UNITED STATES – SUBSIDIES ON UPLAND COTTON
Document: Report of the Appellate Body
Date: 3 March 2005
Document codes: WT/DS267/AB/R
Complainant: Brazil
Respondent: U.S.
Third parties: Argentina, Australia, Benin, Canada, Chad, China, Taiwan, EU, India, New Zealand, Pakistan, Paraguay, Venezuela, Japan, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 3, 5, 6  Subsidies and Countervailing Measures (SCM)Art. 3.3, 7.1, 8, 9.1, 10.1  AgricultureArt. III:4, XVI  GATT 1994

UNITED STATES – SUBSIDIES ON UPLAND COTTON

AB-2004-5

Report of the Appellate Body

APPELLATE BODY

United States, Appellant/Appellee
Brazil, Appellant/Appellee

Argentina, Third Participant
Australia, Third Participant
Benin, Third Participant
Canada, Third Participant
Chad, Third Participant
China, Third Participant
European Communities, Third Participant
India, Third Participant
New Zealand, Third Participant
Pakistan, Third Participant
Paraguay, Third Participant
Separate Customs Territory of Taiwan, Penghu,
 Kinmen and Matsu, Third Participant
Venezuela, Third Participant

 AB-2004-5

 Present:

 Janow, Presiding Member
 Baptista, Member
 Ganesan, Member

I. Introduction
1. The United States and Brazil each appeals certain issues of law and legal interpretations
developed in the Panel Report, (the "Panel Report"). 1
The Panel was established on 18 March 2003 to consid er claims by Brazil regarding various United
States measures 2 that Brazil alleged constituted actionable s ubsidies within the meaning of Part III of
the Agreement on Subsidies and Countervailing Measures (the " SCM Agreement "), prohibited
subsidies within the meaning of Part II of the SCM Agreement, export subsidies within the scope of
the Agreement on Agriculture , and/or subsidies actionable under Article XVI of the General
Agreement on Tariffs and Trade 1994 (the "GATT 1994") . Brazil also alleged that certain of these
measures were inconsistent with Article III:4 of the GATT 1994. The United States argued that some

1, 8 September 2004.
2Brazil made claims in respect of marketing loan program payments, user marketing (Step 2) payments,
production flexibility contract payments, market loss as sistance payments, direct payments, counter-cyclical
payments, crop insurance payments, cottonseed payments, export credit guarantees and the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000 (Public Law 106-519) (the "ETI Act of 2000"). Brazil also made
claims regarding legislation and regulations underlying certain of these programs. All of these measures are
described more fully in paragraphs 7.200 to 7.250 of th e Panel Report and are discussed further in the relevant
sections of this Report.

of the measures were domestic support measures that were exempt from certain actions by virtue of
paragraphs (a) and (b) of Article 13 of the Agreement on Agriculture.
2. The Panel Report was circulated to Members of the World Trade Organization (the "WTO")
on 8 September 2004. In paragra ph 7.194 of its Report, the Panel made the following findings with
respect to whether certain measures fell within its terms of reference:
The Panel rules that the followi ng measures, as addressed in
document WT/DS267/7, are within its terms of reference:
(i) export credit guarantees to facilitate the export of United
States upland cotton, and other eligible agricultural
commodities;
(ii) production flexibility contract payments and market loss
assistance payments[.]
3
3. The Panel also ruled, in paragraph 7.196 of its Report, that:
... in its request for consultations in document WT/DS267/1, Brazil
provided a statement of available evidence with respect to export
credit guarantees under the GSM 102, GSM 103 and SCGP
programmes relating to upland cotton and eligible agricultural
commodities other than upland cotton, as required by Article 4.2 of
the SCM Agreement.
4. With respect to the substantive issues raised by the parties, the Panel set out the following
conclusions in paragraph 8.1 of its Report:
(a) Article 13 of the Agreement on Agriculture is not in the
nature of an affirmative defence;
(b) PFC payments
[4], DP payments [5], and the legislative and
regulatory provisions which establish and maintain the DP
programme, do not satisfy the condition in paragraph (a) of
Article 13 of the Agreement on Agriculture;

3The Panel also ruled that production flexibility c ontract payments, market loss assistance payments,
direct payments and counter-cyclical payments to upland cotton producers with respect to non-upland cotton
base acres; cottonseed payments under both Public Law 106-224 and Public Law 107-25 (for the 2000 crop);
storage payments and interest subsidies that implement the marketing loan program; and payments under
programs and provisions within the Panel's terms of reference made after the date on which the Panel was
established, were all within its terms of reference. (See Panel Report, para. 7.194(iii)-(vi)) The Panel also ruled
that certain other measures fell outside of its terms of reference: see Panel Report, para. 7.195
4Production flexibility contract payments. Productio n flexibility contract payments are described by
the Panel in paras. 7.212 ff of the Panel Report and are discussed further infra, para. 251.
5Direct payments. Direct payments are described by the Panel in paras. 7.218 ff of the Panel Report
and are discussed further infra, para. 312.

(c) United States domestic support measures considered in
Section VII:D of this report [6] grant support to a specific
commodity in excess of that decided during the 1992
marketing year and, therefore, do not satisfy the conditions in
paragraph (b) of Article 13 of the Agreement on Agriculture
and, therefore, are not exempt from actions based on
paragraph 1 of Article XVI of the GATT 1994 or Articles 5
and 6 of the SCM Agreement;
(d) concerning United States export credit guarantees under the
GSM 102
[7], GSM 103[8] and SCGP[9] export credit guarantee
programmes:
(i) in respect of exports of upland cotton and other
unscheduled agricultural products supported under
the programmes, and in respect of one scheduled
product (rice):
- United States export credit guarantees under the
GSM 102, GSM 103 and SCGP export credit
guarantee programmes are export subsidies applied
in a manner which results in circumvention of United
States' export subsidy commitments, within the
meaning of Article 10.1 of the Agreement on
Agriculture and they are therefore inconsistent with
Article 8 of the Agreement on Agriculture;
- as they do not conform fully to the provisions of
Part V of the Agreement on Agriculture, they do not
satisfy the condition in paragraph (c) of Article 13 of
the Agreement on Agriculture and, therefore, are not
exempt from actions based on Article XVI of the
GATT 1994 or Articles 3, 5 and 6 of the SCM
Agreement;

6In Section VII:D of the Panel Report, the Panel co nsidered the following meas ures for purposes of
calculating support during the implementation period in which Article 13 of the Agreement on Agriculture
applies: marketing loan program payments, user marketing (Step 2) payments to domestic users (and not to
exporters), production flexibility contract payments, mark et loss assistance payments, direct payments, counter-
cyclical payments, crop insurance payments, and cottonseed payments for the 1999, 2000, and 2002 crops of
cottonseed. (Panel Report, para. 7.537 and footnote 695 thereto)
7General Sales Manager 102 ("GSM 102"). The United States' export credit guarantee programs,
including the GSM 102 program, are described by the Panel in paras. 7.236 ff of the Panel Report and are
discussed further infra, paras. 586-587.
8General Sales Manager 103 ("GSM 103"). The United States' export credit guarantee programs,
including the GSM 103 program, are described by the Panel in paras. 7.236 ff of the Panel Report and are
discussed further infra, paras. 586 and 588.
9Supplier Credit Guarantee Program ("SCGP"). Th e United States' export credit guarantee programs,
including the SCGP program, are described by the Panel in paras. 7.236 ff of the Panel Report and are discussed
further infra, paras. 586 and 589.

- United States export credit guarantees under the
GSM 102, GSM 103 and SCGP export credit
guarantee programmes are provided by the United
States government at premium rates which are
inadequate to cover long-term operating costs and
losses of the programmes within the meaning of
item (j) of the Illustrative List of Export Subsidies in
Annex I of the SCM Agreement , and therefore
constitute per se export subsidies prohibited by
Articles 3.1(a) and 3.2 of the SCM Agreement.
(ii) however, in respect of exports of unscheduled
agricultural products not supported under the
programmes and other scheduled agricultural
products:
- the United States has established that export credit
guarantees under the GSM 102, GSM 103 and SCGP
export credit guarantee programmes have not been
applied in [a] manner which either results in, or
which threatens to lead to, circumvention of United
States export subsidy commitments within the
meaning of Article 10.1 and that they therefore are
not inconsistent with Article 8 of the Agreement on
Agriculture;
- in these circumstances, and as Brazil has also not
made a prima facie case before this Panel that the
programmes do not conform fully to the provisions
of Part V of the Agreement on Agriculture, this Panel
must treat them as if they are exempt from actions
based on Article XVI of the GATT 1994 and
Article 3 of the SCM Agreement in this dispute.
(e) concerning section 1207(a) of the FSRI Act of 2002
[10]
providing for user marketing (Step 2) payments to exporters
of upland cotton:
(i) section 1207(a) of the FSRI Act of 2002 providing
for user marketing (Step 2) payments to exporters of
upland cotton is an export subsidy, listed in
Article 9.1(a) of the Agreement on Agriculture ,
provided in respect of upland cotton, an unscheduled
product. It is, therefore, inconsistent with the United
States' obligations under Articles 3.3 and 8 of the
Agreement on Agriculture;

10Farm Security and Rural Investment Act of 2002 (the "FSRI Act of 2002"); Public Law 107-171.

(ii) as it does not conform fully to the provisions of
Part V of the Agreement on Agriculture , it does not
satisfy the condition in paragraph (c) of Article 13 of
the Agreement on Agriculture and, therefore, is not
exempt from actions based on Article XVI of the
GATT 1994 or Articles 3, 5 and 6 of the SCM
Agreement;
(iii) section 1207(a) of the FSRI Act of 2002 providing
for user marketing (Step 2) payments to exporters of
upland cotton is an export subsidy prohibited by
Articles 3.1(a) and 3.2 of the SCM Agreement.
(f) concerning section 1207(a) of the FSRI Act of 2002
providing for user marketing (Step 2) payments to domestic
users of upland cotton: it is an import substitution subsidy
prohibited by Articles 3.1(b) and 3.2 of the SCM Agreement;
(g) concerning serious prejudice to the interests of Brazil:
(i) the effect of the mandatory price-contingent United
States subsidy measures – marketing loan
programme payments, user marketing (Step 2)
payments, MLA payments
[11] and CCP payments [12]
-- is significant price suppression in the same world
market within the meaning of Article 6.3(c) of the
SCM Agreement constituting serious prejudice to the
interests of Brazil within the meaning of Article 5(c)
of the SCM Agreement;
(ii) however, Brazil has not established that:
- the effect of PFC payments, DP payments and crop
insurance payments is significant price suppression
in the same world market within the meaning of
Article 6.3(c) of the SCM Agreement constituting
serious prejudice to the interests of Brazil within the
meaning of Article 5(c) of the SCM Agreement; or

11Market loss assistance payments. Market loss assistance payments are described by the Panel in
paras. 7.216 ff of the Panel Report and are discussed further infra, para. 251 and footnote 368.
12Counter-cyclical payments. Counte r-cyclical payments are described by the Panel in paras. 7.223 ff
of the Panel Report and are discussed further infra, footnote 370.

- the effect of the United States subsidy measures
listed in paragraph 7.1107 of Section VII:G of this
report
[13] is an increase in the United States' world
market share within the meaning of Article 6.3(d) of
the SCM Agreement constituting serious prejudice
within the meaning of Article 5(c) of the SCM
Agreement.
(h) concerning the ETI Act of 2000:
(i) Brazil has not made a prima facie case before this
Panel that the ETI Act of 2000 and alleged export
subsidies provided thereunder are inconsistent with
Articles 10.1 and 8 of the Agreement on Agriculture
in respect of upland cotton;
(ii) with respect to the condition in Article 13(c)(ii) of
the Agreement on Agriculture , as Brazil has also not
made a prima facie case before this Panel that they
do not conform fully to the provisions of Part V of
the Agreement on Agriculture in respect of upland
cotton, this Panel must treat them as if they are
exempt from actions based on Article XVI of the
GATT 1994 and Article 3 of the SCM Agreement in
this dispute. (footnotes omitted)
5. Based on these conclusions, the Panel recommended that the United States bring the measures
listed in paragraphs 8.1(d)(i) and 8.1(e) of the Panel Report into conformity with the Agreement on
Agriculture
14; and withdraw the prohibited subsidies listed in paragraphs 8.1(d)(i), 8.1(e) and 8.1(f)
of the Panel Report without delay and, at the latest, within six months of the date of adoption of the
Panel Report by the Dispute Settlement Body (the "DSB") or 1 July 2005 (whichever is earlier). 15
With respect to the "mandatory price-continge nt United States subsidy measures" addressed in
paragraph 8.1(g)(i) of the Panel Report, the Pane l noted that, pursuant to Article 7.8 of the SCM
Agreement, "upon adoption of [the Panel Report] the Un ited States is under an obligation to 'take
appropriate steps to remove the adverse effects or ... withdraw the subsidy'."16

13The Panel listed the following measures in paragraph 7.1107 of its Report: "(i) user marketing (Step 2)
payments to domestic users and exporters; (ii) marketing loan programme payments; (iii) production flexibility
contract payments; (iv) market loss assistance payments; (v) direct payments; (vi) counter-cyclical payments;
(vii) crop insurance payments; (viii) cottonseed payments for the 2000 crop; and (ix) legislative and regulatory
provisions currently providing for the payment of measures in (i), (ii), (v), (vi) and (vii) above".
14Panel Report, para. 8.3(a).
15Ibid., paras. 8.3(b) and 8.3(c).
16Ibid., para. 8.3(d).

6. On 18 October 2004, the United States notified th e DSB of its intention to appeal certain
issues of law covered in the Panel Report and certa in legal interpretations developed by the Panel,
pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the "DSU), and filed a Notice of Appeal 17 pursuant to Rule 20 of the
Working Procedures for Appellate Review (the " Working Procedures").18 On 28 October 2004, the
United States filed its appellant's submission.19 On 2 November 2004, Brazil filed an other appellant's
submission.20 On 16 November 2004, Brazil and the United States each filed an appellee's
submission.21
7. On 16 November 2004, Argentina, Australia, Canada, China, the European Communities, and
New Zealand each filed a third participant's subm ission, and Benin and Chad filed a joint third
participants' submission.22 India, Pakistan, Paraguay, Venezuela, and the Separate Customs Territory
of Taiwan, Penghu, Kinmen and Matsu notified the Appellate Body of their intention to appear at the
oral hearing.23
8. After consultation with the Appellate Body Secr etariat, Brazil and the United States noted, in
letters filed on 10 December 2004, that it would not be possible for the Appellate Body to circulate its
Report in this appeal within the 90-day time limit re ferred to in Article 17.5 of the DSU. Brazil and
the United States agreed that additional time was need ed for several reasons: the issues arising in this

17WT/DS267/17, 18 October 2004, attached as Annex 1 to this Report.
18WT/AB/WP/4, 1 May 2003. Revised Working Procedures were circulated by the Appellate Body
during the course of these proceedings (WT/ AB/WP/5, 4 January 2005). These revised Working Procedures,
however, apply only to appeals initiated after 1 January 2005 and therefore did not apply to this appeal.
19Pursuant to Rule 21(1) of the Working Procedures . In a letter dated 1 November 2004, Brazil,
without requesting action by the Appellate Body, drew attention to the failure by the United States to submit its
appellant's submission in a timely fashion. Brazil observed that the United States' appellant's submission was
submitted on 28 October 2004 after the deadline of 5:00 p. m. that had been established by the Division in the
Working Schedule issued pursuant to Rule 26 of the Working Procedures.
20Pursuant to Rule 23(1) of the Working Procedures.
21Pursuant to Rules 22 and 23(3) of the Working Procedures, respectively.
22Pursuant to Rule 24(1) of the Working Procedures.
23Pursuant to Rule 24 of the Working Procedures. The notifications were received on the following
dates: India, 16 November 2004; Pakistan, 17 November 2004; Paraguay, 17 November 2004; Venezuela,
17 November 2004; and the Separate Customs Te rritory of Taiwan, Penghu, Kinmen and Matsu,
18 November 2004.

appeal were particularly numerous and complex compared to prior appeals, which increased the
burden on the Appellate Body and WTO translation services; WTO translation services were
unavailable during the WTO holiday period; and the Appellate Body was likely to be considering two
or three other appeals during the same period. Brazil and the United States accordingly confirmed
that they would deem the Appellate Body Repo rt in this proceeding, issued no later than
3 March 2005, to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.24
9. The oral hearing in this appeal was held on 13- 15 December 2004. The participants and third
participants presented oral arguments (with the ex ception of Pakistan, Paragua y, and Venezuela) and
responded to questions posed by the Members of the Division hearing the appeal.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by the United States – Appellant
1. Domestic Support
(a) Terms of Reference – Expired Measures
10. The United States contends that the Panel was wrong to reject its argument that payments
under the expired production flexibility contract and ma rket loss assistance programs were outside the
Panel's terms of reference. The United States asks the Appellate Body to reverse the Panel's finding
because these measures had expired before Brazil requested consultations.
11. Article 4.2 of the DSU provides that consultati ons are to cover "any representations made by
another Member concerning measures affecting the operation of any covered agreement taken
within the territory of the former". 25 The United States submits that measures that have expired
before a request for consultations cannot be measures that are "affe cting the operation of any covered
agreement" at the time the request is made; consequently, they cannot be measures within the scope of
the "dispute" referred to in Article 4.7, with resp ect to which a complaining Member can request the
establishment of a panel. It was common ground that the legislation authorizing production flexibility
contract payments and market loss assistance paymen ts expired before Brazil's consultation and panel
requests. They thus cannot have been within the scope of consultations under Article 4.2.

24On 16 December 2004, the Appellate Body notified the Chair of the DS B that the expected date of
circulation of its Report was 3 March 2005. (WT/DS267/18, 20 December 2004)
25United States' appellant's submission, para. 501. (emphasis added by the United States)

12. In response to the Panel's concern that the United States' position would mean that subsidy
payments made in the past might never be the s ubject of challenge in WTO dispute settlement, the
United States distinguishes between recurring and no n-recurring subsidies. A non-recurring subsidy
is a type of subsidy the benefits of which are allo cated to future production. As such, a non-recurring
subsidy can be regarded as continuing in existenc e beyond the period during which it is granted, and
may continue to be actionable even after the auth orizing program or legislation has expired. A
recurring subsidy, by contrast, is typically provided year after year and is provided for current rather
than future production. Once production has o ccurred and a measure has been replaced or
superseded, there would no longer be any measure in existence to challenge. Market loss assistance
and production flexibility contract payments were both subsidies paid for particular fiscal or crop
years. As such, the benefit of these subsidies should have been attributed only to the particular year
of payment and should not have been attributed to subsequent years. Thus, by the time of Brazil's
consultation and panel requests 26, the only measure to consult upon and at issue under the DSU was
the 2002 marketing year production flexibility contr act payments; the other payments were all
outside the Panel's terms of reference.
13. According to the United States, the Panel's conclu sion is also inconsistent with Article 6.2 of
the DSU, which requires that a panel request "identify the specific measures at issue". A measure that
has expired cannot be a measure that is "at issue" . This is confirmed by the context provided by
Article 3.7 of the DSU, which contemplates the with drawal of measures found to be inconsistent with
the covered agreements, and Article 19.1 of the DSU, which contemplates a measure that "is
inconsistent" with a covered agreement.
14. In addition to appealing the Panel's findi ng that payments under the expired production
flexibility contract and market loss assistance program s were within its terms of reference, the United
States lists this Panel finding as an example of the Panel's failure to meet the requirements of
Article 12.7 of the DSU, which requires panels to set out the findings of fact, the applicability of
relevant provisions, and the basic rationale behind its findings.
(b) Article 13(a) of the Agreement on Agriculture – Planting Flexibility
Limitations
15. The United States appeals the Panel's finding that production flexibility contract payments,
direct payments, and the legislative and regulatory provisions that establish and maintain the direct
payment program 27 are not exempt from actions by virtue of paragraph (a) of Article 13 of the

26Request for Consultations by Brazil, WT/DS267/1, G/L/571, G/SCM/D49/1, G/AG/GEN/54,
3 October 2002; Request for the Establishment of a Panel by Brazil, WT/DS267/7, 7 February 2003.
27Panel Report, para. 7.388.

Agreement on Agriculture (the "peace clause"). The United States observes that the sole basis for this
finding was the Panel's conclusion that these measur es do not conform fully to paragraph 6(b) of
Annex 2 of the Agreement on Agriculture (the "green box") 28, which conditions green box coverage
and exemption under the peace clause upon the amount of payments not being related to the type or
volume of production. The United States argues that, to make this finding, the Panel had to find that
banning a recipient from producing a certain range of products was the same as conditioning the
amount of payment on the type of production. Th e United States submits that paragraph 6(b) of
Annex 2 permits such a partial ban.
16. The United States points out that, in order to receive production flexibility contract payments
or direct payments, a producer is not required to pro duce a particular (or, indeed, any) crop. Instead,
payments are based on a farm's historical acreage and yields during a base period. Farmers may plant
any commodity or crop, subject to limitations c oncerning the planting of fruits and vegetables (and
wild rice in the case of direct payments). 29 Where fruits, vegetables, or wild rice are produced,
payments are eliminated or reduced, subject to certain exceptions.
17. Although the ordinary meaning of the term "related to" implies a relation or connection that
could be positive or negative, the ordinary meani ng does not identify which type of connection is
meant under paragraph 6(b) of Anne x 2. Turning to the context, the United States notes that this
paragraph speaks of the "amount of such payments " not being related to or based on the type or
volume of production. The United States argues that "[t]he Panel assumes that the 'amount of such
payments' can be related to the current type of pr oduction (that is, of fruits or vegetables) because in
some circumstances a recipient that produces fruits or vegetables receives less payment than that
recipient otherwise would have been entitled to."30 However, given that the payment relating to fruits,
vegetables, or wild rice is zero, the "amount of such payments" is not related to fruit, vegetable, or
wild rice production, because for the acres concerned, there is no payment at all. As regards the
phrase "production ... undertaken by the producer" in paragraph 6(b), the United States notes that the
term "undertaken" means, inter alia, to "attempt". In this case, the planting flexibility limitations
ban a recipient from producing a certain range of products. This does not relate to the production
"attempted"; rather, it relates to the type of production not attempted. Taken together, the ordinary
meaning of the terms "amount of such payments " and "production ... undertaken" indicate that

28Paragraph 6(b) of Annex 2 to the Agreement on Agriculture provides that:
The amount of such payments in any given year shall not be related to, or
based on, the type or volume of production (including livestock units)
undertaken by the producer in any year after the base period.
29Panel Report, paras. 7.376-7.382.

payments are not "related to" current production within the meaning of paragraph 6(b) when a
Member conditions payments on a recipient not producing certain products.
18. According to the United States, this interpre tation is consistent with the "fundamental
requirement" set out in paragraph 1 of Annex 2 of the Agreement on Agriculture that measures
exempted from reduction commitments "have no, or at most minimal, trade-distorting effects or
effects on production". The United States submits th at "a condition that a recipient not produce
certain products serves the fundamental requirement of Annex 2".
31 The United States further argues
that the effect of the planting flexibility limitations at issue is minimal and does not result in increased
production, pointing to evidence on the record show ing that 47 per cent of farms receiving production
flexibility contract payments or direct payments in the 2002 marketing year planted no upland cotton
at all. Indeed, in finding that Brazil had not establis hed that the effect of the United States' decoupled
income support payments was significant price suppression, the Panel implicitly found that production
flexibility contract payments and direct paymen ts do not have more than minimal effects on
production. For the United States, an explicit decisi on not to support a particular type of production
does not relate the amount of payments to the type of production undertaken by the producer. Rather,
such a decision serves the fundame ntal requirement that "green box" measures have no more than
minimal trade-distorting effects, because a measure that conditions payment on not producing
something does not create production inducements.
19. The United States also submits that the contex t provided by paragraph 6(e) confirms its
reading of paragraph 6(b). Paragr aph 6(e) provides: "[n]o producti on shall be required in order to
receive such payments"; it does not preclude a Member from requiring non-production. A proper
reading reveals that paragraphs 6(b) and 6(e) ser ve different purposes. As a Member may, under
paragraph 6(e), require a recipient not to produce, it would not make sense to then prohibit a Member,
under paragraph 6(b), from making the amount of pa yment contingent on fulfilling the requirement
not to produce.
20. Furthermore, the United States argues that the Pa nel was incorrect to find contextual support
for its interpretation of paragraph 6(b) in paragraphs 11(b) and 11(e ) of Annex 2. Paragraphs 6(b)
and 11(b) contain similar requirements about not relating payments to the type or volume of
production, but paragraph 11(b) refe rs explicitly to paragraph 11(e) , which permits requirements not
to produce a particular product. The United States maintains that the context in which
paragraphs 6(b) and 11(b) appear is very differe nt. In the context of paragraph 6, an explicit
authorization of requirements not to produce is no t required as it is already implicit within the

provisions. The United States notes that paragraph 11 pertains to payments "to assist the financial or
physical restructuring of a producer's operations". 32 Although such aid is for restructuring of
operations that will continue to pr oduce, paragraph 11(e) imposes a c onstraint on the degree to which
a government can interfere in the fo rm that restructuring will take, by requiring that payments must
not "mandate or in any way designate the agricultura l products to be produced". A requirement not to
produce certain products could be understood to fall within the prohibition in paragraph 11(e) against
"in any way" designating the products to be prod uced. In order to allow such requirements,
paragraph 11(e) clarifies that they are permitted. The United States submits that, in the light of the
broad prohibition in paragraph 11(e), the requireme nt in paragraph 11(b) could be understood to
preclude conditioning payment on not producing certain products, as th is could be understood to be
designating, in some way, the products to be produced. According to the United States, this would
undermine the prohibition in paragraph 11(e). Th e cross-reference in paragraph 11(b) to the
exception in paragraph 11(e) thus simply serves to make clear that conditioning payments on not
producing does not conflict with th e prohibition under paragraph 11(e) on designating in any way the
products to be produced.
21. In addition, the United States submits that the Panel's reading of paragraph 6(b) would require
payments even if a recipient's production was illegal. Therefore, a Member would be prohibited from
reducing or eliminating payments for prohibite d types of production such as narcotic crops,
unapproved biotech varieties, or environmentally damaging production.
(c) Article 13(b) of the Agreement on Agriculture
22. The United States appeals the Panel's finding that the United States' non-green box domestic
support measures are not exempt from actions by virt ue of paragraph (b) of Article 13 of the
Agreement on Agriculture. The Panel found that those measures failed to satisfy, for each marketing
year from 1999-2002, the proviso to Article 13(b)(ii), which reads "provided that such measures do
not grant support to a specific commodity in excess of that decided during the 1992 marketing year".
(i) Interpretation of "support to a specific commodity"
23. The United States contends that the Panel erred in interpreting the phrase "support to a
specific commodity" in Article 13(b)(ii). The ordinary meaning of this phrase encompasses
"'assistance' or 'backing' 'specially ... pertaining to a particular' 'agricultural crop' or ... for a 'precise,

32United States' appellant's submission, para. 45 (quoting paragraph 11(a) of Annex 2 to the Agreement
on Agriculture).

exact, definite' 'agricultural crop'". 33 The ordinary meaning implies that support to a specific
commodity excludes support that is not for a precise, exact, definite agricultural crop.
24. Context for interpreting the phrase "support to a specific commodity" may be found in other
provisions of the Agreement on Agriculture that contain the terms "support", "specific" and
"commodity". Annex 3 deals with "Calculation of the Aggregate Measurement of Support" ("AMS").
Paragraph 1 of that Annex clarifies that two types of support are to be calculated: first, support is
calculated "on a product-specific basis", and, sec ond, "[s]upport which is non-product specific shall
be totalled into one non-product-specific AMS in to tal monetary terms". Article 1(a) of the
Agreement on Agriculture contains this same distinction between "support ... provided for an
agricultural product in favour of the producers of the basic agricultural product" and a residual
category of "non-product-specific ... support". Article 1(h) also makes this distinction by dividing
total support into "non-product-specific support" an d "support for basic agricultural products". For
the United States, the terms "support for basic agri cultural products" in Article 1(h) and "support ...
provided for an agricultural product in favour of th e producers of the basic agricultural product" in
Article 1(a) are virtually synonymous with the phrase "support for a specific commodity" in
Article 13(b)(ii). The context of these provisions thus suggests that this phrase also means product-
specific support.
25. The Panel relied on the different choice of speci fic words in Articles 1(a) and 13(b)(ii) in
finding that the former was not pertinent to the inte rpretation of the latter. The United States argues,
however, that the concept of product-specific support is expressed in differe nt terms in different
places in the Agreement on Agriculture . Indeed, nowhere in the Agreement is the precise phrase
"product-specific support" used, although the Panel had no difficulty in finding that such a concept
exists. Thus, the fact that the phrase "product-sp ecific support" was not used in Article 13 does not
prevent an interpretation that the concept nevertheless applies.
26. The United States disagrees with the Panel's r easoning that the categories of product-specific
and non-product-specific support are not pertinent to the analysis under Article 13(b) because the
proviso to Article 13(b)(ii) begi ns with the phrase "such measures", which refers to all the domestic
support measures falling under Article 6 identified in the chapeau to Article 13(b), and not just to
product-specific and non-product-specific support s ubject to reduction commitments. The United
States notes that the Panel itself recognized th at certain domestic support measures falling under
Article 6 could be excluded from the comparison of support under Article 13(b)(ii): the Panel's
approach "exclud[es] all other support, which eith er grants support to other specific commodities or

33United States' appellant's submission, para. 85 (quoting The New Shorter Oxford English Dictionary ,
L. Brown (ed.) (Clarendon Press, 1993), Vol. 2, pp. 2972 and 3152).

does not grant support to any specific commodity". 34 The Panel also noted that "Brazil acknowledges
this implicitly in that it does not challenge very widely available support, such as infrastructure or
irrigation subsidies, some of which, presumably, deliver support to upland cotton either directly or
indirectly".35 Thus the mere fact that all domestic support measures falling under Article 6 are
identified in the chapeau of Article 13(b) does not resolve the issue of whether a particular measure
grants "support to a specific commodity".
27. The United States finds relevant context in Articles 3 and 6 of the Agreement on Agriculture.
Under these provisions, a Member must comply w ith its domestic support reduction commitments.
These commitments, however, are expressed on a tota l aggregate basis with no product-specific caps
on support. Because there are no product-specific caps, a Member can comply with its overall
reduction commitments while increasing support to a particular agricultural commodity. Article 13(b)
provides shelter from actions for domestic s upport measures that conform to the reduction
commitments. However, Members recognized that an increase in product-specific support, even
within overall reduction commitment levels, could pr esent an enhanced risk of production or trade
effects. The proviso to Article 13(b)(ii) t hus makes the exemption it provides conditional upon a
Member not shifting support between commodities such that the level of product-specific support
exceeds that decided for any one commodity in the 1992 marketing year.
28. Turning to the measures at issue, the United States observes that the Panel's reasoning means
that payments to producers that do not produce cotton at all are deemed to be "support to upland
cotton". The United States contends that the Panel erred in finding that payments based on past
production during a base period currently grant supp ort to production of that commodity. Production
flexibility contract payments, market loss assistance , direct payments, and counter-cyclical payments
do not specify upland cotton as a commodity to which they grant support, as the Panel implied. In
fact, payments under these programs do not require an y production at all. Indeed, uncontested facts
show that 47 per cent of the farms receiving th ese payments did not plant a single acre of upland
cotton. The United States asserts that payments cannot be deemed to grant support to a crop the
recipient does not produce. Such payments do not gr ant support to a specific commodity. In the light
of the context provided by Articles 1(a) , 1(h), and 6.4 and Annex 3 of the Agreement on Agriculture,
such payments are properly seen as non-product-specific support to agricultural producers in general.

35Ibid.

29. The United States observes that the Panel correctly rejected all six of the methodologies
proposed by Brazil for allocating decoupled payments as support to upland cotton. However, in the
"Attachment to Section VII:D" the Panel included one allocation methodology that reduced payments
on base acres to account only for the number of acres planted with upland cotton. The United States
argues that, by including this methodology, the Panel endorsed it as an alternative to its own
approach, in the event that the Panel's approach was found to be incorrect. The Panel labelled its
finding in this regard as factual; however, the findi ng is patently legal, not sheltered from appellate
review. The United States also contends that any methodology that allocates payments under the
decoupled programs to upland cotton planted as a result of independent producer decisions beyond
government control cannot reflect the support to a sp ecific commodity that a Member has "decided",
and thus is not appropriate for Article 13(b)(ii).
(ii) Calculation methodology for price-based measures
30. The United States submits that the Panel did not compare properly the support current
measures "grant" to that "decided" during the 1992 ma rketing year. The ordinary meaning of "grant"
is to "bestow as a favour" or "[g]ive or confer (a possession, a right, etc.) formally". 36 The ordinary
meaning of "decide" is to "[d]etermine on as a se ttlement, pronounce in judgement" and "[c]ome to a
determination or resolution that, to do, whether ".37 Read in their context, as two halves of a
comparison, these terms must allow the relevant "support" to be compared. The phrase "grant
support", read in the light of the verb "decide d", means the support that Members determine to
"bestow" or "give or confer", and thus the focus of the peace clause comparison is on the support a
Member decides. The United States submits that th e Panel essentially agreed "that the Peace Clause
proviso compares the support a Member determines through its measures, not 'support [that] was
spent due to reasons beyond the control of the government'."
38
31. Against this background, the United States contends that a proper application of
Article 13(b)(ii) must reflect the way in which the United States "decided" support in the 1992
and 1999-2002 marketing years. In those years, th e support "decided" by the United States was a rate
of support.

36United States' appellant's submission, para. 65 (quoting The New Shorter Oxford English Dictionary,
L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1131).
37Ibid., para. 65 (quoting The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon
Press, 1993), Vol. 1, p. 607). (original emphasis)

32. The United States submits that it was possible for the Panel to have recourse to the rules for
the calculation of the AMS set out in Annex 3 of the Agreement on Agriculture , so long as the
appropriate calculation method was used. In the case of price-b ased measures (such as marketing
loan program payments in the 1992 marketing year and the implementation period, and deficiency
payments in the 1992 marketing year only), pa ragraph 10 of Annex 3 permits two different
approaches: budgetary outlays or using "the gap between the fixed reference price and the applied
administered price multiplied by the quantity of produc tion eligible to receive the administered price"
("price gap" methodology). In the context of a comparison under the peace clause, only the price gap
methodology reflects the support "decided" by the Un ited States' price-based measures. By focusing
on the gap between an external reference price (her e, the actual price for determining rates for the
years 1986-1988) and the applied administered price, the price gap methodology eliminates
movements in market prices as a component of th e measurement of support and focuses solely on
those elements that a Member can control. By holding the reference price "fixed", support measured
using a price gap calculation shows the effect of changes in the level of support decided by a Member,
rather than changes in budgetary outlays that r esult from movements in market prices that Members
do not control.
(iii) Recalculation of the peace clause comparison
33. On the basis of its arguments regarding calcu lation methodology and the interpretation of the
phrase "support to a specific commodity", the United States recalculates the support to upland cotton
in the 1992 marketing year and implementation period support between 1999-2002 using the price
gap methodology for marketing loan program paymen ts and deficiency payments, on the one hand,
and excluding production flexibility contract payments , market loss assistance, direct payments, and
counter-cyclical payments, on the other hand, because they are not "support to a specific commodity".
The result is that the United States' support to upl and cotton does not exceed th at decided in the 1992
marketing year in any year of the implementation period. The United States accordingly requests the
Appellate Body to reverse the Panel's findings regard ing Article 13(b) and to find that it is entitled to
the protection of the peace clause.

2. Serious Prejudice
(a) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
34. The United States appeals the Panel's finding that the effect of the price-contingent subsidies39
is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement
constituting serious prejudice to the interests of Braz il within the meaning of Article 5(c) of the
SCM Agreement. The United States asks the Appellate Body to reverse the Panel's finding that the
effect of the price-contingent subsidies is significant price suppression. The United States also
submits that the Panel failed to set out the findings of fact, the applicability of relevant provisions, and
the basic rationale behind several aspects of this finding, as required by Article 12.7 of the DSU.
35. First, the United States submits that the Panel erred in interpreting the term "same market" in
Article 6.3(c) of the SCM Agreement as including a "world market". Under Article 6.3(c), the price
suppression must occur in a market that includ es the subsidized product and the like product.
Identifying the relevant market as a world market fails to give meaning to the word "same" in
Article 6.3(c) because "there is no 'other' world market where the products can be found". 40 T h e
United States relies on Article 6.6 and Annex V of the SCM Agreement on "Procedures for
Developing Information Concerning Serious Prejudice" to substantiate this view. The United States
also indicates that, although the subsidized produc t and the like product must be found in the same
market, the Panel did not make a finding that Un ited States and Brazilian upland cotton compete in
the world market that it had identified for upland cotton. In addition, the United States contends that
the Panel acknowledged that different conditions of competition would prevail in the markets of
different Members and that, therefore, each market in which the two products are found would need to
be examined separately.
36. The United States submits that the Panel's reading of "same market" in Article 6.3(c)
contradicts its reasoning in relati on to Article 6.3(d) of the SCM Agreement, which, according to the
United States, demonstrates that no "world market" price prevails in any "world market" for upland
cotton. Moreover, according to the United States, th e Panel should have focused on the effect of the
challenged subsidies on the Brazilian price of upland cotton, rather than their effect on any "world

39The Panel characterized marketing loan program payments, user marketing (Step 2) payments, market
loss assistance payments, and counter-cyclical payments as "price-contingent" subsidies. (Panel Report,
para. 8.1(g)(i))

market" price, because only significant suppression of Brazilian prices could lead to serious prejudice
to the interests of Brazil under Article 5(c) of the SCM Agreement.
37. Secondly, the United States argues that, in finding significant price suppression, the Panel
"prejudged the result of its analysis of 'the effect of the subsidy'". 41 According to the United States,
the Panel used circular logic: first, assuming causation in finding price suppression, and then, using
its conclusion on price suppression to support its findi ng of causation. In addition, the Panel failed to
take into account the effect of removing the price- contingent subsidies on all participants in the
relevant market. Even if removing these subsid ies would lead to lower United States production of
cotton (which the United States contests), other produ cers could be expected to enter the market to
increase supply. These supply changes would need to be included in assessing the effect on prices of
removing the price-contingent subsidies. The United States also claims that, in concluding that the
price suppression it had found was "significant", the Pa nel should have identified the degree of price
suppression it had found and should ha ve explained why it regarded this degree as "significant". The
United States argues that, in failing to do so, the Panel failed to comply with Article 12.7 of the DSU.
38. Thirdly, the United States contends that the Pa nel erred in finding that "the effect of" the
price-contingent subsidies is significant pr ice suppression under Article 6.3(c) of the SCM
Agreement. The United States refers to the Panel's conclusion that the price-contingent subsidies are
linked to world prices for upland cotton, "thereby numbing the response of United States producers to
production adjustment decisions when prices are low".42 However, according to the United States, the
"relevant economic decision" 43 for a farmer is what to plant and, at the time of planting, the relevant
price is what the farmer expects to receive when the crop is subsequently harvested, not the current
price. Therefore, the Panel should have examined whether the price-contingent subsidies stimulate
planting of upland cotton, rather than whether they stimulate production or harvesting. The United
States submits that the Panel failed to set out the basi c rationale for its analysis of the "effect of the
subsidy" as required by Article 12.7.
39. The United States also suggests that the Panel failed to examine evidence showing that the
price-contingent subsidies did not suppress upland cotton prices: United States planting of cotton
acreage corresponded with expected market prices of cotton and competing crops; changes in United
States cotton acreage corresponded with changes by cotton farmers throughout the world; and the
United States' share of world cotton production was stab le during the relevant period. In addition, the

43Ibid., para. 161.

Panel's identification of the relative shares of worl d cotton exports cannot demonstrate the effect of
the subsidy in the absence of an analysis of competition between United States cotton and cotton from
other sources. Moreover, according to the United States, the Panel's finding of a "discernible
temporal coincidence" 44 between suppressed market prices and the price-contingent subsidies is
flawed and, in any case, could involve only correlation and not causation.
40. The United States further disputes, in relation to the Panel's reasoning in determining the
"effect" of the subsidy, the Panel's conclusion that a comparison between the average total cost of
production and market revenue in the United Stat es demonstrates that the effect of the price-
contingent subsidies is significant price suppression. As reflected in economics literature, farmers
make planting decisions based on variable rather than total costs of production. The Appellate
Body's decision in Canada – Dairy (Article 21.5 – New Zealand and US) is not relevant to this issue.
Had the Panel examined variable costs, it would have seen that United States upland cotton producers
more than covered their variable costs from 1997 to 2002, apart from in 2001. In addition, even if
average total costs were not covered, the eviden ce before the Panel demonstrates that farmers had
other sources of income to cover the shortfall.
41. Fourthly, the United States argues that the Panel erred in finding that Brazil need not
demonstrate, and that the Panel need not find, th e amount of the challenged subsidies that benefits
upland cotton in establishing serious prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement.
The United States contends that the Panel "misunderstood" 45 the United States' argument as requiring
the transposition of methodologies from Part V to Part III of the SCM Agreement. Instead, it is the
text of Articles 5(c) and 6.3(c) that requires a quantifi cation of benefit. Articles 5(c) and 6.3(c) of the
SCM Agreement both use the word "subsidy", which is define d in Article 1 as involving the conferral
of a benefit, as confirmed by Article 14 of the SCM Agreement. Article 6.3(c) refers to a "subsidized
product". Therefore, what is at issue is the amount of the subsidy that benefits a particular product.
This reading is supported by Article 6.8 of the SCM Agreement , which provides for panels to
determine serious prejudice on the basis of, inter alia, information submitted under Annex V of the
SCM Agreement. According to the United States, this includes information necessary to establish the
amount of subsidization (paragra ph 2 of Annex V) and information concerning the amount of the
subsidy (paragraph 5 of Annex V).
42. For Brazil's claims to succeed, therefore, the United States maintains that the challenged
subsidies would have to subsidize upland cotton an d confer a benefit on United States "producers,

44United States' appellant's submission, para. 208 (referring to Panel Report, paras. 7.1351-7.1352).
45Ibid., para. 258.

users, and/or exporters of upland cotton". 46 In addition, any benefit conferred by the challenged
subsidies on products other than upland cotton cannot be included in determining the effect of the
subsidies. However, the Panel attributed all count er-cyclical and market loss assistance payments to
upland cotton. In fact, counter-cyclical and market loss assistance payments to recipients who did not
produce upland cotton did not benefit upland cotton at all and therefore could not have caused serious
prejudice and, in fact, fell outside the Panel's terms of reference altogether. As for counter-cyclical
and market loss assistance payments to reci pients who produced both upland cotton and other
products, the Panel should have allocated the paymen ts across the different products in assessing the
effects of the payments in respect of upland cotton. Annex IV of the SCM Agreement 47 provides an
"economically neutral" allocation methodology 48, and paragraphs 2 and 5 of Annex V of the
SCM Agreement provide support for the argument that it may be necessary to allocate subsidies
across the total value of the recipient's sales. As the Panel did not identify the amount of counter-
cyclical and market loss assistance payments be nefiting upland cotton, its serious prejudice finding
regarding those payments is invalid. In addition, the United States submits that this amounted to a
failure by the Panel to set out the basic rati onale behind its findings and recommendations in
accordance with Article 12.7 of the DSU.
43. Along similar lines, the United States contends that the Panel should have determined the
extent to which subsidies provided with respect to raw cotton benefit processed cotton. Instead, the
Panel "improperly assumed"49 that subsidies provided to producers of raw cotton flowed to producers
of processed cotton. The United States maintains that the Appellate Body's conclusion in US –
Softwood Lumber IV that a subsidy bestowed on an input ca nnot be presumed to have passed through
to the processed product is based on the definition of a subsidy, which applies to both Part III and
Part V of the SCM Agreement.50 Therefore, according to the United States, the Panel erred in finding
that "pass-through" principles do not apply to Part III of the SCM Agreement.
44. Finally, the United States asserts that the Pa nel erred in making serious prejudice findings
with respect to the price-continge nt subsidies for marketing years 199 9 to 2001. Even if the Panel
was not required to determine the amount of the benefit flowing from the price-contingent subsidies to
the subsidized product, the Panel had to determin e whether the benefit from these subsidies continued

46United States' appellant's submission, para. 245 (quoting Brazil's request for establishment of a panel,
supra, footnote 26, p. 1).
47"Calculation of the Total Ad Valorem Subsidization (Paragraph 1(a) of Article 6)".
49Ibid., para. 303.
50Ibid., paras. 304 and 305 (referring to Appellate Body Report, US – Softwood Lumber IV , paras. 140
and 142).

when the Panel was established in 2002. This is because, under Article 11 of the DSU, the Panel
could make findings only with respect to subsid ies that could "form part of Brazil's claims" 51 and,
under Article 19.1 of the DSU, the Panel could ma ke recommendations only with respect to measures
that still exist. In addition, the United States mainta ins that the Panel "failed to adequately set out the
legal basis for its examination of subsidies that no longer existed at the time of panel establishment"
as required by Article 12.7 of the DSU.52
45. According to the United States, an annually recurring subsidy should be "allocated" or
"expensed"53 to the year to which it relates, whereas a non-recurring subsidy, such as an investment
subsidy or equity infusion, should be allocated ove r time. In the United States' view, a payment no
longer confers a benefit after the year to which it is allocated, and therefore it is no longer a "subsidy"
under Article 1 of the SCM Agreement. Price-contingent subsidies for marketing years 1999 to 2001
were annually recurring subsidies that the Panel sh ould have allocated to those years. The United
States argues that the Panel did not find that these subsidies had "continuing effects" when the Panel
was established and, therefore, that the Panel coul d not have found that these subsidies were "causing
present serious prejudice".54
46. For these reasons, the United States requests the Appellate Body to reverse the Panel's finding
that the effect of the price-contingent subsidies is significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement constituting serious prejudice to the interests of Brazil within
the meaning of Article 5(c) of the SCM Agreement.
3. Import Substitution Subsidies and Export Subsidies
(a) Step 2 Payments
(i) To domestic users
47. The United States claims that the Panel erred in concluding that user marketing (Step 2)
payments ("Step 2 payments") provided to domest ic users of United States upland cotton, under
Section 1207(a) of the FSRI Act of 2002, constitute import substitution subsidies that are inconsistent
with Articles 3.1(b) and 3.2 of the SCM Agreement.

