
not ipso facto support the Panel's conclusion that 9 0 days was the appropriate time period in the
present dispute. Moreover, while we agree that the time period under Article 21.3(c) of the DSU is
not relevant to the determ ination of the appropriate time period under Article 4.7 of the
SCM Agreement1204, we also do not consider that the language "without delay" in Article 4.7 should

1196 Panel Reports, paras. 8.11 and 8.22.
1197 Panel Reports, para. 6.17 (quoting Appellate Body Reports, Canada – Renewable Energy /
Canada ‒ Feed-in Tariff Program, para. 5.7, in turn referring to Appellate Body Report, EC – Export Subsidies
on Sugar, paras. 332-335).
1198 Panel Reports, paras. 8.11 and 8.22.
1199 Appellate Body Report, US – Carbon Steel (India), para. 4.195.
1200 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.7.
1201 Panel Reports, para. 6.17 (referring to Panel Reports, Korea – Commercial Vessels, para. 8.5;
Canada – Aircraft Credits and Guarantees, para. 8.4; Canada – Autos, para. 11.7; Australia – Automotive
1204 The Appellate Body has noted in past jurisprudence that Article 4.7 of the SCM Agreement is listed
in Appendix 2 to the DSU as a "special or additional rule[] and procedure[]" on dispute settlement, and that
the provisions of Article 21.3 of the DSU "are not relevant in determining the period of time for implementation
of a finding of inconsistency with the prohibited subsidies provisions of Part II of the SCM Agreement".
(Appellate Body Report, Brazil – Aircraft, para. 192)
WT/DS472/AB/R • WT/DS497/AB/R

automatically lead to a recommendation of 90 days for the withdrawal of prohibited subsidies in all
circumstances.
5.455. As the third step in its analysis, in specifying a period of 90 days as part of its conclusions
under Article 4.7 in this case, the Panel stated that it took into account "procedures that may be
required to implement [its] recommendation on the one hand, and the requirement that Brazil
withdraw its subsidies 'without delay' on the other".1205 We recall that a panel is not required under
Article 11 of the DSU to "consider each and every argument put forward by the parties in support of
their respective cases".1206 Furthermore, it is generally "within the competence of a panel 'freely to
use arguments submitted by any of the parties – or to develop its own legal reasoning – to support
its own findings and conclusions on the matter under its consideration'."1207 Thus, the fact that the
Panel did not engage with each of the parties' arguments would not in and of itself constitute a
failure to make an objective assessment of the matter in the sense of Article 11 of the DSU. A panel
is, however, required to "consider all the evidence presented to it, assess its credibility, determine
its weight, and ensure that its factual findings have a proper basis in that evidence".1208
5.456. As Brazil rightly points out, during the interim review stage of the panel proceedings, the
parties presented extensive arguments as part of their responses and comments on each other's
responses to the Panel's additional question on this issue. The Eu ropean Union and Japan sought a
time period of 90 days1209, whereas Brazil advocated for a period of 18 months. 1210 In particular,
Japan argued, recalling previous disputes where panels established a time period of 90 days, that,
in determining the time period for a withdrawal "without delay", a p anel may take into accou nt
"the nature of the measures and the procedures which may be required to implement [the]
recommendation"1211, but need not consider the time required to "design replacement
measures".1212 The European Union emphasized that it was possible for Brazil to withdra w the
measures found to be prohibited subsidies within 90 days, through the use of provisional measures
in the Brazilian system ( Medida Provisória), and alleged that such provisional measures had been
used many times to amend the programmes at issue in thi s dispute.1213 The European Union had
also noted that many of the legal instruments ensuring the operation of the challenged programmes,
and notably those containing the discriminatory local content requirements, were administrative
acts, such as the Portarias containing PPBs, which the executive branch can amend by simple
administrative action. 1214 The European Union further argued that it would be "incongruous" to
interpret "without delay", under Article 4.7, as being equal or longer than the maximum period by
which an actionable subsidy shall be withdrawn or its adverse effects removed, namely,
six months.1215
5.457. Brazil, for its part, pointed out that, "in circumstances where the withdrawal of the subsidies
would entail significant economic consequences, or where leg islative action was required, panels

1205 Panel Reports, paras. 8.11 and 8.22.
1206 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 125.
1207 Appellate Body Reports, China – HP-SSST (Japan) / China – HP-SSST (EU), para. 5.116 (quoting
Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.215, in turn
quoting Appellate Body Reports, EC – Hormones, para. 156; referring to Appellate Body Report, US ‒ Certain
EC Products, para. 123).
1208 Appellate Body Reports, China – Rare Earths, para. 5.178 (quoting Appellate Body Report,
Brazil ‒ Retreaded Tyres, para. 185, in turn referring to Appellate Body Report, EC – Hormones,
paras. 132-133; referring to Appellate Body Reports, Australia – Salmon, para. 266; EC ‒ Asbestos, para. 161;
EC – Bed Linen (Article 21.5 – India), paras. 170, 177, and 181; EC – Sardines, para. 299; EC – Tube or Pipe
Fittings, para. 125; Japan – Apples, para. 221; Japan – Agricultural Products II, paras. 141-142; Korea –
Alcoholic Beverages, paras. 161-162; Korea – Dairy, para. 138; US – Carbon Steel, para. 142; US – Gambling,
para. 363; US – Oil Country Tubular Goods Sunset Reviews, para. 313; EC ‒ Selected Customs Matters,
para. 258).
1209 European Union's response to Panel question No. 83; Japan's response to Panel question No. 83.
1210 Brazil's response to Panel question No. 83.
1212 Japan's response to Panel question No. 83, paras. 4 and 6.
1213 See European Union's response to Panel question No. 83, para. 4. According to the European Union,
provisional measures "allow the executive branch to swiftly enact infra-constitutional norms [that] … are as a
rule immediately effective but … must be submitted to the Parliament for conversion into law (possibly with
amendments) within a certain period (60 to 120 days), failing which they expire." (Ibid., para. 3 (fn omitted))
1214 European Union's response to Panel question No. 83, para. 6.
1215 European Union's response to Panel question No. 83, para. 8.
WT/DS472/AB/R • WT/DS497/AB/R