52Ibid., para. 327.
53Ibid., para. 283.
54Ibid., para. 292.

48. In the United States' view, the Panel's conclusi on fails to give meaning to the introductory
phrase "Except as provided in the Agreemen t on Agriculture" in Article 3 of the SCM Agreement.
This phrase applies not only to export subsidies covered by Article 3.1(a) of the SCM Agreement, but
also to import substitution subsidies covered by Article 3.1(b). The United States contends that giving
proper meaning to the introductory phrase of Article 3 of the SCM Agreement requires treating
Step 2 payments to domestic users as domestic support subject to reduction commitments under
Article 6 of the Agreement on Agriculture.
49. The United States points out that paragraph 7 of Annex 3 of the Agreement on Agriculture
requires that "[m]easures directed at agricultu ral processors shall be included [within a WTO
Member's AMS] to the extent that such measure s benefit the producers of the basic agricultural
products". This is consistent with the objective of the Agreement on Agriculture of providing for
substantial progressive reductions in agricultura l support and protection sustained over an agreed
period of time. The United States submits that it has regularly reported Step 2 payments among the
domestic support measures it provides to agricultura l producers and includes them in the calculation
of total AMS. Thus, the United States asserts, provided that they are within its domestic support
reduction commitments, Step 2 payments to domestic users are not inconsistent with the United
States' WTO obligations.
50. The United States explains that the lack of an y reference to domestic content subsidies in
Article 13(b) of the Agreement on Agriculture does not support the Panel's interpretation.
Article 13(b) does not refer to Article 3 of the SCM Agreement because the substantive obligation of
Article 3.1(b) does not apply to domestic content subsidies in favour of agricultural producers.
51. Consequently, the United States requests that th e Appellate Body reverse the Panel's finding
that Step 2 payments to domestic users of United States upland cotton are import substitution
subsidies that are inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.
(ii) To exporters
52. The United States claims that the Panel erred in concluding that Step 2 payments provided to
exporters of United States upland cotton, under S ection 1207(a) of the FSRI Act of 2002, are export
subsidies covered by Article 9.1(a) of the Agreement on Agriculture and, therefore, inconsistent with
Articles 3.3 and 8 of that Agreement. The Unite d States also asserts that the Panel erroneously
concluded that Step 2 payments to exporters are inconsistent with Articles 3.1(a) and 3.2 of the
SCM Agreement, because they are not exempted from action by Article 13(c) of the Agreement on
Agriculture.

53. The United States argues that Step 2 payments are not contingent on export performance
because upland cotton does not need to be exported to trigger eligibility; domestic users are also
eligible. The program under which Step 2 payments are granted is indifferent as to whether the
recipient of the payment is an exporter or a domestic user. Step 2 payments to exporters and domestic
users are governed by a single legislative provision and a single set of regulations. The form and
payment rate to domestic users and exporters are identical, and payments are made from a unified
fund. Rather than being an expor t-contingent subsidy, the United St ates reports Step 2 payments as
product-specific amber box domestic support for cotton within its AMS.
54. The United States submits that the facts in this case are similar to those before the panel in
Canada – Dairy, where the panel found that payments contingent on use, without regard to the nature
of the use, do not involve an export subsidy for purposes of Articles 9 and 10 of the Agreement on
Agriculture.
55 The distinctions drawn by the Panel betw een the circumstances in this case and those
in Canada – Dairy are based on a mischaracterization by the Panel of facts in the latter case. 56
Finally, the United States contends that the Panel' s finding in respect of Step 2 payments to exporters
seems to be based on the Panel's determina tion to find that Step 2 payments to domestic users are a
prohibited import substitution subsidy.
55. The United States therefore requests that the Appellate Body reverse the Panel's finding that
Step 2 payments to exporters are an export subsidy list ed in Article 9.1(a) that is inconsistent with the
United States' obligations under Articles 3.3 and 8 of the Agreement on Agriculture . The United
States also requests that the Appellate Body rever se the Panel's findings that Step 2 payments to
exporters are not exempt from action under Article 13(c) of the Agreement on Agriculture and are
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
(b) Export Credit Guarantees
(i) Panel's terms of reference
56. The United States asserts that the Panel erred in concluding that export credit guarantees 57 to
facilitate the export of United States agricultural commodities other than upland cotton were within its

55United States' appellant's submission, paras. 444-445 (referring to Panel Report, Canada – Dairy ,
56Ibid., paras. 447-452 (referring to Panel Report, paras. 7.718 and 7.725).
57The export credit guarantees at issue are the General Sales Manager 102 and 103 programs and the
Supplier Credit Guarantee Prog ram, which are described infra, paras. 586-589. See also Panel Report,
paras. 7.236-7.244.

terms of reference. According to the United Stat es, there is a clear progression between the measures
included in the request for consultations under Article 4 of the DSU and the measures identified in the
request for the establishment of a panel, which fo rms the basis for a panel's terms of reference. 58 The
United States contends that a measure that is not included in the request for consultations may not
form part of a panel's terms of reference.
57. In this case, the United States argues, the Pane l erred in finding that Brazil's request for
consultations identified export credit guarantees to agricultural commodities other than upland cotton
as challenged measures. A plain reading of Braz il's request for consultations does not support the
Panel's conclusion. The request identified the challenged measures as "subsidies provided to US
producers, users and/or exporters of upland cotton". 59 Although footnote 1 to this sentence reads
"Except with respect to export credit guarantee progr ams as explained below", none of the subsequent
references to export credit guarantees in the request for consultations identified other United States
agricultural commodities. Moreover, the statement of evidence a ttached to Brazil's request for
consultations, pursuant to Article 4 of the SCM Agreement, did not mention commodities other than
upland cotton, providing further proof that the re quest for consultations did not extend beyond export
credit guarantees for upland cotton. That the request for consultations did not include export credit
guarantees to other agricultural commodities is c onfirmed by the fact that Brazil included new
language in its request for the establishment of a panel.
58. According to the United States, the Panel also erred in finding that "actual" consultations
included export credit guarantees to agricultural comm odities other than upland cotton. The fact that
Brazil posed written questions to the United States about export credit guarantees for other
commodities does not mean that Brazil and the United States held consultations about the topic. Were
it otherwise, a complaining party could unilaterally a lter the scope of consulta tions without regard to
the requirements of Article 4.4 of the DSU, the time-frames, and the impact on third parties seeking to
determine whether to join the consultations. The Panel also ignored the fact that, at the first
consultations meeting, the United States expressed the view that Brazil's request with respect to
export credit guarantees was clearly limited to upland cotton, and that no discussion of export credit
guarantees for any commodity other than upland co tton took place during th e consultations. The
United States also argues that what is determinative of the scope of consultations is the text of Brazil's
request for consultations and not the text of Brazil's written questions.

58United States' appellant's submission, para. 466 (referring to Appellate Body Report, Brazil –
Aircraft, para. 131).
59Ibid., para. 457 (quoting the Request for Consultations by Brazil, supra, footnote 26).

59. The United States contends that the facts in this case are similar to those in US – Certain EC
Products. In that case, the Appellate Body found that a particular measure was not part of the panel's
terms of reference because it was not the subject of consultations. 60 Similarly, in this case, export
credit guarantees to other agricultural commodities may not form part of the Panel's terms of reference
because they were not the subject of consultations.
60. The United States therefore requests that the A ppellate Body reverse the Panel's conclusion
that export credit guarantees to United States agricu ltural commodities other than upland cotton were
within the Panel's terms of reference. The Unite d States adds that, because the Panel had no authority
to make findings with respect to export cred it guarantees for agricultural commodities other than
upland cotton, all of the Panel's findings with respect to such commodities must also be reversed.
(ii) Statement of available evidence
61. The United States submits that the Panel e rroneously concluded that Brazil provided a
statement of available evidence with respect to export credit guarantee measures relating to United
States agricultural commodities other than upland cotton, as required by Article 4.2 of the
SCM Agreement.
62. The United States explains that the statement of evidence that was annexed to Brazil's request
for consultations contains two paragraphs specifi cally referring to the United States' export credit
guarantee programs. The Panel correctly noted that the first paragraph is textually limited to upland
cotton.
61 The United States submits, however, that the Panel failed to draw the proper conclusion
about the second paragraph. Although the second paragraph does not refer to upland cotton, it
contains no suggestion that it expands on the prog rams described in the pr eceding paragraph, which
refers to export credit guarantee programs that alle gedly provide certain benefits to United States
upland cotton. In the context of the paragraph that precedes it, the second paragraph must be
understood to refer to the same pr ograms—that is, to export credit guarantee programs that allegedly
provide certain benefits to upla nd cotton. In addition, the Unite d States points out that the second
paragraph in Brazil's request for consultations does not refer to any commodity. Consequently, even
if the second paragraph is construe d to refer to programs that provide benefits to products other than
cotton, it is difficult to see how that paragraph meets the requirements of Article 4.2 of the

60United States' appellant's submission, para. 485 (referring to Appellate Body Report, US – Certain
EC Products, para. 70).

SCM Agreement, as it does not provide information about the "existence" or "nature" of the subsidies
allegedly provided by the export credit guarantee programs to products other than upland cotton.
63. The United States therefore requests that the Appellate Body reverse the Panel's finding and
that it find, instead, that Brazil did not provide a st atement of available evidence with respect to the
United States' export credit guarantee programs as they relate to agricultural commodities other than
upland cotton.
(iii) Article 10.2 of the Agreement on Agriculture
64. The United States alleges that the Panel erred in finding that the United States' export credit
guarantee programs in respect of exports of upl and cotton and other unscheduled agricultural
products, and in respect of one scheduled product (i .e., rice), are export subsidies applied in a manner
that results in circumvention of the United States ' export subsidy commitments within the meaning of
Article 10 of the Agreement on Agriculture and are therefore inconsistent with Article 8 of that
Agreement. In addition, the United States submits that , although the Panel did not find that the
United States had circumvented such commitments with respect to scheduled commodities other than
rice, it nevertheless erred in concluding that the programs as applied to these scheduled agricultural
products constitute export subsidies within the meaning of the Agreement on Agriculture.
65. The United States contends that the Panel e rroneously analyzed whether export credit
guarantees are export subsidies subject to the discip lines of Article 10.1 solely by reference to the
SCM Agreement , ignoring important context in Article 10 of the Agreement on Agriculture .
According to the United States, the proper context in which to analyze the meaning of Article 10.1
with respect to export credit guarantees is Article 10.2 of the Agreement on Agriculture , the only
provision that explicitly addresses these specific kinds of measures. Article 10.2 reflects the fact that,
during the Uruguay Round, WTO Members did not ag ree on disciplines applicable to agricultural
export credits, export credit guarantees, or insurance programs. Unable to reach agreement on such
disciplines within the Uruguay Round, WTO Member s opted to continue discussions, deferring the
imposition of substantive disciplines until a consensus was achieved.
66. According to the United States, this interpretati on of Article 10.2 is consistent with Article 10
as a whole. Article 10.2 contributes to the prevention of circumvention of export subsidy
commitments by imposing two obligations on Members: first, they must undertake to work toward
the development of internationally agreed discip lines on export credit guarantees; and, second, "after
agreement on such disciplines", they must provide export credit guarantees "only in conformity

therewith".62 Moreover, excluding export credit guarant ees from the application of Article 10.1 is
consistent with the treatment of food aid transac tions under Article 10. Because Article 10.4 of the
Agreement on Agriculture does not explicitly exempt food aid transactions from the applicability of
Article 10.1, the Panel's interpretative approach w ould mean that all food aid transactions constitute
export subsidies under Article 10.1.
67. The United States submits that the negotiating history confirms its interpretation that
Article 10.2 excludes export credit guarantees from the export subsidy disciplines in Article 10.1.
The negotiating history reflects that WTO Members initially included export credit guarantees as a
subject for negotiation but later specifically elected not to include those practic es as exports subsidies
in respect of goods covered by the Agreement on Agriculture . The Panel's explanation that the
negotiators deleted the language on export credits from a 1991 draft of Article 9 because it was "mere
surplusage"
63 is inconsistent with the fact that other practices included in the Illustrative List of Export
Subsidies of the SCM Agreement were also listed in Article 9.1 of the Agreement on Agriculture ,
such as direct subsidies contingent upon export performance, or transport and freight charges
provided at more favourable rates.
68. The United States argues that reliance on the negot iating history in this case is appropriate,
under Article 32 of the Vienna Convention on the Law of Treaties (the " Vienna Convention "64),
because the Panel's interpretation leads to a manif estly unreasonable result. Had export credit
guarantees remained in Article 9, then the United States and other providers of export credit
guarantees would have been expressly permitted to in clude such measures in their respective export
subsidy reduction commitments. In the absence of a reference in Article 9, the United States was
foreclosed from including them. It defies l ogic, as well as the object and purpose of the Agreement
on Agriculture , to take the view of the Panel whereby such measures would be treated as already
disciplined export subsidies, yet such measures w ould not be permitted to be included within the
applicable reduction commitments expressly contemplated by the text.
69. The United States also requests that the Appellate Body reverse the Panel's finding that export
credit guarantees for agricultural commodities ar e subject to Articles 3.1 and 3.2 of the
SCM Agreement. The United States explains that export credit guarantees are not listed in Article 9.1
of the Agreement on Agriculture and are exempt, through the operation of Article 10.2, from the
export subsidy disciplines in Article 10.1. Because export credit guarantees are not subject to export
subsidy disciplines under the Agreement of Agriculture , the export subsidy disciplines of the

62Quoting from Article 10.2 of the Agreement on Agriculture.
64Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.

SCM Agreement are also inapplicable to these measures pursuant to Article 21.1 of the Agreement on
Agriculture and the introductory language of Article 3.1 of the SCM Agreement.
(iv) Burden of proof
70. The United States submits that the Panel erred in three different ways in respect of the
application of the burden of proof in assessing the United States' export credit guarantee programs
under item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement.
71. First, the United States asserts that the Panel e rred by applying the "special rules" on burden
of proof provided in Article 10.3 of the Agreement on Agriculture in its examination of Brazil's
claim under the SCM Agreement. The United States argues that the special rules in Article 10.3 of
the Agreement on Agriculture do not apply in the context of the SCM Agreement.
72. In addition, the United States submits that the Panel erred by applying the special rules on
burden of proof in Article 10.3 of the Agreement on Agriculture in examining whether the United
States circumvented its export subsidy commitments w ith respect to upland cotton and certain other
unscheduled agricultural products. According to the Un ited States, Article 10.3 does not apply at all
in respect of export subsidies to an agricultu ral good for which the respondent has no reduction
commitments.
73. Finally, the United States refers to three speci fic instances in which the Panel allegedly erred
in applying the burden of proof. The first example is the Panel's statement that the premiums charged
by the Commodity Credit Corporation (the "CCC") for the export credit guarantees "are not geared
toward ensuring adequacy to cover long-term operating costs and losses for the purposes of
item (j)".65 The United States asserts that this is a much higher threshold than that provided in the text
of item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement . Next, the
United States takes issue with the Panel's statements that "[i]n terms of the structure, design and
operation of the ... programmes [we] believe that th e programmes are not designed to avoid a net cost
to government"
66 and that the Panel was entitled to inquire whether revenue "would be likely to cover
the total of all operating costs and losses under the programme". 67 According to the United States,
"[t]o 'avoid a net cost' prospectively is simply not the requirement of item (j)", and the "'likelihood'

65United States' appellant's submission, para. 406 (quoting Panel Report, para. 7.859). (emphasis added
by the United States)

standard of performance" imposed by the Pane l is higher than that found in item (j). 68 The third
example cited by the United States is the Panel's st atement that "[w]e have not been persuaded that
cohort re-estimates over time, will necessarily not give rise to a net cost to the United States
government."69 The United States contends, however, that under the applicable burden of proof it is
not for the United States to make such incontrovertible demonstrations to the Panel.
(v) Necessary findings of fact
74. The United States asserts that the Panel erred by failing to make certain factual findings that
were necessary for the Panel's analysis of whether premiums are adequate to cover the long-term costs
and losses of the United States' export credit guarantee programs, under item (j) of the Illustrative List
of Export Subsidies. According to the United States, the Panel made no findings "on the basis for and
monetary extent to which the United States has a llegedly not covered its long-term operating costs
and losses for the CCC export credit guarantee programs".70
75. In particular, the United States asserts that th e Panel should have made a specific finding on
the treatment of rescheduled debt. The United Stat es explains that the Pane l did not conclude that
rescheduled debt was an operating cost or loss. In stead, the Panel "stated only vaguely" that it shared
Brazil's concern that the United States' treatment of rescheduled debt understates the net cost to the
United States government associated with the export credit guarantee programs. 71
76. The United States argues that the Panel's failure to make these factual findings compels the
reversal of the Panel's determination in respect of item (j) of the Illustrative List of Export Subsidies.
B. Arguments of Brazil – Appellee
1. Domestic Support
(a) Terms of Reference – Expired Measures
77. Brazil submits that the Appellate Body should re ject the United States' request to reverse the
Panel's finding that expired production flexibility co ntract and market loss assistance payments were

69Ibid., para. 408 (quoting Panel Report, para. 7.853). (emphasis added by the United States) In the
same paragraph, the United States mentions the following statement by the Panel: "[w]hile there may be a
possibility (based on the experience of certain of other cohorts) that this figure may diminish over the lifetime of
the cohort concerned, there is no assurance that this figure will necessarily evolve towards, and conclude as,
zero or a negative figure." (Panel Report, footnote 1028 to para. 7.853) (emphasis added by the United States)
71Ibid., para. 416.

outside the Panel's terms of refere nce. Brazil argues that neither Article 4.2 nor Article 6.2 of the
DSU precludes a panel from analyzing payments made in the past in the context of serious prejudice
claims. Brazil focuses on the context provided by Ar ticle 3.3 of the DSU, which states that a purpose
of dispute settlement is the "prompt settlement of situations in which a Member considers that any
benefits accruing to it ... are being impaired by me asures taken by another Member". For Brazil, as
long as the impairment is current, then the status in domestic law of the measure causing impairment
is irrelevant.
78. Brazil notes that the current case involves allegations of "adverse effects" and "serious
prejudice" under the provisions of the SCM Agreement and the GATT 1994. A breach of these
provisions does not necessarily arise when an actiona ble subsidy is granted, but only when adverse
effects occur, and the breach continues for the entire period during which the adverse effects continue.
The effects of an actionable subsidy, which "affect[] the operation of" the SCM Agreement in the
sense of Article 4.2 of the DSU, may well linger even after the measure providing for the subsidy
expires. There is thus no basis for the United Stat es' claim that the subsidies in question "cannot" be
measures affecting the operation of an y covered agreement. In particul ar, there is no justification in
this context for the distinction, drawn by th e United States, between recurring and non-recurring
subsidies. The inquiry as to whether a subsidy cont inues to cause adverse effects beyond the year in
which it was granted is a substantive judgment, a nd cannot be treated as a "jurisdictional hurdle".
72
Brazil finds support for its position in the view of the panel in Indonesia – Autos , which found that
past, present, and future subsidies can be the subj ect of dispute settlement, as the effect of such
measures may cause serious prejudice to the interests of a Member.
79. Brazil also disputes the United States' claims re garding Article 12.7 of the DSU. In Brazil's
view, the Panel fulfilled the requirements of Article 12.7 in its Report. Many of the United States'
claims under Article 12.7 are, in reality, allegations of error concerning the Panel's exercise of its
discretion under Article 11 of the DSU and should be dismissed for want of specification of a claim
under that provision.
(b) Article 13(a) of the Agreement on Agriculture – Planting Flexibility
Limitations
80. Brazil considers that production flexibility contract and direct payment programs are not
green box measures falling under Annex 2 of the Agreement on Agriculture and are thus not exempt
from actions pursuant to Article 13(a) of that Agreement . Brazil requests the Appellate Body to

uphold the Panel's finding, under paragraph 6(b) of Annex 2, that production flexibility contract
payments under the FAIR Act of 1996 73 and direct payments under the FSRI Act of 2002 relate the
amount of the payment to the type of production unde rtaken by recipients because these payments are
made solely if a producer grows crops other than fruits and vegetables (and, in the case of direct
payments, wild rice as well).
81. Brazil relies upon the Panel's finding that paragr aph 6(b) of Annex 2 addresses both positive
requirements that certain products be produced and negative requirements that certain products not be
produced. Brazil submits that the Panel correctly held that the words "related to," in paragraph 6(b) of
Annex 2, preclude the establishment of any kind of relationship between the amount of a payment and
the type of production undertaken. Accordingly, the text requires that the amount of a decoupled
payment not be affected, influenced, or dependent, in any way, upon the type of crop planted. Brazil
contends that the United States inappropriately seek s to read into paragraph 6(b) an exception for
planting restrictions. Brazil observes that where th e drafters intended to provide such an exception,
they did so explicitly, as is evidenced by paragraphs 11(b) and 11(e) of Annex 2. For Brazil, Annex 2
cannot simply be reduced to the proposition that a measure is exempt if it is consistent with the
fundamental requirement established in paragraph 1 that such measures have no, or at most minimal,
trade-distorting effects or effects on production. Such an interpretation would overlook the policy-
specific criteria in the other paragraphs of Annex 2.
82. Brazil nevertheless agrees with the United St ates that the expression in paragraph 6(b)
"related to ... the type ... of production" does not preclude a Member from making decoupled
payments conditional upon producers undertaking no pr oduction at all. Brazil highlights, however,
that a total ban on production is different from a partial ban, because payment is conditional upon the
planting of certain crops as opposed to others. Th e Panel's factual findings support this view: the
Panel found that the planting flexibility limitations impose a "significant constraint" on production
decisions.
74 Brazil argues that, under the production flexib ility contract and direct payment measures,
the amount of payment is always "related to" th e type of production undertaken. If permitted crop
"types" are produced exclusively, a full payment is ma de. If a small quantity of "prohibited" crops is
produced, the amount of payment is reduced. If a larg er quantity of prohibited crops is produced, no
payment is made.
83. Furthermore, the various findings by the Pane l contradict the United States' basic assertion
that "a condition that a recipient not produce certain products serves the fundamental requirement of

73Federal Agriculture Improvement and Reform Act of 1996 (the "FAIR Act of 1996"); Public Law
104-127.

Annex 2, that measures have no more than mi nimal trade-distorting effects and effects on
production."75 Rather, a partial prohibition creates incentives for the production of certain crops, and
disincentives for the production of prohibited crop s. In essence, the Panel found that planting
flexibility limitations did channel production away from fruits, vegetables (and wild rice) and
towards other commodities, such as upland cotton. Br azil thus disputes the distinction put forward by
the United States between measures that make payment contingent upon the production of "permitted"
crops and those that make payment contingent upon the non-production of "prohibited" crops. As the
Panel found on the facts of this case, their effects are the same. The Panel found that "the planting
flexibility limitations provide a monetary incenti ve for payment recipients not to produce the
prohibited crops" 76, and that production flexibility contract payments and direct payments have
positive production effects by restricting producti on choices and keeping land dedicated to the
production of the permitted crops. Thus, providing income support, whilst also excluding income
support when certain types of crop are produced, rela tes the amount of the income support to the type
of production undertaken within the meaning of paragraph 6(b).
84. Finally, Brazil takes issue with the United St ates' assertion that the Panel's interpretation
would require a Member to make decoupled income support payments even if the recipient produced
illegal crops or crops damaging to the environment. There was no basis for the Panel to address this
issue because the planting flexibility limitations at i ssue do not pertain to the production of illegal or
environmentally-damaging crops. In any event, nothing in the Agreement on Agriculture suggests
that the word "production" means anything other than lawful production. The Panel properly
declined to consider the hypothetical situations not created by the United States' measures at issue in
the dispute.
(c) Article 13(b) of the Agreement on Agriculture
85. Brazil submits that the United States' non-green box domestic support measures are not
exempt from actions by virtue of Article 13(b)(ii) of the Agreement on Agriculture , and asks the
Appellate Body to uphold the Panel's finding that the United States granted implementation period
support to upland cotton in excess of that decided in the 1992 marketing year, within the meaning of
that provision. Brazil argues that the Panel's interpre tation of Article 13(b)(ii) was consistent with its
ordinary meaning, context and object and purpose, and that the methodological choices made by the
Panel in undertaking the comparison required by Ar ticle 13(b)(ii) were reasonable and within the
bounds of its discretion as the trier of fact.

75Brazil's appellee's submission, para. 291 (quoting the United States' appellant's submission, para. 22).

(i) Interpretation of "support to a specific commodity"
86. Brazil contends that the Panel correctly in terpreted the phrase "support to a specific
commodity" in Article 13(b)(ii) of the Agreement on Agriculture to mean "all non-green box support
measures that clearly or explicitly define a commodity as one to which they bestow or confer
support".77 This includes crop insurance and the three subsidies described by the United States as
"product-specific" domestic support (marketing lo an program payments, Step 2 payments, and
cottonseed payments), as well as the four measures characterized by the United States as "decoupled"
payments (production flexibility contract payments , direct payments, market loss assistance, and
counter-cyclical payments).
87. Brazil submits that the United States' interpretation of the phrase "support to a specific
commodity" in Article 13(b)(ii) of the Agreement on Agriculture is that support falling within the
proviso to Article 13(b)(ii) must require production of only one specific crop. Brazil observes that
this argument was rejected by the Panel, which conc luded that nothing in the text of Article 13(b)(ii)
suggests that relevant measures must provide support only to a single commodity, and noted that a
single measure could provide support to multiple spec ific commodities. Brazil agrees with the Panel
that "[i]f a measure specifies more than one co mmodity, it would be appropriate to measure the
amount of support granted to each of them in a ccordance with the terms of the measure itself."
78 The
practical effect of the extremely narrow United States reading of Article 13(b)(ii) is to erase US $4.2
billion in production flexibility contract payments , direct payments, market loss assistance, and
counter-cyclical payments to recipients who act ually grew upland cotton in the 1999-2002 marketing
years, even though these four subsidies covered a si gnificant portion of upland cotton producers' costs
of production during this period. Brazil contends that the crucial conclusion drawn by the Panel from
this data was a clear linkage between historic upland cotton producers and present upland cotton
producers. The Panel found that "the overwhelmi ng majority of farms enrolled in the programmes
which plant upland cotton also hold upland cotton base", specifica lly, 96.1 per cent in the 2002
marketing year.79 For Brazil, the evidence on record and the Panel's findings contradict the United
States' factual assertions that there is no conn ection between current payments under the production
flexibility contract, direct payment, market loss a ssistance, and counter-cyclical payment programs on
the one hand, and current upland cotton production on the other.
88. Brazil agrees with the Panel's conclusion that the deliberate decision of the drafters not to
use in Article 13(b)(ii) readily available terms, such as "product-specific" and "non-product-specific"

(and the definitions in Articles 1(a) and (h) of the Agreement on Agriculture) means that the drafters
intended the term "support to a specific commodity" to have a unique meaning. The Panel properly
found that this unique phrase does not mean "produc t-specific domestic support" because "the class of
measures which is covered by paragraph (b) [of Article 13] is broader than either" that term or the
phrase "support … provided for an agricultural product in favour of the producers". 80 The Panel
correctly focused on the fact that the term "support to a specific commodity" in Article 13(b)(ii) refers
to all measures set out in the chapeau to Article 13(b). There was therefore no basis in the text to
limit the measures covered by Article 13(b)(ii) solely to measures requiring production of a single
commodity. Brazil adds that such an interpretation would be contrary to the object and purpose of the
Agreement on Agriculture , creating a new category of trade-distorting domestic support that would
evade the limits set by the Memb ers for exempting domestic support measures from actions under the
SCM Agreement and the GATT 1994. Under the United States' interpretation, as long as measures do
not require production of a single commodity, they would never be counted as implementation
period support for purposes of the peace clause comparison, effectively insulating such measures from
serious prejudice actions.
89. In addressing the manner in which the value of support under the production flexibility
contract, market loss assistance, direct payment, and counter-cyclical payment programs should be
calculated, Brazil submits that the Appellate Body should be wary of setting the evidentiary bar too
high for complaining Members seeking to demons trate precise amounts of support to a specific
commodity for purposes of Article 13(b)(ii). Brazil contends that the Appellate Body should affirm
the Panel's use of the total budgetary outlays to upland cotton base acres. Brazil observes, however,
that the Panel endorsed in the "Attachment to S ection VII:D" two other approaches for allocating
implementation period support unde r these programs to upland cotton: the "cotton-to-cotton"
methodology and "Brazil's methodology". Brazil ma intains that, under any of these approaches, the
United States granted support to upland cotton in the years 1999, 2000, 2001, and 2002 in excess of
that decided during the 1992 marketing year.
(ii) Calculation methodology for price-based measures
90. In addressing the United States' arguments regarding the appropriate methodology for
calculating the value of certain United States pri ce-based measures (the marketing loan program
payments and deficiency payments), Brazil agrees w ith the Panel that "the use of the verb 'decided'
stands in contrast to the use of the verb 'grant ' in relation to the same noun 'support' in the same

proviso."81 The Panel found that "despite the contrast, the proviso calls for a comparison which
necessarily requires the two halves of the comparison to be expressed in the same units of
measurement."82 The Panel further noted that "[a] diffe rence between the support that a government
decides and the support that its measures grant is that one is expressed in terms of prior
determinations of leve ls of support and the other in term s of subsequent support provided ."83 The
Panel concluded by stating that "' [d]ecided' refers to what the g overnment determines, but 'grant'
refers to what its measures provide." 84 Brazil submits that the Panel' s explanation and reasoning for
its interpretation are consistent with the ordinary me aning of the term in its context, and are supported
by the Appellate Body's decision in Brazil – Aircraft.
91. Brazil contends that the United States incorrec tly implies that the Panel agreed with the
United States that the peace clause proviso "com pares the support a Member determines through its
measures, not 'support [that] was spent due to reasons beyond the control of the government'''. 85
Brazil argues that the Panel explicitly rejected this contention and concluded that "the text indicates
that implementation period support mu st be measured in terms of suppor t that measures 'grant', rather
than what was budgeted or estimated."86
92. Against this background, Brazil argues that the pl ain text of paragraph 10 of Annex 3 to the
Agreement on Agriculture permits the use of either a budgetary outlay or a price gap methodology
for calculating the value of price-based payments. There is no textual basis for concluding, for
purposes of the peace clause, that only price gap methodology may be used. Brazil also notes the
Panel's factual finding that the United States adopted a budgetary outlay methodology in accounting
for marketing loan program payments in its AMS no tifications. Brazil observes that when the United
States agreed with other WTO Members on its base level AMS, the United States chose to calculate
marketing loan program payments using a budgeta ry outlay methodology. Brazil argues that the
United States' decision to use budgetary outlays in stead of price gap methodology for notifying the
value of marketing loan program payments is lega lly binding on the United States. This conclusion
follows from the text of Articles 6.3 and 3.2 of the Agreement on Agriculture. Nothing in Article 6 or
any other provision of the Agreement on Agriculture permits a Member to change the methodology

82Panel Report, para. 7.435.
83Ibid., para. 7.436.
84Ibid., para. 7.476.
85Brazil's appellee's submission, para. 346 (quoting the United States' appellant's submission, para. 66).

used to calculate the value of price-based meas ures, once that methodology has been used in AMS
notifications.
93. Brazil also notes that, although the Panel primarily relied on a budgetary outlay methodology,
it also made alternative factual findings regarding the use of price gap methodology for the calculation
of marketing loan program payments in the implementation period and for the 1992 benchmark
period, as well as for deficiency payments in the 1992 benchmark period only. Brazil highlights the
Panel's finding that under either approach the United States grants support to upland cotton in excess
of that decided in the 1992 marketing year; the Panel found that "both methodologies lead to the
same result."
87 As a result, even if the legal grounds for the United States' appeal were valid, the facts
on record would require the Appellate Body to uphol d the Panel's conclusions that the United States
granted support in each of the 1999-2002 marketi ng years that exceeded the "support decided during
the 1992 marketing year".
2. Serious Prejudice
(a) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
94. Brazil submits that the Panel properly found that the effect of the price-contingent subsidies is
significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement constituting
serious prejudice to the interests of Brazil w ithin the meaning of Article 5(c) of the SCM Agreement.
Brazil asks the Appellate Body to uphold this finding, and to find that the Panel set out the findings of
fact, the applicability of relevant provisions, and the basic rationale behind this finding, as required by
Article 12.7 of the DSU. Brazil argues that many of the United States' arguments 88, and particularly
those concerning serious prejudice, involve allegati ons that the Panel failed to "make an objective
assessment of the matter before it, including an objec tive assessment of the facts of the case" pursuant
to Article 11 of the DSU. Brazil requests the A ppellate Body to ignore these arguments because the
United States has not made a proper claim of error under Article 11 of the DSU.
95. First, in response to the United States' argume nt that the market in which a panel assesses
significant price suppression under Article 6.3(c) cannot be a "world market", Brazil maintains that
the subsidized and like products must be present in the market examined. Brazil submits that the
ordinary meaning of the text of Article 6.3(c) of the SCM Agreement indicates that this provision

87Panel Report, para. 7.555.
88Brazil lists the relevant arguments in Annex A of its appellee's submission.

"may apply to any 'market,' from local to global, and everything in between". 89 This contrasts with
paragraphs (a), (b), and (d) of Article 6.3, which e xpressly qualify the type of market at issue. It is
also consistent with the object and purpose of the Marrakesh Agreement Establishing the World
Trade Organization (the " WTO Agreement ") (which addresses barriers to "world trade") and the
Agreement on Agriculture (which addresses "world agricultural markets").90 Brazil maintains that the
Panel found, as a matter of fact, that a world market exists for upland cotton. 91 In addition, contrary
to the assertion of the United States, Brazil contends that the Panel did find that United States and
Brazilian cotton are present in the world market. 92 However, Brazil agrees with the Panel that the
existence of a world market does not preclude the possibility of other markets, and that a world
market does not necessarily exist for all products. Br azil refutes the United States' suggestion that the
Panel did not find that Brazilian prices in the world market for upland cotton were significantly
suppressed.93 In Brazil's view, the Pane l found that "Brazilian prices, i.e., prices in Brazil and prices
received for Brazilian exports, are significantly suppressed".94
96. Secondly, in relation to the United States' allegation that the Panel used circular reasoning to
find "significant price suppression", Brazil emphasizes that several factors relate to both the "effect of
the subsidy" and "significant price suppression", a nd the Panel gave separate explanations of these
factors in terms of the "effect" and the "suppression" . Brazil states that the Panel did take into
account supply responses from third countries that woul d flow from removal of the price-contingent
subsidies, in taking into account econometric mode ls that incorporated such supply responses. 95
Brazil also states that the Panel examined the ordi nary meaning of the word "significant", properly
concluded that it is the degree of price suppression th at matters rather than the degree of significance,
and provided substantial reasons for its conclusion that the degree of price suppression it had found in
the present dispute was significant.
97. Thirdly, in relation to the United States' challenge to the Panel's finding of the "effect" of the
price-contingent subsidies, Brazil points out that the Panel did examine the United States' arguments
regarding the "farmer's planting decision" and the responsiveness of United States producers to price

89Brazil's appellee's submission, para. 628. (original emphasis)
90Ibid., para. 633. (emphasis omitted)
91Ibid., paras. 619 and 622 (referring to Panel Report, paras. 7.1274 and 7.1311).
92Ibid., paras. 644 and 808 (referring to Panel Report, paras. 7.1266, 7.1282-7.1284 and 7.1313).
93Ibid., paras. 799-801 (referring to Panel Report, paras 7.1311 and 7.1313).
94Ibid., para. 802.
95Ibid., paras. 793-798 (referring to Panel Report, paras. 7.1205, 7.1209, and 7.1215).

signals.96 Brazil explains that United States upland cotton farmers base planting decisions on
expected net returns, meaning expected market pr ices together with expect ed government support.
According to Brazil, the record contains ample ev idence to support the Panel's view that the United
States exercises a significant influence on the worl d market price for upland cotton. Even if
movements in planted upland cotton acreage of United States producers correspond with those of
other producers (which Brazil disputes), this woul d not detract from the Panel's finding that the
overall level of upland cotton production by United States producers would be significantly lower in
the absence of the price-contingent subsidies. The Panel properly assessed the nature of the price-
contingent subsidies and properly found a tempor al coincidence between those payments and
suppressed upland cotton prices, based not merely on the end points of the 1998-2001 marketing year
period, but on more detailed data. Finally, Brazil maintains that the Panel properly found that United
States upland cotton producers were able to continue to produce upland cotton by virtue of the price-
contingent subsidies. Although variable costs may be most relevant in the short term, the Panel found
that upland cotton producers must cover their total costs of production in the mid- to long-term.
According to Brazil, the fact that United States prod ucers might have been able to cover the costs of
upland cotton production through other agricu ltural production as well as "off-farm income" 97 is
irrelevant to the question of the effect of the pr ice-contingent subsidies on the United States industry
producing upland cotton.
98. Fourthly, in response to the United States' arguments regarding the quantification of
subsidies, Brazil states that neither the text nor the context of Articles 5(c) and 6.3 of the
SCM Agreement imposes a "preliminary requirement to qua ntify exactly the amount of each subsidy
prior to examining whether it causes adverse effects". 98 Brazil supports its interpretation by reference
to Article 6.1(a) and Annex IV of the SCM Agreement , which, unlike Article 6.3, impose
quantification methodologies. Brazil also distinguish es the analysis required under Part III of the
SCM Agreement from that required under Part V of that Agreement. Under Part V, it is necessary to
calculate the exact amount of subsidization in or der to avoid imposing excess countervailing duties.
However, the remedy under Part III focuses on the effects of the subsidy, rather than the imposition of
duties, and, according to Brazil, the size of a s ubsidy does not necessarily determine its effects.
Finally, Brazil contests the United States' reliance on Annex V of the SCM Agreement. In Brazil's
view, Annex V sets out procedures for the collection of information and does not require the Panel to

96Brazil's appellee's submission, para. 168 (referring to the United States' appellant's submission,
para. 324).
98Ibid., para. 467.

use such information, and the references to an "amount" in paragraphs 2 and 5 of Annex V are
directed towards Article 6.1(a) rather than Article 6.3 of the SCM Agreement.
99. In response to the United States' arguments regarding the allocation of counter-cyclical
payments and market loss assistance payments to upland cotton, Brazil argues that the methodology in
Annex IV of the SCM Agreement applies only to Article 6.1 and not to Article 6.3(c), and that
Annex IV has now expired. In any case, the Panel did find a "strongly positive relationship" between
those payments and the production of upland cotton.99
100. Brazil contends that the United States' arguments distinguishing between "raw" and
"processed" cotton improperly raise new factual and legal issues not before the Panel, including a
suggestion that raw cotton is a pr oduct distinct from processed cotton. Brazil submits that the Panel
found, and the parties agreed, that upland cotton lint is the only subsidized product at issue in this
dispute. Moreover, according to Brazil, the Panel found that all price-contingent subsidies benefited
the subsidized product (upland cotton), regardless of the stage at which they were provided. Brazil
rejects the United States' reliance on the Appellate Body Report in US – Softwood Lumber IV.
101. Finally, Brazil responds to the United States' arguments as to the allocation of recurring
subsidies to a particular year as follows. Articles 5(c) and 6.3 of the SCM Agreement do not
explicitly exempt consideration of effects of a nnually recurring subsidies beyond the year in which
they are paid. Furthermore, the United States' interpretation would create a new category of non-
actionable subsidies. For example, according to Brazil, the United States' argument would exclude all
the subsidies challenged by Brazil because they would be deemed to have no effects after 1 August
2003, well before the Panel circulated its Report. The possibility of making an "as such" claim
against the subsidy programs as a whole would pr ovide little comfort because these types of claims
can be difficult to prove. Brazil also suggests that "WTO Members provide agricultural subsidies
largely on a 'recurring' annual basis"
100 and, therefore, one would have expected an explicit exclusion
of such subsidies from the disciplines of particularly Part III of the SCM Agreement and the
Agreement on Agriculture if this were the intention of the drafters. The United States' contrary
assertion improperly excludes the possibility for Member s to seek the removal of adverse effects of
any subsidies (whether recurring or otherwise), as reflected in Article 7.8 of the SCM Agreement.
102. In relation to the findings that the Panel made re garding the subsidies at issue in this dispute,
Brazil challenges the United States' contention that the Panel made no findings regarding the effects
in marketing year 2002 of subsidies paid in mark eting years 1999 to 2001. The Panel explained its