ha[d] afforded up to one year for implementation under Article 4.7."1216 Brazil also elaborated
extensively on: (i) the nature of the measures; and (ii) the procedures that would be required to
implement the Panel's recommendation. According to Brazil, the nature of those measures meant
that they "constitute a series of inter-connected tax exemptions, tax reductions, and tax suspensions
established under distinct federal laws and regulations that apply to a wide range of production
processes in key economic sectors of the Brazilian economy".1217 Further, Brazil considered that the
procedures for withdrawal would involve legislative action, entailing "a complex and lengthy process
that usually takes more than 2 years, involving both the executive and the legislative branch". 1218
Brazil estimated that, following the normal legislative p rocess, "even under the most expeditious
scenario the withdrawal of the measures at issue could not be accomplished in less than 18 months
from adoption of the DSB recommendations and rulings in this dispute."1219
5.458. The parties further submitted extensive comme nts rebutting each other's arguments, with
the European Union arguing, inter alia, that the difficulties described by Brazil were "contradicted by
the frequency with which those programmes have been amended … during their life". 1220 Likewise,
Japan commented that, while Brazil was free to consider each step of the entire production chain in
the affected sectors or the risk of judicial challenges, this should have no bearing on the Panel's
interpretation and application of the phrase "without delay", and that t hese were factors to be
considered within Brazil in the design of compliance measures, not factors for the Panel to consider
when determining the time period for withdrawal. 1221 By contrast, Brazil denied that provisional
measures could be used to implement the Panel's recommendation, as the European Union argued,
because they "lose effect retroactively if not converted into law within [120 days], through a
legislative process similar to the one described by Brazil in its response to the Panel, and cannot be
re-enacted".1222 Accordingly, in Brazil's view, the enactment of a provisional measure would "at most
affect a temporary withdrawal of the measures at issue, and [would] not obviate the need to go
through Brazil's ordinary legislative process".1223
5.459. Other than th e Panel's indication, in paragraphs 8.11 and 8.22 of its Report s, that it had
taken into account "the procedures that may be required to implement [its] recommendation on the
one hand, and the requirement that Brazil withdraw its subsidies 'without delay' on the other", there
is no way to determine the extent to which the Panel took into account the practical aspects of the
procedures necessary for withdrawal in the present case. In particular, we consider that the parties'
arguments regarding the two poten tial avenues for implementation – namely, through the normal
legislative process or through provisional measures – are relevant to the Panel's assessment of
whether or not 90 days was appropriate in view of the facts of the case. While we disagree with
Brazil's suggestion that the Panel was required to engage in an inquiry similar to that under
Article 21.3(c) of the DSU, we nonetheless consider that the Panel's failure to engage with these
arguments is particularly glaring in light of Brazil's argument that certain panels have afforded more
than 90 days "in circumstances … where legislative action was required "1224 and the
European Union's rebuttal thereof. 1225 The single statement by the Panel in its conclusions on
Article 4.7 does not allow us to ascertain w hether the panel's findings and recommendations were
based on a sufficient evidentiary basis on the record and an adequate engagement with the
arguments presented by the parties, and whether its recommendation was based on a reasoned and

1216 Brazil's response to Panel question No. 83 (referring to Panel Reports, US – Upland Cotton,
1217 Brazil's response to Panel question No. 83.
1218 Brazil's response to Panel question No. 83.
1219 Brazil's response to Panel question No. 83.
1220 European Union's comments on Brazil's response to Panel question No. 83, para. 14. See also
Japan's comments on Brazil's response to Panel question No. 83, para. 5.
1221 Japan's comments on Brazil's response to Panel question No. 83, para. 3.
1222 Brazil's comments on the European Union's and Japan's responses to Panel question No. 83, para. 3.
1223 Brazil's comments on the European Union's and Japan's responses to Panel question No. 83, para. 3.
(emphasis original)
1224 Brazil's response to Panel question No. 83 (referring to Panel Reports, US – Upland Cotton,
1225 The European Union argued, inter alia, that the panel in US – FSC did not set the time period for the
United States to withdraw the export contingent subsidies only because legislative action was necessary.
Instead, the panel looked into "what was absolutely necessary for the United States to withdraw 'without
delay'" the subsidies, which required legislative action, as acknowledged by the European Communities.
(European Union's comments on Brazil's response to Panel question No. 83, paras. 8-9)
WT/DS472/AB/R • WT/DS497/AB/R

adequate explanation, in accordance with Article 11 of the DSU. 1226 Moreover, in our view, as a
result of the Panel's failure to engage with the participants' arguments on the relevant procedures
necessary to implement its recommendation, the Panel's analysis does not "reveal how and why the
law applies" to the facts at hand, in accordance with Article 12.7 of the DSU.1227
5.460. In light of the above, we do not consider that the Panel established a sufficient link between
the time period of 90 days specified by it for the withdrawal of the subsidies at issue and the domestic
procedure within Brazil for such withdrawal. Instead, the Panel appears to have treated the practice
of specifying 90 days by some prior panels as the de facto standard to be applied in all cases.
As discussed, Article 4.7 requires a case-by-case analysis of the time period to be prescribed for the
withdrawal of prohibited subsidies "without delay". We therefore find that by failing to provide a
"reasoned and adequate explanation" or a "basic rationale" in recommendin g a time period of
90 days under Article 4.7 of the SCM Agreement in the present case, the Panel acted inconsistently
with Articles 11 and 12.7 of the DSU. Consequently, we reverse the Panel's conclusions, in
paragraphs 8.11 and 8.22 of its Report s, that Brazil withdraw the prohibited subsidies identified at
paragraphs 8.5.e, 8.6.e, 8.7, 8.16.f, 8.17.f, and 8.18 of the Panel Reports within 90 days.
5.461. Having reversed the Panel's findings, we turn to Brazil's request to complete the legal
analysis.1228 Brazil alleges that it is "undisputed that legislation is required in order to withdraw the
relevant measures" and that the "unresolved disagreement between the parties concerns whether
the measures must be withdrawn using Brazil's 'ordinary legislative process', or whether the
withdrawal of the relevant measures could be made effective through provisional measures". 1229
Further, Brazil asserts that, because "the enactment of a provisional measure will at most effect a
temporary withdrawal of the measures", the "questio n left unresolved by the Panel is whether the
temporary withdrawal of the subsidies is consistent with the requirement under Article 4.7".1230
Accordingly, in Brazil's view, the Appellate Body "should conclude that the only avenue for Brazil to
withdraw the s ubsidies in a manner consistent with Article 4.7 [was] pursuant to the ordinary
legislative process in Brazil", namely, within 18 months.1231
5.462. In previous disputes, the Appellate Body has emphasized that it can complete the analysis
"only if the factual findings of the panel, or the undisputed facts in the panel record" provide a
sufficient basis for it to do so. 1232 We have already noted that the Panel made no factual findings
relating to the domestic procedure for the withdrawal of the subsidies at issue under Brazil's legal
system. We further note that, before the Panel, besides agreeing that the measures at issue are
contained in multiple legal instruments having the nature of laws, re gulations, and administrative
acts1233, the parties disagreed over all factual aspects related to the procedures that may be
employed to implement the Panel's recommendation.1234
5.463. We do not, for example, agree with Brazil's assertion that it is undisputed that "legislation
is required in order to withdraw the relevant measures" and that the "unresolved disagreement
between the parties concerns whether the measures must be withdrawn using Brazil's 'ordinary
legislative process', or whether the withdrawal of the rel evant measures could be made effective
through provisional measures". 1235 In this regard, we recall that the European Union, in refuting

1226 Appellate Body Reports, China – Rare Earths, para. 5.178 (quoting Appellate Body Report,
Brazil ‒ Retreaded Tyres, para. 185, in turn referring to Appellate Body Report, EC – Hormones,
paras. 132-133; referring to Appellate Body Reports, Australia – Salmon, para. 266; EC ‒ Asbestos, para. 161;
EC – Bed Linen (Article 21.5 – India), paras. 170, 177, and 181; EC – Sardines, para. 299; EC – Tube or Pipe
Korea ‒ Alcoholic Beverages, paras. 161-162; Korea – Dairy, para. 138; US – Carbon Steel, para. 142;
US ‒ Gambling, para. 363; US – Oil Country Tubular Goods Sunset Reviews, para. 313; EC ‒ Selected Customs
Matters, para. 258).
1227 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 108.
1228 Brazil's appellant's submission, para. 456.
1229 Brazil's appellant's submission, para. 457.
1230 Brazil's appellant's submission, para. 457.
1231 Brazil's appellant's submission, paras. 458 and 461.
1232 Appellate Body Report, US – Hot-Rolled Steel, para. 235.
1233 European Union's response to Panel question No. 83, para. 2; Brazil's comments on the
European Union's and Japan's responses to Panel question No. 83, para. 2.
1234 We note that because this issue was raised during the interim review stage, the information on the
record concerning this issue is limited to the Panel's analysis, the parties' responses to Panel question No. 83,
and their comments on each other's responses.
1235 Brazil's appellant's submission, para. 457.
WT/DS472/AB/R • WT/DS497/AB/R

before the Panel that legislative action is absolutely necessary, alleged that Brazil is not only
equipped with provisional measures, but also with "other administrative acts at Brazil's disposal that
would eliminate the discriminatory elements of the subsidy programmes found to be inconsistent in
this case". 1236 As the Panel's description of the challenged programmes states, ea ch of the
programmes that were found to grant prohibited subsidies operated through various legal
instruments including laws, decrees, implementing orders, interministerial implementing orders, and
accreditations granted pursuant to the programmes. 1237 Determining whether it is possible to
withdraw the relevant measures at issue through means other than Brazil's normal legislative
process would therefore require us to study each of the legal instruments at issue and make our
own factual findings about the means of implementation available to Brazil, which would be outside
the scope of appellate review. Similarly, we find no undisputed facts on the record concerning the
time periods for the legislative process in Brazil 1238, as well as on the issue of whether provi sional
measures by Brazil would result in a "permanent" or a "temporary" withdrawal of the measures at
issue.1239
5.464. In such circumstances, we are unable to complete the legal analysis, as requested by Brazil,
and cannot specify the time period within which the prohibited subsidies identified by the Panel must
be withdrawn by Brazil. We note, however, that the Panel's recommendations, in paragraphs 8.10
and 8.21, that Brazil withdraw the subsidies identified by the Panel "without delay", stand
undisturbed.
6 FINDINGS AND CONCLUSIONS
6.1. For the reasons set out in these Reports, the Appellate Body makes the following findings and
conclusions.1240
6.1 Articles III:2 and III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement
6.1.1 Whether the Panel erred in finding that imported finished ICT products were taxed
in excess of like domestic finished ICT products inconsistently with Article III:2, first
sentence, of the GATT 1994
6.2. Imported finished ICT products are not eligible for either tax reductions or exemptions because
foreign producers cannot be accredited under the ICT programmes and, consequently, bear the full
tax burden, as opposed to like domestic finished ICT products. In the case of an imported finished
ICT product, when an importer sells the imported finished ICT product to a wholesaler, retailer, or
distributor, the importer will charge the IPI tax to the wholesaler , retailer, or distributor and remit
the tax to the Brazilian Government. 1241 In contrast, in the case of a like domestic finished
ICT product that is subject to IPI tax exemption or reduction under the ICT programmes, the seller
does not charge any tax or charges a reduced tax, as the case may be, to the wholesaler , retailer,

1236 European Union's comments on Brazil's response to Panel question No. 83, para. 9.
1237 Panel Reports, para. 2.38.
1238 Brazil estimated before the Panel that, following the normal legislative process, "even under the
most expeditious scenario the withdrawal of the measures at issue could not be accomplished in less than
18 months from adoption of the DSB recommendations and rulings in this dispute". (Brazil's response to Panel
question No. 83) Japan contested the fact that Brazil's normal legislative process must necessarily take longer
than 90 days, because "Brazil fails to explain why these processes cannot be accelerated in order to bring itself
into compliance with its international legal obligations." (Japan's comments on Brazil's response to Panel
question No. 83, para. 4)
1239 According to Brazil, legislative action is required to withdraw the measures at issue because it must
be the case that the term "withdraw the subsidy" in Article 4.7 requires the permanent withdrawal of the
subsidies, and provisional measures would at most affect only "a temporary withdrawal of the measures at
issue, and [would] not obviate the need to go through Brazil's ordinary legislative process". (Brazil's comments
on the European Union's and Japan's responses to Panel question No. 83, para. 3 (emphasis original)) The
European Union and Japan both contested Brazil's position, asserting that Brazil had used provisional measures
to introduce or modify several of the prohibited subsidies at issue in this dispute and citing multiple factual
examples of such modifications. (See European Union's response to Panel question No. 83, para. 4; Japan's
comments on Brazil's response to Panel question No. 83, para. 5)
1240 One Member of the Division expressed a separate opinion regarding the scope of the term "payment
of subsidies" in Article III:8(b) of the GATT 1994. This separate opinion can be found in section 5.2.5 of these
Reports.
1241 Panel Reports, para. 2.14.
WT/DS472/AB/R • WT/DS497/AB/R