100Ibid., para. 559.

decision to examine serious prejudice over a period including marketing year 2002, and its findings
indicate that it regarded the effects of certain subsid ies as continuing in that year. In addition, Brazil
submits that no "bright lines" 101 can be drawn between upland cott on subsidies paid in different
marketing years, because the marketing year r uns from 1 August to 31 July, and upland cotton is
planted in one marketing year and harvested in the next.
3. Import Substitution Subsidies and Export Subsidies
(a) Step 2 Payments
(i) To domestic users
103. Brazil requests that the Appellate Body uphold the Panel's conclusion that Step 2 payments to
domestic users of United States upland cotton, prov ided under Section 1207(a) of the FSRI Act
of 2002, are inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement. Brazil submits that the
Panel correctly held that the Agreement on Agriculture and the SCM Agreement apply
cumulatively, unless there is an exception or a conf lict. Such an exception must be explicitly
stated.102 According to Brazil, in EC – Bananas III , the Appellate Body found that the Agreement
on Agriculture permits inconsistencies with obligations in other covered ag reements solely if this is
"explicitly" stated in the text. 103 Similarly, an explicit exception would be required for the
Agreement on Agriculture to exempt certain measures from the prohibition in Article 3.1(b) of the
SCM Agreement.
104. Brazil contends that no such exception is provided in the Agreement on Agriculture or in the
SCM Agreement . The introductory phrase in Article 3.1 of the SCM Agreement ("[e]xcept as
provided in the Agreement on Agriculture") does not mean that Article 3.1 does not apply to domestic
support measures conforming to the Agreement on Agriculture ; instead, it confirms that Article 3.1
of the SCM Agreement applies unless it conflicts with specific provisions of the Agreement on
Agriculture. This interpretation is confirmed by Article 21.1 of the Agreement on Agriculture and by
the absence of any exception in Article 13 of the Agreement on Agriculture regarding Article 3.1(b).
105. Brazil asserts that, under the Agreement on Agriculture, WTO Members are entitled to grant
domestic support in favour of agricultural producers. However, this does not create a conflict with
Article 3.1(b) of the SCM Agreement, because it is perfectly possible for Members to grant domestic

support without making payments c ontingent on domestic content. In other words, Members can
fully enjoy their right to grant domestic support and still comply with Article 3.1(b) of the SCM
Agreement. This interpretation is consistent with a primary objective of the WTO agreements,
namely, avoiding discrimination under the national treat ment rule. It is also consistent with an
adopted GATT panel report regardi ng a domestic support measure to agricultural producers that was
contingent on the purchase of domestic goods. Th at panel recognized that the GATT contracting
parties were entitled to grant support to agricultura l producers but found that this could be done
without granting domestic content subsidies. 104 The panel held that a domestic content subsidy in
favour of agricultural producers was inconsistent with Article III:4 of the GATT 1947. Therefore,
Brazil contends that domestic support under the Agreement on Agriculture can and must be granted
consistently with Article 3.1(b) of the SCM Agreement.
(ii) To exporters
106. Brazil requests the Appellate Body to uphold the Panel's findings that Step 2 payments to
exporters of United States upland cotton are con tingent upon export performance and, consequently,
are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture and are prohibited under
Articles 3.1(a) and 3.2 of the SCM Agreement.
107. Brazil agrees with the Panel that the prin ciples set out by the Appellate Body in US – FSC
(Article 21.5 – EC) apply to Step 2 payments to exporters. 105 In one situation under the Step 2
measure, proof of exportation is required as a conditi on of payment. This export contingency is not
dissolved because the payment can also be made in another situation, on other conditions.
108. Brazil adds that, contrary to the United States' argument on appeal, this is not a measure that
establishes a single set of conditions applying to all upland cotton produced in the United States. 106
On its own terms, the measure does not apply to all United States production of upland cotton.
Instead, the measure carves out of that overall pr oduction two classes of upland cotton that may, on
certain conditions, receive subsidies. In so doing, the measure targets two well-defined classes of

104Brazil's appellee's submission, para. 860 (referring to GATT Panel Report, Italy – Agricultural
Machinery, para. 16).
105Ibid., paras. 881-884 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 113
and 119 and Appellate Body Report, Canada – Aircraft, para. 179).

recipients and does not address either all United St ates production of upland cotton, or all "uses" of
United States upland cotton.
109. Brazil also takes issue with the United States' as sertion that Step 2 payments are contingent
on use and not exportation. According to Brazil, Step 2 payments are not contingent on "use" in any
meaningful sense. The measure is indifferent as to whether, how or when the upland cotton is "used."
The criterion is not "use", but simply "exportation". Provided that the upland cotton is "shipped" from
the United States, it would not matter if the upland cotton were never used, for instance, because its
quality deteriorated during shipping or even because the ship carrying it sank. A subsidy would still
be paid because of "exportation" from the United States.
110. Finally, Brazil distinguishes the facts in the present dispute from those before the panel in
Canada – Dairy . In that case, a single regulatory class applied to all Canadian production of milk
destined for a particular end-use.
 107 In contrast, in the present cas e, the measure under which Step 2
payments are made explicitly establishes two mutua lly exclusive regulatory categories that apply to
some, but not all, United States production of upland cotton.
111. Brazil requests, therefore, that the Appellate Bo dy reject the United States' appeal and uphold
the Panel's finding that Step 2 payments to expor ters of United States upland cotton are contingent
upon export performance and, consequently, are in consistent with Articles 3.3 and 8 of the
Agreement on Agriculture and are prohibited under Articles 3.1(a) and 3.2 of the SCM Agreement.
(b) Export Credit Guarantees
(i) Panel's terms of reference
112. Brazil asks the Appellate Body to uphold the Panel's conclusion that export credit guarantees
to facilitate the export of United States agricultura l commodities other than upland cotton were within
the Panel's terms of reference.
113. Brazil asserts that the measures included in its request for consultations, as well as in its
request for establishment of a panel, were the General Sales Manager 102 ("GSM 102") program, the
General Sales Manager 103 ("GSM 103") program , and the Supplier Credit Guarantee Program
(the "SCGP"). Under Unites States law, each of these measures applies to a ll eligible agricultural
products. Adding a particular pr oduct or products to Brazil's request for establishment would not,
therefore, have constituted the addition of measures. In any event, Brazil argues that its request for

107Brazil's appellee's submission, paras. 894-899 (referring to Panel Report, Canada – Dairy ,
paras. 2.39 and 7.41).

consultations, in fact, identified the United Stat es' export credit guarantee measures in connection
with all eligible commodities, without any limitation to upland cotton.
114. Additionally, Brazil asserts that, irrespective of the measures identified in Brazil's request for
consultations, the Panel found, as a matter of fact, that "consultations were held" on the export credit
guarantee measures in connection with all eligible commodities, as required by Article 6.2 of the
DSU.108 Brazil explains that the Appellate Body has he ld that as long as consultations were held on a
measure included in a request for establishment of a panel, that measure is properly within a panel's
terms of reference, irrespective of whether the measure was included in the request for
consultations.109 This is consistent with the purpose of consultations, which is to offer Members the
opportunity to engage in good faith discussions with a view to resolving a trade dispute. The process
necessarily involves collecting information that will shape the substance and scope of the dispute,
should consultations fail.
(ii) Statement of available evidence
115. Brazil asks the Appellate Body to deny the Un ited States' claim that the Panel erred in
concluding that Brazil provided a statement of availa ble evidence with respect to the United States'
export credit guarantee programs as they relate to agricultural commodities other than upland cotton,
as required by Article 4.2 of the SCM Agreement.
116. According to Brazil, its statement of availa ble evidence not only identified the measures at
issue—the export credit guarantee measures—but also indicated the characteristics of those measures
that had led Brazil to suspect that they constitute d export subsidies. Brazil argues that this is
consistent with the Appellate B ody's interpretation of the requirements of Article 4.2 of the
SCM Agreement.110 Specifically, Brazil's statement describes the failure of the United States' export
credit guarantee programs to establish premium rates that cover long-term ope rating costs and losses,
which are central elements in determining whet her a program constitutes an export subsidy under
item (j) of the Illustrative List of Expo rt Subsidies included as Annex I to the SCM Agreement .
Further, the Panel found that the documentary evidence cited by Brazil to support its preliminary view
was a link to a United States government website w ith data showing that revenues for the export
credit guarantee programs do not cover long-term operating costs and losses. 111 The evidence

109Ibid., para. 213 (refering to Appellate Body Report, Brazil – Aircraft, paras. 132-133).
110Ibid., paras. 228-229 (referring to Appellate Body Report, US – FSC, para. 161).
111Ibid., para. 226 (referring to Panel Report, paras. 7.92-7.93).

addressed the failure of the export credit guarantee programs to cover long-term operating costs and
losses overall, rather than in connection with upland cotton alone.
117. Thus, Brazil asserts, its statement of available evidence meets the requirements of Article 4.2,
by identifying the export credit guarantee programs, and providing and descr ibing available evidence
of the character of those measures as export subsidies, across all eligible commodities.
(iii) Article 10.2 of the Agreement on Agriculture
118. Brazil requests that the Appellate Body reject th e United States' appeal of the Panel's finding
that export credit guarantees are subject to the e xport subsidy disciplines in Article 10.1 of the
Agreement on Agriculture.
119. Brazil asserts that subsidized export credit guara ntees are covered by the general definition of
"export subsidies" under Article 1(e) of the Agreement on Agriculture . These measures are,
therefore, subject to Article 10.1 of the Agreement on Agriculture , unless an express exception is
provided in Article 10.2. The text of Article 10. 2 establishes two obligations, but does not provide an
exception. It requires WTO Members to negotiate multilateral rules to regulate agricultural export
credit measures specifically, and to apply those rules once they are agreed. The text of Article 10.2
may be contrasted with several other WTO provisions that also require negotiations, but that state
explicitly that the existing disciplines do not apply in the meantime. 112 The inclusion of such
exceptions in other provisions highlights the lack of an exception in Article 10.2.
120. Brazil argues that the Panel's interpretation is consistent with the context and object and
purpose of Article 10.2. Each of the paragra phs in Article 10 pursues the aim of preventing
circumvention of export subsidy commitments and, thereby, contributes to the purpose of the
Agreement on Agriculture of establishing specific binding commitments on export competition.
Article 10.1 does so by disciplining export subs idies not listed in Article 9.1, as well as non-
commercial transactions. Article 10.3 does so by reversing the usual rules on the burden of proof
where Members have exported products in excess of their quantity reduction commitment levels.
Article 10.4 does so by providing specific disciplines on food aid that ensure it is used for legitimate
purposes and not to circumvent export subsidy co mmitments. Therefore, Article 10.2 must be
interpreted in a manner that ensures that it contri butes to the purpose of preventing circumvention of
commitments on export competition. The United States' interpretation of Article 10.2 would leave

112Brazil's appellee's submission, paras. 916-917 (referring to footnote 15 to Article 6.1(a) and
footnote 24 to Article 8.2(a) of the SCM Agreement, and Article XIII of the General Agreement on Trade in
Services).

Members free to grant unlimited export subsidies in the form of export credit guarantees and would
permit wholesale circumvention of commitments.
121. Brazil takes issue with the United States' asser tion that the Panel's interpretation is an
"assault" on international food aid. 113 According to Brazil, food aid is subject to the specific
disciplines in Article 10.4 of the Agreement on Agriculture , as well as the general disciplines in
Article 10.1. Article 10.4 pursues the aim of preven ting circumvention by ensuring that, consistently
with the international regulation of food aid, such transactions do not result in "harmful interference"
with trade.114 Further, Article 10.4(a) adds to the disciplines by prohibiting food aid that is "tied" to or
contingent upon "commercial exports " of agricultural products. This is not an "assault" on food aid;
rather, it ensures that food aid is used for le gitimate humanitarian purposes and not for illegitimate
trade-distortion.
122. Brazil, moreover, disagrees with the conclusions drawn by the United States from the
negotiating history of the Agreement on Agriculture . Brazil explains that the negotiating history
confirms that export credit guarantees are, indeed , subject to Article 10.1. Members had known
since 1960 that subsidized export credit guarantees we re covered by the term "export subsidies".
During the negotiations, Members repeatedly expre ssed the intention to su bject these measures to
export subsidy disciplines, and they never once ex pressed the intention to exclude them from such
disciplines. In addition, Brazil rejects the Unite d States' contention that the Panel's reading of
Article 10.2 gives rise to a result that is "manifestly unreasonable". 115 At the close of the Uruguay
Round, Members agreed that they would calculate their respective export subsidy commitment levels
exclusively on the basis of the expor t subsidies listed in Article 9.1. They chose to leave out of that
calculation the export subsidies in Article 10.1. 116 This is not an unjust implementation of the
Uruguay Round, but the logical consequence of th e bargain Members struck. Brazil emphasizes that
the Panel's interpretation does not mean that Memb ers cannot grant export credit guarantees. Instead,
it means that subsidized export credit guarantees are subject to discipline as trade-distorting
measures, and cannot be used to override export subsidy commitments.

113Brazil's appellee's submission, para. 940 (quoting the United States' appellant's submission,
para. 350).
114Ibid., para. 940 (quoting paragraph 3, FAO "Principles of Surplus Disposal and Consultative
Obligations", and Article IX(d) of the Food Aid Convention).
116Ibid., para. 927.

123. Finally, Brazil asserts that, even if Article 10. 2 were to exempt export credit guarantees for
agricultural commodities from the disciplines in the Agreement on Agriculture , these measures
would still be subject to Article 3 of the SCM Agreement.117
(iv) Burden of proof
124. Brazil submits that, even if correct, none of th e United States' arguments in respect of the
Panel's application of the burden of proof would lead to a reversal of the Panel's conclusion that the
United States' export credit guarantee program s constitute export subsidies under the Agreement on
Agriculture and the SCM Agreement. Irrespective of which party bore the burden of proof and the
role of Article 10.3 of the Agreement on Agriculture , the Panel explicitly found that Brazil had
established that the premiums charged under the Un ited States' export credit guarantee programs were
inadequate to cover long-term operating costs a nd losses for purposes of item (j) of the Illustrative
List of Export Subsidies annexed to the SCM Agreement .118 Having concluded that Brazil had
successfully demonstrated that th e United States' export credit guarantee programs constitute export
subsidies under item (j) as context for the interpretation of the term "export subsidies" in Articles 10.1
and 8 of the Agreement on Agriculture, the Panel similarly concluded that the export credit guarantee
programs constitute prohibited export subsidies unde r item (j) of the Illustrative List of Export
Subsidies and Articles 3.1(a) and 3.2 of the SCM Agreement.119
125. Brazil also takes issue with the United States ' assertion that the Panel required the United
States to offer "incontrovertible demonstrations to the Panel" that, under the net present value
accounting methodology, data trends indicated profits for the programs. 120 Brazil explains that, as the
party asserting that these trends existed, the United St ates bore the burden of proving their existence.
In the statement challenged by the United States, the Panel simply found that the United States had
not met this burden. The Panel made this findi ng based on data submitted by the United States.
Given that the United States has not alleged that th e Panel failed to make an objective assessment of
the facts under Article 11 of the DSU, Brazil argues that the United States' appeal should be denied on
these grounds alone.

117At the oral hearing, however, Brazil clarified th at if Article 10.2 were to exempt export credit
guarantees for agricultural commodities from the disciplines in the Agreement on Agriculture, Article 3 of the
SCM Agreement would not be applicable to such measures.
118Brazil's appellee's submission, paras. 1023-1024 (referring to Panel Report, para. 7.867).
119Ibid., para. 1024 (referring to Panel Report, paras. 7.946-7.948).

(v) Necessary findings of fact
126. Brazil asserts that the United States' claim that the Panel did not make the necessary findings
of fact should have been brought under Article 11 of the DSU and that, having failed to bring such a
claim, the United States is precluded from challenging the Panel's appreciation of the facts.
127. In any event, Brazil submits that neither ite m (j), nor Articles 3.1(a) and 3.2 of the
SCM Agreement, nor Articles 10.1 and 8 of the Agreement on Agriculture , required the Panel to
make specific factual findings on the "monetary exte nt to which" premium rates are inadequate to
cover the long-term operating costs and losses of the United States' export credit guarantee
programs.121 It was sufficient for the Panel to have found that, under any and all methodologies that it
reviewed and accepted, premium rates are inadequate to cover the long-term operating costs and
losses of the export credit guarantee programs.
128. In addition, Brazil asserts that the Panel made sufficient factual findings for its conclusion
that premium rates are inadequate to cover the long-term operating costs and losses of the export
credit guarantee programs. Specifically, the Pa nel assessed the performance of the export credit
guarantee programs under the elements of item (j) in various ways. In its assessment of the past
performance of the export credit guarantee programs during the period 1992-2002, the Panel used two
accounting methodologies—net present value accoun ting and cash basis accounting—to determine
whether premium rates are inadequate to cove r the long-term operating costs and losses of the
programs.
129. Brazil therefore requests that the Appellate B ody uphold the Panel's finding that the United
States' export credit guarantee programs constitute expor t subsidies within the meaning of item (j) of
the Illustrative List of Export Subsidies and Articles 3.1 and 3.2 of the SCM Agreement.
C. Claims of Error by Brazil – Appellant
1. Domestic Support
(a) Article 13(a) of the Agreement on Agriculture – Base Period Update
130. Brazil conditionally appeals the Panel's exercise of judicial economy with respect to Brazil's
claim that the "updating" of base acreage for direct payments under the FSRI Act of 2002 renders that
program inconsistent with paragr aph 6(a) of Annex 2 of the Agreement on Agriculture . Brazil's
appeal is conditional on the Appellate Body revers ing the Panel's finding that production flexibility

121Brazil's appellee's submission, para. 1046 (quoting the United States' appellant's submission,
para. 419).

contract payments and direct payments are not decoupled income support under paragraph 6(b) of
Annex 2 and thus not entitled to peace clause protection by virtue of Article 13(a) of the Agreement
on Agriculture.
131. Brazil argues that the Panel made factual findi ngs to the effect that the FSRI Act of 2002
created a new "base period" of time (marketing years 1998-2001) according to which upland cotton
producers' eligibility for direct payments could be calculated. This new base period could replace the
base period that had prevailed under the FAIR Act of 1996 (i.e., 1993-1995) for the calculation of
production flexibility contract payments. In prac tical terms, the FSRI Act of 2002 gave producers
who planted more upland cotton during 1998-2001 th e chance to "update", that is, increase, the
quantity of base acres for which they received direct payments.
132. Brazil recalls that paragraph 6(a) of Annex 2 st ates that "[e]ligibility for such payments shall
be determined by clearly -defined criteria such as income, status as a producer or landowner, factor
use or production level in a defined and fixed base period ".
122 "Factor use" encompasses quantities of
eligible farmland used in a historical period, such as the "base acres" used in the production flexibility
contract and direct payment programs. Simila rly, "production level" encompasses quantities of
production based on historical acreage and yields, such as those used under the production flexibility
contract and direct payment programs to calculate payments. If either the historical acreage or yields
are updated, the result is a change in one of the "cl early-defined criteria". Yet paragraph 6(a) requires
that both the "factor use" and "production level" criteria be set out in "a" single "fixed" base period.
133. Brazil notes that the ordinary meaning of the term "fixed" in relation to a base period is that
the defined base period cannot be ch anged or updated. Accordingly, there can be only one period of
time to establish these values; there can be no "updati ng" of the base period. Brazil contends that the
context supports its interpretation. Moreover, the ob ject and purpose of paragraph 6 of Annex 2 is to
ensure that decoupled payments "have no, or at mo st minimal, trade-distorting effects or effects on
production".
123 Paragraphs 5 and 6 of Annex 2 make cl ear that the purpose of "decoupled income
support" is to break the link between production deci sions and the amount of support. If that link is
maintained, then domestic support is not entitled to the exemption from reduction commitments.
Brazil submits that the United States' interpretation would effectively allow a Member to re-link last
year's production to this year's payment. This would void paragraph 6(a) of any effet utile.

122Brazil's other appellant's submission, para. 246. (emphasis added by Brazil)

134. Brazil submits that the undisputed facts on th e record reveal that production flexibility
contract payments and direct payments were made to the same persons, on the same land, based on
the same yield and payment formula, under the same conditions, and with the same limitations. Given
these similarities, the option for a producer to select a new "fixed base period" other than the original
"fixed base period" means that the direct paymen ts are not green box measures under paragraph 6(a)
of Annex 2. Brazil requests the Appellate Body to find accordingly.
2. Serious Prejudice
(a) World Market Share under Article 6.3(d) of the SCM Agreement
135. Brazil appeals the Panel's finding that Brazil failed to establish a prima facie case of
inconsistency with Articles 5(c) and 6.3(d) of the SCM Agreement. Brazil asks the Appellate Body to
reverse the Panel's finding that the words "world mark et share" in Article 6.3(d) mean "the portion of
the world's supply that is satisfied by the subsidizing Member's producers" 124 and to find instead that
"world market share" means "world market share of exports".125 In addition, if the Appellate Body
reverses the Panel's finding that the effect of th e price-contingent subsidies is significant price
suppression within the meaning of Article 6.3(c) of the SCM Agreement , Brazil calls on the
Appellate Body to complete the analysis under Arti cle 6.3(d) and to find that the effect of these
subsidies is an increase in the Un ited States' world market share of exports within the meaning of
Article 6.3(d), thereby constituting serious prejudice to the interests of Brazil within the meaning of
Article 5(c) of the SCM Agreement.
136. As regards the interpretation of the term "world market share" in Article 6.3(d) of the SCM
Agreement, Brazil first draws support from the text of that provision. Article 6.3(d) does not specify
whether "world market share" refers to world ma rket share of production or world market share of
something else. However, the use of the word "trade" in footnote 17 to Article 6.3(d) suggests that
Article 6.3(d) is directed towards a Member's share of world trade in a product, which requires a focus
on exports rather than production.
137. Secondly, Brazil refers to the context of Article 6.3(d). Brazil argues that Article XVI:3 of
the GATT 1994 addresses a Member's "share of world export trade" and that similarities between
Article XVI:3 and Article 6.3(d) require the phrase "w orld market share" in the latter provision to be
read in the same way. Brazil also points to th e context provided by paragraphs (a) and (b) of
Article 6.3, as well as Articles 6.4 and 6.7, and argues that the focus of a serious prejudice analysis

125Ibid., para. 380(9). (original emphasis)

under Article 6.3 is on the effects of the subsid ies on like products from the complaining Member.
According to Brazil, "[t]hese effects are either manifest in aggregated volume effects on the exports of
a complaining Member under Articles 6.3(a), 6.3(b) and 6.3(d), or in price effects on the like product
of the complaining Member in the 'same market' under Article 6.3(c)".126
138. Thirdly, Brazil relies on the object and purpose of Articles 5(c) and 6.3 of the SCM
Agreement, which it characterizes as being to disciplin e subsidies causing serious prejudice to the
interests of another Member. As stated in Article XVI:1 of the GATT 1994 (to which footnote 13 to
Article 5(c) of the SCM Agreement refers), serious prejudice is reflected in trade effects, namely
decreased imports or increased exports. Increased production is taken into account in a serious
prejudice analysis, because it may have trade effects. However, by focusing solely on the United
States' share of world upland cotton production, the Panel disregarded the significant increase in the
United States' share of world upland cotton exports from 1999 to 2002, which caused serious
prejudice to other Members' producers who were co mpeting against the subsidized exports. The
Panel's interpretation means that the subsidizing Me mber's world market share may be significantly
affected by unrelated increases in production in thir d countries, even if this additional production is
consumed domestically. Brazil suggests that this would render Article 6.3(d) "largely inutile" 127 in
disciplining the use of subsidies to increase market share.
139. For these reasons, Brazil asks the Appellate Body to reverse the Panel's interpretation of
"world market share" under Article 6.3(d) of the SCM Agreement and to find instead that "world
market share" means world market share of exports. Should it do so, and if the Appellate Body
reverses the Panel's finding of significant pr ice suppression under Article 6.3(c) of the SCM
Agreement, Brazil asks the Appellate Body to complete the analysis under Article 6.3(d).
140. According to Brazil, factual findings by the Pa nel and undisputed facts on the record would
allow the Appellate Body to complete the analysis under Article 6.3(d). The Panel's findings show
that the United States' world market share of exports in marketing year 2002 was 39.9 percent,
representing an increase over the previous three-year average of 28.4 percent. 128 Moreover, the
Panel's assessment of the effects of the subsidies in its analysis under Article 6.3(c) confirms that the
subsidies in question result in an increase in worl d market share, stimulate exports, and enhance the
competitiveness of United States producers in world trad e. Brazil submits that the Panel's causation
and non-attribution analyses under Article 6.3(c) ar e also relevant for the causation analysis under

126Brazil's other appellant's submission, para. 287.
127Ibid., para. 295.
128Ibid., para. 301.

Article 6.3(d). It is appropriate for the Appellate Body to complete the anal ysis in this way because
the Panel did address all the elements of Brazil's claim under Article 6.3(d) and, even if it had not,
Articles 6.3(c) and 6.3(d) claims are "closely related" and "part of a logical continuum".129 According
to Brazil, both claims relate to the adverse effects of and serious prejudice caused by actionable
subsidies pursuant to Article 5(c) of the SCM Agreement, and Articles 6.3(c) and 6.3(d) are "closely-
linked steps in determining the consistency of"
130 actionable subsidies under the SCM Agreement.
3. Import Substitution Subsidies and Export Subsidies
(a) Share of World Export Trade under Article XVI:3 of the GATT 1994
141. Brazil appeals the Panel's finding that the second sentence of Article XVI:3 of the
GATT 1994 applies only to export subsidies as defined in the Agreement on Agriculture and the
SCM Agreement . Brazil asks the Appellate Body to reve rse the Panel's finding that this sentence
applies only to export subsidies and to find instead that it applies to " any form of subsidy which
operates to increase the export of any primary product". 131 In addition, if the Appellate Body reverses
the Panel's finding that the effect of the price-c ontingent subsidies is significant price suppression
within the meaning of Article 6.3(c) of the SCM Agreement, and if the Appellate Body does not find
that the effect of these subsidies is an increase in the United States' world market share of exports
within the meaning of Article 6.3(d) constituting ser ious prejudice within the meaning of Article 5(c)
of the SCM Agreement, Brazil calls on the Appellate Body to complete the analysis and to find that
these subsidies are applied in a manner that r esults in the United States having "more than an
equitable share of world export trade in" uplan d cotton, contrary to the second sentence of
Article XVI:3 of the GATT 1994.
142. In relation to the subsidies subject to the second sentence of Article XVI:3 of the GATT 1994,
Brazil first refers to the text of this sentence and, in particular, the words "any form of subsidy". The
ordinary meaning of these words suggests that Article XVI:3 applies to every subsidy, no matter what
kind or how many. In addition, the second senten ce specifies that it does not matter whether the
subsidy is granted "directly or indi rectly". Brazil points out that, in contrast to the first sentence of
Article XVI:3, which is concerned with subsidies on the export of primary products, the second
sentence is concerned with any subsidies that have export-enhancing effects.

129Brazil's other appellant's submission, paras. 313 and 314 (quoting Appellate Body Report, Canada –
Periodicals, p. 24, DSR 1997:1, 449 at 469; Appellate Body Report, EC – Asbestos, para. 79).
130Ibid., para. 314 (quoting Appellate Body Report, Canada – Periodicals , p. 24, DSR 1997:1, 449
at 469).
131Ibid., para. 317 (quoting the GATT 1994, Article XVI:3). (emphasis added by Brazil)

143. Secondly, turning to the broader context of Ar ticle XVI:3, Brazil contends that Part A of
Article XVI disciplines subsidies in general, and Pa rt B of Article XVI disciplines "Export Subsidies"
(as specified in the heading to Part B) in particul ar. The wording of the provisions in Part B shows
that "export subsidies" in this context means "subsidies on the export" of a primary product (under the
first sentence of Article XVI:3) and subsidies th at operate "to increase the export of any primary
product" (under the second sentence of Article XVI: 3). Brazil argues that, in contrast, the export
subsidy disciplines in the SCM Agreement and the Agreement on Agriculture are concerned with
the narrower concept of "subsidies contingent upon export performance".132
144. Brazil also refers, for contextual support, to Article 13 of the Agreement on Agriculture .
Article 13(c)(ii) provides a limited exemption for agricultural export subsid ies from Article XVI of
the GATT 1994, suggesting that Article XVI:3 could ot herwise apply to such subsidies. Similarly,
Brazil contends that the conditional exemption in Ar ticle 13(a)(ii) suggests that, in principle, green
box domestic support is subject to challenge under the second sentence of Article XVI:3.
145. Thirdly, with respect to the object and purpose of Article XVI of the GATT 1994 and
Articles 5 and 6 of the SCM Agreement, Brazil suggests that these provisions are intended to prevent
subsidies granted by Members from having certain adverse outcomes or effects. The purpose of
disciplining adverse effects of subsidies in th e second sentence of Article XVI:3 of the GATT 1994
would be frustrated if this sentence was interprete d to apply only to subsidies contingent on export
performance. This interpretation would depriv e the second sentence of Article XVI:3 of effet utile,
because the disciplines in that sen tence would no longer apply to many subsidies having export-
enhancing effects.
146. Brazil adds that Article XVI:3 of the GATT 1994 continues to apply despite the disciplines in
the SCM Agreement and the Agreement on Agriculture .133 In interpreting the covered agreements
harmoniously and giving effect to all of them, th e second sentence of Article XVI:3 must apply to
measures that are also subject to the SCM Agreement and the Agreement on Agriculture. The rules
in Article 21.1 of the Agreement on Agriculture and the General Interpretativ e Note to Annex 1A of
the WTO Agreement do not apply, because no conflict exists between the second sentence of
Article XVI:3 of the GATT 1994 and the disciplines in the Agreement on Agriculture and the SCM
Agreement.

132Brazil's other appellant's submission, para. 333 (quoting Article 1(e) of the Agreement on
Agriculture and referring to Article 3.1(a) of the SCM Agreement).
133Ibid., para. 345 (referring to Appellate Body Report, Korea – Dairy , para. 75; and Appellate Body

147. For these reasons, Brazil asks the Appellate Body to reverse the Panel's finding that the
second sentence of Article XVI:3 of the GATT 1994 appli es only to export subsidies as defined in the
Agreement on Agriculture and the SCM Agreement and to find instead that this sentence applies to
any form of subsidy that operates to increase the export of any primary product. Should it do so, and
if the Appellate Body reverses the Panel's finding of significant price suppression under Article 6.3(c)
of the SCM Agreement and does not find serious prejudice pursuant to Articles 5(c) and 6.3(d) of the
SCM Agreement, Brazil asks the Appellate Body to comple te the analysis under Article XVI:3 of the
GATT 1994.
148. Brazil contends that the Panel's factual findings and the undisputed facts on the panel record
are sufficient for the Appellate Body to find that the price-contingent subsidies caused the United
States to have "more than an equitable share of wo rld export trade", contrary to Article XVI:3 of the
GATT 1994. The Panel made f actual findings, pursuant to Article 6.3(c) of the SCM Agreement,
regarding the United States' share of world export trad e and the effect of the subsidies on that share.
Brazil also submits that the Panel's non-attribut ion analysis would allow the Appellate Body to
conclude that it was the subsidies in question th at led to the United States' world market share
reaching a level that is more than equitable, at the expense of other, more efficient producers.
(b) Export Credit Guarantees
(i) Threat of circumvention
149. Brazil asserts that the Panel erred in the interp retation and application of Article 10.1 of the
Agreement on Agriculture by finding that "threat" of circumvention of export subsidy commitments
would arise only if beneficiaries had an "absolute" or "unconditional statutory legal entitlement" to
receive the subsidies such that the United Stat es would "necessarily" be required to grant subsidies
after the commitment level had been reached.134 Brazil also takes issue with the Panel's statement that
a "threat" could not arise if circumvention was just a possibility.135
150. According to Brazil, by its very nature, an obligation that covers the "threat" of circumvention
deals with a future event whose actual occurrence is merely a possibility that cannot be assured with
certainty.136 Brazil adds that, even though the ordinary meaning of the term "threat" can encompass
events that are a possibility or that appear likely, it can also include ev ents whose occurrence is
indicated or portended by circumstances. Furtherm ore, the meaning of the term "threatens" is

134Brazil's other appellant's submission, paras. 85-89 (quoting Panel Report, paras. 7.883 and 7.892).
135Ibid., paras. 89 and 114 (referring to Panel Report, para. 7.893).

clarified by its immediate context, particularly the word "[p]revention" in the title of Article 10.
Brazil thus contends that, to give proper meani ng to the aim of prevention, the threat obligation
should be read so as to thwart, forestall, or stop circumvention from occurring by requiring a Member
to take appropriate precautionary action. If, on the contrary, the degree of likelihood necessary to
trigger the threat obligation were set too high , the threat obligation would fail to prevent
circumvention, contrary to the express aim of the provision.
151. Brazil distinguishes the meaning of "threatens" in the context of Article 10.1 of the
Agreement on Agriculture from the connotation of that term in other covered agreements. It explains
that the Agreement on Safeguards and the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994 (the " Anti-Dumping Agreement ") require a higher
degree of likelihood because, under both Agreements, the demonstration of "threat" triggers the right
of a WTO Member to apply trade remedy measures involving suspension or modification of WTO
commitments. In contrast, Article 10.1 of the Agreement on Agriculture aims at the effective
enforcement of a Member's export subsidy obligati ons. Brazil submits that the Panel's reading of
Article 10.1 runs counter to the Appellate Body's decision in US – FSC , where the Appellate Body
held that Article 10.1 applies if a measure "allows for" circumvention 137, whereas the Panel insisted
that circumvention must be required by legal en titlement. Brazil submits th at the assessment of
whether a threat exists under Article 10.1 must be done on a case-by-case basis and suggests a list of
factors that could be considered as part of the assessment.
138
152. Brazil also contends that the Panel erred by confining its examination of threat of
circumvention to scheduled agricultural products ot her than rice and to unscheduled products "not
supported"139 under the United States' export credit guarantee programs. 140 Brazil explains that, in
addition to alleging actual circumvention in respect of rice, it also included this product in its claim of
threat of circumvention. Brazil observes, furtherm ore, that it drew no distinctions between supported
and unsupported products. Thus, the Panel's analysis of threat of circumvention should have included
rice and all unscheduled products eligible to receive support under the export credit guarantee
programs, regardless of whether they were in fact supported by such programs in the past.

137Brazil's other appellant's submission, paras. 126-129 (quoting Appellate Body Report, US – FSC ,
para. 152).
138Ibid., para. 105.
139When the Panel refers to products supported under the export credit guarantee programs, the Panel is
referring to products for which there was evidence in the record showing that they were not only eligible under
the programs, but that export credit guarantees were in fact r eceived in connection with exports of those
products. (Panel Report, para. 6.32)

153. Brazil argues that the Panel should have made a finding of threat of circumvention
notwithstanding its conclusion on actual circumventi on in respect of rice and unscheduled products
supported under the United States' export credit gua rantee programs. The prohibitions on actual and
threatened circumvention are two separat e obligations under Article 10.1 of the Agreement on
Agriculture. The concepts of actual and threatened circ umvention in Article 10.1 are different from
the notions of injury and threat of injury in the trade remedies context. Article 10.1 does not confer
rights, but imposes obligations. Accordingly, to hol d that a Member has actually circumvented its
export subsidy commitments in the past does not ma ke it irrelevant to conclude that the Member
continues to threaten circumvention in the future.
154. If the Appellate Body agrees with Brazil a nd modifies the Panel's interpretation of
Article 10.1, Brazil requests that the Appellate B ody complete the analysis of its claims. Brazil
argues that the United States maintains export cred it guarantees for a very wide range of scheduled
and unscheduled agricultural products. These measur es are subject to special budgetary rules that
provide permanent and unlimited budget authority to the CCC to grant export credit guarantees.
Therefore, Brazil asserts, no budgetary limits are im posed on the value of the subsidies that can be
granted.
155. Brazil states that, even though the United States alleged before the Panel that the export credit
guarantee programs are not unlimited because they impose certain conditions on the grant of
subsidies, these conditions have no rational relationship whatsoever to ensuring respect for the United
States' export subsidy commitments. There is no evidence on the record, according to Brazil, to
demonstrate that any of the applicable conditions has ever been applied with a view to ensuring
respect for the United States' export subsidy commi tments. Moreover, none of these conditions has
prevented the United States from consistently granting export credit guarantees for both scheduled
and unscheduled products in violation of these comm itments. Brazil contends that the authority that
the United States enjoys to grant export credit guarantees in violation of its export subsidy
commitments, coupled with the consistent pattern of granting behaviour in violation of those
commitments, establishes that the United States' e xport credit guarantees are applied in a manner that
threatens to lead to circumvention of the United States' export subsidy commitments for all eligible
products, under Article 10.1 of the Agreement on Agriculture.

(ii) Actual circumvention
156. Brazil claims that the Panel erred in the application of Article 10.1 of the Agreement on
Agriculture, and did not discharge its duties under Article 11 of the DSU, by finding that the United
States' export credit guarantees are applied in a manne r that results in circumvention of the United
States' export subsidy commitments for only one scheduled product, namely rice.
157. Brazil submits that, according to uncontested ev idence on the record, supplied by the United
States, actual circumvention also occurred for pig meat and poultry meat in 2001. 141 According to
figures supplied by the United States, in fiscal year 2001, the volume of pig meat and poultry meat
benefiting from export credit guarantees exceeded the United States' reduction commitment levels for
these products. The Panel took explicit cognizance of this information, but nonetheless failed to apply
a proper interpretation of Article 10.1 to the admitte d facts. Likewise, the Panel failed to make an
objective assessment of the matter, including of admitted and uncontested facts supplied by the United
States, as required by Article 11 of the DSU.
158. Therefore, Brazil requests that the Appellate B ody modify the Panel's finding that the United
States' export credit guarantees are applied in a ma nner that results in actual circumvention with
respect to only one scheduled product, namely, rice, and that it find, based on the undisputed facts on
the record, that export credit guarantees are applied in a manner that also results in actual
circumvention with respect to pig meat and poultry meat.
(iii) Articles 1.1 and 3.1(a) of the SCM Agreement
159. Brazil appeals the Panel's finding that, having found that the United States' export credit
guarantee programs are export subsidies under item (j) of the Illustrative List of Export Subsidies
annexed to the SCM Agreement , it was unnecessary to address Brazil's claim that these programs
constitute export subsidies under the terms of Articles 1.1 and 3.1(a) of the SCM Agreement . In
declining to make a finding under these two Articl es, the Panel erred in the interpretation and
application of Article 3.1(a) of the SCM Agreement, as well as of Article 3.7 of the DSU.
160. According to Brazil, the Panel failed to rec ognize that Article 3.1(a) includes multiple and
distinct obligations that differ from those deriving from item (j) of the Illustrative List of Export
Subsidies. Most importantly, while a measure may no longer constitute an export subsidy under

141In its other appellant's submission, Brazil also clai med that the Panel erred by failing to find actual
circumvention of the United States' export subsidy reduction commitments for vegetable oil in 2002. (Brazil's
other appellant's submission, paras. 208-209) At the oral hearing, however, Brazil indicated that it was no
longer pursuing this claim in respect of vegetable oil.

item (j), the same measure can s till constitute an export s ubsidy under Articles 1. 1 and 3.1(a) of the
SCM Agreement . In the present dispute, a claim under item (j) of the Illustrative List of Export
Subsides requires a determination whether the progra ms involved a "net cost" to the United States
government. In contrast, a claim under Articles 3.1(a) and 1.1 necessitates a determination of whether
the programs constitute "financial contributions" th at confer a "benefit" (within the meaning of
Article 1.1 of the SCM Agreement) on recipients of export credit guarantees 142 and are "contingent …
upon export performance" (within the mean ing of Article 3.1(a) of the SCM Agreement). These are
two separate claims regarding two separate obliga tions imposed upon the United States. The first
obligation of the United States is to refrain from maintaining export credit guarantee programs that
entail financial contributions, confer benefits, a nd are contingent upon export performance, while its
second obligation is to refrain from maintaining expo rt credit guarantee programs that incur a net cost
to the United States government.
161. Brazil submits that, by failing to examine these distinct claims, the Panel misapplied the
principle of judicial economy 143 and failed to provide for a "prompt settlement" and "positive
solution" of the dispute as required by Articles 3.3 and 3.7 of the DSU. The Panel's misapplication of
the principle of judicial economy means that the recommendations and rulings of the DSB may not be
sufficiently precise to resolve the di spute. The Panel left unresolved the dispute between the parties
as to whether the export credit guarantee programs i nvolve a "benefit", and the steps that the United
States must take to implement its obligations under the SCM Agreement will therefore be unclear.
162. If the Appellate Body were to reverse the Pane l's finding, Brazil requests that the Appellate
Body complete the analysis and find that the United States' export credit guarantee programs
constitute export subsidies under Articles 1.1 and 3.1(a) of the SCM Agreement. Brazil submits that it
is undisputed that export credit guarantees constitute "financial contributions" and that the programs
are "contingent … upon export performance". Regard ing the third element, i.e. whether the export
credit guarantee programs confer a benefit within the meaning of Article 1.1(b) of the SCM
Agreement, Brazil notes that the Appellate Body has sufficient factual findings and undisputed facts
on the record to complete the analysis. Brazil expl ains that the record demonstrates that the United
States' export credit guarantee programs confer a benef it because they: (i) are not risk-based; (ii) are
below relevant benchmarks, including the fees charged by the United States Export-Import Bank for
its own guarantees; and (iii) enable non-creditworth y purchasers of United States agricultural exports
to secure loans they would otherwise be unable to secure.

142Brazil's other appellant's submission, paras. 29-30 (referring to Appellate Body Report, Canada –
Aircraft, paras. 154, 157).
143Ibid., paras. 33-34 (referring to Appellate Body Report, Australia – Salmon, paras. 222-224).

(iv) ETI Act of 2000
163. Brazil appeals the finding of the Panel that Brazil did not establish a prima facie case of
inconsistency of the FSC Repeal and Extraterrito rial Income Exclusion Act of 2000 (the "ETI Act
of 2000"), and export subsidies granted thereunder in respect of upland cotton, with Articles 8
and 10.1 of the Agreement on Agriculture . Brazil acknowledges that the United States enacted
legislation, on 25 October 2004, that "seems to re peal most of the illegal aspects of the ETI Act
of 2000"144 and, consequently, Brazil does not ask the Appe llate Body to complete the analysis and to
find that ETI Act export subsidies provided with respect to upland cotton exports are inconsistent with
Articles 8 and 10.1 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM
Agreement.
164. Brazil contends that it challenged before the Panel exactly the same measure that the panel
and the Appellate Body in US – FSC (Article 21.5 – EC) held to be inconsistent with the Agreement
on Agriculture and the SCM Agreement. Except for the fact that Brazil challenges only the ETI Act
export subsidies to upland cotton (and not with r espect to all products), the "measure" and the
"claims" in the present case are identical to those in US – FSC (Article 21.5 – EC) . According to
Brazil, the United States has never challenged this identity.
165. Brazil alleges that the United States "effectivel y admitted" the inconsistency of the ETI Act
of 2000 with Articles 10.1 and 8 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the
SCM Agreement and never contested Brazil's claims on their merits. 145 Brazil explains that it
presented to the Panel all the evidence and argumen tation that had been before the panel and the
Appellate Body in the earlier dispute relating to the ETI Act of 2000. Brazil incorporated by
reference into its submissions (i) the panel report in US – FSC (Article 21.5 – EC) , (ii) the Appellate
Body Report in US – FSC (Article 21.5 – EC) , and (iii) all submissions of the European
Communities in that case. Brazil contends that an approach whereby the complaining Member
incorporates by reference the reasoning of another panel, as modified by the Appellate Body, is
consistent with the Appellate Body's reasoning in Mexico – Corn Syrup (Article 21.5 – US).146

144Brazil's other appellant's submission, para. 214.
145Ibid., para. 222.
146Ibid., para. 224 (referring to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) ,
para. 109).