or distributor.1242 At this last stage , the tax rate is thus higher fo r imported finished ICT products
than for like domestic finished ICT products, and the tax burden on the former is necessarily in
excess of that on the latter.
6.3. We therefore uphold the Panel's findings, in paragraphs 7.154, 8.5 .a, and 8.16 .a of the
Panel Reports, that imported finished ICT products are subject to a higher tax burden than like
domestic ICT products and are consequently taxed in excess of like domestic finished ICT products,
contrary to Article III:2, first sentence, of the GATT 1994.
6.1.2 Whether the Panel erred in finding that imported intermediate ICT products were
taxed in excess of like domestic intermediate ICT products inconsistently with
Article III:2, first sentence, of the GATT 1994
6.4. Under the credit -debit system, purchases of non -incentivized imported intermediate
ICT products involve the payment of a tax upfront that is not faced by companies that purchase
incentivized like domestic intermediate ICT products, which are exempted from the relevant
taxes.1243 Even in the case of tax reductions , companies purchasing incentivized like domestic
intermediate ICT products have to pay a lower tax compa red to companies purchasing
non-incentivized imported intermediate ICT products. We fail to see how these situations do not
have the effect of limiting the availability of cash flow for companies purchasing non -incentivized
imported intermediate ICT products. The fact that purchasers of imported intermediate ICT products
have to pay the relevant taxes under the ICT programmes, irrespective of the point in time, in
comparison to purchasers of incentivized like domestic intermediate ICT products, who do not have
to pay the relevant tax or pay a reduced amount, "limit[s] the availability of cash flow"1244, resulting
in a higher effective tax burden on imported intermediate ICT products. Moreover, the value of the
tax credit that is generated upon the payment of the relevant tax on the sale of a non-incentivized
imported intermediate ICT product will depreciate over time until it is used or adjusted. To that
extent, in as much as there is a time lag between the accrual of the tax credit and the adjustment
or use thereof, it necessarily results in the value of money (in the form of accrued tax credits)
depreciating over time. Therefore, imported intermediate ICT products, the purchase of which is
subject to a payment of tax upfront, bear a higher tax burden than that faced by the incentivized
like domestic intermediate ICT products, which benefit from tax exemption or reduction.
6.5. We therefore uphold the Panel's findings, in paragraphs 7.172, 8.5 .a, and 8.16 .a of the
Panel Reports, that imported intermediate ICT products are taxed in excess of like do mestic
incentivized intermediate ICT products contrary to Article III:2, first sentence, of the GATT 1994.
6.1.3 Whether the Panel erred in finding that the accreditation requirements under the
ICT programmes accord treatment less favourable to imported products than that
accorded to like domestic products inconsistently with Article III:4 of the GATT 1994
6.6. The aspect of the ICT programmes challenged by the complaining parties as being inconsistent
with Article III:4 of the GATT 1994 concerned the accreditation requirements, the fulfilment of which
enabled the obtaining of the relevant tax exemption, reduction, or suspension on the sales or
purchases of ICT products. It is undisputed that in order to be eligible for the tax exemption,
reduction, or suspension under the ICT programmes, companies must fulfil the accreditation
requirements. The accreditation requirements under the ICT programmes therefore result in less
favourable treatment for imported ICT products in the form of the differential tax burden that
imported ICT products are subjected to by virtue of the fact that foreign producers cannot be
accredited under the ICT programmes. The consequence being, as the Panel also noted, that foreign
producers "can never qualify for the tax exemptions, reductions or su spensions".1245 We note that
the aspects of the ICT programmes found to be inconsistent with Article III:2, first sentence, and
Article III:4 are distinct. In the case of Article III:2, first sentence, the aspect of the ICT programme
found to be inconsistent is the differential tax treatment that results in a higher tax burden on
imported ICT products, i.e. imported ICT products are taxed in excess of like domestic ICT products.
Whereas, for the purposes of Article III:4, the aspect of the ICT programmes found to be

1242 Panel Reports, para. 2.15.
1243 Panel Reports, para. 7.170.
1244 Panel Reports, para. 7.170.
1245 Panel Reports, para. 7.223.
WT/DS472/AB/R • WT/DS497/AB/R

inconsistent is the accreditation requirements that result in less favourable treatment in the form of
the differential tax treatment for imported ICT products.
6.7. We therefore uphold the Panel's findings , in paragraphs 7.225, 8.5 .b, and 8.16 .c of the
Panel Reports, that the accreditation requirements of the ICT programmes, by restricting access to
the tax incentives only to domestic products, modify the conditions of competition to the detriment
of imported products and result in less favourable treat ment being accorded to imported
ICT products than to like domestic ICT products inconsistently with Article III:4 of the GATT 1994.
6.1.4 Whether the Panel erred in finding that the ICT programmes are inconsistent with
Article III:4 of the GATT 1994 by virtue of the lower administrative burden on companies
purchasing incentivized domestic intermediate products
6.8. Under the credit-debit system, purchasers of imported intermediate ICT products that are not
incentivized under the ICT programmes will have to anticipate and pay the full amount of tax due
on such imported intermediate ICT products. Although any such tax paid on the purchase of
imported intermediate ICT products will generate a corresponding tax credit in favour of the
purchaser, nonetheless, offsetting this tax credit entails an administrative burden that is not faced,
or faced to a lesser extent , by a purchaser of domestic intermediate ICT products that are
incentivized.1246 This is the case because under the credit-debit system, "if the tax credit cannot be
offset by debits after three taxation periods", the process of compensating the tax credit with other
federal taxes, or reimbursement thereof can "be burdensome for companies, and can take years."1247
6.9. We therefore uphold the Panel's findings, in paragraphs 7 .255, 8.5 .b, and 8.16 .c of the
Panel Reports, that the ICT programmes are inconsistent with Article III:4 of the GATT 1994,
because they accord to imported intermediate ICT products treatment less favourable than that
accorded to like domestic intermediate ICT products, due to the lower administrative burden imposed
on firms purchasing incentivized domestic intermediate ICT products.
6.1.5 Whether the Panel erred in finding that the PPBs and other production -step
requirements under the ICT programmes are contingent upon the use of domestic goods,
inconsistently with Article III:4 of the GATT 1994
6.10. We agree with the Panel that the PPBs and other production -step requirements under the
Informatics, PATVD, PADIS, and Digital Inclusion programmes provide an incentive to use domestic
ICT products. We therefore uphold the Panel's findings, in paragraphs 7.299, 7.301 -7.302, 7.308,
7.311, 7.313, 7.317, 7.319, 8.5.b, and 8.16.c of the Panel Reports, that the Informatics, PATVD,
PADIS, and Digital Inclusion programmes accord less favourable treatment to imported intermediate
ICT products than that accorded to like domestic products.
6.1.6 Whether the Panel erred in finding that the ICT programmes are inconsistent with
Article 2.1 of the TRIMs Agreement
6.11. On appeal, Brazil does not make any specific arguments in connection with the Panel's finding
under Article 2.1 of the TRIMs Agreement. Rather, Brazil's request for reversal of the Panel's finding
under that provision is premised on us reversing the Panel's findings under Article III:4 of the
GATT 1994.1248 We have, however, for the reasons stated above, upheld the Panel's findings that
certain aspects of the ICT programmes are inconsistent with Article III:4 of the GATT 1994.

1246 We note that purchasers of incentivized intermediate domestic ICT products, in most cases, will not
need to anticipate the tax due on the purchase of such intermediate ICT products since the Informatics,
PATVD, PADIS, and Digital Inclusion programmes provide for tax exemptions, through zero rates, to accredited
companies selling domestic intermediate ICT products. It is only in the context of the IPI tax reduction
provided under the Informatics programme that purchasers of domestic intermediate ICT products may have
to anticipate and pay the reduced amount of IPI tax due.
1247 Panel Reports, para. 7.251 (referring to Brazil's first written submission to the Panel, para. 702
(DS497)).
1248 Brazil's appellant's submission, para. 172.
WT/DS472/AB/R • WT/DS497/AB/R

6.12. Consequently, we uphold the Panel's findings, in paragraphs 7.363, 8.5.d, and 8.16.e of the
Panel Reports, that those aspects of the ICT programmes found to be inconsistent with Article III:4
of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement.
6.1.7 Whether the Panel erred in finding that the ac creditation requirements under the
INOVAR-AUTO programme are inconsistent with Article III:4 of the GATT 1994 because
they are more burdensome for companies seeking accreditation as importers/distributors
as opposed to domestic manufacturers
6.13. It is undisput ed that, in order for companies to obtain any sort of accreditation under the
INOVAR-AUTO programme, which entitles them to accruing and using presumed IPI tax credits, they
must either be located and operate in Brazil, in the case of domestic manufacturer s and
importers/distributors, or be in the process of establishing in the country as domestic manufacturers,
in the case of investors. 1249 The only viable way for foreign manufacturers to be able to enjoy the
benefit of the presumed IPI tax credits in reducin g their IPI tax liability under the INOVAR -AUTO
programme is to become accredited as importers/distributors. However, in order to do so, foreign
manufacturers must, first and foremost, be located and operate in Brazil. 1250 This indicates that
foreign manufacturers seeking accreditation as importers/distributors face a corresponding burden
that necessarily comes with having to operate in, or establish themselves in, Brazil, unlike domestic
manufacturers, who already operate or are established in Brazil. Moreover, we note that in order to
become accredited as importers/distributors, a company shall comply with the following three
specific requirements: (i) investments in R&D in Brazil; (ii) expenditure on engineering, basic
industrial technology, and capacity -building of suppliers in Brazil; and (iii) participation in the
vehicle-labelling programme by INMETRO.1251 A fourth requirement also exists, which calls for the
performance in Brazil of certain manufacturing steps.1252 These activities cannot be considered to be
typical for foreign manufacturers seeking to import motor vehicles into Brazil. The fact that foreign
manufacturers have to undertake these activities to get accredited as importers/distributors implies
that foreign manufacturers face a burden that domestic manufacturers do not face. Almost all of
these requirements can be considered to be typical of the nature of activity carried out by a domestic
manufacturer. Indeed, any domestic manufacturer will carry out and perform a minimum number of
manufacturing activities in Brazil, and, in that process, it is likely to make investments in R&D in
Brazil and make expenditures in the categories indicated in the INOVAR -AUTO programme.
The INOVAR-AUTO programme is thus designed in such a manner that the accreditation
requirements thereunder adversely modify the competitive conditions for imported products in
comparison to like domestic products.
6.14. We therefore uphold the Panel's findings, in paragraphs 7.772, 8.6 .b, and 8.17 .c of the
Panel Reports, that, under the INOVAR-AUTO programme, the conditions for accreditation in order
to receive presumed tax credits accord less favourable treatment to imported products than that
accorded to like domestic products inconsistently with Article III:4 of the GATT 1994.
6.1.8 Whether the Panel erred in finding that the INOVAR -AUTO programme is
inconsistent with Article 2.1 of the TRIMs Agreement
6.15. On appeal, Brazil does not make any specific arguments in connection with the Panel's finding
under Article 2.1 of the TRIMs Agreement. Rather Brazil's request for reversal of the Panel's finding
under Article 2.1 of the TRIMs Agreement is premised on us reversing the Panel's findings under
Article III:4 of the GATT 1994.1253 We have, however, for the reasons stated above, upheld the
Panel's findings that certain aspects of the INOVAR -AUTO programme are inconsistent with
Article III:4 of the GATT 1994.
6.16. Consequently, we uphold the Panel's findings, in paragraphs 7.804, 8.6.d, and 8.17.e of the
Panel Reports, that those aspects of the INOVAR -AUTO programme found to be inconsistent with
Article III:4 of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement.

1249 Panel Reports, para. 7.657 (referring to Brazil's responses to Panel questions Nos. 28 and 57).
1250 Panel Reports, para. 7.660 (referring to Brazil's response to Panel question No. 57).
1251 Panel Reports, para. 7.658.
1253 Brazil's appellant's submission, para. 294.
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6.2 Article III:8(b) of the GATT 19941254
6.17. Insofar as the payment of subsidies exclusively to domestic producers of a given product
affects the conditions of competition between such a product and the like imported product, the
resulting inconsistency with the national treatment obligation under Article III is justified under
Article III:8(b), provided that the conditions thereunder are met. Moreover, conditions for eligibility
for the payment of subsidies that define the class of eligible "domestic producers" by reference to
their activities in the subsidized products' markets are also justifie d under Article III:8(b). By
contrast, a requirement to use domestic over imported goods in order to have access to the subsidy
is not covered by the exception in Article III:8(b) and would therefore continue to be subject to the
national treatment obligation in Article III. Furthermore, an examination of the text and context of
Article III:8(b), in light of its object and purpose and as confirmed by the negotiating history,
suggests that the term "payment of subsidies" in Article III:8(b) does not include within its scope
the exemption or reduction of internal taxes affecting the conditions of competition between like
products. Instead, as noted by the Appellate Body in Canada – Periodicals, Article III:8(b) "was
intended to exempt from the obligations of Article III only the payment of subsidies which involves
the expenditure of revenue by a government".1255
6.18. The Panel's interpretation and application of Article III:8(b) to the measures at issue
obfuscate the distinction between the effects of the payment of a subsidy to a domestic producer on
the conditions of competition in the relevant product markets and the conditions for eligibility
attaching thereto, on the one hand, and any other effects arising from requirements to use domestic
over imported inputs in the production process, on the other hand. Moreover, at no stage did the
Panel undertake an assessment of whether the measures at issue constitutes the "payment of
subsidies exclusively to domestic producers" within the meaning of Article III:8(b).
6.19. Because of these shortcomings in the Panel's reasoning, we reverse the Panel's overly broad
and unqualified f indings, in paragraphs 7.87 -7.88 of the Panel Reports, that "subsidies that are
provided exclusively to domestic producers pursu ant to Article III:8(b) … are not per se exempted
from the disciplines of Article III" and that "aspects of a subsidy resulting in product discrimination
(including requirements to use domestic goods, as prohibited by Article 3.1 of the SCM Agreement)
are not exempted from the disciplines of Article III pursuant to Article III:8(b)." Under a proper
interpretation of Article III:8(b), none of the measures at issue in this dispute are capable of being
justified under that provision because they all involve th e exemption or reduction of internal taxes
affecting the conditions of competition between like products and therefore cannot constitute the
"payment of subsidies" within the meaning of Article III:8(b).
6.3 Article 3.1(a) of the SCM Agreement
6.20. In its identific ation of the benchmark treatment for the three categories of the treatments
under the PEC and RECAP programmes, the Panel sought to determine the existence of a general
rule for companies that structurally accumulate credits. The Panel limited its analysis to seeking to
identify the existence of a general rule of taxation to which the challenged treatment would be an
exception. Instead of doing so, however, the Panel should have determined the tax treatment of
comparably situated taxpayers, as the legal sta ndard under Article 1.1(a)(1)(ii) of the
SCM Agreement requires.
6.21. We therefore reverse the Panel's conclusions, in paragraphs 7.1171-7.1172, 7.1186-7.1187,
and 7.1199-7.1200 of the Panel Reports, that Brazil has not demonstrated that the tax suspensions
are the benchmark for comparison and that the appropriate benchmark is, instead, the treatment
applicable to purchases by non-accredited companies of the relevant products. As a result, we also
reverse the Panel's findings, in paragraphs 7.1211, 7.1223, and 7.1238, as well as in paragraphs 8.7
and 8.18 of the Panel Reports, that the tax suspensions granted to registered or accredited
companies under the PEC and RECAP programmes constitute financial contributions in the form of
government revenue otherwise due that is foregone or not collected and are hence subsidies within
the meaning of Article 1.1 of the SCM Agreement and contingent upon export performance within
the meaning of Article 3.1(a) of the SCM Agreement.