166. Brazil asserts that, in addition to referenc ing the European Communities' claims and
arguments in US – FSC (Article 21.5 – EC) , it presented arguments and evidence that addressed the
specific nature of its claims, in particular with respect to Article 13(c)(ii) of the Agreement on
Agriculture. Brazil submits that it identified the relevant portions of the US – FSC (Article 21.5 –
EC) panel report that determined that the ETI Act of 2000 provides export subsidies. Specifically,
that panel found that the ETI Act of 2000 (i) provid es financial contributions within the meaning of
Article 1.1(a)(ii) of the SCM Agreement, (ii) confers benefits within the meaning of Article 1.1(b),
and thus (iii) bestows subsidies within the meaning of the SCM Agreement that (iv) are contingent
upon export performance within the meaning of Article 3.1(a) of the SCM Agreement . Based on
these arguments and findings, the Panel had more th an sufficient evidence and arguments before it to
conduct an objective examination of the c onsistency of the measure with the Agreement on
Agriculture and the SCM Agreement . According to Brazil, the di stinctions drawn by the Panel
between the present dispute and the claims in US – FSC (Article 21.5 – EC) have no basis.
167. Brazil adds that, under Article 17.14 of the DS U, the parties to a dispute are unconditionally
bound by adopted panel and Appellate Body reports.147 Therefore, the United States is bound by the
decision of the DSB to adopt the panel and Appellate Body Reports in US – FSC (Article 21.5 – EC)
and the recommendation by the DSB that the United States bring the ETI Act of 2000 into conformity
with the Agreement on Agriculture and the SCM Agreement. Despite the legal impossibility of the
United States arguing that an identical measure subj ect to identical claims is WTO-consistent, the
Panel nevertheless refused to take this into account in its assessment of the facts of the case and the
matter before it.
168. Brazil states, moreover, that the ETI Act of 2000 is a measure that all WTO Members,
including the respondent , have decided, through the adoption by the DSB of the relevant panel and
Appellate Body reports, is incons istent with the obligations of the United States under a covered
agreement. The general rules on the burden of proof under the DSU, in essence, presume that a
Member is in compliance with its obligations unde r WTO law and require a complaining Member to
make a prima facie case that this presumption is misplaced. However, where the Members have
decided in the DSB that a measure does not confor m to a covered agreement, there is no basis for
presuming that the same measure is in compliance with WTO law in another dispute. Any such
presumption contradicts a formal DSB decision of the Members of the WTO.

147Brazil's other appellant's submission, para. 234 (referring to Appellate Body Report, US – Shrimp
(Article 21.5 – Malaysia) , para. 97 and Appellate Body Report, EC – Bed Linen (Article 21.5 – India) ,
paras. 90-96).

169. Accordingly, Brazil requests the Appellate Bo dy to find that the Panel erred in the
interpretation and application of the burden of proof when finding that Brazil had not established
prima facie that the ETI Act of 2000 violates Articles 8 and 10.1 of the Agreement on Agriculture
and Article 3.1(a) and 3.2 of the SCM Agreement.
D. Arguments of the United States – Appellee
1. Domestic Support
(a) Article 13(a) of the Agreement on Agriculture – Base Period Update
170. The United States submits that the Appellate Body should reject Brazil's conditional appeal
that direct payments under the FSRI Act of 2002 are not in conformity with the green box criteria set
forth in paragraph 6(a) of Annex 2 to the Agreement on Agriculture , because the program uses a
"defined and fixed base period" different from that established for the produc tion flexibility contract
program under the FAIR Act of 1996. The United St ates argues that the direct payment program
employs "a defined and fixed base period" within th e meaning of paragraph 6( a) and Brazil's appeal
relies on an erroneous reading of that paragraph, such that once one type of green box payment to
producers is made, all subsequent measures providing such support must be made with respect to the
same base period.
171. The United States argues that the ordinary mean ing of the terms "defined and fixed base
period", as used in paragraph 6(a), requires a base pe riod to be "set out precisely" and to be kept
"stationary or unchanging in relative position." 148 Direct payments under the FSRI Act of 2002
satisfy this requirement because eligibility is determ ined by historical production of any of a number
of crops (including upland cotton) in a base period th at is "definite" (set out in the FSRI Act of 2002)
and "stationary or unchanging in a relative position" (that is, does not change for the duration of the
FSRI Act of 2002). There is no textual requirement in paragraph 6(a) that new decoupled income
support measures must utilize the same "defined and fixed base period" as any prior measures.
Furthermore, the use of "a" defined and fixed base period contrasts with the use of the phrase " the
base period" in other provisions of Annexes 2 and 3 of the Agreement on Agriculture . The United
States emphasizes that the direct payment and prod uction flexibility contract programs are different
measures. There is thus no legal requirement that they use the same base peri od, so long as they each
make use of a "defined and fixed" base period.

148United States' appellee's submission, para. 128 (quoting The New Shorter Oxford English
Dictionary, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, pp. 618 and 962).

172. The United States argues that Brazil's interpre tation would foreclose reform options to
Members with past green-box support programs, contrary to the object and purpose of the WTO
Agreement. In addition, Brazil's interpretation of para graph 6(a) would render direct payments under
the FSRI Act of 2002 non-green box, even though the Panel implicitly found that such payments had
no more than minimal trade-distorting effects or effects on production.
2. Serious Prejudice

(a) World Market Share under Article 6.3(d) of the SCM Agreement
173. The United States maintains that the Panel corr ectly found that Brazil did not establish a
prima facie case of inconsistency with Articles 5(c) and 6.3(d) of the SCM Agreement. The United
States requests the Appellate Body to uphold this fi nding. In particular, the United States requests the
Appellate Body to dismiss Brazil's argument that th e words "world market share" in Article 6.3(d)
refer to "world market share of exports".149 Even if the Appellate Body accepts this argument by
Brazil, the United States requests the Appellate Body to dismiss the conditional request of Brazil that
the Appellate Body complete the analysis and find that the effect of the price-contingent subsidies is
an increase in the United States' wo rld market share within the meaning of Article 6.3(d), thereby
constituting serious prejudice to the interests of Br azil within the meaning of Article 5(c) of the
SCM Agreement.
174. According to the United States, Brazil's reading of "world market share" as meaning "world
market share of export trade" is erroneous. First, the United States endorses the Panel's finding that,
by using the term "market", Members intended a meaning broader than the share of "exports" or
"trade". The United States contests Brazil's view th at the Panel's interpretation of Article 6.3(d)
reduces the provision to inutility. The United States ag rees with the Panel that Article 6.3(d) calls for
an examination of the portion of the world market that is satisfied by the subsidizing Member's
producers. Nevertheless, the United States stre sses that the Panel erroneously equated this
examination with an examination of only that portion of the world's supply that is satisfied by the
subsidizing Member's producers. The United States contends that the Panel should have looked at the
level of world sales or consumption of cotton, rather than simply the world supply.
175. Secondly, as to the context of Article 6.3(d) , the United States submits that the Panel was
correct to conclude that the use of the phrase "wor ld market share" (as opposed to the different
formulations found in Article XVI:3 of the GATT 1994 and Article 27.6 of the SCM Agreement )

149United States' appellee's submission, para. 145 (quoting Brazil's other appellant's submission,
para. 271). (original emphasis)

 implies that Members did not want to restrict "wor ld market share" to a Member's share of "world
export trade" or "world trade". Similarly, unlike pa ragraphs (a) and (b) of Article 6.3, paragraph (d)
of Article 6.3 is not explicitly restricted to any particular exports or imports or geographical area. The
United States contends that the use of the word "tra de" in footnote 17 to Article 6.3(d), but not in the
text of the Article itself, implies that "world mark et share" does not include merely shares in world
"trade".
176. Even if Brazil's interpretation of the words "w orld market share" in Article 6.3(d) were
correct, the United States submits that the Appellate Body would not have sufficient factual findings
and uncontroverted facts before it to complete the analysis under Article 6.3(d). The United States
emphasizes that the Panel made no analysis with respect to causation and market share under
Article 6.3(d). In the United States' submission, the Panel's "flawed"
150 analysis regarding the effect
of the subsidy under Article 6.3(c) is not relevant to Brazil's request that the Appellate Body complete
the analysis under Article 6.3(d) of the SCM Agreement.
3. Import Substitution Subsidies and Export Subsidies
(a) Share of World Export Trade under Article XVI:3 of the GATT 1994
177. The United States submits that the Panel properly found that Article XVI:3 of the GATT 1994
applies only to export subsidies as defined in the Agreement on Agriculture and the SCM
Agreement. However, if the Appellate Body finds that Article XVI:3 applies to subsidies other than
export subsidies, the United States asks the Appellate Body to find that Brazil has not established that
the United States acted inconsistently with Article XVI:3 of the GATT 1994.
178. Beginning with the scope of Article XVI of the GATT 1994, the United States emphasizes
that the text of Article XVI distinguishes between "Subsidies in General" (Part A) and "Additional
Provisions on Export Subsidies" (Part B). By locatin g Article XVI:3 in Part B, Members agreed that
Article XVI:3 is an additional provision on expor t subsidies. The term "export subsidy" is now
defined in the SCM Agreement and the Agreement on Agriculture as referring to subsidies that are
contingent on export performance. Both the contex t provided by these Agreements, as well as their
drafting history, confirm that the export subsidies referred to in Article XVI:3 are also subsidies
contingent on export performance. According to th e United States, the Panel was correct to rely on
Article 3.1(a) of the SCM Agreement, item (l) of the Illustrative List of Export Subsidies in Annex I

of the SCM Agreement, and the drafting history of the Tokyo Round Subsidies Code in concluding
that Article XVI:3 of the GATT 1994 is concerned with certain export subsidies on primary products.
179. The United States contends that, even if the Appellate Body reverses the Panel's interpretation
of the scope of Article XVI:3, there would be insu fficient undisputed facts on the record or factual
findings by the Panel for the Appellate Body to co mplete the analysis. The United States observes
that the Panel made no findings on causation relative to trade share. As the "causation"151 requirement
under Article XVI:3 of the GATT 1994 differs from that under Article 6.3(c) of the SCM Agreement,
and as the United States has appealed the Panel's anal ysis under Article 6.3(c), that analysis cannot
support a finding of inconsistency under Article XVI:3 . Regarding the standard for determining what
is "more than an equitable share" of world export trade under Article XVI:3, the United States
understands Brazil to argue that the demonstration of "any causal relationship between an increase in
exports and the subsidies provided" would suffice. 152 However, the United States regards this
standard as inadequate, because it renders the language "more than an equitable share" inutile, and it
would transform Article XVI:3 into an outright prohibition on export-enhancing subsidies.
(b) Export Credit Guarantees
(i) Threat of circumvention
180. The United States requests that the Appellate Body uphold the Panel's finding that no threat
of circumvention exists under Article 10.1 of the Agreement on Agriculture with respect to
"unsupported" agricultural products for which no export credit guarantees have been provided.
181. The United States asserts that, contrary to Brazil's argument, the Panel's finding that the
export credit guarantee programs do not threaten circumvention of export subsidy commitments is not
an articulation of a broad standard that circum vention of export subsid y commitments would be
"threatened" only "if beneficiaries had an 'absolute' or 'unconditional ... lega l entitlement' to receive
the subsidies such that the United States would 'neces sarily' be [']required' to grant subsidies after the
commitment level had been reached".153 Rather, in concluding that the programs did not pose a threat
of circumvention, the Panel was simply respondi ng to and declining to adopt Brazil's erroneous
factual and legal characterizations of the program.
182. The United States submits, furthermore, that th e Panel rightly distinguished these programs
from the mandatory subsidies at issue in US – FSC, and that the Panel's decision presents no conflict

with that Appellate Body Report. Brazil effectiv ely argued that a mere possibility of issuance of
export credit guarantees presented a threat of circumve ntion, and the Panel simply did not adopt this
theory in the context of the export credit guarantee programs.
183. In addition, the United States asserts that the A ppellate Body need not complete the analysis
regarding threat of circumvention as requested by Brazil. First, the Panel did not err in its analysis of
threat of circumvention. Secondly, the Panel appropriately exercised judicial economy in declining to
examine threat of circumvention with respect to those agricultural products for which it found actual
circumvention. Further analysis was not necessary to resolve the matter in dispute as it would not
affect implementation of the obligation to apply ex port subsidies only in conformity with applicable
WTO commitments.
(ii) Actual circumvention
184. The United States asserts that the Appellate Body should reject Brazil's request for additional
findings of actual circumvention of export subs idy commitments for pig meat and poultry meat.
154
According to the United States, Brazil has not asserted a proper claim under Article 11 of the DSU.
The United States points out that Brazil does not appeal the Panel's findings that the facts did not
demonstrate that subsidized exports exceeded th e United States' quantitative reduction commitments
for poultry meat and pig meat. Therefore, Brazil's appeal pursuant to Article 11 of the DSU is
improper as it does not "stand by itself" and is no t "substantiated with respect to the challenged
findings".
155
185. The United States submits that, in any event, the data do not support the conclusions that
Brazil advances. Brazil's allegation of actual circum vention related to the period July 2001 through
June 2002. In contrast, quantita tive data on exports under the Unite d States' export credit guarantee
programs are maintained on a fiscal year basis, wh ich extends from 1 October to 30 September. Even
if this difference between periods can be overcome, the United States argues that the actual data also
support the Panel's finding that Brazil did not demonstrate actual circumvention for these products.
(iii) Articles 1.1 and 3.1(a) of the SCM Agreement
186. The United States asserts that the Appellate B ody should reject Brazil's request for further
findings under Article 3.1(a) of the SCM Agreement in addition to the finding the Panel made in

154The United States also rejected the allegations in re spect of vegetable oil made by Brazil in its other
appellant's submission.
155United States' appellee's submission, para. 50 (referring to Appellate Body Report, US – Steel
Safeguards, para. 498).

respect of item (j) of the Illustrative List of Expor t Subsidies. The United States submits that, in the
light of the Panel's finding that the United States' export credit guarantee programs constitute a
prohibited export subsidy because the premium rat es were inadequate to cover the long-term
operating costs and losses of the program, any a dditional findings by the Panel would have been
redundant. Neither item (j) nor the Illustrative List of Export Subsidies imposes obligations per se;
instead, the obligation regarding export subsidies is found in Articles 3.1(a) and 3.2 of the SCM
Agreement. Furthermore, Brazil's interpretation would re nder the Illustrative List of Export Subsidies
meaningless. In the United States' view, a practice that does not constitute a prohibited export subsidy
under the standard set forth in a particular item of the Illustrative List, such as item (j), cannot
constitute a prohibited export subsidy under some ot her standard. This was the approach advocated
by Brazil in the Brazil – Aircraft dispute. Moreover, the United States argues that an additional
finding by the Panel would have had no effect on implementation. Whether or not a separate finding
of "benefit" were made under Article 1.1, the Panel's recommendations would remain precisely the
same.
187. The United States also observes that Brazil misc onstrues what the Panel decided. The Panel
did not decline to address a claim raised by Brazil. Instead, the Panel declined to make additional
factual findings that Brazil requested. In any event, the United States contends that Brazil
misinterprets the concept of judicial economy and that, even if Brazil made a separate claim, the Panel
was within the bounds of its discretion in exercising judicial economy with respect to that claim.
188. Finally, the United States disagrees with Brazil' s assertion that there are sufficient undisputed
facts in the record that would enable the Appellate Body to complete the analysis. According to the
United States, it vigorously contested Brazil's allega tions of fact in this regard and affirmatively
demonstrated that the export credit guarantee programs do not confer such a benefit. The United
States explains that no benefit is conferred because identical financial instruments are available in the
marketplace in the form of "forfaiting"
156; there is no correlation between the issuance of the export
credit guarantee and the ability of an importer to secure a loan; and the CCC conducts a risk
assessment with respect to the foreign banks to whose risk it is exposed.
(iv) ETI Act of 2000
189. The United States submits that the Appellate B ody should reject Brazil's request that it find
that the Panel erred in concluding that Brazil did not make a prima facie case that the ETI Act of
2000 is inconsistent with the United States' WTO obligations.

190. According to the United States, the Appellate Body should not rule on Brazil's appeal because
Brazil acknowledges that the appeal is not necessary to resolve the dispute between the parties. Brazil
states that it does not ask the Appellate Body to comp lete the analysis with respect to its claims.
Brazil, therefore, is not asking the Appellate Body to make findings that would result in DSB rulings
and recommendations with respect to the ETI Act of 2000.
157 For that reason alone, the Appellate
Body should decline to decide Brazil's appeal.
191. The United States contends that, in any event, Brazil did not make a prima facie case with
respect to the ETI Act of 2000. Brazil simply di d not present any evidence at all regarding the ETI
Act of 2000 itself. In its submission, Brazil gave a brief description of the proceedings in the
US – FSC (Article 21.5 – EC) dispute and then asked the Pane l "to apply the reasoning as developed
by the panel and as modified by the Appellate Body in that case mutatis mutandis".158 In essence,
therefore, Brazil was not asking the Panel to make an objective assessment of the ETI Act of 2000,
but merely to adopt findings from a previous proceeding. The Panel acted properly under the DSU,
including Article 11, by declining to find that the "short shrift" that Brazil gave to the ETI Act of 2000
satisfied Brazil's burden to make its prima facie case concerning that Act.
159
192. The United States asserts that the rules of bur den of proof in the WTO are well settled.
Contrary to Brazil's arguments, a finding of incons istency in one dispute does not establish a finding
of inconsistency in another dispute between different parties. Such an approach would in effect
impose the concept of stare decisis on the WTO dispute settlement system. The United States also
disagrees with Brazil's assumption that it is legally impossible for a party to argue that an identical
measure subject to identical claims that were successful in a previous WTO dispute is WTO-
consistent. The reasoning of a panel or the Appella te Body in one dispute is not binding on another
panel or the Appellate Body in a separate dispute. Furthermore, while the measure may remain the
same, the circumstances may change. Thus, irrespec tive of the ruling in the previous dispute, Brazil
had the burden of establishing a prima facie case.
193. Finally, the United States argues that the Appellate Body's reasoning in Mexico – Corn Syrup
(Article 21.5 – US) does not support Brazil's approach. Brazil exaggerates the Appellate Body's
statements in that Report and does not explai n why a complainant's obligation to make a prima facie

157United States' appellee's submission, paras. 101-104 (referring to Appellate Body Report, US – Steel
Safeguards, para. 483 and Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR 1997:I, 323
at 340).
158Ibid., para. 106 (quoting Brazil's written submission to the Panel, paras. 315-327).
159Ibid., para. 12.

case should be interpreted similarly to a panel's oblig ation to set forth its basic rationale pursuant to
Article 12.7 of the DSU.
E. Arguments of the Third Participants
1. Argentina
(a) Article 13(a) of the Agreement on Agriculture
194. Argentina considers that green box measures must respect the "fundamental requirement" of
paragraph 1 of Annex 2 of avoiding trade-distorting or production effects. Argentina submits that this
requirement is additional to compliance with the policy-specific criteria of paragraph 6.
(i) Article 13(a) of the Agreement on Agriculture – Planting
Flexibility Limitations
195. Argentina submits that production flexibility cont ract payments and direct payments do not
comply with paragraph 6(b) of Annex 2 of the Agreement on Agriculture because the amount of
these payments is related to the type of production af ter the base period. Argentina disagrees with the
United States' view that paragraph 6(b) does not prevent the conditioning of payment upon fulfilling
the requirement not to produce certain crops. Argent ina considers that the Panel rightly affirmed that
"the planting flexibility limitations provide a monetary incentive for payment recipients not to
produce the prohibited crops". 160 For Argentina, there is effectively little difference between a
"positive" and a "negative" list of permitted crops . The context provided by paragraphs 11(b)
and 11(e) of Annex 2 supports this view. Although Argentina agr ees with the United States that
paragraph 6(b) ensures that the amount of payments must not be used to induce a recipient to produce
a particular type of crop, the production flexibility contract and direct payments fail to meet this
requirement. Argentina considers that the flexibilit y enjoyed by producers to plant different crops is
illusory. The amount of the payments depends on the type of production. The growing of fruits and
vegetables is prohibited under these programs, w ith the effect of channelling production towards
other, permitted crops.
(ii) Article 13(a) of the Agreement on Agriculture – Base Period
Update
196. Argentina agrees with Brazil that the option un der the FSRI Act of 2002 to update base acres
is inconsistent with paragra ph 6(a) of Annex 2 of the Agreement on Agriculture . Argentina submits

that the term "defined" in paragraph 6(a) refers to the need for the base period to be clearly
determined. Likewise, the term "fixed" refers to the need for the base period to be defined in terms
that prevent it from being shifted or modified a posteriori. The term "fixed" indicates that payments
made in accordance with the criteri a stipulated in paragraph 6(a) must always rely on the same base
period, and no change is possible. Paragraph 6(a) thus allows Members to identify their own base
period; however, once that period is determined, the period must remain fixed. Otherwise, the choice
of the word "a" in paragraph 6(a) would be difficult to explain. Argentina thus agrees with Brazil that
if the structure, design, and eligibility criteria of an original measure containing a "fixed base period"
and the structure, design, and eligibility criteria of its successor have not b een significantly modified,
then it is not legitimate to update the "fixed base period" under the successor measure. Accordingly,
the terms of the direct payment program under the FSRI Act of 2002 are inconsistent with the
requirements set forth in paragraph 6(a) of Annex 2.
(b) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
197. Argentina agrees with Brazil that the mark et examined in assessing significant price
suppression under Article 6.3(c) of the SCM Agreement may be a world market, and that a panel
need not quantify precisely the amount of a subsidy in conducting such an assessment.161
(c) World Market Share under Article 6.3(d) of the SCM Agreement
198. Argentina agrees with Brazil that the words "wor ld market share" in Article 6.3(d) of the
SCM Agreement refer to the subsidizing Member's share of the world export market. 162
(d) Step 2 Payments to Domestic Users
199. Argentina agrees with the Panel's conclusion th at Step 2 payments to domestic users of
upland cotton constitute a subsidy contingent upon the use of domest ic over imported goods that is
prohibited by Articles 3.1(b) and 3.2 of the SCM Agreement , and that WTO Members are not
authorized by the Agreement on Agriculture to provide such subsidies.

161Argentina's statement at the oral hearing.
162Ibid.

(e) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement
on Agriculture
200. Argentina submits that the United States' e xport credit guarantee programs constitute export
subsidies in breach of the anti-circumvention provision contained in Article 10.1 of the Agreement on
Agriculture and, consequently, they are inconsistent with Article 8 and are not exempt from action
under Article 13(c) of that Agreement. Argentin a disagrees with the United States' view that no
disciplines apply to export credit guarantee prog rams. On the contrary, under the terms of
Article 10.1 of the Agreement on Agriculture , export credit guarantee programs constituting export
subsidies should not be applied in a manner that resu lts in, or threatens to lead to, circumvention of
export subsidy commitments.
(f) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM
Agreement
201. According to Argentina, the Panel's findings in respect of the United States' export credit
guarantee programs are not complete. In not findi ng that such programs are also subsidies in
accordance with the definition cont ained in Article 1 of the SCM Agreement and the prohibition in
Article 3.1(a) of the same Agreement, the Panel di d not bear in mind that different obligations stem
from those Articles and that, similarly, the course of implementation adopted by a Member in respect
of a finding of inconsistency only on the basis of ite m (j) of the Illustrative List of Export Subsidies
may be different. Accordingly, Argentina contends that a finding of inconsistency in respect of the
United States' export credit guarantees programs is also possible and should be made on the basis of
Articles 1 and 3.1(a) of the SCM Agreement.
2. Australia

(a) Article 13(a) of the Agreement on Agriculture – Planting Flexibility
Limitations
202. Australia requests that the Appellate Body uphold the Panel's conclusion that production
flexibility contract payments, direct payments, a nd the legislative and regulatory provisions that
establish and maintain the direct payment program, do not fully conform to paragraph 6(b) of Annex 2
of the Agreement on Agriculture. Australia submits that making a payment conditional upon the non-
production of a particular product is one way in which a Member can relate the "amount of ...
payment[]" to the current "type or volume of pr oduction". Australia contends that the argument
advanced by the United States would introduce an ex ception into paragraph 6(b) of Annex 2 that has
no textual basis. Australia submits that the Panel's interpretation does not prevent payments from
being disallowed in the case of illegal production because reducing the payment to zero would be

based on the illegality of the activity, not "the type or volume of production". In addition, a Member
could otherwise justify such a measure pursuant to Article XX of the GATT 1994.
(b) Article 13(a) of the Agreement on Agriculture – Base Period Update
203. Australia submits that the updating of base acres by the FSRI Act of 2002 means that the
direct payments are not green box measures. Australia argues that the meaning of paragraph 6(b) of
Annex 2 of the Agreement on Agriculture is that, once a base period has been "defined and fixed"
pursuant to paragraph 6(a), decoupled income su pport payments may not be "connected" to or
"[f]ound[ed], buil[t] or construct[ed]" on the type of production or the volume of production
undertaken by a producer in a later period.
163 Australia says that the Panel found that the direct
payments program is the successor to the productio n flexibility contract program and that the two
programs are identical in a number of important respects. The option under the FSRI Act of 2002 for
producers to update their base acres is not consistent with the requirement of paragraph 6(a) that there
be one "defined and fixed base period".
(c) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
204. Australia refers to the United States' argument that the Panel failed to set out the findings of
fact, the applicability of relevant provisions, and th e basic rationale behind certain of its findings and
recommendations regarding Article 6.3(c) of the SCM Agreement, as required by Article 12.7 of the
DSU.164 According to Australia, this argument sugge sts that the Panel failed to make an objective
assessment of the matter before it, as required by Article 11 of the DSU. Australia notes that the
Appellate Body has recognized the discretion of a panel in choosing the evidence on which it relies.165
(d) Step 2 Payments to Domestic Users and Exporters
205. Australia requests that the Appellate Body uphold the Panel's conclusions that Step 2
payments to domestic users constitute subsidies th at are inconsistent with the requirements of
Article 3.1(b) of the SCM Agreement.

163Australia's third participant's submission, para. 42 (quoting The New Shorter Oxford English
Dictionary, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 187 and Vol. 2, p. 2534 in relation to the words
"based on" and, "related to" in paragraph 6(b) of Annex 2 to the Agreement on Agriculture).
164Ibid., para. 19 (referring to the United States' appellant's submission, paras. 150 and 322-331).

206. Australia submits that the Appellate Body sh ould also uphold the Panel's conclusions that
Step 2 payments to exporters are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture
and Articles 3.1(a) and 3.2 of the SCM Agreement. In the event that the Appellate Body determines
that the Step 2 program is not export-contingent, Au stralia requests that the Appellate Body find that
the Step 2 program as a whole is contingent upon the use of domestic over imported goods within
the meaning of Article 3.1(b) of the SCM Agreement. Furthermore, in that case, the Appellate Body
should find that the chapeau to Article 3.1 of the SCM Agreement does not serve to exempt such
local content subsidies from the application of Article 3.1(b) of that Agreement.
(e) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement
on Agriculture
207. Australia disagrees with the United States' argument that export credit guarantees are
excluded from the application of Article 10.1 of the Agreement on Agriculture and Article 3.1(a) of
the SCM Agreement. According to Australia, the United St ates has incorrectly applied Articles 31
and 32 of the Vienna Convention to the interpretation of Article 10.1 of the Agreement on
Agriculture. Article 10.1 applies to all "[e]xport subsidies not listed in paragraph 1 of Article 9". The
meaning of this provision is clearly discernibl e from its text and it does not provide for any
exceptions. The context of Article 10.2 does not suppor t an interpretation that would be contrary to
its plain words, particularly because it is not cons tructed as an exception provision. The object and
purpose of Article 10.1 relate to the prevention of circumvention of commitments, in relation to all
export subsidies other than those listed in Article 9.1 of the Agreement on Agriculture. Furthermore,
the application of Article 10.1 to export credit gua rantees defined as export subsidies does not lead to
a result that is manifestly unreasonable because not all export credit guarantees are export subsidies
within the meaning of the Agreement on Agriculture and the SCM Agreement . It is open to the
United States, within the existing WTO framework, to design and maintain measures that fall outside
the definition of an export subsidy, which is, in f act, what the United States asserts it has done. In
contrast, acceptance of the United States' arguments coul d lead to a result that is manifestly absurd or
unreasonable by encouraging other WTO Members to seek to avoid the anti-circumvention
obligations of Article 10.1 of the Agreement on Agriculture.
208. Australia also rejects the United States' contention that Article 21.1 of the Agreement on
Agriculture and the chapeau to Article 3.1 of the SCM Agreement render Article 3.1(a) of the SCM
Agreement inapplicable to export credit guarantee programs.

3. Benin and Chad
(a) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
209. Benin and Chad agree with Brazil that the Panel correctly found that the effect of the price-
contingent subsidies is significant price suppression within the meaning of Article 6.3(c) of the
SCM Agreement. Benin and Chad contend that many of the United States' arguments regarding
Article 6.3(c) relate to factual findings by the Pane l that are not subject to appellate review in the
absence of a claim by the United States that the Panel failed to comply with Article 11 of the DSU.
210. Benin and Chad agree with the Panel's finding th at it was not required to quantify precisely
the amount of the subsidy in assessing Brazil's claim under Article 6.3(c) of the SCM Agreement,
and that the amount of a subsidy is not necessarily determinative in such an assessment. This is
consistent with the different purposes of Parts III and V of the SCM Agreement.
(b) World Market Share under Article 6.3(d) of the SCM Agreement
211. Benin and Chad support the request by Brazil th at the Appellate Body reverse the Panel's
interpretation of the term "world market share" in Article 6.3(d) of the SCM Agreement. Benin and
Chad agree with Brazil that "world market share" means world market share of exports. If the
Appellate Body adopts this interpretation, Benin and Chad request the Appellate Body to complete the
analysis under Article 6.3(d) and to find that the effect of the price-contingent subsidies was an
increase in the world market share of the United States contrary to Article 6.3(d). In turn, Benin and
Chad ask the Appellate Body to find that th ey have also suffered serious prejudice under
Article 6.3(d) as a result of the increase in the United States' world market share of exports.
212. According to Benin and Chad, the Panel's interp retation of "world market share" as world
market share of production inappropriately shifts the inquiry away from the effect of the subsidy
towards unrelated factors, such as production levels in third country markets. A subsidy may have the
effect of increasing significantly the exports of a Member, even though the Member's world share of
production remains stable or diminishes. Therefore, in the submission of Benin and Chad, the Panel's
interpretation could lead to a situation where ch anges in the supply by a third country determine
whether a subsidizing Member's world market share increases or decreases.
213. Benin and Chad state that, if the Appellate Body rejects the Panel's interpretation of "world
market share" under Article 6.3(d), there are suff icient undisputed facts on the record for the
Appellate Body to complete the analysis and to fi nd that the United States acted inconsistently with

Article 6.3(d). The evidence before the Panel indi cates that those Members that have lost market
share as a result of the price-contingent subsid ies include, at least, Brazil and the "Francophone
African nations of Benin and Chad". 166 Benin and Chad disagree with the Panel's finding that "the
serious prejudice under examination by a WTO panel is the serious prejudice experienced by the
complaining Member".167
214. Benin and Chad argue that the Appellate Body should take into account the impact of United
States upland cotton subsidies on the "fragile economies of West and Central Africa" 168, as reflected
in the Panel's findings and evidence on the record. Benin and Chad point out that Article 24.1 of the
DSU, which requires particular consideration to be given to the special situation of least-developed
country Members, would be given meaning if th e Appellate Body acknowledged that the increase in
the United States' world market sh are caused serious prejudice to Benin and Chad by reducing their
market share. Furthermore, nothing in the text of Article 6.3(d) limits a finding of serious prejudice to
the complaining party. Therefore, Benin and Chad urge the Appellate Body to draw conclusions
under Article 6.3(d) that would require the United States to withdraw the subsidy or remove the
adverse effects, not only with respect to Brazil, but also with respect to Benin and Chad.
(c) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM
Agreement
215. Benin and Chad support Brazil's position that the Panel improperly exercised judicial
economy by refusing to address Brazil's claim that the United States violated Articles 1.1 and 3.1(a)
of the SCM Agreement with respect to export credit guarantees. Benin and Chad also support
Brazil's request that the Appellate Body complete the analysis as it has sufficient factual findings
before it to do so.
216. Benin and Chad explain that, under item (j) of the Illustrative List of Export Subsidies,
Brazil's claim is that the export credit guarantee prog rams operate at a loss or below the cost to the
government. In contrast, under Article 3.1(a), Br azil's claim is that the programs are financial
contributions that confer a benefit on recipien ts within the meaning of Article 1.1 of the SCM
Agreement and that they are contingent upon export performance. Thus, Brazil's claims under
item (j) of the Illustrative List of Export Subsidies and Article 3.1(a) were distinct, and the Panel's

166Benin and Chad's third participants' submission, para. 85. (emphasis omitted)
168Ibid., para. 9.

refusal to address Brazil's claim under Article 3.1( a) leaves an important and distinct claim
unresolved. Accordingly, it was improper for the Panel to have exercised judicial economy.169
4. Canada
(a) Article 13(a) of the Agreement on Agriculture – Planting Flexibility
Limitations
217. Canada considers that the Panel was correct in finding that production flexibility contract
payments and direct payments do not meet the requi rements of paragraph 6(b) of Annex 2 of the
Agreement on Agriculture. For Canada, nothing in the text of pa ragraph 6(b) supports the distinction
the United States seeks to draw be tween "positive" and "negative" effects on production. If payments
are conditioned on a recipient not undertaking a type of production, then the payment is related to the
type of production. Canada thus agrees with the Panel's in terpretation that paragraph 6(b) excludes
any "typ[e] of relationship between the amount of su ch payments and the type of production after the
base period".170 Canada argues that this approach is supported by the object and purpose of Annex 2
and the context provided by the fundamental requirement set out in paragraph 1 of Annex 2.
218. Canada agrees with the United States that th e fundamental requirement in paragraph 1 of
Annex 2 is relevant context in understanding the criterion in paragra ph 6(b) that the measure not be
related to the type or volume of production. Howe ver, a Member does not ha ve an independent basis
for claiming that the measure qualifies as a "gr een box" measure because it has minimal trade-
distorting effects. Canada disagrees with the Unite d States' conclusion, based on its interpretation of
paragraph 6(e), that a Member is not prohibited under paragraph 6(b) from conditioning payment on
non-production of a particular product. Canada considers that paragr aph 6(e) is a prohibition against
requiring production as a condition of payment, but does not necessarily authorize a Member to
impose a requirement not to produce a particular crop. With regard to the planting flexibility
limitations under the production flexibility contract payment and direct payment programs, Canada
disagrees with the United States that the amount of pa yments "does not relate to fruit or vegetable
production since for that base acre there would be no payment at all ".
171 For Canada, this
interpretation is contrary to the ordinary mean ing of the term "related to" and leads to the
unreasonable result that a Member could circumve nt the requirement in paragraph 6(b) by

169Benin and Chad's third participants' submission, paras. 105-108 (referring to Appellate Body Report,
Australia – Salmon , para. 223 and Appellate Body Report, Canada – Wheat Exports and Grain Imports ,
para. 133).
171Ibid., para. 20 (quoting the United States' appellant's submission, para. 26). (original emphasis)

encouraging certain types of production as long as it does so through a negative list by excluding
certain other types of production.
(b) Article 13(a) of the Agreement on Agriculture – Base Period Update
219. Canada argues that the direct payments do not fu lly conform to paragraph 6(a) of Annex 2 of
the Agreement on Agriculture because of the base period update in the FSRI Act of 2002. Canada
submits that the ordinary meaning of the terms "d efined and fixed base period" in paragraph 6(a)
indicates that the base period cannot vary or change. This is confirmed by the context provided by
paragraphs 6(b) and (d), which re fer to "any year after the base period", as well as the object and
purpose of paragraph 6, which is to identify the types of payments that are minimally trade-distorting.
Canada contends that, as the Panel found that dir ect payments under the FSRI Act of 2002 are closely
related to and a successor to the production flexibili ty contract payments, the base period for direct
payments should not be different from the base peri od for production flexibility contract payments.
The fact that payments are provided under new legislation does not in itself allow a modification to
the base period under the predecessor program. Otherwise, the requirement that there be a "fixed base
period" would become meaningless. By allowing updating of base acreage, the United States is
altering the base period contrary to paragraph 6(a).
(c) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement
on Agriculture
220. Canada submits that the Panel correctly found th at, to the extent that export credit guarantees
meet the definition of export subsidies, they will be subject to the anti-circumvention disciplines of
Article 10.1 of the Agreement on Agriculture . The United States' argument that Article 10.2 of the
Agreement on Agriculture exempts export credit guarantees from the subsidy disciplines under that
Agreement has no basis in the text, context, objec t and purpose, or negotiating history. Canada
asserts that the text of Article 10.2 does not explicitl y indicate an intention to exclude the application
of other, existing disciplines. Indeed, such an in terpretation would contradict the stated object and
purpose of Article 10 as a whole, which is the "P revention of Circumvention of Export Subsidy
Commitments". Furthermore, the fact that export credit guarantee programs may not be subject to the
notification requirement of the Agreement on Agriculture does not lead to the conclusion that they
are not subject to the other disciplines of that Agreement.

221. Canada also agrees with the Panel's conclusi on that the United States violated Articles 3.3
and 8 of the Agreement on Agriculture by providing export subsidies otherwise than in conformity
with that Agreement with respect to upland cotton and other unscheduled comm odities. In addition,
Canada states that the Panel's interpretation of Article 10.1 with respect to scheduled products is
consistent with the Appellate Body's analysis in US – FSC.172
(d) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM
Agreement
222. Canada asserts that, if the Appellate Body reverses the Panel's finding that the United States'
export credit guarantee programs constitute per se prohibited export subsidies under item (j) of the
Illustrative List of Export Subsidies, it will still be necessary to consider whether the export credit
guarantee programs constitute export subsidi es under Articles 1 and 3.1(a) of the SCM Agreement.
Even if the United States' export credit programs charge adequate fees under the item (j) standard,
they may still confer an export subsidy. If they did, the export credit guarantees would have to be
provided in a manner consistent with Article 10.1 of the Agreement on Agriculture.
5. China
(a) Terms of Reference – Expired Measures
223. China submits that the Panel was correct to fi nd that expired production flexibility contract
and market loss assistance payments were within the Panel's terms of reference. The Panel's
interpretation of Articles 4.2 and 6.2 of the DSU is in accordance with the text, context, and object
and purpose of the DSU, as well as the intention of the drafters. China recalls that Article 4.2 of the
DSU indicates that consultations are to cover "any representations made by another Member
concerning measures affecting the operation of any c overed agreement taken within the territory of
the former". China "agrees with the Panel that b ased on the analysis of the context and the object of
Article 4.2, the term 'affecting' in Article 4.2 is used as a gerund, describin g the way in which they
relate to a covered agreement, and has no temporal significance". 173 China notes that Brazil's claims
in this case relate to serious prejudice under the provisions of the SCM Agreement and the
GATT 1994. China agrees with the panel in Indonesia – Autos that, "[i]f ...past subsidies were not
relevant to [a] serious prejudice analysis as they were 'expired measures'..., it is hard to imagine any
situation where a panel would be able to dete rmine the existence of actual serious prejudice". 174

172Canada's third participant's submission, para. 40 (referring to Appellate Body Report, US – FSC ,
para. 152).
173China's third participant's submission, para. 19.