1254 For the separate opinion on this issue, see section 5.2.5 of these Reports.
1255 Appellate Body Report, Canada – Periodicals, p. 34.
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6.4 Article 3.1(b) of the SCM Agreement
6.22. With respect to Brazil's claim that the Panel erred in its comparison of the treatment of
intermediate goods and inputs under the ICT programmes with the benchmark treatment by
arbitrarily distinguishin g between taxpayers within the benchmark, we disagree with Brazil's
approach to comparing the challenged treatment to the selected benchmark treatment. As we see
it, the Panel did not treat only one subset of taxpayers (i.e. those that are unable to offset the
amount of the tax paid during the same taxation period) as the benchmark for the purposes of
comparison. Rather, having explained in detail how the mechanism of credits and debits under the
principle of non -accumulation works, the Panel concluded that , under the normal rule of general
application of Brazil's tax system, there are two possible factual scenarios: one in which the buyer
of non-incentivized products will be able to offset the amount of the tax paid during the same
taxation period, and the other one when this would not be possible. We consider that, in comparing
the challenged tax treatment to the benchmark treatment, the Panel correctly examined both
possible factual scenarios that result from the application of the normal rules of Brazil's tax system.
6.23. With respect to Brazil's claim that the Panel erred in finding that cash availability and implicit
interest constitute revenue "otherwise due" under Article 1.1(a)(1)(ii) of the SCM Agreement, we
consider that, in the present dispute, when the tax exemptions and reductions apply, the Brazilian
Government does not collect in full the tax revenue when it normally would, or collects it in part.
The fact that, ultimately, the amount of the tax collected under the benchmark treatment and the
challenged treatment may nominally be the same does not detract from the fact that, under the
benchmark treatment, in the scenario when non -accredited companies are unable to offset their
credits immediately, the Brazilian Government would collect and retain, for a certain period, the
amount of tax payable to it. During this period of time, the Brazilian Government can enjoy the cash
available to it and earn interest on it. By contrast, when tax exemptions and reductions are applied,
the Brazilian Government collects the tax later in time and does not enjoy the availability of cash as
it otherwise would under the benchmark treatment. Thus, under the challenged treatment, the
Brazilian Government would not collect the tax at the time it normally would under the benc hmark
treatment. By doing so, in our view, the Brazilian Government would not collect the revenue that
would be otherwise due to it.
6.24. In light of the above, we do not consider that the Panel erred in finding that the tax treatment
of intermediate products a nd inputs under the ICT programmes constitutes a subsidy under
Article 1.1 of the SCM Agreement. We thus uphold the Panel's findings, in paragraphs 7.436, 7.444,
7.454, 7.463, 7.473, 7.489-7.490, and 7.495 of the Panel Reports, that each of the challenged tax
exemptions, reductions, and suspensions granted to accredited companies on (i) the sales of
intermediate goods that they produce, and (ii) the purchases of raw materials, intermediate goods,
and packaging materials (under the Informatics programme) and inputs, capital goods, and
computational goods (under the PADIS and PATVD programmes) constitutes financial contributions
where "government revenue that is otherwise due is foregone or not collected" under
Article 1.1(a)(1)(ii) of the SCM Agreement.
6.25. With respect to the main PPBs that incorporate nested PPBs under the Informatics
programme, we consider that they contain a condition requiring the use of domestic components
and subassemblies, which must be fulfilled in order for the relevant products to benefit from the tax
incentives. We therefore agree with the Panel's conclusion that the main PPBs that incorporate
nested PPBs contain a requirement to use domestic goods, i.e. the components and subassemblies
covered by the nested PPBs, under Article 3.1(b) of the SCM Agreement. Accordingly, we uphold the
Panel's findings, in paragraphs 7.299 -7.300, 7.302, 7.313, 7.319, 8.5.e, and 8.16.f of the
Panel Reports, that the main PPBs that incorporate nested PPBs under the Informatics programme
are inconsistent with Article 3.1(b) of the SCM Agreement.
6.26. With respect to the main PPBs that do not contain nested PPBs under the Informatics
programme, we consider that they do not provide for more than a collection of production steps,
which must be carried out in Brazil, in order for a company to benefit from the tax incentives with
respect to the product subject to the PPB under the relevant programme. Although compliance with
the production steps set out in the PPBs is likely to result in the use of domestic components and
subassemblies, such use of domestic products will be a consequence of the requirement to perform
the production steps in Brazil. Accordingly, we reverse the Panel's findings, in paragraphs
7.301-7.302, 7.313, 7.319, 8.5.e, and 8.16.f of the Panel Reports, that the main PPBs without
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nested PPBs under the Informatics programme are contingent upon the use of domestic over
imported goods within the meaning of Article 3.1(b) of the SCM Agreement.
6.27. With respect to the PATDV programme, we understand that the PPBs under that programme
follow the same structure and logic as those under the Informatics programme. Accordingly, for the
same reasons as under the Informatics programme, to the extent the main PPBs under the PATVD
programme incorporate nested PPBs, we consider them to require the use of domestic over imported
goods inconsistently with Article 3.1(b) of the SCM Agreement. However, we do not consider that
the main PPBs that do not contain nested PPBs contain a condition requiring the use of domestic
over imported goods. We thus uphold the Panel's findings concerning the PATVD programme , in
paragraphs 7.308, 7.313, 7.317, 7.319, 8.5.e , and 8.16.f of the Panel Reports, to the extent they
relate to the main PPBs that contain nested PPBs, and we reverse the Panel's findings, contained in
the same paragraphs of the Panel Reports, to the extent they relate to the main PPBs that do not
contain nested PPBs.
6.28. With respect to the PADIS programme, we do not consider that the eligibility requirements
under that programme constitute a contingency requirement to use domestic over imported goods
under Article 3.1(b) of the SCM Agreement.
6.29. With respect to the Digital Inclusion programme, our review of the Panel's findings
demonstrates that the Panel did not have a proper basis to conclude that the Digital Inclusion