China submits that neither the context cited by th e United States nor the decisions of the panel and
Appellate Body in US – Certain EC Products support the view that expired measures may not fall
within the terms of reference of a panel.
(b) Article 13(b) of the Agreement on Agriculture - Interpretation of
"support to a specific commodity"
224. China supports the Panel's finding that the phrase "support to a specific commodity" in
Article 13(b) of the Agreement on Agriculture does not mean "product-specific domestic support".
China submits that the word "specific" in Article 13( b)(ii) is inserted to avoid lump-sum treatment of
measures generally applicable to a number of commodities. Unlike the ph rase "product-specific
support", the phrase "support to a specific commodity" refers to the level of support delivered to a
specific commodity, thus combining both product-specific support and the portion of support
attributable to upland cotton under a program that is available to a number of products.
(c) Terms of Reference – Export Credit Guarantees
225. China submits that the Appellate Body should uphold the Panel's conclusion that export credit
guarantees to facilitate the export of United States agricultural commodities other than upland cotton
were within the Panel's terms of reference. Acco rding to China, the Panel correctly concluded that
Brazil identified export credit guarantees to agricultu ral commodities other than upland cotton in its
request for consultations. During the consultations, Brazil also posed questions to the United States
on the export credit guarantees that related to agri cultural commodities other than upland cotton.
These questions did not expand the scope of the consulta tions request, but merely clarified its content.
In addition, China states that Brazil's recognition that the United States objected to the questions
relating to agricultural commodities other than upl and cotton does not lead to the conclusion that
consultations were not held on the subject. Finally , China asserts that a WTO Member cannot refuse
to respond to questions during consultations on the basis of its own uncertainty as to the scope of the
consultations.
6. European Communities
(a) Article 13(a) of the Agreement on Agriculture – Planting Flexibility
Limitations
226. The European Communities supports the United St ates' appeal of the Panel's finding that
planting flexibility limitations disqua lify a measure from the coverage of paragraph 6 of Annex 2 of
the Agreement on Agriculture . The European Communities notes that the United States has placed
limitations on the crops that may be grown by fa rmers receiving production flexibility contract

payments and direct payments. In doing so, the United States ensures fair competition domestically
and limits distortions internationally. If upheld, th e Panel's findings would have the perverse effect of
increasing subsidization and the likelihood of trade distortions.
227. The European Communities observes that paragraph 6(b) prevents the amount of the
payments from being related to the type of production; it does not address eligibility for payments.
With this in mind, the European Communities subm its that "the fact of making ineligible for
payments the land used to produce a certain commo dity is not incompatible with paragraph 6(b)".
175
Furthermore, the Panel correctly noted that paragr aphs 6(b) and 6(e) lay down distinct requirements
and that each of them must be given meaning. The European Communities considers that the Panel's
interpretation of paragraph 6(b) would render redundant paragraph 6(e) . The Panel's reading is that
any payment conditional upon a production requireme nt (which, as such, is incompatible with
paragraph 6(e)) would be deemed to be "related to" the "volume" of production and would therefore
be incompatible with paragraph 6(b). The Eur opean Communities argues that the Panel should not
have relied upon paragraph 11 of Annex 2 because that provision appears in a context very different
from that of the provisions of paragraph 6.
(b) Article 13(a) of the Agreement on Agriculture – Base Period Update
228. With regard to Brazil's conditional cross-app eal regarding base period updates, the European
Communities notes that the Panel made factual findi ngs that there was no ev idence to suggest that
farmers expected further updates in future years. The European Communities does not consider that
paragraph 6(a) of Annex 2 of the Agreement on Agriculture precludes adjustments to base periods,
although it agrees with Brazil that a "defined and fi xed" base period cannot be determined from the
perspective of five-yearly subsidization legislati on, but rather should be viewed in a longer-term
perspective. The European Comm unities considers that it cannot be open to a Member to resort to
wholesale updating of base periods by linking the criteria of "defined and fixed" to specific legislative
packages.
(c) Article 13(b) of the Agreement on Agriculture
229. The European Communities supports the Unites St ates' request for the Appellate Body to
reverse the Panel's interpretation of Article 13(b) of the Agreement on Agriculture , particularly in
respect to the methodology for calculating support and the meaning of "support to a specific
commodity". With regard to the methodology, the European Communities agrees with the United
States that the Panel should not have used budgetary outlays to calculate support "decided" in respect

175European Communities' third participant's submission, para. 15.

of price-based measures, but rather should have used price gap methodology. The European
Communities contends that this approach is cruc ial for the interpretation of the specific term
"decided", in contrast to the term "granted". The European Communities al so agrees with the United
States that the Panel was incorrect in finding that support under schemes based on historical
production of specific crops could be consider ed "support to a specific commodity" in the
implementation period in the sense of Article 13(b)(ii).
(d) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
230. In relation to the United States' arguments re garding the quantification of subsidies, the
European Communities agrees with Brazil that , in assessing significant price suppression under
Article 6.3(c) of the SCM Agreement , it is not necessary to determine the precise amount of the
subsidy or the amount of the benefit conferred on the subsidized product. This is consistent with the
differences between Parts III and V of the SCM Agreement . Paragraph 7 of Annex IV of the
SCM Agreement, to which the United States refers, is an exception to the general rule that a panel
need not quantify or allocate a subsidy (other than a pre-WTO subsidy) to the products concerned.
231. The European Communities contests the United St ates' arguments regarding past "recurring"
subsidies. Article 6.3(c) is drafted in the present tense and therefore should apply to the past, present,
and future. The European Communities asserts th at a subsidy comprises an act (a financial
contribution) and that it may have an effect on the recipient (a benefit) and an effect on the market and
other Members (adverse effects). However, the Un ited States erroneously equates the concepts of
"benefit" and "adverse effects". The subsidies ch allenged in the present dispute are programs that
continue and that therefore may have adverse effects in the future, even if they confer a benefit in only
one particular year. Therefore, the European Co mmunities considers that the Panel correctly included
past recurring subsidies in its analysis under Artic le 6.3(c). However, the European Communities
maintains that it would have been "desirable" 176 for the Panel to distinguish between programs that
had expired and programs that were still in force when the Panel was established.
(e) Relationship between the Agreement on Agriculture and the SCM
Agreement
232. The European Communities raises an issue concerning the Panel's jurisdiction that it
considers the Appellate Body should take up on its own motion. According to the European
Communities, the SCM Agreement does not apply to domestic support and export subsidies in

176European Communities' third participant's submission, para. 61.

respect of agricultural products because the Agreement on Agriculture contains "provisions dealing
specifically with the same matter".177
(f) Step 2 Payments to Domestic Users
233. The European Communities agrees with the Unite d States' claim that the Panel erred in
finding that Step 2 payments to domestic users ar e inconsistent with Article 3.1(b) of the SCM
Agreement. In addition to endorsing the arguments put forward by the United States, the European
Communities argues that the Panel incorrectly sought an explicit carve out from Article 6.3 of the
Agreement on Agriculture for import substitution subsidies, wh en such a carve out is unnecessary in
the light of Article 21.1 of that Agreement and the introductory phrase of Article 3.1 of the SCM
Agreement. The European Communities submits that paragraph 7 of Annex 3 of the Agreement on
Agriculture recognizes that WTO Members have a right to provide import substitution subsidies.
The Panel's interpretation to the contrary renders the language of paragraph 7 of Annex 3 redundant.
7. India
234. Pursuant to Rule 24 of the Working Procedures , India chose not to submit a third
participant's submission. In its statement at the or al hearing, India disagreed with the United States
that Brazil had to establish the amount of the price- contingent subsidies that benefit upland cotton in
making its claim of serious prejudice under Articles 5(c) and 6.3 of the SCM Agreement.
8. New Zealand
(a) Article 13(a) of the Agreement on Agriculture – Base Period Update
235. New Zealand supports Brazil's contention that the direct payments under the FSRI Act
of 2002 do not meet the criteria set out in paragraph 6(a) of Annex 2 of the Agreement on
Agriculture. According to New Zealand, the factual findi ngs made by the Panel establish that direct
payments cannot be green box payments because fa rmers had an opportunity to update base acreage,
contrary to this provision. New Zealand notes th at the language and context of paragraph 6(a)
contemplate a single base period that is fixed and unchanging to ensure that such support is clearly de-
linked from production. To conclude otherwise would create an internal inconsistency in paragraph 6,
because a Member could avoid obligat ions under paragraphs 6(b), 6(c), and 6(d) not to link payments
to production, prices, or factors of production em ployed in subsequent years, by establishing a new
base period from time to time. New Zealand observ es that the Panel found that the direct payment

177European Communities' third participant's submission, para. 6 (quoting Appellate Body Report, EC –
Bananas III, para. 155).

program is a successor to the production flexibility contract program and that the base period update
had the effect of increasing the level of payments under the program.
(b) Article 13(b) of the Agreement on Agriculture
236. New Zealand contests the United States' appeal of the Panel's finding that the United States'
measures at issue are not exempt from action pursuant to Article 13(b)(ii) of the Agreement on
Agriculture. New Zealand argues that Members drafting th e proviso to Article 13(b) were principally
concerned with limiting the effect of domestic s upport measures on trade. New Zealand argues that
the manner in which "support" is identified an d calculated in the comparison required by
Article 13(b)(ii) must reflect Members' intentions to limit the effects of such measures to those that
existed in the 1992 marketing year and to ensure that measures are not exempt from actions when
their effect is a significantly higher level of trade distortion in the implementation period than in the
1992 marketing year.
(i) Calculation methodology for price-based measures
237. New Zealand considers that the Appellate B ody should uphold the Panel's finding that, on the
facts of this case, budgetary outlays provide an a ppropriate measurement of support for the purposes
of the comparison required by Article 13(b)(ii). Ne w Zealand argues that a Member may not justify a
failure to meet its obligations under the Agreement on Agriculture on the ground that it has adopted
measures that rely on factors beyond the government 's control. If a Member adopts a non-green box
domestic support measure that determines the amount of support provided on the basis of factors the
government cannot control, then the Member mu st accept the risk that support granted in the
implementation period may be in excess of that decided in the 1992 marketing year. Furthermore,
New Zealand disagrees with the argument advan ced by the United States that only a price gap
calculation can reflect support "decided" by the Un ited States' price-based measures. New Zealand
argues that this argument would read the term "grant" out of Article 13(b)(ii) altogether.
(ii) Interpretation of "support to a specific commodity"
238. New Zealand argues that the Appellate Body sh ould reject the United States' argument that
Article 13(b)(ii) of the Agreement on Agriculture requires a comparison of only "product-specific"
support. For New Zealand, the chapeau of Article 13(b) makes it clear that the measures subject to
the proviso of Article 13(b)(ii) are all "domestic support measures that conform fully to the provisions
of Article 6" of the Agreement on Agriculture (that is, both product-specific and non-product-
specific support to upland cotton). The use of the wo rd "specific" in Article 13(b)(ii) refers only to
the fact that the comparison is to be made on a commodity-by-commodity basis. In New Zealand's

view, the Panel correctly found that "support to a specific commodity" means all support to a
commodity, whether product-specific or not. New Z ealand also agrees with the Panel's finding that
measures that "identify and allocate support based on an express linkage to specific commodities" 178
provide support to those commodities within the mean ing of Article 13(b)(ii). Accordingly, even a
measure that provides support to a number of different commodities also provides support to those
specific commodities individually. New Zealand a dds that not only do the words "product-specific
support" not appear in Article 13(b)(ii), but the c oncept of product-specific support is not relevant to
the comparison under this provision because Artic le 13(b)(ii) requires an analysis that is
fundamentally different from that required under those provisions of the Agreement on Agriculture
that distinguish between product-specific and non-product-specific support.
239. Finally, New Zealand disagrees with the United States' assertion that counter-cyclical
payments and market loss assistance payments are "decoupled". As the Panel recognized, the amount
of payment under these programs is clearly linked to current prices, which means that they cannot be
green box measures in terms of Annex 2 of the Agreement on Agriculture.
(c) Significant Price Suppression under Article 6.3(c) of the SCM
Agreement
240. New Zealand agrees with Brazil that the Panel correctly found that the effect of the price-
contingent subsidies is significant price suppression within the meaning of Article 6.3(c), constituting
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement.
241. New Zealand agrees with Brazil that the term "in the same market" in Article 6.3(c) can
include a world market, although this does not pr eclude the possibility of other markets. New
Zealand also agrees that, although a world mark et does not necessarily exist for every product, a
world market and a world price do exist for upland cotton.
242. New Zealand submits that the Panel was correct in rejecting the United States' argument that
the price-contingent subsidies did not suppress prices because, in the absence of these subsidies, new
suppliers would have increased supply and maintained the world price. In response to the United
States' arguments regarding the effect of the su bsidies on the planting decisions of farmers, New
Zealand argues that this effect is a key aspect of th e Panel's analysis under Article 6.3(c), which led it
to conclude that the subsidies insulated United St ates cotton producers from declines in world prices.
Moreover, the Panel correctly found that the gap between total production costs and market revenue

178New Zealand's third participant's submission, para. 3.16 (quoting Panel Report, para. 7.484).

constituted evidence that the price-contingent subsidies enabled United States upland cotton producers
to increase supply, leading to price suppression in the world market.
243. New Zealand agrees with Brazil that a panel is not required, in assessing significant price
suppression under Article 6.3(c), to quantify precisely th e amount of the subsidy. As the Panel found,
claims under Parts III and V of the SCM Agreement differ, and the quantitative and pass-through
methodologies applicable under Part V are not necessarily transferable to Part III. Although the
magnitude of a subsidy may be relevant in some cases, it is not necessarily determinative of the nature
or extent of the effects of the subsidy.
244. New Zealand disagrees with the United States' arguments regarding past recurring subsidies,
which would effectively preclude Members from bringing claims of serious prejudice against
recurring subsidies, even though payments under su bsidy programs over an extended period can have
effects in later years.
(d) World Market Share under Article 6.3(d) of the SCM Agreement
245. New Zealand supports Brazil's appeal of the Pane l's finding that the "world market share" of
the subsidizing Member under Article 6.3(d) refers to the share of the world market supplied by the
subsidizing Member. Defining "world market sh are" as including all production, instead of only
exports, distracts from the trade focus of the SCM Agreement and subverts the underlying rationale
of Article 6.3(d). New Zealand supports Brazil's request for the Appellate Body to complete the
analysis under Article 6.3(d).
(e) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement
on Agriculture
246. New Zealand asserts that the Panel was correct in finding that export credit guarantee
programs are subject to the non-circumventi on obligation under Article 10.1 of the Agreement on
Agriculture, and that the United States' export credit guarantee programs provide export subsidies
that breach Article 10.1 and are not exempt from action under the SCM Agreement . In New
Zealand's view, Article 10.1 clearly applies to export credit guarantee programs that involve the
granting of export subsidies. Article 10.2 does not create any exception that may contradict the clear
meaning of Article 10.1. The United States' interpretation would create a loophole for WTO
Members to circumvent their export subsidy re duction commitments through export credit guarantee
programs. In such a case, New Zealand observes th at Article 10.2 would, itself, circumvent the anti-
circumvention provisions.

(f) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM
Agreement
247. New Zealand agrees with Brazil that the Panel erred in exercising judicial economy by
refusing to make a finding relating to the Un ited States' export credit guarantee programs under
Articles 1.1 and 3.1(a) of the SCM Agreement . In New Zealand's view, a measure that no longer
constitutes an export subsidy under item (j) of the Illustrative List of Export Subsidies may still
constitute an export subsidy under Articles 1.1 and 3.1(a) of the SCM Agreement . Therefore,
New Zealand requests the Appellate Body to complete the analysis and find that the United States'
export credit guarantee programs are export subsid ies under Articles 1.1 and 3.1(a) of the SCM
Agreement.
9. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu
248. Pursuant to Rule 24 of the Working Procedures, the Separate Customs Territory of Taiwan,
Penghu, Kinmen and Matsu chose not to submit a third participant's submission. In its statement at
the oral hearing, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu agreed with
the United States that using planting flexibility lim itations in association with production flexibility
contract payments and direct payments do es not render these measures inconsistent with
paragraph 6(b) of Annex 2 to the Agreement on Agriculture.
III. Issues Raised in this Appeal
249. The following issues are raised in this appeal:
(a) as regards procedural matters:
(i) in relation to production flexibility contract payments and market loss
assistance payments:
- whether the Panel erred in finding, in paragraphs 7.118, 7.122, 7.128,
and 7.194(ii) of the Panel Report, that Articles 4.2 and 6.2 of the
Understanding on Rules and Procedures Governing the Settlement of
Disputes (the "DSU") do not exclude expired measures from the
potential scope of consultations or a request for establishment of a
panel and, therefore, that produc tion flexibility contract payments
and market loss assistance payments fell within the Panel's terms of
reference; and

- whether the Panel, contrary to Article 12.7 of the DSU, failed to set
out the findings of fact, the applicability of relevant provisions, or the
basic rationale behind this finding; and
(ii) in relation to export credit guarantee programs:
- whether the Panel erred in finding , in paragraph 7.69 of the Panel
Report, that the United States' export credit guarantees relating to
eligible United States agricultural commodities other than upland
cotton were within its terms of reference; and
- whether the Panel erred in finding, in paragraph 7.103 of the Panel
Report, that Brazil provided a statement of available evidence with
respect to export credit guarantees re lating to eligible United States
agricultural commodities other than upland cotton, as required by
Article 4.2 of the Agreement on Subsidies and Countervailing
Measures (the "SCM Agreement");
(b) as regards the application of Article 13 of the Agreement on Agriculture to this
dispute:
(i) in relation to Article 13(a)(ii):
- whether the Panel erred in finding, in paragraphs 7.388, 7.413, 7.414,
and 8.1(b) of the Panel Report, that production flexibility contract
payments and direct payments are not green box measures that fully
conform to paragraph 6(b) of Annex 2 of the Agreement on
Agriculture based on its finding, in pa ragraph 7.385 of the Panel
Report, that the amount of production flexibility payments and direct
payments is related to the type of production undertaken by a
producer after the base period; and, therefore, that these measures
are not exempt from actions based on Article XVI of the General
Agreement on Tariffs and Trade 1994 (the "GATT 1994") and
Part III of the SCM Agreement by virtue of Article 13(a)(ii) of the
Agreement on Agriculture; and
- whether the updating of base acres for direct payments under the
FSRI Act of 2002 means that direct payments are not green box

measures that fully conform to para graph 6(a) of Annex 2 of the
Agreement on Agriculture and, therefore, that these measures are not
exempt from actions based on Article XVI of the GATT 1994 and
Part III of the SCM Agreement by virtue of Article 13(a)(ii) of the
Agreement on Agriculture , because they are not determined by
clearly-defined criteria in a defined and fixed base period179; and
(ii) in relation to Article 13(b)(ii), whet her the Panel erred in finding, in
paragraphs 7.608 and 8.1(c) of the Panel Report, that user marketing (Step 2)
payments ("Step 2 payments") to dom estic users, marketing loan program
payments, production flexibility contract payments, market loss assistance
payments, direct payments, counter -cyclical payments, crop insurance
payments, and cottonseed payments (the "challenge d domestic support
measures") granted, in the years 1999, 2000, 2001, and 2002, support to a
specific commodity, namely, upland cotton, in excess of that decided during
the 1992 marketing year and, therefore, that these measures are not exempt
from actions based on Articles 5 and 6 of the SCM Agreement and
Article XVI:1 of the GATT 1994 by virtue of Article 13(b)(ii) of Agreement
on Agriculture, based on its findings:
- in paragraph 7.494 of the Panel Report, that the phrase "grant support
to a specific commodity" in Article 13(b)(ii) refers to all non-green
box support measures that clearly or explicitly define a commodity as
one to which they bestow or confer support and does not mean
"product-specific domestic support";
- in paragraphs 7.518 and 7.520 of the Panel Report, that the
challenged domestic support measu res are non-green box support
measures that clearly or explicitly define a commodity, namely,
upland cotton, as one to which they bestow or confer support; and
- in paragraphs 7.561 and 7.562 of the Panel Report, that an
appropriate comparison between the level at which measures "grant

179Brazil's appeal is conditional on the Appellate Body reversing the finding of the Panel that "direct
payments, production flexibility contract payments, and the legislative and regulatory provisions that establish
and maintain the direct payment program" do not fully conform to paragraph 6(b) of Annex 2 and,
consequently, do not satisfy the condition in paragraph (a) of Article 13 of the Agreement on Agriculture.

support" in the implementation period and that "decided during
the 1992 marketing year" may be achieved, with respect to marketing
loan program payments and deficiency payments, through the use of
a methodology other than the price gap methodology described in
paragraph 10 of Annex 3 of the Agreement on Agriculture;
(c) as regards serious prejudice:
(i) in relation to Article 6.3(c) of the SCM Agreement:
- whether the Panel erred in finding, in paragraphs 7.1416 and 8.1(g)(i)
of the Panel Report, that the effect of the marketing loan program
payments, Step 2 payments, market loss assistance payments, and
counter-cyclical payments (the "p rice-contingent subsidies") is
significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement, based on its findings:
(A) regarding the "market" and "price" in assessing whether "the
effect of the subsidy is ... significant price suppression ... in
the same market" within the meaning of Article 6.3(c) of the
SCM Agreement:
- in paragraphs 7.1238-7.1240 of the Panel Report,
that the "same market" may be a "world market";
- in paragraph 7.1247 of the Panel Report, that a
"world market" for upland cotton exists; and
- in paragraph 7.1274 of the Panel Report, that "the
A-Index can be taken to reflect a world price in the
world market for upland cotton"; and
(B) regarding the "effect" of the price-contingent subsidies under
Article 6.3(c) of the SCM Agreement:
- in paragraphs 7.1312 and 7.1333 of the Panel Report,
that "significant price suppression" occurred within
the meaning of Article 6.3(c);

- in paragraphs 7.1355 and 7.1363 of the Panel Report,
that "a causal link exists" between the price-
contingent subsidies and the significant price
suppression found by the Panel under Article 6.3(c)
and that this link is not attenuated by other factors
raised by the United States;
- in paragraphs 7.1173, 7.1186, and 7.1226 of the
Panel Report, that it was not required to quantify
precisely the benefit conferred on upland cotton by
the price-contingent subsidies and, consequently, not
identifying the precise amount of counter-cyclical
payments and market loss assistance payments that
benefited upland cotton; and
- in paragraph 7.1416 of the Panel Report, that the
effect of the price-contingent subsidies for marketing
years 1999 to 2002 "is significant price suppression
... in the period MY 1999-2002"; and
- whether the Panel, contrary to Article 12.7 of the DSU, failed to set
out the findings of fact, the applicability of relevant provisions, or the
basic rationale behind its finding, in paragraphs 7.1416 and 8.1(g)(i)
of the Panel Report, that the effect of the price-contingent subsidies is
significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement; and
(ii) in relation to Article 6.3(d) of the SCM Agreement:
- whether the Panel erred in finding, in paragraph 7.1464 of the Panel
Report, that the words "world market share" in Article 6.3(d) of the
SCM Agreement refer to the "share of the world market supplied by
the subsidizing Member of the product concerned"; and
- whether the Appellate Body should complete the analysis of whether
the effect of the price-contingent subsidies is an increase in the

United States' world market share of exports in upland cotton within
the meaning of Article 6.3(d) of the SCM Agreement180;
(d) as regards user marketing (Step 2) payments, whether the Panel erred:
(i) in finding, in paragraphs 7.1088, 7. 1097-7.1098, and 8.1(f) of the Panel
Report, that Step 2 payments to domestic users of United States upland
cotton, under Section 1207(a) of the FSRI Act of 2002, are subsidies
contingent upon the use of domestic over imported goods that are
inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement; and
(ii) in finding, in paragraphs 7.748-7.749, 7.760-7.761, and 8.1(e) of the Panel
Report, that Step 2 payments to exporters of United States upland cotton,
pursuant to Section 1207(a) of the FSRI Act of 2002, are subsidies contingent
upon export performance within the meaning of Article 9.1(a) of the
Agreement on Agriculture that are inconsistent with Articles 3.3 and 8 of that
Agreement and Articles 3.1(a) and 3.2 of the SCM Agreement;
(e) as regards export credit guarantee programs, whether the Panel erred:
(i) in finding, in paragraphs 7.901, 7.91 1, and 7.932 of the Panel Report, that
Article 10.2 of the Agreement on Agriculture does not exempt export credit
guarantees from the export subsidy disciplines in Article 10.1 of that
Agreement;
(ii) in the manner that it applied the burden of proof in finding that the United
States' export credit guarantee programs are prohibited export subsidies under
Articles 3.1(a) and 3.2 of the SCM Agreement;
(iii) by failing to make the necessary findings of fact in assessing whether the
United States' export credit guarantee programs are provided at premium
rates that are inadequate to cover lo ng-term operating costs and losses within
the meaning of item (j) of the Illustrative List of Export Subsidies annexed to
the SCM Agreement;

180Brazil's request for the Appellate Body to complete the analysis of this issue is conditional on the
Appellate Body reversing the finding of the Panel that the effect of the price-contingent subsidies was
significant price suppression in terms of Article 6.3(c) of the SCM Agreement.

(iv) in finding, in paragraphs 7.947 and 7.94 8 of the Panel Report, that the United
States' export credit guarantee programs are prohibited export subsidies under
Article 3.1(a) of the SCM Agreement and are consequently inconsistent with
Article 3.2 of that Agreement; and
(v) by exercising judicial economy, as noted in paragraph 6.31 of the Panel
Report, in respect of Brazil's claim that the United States' export credit
guarantee programs are export subsidies within the meaning of Articles 1.1
and 3.1(a) of the SCM Agreement, having already found that these measures
were export subsidies covered by item (j ) of the Illustrative List of Export
Subsidies and, therefore, were inconsiste nt with Articles 3.1(a) and 3.2 of the
SCM Agreement;
(f) as regards circumvention of export subsidy commitments, whether the Panel erred:
(i) in the application of Article 10.1 of the Agreement on Agriculture and by
failing to meet the requirements of Article 11 of the DSU, in finding, in
paragraph 7.881 of the Panel Report, th at Brazil did not establish that the
United States' export credit guarantees are "applied in a manner that results
in … circumvention" of the United States' export subsidy commitments with
respect to pig meat and poultry meat in 2001
181;
(ii) in paragraphs 7.882-7.883 and 7.896 of the Panel Report, in interpreting and
applying the phrase "threatens to lead to ... circumvention" in Article 10.1 of
the Agreement on Agriculture; and
(iii) in paragraph 7.882 and footnote 1061 of the Panel Report, by confining its
examination of threat of circumvention to scheduled products other than rice
and unsupported unscheduled products;
(g) as regards the FSC Repeal and Extrate rritorial Income Exclusion Act of 2000
(the "ETI Act of 2000"), whether the Panel erred in finding that Brazil did not
establish a
prima facie case that the ETI Act of 2000 and the subsidies granted

181At the oral hearing, Brazil indicated that it was not pursuing this claim in respect of vegetable oil.

thereunder are inconsistent with Articles 8 and 10.1 of the Agreement on
Agriculture and Articles 3.1 and 3.2 of the SCM Agreement, in respect of upland
cotton; and
(h) as regards Article XVI:3 of the GATT 1994:
(i) whether the Panel erred in finding, in paragraph 7.1016 of the Panel Report,
that Article XVI:3 of the GATT 1994 "applies only to export subsidies as that
term is now defined in the Agreement on Agriculture and the SCM
Agreement"; and
(ii) whether the Appellate Body should comp lete the analysis of whether the
price-contingent subsidies caused the Un ited States to have "more than an
equitable share of world export trade" in upland cotton, in violation of the
second sentence of Article XVI:3 of the GATT 1994.
182
IV. Preliminary Issues
A. Terms of Reference – Expired Measures
1. Introduction
250. The United States appeals the Panel's finding that two subsidy measures, namely, production
flexibility contract payments with the exception of those made in the 2002 marketing year and market
loss assistance payments, can be the subject of cons ultations under the DSU a nd hence fell within the
Panel's terms of reference, notwithstanding the fact that the legislative basis for these payments had
expired at the time those terms of reference were set.183
251. Production flexibility contract payments were a form of income support under the Federal
Agriculture Improvement and Reform Act of 1996 (the "FAIR Act of 1996"); they were discontinued
with the passage of the Farm Security and Rural In vestment Act of 2002 (the "FSRI Act of 2002") in
May 2002. The last production flexibility contract payments were scheduled to be made "not later

182Brazil's request for the Appellate Body to complete the analysis of this issue is conditional on two
events: (i) the Appellate Body reversing the finding of the Panel that the effect of the price-contingent subsidies
was significant price suppression in terms of Article 6.3(c) of the SCM Agreement; and, (ii) the Appellate Body
declining Brazil's request for a ruling that the United States' measures at issu e resulted in an increase in the
United States' world market share in upland cotton in terms of Article 6.3(d) of the SCM Agreement.
183Notwithstanding paragraph 9 of the United States' Notice of Appeal, the United States explained
during the oral hearing that it does not appeal the Panel's finding, in paragraph 7.132 of the Panel Report, that
payments with respect to non-upland cotton base acres were within its terms of reference.

than" 30 September 2002184, in connection with the 2002 crop. Market loss assistance payments were
ad hoc annual payments made through legislation enacted by the United States Congress between
1998 and 2001. Each such payment was made through a separate piece of legislation, the last of
which was enacted on 13 August 2001, for the marketing year 2001 (1 August 2001 – 31 July 2002)
crop.
185
252. Before the Panel, the United States argued that production flexib ility contract payments and
market loss assistance payments could not be within the terms of reference because they had expired
prior to Brazil's request for consultations. The United States argued that Article 4.2 of the DSU
provides that consultations may cover only "mea sures affecting" the operation of a covered
agreement, and that expired measures are not "m easures affecting" the operation of a covered
agreement.186 Brazil asked the Panel to reject the United States' request, submitting that a panel is
required to examine the effects flowing from expi red measures in order to conduct an objective
assessment of a serious prejudice claim.187
253. The Panel noted that Brazil had not pursued claims with respect to the legislation underlying
the programs; instead, Brazil's claim was limited to the WTO-consistency of the payments made
under those programs. 188 In its reasoning, the Panel said it did:
... not consider that Article 4.2 [of the DSU] supports an
interpretation that a request for consultations cannot concern
measures that have expired, or payments made under programmes
that are no longer in effect, where the Member requesting
consultations represents that bene fits accruing to it directly or
indirectly under the covered agreem ents are being impaired by those
measures.
189
254. It added that "the Panel's terms of reference refer to Brazil's request for establishment of a
panel, not its request for consultations." 190 The Panel also recalled that "Article 6.2 of the DSU
provides that a request for establishment of a panel should identify the 'specific measures at issue' and

184See Panel Report, paras. 7.107 and 7.212-7.215. See also "Answers of the United States to the
Panel's Questions Posed Following the First Session of the First Substantive Panel Meeting" (11 August 2003),
185For further discussion of the nature of production flexibility contract payments and market loss
assistance payments, insofar as they are relevant to this issue, see Panel Report, paras. 7.107 and 7.212-7.217.
186See Panel Report, paras. 7.104 and 7.113.
187See Panel Report, para. 7.105.
188Ibid., para. 7.108.
189Ibid., para. 7.118.
190Ibid., para. 7.121.

does not address the issue of the status of the measures at all." 191 On this basis, the Panel indicated
that it did not believe that:
Article 4.2, and hence Article 6.2, of the DSU excludes expired
measures from the potential scope of a request for establishment of a
panel.192
255. In the light of this finding (and having rejected a further claim by the United States that
market loss assistance payments were not identified with adequate specificity in Brazil's request for
establishment of a panel193), the Panel concluded:
Therefore, in light of our conclusi on at paragraph 7.122, ... the Panel
rules that PFC and MLA payments, as addressed in document
WT/DS267/7, fall within its terms of reference.194
2. Appeal by the United States
256. The United States claims that the Panel erred in reaching this conclusion and requests the
Appellate Body to reverse the Panel's finding th at Articles 4.2 and 6.2 of the DSU do not exclude
expired measures from the potential scope of consultations or a request for establishment of a panel.195
It also asserts that the Panel failed to set out th e findings of fact, the ap plicability of relevant
provisions, and the basic rationale behind this finding, as required by Article 12.7 of the DSU. 196 The
United States submits that it was undisputed that th e legislation authorizing both of these types of
payments had expired before Brazil submitted its request for consultations.197
257. The United States observes that Article 4.2 of the DSU provides that consultations may cover
"any representations made by another Member concerning measures affecting the operation of any
covered agreement taken within the territory of the former". 198 The United States focuses on the
present tense of the verb "affecting" in this Artic le and contends that e xpired measures cannot be
measures "affecting", in the present, the operation of a covered agreement. 199 Thus, according to the

191Panel Report, para. 7.121.
192Ibid., para. 7.122.
193Ibid., para. 7.127. This finding has not been appealed.
194Ibid., para. 7.128. This final finding was reiterated in paragraph 7.194(ii) of the Panel Report.
195United States' Notice of Appeal, supra, footnote 17, para. 14; United States' appellant's submission,
para. 515.
197Ibid., para. 500.
198United States' appellant's submission, para. 501 (quoting Article 4.2 of the DSU). (emphasis added
by the United States)
199Ibid., para. 501.

United States, production flexibility contract and market loss assistance payments cannot be said to be
currently "affecting" the operation of any covered agreement. Consequently, they cannot be measures
falling within the scope of "specific measures at issue" in terms of Article 6.2 of the DSU.200
258. Brazil responds that neither Article 4.2 nor Article 6.2 of the DSU precludes a panel from
analyzing payments made in the past in the contex t of serious prejudice claims. Brazil focuses on the
context provided by Article 3.3 of the DSU, which states that a purpose of dispute settlement is the
"prompt settlement of situations in which a Member considers that any benefits accruing to it ... are
being impaired by measures taken by another Member". For Brazil, as long as the impairment is
current, the status in domestic law of the measure causi ng that impairment is irrelevant. Brazil notes
that the present dispute involves allegations of "adverse effects" and "serious prejudice" under the
provisions of the SCM Agreement and the GATT 1994. A breach of the relevant provisions of these
Agreements does not occur when an actionable subsidy is granted, but rather when the adverse effects
arise. Brazil finds support for its pos ition in the view of the panel in Indonesia – Autos, which found
that past, present, and future subsidies can be the subject of dispute settlement, as the effect of such
measures may be serious prejudice to the interests of a Member.
201
3. Scope of Consultations under Article 4.2 of the DSU
259. Article 4.2 of the DSU governs what measures may be the subject of consultations and
provides as follows:
Each Member undertakes to accord sympathetic consideration to and
afford adequate opportunity fo r consultation regarding any
representations made by another Member concerning measures
affecting the operation of any cove red agreement taken within the
territory of the former. (footnote omitted)
260. It is clear from Article 4.2 that, although a requested Member is under an obligation to engage
in "consultation" on "any" representations made by another Member, such representations must
pertain to "measures affecting the operation of any covered agreement". The United States argues that
Article 4.2 of the DSU limits the obligation of the requested Member to representations concerning
measures that are actually " affecting" the operation of any covered agreement. The United States
stresses the temporal significance of the present tense of the word "affecting" and asserts that

200United States' appellant's submission, paras. 502 and 512.
201Brazil's appellee's submission, para. 256 (referring to Panel Report, Indonesia – Autos, para. 14.206).

"[m]easures that have expired befo re a request for consultations cannot be measures 'affecting the
operation of any covered agreement' at the time the request is made".202
261. We agree with the Panel that the word "affec ting" refers primarily to "the way in which
[measures] relate to a covered agreement". 203 As the Appellate Body stated in EC – Bananas III ,
"[t]he ordinary meaning of the word 'affecting' im plies a measure that has 'an effect on'" something
else.204 At the same time, we also concur with th e United States that the ordinary meaning of the
word "affecting" suggests a temporal connotation. As the United States submit s, the present tense of
the phrase "affecting the operation of any covered agreement" denotes that the effects of such
measures must relate to the present impact of those measures on the operation of a covered agreement.
It is not sufficient that a Member alleges that challenged measures affected the operation of a covered
agreement in the past; the representations of the Member requesting consultations must indicate that
the effects are occurring in the present.
205
262. Whether or not a measure is still in force is not dispositive of whether that measure is
currently affecting the operation of any covered agreement. Therefore, we disagree with the United
States' argument that measures whose legislative basis has expired are incapable of affecting the
operation of a covered agreement in the presen t and that, accordingly, expired measures cannot be
the subject of consultations under the DSU. 206 In our view, the question of whether measures whose
legislative basis has expired affect the operation of a covered agreement currently is an issue that must
be resolved on the facts of each case. The outcome of such an analysis cannot be prejudged by
excluding it from consultations and dispute settlement proceedings altogether.
263. We consider that requesting Members should enjo y a degree of discretion to identify, in their
request for consultations under Article 4.2, matter s relating to the covered agreements for discussion
in consultations. As the Appellate Body observed in Mexico – Corn Syrup (Article 21.5 – US) ,
consultations present an opportunity for clarifying factual and legal issues, and for narrowing the
scope of a dispute, and for resolv ing differences between WTO Members. 207 We do not think it
would advance the purpose of consultations if Article 4.2 were interpreted as excluding a priori
measures whose legislative basis may have expired, but whose effects are alleged to be impairing the
benefits accruing to the requesting Member under a covered agreement. Nor, indeed, do we find

202United States' appellant's submission, para. 501. (emphasis added)
203Panel Report, para. 7.115.
204Appellate Body Report, EC – Bananas III, para. 220.
205This does not exclude the possibility that the effects of a measure may occur in future.
207Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 54.

textual support in the provision itself for doing so. Thus, we do not read Article 4.2 of the DSU as
precluding a Member from making representations on measures whose legislative basis has expired,
where that Member has reason to believe that such measures are still "affecting" the operation of a
covered agreement.
264. We find contextual support for this in terpretation in Article 3.3 of the DSU 208, which
underscores the importance of the "prompt settlement" of certain situations that, in the absence of
settlement, could undermine the effective functioni ng of the WTO and the maintenance of a proper
balance between the rights and obligations of Member s. We note, first, that Article 3.3 focuses not
upon "existing" measures, or measures that are "curre ntly in force" but, rather, upon "measures taken"
by a Member, which includes measures taken in the past. 209 We also observe that Article 3.3
envisages that disputes arise when a Member "consi ders" that benefits accruing to it are being
impaired by measures taken by another Member. By using the word "considers", Article 3.3 focuses
on the perception or understanding of an aggrieved Member. This does not exclude the possibility
that a Member requesting consultations may have r eason to believe that a measure is still impairing
benefits even though its legislative basis has expired.210
265. We recall that the Panel observed that:
Brazil's request for consultations alleges that the use of the measures
specified in the request "causes adverse effects, i.e. serious prejudice"
to its interests. We note the present tense of this allegation. The
request concerns the way in which measures were affecting the
operation of a covered agreement at the time of consultations, and it
states that Brazil had reason to believe that these subsidies were
resulting in serious prejudice at that time.
211

208Article 3.3 of the DSU provides:
The prompt settlement of situations in which a Member considers that any
benefits accruing to it directly or indi rectly under the covered agreements
are being impaired by measures taken by another Member is essential to the
effective functioning of the WTO and the maintenance of a proper balance
between the rights and obligations of Members.
209Indeed, as the Panel noted, in the sense that "PFC and MLA payments had already been made at the
date of the establishment of the Panel", "they had not expired, but had simply occurred in the past". (Panel
Report, para. 7.110)
210Whether the Member's belief proves to be correct is a substantive matter to be addressed in the
consultations, or—if consultations fail—before a panel. We note that Brazil's request for consultations in regard
to this matter was based not only on Article 4 of the DSU, but also on Article 7.1 of the SCM Agreement
(as well as Article XXII of the GATT 1994). (See Re quest for Consultations by Brazil, WT/DS267/1,
3 October 2002, p. 1) Article 7.1 authorizes a Member to request consultations whenever it "has reason to
believe" that any subsidy referred to in Article 1 "results in" certain effects listed in that provision. Article 7.1
thus recognizes that questions regarding the results of subsidization are potentially contentious matters.
211Panel Report, para. 7.119.

266. For the Panel, these aspects of the request for c onsultations were sufficient for Brazil to meet
the requirements of Article 4.2 of the DSU. We see no error in the Panel's approach to this question.
Whether or not a subsidy program is still in force at the time consultations were requested does not
answer the question whether any payments prev iously made under that program are currently
affecting the operation of a covered agreement in the sense of Article 4.2. Brazil, in these
proceedings, represented in its request for consulta tions that payments under the production flexibility
contract and market loss assistance programs continued to affect its rights under the SCM Agreement.
In our view, this was sufficient to meet the requirements of Article 4.2 of the DSU.
4. Measure at Issue under Article 6.2 of the DSU
267. In addition to its arguments under Article 4.2 of the DSU, the United States contends that an
expired measure cannot be a measure that is "at issue" in terms of Article 6.2 of the DSU. The United
States also argues that a finding to the contrary would be difficult to reconcile with the terms of
Articles 3.7 and 19.1 of the DSU, which contempl ate the "withdrawal" of a measure found to be
inconsistent with the covered agreements, or a recommendation that a measure found to be
inconsistent with a covered agreem ent be brought into conformity. The United States argues that the
remedies described in Articles 3.7 and 19.1 are essentially prospective in nature.
268. We understand these arguments by the United States to be largely dependent upon its
arguments regarding Article 4.2 of the DSU: if, as the United States contends, a measure may not be
the subject of consultations then, ipso facto , it may not be a measure "at issue" in the sense of
Article 6.2. Having rejected the United States' ar guments regarding Article 4.2, we do not find the
United States' additional arguments under Article 6.2 compelling.
269. The only temporal connotation contained in the ordinary meaning of the expression "at issue",
as used in Article 6.2 of the DSU, is expressed by its present tense: measures must be "at issue"—or,
putting it another way, "in dispute"—at the time the request is made. Certainly, nothing inherent in
the term "at issue" sheds light on whether measures at issue must be currently in force, or whether
they may be measures whose legislative basis has expired.
270. The relevant context for Article 6.2 in this re gard includes Articles 3.3 and 4.2 of the DSU.
As we have concluded above, those provisions do not preclude a Member from making
representations with respect to measures whose le gislative basis has expired, if that Member
considers, with reason, that benefits accruing to it under the covered agreements are still being
impaired by those measures. If the effect of such measures remains in dispute following
consultations, the complaining party may, accord ing to Article 4.7 of the DSU, request the

establishment of a panel, and the text of Article 6. 2 does not suggest that such measures could not be
the subject of a panel request as "specific measures at issue".
271. The United States purports to find support for its position in the ruling of the Appellate Body
in US – Certain EC Products , where the Appellate Body reversed the panel's decision to make a
recommendation under Article 19.1 of the DSU that th e United States bring th e measure at issue in
that case (the "3 March Measure") into conformity with the covered agreements, on the grounds that
the panel had already found that the measure had e xpired. However, that case involved a situation
different from the present one. There, the 3 March Measure had been the subject of consultations, but
had expired. The expiry of the 3 March Measure did not prevent it being a "measure at issue" for
purposes of Article 6.2 of the DSU. Indeed, neither the panel nor the Appellate Body found that the
3 March Measure was outside the pa nel's terms of reference, and both the panel and Appellate Body
addressed that measure in their rulings.212
272. The question whether an expired measure is susceptible to a recommendation under
Article 19.1 of the DSU is a different matter. The Appellate Body in US – Certain EC Products
confirmed that the 3 March Measure had ceased to exist. It noted that there was an obvious
inconsistency between the finding of the panel that "the 3 March M easure is no longer in existence"
and the panel's subsequent recommendation that the Dispute Settlement Body (the "DSB") request the
United States to bring the 3 March Measure into conformity with its WTO obligations. 213 Thus, the
fact that a measure has expired may affect what recommendation a panel may make. It is not,
however, dispositive of the preliminary question of whether a panel can address claims in respect of
that measure.214

212This contrasts with the treatment of the other m easure raised in that pr oceeding (the "19 April
action"). It was in force, but had not been the subject of consultations. The panel and Appellate Body both
ruled that the absence of consultations on the 19 April ac tion required its exclusion from the terms of reference.
(Appellate Body Report, US – Certain EC Products , para. 82; Panel Report, US – Certain EC Products ,
paras. 6.89 and 6.128)
213Appellate Body Report, US – Certain EC Products, paras. 81-82.
214This conclusion is consistent with the approach taken by GATT and WTO panels to questions
relating to the expiry of measures after the initiation of dispute settlement proceedings, but before those
proceedings have been completed. See, for example, GATT Panel Report, EEC – Apples I (Chile) , paras. 2.4
and 4.1 ff; Panel Report, India – Autos, para. 7.29. GATT and WTO panels have frequently made findings with
respect to measures withdrawn after the establishment of the panel. See, for example, GATT Panel Report,
EEC – Animal Feed Proteins , para. 2.4; GATT Panel Report, US – Canadian Tuna , para. 4.3; Panel Report,
US – Wool Shirts and Blouses, para. 6.2; and Panel Report, Indonesia – Autos, para. 14.9. Even in cases where a
panel has chosen not to rule on measures that had been terminated during the course of proceedings, panels have
recognized that "[o]n several occasions , panels have considered measures th at were no longer in force". (Panel
Report, Argentina – Textiles and Apparel , para. 6.12. (footnote omitted)) In none of these cases has a panel or
the Appellate Body premised its decision on the view that, a priori, an expired measure could not be within a
panel's terms of reference.

273. It is important to recognize the particular characteristics of subsidies and the nature of
Brazil's claims against the production flexibility contract and market loss assistance subsidy
payments. Article 7.8 of the SCM Agreement provides that, where it has been determined that "any
subsidy has resulted in adverse effects to the interests of another Member", the subsidizing Member
must "take appropriate steps to remove the adverse effects or ... withdraw the subsidy". (emphasis
added) The use of the word "resulted" suggests that there could be a time-lag between the payment of
a subsidy and any consequential adverse effects. 215 If expired measures underlying past payments
could not be challenged in WTO dispute settleme nt proceedings, it would be difficult to seek a
remedy for such adverse effects. Further—in c ontrast to Articles 3.7 and 19.1 of the DSU—the
remedies under Article 7.8 of the SCM Agreement for adverse effects of a subsidy are (i) the
withdrawal of the subsidy or (ii) the removal of adverse effects. Removal of adverse effects through
actions other than the withdrawal of a subsidy co uld not occur if the expiration of a measure would
automatically exclude it from a panel's terms of reference.
274. For these reasons, we find the United States' re liance upon the prospective character of the
remedies described in Articles 3.7 and 19.1 of the DSU unconvincing. We therefore reject the
United States' argument that production flexibility contract payments and market loss assistance
payments were outside the Panel's terms of reference by virtue of Article 6.2 of the DSU.
5. Article 12.7 of the DSU
275. The United States also alleges that, contrary to Article 12.7 of the DSU, the Panel failed to set
out the findings of fact, the applicability of rele vant provisions, and the basic rationale behind its
finding that Articles 4.2 and 6.2 of the DSU do not exclude expired measures from the potential scope
of a request for the establishment of a panel.
276. The Appellate Body stated in Mexico – Corn Syrup (Article 21.5 – US):

215We observe, in this regard, that the Un ited States concedes that at least some subsidies can have
effects for years after the date on which they are paid . Thus, the United States distinguishes between "non-
recurring" subsidies and "recurring" subsidies. Although the United States believes that the effects of recurring
subsidies are limited to the year for which they are paid, the United States accepts that the effects of non-
recurring subsidies may spread out well into the future. (United States' appellant's submission, para. 508)

Article 12.7 establishes a minimum standard for the reasoning that
panels must provide in support of their findings and
recommendations. Panels must set forth explanations and reasons
sufficient to disclose the essential, or fundamental, justification for
those findings and recommendations.
216
The Appellate Body clarified:
[w]hether a panel has articulated ad equately the "basic rationale" for
its findings and recommendations must be determined on a case-by-
case basis, taking into account the f acts of the case, the specific legal
provisions at issue, and the particular findings and recommendations
made by a panel. 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 this way, panels will, in their reports, disclose
the essential or fundamental justification for their findings and
recommendations.
217
The Appellate Body also explained that this "do es not, however, necessarily imply that Article 12.7
requires panels to expound at length on the reasons for their findings and recommendations."218
277. We note that compliance with Article 12.7 of the DSU is to be determined on a case-by-case
basis. With regard to the current proceedings , as discussed above, we see no error in the Panel's
conclusion regarding its ability to ma ke findings with respect to subs idies whose legislative basis had
expired at the time of panel establishment. Although the Panel's reasoning with respect to this issue
may be brief, the Panel set out the necessary finding s of fact, the applicability of relevant provisions,
and the basic rationale behind its findings. The Pane l noted that the parties agreed on the key factual
element that was relevant to this part of its analysis, namely, that the legislation under which
production flexibility contract and market loss assistan ce payments were made had expired, and went

216Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 106. It also noted that:
... the duty of panels under Article 12 .7 of the DSU to provide a "basic
rationale" reflects and conforms with the principles of fundamental fairness
and due process that underlie and inform the provisions of the DSU. In
particular, in cases where a Member has been found to have acted
inconsistently with its obligations under the covered agreements, that
Member is entitled to know the reasons for such finding as a matter of due
process. In addition, the requirement to set out a "basic rationale" in the
panel report assists such Member to understand the nature of its obligations
and to make informed decisions about: (i) what must be done in order to
implement the eventual rulings and recommendations made by the DSB;
and (ii) whether and what to appeal.
(Ibid., para. 107) (footnote omitted)
217Ibid., para. 108.
218Ibid., para. 109.

on to discuss relevant factual aspects. 219 The Panel cited and discussed Ar ticle 4.2, in particular the
meaning and significance of the term "affecting" in that provision. 220 As we have done, the Panel
interpreted Article 4.2 in the light of the context provided by Article 3.3 of the DSU. 221 It addressed
Article 6.2 of the DSU 222, and also situated the question of "expired measures" in the context of the
actionable subsidies claims made by Brazil in this case. 223 Given these inquiries and considerations
by the Panel, we see no reason to find that the Pane l failed to meet the requirements of Article 12.7 of
the DSU in relation to whether the expired productio n flexibility contract and market loss assistance
payments fell within its terms of reference.
B. Terms of Reference – Export Credit Guarantees
1. Introduction
278. We turn now to the United States' claim that the Panel erred in finding that its terms of
reference were not limited to export credit guarantees to upland cotton, but also included export credit
guarantees to other eligible United States agricultural commodities.224
279. The United States requested the Panel to "rule that export credit guarantee measures relating
to eligible United States agricultural commodities (oth er than upland cotton) are not within its terms
of reference because this 'measure' was not the subject of Brazil's request for consultations".225 Brazil
responded that "both its request for consultations and the accompanying statement of available
evidence, as well as the questions it posed to the United States during consultations, revealed that they
covered export credit guarantee measures relating to all eligible United States agricultural
commodities".226

219Panel Report, para. 7.108.
220Ibid., paras. 7.112-7.115.
221Ibid., para. 7.116-7.117.
222Ibid., para. 7.121.
223Ibid., paras. 7.109-7.110.
224We note that, during the interim review, Brazil requested the Panel "to conclude that GSM 102,
GSM 103 and SCGP also constitute prohibited export subsidies within the meaning of item (j) and Article 3.1(a)
of the SCM Agreement , for all products not covered by the Agreement on Agriculture ". The Panel rejected
Brazil's request, explaining that its "terms of reference include[d] export credit guarantees to facilitate the export
of United States upland cotton and other eligible agricultural commodities as addressed in document
WT/DS267/7". (Panel Report, para. 6.37. (original emphasis))
225Panel Report, para. 7.55. (footnote omitted)

280. The Panel found that "the actual consultations did include e xport credit guarantee measures
relating to all eligible agricultural commodities". 227 The Panel then examined the text of Brazil's
request for consultations, "[a]ssuming arguendo that the scope of the written request for
consultations is determinative, rather th an the scope of the actual consultations". 228 It found "that
export credit guarantee measures relating to all e ligible agricultural commodities were included in
Brazil's request for consultations, based on its reading of the text of the request itself". 229
Accordingly, the Panel made the following ruling in response to the United States' request:
[T]he Panel rules that export credit guarantees to facilitate the export
of United States upland cotton, and other eligible agricultural
commodities as addressed in document WT/DS267/7, are within its
terms of reference.230
2. Arguments on Appeal
281. On appeal, the United States asserts that the Panel erred in finding that export credit guarantee
measures relating to all eligible agricultural co mmodities were included in Brazil's request for
consultations.231 In addition, the United States takes issue with the Panel's finding that consultations
were actually held on the export credit guarantee programs relating to agricultural commodities
including, but not limited to, upland cotton. 232 The United States argues, in this regard, that the fact
that Brazil posed written questions on the export credit guarantees relating to agricultural
commodities including, but not limited to, upland co tton does not mean that consultations were
actually held on all those products, especially considering that the United States objected to
discussing them during the consultations on the basis that they were not included in the request for
consultations.
233
282. Brazil requests that we reject the United States ' appeal. It contends that its request for
consultations identified three United States expor t credit programs, namely, the General Sales
Manager 102 ("GSM 102") and Gene ral Sales Manager 103 ("GSM 103") programs and the Supplier

227Panel Report, para. 7.61. (original italics; underlining added)
228Ibid., para. 7.62.
229Ibid., para. 7.65. The Panel explained that the title of this dispute, "", "did not appear in the original communication sent from the Permanent Mission of Brazil to the
Permanent Mission of the United States", but rather "was added by the [WTO ] Secretariat when it circulated a
copy of the request for consultations to Members". Cons equently, the Panel did not consider the title to be "a
legally relevant consideration here". (Ibid., footnote 131 to para. 7.64)
230Panel Report, para. 7.69. (footnote omitted)
232Ibid., para. 471.
233Ibid., paras. 471-472.

Credit Guarantee Program (the "SCGP").234 By their own terms, each of these measures applies to all
eligible products.235 Therefore, there was no need to sp ecify the product scope of these measures. 236
Brazil submits that, in any event, its request for consultations in fact identified the export credit
guarantee programs in connection with all eligib le commodities, without any limitation to upland
cotton.237 Finally, Brazil asserts that, irrespective of the measures identified in Brazil's request for
consultations, the Panel found, as a matter of fact, that "consultations were held" on the export credit
guarantee programs in connection with all eligible commodities, as required by Article 6.2 of the
DSU.238
3. Did the Panel's Terms of Reference Include Other Eligible Agricultural
Commodities?
283. The United States claims on appeal that the Pane l's terms of reference were limited to export
credit guarantees to upland cotton, and did not in clude export credit guarantees to other eligible
agricultural commodities. This claim is premised on the allegation that, in its request for the
establishment of a panel, Brazil expanded the produ ct scope in respect of which it challenges the
United States' export credit guarantee programs to in clude other eligible agricultural products in
addition to upland cotton. The United States subm its that the request for consultations and the
consultations themselves, however, were limited to export credit guarantees to upland cotton. Brazil
contends that its request for consultations and the consultations held covered all agricultural products
eligible for export credit guarantees.239
284. Before addressing the question of whether Brazil expanded, in its panel request, the scope of
products in respect of which it challenged the Un ited States' export credit guarantee programs, we
note that the Appellate Body has explained previously that, "pursuant to Article 7 of the DSU, a

234These programs are described infra, paras. 586-589.
237Ibid., para. 202.
238Brazil's appellee's submission, paras. 208-209. Brazil reads the Appellate Body Report in Brazil –
Aircraft as meaning that as long as "consultations we re held" on a measure included in a request for
establishment of a panel, that measure is properly within a panel's terms of reference, irrespective of whether the
measure was included in the request for consultations. ( Ibid., para. 213 (referring to Appellate Body Report,
Brazil – Aircraft , paras. 132-134)) Brazil adds that this is consistent with the purpose of consultations. ( Ibid.,
para. 214)
239In addition, Brazil submits that the Panel's terms of reference are de termined by the panel request,
and that its panel request referred to all agricultural products eligible for the United States' export credit
guarantees.

panel's terms of reference are governed by the request for establishment of a panel". 240 However, the
Appellate Body has also explained that "as a genera l matter, consultations are a prerequisite to panel
proceedings"241 and has underscored the importance and benefits of consultations:
We agree ... on the importance of consultations. Through
consultations, parties exchange information, assess the strengths and
weaknesses of their respective cases, narrow the scope of the
differences between them and, in many cases, reach a mutually
agreed solution in accordance with the explicit preference expressed
in Article 3.7 of the DSU. More over, even where no such agreed
solution is reached, consultations provide the parties an opportunity
to define and delimit the scope of the dispute between them. Clearly,
consultations afford many benef its to complaining and responding
parties, as well as to third parties and to the dispute settlement system
as a whole.
242
285. The requirements that apply to a request for c onsultations are set out in Article 4.4 of the
DSU, which provides, in relevant part:
Any request for consultations sha ll be submitted in writing and shall
give the reasons for the request, including identification of the
measures at issue and an indication of the legal basis for the
complaint.
The Appellate Body has stated that "Articles 4 and 6 of the DSU ... set forth a process by which a
complaining party must request consultations, and co nsultations must be held, before a matter may be
referred to the DSB for the establishment of a panel".
243 At the same time, however, the Appellate
Body has said that it does not believe that "Articles 4 and 6 of the DSU ... require a precise and exact
identity between the specific measures that were th e subject of consultations and the specific

240Appellate Body Report, US – Carbon Steel, para. 124. Article 7.1 of the DSU provides:
Panels shall have the following terms of reference unless the parties to the
dispute agree otherwise within 20 days from the establishment of the panel:
To examine, in the light of the relevant provisions in
(name of the covered agreement( s) cited by the parties to
the dispute), the matter referred to the DSB by (name of
party) in document ... and to make such findings as will
assist the DSB in making the recommendations or in
giving the rulings provided for in that/those agreement(s).
The United States does not dispute that Brazil's request for the establishment of a panel included export
credit guarantees to eligible agricultural commodities including, but not limited to, upland cotton.
241Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 58.
242Ibid., para. 54.

measures identified in the request for the establishment of a panel". 244 We need not elaborate further
on the relationship between a panel's terms of refere nce and the requirement that "consultations were
held", because, as we explain below, we are satisfi ed that, in this case, the Panel had a reasonable
basis to conclude that the request for consulta tions included export credit guarantees to eligible
agricultural commodities including, but not limited to, upland cotton.
286. In reviewing the Panel's analysis, we are faced with the question whether the scope of the
consultations is determined by the written request fo r consultations or by what actually happens in the
consultations. The Panel looked first at what actua lly happened during the consultations. It observed
that Brazil submitted in writing to the United Stat es 21 questions regarding export credit guarantee
programs, seeking information on, inter alia, the total volume and value of exports of United States
agricultural goods guaranteed by these programs. 245 According to the Panel, "[t]his shows that the
actual consultations did include export credit guarantee me asures relating to all eligible agricultural
commodities".246 The Panel then examined the text of Br azil's request for consultations, "[a]ssuming
arguendo that the scope of the written request for consultations is determinative, rather than the scope
of the actual consultations".247
287. We believe that the Panel should have limited its analysis to the request for consultations
because we are inclined to agree with the panel in Korea – Alcoholic Beverages , which stated that
"[t]he only requirement under the DSU is that consulta tions were in fact held ... [w]hat takes place in
those consultations is not the concern of a panel". 248 Examining what took place in the consultations
would seem contrary to Article 4.6 of the DSU, which provides that "[c]onsultations shall be
confidential, and without prejudice to the rights of any Member in any further proceedings."
Moreover, it would seem at odds with the requirement s in Article 4.4 of the DSU that the request for

244Appellate Body Report, Brazil – Aircraft, para. 132. (original emphasis) The Appellate Body found,
in that case, that certain measures th at came into effect after consultations were held were nevertheless within
the Panel's terms of reference, emphasizing that the me asures did not change the essence of the challenged
export subsidies. In US – Certain EC Products , the Appellate Body found that one of the measures challenged
by the European Communities was not properly before the Panel. The Appellate Body explained that, although
the panel request referred to the measure, it was not possible for it to conclude "on this basis alone" that the
measure was within the Panel's terms of reference. It noted that the European Communities' request for
consultations did not refer to the measure and that the European Communities acknowledged that the measure
was not the subject of the consultations. In its ruling, the Appellate Body also emphasized that the particular
measure was "separate" and "legally distinct" from another measure challenged by the European Communities.
(Appellate Body Report, US – Certain EC Products, paras. 69-75) (original emphasis)
245The United States acknowledged that Brazil posed questions during the consultations that went
beyond upland cotton. (Panel Report, para. 7.61) According to the Panel, the United States declined to respond
to these questions during the consultations. (Panel Report, 7.67)
246Panel Report, para. 7.61. (original emphasis)
247Ibid., para. 7.62.

consultations be made in writing and that it be notif ied to the DSB. In addition, there is no public
record of what actually transpires during consulta tions and parties will often disagree about what,
precisely, was discussed. Ultimately, however, it is not necessary for us to inquire into this part of the
Panel's analysis because the Panel also found "t hat export credit guarantee measures relating to all
eligible agricultural commodities were included in Brazil's request for consultations, based on its
reading of the text of the request itself".249 We turn, therefore, to examine whether there is a sufficient
basis for the Panel's conclusion in this regard.
288. Brazil's request for consultations states, in relevant part250:
The measures that are the subject of this request are prohibited and
actionable subsidies provided to US producers, users and/or exporters
of upland cotton
1, as well as legislation, regulations, statutory
instruments and amendments ther eto providing such subsidies
(including export credits), grants, and any other assistance to the US
producers, users and exporters of upland cotton ("US upland cotton
industry"). The measures include the following:

- Export subsidies, exporter assistance, export credit
guarantees, export and market access enhancement to
facilitate the export of US upl and cotton provided under the
Agricultural Trade Act of 1978, as amended, and other
measures such as the GSM-102, GSM-103, and SCGP
programs ...

Regarding export credit guarantees, export and market access
enhancement provided under the Agricultural Trade Act of 1978, as
amended, and other measures such as the GSM-102, GSM-103, and
SCGP programs, Brazil is of the view that these programs, as applied
and as such, violate Articles 3.3, 8, 9.1, and 10.1 of the Agreement
on Agriculture and are prohibited export subsidies under
Article 3.1(a) and item (j) of the Illustrative List of Export Subsidies
included as Annex I to the SCM Agreement. Subsidies provided
under these programs are also actionable subsidies for the purpose of
Brazil's claims under Article 6.3 of the SCM Agreement.

 1 Except with respect to export cr edit guarantee programs as explained
below.

249Panel Report, para. 7.65.
250Request for Consultations by Brazil, supra, footnote 26, pp. 1-2 and 4.

289. According to the Panel, footnote 1 to Brazil's request for consultations "should have indicated
to the careful reader that the subject of the requ est for consultations, with respect to export credit
guarantee measures only, was different from those 'pr ovided to US producers, users and/or exporters
of upland cotton'". 251 The Panel also observed that the s econd paragraph after the footnote dealing
with export credit guarantee programs referred to the programs as applied and as such, and it did not
refer specifically to upland cotton. The Panel therefore concluded that "export credit guarantee
measures relating to all eligible agricultural co mmodities were included in Brazil's request for
consultations, based on its reading of the text of the request itself."252
290. The United States contends that the Panel ignored the first paragraph after the footnote and
drew the wrong conclusion from the second paragraph. According to the United States, "it is simply
not the case that a 'plain reading' of the [sec ond] paragraph 'includes all eligible agricultural
commodities'." Rather, it "shows that the [second] paragraph mentions no commodities at all". 253
The United States also asserts that the Panel " overlooked the context that th[e] first paragraph
provided for the second". 254 The first paragraph, the United States points out, refers to exports
subsidies, exporter assistance, and export cr edit guarantees to facilitate the export of upland cotton
under a series of listed measures. A comparison of the first and second paragraphs shows that "the
second did not describe measures, but, rather, described the legal basis for Brazil's complaint". 255
The United States submits that the Panel should ther efore have concluded that "the two paragraphs
complemented one another" and, "[t]hat being the case, there is no reason to believe (and certainly the
Panel gave none) that the product scope of the second paragraph was broader than the 'upland cotton'
mentioned in the first paragraph". 256 Finally, the United States argues that, "[e]ven assuming that the
omission of the words 'upland cotton' from the second paragraph had some significance", the Panel
gave no explanation as to "why the omission of those words should extend the product scope to 'all
eligible agricultural commodities' rather than some other product scope".257

251Panel Report, para. 7.63.
252Ibid., para. 7.65.
emphasis)
254Ibid., para. 477.
255Ibid., (original emphasis)
256Ibid., para. 477.
257Ibid., para. 479.

291. We have examined carefully Brazil's request fo r consultations and we find that it provides a
sufficient basis for the Panel to have concluded that the request included export credit guarantees to
eligible agricultural commodities including, but not limited to, upland cotton. Footnote 1 of the
request for consultations, which states "Except w ith respect to export credit guarantee programs as
provided below", alerts the reader that there is something different about Brazil's claims relating to the
United States' export credit guarantee programs. Fu rthermore, the fact that the footnote follows
immediately after the term "upland cotton" suggests that this difference relates to the product scope.
It was not unreasonable, therefore, for the Panel to conclude that footnote 1 "should have indicated to
the careful reader that the subject of consultati ons, with respect to export credit guarantee measures
only, was different from those 'provided to US producer, users and/or exporters of upland cotton'". 258
In addition, in the second paragraph dealing with export credit guarantees after the footnote, Brazil
refers to the programs "as such", which suggests a broad challenge, rather than one limited to a
specific agricultural commodity. In our view, therefor e, the footnote, together with the reference to
the programs "as such" in the second paragraph, prov ide a reasonable basis for the Panel's conclusion
"that export credit guarantee measures relating to a ll eligible agricultural commodities were included
in Brazil's request for consultations, based on its reading of the text of the request itself."259
292. The United States also cites the lack of any re ference to agricultural commodities other than
upland cotton in the statement of available evid ence that is annexed to Brazil's request for
consultations as "further proof that the request did not extend beyond export credit guarantees for
upland cotton".260 The United States raised this point as a separate claim on appeal and, therefore, we
deal with this allegation in the next section of this Report. Below we uphold the Panel's finding that
Brazil provided a statement of available evidence w ith respect to the Unite d States' export credit
guarantee programs as they relate to eligible agricultural products including, but not limited to, upland
cotton261 and, consequently, this argument does not support the United States' position on this issue.

258Panel Report, para. 7.63.
259Ibid., para. 7.65. The facts of this case differ from those in US – Certain EC Products, on which the
United States relies. In that case, the measure was not mentioned in the request for consultations because it was
not even in existence at the time. (Appellate Body Report, US – Certain EC Products, para. 70)
261See infra, para. 309.

293. We emphasize that consultations are but the firs t step in the WTO dispute settlement process.
They are intended to "provide the parties an opportun ity to define and delimit the scope of the dispute
between them".262 We also note that Article 4.2 of the DSU calls on a WTO Member that receives a
request for consultations to "accord sympathetic cons ideration to and afford adequate opportunity for
consultation regarding any represen tations made by another Member". As long as the complaining
party does not expand the scope of the dispute, we hesitate to impose too rigid a standard for the
"precise and exact identity" 263 between the scope of consultations and the request for the
establishment of a panel, as this would substitute th e request for consultations for the panel request.
According to Article 7 of the DSU, it is the request for the establishment of a panel that governs its
terms of reference, unless the parties agree otherwise. 264
294. For these reasons, we uphold the Panel's ruling, in paragraph 7.69 of the Panel Report, that
"export credit guarantees to facilitate the export of United States upland cotton, and other eligible
agricultural commodities ... are within its terms of reference".
C. Statement of Available Evidence – Export Credit Guarantees
1. Introduction
295. We now examine the United States' claim that the Panel erred in finding that Brazil's
statement of available evidence was not limited to the United States' export credit guarantees to
upland cotton, but also included export credit gua rantee measures relating to other eligible United
States agricultural products, as required by Article 4.2 of the SCM Agreement.
296. The United States requested the Panel to rule that Brazil "could not advance claims under ...
Article 4 ... of the SCM Agreement with respect to export credit guarantee measures on eligible
agricultural commodities other than upland cotton becau se it did not include a statement of available

262Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 54.
263Appellate Body Report, Brazil – Aircraft, para. 132. (emphasis omitted)
264Appellate Body Report, US – Carbon Steel, para. 124.

evidence with respect to such export credit guarant ees in accordance with Articl[e] 4.2 ... of that
Agreement".265
297. In examining the United States' request, the Panel noted that Brazil's statement of available
evidence contained two paragraphs specifically refe rring to the United States' export credit guarantee
programs266, and observed that the first paragraph is "t extually limited to upland cotton", while the
second paragraph "is not so limited". 267 The Panel then rejected the United States' contention that the
lack of a reference to upland cotton in the second paragraph could not expand the scope of the
statement of available evidence. 268 According to the Panel, when the second "paragraph is read in
light of footnote 1 of the request for consultations, a careful reader should have been alerted to the fact
that this paragraph referred to alleged subsidies arising from export credit guarantees under the
challenged programmes, without any limitation to up land cotton or any other particular product or
products".269 Furthermore, the Panel stated that Brazil's statement of evidence referred to a website of
the United States Congressional Budget Office, which includes data pertaining to the spending and

265Panel Report, para. 7.70. The Pa nel explained that the United States initially argued that Brazil's
statement of available evidence as regards export credit guarantees was limited to upland cotton and did not
extend to other eligible agricultural commodities, demonstrating that Brazil's request for consultations was
limited to export credit guarantees relating to upland co tton. The request for a sp ecific ruling on the adequacy
of the statement of available evidence was made by the United States in its submission of 30 September 2003.
(Panel Report, para. 7.71)
In addition, the Panel noted that the United States had made allegations under both Articles 4.2 and 7.2
of the SCM Agreement . The Panel observed that Article 4.2 rela tes to prohibited subsidies and Article 7.2
relates to claims against actionable subsidies. Then, the Panel stated that it was not necessary for it to rule on
the United States' claim relating to Article 7.2 because: (i) Brazil challenged only one United States export
credit guarantee program—GS M 102—as an actionable subsidy that caused serious prejudice; (ii) this
allegation was limited to upland cotton; and (iii) the Pa nel had exercised judicial economy with respect to the
claim. Thus, the Panel limited its examination to "whether Brazil included a statement of available evidence
with respect to export credit gua rantees on other eligible agricultu ral products in acco rdance with the
requirement pertaining to its export subsidy allegations in Article 4.2 of the SCM Agreement". (Panel Report,
paras. 7.73-7.74, 7.76, and 7.78-7.79) (original emphasis)
In its Notice of Appeal, the United States asserted that, in the event that Brazil appealed the Panel's
exercise of judicial economy with respect to Brazil's claims concerning the compatibility of the United States'
export credit guarant ee measures with Part III of the SCM Agreement, the United States would conditionally
request the Appellate Body to find that Brazil also failed to provide a statement of available evidence as
required by Article 7.2 of the SCM Agreement and, accordingly, Brazil's cl aims concerning these measures
were not within the Panel's terms of reference. (Notice of Appeal, supra, footnote 17, para. 13) The United
States did not pursue this claim further in its appellant's submission. In any event, the condition on which the
United States' appeal was based was not met, as Brazil di d not appeal the Panel's exer cise of judicial economy
concerning the compatibility of the United States' export credit guarantee measures with Part III of the SCM
Agreement.
266Panel Report, para. 7.83.
267Ibid., para. 7.84.
268Ibid., para. 7.84.
269Ibid., para. 7.85. (footnoted omitted) Footnote 1 of Brazil's request for consultations reads: "Except
with respect to export credit guarantee programs as explained below". See supra, para. 288.

offsetting receipts of the Commodity Credit Corpora tion (the "CCC"). Neither the reference to the
website nor the data on the website "contain any indication of limitation of Brazil's allegations
concerning the export credit guarantee programmes to any specific product, such as, for example,
upland cotton".270
298. Therefore, the Panel found:
[A]ssuming arguendo that the United States' request was timely[271],
the Panel rules that Brazil provided a statement of available evidence
with respect to export credit gua rantee measures relating to upland
cotton and eligible United States ag ricultural products other than
upland cotton, as required by Article 4.2 of the SCM Agreement.
272
299. On appeal, the United States argues that the Pa nel's ruling is erroneous. The United States
submits that Brazil's statement of evidence contai ns two paragraphs specifically referring to the
United States' export credit guarantee programs. 273 The first paragraph is textually limited to upland
cotton, as the Panel correctly found. Although the second paragraph does not refer to upland cotton, it
contains no suggestion that it expands on the programs described in the preceding paragraph. 274 The
United States further submits that, even if the second paragraph were construed to refer to programs
that provide benefits to products other than upland cotton, it is "di fficult to see" how that paragraph
meets the requirements of Article 4.2 of the SCM Agreement , as it does not provide information
about the "existence" or "nature" of the subsidi es allegedly provided by the export credit guarantee
programs to products in addition to upland cotton.275
300. Brazil submits that its statement of availabl e evidence not only identifies the measures at
issue—the United States' export credit guarantee progr ams—but also indicates the characteristics of
those measures that had led Brazil to suspect that they constituted expor t subsidies, as required by the
Appellate Body in US – FSC .276 Specifically, Brazil's statement describes the failure of the export
credit guarantee programs to establish premium rates that cover long-term ope rating costs and losses,
which are central elements in a determination of whether a program constitutes an export subsidy

270Panel Report, paras. 7.92-7.93.
271Brazil had argued that the United States' request was untimely. The Panel found it unnecessary to
rule on the timeliness of the United States' request, in th e light of its ruling on the substantive question. (Panel
Report, footnote 160 to para. 7.103)
272Panel Report, para. 7.103. (footnotes omitted)
274Ibid., paras. 495-496.
276Brazil's appellee's submission, paras. 228-229 (referring to Appellate Body Report, US – FSC ,
para. 161).

under item (j) of the Illustrative List of Export Subsidies included as Annex I to the SCM
Agreement.277 Furthermore, the Panel made a factual finding that the documentary evidence cited by
Brazil to support its preliminary view included a li nk to a United States government website with data
showing that revenues for the export credit gua rantee programs do not c over long-term operating
costs and losses, which addressed the programs overall, rather than in connection with only upland
cotton.278 Thus, according to Brazil, its statement of available evidence met the requirements of
Article 4.2, by identifying the export credit guarantee measures, and providing and describing
available evidence of "the charact er of" those measures, across a ll eligible commodities, as export
subsidies.279
2. Did Brazil's Statement of Available Evidence Include Export Credit
Guarantees to Other Eligible Agricultural Commodities?
301. The issue raised on appeal is whether the Panel correctly concluded that Brazil's statement of
available evidence was not limited to export cred it guarantees to upland cotton and included export
credit guarantees to other elig ible agricultural commodities. 280 The requirement that a party
challenging a prohibited subsidy provide a statement of available evidence is set out in Article 4.2 of
the SCM Agreement, which provides:
A request for consultations unde r paragraph 1 shall include a
statement of available evidence w ith regard to the existence and
nature of the subsidy in question.
Article 4.2 is included in Appendix 2 of the DSU as a special or additional rule on dispute settlement.
302. The Appellate Body has stated that Article 4.2 of the SCM Agreement must be read and
applied together with Article 4.4 of the DSU, which sets out the requirements for the request for
consultations, "so that a request for consultations relating to a prohibited subsidy claim under the
SCM Agreement must satisfy the requirements of both provisions". 281 It has also explained that the

278Ibid., paras. 231-232 (referring to Panel Report, paras. 7.92-7.93).
279Ibid., para. 233.
280The United States does not contest that Brazil s ubmitted a statement of available evidence together
with its request for consultations. Nor does the Unite d States contest that Brazil's statement of available
evidence referred to the United States' export credit guarantees as they relate to upland cotton.

"additional requirement of 'a statement of available evidence' under Article 4.2 of the SCM
Agreement is distinct from—and not satisfied by comp liance with—the requirements of Article 4.4 of
the DSU".282
303. Brazil's statement of available evidence is anne xed to its request for consultations. As the
Panel noted 283, the statement contains the following tw o paragraphs referring specifically to the
United States' export credit guarantee programs:
US export credit guarantee programs have caused serious prejudice
to Brazilian upland cotton producers by providing below-market
financing benefits for the export of competing US upland cotton;
US export credit guarantee programs, since their origin in 1980 and
up [to] the present, provide premium rates that are inadequate to
cover the long-term operating costs and losses of the programs; in
particular there were losses caused by large-scale defaults totalling
billions of dollars that have not b een reflected in increased premiums
to cover such losses[.]
284
304. The United States asserts that Brazil's statement of evidence does not mention any agricultural
commodity other than upland cotton when it refers to the United States' export credit guarantee
programs. This is correct. At the same time, how ever, we observe that the second paragraph is not
expressly limited to upland cotton. Rather, that pa ragraph refers to the United States' export credit
guarantee programs in a general way, suggesting that the reference is to the programs as a whole and
not just as they relate to one specific agricultural commodity. The allegation in that paragraph that the
premium rates are inadequate to cover the long- term operating costs and losses of the programs is
equally broad and does not suggest that it is only with respect to upland cotton that premiums are
insufficient to offset costs and losses. As the Pane l explained, when the second "paragraph is read in
light of footnote 1 of the request for consultations, a careful reader should have been alerted to the fact
that this paragraph referred to alleged subsidies arising from export credit guarantees under the
challenged programmes, without any limitation to up land cotton or any other particular product or
products".285 Thus, we do not find that it was unreasona ble for the Panel to have "read Brazil's
statement of available evidence, insofar as Brazil's export subsidy claims are concerned, to refer to

283Panel Report, para. 7.83.
284Statement of available evidence annexed to the Request for Consultations by Brazil, supra,
footnote 26, para. 3.
285Panel Report, para. 7.85. (footnote omitted) The text of footnote 1 is reproduced, supra,
footnote 269.

each of the three challenged United States export subs idy programmes as they relate to upland cotton
and other eligible agricultural products".286
305. The United States submits that, even if the sec ond paragraph were c onstrued to refer to
programs that provide benefits to products in addition to upland cotton, it is "difficult to see" 287 how
that paragraph meets the requirements of Article 4.2 of the SCM Agreement, as it does not provide
information about the "existence" or "nature" of th e subsidies allegedly provided by the export credit
guarantee programs to products in addition to upland cotton. The Panel rejected the United States'
argument because it considered that:
Brazil's statement of available ev idence indicates Brazil's view that
the character of the alleged subsidy lay in the provision of export
credit guarantees under programmes "at premium rates that are
inadequate to cover the long-term operating costs and losses of the
programs; in particular there were losses caused by large-scale
defaults totalling billions of dollars that have not been reflected in
increased premiums to cover such losses."
288
From this, the Panel concluded that Brazil "had evid ence available to it at that time which led it to
conclude that the United States was providing a proh ibited export subsidy of this nature and character
under the three identified export subsidy programmes, without any limitation to a particular product or
products".289
306. We recall that Article 4.2 requires that the requ est for consultations "include a statement of
available evidence with regard to the existence and nature of the subsidy in question". In US – FSC,
the Appellate Body explained that this means that "it is available evidence of the character of the
measure as a 'subsidy' that must be indicated, an d not merely evidence of the existence of the
measure".290 We observe that, in Brazil's statement of available evidence, the second paragraph that
deals specifically with the United States' export credit guarantee programs does not simply refer to
their existence. In that paragraph, Brazil i ndicates that the export credit guarantees have the

286Panel Report, para. 7.86.
289Ibid., para. 7.90.
290Appellate Body Report, US – FSC , para. 161. In that case, the European Communities did not
provide a separate statement of available evidence, but argued that such a statement was contained in the request
for consultations itself. The Panel found that the consultations request may have contained a statement of
available evidence. The Appellate Body noted that it "would have preferred that the Panel give less relaxed
treatment to this important distinction" between the exis tence and the character of the measure as a subsidy, but
it ultimately ruled that the United States' objection to the request for consultations had been untimely and
therefore it did not rule on whether the consultations request included a statement of available evidence. ( Ibid.,
paras. 155, 161, and 165)

"character" of a subsidy because the premiums ch arged are insufficient to cover the long-term
operating costs and losses. Brazil goes further by stating that this situation is especially due to the fact
that the premiums have not increased despite "large-scale defaults totalling billions of dollars".291
307. In addition, as the Panel pointed out, Brazil re ferred to a website of the United States
Congressional Budget Office. This website includes projections of the mandatory spending of the
United States federal government. One of the tabl es provided on the website contains a line-item that
specifically refers to spending by the CCC, which, according to the title of the table, already takes into
account offsetting receipts. Thus, by referring to th is website, Brazil's statement of evidence was also
indicating that the export credit guarantees have the "character" of a subsidy because the premiums
charged are insufficient to cover the long-term opera ting costs and losses. Therefore, the Panel had a
reasonable basis to conclude that Brazil's statement of evidence met the requirements of Article 4.2 of
the SCM Agreement.
308. We recognize that the statement of availabl e evidence plays an important role in WTO
dispute settlement. The adequacy of the statement of available evidence must be determined on a case
by case basis. As the Panel stated, moreover, the "statement of available evidence ... is the starting
point for consultations, and for the emergence of more evidence concerning the measures by reason of
the clarification of the 'situation'".292 It is, therefore, important to bear in mind that the requirement to
submit a statement of available evidence applies in the earliest stages of WTO dispute settlement, and
that the requirement is to provide a "statement" of the evidence and not the evidence itself.293
309. For these reasons, we uphold the Panel's ruling, in paragra ph 7.103 of the Panel Report, that
"Brazil provided a statement of available eviden ce with respect to export credit guarantee measures
relating to upland cotton and eligible United States agricultural products other than upland cotton, as
required by Article 4.2 of the SCM Agreement". (footnote omitted)

291Statement of available evidence annexed to the Request for Consultations by Brazil, supra,
footnote 26, para. 3.
292Panel Report, para. 7.100.
293Panel Report, Australia – Automotive Leather II, para. 9.19.

V. Domestic Support
A. Article 13(a) of the Agreement on Agriculture – Planting Flexibility Limitations
1. Introduction
310. We turn now to consider appeals by the Unite d States and Brazil regarding the application of
Article 13 of the Agreement on Agriculture (often referred to as th e "peace clause"). We first
address the issue of whether two types of payment—production flexibility contract payments and
direct payments—are entitled to the exemption from action established by paragraph (a) of Article 13.
311. Production flexibility contract payments were introduced by the FAIR Act of 1996 for the
1996-2002 marketing years, and were made to cer tain historical producers of seven eligible
commodities, including upland cotton. Historical producers could enroll acres upon which upland
cotton had been grown during a base period and were allocated upland cotton "base acres" (as well as
a farm-specific yield per acre), for which payment would be made at a rate specified each year for
upland cotton. The production flexibility contract program dispensed with the requirement that
producers continue to plant upland cotton in order to receive payments; instead, payments would
generally be made regardless of what the producer chose to grow, and whether or not the producer
chose to produce anything at all. However, there were limits to this planting flexibility. Specifically,
payments were reduced or eliminated if fruits and vegetables (other than lentils, mung beans, and dry
peas) were planted on upland cotton base acres, subject to certain other exceptions.
 294
312. Direct payments were introduced by the FSRI Act of 2002 for the 2002-2007 marketing
years. They essentially replaced production flexib ility contract payments under the FAIR Act of
1996, while also expanding the program to take in historical production of some additional
commodities.295 Both production flexibility contract payments and direct payments were available for
the 2002 crop, but production flexibility contract pa yments made for that crop were deducted from
direct payments made for that crop. 296 Like production flexibility contract payments for upland
cotton, direct payments for upland cotton were dependent on base acres allocated by reference to the

294Panel Report, paras. 7.212-7.215 and 7.376-7. 378. The exceptions from planting flexibility
limitations related to regions with a history of double cropping or farms with a history of planting fruits or
vegetables on contract acreage. (Ibid., para. 7.378)
295Ibid., paras. 7.218-7.219 and 7.397. The Panel di scusses similarities and differences between the
production flexibility contract program and the direct payment program in paragraphs. 7.398-7.399.
296Ibid., para. 7.220.

production of upland cotton dur ing certain base periods. 297 The payments were made each year at a
rate fixed for the entire 2002-2007 period at 6.67 ce nts per pound of upland cotton. As was the case
under the production flexibility contract program, produ cers were not required to grow any particular
crop in order to receive direct payments, and could ch oose to grow nothing at all. In addition to fruits
and vegetables (other than lentils, mung beans, a nd dry peas), wild rice was added to the planting
flexibility limitations.298
313. The Panel found that the amount of payments under the production flexibility contract
program and the direct payment program is "related to the type of production undertaken by the
producer after the base period."
299 On this basis, the Panel found that these payments and "the
legislative and regulatory provisions that provide for the planting flexibility limitations in the DP
programme" do not fully conform to pa ragraph 6(b) of Annex 2 of the Agreement on Agriculture .
300
The Panel concluded that these measures are thus not green box measures 301, and added that these
measures "do not comply with the condition in paragraph (a) of Article 13 of the Agreement on
Agriculture" and are therefore "non-green box measures covered by paragraph (b) of Article 13."302
2. Appeal by the United States
314. The United States appeals the Panel's finding that direct payments, production flexibility
contract payments, and the legisla tive and regulatory provisions that establish and maintain the direct
payments program, are not green box measures sheltere d from challenge by virtue of Article 13(a) of
the Agreement on Agriculture. The United States does not dispute that the amount of payments under
the production flexibility contract and direct paym ent programs depended upon a formula that centred
on "base acres" tied to the historical production of upland cotton. 303 Nor does the United States
dispute that there are limitations on producers' ability to plant any product, if those producers wish to
receive production flexibility or direct payments with respect to upland cotton base acres. 304 In the

297There was a limited opportunity for producers to el ect a different base peri od for the calculation of
upland cotton base acres for direct payments under th e FSRI Act of 2002 from that prevailing for production
flexibility contract payments under the FAIR Act of 19 96. (Panel Report, paras. 7.220-7.221) Brazil has
conditionally appealed the Panel's exerci se of judicial economy in respect of Brazil's claim that this "updating"
of base acres contravenes paragraph 6(a) of Annex 2 of the Agreement on Agriculture . We address this
conditional appeal below at section V.B of this Report.
298Panel Report, paras. 7.220, 7.222, and 7.379-7.381. As was the case under the production flexibility
contract program, there were limited exceptions to the planting flexibility limitations.
299Ibid., para. 7.385.
300Ibid., para. 7.388.
301Ibid., para. 7.413.
302Ibid., para. 7.414.
304See, for example, United States' appellant's submission, paras. 17 ff.

case of production flexibility contract payments, these limitations related to the growing of fruits and
vegetables. In the case of direct payments, the limitations extended to wild rice as well. 305 Beyond
these limitations, however, the United States stresses that a producer can receive production flexibility
contract payments or direct payments regardless of the agricultural products that the producer chooses
to grow and irrespective of whether it chooses to produce any product at all.306
315. The United States takes issue with the Panel's finding that the planting flexibility limitations
mean that the "amount of payments" under the pr oduction flexibility contract and direct payment
programs is "related to the type of production und ertaken by the producer after the base period",
within the meaning of paragraph 6(b) of Annex 2 to the Agreement on Agriculture .307 According to
the United States, a negative direction in respect of production of certain goods—that is,
conditioning payment on a producer's non-production of certain goods—does not make the amount of
payments "related to the type of production". The United States submits that this interpretation serves
the "fundamental requirement" found in paragraph 1 of Annex 2 that green box measures "have no, or
at most minimal, trade-distorting effects or effects on production".
316. Brazil requests that the Appellate Body uphold th e Panel's finding, under paragraph 6(b) of
Annex 2 of the Agreement on Agriculture , that production flexibility contract and direct payments
relate "the amount of" the payment to "the type of production undertaken" by recipients. 308 T h e
grounds for the Panel's finding are that production fl exibility contract and direct payments are made
solely if production is undertaken of crops other th an fruits and vegetables (and, in the case of direct
payments, wild rice as well). Brazil agrees with the Panel that this relates the amount of payments to
production of the "permitted" crops. As the Panel found, if "permitted" crops alone are produced, a
full payment is made. If a small quantity of "prohi bited" crops is produced, the "amount of payment"
is reduced. If a larger quantity of "prohibited" crops is produced, no payment is made.309
317. Brazil submits that the distinction drawn by the United States between "permitted" (or
positive) and "prohibited" (or negative) categories of crops is artificial because the effect of both
categories is identical: in both cases, production is channelled away from certain "prohibited" crops

306Ibid.
307Panel Report, para. 7.385; United States' appellant's submission, paras. 22 ff.
308Panel Report, para. 7.385; Brazil's appellee's submission, paras. 260 ff.
309Brazil's appellee's submission, para. 285 (referring to Panel Report, paras. 7.382-7.383). The
participants, like the Panel, refer to "permitted" and "pr ohibited" crops, in the sense that crops not subject to
planting flexibility limitations are eligib le to receive payments, while fruits and vegetables (and wild rice) are
not eligible to receive payments. We generally prefer to refer to these categories as "covered" or "eligible"
crops, on the one hand, and "excluded" crops on the other.