programme contains a requirement to use domestic over imported goods inconsistent with
Article 3.1(b) of the SCM Agreement.
6.30. In light of the above, we reverse the Panel's findings, in paragraphs 7.313, 7.317, 7.319,
8.5.e-f of the Panel Reports, that the PADIS and Digital Inclusion programmes require the use of
domestic over imported goods inconsistently with Article 3.1(b) of the SCM Agreement.
6.31. With respect to the INOVAR -AUTO programme, we note that the requirement to pe rform a
minimum number of manufacturing steps in Brazil under that programme operates in a way similar
to the main PPBs that do not incorporate nested PPBs under the ICT programmes. Thus, having
reversed the Panel's findings with respect to the main PPBs t hat do not incorporate nested PPBs
under the ICT programmes, we also reverse the Panel's findings of inconsistency with Article 3.1(b)
with respect to the manufacturing steps under the INOVAR -AUTO programme, contained in
paragraphs 7.751, 7.823, 7.847, 8.6.e, and 8.17.f of the Panel Reports.
6.32. With respect to the European Union's and Japan's appeals of the Panel's findings concerning
the in-house scenario, we note that, for purposes of establishing an inconsistency with Article 3.1(b)
of the SCM Agreement, whether a company produces goods in-house or whether it outsources their
production is not decisive. What matters, instead, is whether such measure reflects a condition
requiring the use of domestic over imported goods. We thus consider that it did not mat ter, for
purposes of the Panel's analysis, what factual scenarios were available for compliance with the
requirements under the ICT and INOVAR-AUTO programmes. We thus reverse the Panel's findings,
in paragraphs 7.303-7.304 and 7.314 of the Panel Reports, made in the context of its analysis under
ICT programmes, to the extent that they can be understood as suggesting that the in-house scenario
was not covered by the Panel's findings. We also reverse the Panel's findings, in
paragraphs 7.749-7.750, and 7.770 of the Panel Reports, made in the context of INOVAR -AUTO
programme and referring to the mentioned Panel's findings under the ICT programmes, to the extent
that they can also be understood as suggesting that the in -house scenario was not covered by the
Panel's findings. We thus consider that the Panel's findings, in paragraphs 7.319, 7.772-7.773, 8.5.e,
8.6.b, 8.6.e, 8.16.c, 8.16.f, 8.17.c, and 8.17.f of the Panel Reports, also apply the in-house scenario.
6.5 Article I:1 of the GATT 1994 and the Enabling Clause
6.5.1 Whether the Panel erred in finding that the claims raised by the European Union
and Japan under Article I:1 of the GATT 1994 were within its terms of reference
6.33. Paragraph 4(a) of the Enabling Clause envisages a degree of specificity in the notification
adopted thereunder. At a minimum, a notification pursuant to paragraph 4(a) should state under
which particular provision of the Enabling Clause the differential and more favourable treatment has
been adopted so as to put other Members on notice. A notification pursuant to paragraph 4(a) speaks
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to and has a direct bearing on a complaining party's knowledge. Consequently, it speaks to whether
the complaining party is required to raise the Enabling Clause and identify the relevant provision(s)
thereof in its panel request and assert that an arrangement or a measure adopted by the responding
party is inconsistent not only with Article I:1 of the GATT 1994, but also with the relevant provisions
of the Enabling Clause. While it is for the complaining party to raise the Enabling Clause and identify
the relevant provision(s) thereof in its panel request, the burden to prove that the measure satisfies
the conditions set out in the Enabling Clause remains on the responding party relying on the
Enabling Clause as a defence.
6.34. With respect to whether the measure at issue (i.e. differential tax treatment under the
INOVAR-AUTO programme in the form of internal tax reductions accorded to some but not other
Members) was notified pursuant to paragraph 4(a) as having been adopted under paragraph 2(b) of
the Enabling Clause, our review of the Panel's findings indicates that Brazil has not demonstrated
that the differential tax treatment under the INOVAR -AUTO was notified to the WTO as adopted
under paragraph 2(b), as required pursuant to paragraph 4(a) of the Enabling Clause.
6.35. We therefore uphold the Panel's finding, in paragraph s 7.1082-7.1083 of the Panel Reports,
that Brazil has not demonstrated that the differential tax treatment under the INOVAR -AUTO
programme was notified to the WTO as adopted pursuant to paragraph 2(b), and therefore, in the
circumstances of this case, there was no burden on the complaining parties to raise and identify
paragraph 2(b) of the Enabling Clause in their panel requests.
6.36. With respect to whether the measure at issue (i.e. the differential tax treatment under the
INOVAR-AUTO programme in the form of internal tax reductions accorded to some but not other
Members) was notified pursuant to paragraph 4(a) as having been adopted under paragraph 2(c) of
the Enabling Clause, our review of the Panel's findings indicates that Brazil has not demonstrated
that the 1980 Treaty of Montevideo and the ECAs notified to the WTO have a genuine link to the
INOVAR-AUTO programme providing for th e differential and more favourable treatment at issue,
and consequently, the differential and more favourable treatment at issue was not notified to the
WTO as adopted under paragraph 2(c), as required pursuant to paragraph 4(a) of the
Enabling Clause.
6.37. We therefore uphold the Panel's finding, in paragraph 7.1119 of the Panel Reports, that the
differential tax treatment under the INOVAR -AUTO programme was not notified as adopted under
paragraph 2(c), as required pursuant to paragraph 4(a). Consequently, we also uphold the Panel's
finding, in paragraph 7.1120 of the Panel Reports, that, in the circumstances of this case, there was
no burden on the complaining parties to raise and identify paragraph 2(c) of the Enabling Clause in
their panel requests.
6.38. For these reasons, we uphold the Panel's findings, in paragraphs 8.6 .h and 8.17 .i of the
Panel Reports, that there was no burden on the complaining parties to raise and identify the relevant
provisions of the Enabling Clause in their panel requests, and their clai ms under Article I:1 of the
GATT 1994 were therefore within the Panel's terms of reference.
6.5.2 Whether the Panel erred in its interpretation of paragraph 2(b) of the
Enabling Clause and in finding that the differential tax treatment under the INOVAR-AUTO
programme was not justified under that provision
6.39. Paragraph 2(b) provides for the granting of "[d]ifferential and more favourable treatment with