(for which no payments are made) and towards other "permitted" crops (for which payments are
made). Thus, the incentives and disincentives are precisely the same. In both cases, "the amount of"
the payment is intrinsically "related to" undertak ing production of the "permitted" crops, and not
undertaking production of the "prohibited" crops. A ccording to Brazil, the Panel's factual findings
support this view because it found that the prohibi tion on fruits and vegetables (and wild rice in
respect of direct payments) imposes "significan t constraints" on production decisions and creates
incentives for the production of eligible crops rather than those crops that are prohibited.310
3. Analysis
318. Article 13 of the Agreement on Agriculture , entitled "Due Restraint", provides in relevant
part that:
 During the implementation period, notwithstanding the
provisions of GATT 1994 and the Agreement on Subsidies and
Countervailing Measures (referred to in this Article as the "Subsidies
Agreement"):
(a) domestic support measures that conform fully to the
provisions of Annex 2 to this Agreement shall be: ...
(ii) exempt from actions based on Article XVI
of GATT 1994 and Part III of the Subsidies
Agreement; ...
319. Accordingly, domestic support that conforms fully to the provisions of Annex 2—that is
"green box" support, which is exempt from the domestic support reduction obligations of the
Agreement on Agriculture —is also exempt, during the implementation period
311, from actions based
on Article XVI of GATT 1994 and the actionable subsidies provisions of Part III of the SCM
Agreement.
320. The United States claims that production flexibilit y contract payments and direct payments
are domestic support that conforms fully to the provisions of Annex 2 because they are "[d]ecoupled
income support" within the meaning of paragraph 6 of that Annex. Annex 2 is entitled "Domestic
Support: The Basis for Exemption from the Reduction Commitments" and provides, in relevant part,
as follows:

310Brazil's appellee's submission, paras. 285-286 (quoting Panel Report, para. 7.386).
311The "implementation period" during which Article 13 applies is defined in Article 1(f) of the
Agreement on Agriculture as "the nine-year period commencing in 1995". "Year", for purposes of Article 1(f)
"and in relation to the specific commitments of a Member " is defined in Article 1(i) and is "the calendar,
financial or marketing year specified in the Schedule relating to that Member".

1. Domestic support measures for which exemption from the
reduction commitments is claimed shall meet the fundamental
requirement that they have no, or at most minimal, trade-distorting
effects or effects on production. Accordingly, all measures for which
exemption is claimed shall conform to the following basic criteria:
(a) the support in question shall be provided through a
publicly-funded government programme (including
government revenue foregone) not involving
transfers from consumers; and,
(b) the support in question shall not have the effect of
providing price support to producers;
plus policy-specific criteria and conditions as set out below.

5. Direct payments to producers
 Support provided through direct payments (or revenue
foregone, including payments in kind) to producers for which
exemption from reduction commitments is claimed shall meet the
basic criteria set out in paragraph 1 above, plus specific criteria
applying to individual types of direct payment as set out in
paragraphs 6 through 13 below. ...
6. Decoupled income support
(a) Eligibility for such payments shall be determined by
clearly-defined criteria such as income, status as a
producer or landowner, factor use or production level
in a defined and fixed base period.
(b) The amount of such payments in any given year shall
not be related to, or based on, the type or volume of
production (including livestock units) undertaken by
the producer in any year after the base period.

(e) No production shall be required in order to receive
such payments. (emphasis added)
321. Paragraph 6, entitled, "[d]ecoupled income support" applies to one type of "direct payment"
to producers that may benefit from exemption from reduction commitments and protection under the
peace clause. Paragraph 6(a) sets forth that e ligibility for payments under a decoupled income
support program must be determined by reference to certain "clearly-defined criteria" in a "defined
and fixed base period". Paragr aph 6(b) requires the severing of any link between the amount
of payments under such a program and the type or volume of production undertaken by recipients of

payments under that program in any year after the base period. Paragraphs 6(c) and 6(d) serve to
require that payments are also decoupled from prices and factors of production employed after the
base period. Paragraph 6(e) makes it clear that "[ n]o production shall be requi red in order to receive
... payments" under a decoupled income support program.
322. As we noted above 312, there is no disagreement between the participants that the amount of
payments under the production flexibility contr act and direct payment programs depended upon a
formula that centred on "base acres", which were est ablished on the basis of the historical production
of upland cotton. Nor does the United States dispute that there are limitations on producers' ability to
produce certain products, while also receiving produc tion flexibility contract payments or direct
payments with respect to upland cotton base acres. Therefore, the question before us regarding the
consistency of production flexibility contract payments and direct pa yments with paragraph 6(b) of
Annex 2 is a limited one. It does not concern a measure requiring producers to grow certain crops in
order to receive payments; it also does not concern a measure with complete planting flexibility that
provides payments without regard whatsoever to the crops that are grown. Indeed, it does not concern
a measure that requires the production of any crop at all; nor does it involve a measure that totally
 prohibits the growing of any crops as a condition for payments. The question before us in this
appeal thus concerns a measure with a partial exclusion combining planting flexibility and payments
with the reduction or elimination of the paymen ts when the excluded crops are produced, while
providing payments even when no crops are produced at all.
323. In addressing the question of the consistency of such a measure with paragraph 6(b), we note
that under this provision, for income support to be decoupled, the "amount of such payments ... shall
not be related to ... the type or volume of productio n ... undertaken by the producer in any year after
the base period". It is uncontested that the amount of payments under the production flexibility
contract and direct payment programs may be affe cted, depending upon whether a producer plants a
crop that is permitted under the production flexibility contract or direct payment programs, or a crop
that is covered by the planting flexibility limitations.
313 The United States focuses on the term
"related to" and contends that the amount of pa yments under the production flexibility contract and
direct payment programs is not "related to" the type of production as proscribed by paragraph 6(b).

312Supra, para. 314.

324. The ordinary meaning of the term "related to " in paragraph 6(b) of Annex 2 denotes some
degree of relationship or connection between two things314, here the amount of payment, on the one
hand, and the type or volume of production, on the othe r. It covers a broader set of connections than
"based on", which term is also used to describ e the relationship between two things covered by
paragraph 6(b). 315 Nothing in the ordinary meaning of the term "related to " suggests that the
connections covered by this expression may not enco mpass connections of either a "positive" nature
(including directions or requirements to do somethi ng) or a "negative" nature (including prohibitions
or requirements not to do something) or a combination of both. As the Panel indicated, the ordinary
meaning of the term "related to" conveys "a very general notion".
316 Indeed, the United States agrees
that, as far as its ordinary meaning in the abstract is concerned, the term "related to" may be broad
enough to capture both positive and negative conn ections, but argues that the context of
paragraph 6(b) requires a more limited interp retation of the term, namely, only as covering a
"positive" connection between the "amount of ... payments" and the "type ... of production". 317 Like
the Panel, however, we are of the view that, in th e context of paragraph 6(b), the term "related to"
covers both positive and negative connections betw een the amount of payment and the type of
production.
325. Paragraph 6 of Annex 2, entitled "[d]ecoupled income support", seeks to decouple or de-link
direct payments to producers from various aspects of their production decisions and thus aims at
neutrality in this regard. Subparagraph (b) decouples the payments from production; subparagraph (c)
decouples payments from prices; and subparagr aph (d) decouples payments from factors of
production. Subparagraph (e) completes the proce ss by making it clear that no production shall be
required in order to receive such payments. Decoupling of payments from production under
paragraph 6(b) can only be ensured if the payments are not relate d to, or based upon, either a positive

314See Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.), (Oxford
University Press, 2002), Vol. 2, p. 2520; see also Panel Report, para. 7.366; United States' appellant's
315The Panel noted that "base" in this context may be defined as to "found, build, or construct (up)on a
given base, build up around a base (chiefly fig.)": Panel Report, para. 7.366 (quoting The New Shorter Oxford
English Dictionary, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 187). Like the expression "related to",
the expression "based on" also requir es a connection between two or more things. However, even though
"based on" does not require a strict relationship betw een two things (see, e.g., Appellate Body Report, EC –
Hormones, paras. 165-166 and 171), the meaning of "based on" indicates a relatively close connection between
the things being linked. By contrast, the meaning of "related to" can apply to connections more general in
nature than situations in which one thing is "based on" another (see, e.g., Appellate Body Report, US – Softwood
Lumber IV, para. 89, where the Appellate Body interpreted broadly the phrase "in relation to" in Article 14(d) of
the SCM Agreement). Accordingly, the meaning of the term "rel ated to" cannot be entir ely subsumed into the
meaning of "based on".
316Panel Report, para. 7.366.

requirement to produce certain crops or a negativ e requirement not to produce certain crops or a
combination of both positive and negative requirements on production of crops.
326. In contrast to the other subparagraphs of paragraph 6, paragra ph 6(e) does explicitly
distinguish between positive and ne gative production requirements, because it prohibits positive
requirements to produce. The Panel reasoned that "[ i]f paragraph 6(b) could be satisfied by ensuring
that no production was required to receive pa yments, paragraph 6(e) would be redundant". 318 W e
agree with the Panel that the context provided by paragraph 6(e) indicates that a measure that
provided payments, even if a producer undertook no production at all, would not, for that reason
alone, necessarily comply with paragraph 6(b). This is because other elements of that measure might
still relate the amount of payments to the type or volume of production, contrary to the requirement of
paragraph 6(b).
327. The United States seems to argue that the Pane l's interpretation of th e relationship between
paragraphs 6(b) and 6(e) would s ubsume paragraph 6(e) within the scope of paragraph 6(b), thereby
rendering it redundant.319 In our view, however, paragraph 6(e) continues to serve a purpose distinct
from that of paragraph 6(b). It highlights a di fferent aspect of decoupling income support. In
prohibiting Members from making green-box measures contingent on production, paragraph 6(e)
implies that Members are allowed, in principle, to require no production at all. Accordingly,
payments conditioned on a total ban on any pr oduction may qualify as decoupled income support
under paragraph 6(e). Even assuming that payments contingent on a total production ban could be
seen to relate the amount of the payment to the volume of production within the meaning of
paragraph 6(b)—the volume of production be ing nil—giving meaning and effect to both
paragraphs 6(b) and 6(e) suggests a reading of paragraph 6(b) that would not disallow a total ban on
any production.
328. In addressing the United States' argument on this po int, we recall that the measures at issue in
this appeal do not provide for payments contingent on a total ban on production of any crops. The
measures at issue here combine payments and planti ng flexibility in respect of certain covered crops
with the reduction or elimination of such payments when certain other excluded crops are produced.
The United States argues that, if paragraph 6(e) means that a Member may require a producer not to
produce a particular product, "it would not make sense to then prohibit a Member, under
paragraph 6(b), from making the amount of paym ent contingent on fulfilling that requirement". 320
However, in our view, the mere fact that under pa ragraph 6(e) "[n]o productio n shall be required in

318Panel Report, para. 7.368.
319United States' appellant's submission, paras. 38-42.
320Ibid., para. 38. (emphasis omitted)

order to receive such payments" does not mean that a partial exclusion of certain crops from
payments, coupled with production flexibility rega rding other crops, must be consistent with
paragraph 6(b).
329. We agree with the Panel that a partial excl usion of some crops from payments has the
potential to channel production towards the production of crops that remain eligible for payments. 321
In contrast to a total production ban, the cha nnelling of production that may follow from a partial
exclusion of some crops from payments will have positive production effects as regards crops
eligible for payments. The extent of this will depe nd on the scope of the exclusion. We note in this
regard that the Panel found, as a matter of fact, that planting flexibility limitations at issue in this case
"significantly constrain production choices availa ble to PFC and DP payment recipients and
effectively eliminate a significant proportion of them". 322 The fact that farmers may continue to
receive payments if they produce nothing at a ll does not detract from this assessment because,
according to the Panel, it is not the option preferre d by the "overwhelming majority" of farmers, who
continue to produce some type of permitted crop.323 In the light of these findings by the Panel, we are
unable to agree with the United States' argument that the planting flexibility limitations only
negatively affect the production of crops that are excluded.
330. We are not persuaded otherwise by the Unite d States' reliance upon the terms "amount of
such payments" and "undertaken" in the text of paragraph 6(b). According to the United States, the
Panel assumes that the "amount of such payments" in paragraph 6(b) can be related to the current type
of production because, in some circumstances, a reci pient that produces fruits, vegetables or wild rice
"receives less payment than that recipient otherwise would have been entitled to".
324 However, for the
United States, in that case, the only "amount" of pa yment that is even arguably "related to" current
production is "zero"325, because those crops are excluded from pa yment eligibility. The United States
further argues, with respect to the phrase "production ... undertaken by the producer", that the ordinary
meaning of the term "undertake" includes to "attempt". In this case, the planting flexibility limitations
on a certain range of products, with respect to base acreage, would not relate the amount of payments

321Panel Report, para. 7.367. Indeed, as Brazil su bmits, this will tend to be the case where the
prohibition prevents a producer, intent on maximizing profit, from growing the best alternative crop. In that
case, the producer will tend to choose the next best alternative from am ongst the permitted crops. (Brazil's
appellee's submission, para. 321, citing evidence, referred to in footnote 511 of the Panel Report, from Brazil's
expert, Professor Sumner)
322Panel Report, para. 7.386.
323Ibid., para. 7.386.
325Ibid.

to production "attempted" by the recipient; rather, the amount of payment is related to or based on the
type of production not "attempted".326
331. In our view, the concepts of "type or volume of production ... undertaken by the producer"
and the "amount of ... payments" are linked in paragr aph 6(b) by the requirement that one "not be
related to" the other. This requires a consideration of the relationship between the type or volume of
production and the amount of payment under a program after the base period. A program that
disallows payments when certain crops are produced relates the amount of the payment to the type of
production undertaken. The flexibility to produce a nd receive payment for certain crops covered by a
program, combined with the reduction or eliminat ion of such payments when excluded crops are
produced, creates a link with the type of production unde rtaken contrary to paragraph 6(b). This is so
because the opportunity for farmers to receive payments for producing covered crops, while less or no
such payments are made to farmers who produce excluded crops, provides an incentive to switch from
producing excluded crops to producing crops eligible for payments.
332. The United States also contends that its measures, which condition payment on the non-
production of certain products, "further the fundament al requirement [in paragraph 1 of Annex 2 to
the Agreement on Agriculture ] that such measures 'have no, or at most minimal, trade-distorting
effects or effects on production'" 327, because their only effects are to reduce production of the
prohibited crops. 328 It follows, for the United States, that paragraph 6(b) should not address
"negative" prohibitions on the pro duction of certain crops, such as the United States' measures, given
that they comply, inherently, with the fundamental requirement. 329 Brazil argues that if
paragraph 6(b) is violated, this ipso facto violates the fundamental requirement of paragraph 1 of
Annex 2 and further analysis is not required.330
333. We note that the first sentence of paragra ph 1 of Annex 2 lays down a "fundamental
requirement" for green box measures, such that they must have "no, or at most minimal, trade-
distorting effects or effects on production". Th e second sentence of paragraph 1 provides that,
"[a]ccordingly", green box measures must conform to th e basic criteria stated in that sentence, "plus"

327Paragraph 1 of Annex 2 to the Agreement on Agriculture.
329See ibid., paras. 32-35.
330Brazil's responses to questioning at the oral hearing.

the policy-specific criteria and conditions set out in the remaining paragraphs of Annex 2, including
those in paragraph 6.331
334. As we have noted, the Panel found that the planting flexibility limitations in this case
"significantly constrain" production decisions. 332 However one reads the "fundamental requirement"
in paragraph 1 of Annex 2, given the factual findings of the Panel, the facts of this case do not present
a situation in which the planting flexibility limitations demonstrably have "no, or at most minimal,"
trade-distorting effects or effects on production.
335. We find further support for our interpretation of paragraph 6(b) in the context provided by
paragraph 11 of Annex 2, entitle d "Structural adjustment assistance provided through investment
aids". Several of the subparagr aphs of paragraph 11 are phrased in similar terms to those of
paragraph 6. Indeed, like paragraph 6(b), paragraph 11(b) requires that the "amount of ... payments ...
shall not be related to ... the type or volume of production ... undertaken by the producer in any year
after the base period." However, unlike paragraph 6(b), paragraph 11(b) ends with the phrase "other
than as provided for under criterion (e) below". Crit erion 11(e) specifically envisages that "payments
shall not mandate or in any way designate the agri cultural products to be produced by the recipients
except to require them not to produce a particular product".
336. We note that the exception provided by paragra ph 11(e) and the link to paragraph 11(e) in
paragraph 11(b) explicitly authorize the type of "negative" requirements not to produce that the
United States argues is implicitly permitted by the terms of paragraph 6(b). In the light of the
similarity of the language chosen in paragraphs 6( b) and 11(b), like the Panel, we attach significance
to the fact that the drafters saw as necessary an e xplicit authorization of nega tive requirements not to
produce under paragraph 11(b). In our view, this indicates that the ordinary meaning of the terms in
paragraph 11(b) would otherwise exclude an interpretation allowing such negative requirements. The
use of identical language in paragraphs 6(b) and 11( b), except for the reference in paragraph 11(b) to
paragraph 11(e), suggests that the meaning of the te rms in paragraph 6(b) must be the same as in
paragraph 11(b). Accordingly, a comparison of these provisions confirms that the terms of
paragraph 6(b) encompass both positive as well as negative connections between the amount of
payments under a program and the type of production undertaken.

331We note in this regard that the Panel's exercise of judicial economy regarding Brazil's claim that the
United States measures at issue fail to conform with the "fundamental requirement" of paragraph 1 of Annex 2
has not been appealed. (See Panel Report, para. 7.412)
332Ibid., para. 7.386.

337. We note that the United States argues that the context in which paragraphs 11(b) and 6(b)
appear is very different. The United States notes that paragraph 11 pertains to payments "to assist the
financial or physical restructuring of a producer's operations" 333 and paragraph 6(e) imposes a
constraint on the degree to which a government can inte rfere in the form that restructuring will take.
As a requirement not to produce certain products c ould be understood to fall w ithin the prohibition in
paragraph 11(e) against "in any way" designating the products to be produced, it clarifies that negative
requirements are permitted. The United States submits that, in the light of the broad prohibition in
paragraph 11(e), "the requirement in paragraph 11(b) … could be understood to preclude conditioning
payment on not producing certain products since this could be understood as in some way designating
the products to be produced".
334 This required the explicit cro ss-reference to paragraph 11(e).
According to the United States, because the same considerations do not apply in the case of
paragraph 6(b), no specific authorization of par tial prohibitions on production is required, as it
remains implicit in the text of the provision.335
338. We are not persuaded by this argument. Like Brazil, we believe that a more compelling
reason for the specific authorization of negative re quirements not to produce a particular crop may be
found in the fact that paragraph 11 addresses "struc tural adjustment", which may be achieved only by
providing financial incentives to shift production away from certain products. In our view, the
considerations submitted by the United States do not render the meaning of the terms used in
paragraph 11(b) different from the meaning of the same terms as used in paragraph 6(b).
339. Finally, we note that the United States has also argued that the Panel's interpretation, with
which we agree, would require a Member to con tinue to make decoupled income support payments,
even if a producer's production is illegal, for example involving the production of opium poppy,
unapproved biotech varieties or e nvironmentally-damaging production. 336 According to the United
States, this is a logical consequence of a finding th at, to comply with paragraph 6(b) of Annex 2, a
measure may not condition payments upon the n on-production of certain products, while permitting
production of others.
340. In our view, questions regarding the problem of illegal production contrast starkly with the
situation addressed in the present case. It remains perfectly legal for a holder of upland cotton base
acres to grow fruits, vegetables or wild rice in the United States. The consequence of growing such
crops is simply the reduction or elimination of production flexibility contract or direct payments to the

333Paragraph 11(a) of Annex 2 to the Agreement on Agriculture.
334United States' appellant's submission, paras. 45-47.
335Ibid., para. 47.
336Ibid., paras. 53-55 and footnote 45.

holders of upland cotton base acres. Our interpreta tion of paragraph 6(b) would not prevent a WTO
Member from making illegal the production of certain crops. Nor would it prevent a Member from
providing decoupled income support while at the sa me time making the production of certain crops
illegal. As Brazil states, there is nothing in the Agreement on Agriculture to suggest that the term
"production" in paragraph 6 of Annex 2 refers to anything other than lawful production. 337 I n
addition, we observe that specific provisions of the Agreement on Agriculture recognize, and exempt
from reduction commitments, domestic support programs that address the problem of production of
illicit narcotic crops in developing countries338 or payments under certain environmental programs.339
4. Conclusion
341. For all these reasons, we uphold the Panel's finding in paragraphs 7.388, 7.413, 7.414
and 8.1(b) of the Panel Report that conditioning pr oduction flexibility contract payments and direct
payments on a producer's compliance with planting flexibility limitations regarding certain products,
coupled with the flexibility to produce certain ot her products, means that the amount of payments
under those measures is related to the type of pr oduction undertaken by a producer after the base
period, within the meaning of paragraph 6(b) of Annex 2 of the Agreement on Agriculture.
342. Accordingly, we also uphold the Panel's finding, in paragr aphs 7.413 and 7.414 of the Panel
Report, that production flexibility contract payments and direct payments are not "decoupled income
support" within the meaning of paragraph 6, ar e not green box measures exempt from the reduction
commitments by virtue of Annex 2 of the Agreement on Agriculture, and are not, therefore, sheltered
from challenge by virtue of paragraph (a) of Article 13 of the Agreement on Agriculture . Rather,
these measures are support covered by the chapeau to pa ragraph (b) of Article 13, and are to be taken
into account in the analysis of that provision.
B. Article 13(a) of the Agreement on Agriculture – Base Period Update
343. The Panel indicated that it had "already found that [direct] payments fail to conform to the
provisions of paragraph 6 of Annex 2 due to the pl anting flexibility limitations". For this reason, it
indicated that it was "therefore unnecessary for the purposes of this dispute to make findings on their
conformity with paragraph 6 due to the updating" of base acres. 340 Brazil conditionally appeals the

338Article 6.2 of the Agreement on Agriculture exempts from domestic support reduction commitments
that would otherwise be applicable "domestic support to producers in developing country Members to encourage
diversification from growing illicit narcotic crops".
339See paragraph 12 of Annex 2 to the Agreement on Agriculture.
340Panel Report, para. 7.393.

Panel's exercise of judicial economy on the issue of whether the base period update under the direct
payments program is consistent with paragraph 6(a) of Annex 2. 341 Brazil's appeal is conditional on
the Appellate Body reversing the Panel's finding that direct payments, the legislative and regulatory
provisions that establish and maintain the direct payments program, as well as payments under the
production flexibility contract program , do not fall within the terms of paragraph (a) of Article 13
because they are not consistent with paragraph 6(b) of Annex 2.
344. Having upheld the Panel's finding under paragraph 6(b) of Annex 2 of the Agreement on
Agriculture, the condition upon which Brazil's appeal regarding the updating of base acres under
paragraph 6(a) rests is not fulfilled. It is therefore unnecessary for us to address this issue further.
C. Article 13(b) of the Agreement on Agriculture – Non-Green Box Domestic Support
1. Introduction
345. Having rejected the United States' appeal of the Panel's finding that production flexibility
contract payments under the FAIR Act of 1996 an d direct payments under the FSRI Act of 2002 are
not green box measures sheltered from challenge by the provisions of Article 13(a) of the Agreement
on Agriculture , we now turn to consider the United St ates' appeal regarding the application of
Article 13(b) of the Agreement on Agriculture.
346. Article 13 of the Agreement on Agriculture is entitled "Due Restraint" and applies during the
implementation period.342 Article 13(b) of the Agreement on Agriculture provides, in relevant part:
[D]omestic support measures that conform fully to the provisions of
Article 6 of this Agreement includi ng direct payments that conform
to the requirements of paragraph 5 thereof, as reflected in each
Member's Schedule, as well as domestic support within de minimis
levels and in conformity with paragraph 2 of Article 6, shall be:

(ii) exempt from actions based on paragraph 1 of
Article XVI of GATT 1994 or Articles 5 and 6 of the
Subsidies Agreement, provided that such measures do not
grant support to a specific commodity in excess of that
decided during the 1992 marketing year; ...

341Brazil's other appellant's submission, paras. 237 ff.
342The "implementation period" during which Article 13 applies is defined in Article 1(f) of the
 Agreement on Agriculture as "the nine-year period commencing in 1995". "Year", for purposes of Article 1(f)
"and in relation to the specific commitmen ts of a Member" is defined in Article 1(i) and "refers to the calendar,
financial or marketing year specified in the Schedule relating to that Member".

347. Subparagraph (ii) to Article 13(b) exempts non-green box domestic support measures
described in the chapeau from ac tions based on Article XVI:1 of GATT 1994 and Articles 5 and 6 of
the SCM Agreement. This exemption is, however, subject to a proviso and is thus made conditional
upon a requirement that "such measures do not grant support to a specific commodity in excess of that
decided during the 1992 marketing year". The dispute in the present appeal relates to the
interpretation and application of this proviso to certain United States domestic support measures.343
348. Before the Panel, the United States claimed that its non-green box domestic support measures
did not "grant support to a specific commodity in excess of that decided during the 1992 marketing
year" and thus were consistent with the proviso to subparagraph (ii) of Article 13(b) of the Agreement
on Agriculture. Hence, they were entitled to the exemption from action provided by Article 13(b).344
349. The Panel rejected the United States' argument that its measures did not "grant support to a
specific commodity in excess of that decided durin g the 1992 marketing year". The Panel calculated
values of support that were "decided during the 1992 marketing year" (the "1992 benchmark") as well
as values of support by which the measures at issue "grant[ed] support to a specific commodity"—
namely, upland cotton—in each of the years 1999, 2000, 2001, and 20 02 ("implementation period
support"). The Panel tabulated support attributable to upland cotton under the relevant United States
domestic support measures and concluded that the support granted in each relevant year of the
implementation period exceeded the 1992 benchmark.
345 Accordingly, the Panel found that:
Brazil has discharged its burden to show that the United States
domestic support measures at issue grant support to a specific
commodity in excess of that decided during the 1992 marketing
year.
346

343Step 2 payments to domestic users; marketing loan program payments; production flexibility
contract payments; market loss assistance payments; direct payments; counter-cyclical payments; crop
insurance payments; and, cottonseed payments for the 2000 crop. (Panel Report, para. 7.337)
344The Panel noted that Brazil did no t claim that the United States' domestic support measures do not
comply with the conditions set out in the chapeau of Article 13(b). (Panel Report, paras. 7.415-7.416)
345Ibid., paras. 7.596-7.597. The Panel indicated that the United States' implementation period support
exceeded the 1992 benchmark regardless of whether, for certain price-based support measures, budgetary
outlays or price gap methodology was used. (Ibid., para. 7.597)
346Ibid., para. 7.598.

350. After finding that evidence and arguments presented by the United States did not rebut
Brazil's case347, the Panel concluded:
[i]n light of the above findings, ... that the [relevant] United States
domestic support measures ... grant support to a specific commodity
in excess of that decided during the 1992 marketing year and that,
therefore, they are not exempt from actions based on paragraph 1 of
Article XVI of the GATT 1994 or Articles 5 and 6 of the SCM
Agreement.
348
2. Appeal by the United States
351. The United States appeals the Panel's finding that its relevant domestic support measures
granted, during the implementation period, "support to a specific commodity in excess of that decided
during the 1992 marketing year", and the conseque ntial finding that these measures are therefore
susceptible to challenge under the actionable subsidies provisions of Articles 5 and 6 of the SCM
Agreement and Article XVI:1 of the GATT 1994.
352. The United States challenges, in particular, tw o elements of the Panel's reasoning. The
United States first appeals the Panel's interpretation of the phrase "grant support to a specific
commodity" in the proviso to Article 13(b)(ii), and, in particular, its finding that four types of
payments made with respect to historical produc tion of upland cotton—production flexibility contract
payments, market loss assistance payments, direct payments and counter-cyclical payments—grant
support to the specific commodity upland cotton, ev en though producers have flexibility under these
programs to grow crops other than upland cotton or not to plant any crop at all. According to the
United States, properly construed, the phrase "suppor t to a specific commodity" refers to "product-
specific support"
349, which would exclude payments under these "non-product-specific" base acre
dependent measures.350 It adds that, even if the Panel is corr ect in its interpretation that "support to a
specific commodity" refers to all "non-green box suppor t measures that clearly or explicitly define a
commodity as one to which they bestow or confer support" 351, the Panel erred in the application of its
test by allocating to upland cotton all payments to historic upland cotton base acres under these four
programs, including those that went to planted commodities other than upland cotton.352

347Panel Report, para. 7.607.
348Ibid., para. 7.608.
350Ibid., para. 105.
351Panel Report, para. 7.494(i).
352United States' appellant's submission, paras. 101-107.

353. Secondly, the United States contests the Panel's use of budgetary outlay methodology to
measure the value of support, for purposes of the co mparison envisaged by Article 13(b)(ii), of two
types of price-based payments: marketing loan program payments and deficiency payments.353 In this
regard, the United States argues that the Panel erred in reading the word "grant" in Article 13(b)(ii) as
meaning something actually provided, and not in harmony with the term "decided". 354 The United
States argues that this led the Panel erroneously to conclude that it could use a calculation
methodology other than the price-gap methodology d escribed in paragraph 10 of Annex 3 to the
Agreement on Agriculture to measure the value of these price- based measures. According to the
United States, only the price gap methodology can reflect the nature of the support "decided" under
these programs because it filters out fluctuations in market prices; indeed, only the price gap
methodology can measure those aspects of support that the government of a Member can control.355
354. The United States, having "corrected" the Panel's calculations for its alleged errors using its
own methodologies, asserts that its domestic suppor t measures at issue did not grant a level of
product-specific support in any relevant year of the implementation period in excess of the 1992
benchmark.356 On this basis, the United States ar gues that its domestic support measures are
consistent with the proviso to Article 13(b)(ii) of the Agreement on Agriculture and are, therefore,
exempt from challenge under the peace clause.357
355. Brazil argues that if the Appellate Body uphol ds the Panel's finding with respect to the
interpretation of the phrase "support to a specific commodity" and thereby finds that production
flexibility contract payments, market loss assistance payments, direct payments and counter-cyclical
payments cannot be excluded from the calculation of support under Article 13(b)(ii), then, regardless
of the methodology used to calculate the value of marketing loan program payments and deficiency
payments, the United States measures w ould still exceed the 1992 benchmark.358 Brazil contends that
the Panel was correct to find that "support to a specific commodity" does not mean "product-specific
support", or support that is directed specifically at only one product, but may capture all "non-green

353Marketing loan program payments in respect of both the 1992 benchmark and the implementation
period support, and deficiency payments in respect of the 1992 benchmark only. (United States' appellant's
submission, para. 72)
354Ibid., paras. 64-68. The United States reiterates th is argument in the section of its appellant's
submission dealing with the interpretation of the phrase "support to a specific commodity": see ibid.,
paras. 114-116.
355Ibid., paras. 69-75.
356Ibid., paras. 120-122.
357Ibid., paras. 122-124.

box measures, that clearly or explicitly define a commodity as one to which they bestow or confer
support".359
356. Brazil also contends that the Panel was correct to use budgetary outlays for its analysis of the
United States' price-based measures. Brazil observes that paragraph 10 of Annex 3 of the Agreement
on Agriculture permits, in principle, the use of either budgetary outlays or the price gap
methodology for payments based on price gaps.360 There is thus no textual basis to say that only price
gaps may be used to measure these types of paymen ts. Brazil also submits that the Panel correctly
found that the term "grant" refers to what a measure actually provides 361, and therefore contests the
United States' claim that factors beyond the control of government, such as market price fluctuations,
must be filtered out of the analysis envisaged by the proviso to Article 13(b)(ii) through use of the
price gap methodology. 362 Brazil also points out that the United States notified the level of support
conferred by the marketing loan program for purpo ses of its base level Aggregate Measurement of
Support ("AMS"), as well as in subsequent AMS no tifications, through use of a budgetary outlay
methodology.363 According to Brazil, WTO Members should be able to rely upon AMS notifications
to determine whether the notifying Member was entitled, during the implementation period, to the
protection conferred by the peace clause.
357. Finally, Brazil illustrates that, even using the price gap methodology to calculate the level of
support under the deficiency payment and marketi ng loan payment programs, total United States
support still exceeded the 1992 benchmark in each relevant year of the implementation period.364
3. Analysis
358. The United States appeals the Panel's finding that the United States' non-green box domestic
support measures granted "support to a specific commodity", namely, upland cotton, during the
implementation period, "in excess of that deci ded during the 1992 marketing year", and the
consequential finding that this support was therefore not sheltered from challenge under Article XVI:1
of the GATT 1994 or Articles 5 and 6 of the SCM Agreement. The United States' appeal in this
regard has two dimensions. First, th e United States challenges the Panel's interpretation of the
phrase "support to a specific commodity" used in the proviso to Article 13(b)(ii) and its application

359Brazil's appellee's submission, paras. 369 and 385 (quoting Panel Report, para. 7.481).
360Ibid., para. 350.
361Ibid., paras. 344 ff.
362Ibid., paras. 346 and 351.
363Ibid., paras. 352 ff.
364Ibid., paras. 442-445.

to four of the domestic support measures. Th ese measures are production flexibility contract
payments, market loss assistance payments, dir ect payments, and counter-cyclical payments. 365 The
question whether or not these four measures grant "su pport to a specific commodity" is at the heart of
the difference between the participants in regard to the comparison contemplated by Article 13(b) of
the Agreement on Agriculture.366 Secondly, the United States takes issue with the Panel's adoption of
a budgetary outlay methodology to measure the value of two pri ce-based support measures for the
comparison under the proviso to Article 13(b)(ii).
(a) Interpretation of "Support to Specific Commodity"
359. We address first the meaning of the phr ase "support to a specific commodity" in
Article 13(b)(ii). We then discuss the applicati on of this interpretation to four domestic support
measures: production flexibility contract payments 367, market loss assistance payments 368, direct
payments369 and counter-cyclical payments370. These four measures did not exist in 1992. Therefore,
this part of the United States' appeal affects the calculation of only the support granted during the
implementation period.371

365The United States characterizes these measures as "decoupled" from production. (United States'
appellant's submission, para. 104)
366On the basis that these four measures are not "s upport to a specific commod ity", the United States
has assigned zero values to them in its calculations under the proviso to Article 13(b)(ii). (Ibid., para. 120)
367We describe briefly production flexibility contract payments supra, para. 311.
368Market loss assistance payments were provided to recipients of production flexibility contract
payments through ad hoc legislation as additional assistance to producers to make up for losses caused by low
commodity prices. Market loss assistance payments we re proportionate to the pr oduction flexibility contract
payments made to the recipient, and the amount paid depended on the amount allocated to market loss
assistance payments for the relevant crop year. Accordingly, eligibility criteria for the market loss assistance
payments were, essentially, the same as for the produc tion flexibility contract payments. (See Panel Report,
paras. 7.216-7.217)
369We describe briefly direct payments supra, para. 312.
370Counter-cyclical payments supplement, for covered commodities, direct payments and any payments
made under the marketing loan program. The eligibility requirements and planting flexibility requirements are
the same as under the direct payment program, and they are also dependent on base acres. Counter-cyclical
payments supplement producer incomes by filling the gap between, on the one hand, the market price and
payments under the marketing loan program and the direct payments program and, on the other hand, a target
price established for upland cotton at 72.4 cents per pound.
 (See Panel Report, paras. 7.223-7.226)
371We observe that the United States does not dispute that other payments, namely those under the
marketing loan program (for a description of marketing loan program payments, see Panel Report, paras. 7.204-
7.208), Step 2 payments (for a description of Step 2 payments, see Panel Report, paras. 7.209-7.211), deficiency
payments (for a description of deficiency payments, see Panel Report, footnote 294 to para. 7.213), and
cottonseed payments (for a descriptio n of cottonseed payments, see Panel Report, paras. 7.233-7.235), result in
"support to a specific commodity". (United States' appellant's submission, para. 120 and Table 2) Nor does the
United States appeal the Panel's finding that the crop insurance program (for a description of the crop insurance
program, see Panel Report, paras. 7.227-7.232) results in "support to a specific commodity", although it adds
that it disagrees with the conclusion of the Panel. (See United States' appellant's submission, footnote 134)

360. We note that payments in respect of each of these measures are calculated by reference to
"base acres" upon which certain commodities (including upland cotton) were grown in a base period,
but upon which a producer currently may or may no t grow upland cotton. We refer to these four
types of payment in this section as the "base acre dependent payments".
361. We turn to our analysis of the phrase "such measures ... grant[ing] support to a specific
commodity" in Article 13(b)(ii). The Panel found and the participants do not dispute that the relevant
United States measures grant "support" 372; similarly, the Panel found 373 and the participants agree 374
that upland cotton is a "commodity" in the sense of that provision.
362. The key element, however, is the significance of the qualifying word "specific" in this phrase.
The Panel described the ordinary meaning of the term "specific" as "clearly or explicitly defined;
precise; exact; definite"375 and as "specially or peculiarly pertaining to a particular thing or person, or
a class of these; peculiar ( to)".376 In our view, the term "specific" in the phrase "support to a specific
commodity" means the "commodity" must be clearly identifiable. The use of term "to" connecting
"support" with "a specific commodity" means that support must "specially pertain" to a particular
commodity in the sense of being conferred on th at commodity. In addition, the terms "such
measures ... grant" indicates that a discernible lin k must exist between "s uch measures" and the
particular commodity to which support is granted. Thus, it is not sufficient that a commodity happens
to benefit from support, or that support ends up flow ing to that commodity by mere coincidence.
Rather, the phrase "such measures" granting "support to a specific commodity" implies a discernible
link between the support-conferring measure and th e particular commodity to which support is
granted.
363. Therefore, we agree with the Panel insofar as it found that the ordinary meaning of the phrase
"such measures ... grant[ing] support to a specific commodity" includes "non-green box measures

372See Panel Report, paras. 7.518-7.520 and, for example, United States' appellant's submission,
para 105. We recognize that the Unite d States qualifies this by emphasizing that, in its view, they grant "non-
product-specific" support.
373Panel Report, paras. 7.480 and 7.518-7.520.
374See United States' appellant's submission, paras. 85 and 104; and Brazil's appellee's submission,
para. 385.
375Panel Report, para. 7.481 (quoting The New Shorter Oxford English Dictionary , L. Brown (ed.)
(Clarendon Press, 1993), Vol. 2, p. 2972).
376Ibid., para. 7.482 (quoting The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon
Press, 1993), Vol. 2, p. 2972). The Panel found that this second definition was more appropriate in another
context, but we believe that both of these definitions shed light upon the meaning of "specific" in "support to a
specific commodity".

that clearly or explicitly define a commodity as one to which they bestow or confer support". 377 This
is because the Panel's test requires that a commodity be specified in the measure, and that the support
be conferred on that commodity. We believe, however, that the terms of this definition do not exhaust
the scope of measures that may grant "support to a speci fic commodity". We note in this regard that
the Panel looked, in applying its test, to factors such as eligibility criteria and payment rates, as well
as the relationship between payments and current market prices of the commodity in question. 378 In
our view, the Panel was correct to consider such matters, as the requisite link between a measure
granting support and a specific commodity may be di scerned not just from an explicit specification of
the commodity in the text of a measure, as the Pa nel's test—on its face—seems to imply, but also
from an analysis of factors such as the characteristics, structure or design of that measure.379
364. Moving to the context of the proviso to Article 13(b)(ii), we note that the United States argues
that "support to a specific commodity" should be interpreted as meaning "product-specific support".
The United States emphasizes the similarities betwee n the phrase "support to a specific commodity"
in Article 13(b)(ii) and two phrases in Article 1 of the Agreement on Agriculture that refer to
product-specific support: "support for basic agricultural products" 380 and "support ... provided for an
agricultural product in favour of the producers of the basic agricultural product".381 The United States
argues that the meaning of all of these phrases must be the same.
365. These phrases do provide important context for the interpretation of Article 13(b)(ii). In our
view, "support to a specific commodity" certainly includes "product-specific" support. However,
like the Panel, we do not believe that the scope of the phrase "support to a specific commodity" in the
proviso to Article 13(b)(ii) is exhausted by taking into account the category of product-specific
support alone.
366. This is for at least two reasons. First, we note that the drafters chose not to use phrases such
as support "provided for an agricultural product in favour of the producers of the basic agricultural
product" or "support for basic agricultural products" in Article 13(b)(ii), but rather chose the distinct

377Panel Report, para. 7.494(i).
378Ibid., paras. 7.510-7.517.
379Although we observe that the Panel correctly identifie d the elements that we believe are inherent in
the term "support to a specific commodity", the Panel's articulation of the test was not absolutely clear. We also
note that the Panel appears to have misapplied the test for "support to a specific commodity" by attributing to
upland cotton the total budgetary outlays with respect to upland cotton base acres. See infra, para. 375.
380This phrase is found in Article 1(h) of the Agreement on Agriculture . (United States' appellant's
submission, para. 88)
381This phrase is found in Article 1(a) of the Agreement on Agriculture . (United States' appellant's
submission, para. 88)

phrase "support to a specific commodity". This choi ce of different words by the drafters gives a
preliminary indication that they may have intended to convey different meanings.382
367. Secondly, and more importantly, the United States ' argument fails to reckon with the fact that
the scope of domestic support measures that may grant "support to a specific commodity" under
Article 13(b)(ii) is broader than just "product-specifi c support" in the sense of Article 1 and Annex 3.
The proviso to Article 13(b)(ii) mentions only th e term "such measures" granting support; but the
meaning of this term can be clarified by reference to the chapeau of Article 13(b) because, as the
Panel noted, "[t]he chapeau of paragraph (b) and su bparagraph (ii) form part of a single sentence."
383
The chapeau identifies the categories of support measures covered by that provision. These are:
... domestic support measures that conf orm fully to the provisions of
Article 6 of this Agreement includi ng direct payments that conform
to the requirements of paragraph 5 thereof, as reflected in each
Member's Schedule, as well as domestic support within de minimis
levels and in conformity with paragraph 2 of Article 6 ...
368. Measures covered by Article 6 include both product-specific and non-product-specific amber
box support subject to reduction commitments. In addition, measures covered by the chapeau also
include product-specific and non-product-specific support within de minimis levels. They further
include blue box support provided in accordan ce with Article 6.5, as well as development box
support, provided according to the provisions of Artic le 6.2, for both of which the distinction between
product-specific and non-product specific support for purposes of the AMS calculation has little
practical relevance.
384 Like the Panel, we believe that the use of the term "such measures" in the
proviso to Article 13(b)(ii) indicates that all such measures identified in the chapeau of Article 13(b)
may qualify as granting "support to a specific commodity " and are eligible to be included in the
analysis. By contrast, under the United States' argument, domestic support measures listed in the
chapeau (with the exception of product-specific am ber box support) could not be "support to a
specific commodity" even if they confer support on a specific commodity and there is a discernible
link between the measure and that commodity.

382We note in this regard that, for example, Article 6.4(a)(i) of the Agreement on Agriculture mentions
"product-specific domestic support", whereas Article 13 does not mention or cross-refer to it.
383Panel Report, para. 7.470.
384The only type of domestic support clearly excluded from support covered by Article 13(b) is green
box support, which does not need to conform with the prov isions of Article 6, but rather must conform with the
provisions of Annex 2. Green box support, however, qualifies for the exemption from actions provided by
Article 13(a).