respect to the provisions of the General Agreement concerning non-tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of the GATT". Paragraph 2(b)
provides for the adoption of a limited category of differential and more favourable treatment, namely
treatment that concerns "non -tariff measures governed by the provisions of instruments
multilaterally negotiated under the auspices" of the GATT, as an institution. The phrase "non -tariff
measures governed by the provisions of instruments multilaterally negotiated under the auspices of
the GATT", at the time of the adoption of the Enabling Clause, concerned non-tariff measures taken
pursuant to the S&D treatment provisions of the Tokyo Round Codes and not the provisions of the
GATT 1947. Following the entry into force of the WTO Agreement, paragraph 2(b) of the Enabling
Clause provides for the adoption of a limited category of differential and more favourable treatment,
namely treatment that concerns non -tariff measures governed by the provisions of instruments
multilaterally negotiated under the auspices of the WTO. The GATT 1994, while an integral part of
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the WTO Agreement, was not negotiated under the auspices of the WTO. These considerations read
in light of the text, context, and circumstances surrounding the adoption of the Enabling Clause, and
thereafter the establishment of the WTO, indicate that paragraph 2(b) does not concern non -tariff
measures governed by the provisions of the GATT 1994. Instead, paragraph 2(b) speaks to
non-tariff measures taken pursuant to S&D treatment provisions of "instruments multilaterally
negotiated under the auspices of the [WTO]".
6.40. We therefore uphold the Panel's finding, in paragraph 7.1096 of the Panel Reports, that
"a non-tariff measure within the scope of paragraph 2(b) must be governed by specific provisions
on special and differential treatment, that are distinct from the provisions of the GATT 1994
incorporating the GATT 1947."1256 We also uphold the Panel's findings, in paragraphs 7.1097, 8.6.i,
and 8.17 .j of the Panel Reports, that the tax reductions accorded under the INOVAR -AUTO
programme to imported products from Argentina, Mexico, and Uruguay and found to be inconsistent
under Article I:1 of the GATT 1994 are not justified under paragraph 2(b) of the Enabling Clause.
6.5.3 Whether the Panel erred in its interpretation of paragraph 2(c) of the
Enabling Clause and in finding that the differential tax treatment under the INOVAR-AUTO
programme was not justified under that provision
6.41. Paragraph 2(c) excepts differential and more favourable treatment accorded pursuant to
"[r]egional or global arran gements entered into amongst" developing country Members from a
finding of inconsistency with Article I:1 of the GATT 1994. To the extent that the Panel relied on its
earlier analysis concerning whether or not the INOVAR-AUTO programme, according the differential
and more favourable treatment (i.e. the differential tax treatment in the form of internal tax
reductions accorded to some but not other Members), had a genuine link to "the arrangement
notified to the WTO" in determining if the differential and mo re favourable treatment was
substantively justified under paragraph 2(c), we find no error in the Panel's approach. Indeed, if
there is no genuine link between the measure at issue according the differential and more favourable
treatment and the arrangements notified to the WTO, we find it difficult to see how the measure at
issue could be substantively justified under paragraph 2(c).
6.42. We therefore uphold the Panel's finding, in paragraph 7.1118 of the Panel Reports, to the
extent that the Panel found that Brazil has not identified any arrangement with a genuine link to the
differential tax treatment envisaged under the INOVAR -AUTO programme. Consequently, we also
uphold the Panel's findings, in paragraphs 7.1121, 8.6 .i, and 8.17.j of the Panel Reports, that the
tax reductions accorded under the INOVAR-AUTO programme to imported products from Argentina,
Mexico, and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not
justified under paragraph 2(c) of the Enabling Clause.
6.6 Article 4.7 of the SCM Agreement
6.43. The term "without delay" in Article 4.7 is not used in the sense of requiring immediate
compliance. Nor does the term "without delay", combined with the requirement that the panel
specify a time period, impose a single standard or time period applicable in all cases. Instead,
Article 4.7 requires a panel to specify a time period that constitutes "without delay" within the realm
of possibilities in a given case and considering the domestic legal system of the implementing
Member. In determining the time period under Article 4.7 that constitutes "without delay", a panel
should typically take into account the nature of the measure(s) to be revoked or modified and the
domestic procedures available for such revocation or modification. These d omestic procedures
include any extraordinary procedures that may be available within the legal system of a
WTO Member. The Panel did not establish a sufficient link between the time period of 90 days
specified by it for the withdrawal of the subsidies at issue and the domestic procedure within Brazil
for such withdrawal. Instead, the Panel treated the practice of specifying 90 days by some prior
panels as the de facto standard to be applied in all cases.
6.44. We, therefore, find that by failing to provide a "re asoned and adequate explanation" or a
"basic rationale" in recommending a time period of 90 days under Article 4.7 of the SCM Agreement
in the present case, the Panel acted inconsistently with Articles 11 and 12.7 of the DSU.
Consequently, we reverse the Panel's conclusions, in paragraphs 8.11 and 8.22 of the Panel Reports,

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that Brazil withdraw the prohibited subsidies identified at paragraphs 8.5.e, 8.6.e, 8.7, 8.16.f, 8.17.f,
and 8.18 of the Panel Reports within 90 days.
6.45. Furthermore, we are unable to complete the legal analysis, as requested by Brazil, and cannot
specify the time period within which the prohibited subsidies identified by the Panel must be
withdrawn by Brazil. We note, however, that the Panel's recommendations, in paragraphs 8.10 and
8.21 of the Panel Reports, that Brazil withdraw the subsidies identified by the Panel "without delay",
stand undisturbed.
6.7 Recommendation
6.46. The Appellate Body recommends that the DSB request Brazil to bring its measures, found in
these Reports, and in the Panel Reports as modified by these Reports, to be inconsistent with
Articles I:1, III:2, and III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and
Article 3.1(b) of the SCM Agreement into conformity with its obligations under those Agreements.
Signed in the original in Geneva this 15th day of October 2018 by:
Thomas R. Graham
Presiding Member
Peter Van den Bossche
Member