369. In addition, the United States supports its position by reference to the obligations in Articles 3
and 6 of the Agreement on Agriculture , which lay down reduction commitments for total AMS
comprising both product-specific and non-product- specific support, but provide no product-specific
caps. In the United States' view, because the reduction commitments do not cap product-specific
support, the proviso in Article 13(b)(ii) disciplines the degree to which a Member that is in conformity
with its reduction commitments can shift support between particular commodities.385
370. Indeed, as the United States correctly points out, Article 13(b)(ii) serves to create a discipline
upon Members that seek the shelter of the peace clau se during the implementation period. We are not
convinced, however, that this discipline is limited to "product-specific support" as defined in Article 1
of the Agreement on Agriculture . Rather, it extends to all measur es that grant "support to a specific
commodity", in the sense that the support is conferred on a specific commodity, and there is a
discernible link between the measure and the specific commodity concerned.
(b) Application of Article 13(b)(ii) to the Measures at Issue
371. The proviso to Article 13(b)(ii) requires an ass essment of whether the relevant United States
non-green box domestic support measures grant, du ring the implementation period, "support to a
specific commodity in excess of that decided during the 1992 marketing year".
372. As we have explained above, the term "s uch measures ... grant support to a specific
commodity" comprises two elements: first, a non-green box measure actually confers support on the
specific commodity in question; and second, there is a discernible link between the measure and the
commodity, such that the measure is directed at supporting that commodity. Such a discernible link
may be evident where a measure explicitly defin es a specific commodity as one to which it bestows
support. Such a link might also be ascertained, as a matter of fact, from the characteristics, structure
or design of the measure under examination. Conv ersely, support that does not actually flow to a
commodity or support that flows to a commodity by coincidence rather than by the inherent design of
the measure cannot be regarded as falling within the ambit of the term "support to a specific
commodity".
373. With these considerations in mind, we turn now to the application of this interpretation to four
measures that the United States claims do not gr ant "support to a specific commodity": the
production flexibility contract payments , market loss assistance payments , direct payments and
counter-cyclical payments. We refer to these measures as "base acre dependent payments" because
each of these measures provides payments based on a calculation in which a payment rate, specific to

upland cotton, is multiplied by an ascertained quantity of upland cotton, which, in turn, is a product of
a farm's historical planting of upland cotton (its "upland cotton base acres") and its historical yield of
upland cotton per acre. 386 For purposes of the Article 13(b)(ii) comparison, the Panel outlined three
alternative methodologies, and therefore three differe nt calculations, in respect of these measures in
its Article 13(b)(ii) analysis. 387 We also note that in calculating support granted to upland cotton the
United States has ascribed a zero value to the four aforementioned domestic support measures. For
purposes of these proceedings, we do not find it necessary to go beyond the Panel record, and thus
limit our consideration to these four alternative calculations.
374. The Panel ultimately based its calculations in r espect of the base acre dependent payments on
the total budgetary outlays with respect to upland cotton base acres under each program. 388 T h e
United States contends that this calculation methodology led the Panel to include, as support to upland
cotton, payments to producers who did not plant upland cotton.389 For the United States, there is "[no]
question that payments cannot be deemed to grant support to a crop the recipient does not produce".390
In addition, the United States contends that the Pa nel erred in finding that the base acre dependent
programs "clearly and explicitly specif[y] upland cotton ... as a commodity to which they grant
support".391 In the view of the United States, these measures do no such thing. The United States
emphasizes that producers receive payments under th e base acre dependent programs irrespective of
whether and how much upland cotton they plant, and regardless of whether they plant anything at
all.
392 For the United States, the "Pan el's error stems largely from its assertion that merely identifying
historical criteria relating to a commodity according to which payments will be made would render
such payments 'support to a specific commodity'."393
375. We agree with the United States that payments made with respect to historical upland cotton
base acres to commodities other than upland cott on or to producers who produced no commodities at

386We note that each of these programs applied not just to upland cotton, but also to other eligible
commodities. We also note that market loss assistance payments did not involve a separate calculation
involving these criteria. Rather, market loss assistance payments served to supplement production flexibility
contract payments and were made proportionate to a producer's production flexibility contract payments. (Panel
Report, para. 7.217)
387See Panel Report, para. 7.596 and "Attachment to Section VII:D" (Panel Report, paras. 7.634-7.647).
388Ibid., paras. 7.580-7.583.
390Ibid.
393Ibid., para. 105. (original emphasis) The United Stat es points out that "base acres" are not "physical
acres" but hypothetical acres for calculation of decoupled payments to producers, who are free to produce
whatever crop they choose or to produce no crop at all. (United States' responses to questions during the oral
hearing)

all cannot be deemed to be support granted to upland cotton for purposes of the Article 13(b)(ii)
comparison. The Article 13(b)(ii) assessment must be limited to support conferred on planted upland
cotton; support flowing to other commodities that were planted, or support that was given where no
commodities were produced must of course be removed from the assessment. We reject, therefore,
the Panel's calculation methodology to the extent that it failed to limit the Article 13(b)(ii) calculation
to payments with respect to upland cotton base acres corresponding to physical acres actually planted
with upland cotton.
376. We observe, however, that the Panel acknowle dged that a producer with upland cotton base
acres may plant any crop other than the excluded fr uits, vegetables, and wild rice, but it found that
there was "a strongly positive relationship between those recipients who hold upland cotton base acres
and those who continue to plant upland cotton, despite their entitlement to plant other crops".
394 The
Panel further observed that data provided by the Unit ed States showed that "a very large proportion of
farms with upland cotton base acres continue to plant upland cotton in the year of payment" 395, and
that "the overwhelming majority of farms enrolle d in the programmes which plant upland cotton also
hold upland cotton base".396
377. We note in this regard that the Panel included, in "Attachment to Section VII:D" to its Report,
and described as "appropriate"397, an alternative calculation using certain methodologies submitted by
Brazil for allocating support to acres actually planted with upland cotton under the base acre
dependent programs. The first part of this calcu lation, the "cotton to cotton" methodology, allocated,
for each planted acre of upland cotton, payments associated with one upland cotton base acre. The
second part ("Brazil's methodology") took the results of the "cotton to cotton" methodology and then
added to it payments made with respect to non- upland cotton base acres corresponding to physical
acres that were actually planted with upland cotton. 398 The "cotton to cotton" methodology limits the
Article 13(b)(ii) calculation to payments with r espect to cotton base acres corresponding to physical
acres that were actually planted with upland cotton.
378. We turn next to the United States' contention th at the mere fact that a measure is based on
historical production of upland cotton is not a sufficient basis for a finding that the measure grants at
present "support to [the] specific commodity" upland co tton. We agree that none of the base acre

394Panel Report, para. 7.637.
395Ibid., para. 7.636. (footnote omitted)
396Ibid., para. 7.636.
397Ibid., para. 7.646.
398See Ibid., paras. 7.640-7.642.

dependent programs expressly ties support to contin ued production of upland cotton. However, the
absence of an express reference in the legislation to continued production of upland cotton does not
mean that the payments do not grant support to upland cotton. This is because a link between the four
measures at issue and the continued production of upland cotton is discernible from the
characteristics, structure and operation of those measures.
379. We note in this regard the reasoning of the Panel:
Where, for example, these measures specify commodities in the
eligibility criteria and payment rate s, they constitute support to the
commodities specified in that way. This applies a fortiori where the
payments are determined according to, or are related to, current
market prices of the specific commodities.
399
On this basis, the Panel highlighted several fact ors revealing a close nexus between payments with
respect to historic upland cotton base acres under th e production flexibility contract, market loss
assistance, direct payment and counter-cyclical pa yment measures, and the continued production of
upland cotton on an equivalent number of physical acres at present. The Panel noted that payments
under each program were based on "very specific eligibility criteria", primarily the production of
upland cotton in a historical base period. 400 The Panel also observed that, in the case of each of the
measures, a particular payment rate was specified for upland cotton. 401 Yield calculations were also
specific to upland cotton and related to historical upland cotton yields per acre. 402 In the case of
market loss assistance payments, payments were sp ecifically designed to compensate for low prices
for upland cotton. 403 In the case of counter-cyclical paymen ts, the payment rate for upland cotton is
directly linked to the market price of upland cotton in the year of payment. 404 In our view, these
characteristics and operational factors of the measures in question demonstrate a link between
payments made with respect to historic upland cotton base acres and the continued production of
upland cotton.
380. We underline that these Panel findings do not pertain to all payments to current producers
of upland cotton, but rather are limited to paym ents to producers with respect to historic upland
cotton base acres.
405 Indeed, we see little in the Panel's findi ng or on the record that would allow us

399Panel Report, para. 7.484.
400Ibid., paras. 7.513-7.516.
401Ibid., para. 7.635.
402See ibid., paras. 7.513-7.516.
403Ibid., para. 7.515.
404Ibid., para. 7.516.
405See supra, footnote 184.

to discern a link between the support-conferring measures with respect to non-cotton historical base
acres and current production of upland cotton. We do not, therefore, accept the methodology
submitted by Brazil that included, in the Article 13(b )(ii) calculation, payments with respect to both
cotton and non-cotton base acres flowing to current production of upland cotton. We believe that only
the "cotton to cotton" methodology, included by the Panel in "Attachment to Section VII:D" to its
Report as an "appropriate"
406 alternative calculation, sufficiently demonstrates a discernible link
between payments under base acre dependent measures (related to upland cotton) and upland cotton.
381. Finally, we address the United States' argu ment that the calculation methodology under
Article 13(b)(ii) must be based on only those factor s that the government of a Member can control,
excluding, for example, producer decisions regard ing what crops to grow within the scope of
production flexibility allowed by the measures. 407 In advancing this contention, the United States
relies upon the following statement of the Panel:
[If] the proviso [to Article 13(b)(ii)] focused on where support was
spent due to reasons beyond the control of the government, such as
producer decisions on what to produce within a programme, it would
introduce a major element of unpred ictability into Article 13, and
render it extremely difficult to ensure compliance.
408
382. The United States finds support for this view in the terms "grant" and "decided" in
Article 13(b)(ii), and claims that "the focus of the Peace Clause comparison is on the support a
Member decides".409 We note that the verbs "grant" and "deci ded" have distinct meanings. We agree
with the observation of the Panel that "'[d]ecided' refers to what the government determines, but
'grant' refers to what its measures provide." 410 In Article 13(b)(ii), each of these words has been
chosen to govern one side of the comparison required by that proviso. In the light of the distinct
meanings of these words, and the distinct roles they play in the context of Article 13(b)(ii), we reject
the idea that the word "grant", which is applicable to implementation period support, must be read to
mean the same thing as "decided", which is applicable to the 1992 benchmark level of support.
383. Moreover, we do not accept that unpredictab ility of producer decisions under planting
flexibility rules, per se , could modify the specific requirements set out in the proviso to
Article 13(b)(ii). What is relevant for the compar ison is the support that the measure actually grants

406Panel Report, para. 7.646.
407United States appellant's submission, paras. 64-67 and 114-117.
408Panel Report, para. 7.487.
410Panel Report, para. 7.476.

during the implementation period. Indeed, we agree with Brazil that a certain degree of
unpredictability in the volume of the payments flow ing to particular commodities is inherent in many
of the support measures disciplined by the Agreement on Agriculture , including measures granting
support to a specific commodity.411 The existence of such unpredictability cannot be a ground to alter
the basis of comparison under the proviso to Article 13(b)(ii) from what is actually "grant[ed]" in the
implementation period to what is only "decided".
384. For the reasons stated above, we conclude that payments with respect to upland cotton base
acres to producers currently growing upland cotton under the production flexibility contract, market
loss assistance, direct payment and counter-cyclical payment measures, calculated in accordance with
the "cotton to cotton" methodology, are support granted to the specific commodity upland cotton in
the sense of Article 13(b)(ii) of the Agreement on Agriculture.
412
(c) Methodology for Calculating the Value of Price-Based Payments
385. The United States' appeal regarding the Pa nel's decision to use the budgetary outlay
methodology and not the price gap methodology descr ibed in paragraph 10 of Annex 3 to the
Agreement on Agriculture for certain price-based payments concerns calculation of the amounts of
two types of payments: (i) payments under the marketing loan program , which are relevant to the
calculation of both the 1992 benchmark level of support and support during the implementation
period; and (ii) deficiency payments, made in accordance with the FA CT Act of 1990, which were
replaced by production flexibility contract paymen ts under the FAIR Act of 1996, and which are
therefore relevant only to the calculation of the 1992 benchmark level of support.413
386. Payments to upland cotton under the marketing loan program could take one of several forms.
In each case, however, gains to producers under this program accrued on the basis of a gap between a
reference price tied to the market price of upland cotton, known as the "adjusted world price", and the

411Thus, in the case of measures that compensate fo r price fluctuations, unless a limit is set on total
payments, a government has little control over the eventual amount of payments. In addition, we recall that the
export subsidies at issue in US – FSC took the form of a foregoing of tax revenue, with the precise amount of
the revenue foregone, and the nature of the specific products that it went to support, being dependent upon the
actions of private corporations claiming the exemption. In that case, therefore, it could also be said that whether
the United States would exceed product-specific export subsidy commitments would also depend on private
producers' decisions to claim tax exemptions.
412For the Panel's findings on the value of produc tion flexibility contract payments, market loss
assistance payments, direct payments and counter-cycli cal payments using the "cotton to cotton" methodology
see Panel Report, para. 7.641.
413United States' appellant's submission, para. 72; Panel Report, para. 7.213. We observe that the
United States' arguments relating to the use of the price gap methodology to measure marketing loan program
payments and deficiency payments extend only to the analysis required under Article 13(b)(ii) of the Agreement
on Agriculture; the United States does not argue that a price gap calculation is required in the context of an
analysis of significant price suppression under Article 6.3(c) of the SCM Agreement.

"loan rate" fixed, from time to time, for the marketing loan program. 414 Deficiency payments for
upland cotton were based on the gap between either the loan rate under the marketing loan program,
or the national average market price for upland cotton (whichever was higher) and a target price
of 72.9 cents per pound of upland cotton. In the even t that the loan rate or market price fell below the
target price, deficiency payments filled the deficit.415
387. The United States claims that both of these price-based measures represent "non-exempt
direct payments ... dependent on a price gap", the va lue of which should be calculated by reference to
the price gap methodology described in paragraph 10 of Annex 3 to the Agreement on Agriculture.416
388. In addressing this issue, we—like the Panel— note that Article 13(b)(ii) gives no specific
guidance regarding how the "support" that measures granted in the implementation period or that
was decided during the 1992 marketing year should be calculated. The Panel therefore turned to the
broader context of the Agreement on Agriculture and chose to "apply the principles of AMS
methodology" in accordance with Annex 3 of the Agreement on Agriculture , with certain
modifications.417 We observe that, on appeal, neither of th e participants, nor indeed any of the third
participants that addressed this issue, suggested that the Panel erred in seeking guidance for its
calculations in the principles set out in Annex 3.
389. Against this background, we observe that paragraph 10 of Annex 3 provides that "non-exempt
direct payments ... dependent on a price gap" may be measured using either price gap methodology or
budgetary outlay methodology. 418 The Panel chose to rely upon actual budgetary outlays 419, but

414For a description of payments under the marketing loan program, see Panel Report, paras. 7.204-
7.208.
415For a description of deficiency payments, see Panel Report, footnote 294 to para. 7.213.
416United States' appellant's submission, paras. 71-73 (quoting paragraph 10 of Annex 3 to the
Agreement on Agriculture).
417Panel Report, para. 7.552.
418Paragraph 10 of Annex 3 to the Agreement on Agriculture sets forth:
Non-exempt direct payments: non-e xempt direct payments which are
dependent on a price gap shall be calculated either using the gap between
the fixed reference price and the applied administered price multiplied by
the quantity of production eligible to receive the administered price, or using
budgetary outlays.
419See, for example, Panel Report, para. 7.596. We reproduce the Panel's findings with respect to the
values attributable to deficiency payments and paym ents under the marketing loan program using budgetary
outlays in Table 1 of Annex 2.

included in its Report findings regarding the valu e of support in each relevant year calculated
according to price gap methodology as well.420
390. As we explain in the next section, our conclu sion that the United States granted, during the
relevant years of the implementation period, "support to a specific commodity", namely, upland
cotton, "in excess of that decided during the 1992 ma rketing year" holds irrespective of whether the
Panel's budgetary outlay calculations or its price gap calculations are used to attribute values to
marketing loan program payments and deficiency pa yments. Therefore, it is unnecessary for us to
decide here which methodology must be used for purposes of the comparison envisaged by
Article 13(b)(ii) with respect to these two types of payment.
421
(d) Conclusion Regarding the Application of Article 13(b)(ii)
391. We recall, once again, that the proviso to Article 13(b)(ii) of the Agreement on Agriculture
sets forth that, during the implementation period in which Article 13 applies, non-green box domestic
support measures must not "grant support to a specific commodity in excess of that decided during the
1992 marketing year", if such measures are to enjo y exemption from actions "based on paragraph 1 of
Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement".422
392. In our review above, we have concluded that, for purposes of the comparison envisaged by
Article 13(b)(ii), the values of the four measures, namely, production flexibility contract payments,
market loss assistance payments, direct payments and counter-cyclical payments in the years 1999,
2000, 2001, and 2002 are properly determined by usi ng the "cotton to cotton" methodology, and we
have therefore modified the Panel's findings in this regard. We further note that the United States has

420See Panel Report, para. 7.564 and footnote 727 to para. 7.565. We reproduce the Panel's findings
with respect to the values attributable to deficiency payments and payments under the marketing loan program
using price gap methodology in each relevant year in Table 2 of Annex 2.
421At the oral hearing, the United States confirmed that it may become unnecessary to rule on its appeal
regarding calculation methodology, should the Panel's conclusions with respect to the phrase "support to a
specific commodity" in Article 13(b)(ii) be upheld by the Appellate Body. (United States' response to
questioning at the oral hearing)
422We note at this point that we agree with the Panel that:
There is no requirement to quantify th e excess, but the decisive question is
whether there is any excess. Thus, it w ould not be strictly necessary ... to
make a precise calculation of the amount of the excess if it is clear that, on
the basis of the proper evidentiary st andard, there is an excess of some
degree.
(Panel Report, para. 7.419)
We also note, however, that fairly detailed calcula tions regarding the values attributable to United
States implementation period support is available to us in these proceedings.

not appealed the Panel's findings regarding the valu es attributable to three further support measures,
namely, Step 2 payments to domestic users, crop insurance and cottonseed payments.423
393. Adding, to the values of the seven measures mentioned above, the values for deficiency
payments and marketing loan program payments calculated using either budgetary outlays 424 or
price gap methodology425, we conclude that the United States ' domestic support measures in question
granted "support to a specific commodity", namely, upland cotton, that was "in excess of that decided
during the 1992 marketing year" in each relevant year of the implementation period.
394. It follows that the condition set out in the proviso to Article 13(b)(ii) of the Agreement on
Agriculture has not been met by the United States. We uphold, therefore, the Panel finding, in
paragraph 7.608 of its Report, that the United St ates' domestic support measures challenged by Brazil
are not entitled to the exemption provided by the peace clause from actions under Article XVI:1 of the
GATT 1994 and Articles 5 and 6 of the SCM Agreement.
VI. Serious Prejudice
A. Significant Price Suppression under Article 6.3(c) of the SCM Agreement
1. Introduction
395. The United States appeals the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of the Panel
Report, that the effect of marketing loan program payments, Step 2 payments, market loss assistance
payments, and counter-cyclical payments (the "pri ce-contingent subsidies") is significant price
suppression within the meaning of Article 6.3(c) of the SCM Agreement constituting serious
prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement. The
United States raises several objections to the Panel' s analysis leading to this finding. The United
States also asks us to find that the Panel failed to set out the findings of fact, the applicability of
relevant provisions, and the basic rationale behind this finding, as required by Article 12.7 of the
DSU. Brazil, for its part, raises a preliminary issue under Article 11 of the DSU.
396. In this section of this Report, we begin our analysis by addressing the preliminary argument
of Brazil regarding Article 11 of the DSU. We then turn to the various errors that the United States
alleges that the Panel made in making its finding of significant price suppression under Article 6.3(c)

423For Panel findings on the value of support under these programs, see Panel Report, para. 7.596. See
also Tables 1 and 2 of Annex 2.
424See Table 1 of Annex 2.
425See Table 2 of Annex 2.

of the SCM Agreement. In doing so, we examine the United States' objections to the "market" and
"price" that the Panel examined in its analysis of the price-contingent subsidies pursuant to
Article 6.3(c). We then consider the Panel's order of analysis under Article 6.3(c). Next, we assess
the other alleged errors in the Panel's reasoning lead ing to its finding that the effect of the price-
contingent subsidies is significant price suppression. These include the Panel's alleged failure to
quantify the amount of the price-contingent subsidi es benefiting upland cotton or to allocate the effect
of the subsidies to the appropriate period of time. We then consider the implications of this appeal for
the Panel's finding regarding serious prejudice under Article 5(c) of the SCM Agreement. Finally, we
address the United States' claim that the Panel failed to comply with the requirements of Article 12.7
of the DSU.
2. Objective Assessment under Article 11 of the DSU
397. Brazil argues that many of the United States' arguments, particularly those concerning serious
prejudice, involve allegations that the Panel faile d to "make an objective assessment of the matter
before it, including an objective assessment of th e facts of the case" pursuant to Article 11 of the
DSU.426 Brazil requests us to dismiss the United States' arguments that Brazil lists in Annex A to its
appellee's submission, on the basis that the United States has not made a proper claim of error under
Article 11 of the DSU.427
398. In its opening statement delivered at the oral hearing, the United States confirmed that it has
not made an Article 11 claim in this appeal. Rath er, the United States claims that the Panel erred in
its interpretation of Article 6.3(c) of the SCM Agreement and in applying this interpretation to the
facts in this dispute. The United States also reque sts us not to dismiss certain of its arguments as
requested by Brazil. Under these circumstances, there is no need for us to rule that the United States
makes no Article 11 claim. We also refrain from ruling on whether the Panel complied with
Article 11 of the DSU. Moreover, we decline to di smiss the United States' arguments that Brazil lists
in Annex A to its appellee's submission on the basis that an Article 11 claim was not properly set out
by the United States.
399. We are nevertheless mindful of the scope of appellate review with respect to legal and factual
matters. Pursuant to Article 17.6 of the DSU, app eals are "limited to issues of law covered in the
panel report and legal interpretations developed by the panel". To the extent that the United States'
arguments concern the Panel's appreciation and weighing of the evidence, we note from the outset that

426Brazil's appellee's submission, paras. 105 and 146.
427Ibid., para. 146.

the Appellate Body will not interfere lightly with the Panel's discretion "as the trier of facts".428 At the
same time, the Appellate Body has previously pointed out that the "consistency or inconsistency of a
given fact or set of facts with the requirements of a given treaty provision is ... a legal characterization
issue".429 Whether the Panel properly interpreted th e requirements of Article 6.3(c) of the SCM
Agreement and properly applied that interpretation to the facts in this case is a legal question. This
question is different from whether the Panel made "an objective assessment of the matter before it,
including an objective assessment of the facts of the case", in accordance with Article 11 of the
DSU.430 Therefore, the Panel's application of the legal requirements of Article 6.3(c) of the SCM
Agreement to the facts of this case falls within the scope of our review in this appeal, despite the fact
that the United States does not claim that the Panel erred under Article 11 of the DSU.
3. Relevant Market under Article 6.3(c) of the SCM Agreement
400. Turning to the question of the relevant "marke t", we observe that Article 6.3(c) of the SCM
Agreement addresses the situation where "the effect of th e subsidy is ... significant price suppression
... in the same market". (emphasis added) As the Panel suggested 431, and the parties agree 432, it is up
to the complaining Member to identify the market in which it alleges that the effect of a subsidy is
significant price suppression and to demonstrate that th e subsidy has that effect within the meaning of
Article 6.3(c). Before the Panel, Brazil identified the following as relevant markets for its claim under
Article 6.3(c): (a) the world market for upland cotto n; (b) the Brazilian market; (c) the United States
market; and (d) 40 third country markets where Br azil exports its cotton and where United States and
Brazilian upland cotton are found. 433 In contrast, the United States argued before the Panel that the
relevant market under Article 6.3(c) must be "a part icular domestic market of a Member", and that it
cannot be a "world market".434

428"Determination of the credibility and weight properly to be ascribed to (that is, the appreciation of) a
given piece of evidence is part and parcel of the fact findin g process and is, in principle, left to the discretion of
a panel as the trier of facts." (Appellate Body Report, EC – Hormones , para. 132) See also Appellate Body
Report, US – Wheat Gluten , para. 151; Appellate Body Report, EC – Sardines , para. 299; Appellate Body
Report, US – Carbon Steel, para. 142; Appellate Body Report, Japan – Apples, para. 221.
430On this question, the Appellate Body has made se veral pronouncements in pr evious appeals. See,
for example, Appellate Body Report, EC – Hormones , para. 133; Appellate Body Report, Korea – Dairy ,
431Panel Report, para. 7.1246.
432The United States and Brazil indicated their agreem ent on this point in response to questioning
during the oral hearing.
433Panel Report, para. 7.1230.
434Ibid., para. 7.1231.

401. The Panel regarded the absence of any geogra phic limitation or refe rence to imports or
exports in the text of Article 6.3(c), in cont rast to Articles 6.3(a) and (b) and 15.2 of the SCM
Agreement, as indicating that the "same market" under Article 6.3(c) could be a "world market". 435
Applying this interpretation to the facts of the pr esent dispute, the Panel concluded that a "world
market" for upland cotton does exist. 436 The Panel further stated that "[w]here price suppression is
demonstrated in [the world] market, it may not be necessary to proceed to an examination of each and
every other possible market where the products of both the complaining and defending Members are
found".437 In the present dispute, having found that "price suppression has occurred in the same world
market"438, the Panel decided that it was not "necessary to proceed to any further examination of ...
alleged price suppression in i ndividual country markets". 439 Thus, the Panel's analysis of the world
market for upland cotton formed the basis for its finding that the effect of the price-contingent
subsidies is significant price suppression within the meaning of Article 6.3(c).
402. On appeal, the United States submits that the Panel erred in interpreting the words "same
market" in Article 6.3(c) of the SCM Agreement as including a "world market". 440 It also submits
that the Panel's finding that a "world market" exists for upland cotton is inconsistent with certain of its
other findings.441 The United States also argues that, in any case, the Panel did not make a finding
that United States and Brazilian upland cotton compete in the world market that it had identified for
upland cotton.442 Brazil contends that significant price suppression under Article 6.3(c) "may apply to
any 'market,' from local to global, and everything in between".443
403. We begin our analysis of this issue by identifyi ng the ordinary meaning of the word "market"
in the context of Article 6.3(c). Article 6.3(c) of the SCM Agreement indicates that:
Serious prejudice in the sense of paragraph (c) of Article 5 may arise
in any case where one or several of the following apply:

435Panel Report, paras. 7.1238-7.1240.
436Ibid., para. 7.1247.
437Ibid., para. 7.1252.
438Ibid., para. 7.1312.
439Ibid., para. 7.1315.
441Ibid., paras. 318 and 319. The United States submits that the Panel failed to reconcile its
interpretation of the "same market" in Article 6.3(c) with its reading of the phrase "world market" under
Article 6.3(d).
443Brazil's appellee's submission, para. 628. (original emphasis)

(c) the effect of the subsidy is a significant price undercutting by
the subsidized product as compared with the price of a like
product of another Member in the same market or significant
price suppression, price depression or lost sales in the same
market[.] (emphasis added)
404. The Panel described the ordinary meaning of the word "market" as:
444
"a place ... with a demand for a commodity or service" 1355; "a
geographical area of demand for commodities or services"; "the area
of economic activity in which buyers and sellers come together and
the forces of supply and demand affect prices".1356

 1355 The New Shorter Oxford English Dictionary, (1993).
 1356 Merriam-Webster Dictionary online.
405. We accept that this is an adequate description of the ordinary meaning of the word "market"
for the purposes of this dispute, and we do not understand the parties to dispute it. 445 This ordinary
meaning does not, of itself, impose any limitation on the "geographical area" that makes up any given
market. Nor does it indicate that a "world market " cannot exist for a given product. As the Panel
indicated, the "degree to which a market is limited by geography will depend on the product itself and
its ability to be traded across distances".446
406. The only express qualification on the type of "market" referred to in Article 6.3(c) is that it
must be "the same" market. Aside from this qualifi cation (to which we return below), Article 6.3(c)
imposes no explicit geographical limitation on the scope of the relevant market. This contrasts with
the other paragraphs of Article 6.3: paragraph (a) restricts the releva nt market to "the market of the
subsidizing Member"; paragraph (b) restricts the re levant market to "a third country market"; and
paragraph (d) refers specifically to the "world market share". We agree with the Panel 447 that this
difference may indicate that the draf ters did not intend to confine, a priori , the market examined
under Article 6.3(c) to any particular area. Thus , the ordinary meaning of the word "market" in

444Panel Report, para. 7.1236.
445As indicated by the United States and Brazil in response to questioning during the oral hearing.
446Panel Report, para. 7.1237.
447Ibid., paras. 7.1238-7.1240.

Article 6.3(c), when read in the context of the ot her paragraphs of Article 6.3, neither requires nor
excludes the possibility of a national market or a world market.448
407. Turning to the phrase "in the same market", it is clear to us from a plain reading of
Article 6.3(c) that this phrase applies to all four situations covered in that provision, namely,
"significant price undercutting", "significant price suppression, price depression [and] lost sales". We
read the Panel Report and the participants' submissions as endorsing this interpretation.
449 The phrase
"in the same market" suggests that the subsidized product in question (United States upland cotton in
this case)450 and the relevant product of the complaining Member must be "in the same market". In
this appeal, the Panel and the participan ts agree that United States upland cotton 451 and Brazilian
upland cotton452 must be "in the same market" for Braz il's claim under Article 6.3(c) to succeed. 453
Furthermore, the participants agree that these are like products.454
408. When can two products be considered to be "i n the same market" for the purposes of a claim
of significant price suppression under Article 6.3(c) ? Article 6.3(c) does not provide an explicit
answer. However, recalling that one accepted definiti on of "market" is "the area of economic activity
in which buyers and sellers come together and the forces of supply and demand affect prices" 455, it
seems reasonable to conclude that two products would be in the same market if they were engaged in
actual or potential competition in that market. Thus , two products may be "in the same market" even
if they are not necessarily sold at the same time and in the same place or country. As the Panel

448This stands to reason, given that the purpose of the "actionable subsidies" provisions in Part III of the
SCM Agreement is to prevent Members from causing adverse effects to the interests of other Members through
the use of specific subsidies, wherever such effects may occur.
449Panel Report, paras. 7.1248 and 7.1251; United St ates' appellant's submission, para. 310; Brazil's
appellee's submission, paras. 636 and 638.
450See infra, footnote 451.
451Specifically, the subsidized product is United States upland cotton lint. (Panel Report, paras. 7.139,
7.1221-7.1224 and footnote 191 to para. 7.139) The Panel explained that upland cotton, upon harvest,
comprises cotton lint and cottonseed. The cotton lint is separated from the cottonseed through "ginning". (Panel
Report, footnote 258 to para. 7.197)
452Panel Report, footnote 258 to para. 7.197 and paras. 7.1221-7.1224. The United States and Brazil
confirmed during the oral hearing that they do not contest this identification of the subsidized product and the
other relevant product.
453Accordingly, we need not deci de whether, in a claim of significant price suppression under
Article 6.3(c), the product identified by the complainant must be "like" the relevant subsidized product. We
note in this regard that the term "in the same mark et" appears twice in Article 6.3(c). In the case of significant
price undercutting , the "subsidized product" must be "compared with the price of a like product of another
Member in the same market". (emphasis added) This raises the question whether the other three situations
mentioned in Article 6.3(c) (namely, "significant price suppression, price depression [and] lost sales") include a
requirement that the subsidized product and the relevant product of the complainant be "like".
454Panel Report, paras. 7.1248 and 7.1251; United St ates' appellant's submission, para. 310; Brazil's
appellee's submission, paras. 636 and 638.
455Panel Report, para. 7.1236 (quoting Merriam-Webster Dictionary online).

correctly pointed out, the scope of the "market", for determining the area of competition between two
products, may depend on several factors such as th e nature of the product, the homogeneity of the
conditions of competition, and transport costs. 456 This market for a particular product could well be a
"world market". However, we agree with the Panel that the fact that a world market exists for one
product does not necessarily mean that su ch a market exists for every product. 457 T h u s t h e
determination of the relevant mark et under Article 6.3(c) of the SCM Agreement depends on the
subsidized product in question. If a world market exists for the product in question, Article 6.3(c)
does not exclude the possibility of this "world market" being the "same market" for the purposes of a
significant price suppression analysis under that Article.
409. According to the United States, if the market examined pursuant to a claim of significant
price suppression under Article 6.3(c) is a "world ma rket", then the subsidized product and any like
product will necessarily be in that market and the word "same" in Article 6.3(c) would have no
meaning.458 We do not agree with this argument. As we have explained above, there is no per se
geographical limitation of a market under Article 6.3( c). It could well be a national market, a world
market, or any other market. It is for the compla ining party to identify the market where it alleges
significant price suppression and to establish that that market exists. In doing so, it is for the
complaining party to establish that the subsidized product and its product are in actual or potential
competition in that alleged market. If that market is established to be a "world market", it cannot be
said, for that reason alone, that the two products ar e not in the "same market" within the meaning of
Article 6.3(c).
410. For these reasons, we agree with the Panel that, depending on the facts of the case, a "world
market" may be the "same market" for the purposes of a claim of significant price suppression under
Article 6.3(c) of the SCM Agreement.
459
411. We now examine the United States' objection to th e Panel's examination of the "world market
for upland cotton" 460 in the particular circumstances of this dispute. The United States submits that
the Panel's finding that a world market for upland cotton exists is inconsis tent with the Panel's
suggestion that the United States price for upland cotton is different from the "world price"

457Ibid., footnote 1357 to para. 7.1240.
458"One can speak of a 'same' regional or national market because there are 'other' regional or national
markets where the subsidized and like product may (or may not) compete. One cannot speak of a 'same' world
market in the same way because ther e is no 'other' world market where the products can be found." (United
459Panel Report, paras. 7.1238-7.1244.
460Ibid., paras. 7.1247 and 7.1274.

represented by the A-Index. 461 Essentially, the United States appears to argue that no world market
for upland cotton can exist if there is no world pri ce for upland cotton. In our view, whether a world
market for upland cotton and a world price for upla nd cotton exist in the circumstances of this case
are factual questions. The Panel Report indicates th at the Panel examined the evidence before it and
concluded on the basis of that evidence that a world market for upland cotton exists 462 and that a
world price in that market also exists and is reflected in the A-Index. 463 We see no reason to disturb
the Panel's findings of fact in this regard.464
412. The United States also contends that the Panel did not make a finding that United States and
Brazilian upland cotton were both in the world ma rket that it had identified for upland cotton. 465 As
we explained earlier466, the words "in the same market" in Article 6.3(c) of the SCM Agreement mean
that subsidized United States upland cotton and Braz ilian upland cotton must be engaged in actual or
potential competition in the market in which the eff ect of the challenged subsidy is alleged to be
significant price suppression. In this regard, we note that the Panel expressly stated that the market it
examined pursuant to Article 6.3(c) had to be a market "in which both Brazilian and United States
upland cotton were present and competing for sales" 467 and "where competition exists between
Brazilian and United States upland cotton".468
413. Whether or not Brazilian and United States upland cotton competed in the "world market for
upland cotton"469 during the period the Panel examined is a factual question. As we stated earlier 470,
two products may be "in the same market" even if th ey are not necessarily sold in the same place and
at the same time, as long as they are engaged in actual or potential competition. We recall that, in
addition to the "world market", Brazil identified "40 third country markets ... where United States and

462Panel Report, paras. 7.1245-7.1252.
463Ibid., paras. 7.1260-7.1274. The Panel's "four main reasons" for this conclusion regarding the A-
Index were: prices of Brazilian and United States up land cotton are "constituent elements" of the A-Index;
"key market participants" perceive the A-Index as re flecting the world market price for upland cotton; the
International Cotton Advisory Council treats the A-I ndex in a similar manner; and the Economic Research
Service of the United States Department of Agriculture (the "USDA") has itself referred to the A-Index as the
world price. In addition, "the United States 'adjusted world price' is based on and derived from the A-Index".
(Ibid., paras. 7.1265-7.1271) (original emphasis)
464See Appellate Body Report, EC – Hormones , para. 132. See also Appellate Body Report, US –
Wheat Gluten, para. 151.
466Supra, paras. 407-408.
467Panel Report, para. 7.1248.
468Ibid., para. 7.1251.
469Ibid., paras. 7.1247 and 7.1274.
470Supra, para. 408.

Brazilian like upland cotton is found". 471 We also note that, based on an assessment of the relevant
facts, the Panel concluded, as a matter of fact, that these two products did compete in the world
market for upland cotton. In particular, the Panel referred to "the world upland cotton market, and the
relative proportion of that market enjoyed by the United States and Brazil".472
414. We are therefore not persuaded by the United States' arguments that the Panel erred with
respect to whether United States and Brazilian upland cotton were "in the same market" according to
Article 6.3(c).
4. Relevant Price under Article 6.3(c) of the SCM Agreement
415. We now turn to the United States' arguments on appeal with respect to the relevant "price"
under Article 6.3(c). The Panel found that "the A-In dex can be taken to reflect a world price in the
world market for upland cotton that is sufficient to form the basis for our analysis as to whether there
is price suppression in the same world market within the meaning of Article 6.3(c) for the purposes of
this dispute".473 The United States argues that, even if the Panel properly found that the effect of the
price-contingent subsidies is significant suppression of the world price for upland cotton, this could
not constitute significant price suppression for purposes of Brazil's claim under Article 6.3(c) of the
SCM Agreement. According to the United States, Brazil had to show that the effect of the challenged
subsidies is significant suppression of "the price of Brazilian upland cotton in the 'world market.'"
474
416. We have already found that the "market" referr ed to in Article 6.3(c), in connection with
significant price suppression, can be a "world market" 475, and that the Panel was correct in examining
the world market for upland cotton in the present dispute. 476 The question before us is whether it was
sufficient for the Panel to analyze the price of upland cotton in general in the world market or whether
the Panel was required to analyze the price of Braz ilian upland cotton in the world market and find
significant price suppression with respect to that price.

471Panel Report, para. 7.1230.
473Panel Report, para. 7.1274. According to the Panel, the "A-Index" "is a composite of an average of
the five lowest price quotes from a selection of the principal upland cottons traded in the world market obtained
by Cotlook, a private UK-based organization". (Panel Report, para. 7.1264)
475Supra, para. 410.
476Supra, para. 414.

417. In our view, it was sufficient for the Panel to analyze the price of upland cotton in general in
the world market. The Panel did so by relying on the A-Index. The Panel specifically found, based
on its reading of the evidence before it:
[P]rices for upland cotton transacti ons throughout the world are ...
largely determined by the A-Index price.477
Therefore, the Panel found that the A-Index adequately reflected prices in the world market for upland
cotton.478 The Panel also found that "developments in the world upland cotton price would inevitably
affect prices" wherever Brazilian and United States upl and cotton compete, "due to the nature of the
world prices in question and the nature of the wo rld upland cotton market, and the relative proportion
of that market enjoyed by the United States and Brazil". 479 It was not necessary, in these
circumstances, for the Panel to pr oceed to a separate analysis of the prices of Brazilian upland cotton
in the world market.
418. For these reasons, we reject the United States' contention that the Panel erred in its analysis of
significant price suppression under Article 6.3(c) of the SCM Agreement "in not examining Brazilian
upland cotton prices in the 'world market'".480
5. Significant Price Suppression as the Effect of the Price-Contingent Subsidies
(a) Introduction
419. We now address the reasons the Panel provided fo r its ultimate finding under Article 6.3(c).
First, the Panel found that price suppression had occurred within the meaning of Article 6.3(c) 481 after
examining three main considerations: "(a) the relative magnitude of the United States' production and
exports in the world upland cotton market; (b) genera l price trends [in the world market as revealed
by the A-Index]; and (c) the nature of the subsidi es at issue, and in particular, whether or not the
nature of these subsidies is such as to have discernible price suppressive effects". 482 Next, the Panel
found that the price suppression it had found to exist was "significant" price suppression under
Article 6.3(c)
483, "given the relative magnitude of United States production and exports, the overall

477Panel Report, para. 7.1311.
478Ibid., para. 7.1274.
479Ibid., para. 7.1313.
481Panel Report, para. 7.1312.
482Ibid., para. 7.1280.
483Ibid., para. 7.1333.

price trends we identified in the world market, ... the nature of the mandatory United States subsidies
in question ... and the readily available evidence of the order of magnitude of the subsidies".484
420. The Panel went on to find that "a causal link exists between" the price-contingent subsidies
and the significant price suppression it had found485, for four main reasons:486
[T]he United States exerts a substantial proportionate influence in the
world upland cotton market.487
[T]he [price-contingent subsidies] are directly linked to world prices
for upland cotton, thereby insulating United States producers from
low prices.488
[T]here is a discern[i]ble temporal coincidence of suppressed world
market prices and the price-contingent United States subsidies.489
[C]redible evidence on the record concerning the divergence between
United States producers' total costs of production and revenue from
sales of upland cotton since 1997 ... supports the proposition that
United States upland cotton producers would not have been
economically capable of remaining in the production of upland
cotton had it not been for the United States subsidies at issue and that
the effect of the subsidies was to allow United States producers to
sell upland cotton at a price lower than would otherwise have been
necessary to cover their total costs.
490
421. Finally, the Panel found that the following "other causal factors alleged by the United
States"491 "do not attenuate the genuine and substantia l causal link that we have found between the
United States mandatory price-contingent subsidies at issue and the significant price suppression. Nor
do they reduce the effect of the mandatory price- contingent subsidies to a level which cannot be
considered 'significant'"492:

484Panel Report, para. 7.1332. (footnotes omitted) We address the United States' arguments regarding
the magnitude or quantification of the subsidies infra, paras. 459-472.
485Panel Report, para. 7.1355.
486Ibid., para. 7.1347.
487Ibid., para. 7.1348.
488Ibid., para. 7.1349.
489Ibid., para. 7.1351.
490Ibid., para. 7.1353. (footnotes omitted)
491Ibid., para. 7.1357.
492Ibid., para. 7.1363.

[W]eakness in world demand for cotton due to competing, low-priced
synthetic fibres, and weak world economic growth.493
[B]urgeoning United States textile imports, reflecting the strong
United States dollar since the mid-1990's and declining United States
competitiveness in textile and apparel production[.]494
[T]he strong United States dollar since the mid-1990's[.]495
China subsidized the release of millions of bales of government
stocks between 1999 and 2001[.]496
[U]pland cotton planting decisions ... are driven by other factors such
as (1) the effect of technological factors of upland cotton production
... (2) the relative movement of upland cotton prices vis-à-vis prices
of competing crops ... (3) the expected prices for the upcoming crop
year.
497
(b) Appeal by the United States
422. In addition to the alleged errors already discu ssed in connection with the relevant "market"
and "price", the United States contends on appeal that the Panel erred in finding that the effect of the
price-contingent subsidies is significant price suppressi on within the meaning of Article 6.3(c) of the
SCM Agreement.498 These errors, according to the United States, are:
(a) in relation to the effects of the price-contingent subsidies:
(i) failing to analyze "the relevant production decision faced by farmers – that is,
the decision on what to plant"499;
(ii) ignoring data indicating that United States upland cotton production
responded to market signals500;

493Panel Report, para. 7.1358.
494Ibid., para. 7.1359.
495Ibid., para. 7.1360.
496Ibid., para. 7.1361.
497Ibid., para. 7.1362.
498Ibid., paras. 7.1416 and 8.1(g)(i).
499United States' appellant's submission, paras. 136 and 154.
500Ibid., para. 155.

(iii) "failing to examine supply response in other countries – that is, to what extent
other countries would increase supply in response to any alleged decrease in
cotton production resulting from the absence of U.S. payments"501; and
(iv) "the four main, cumulative grounds the Panel identified supporting a finding
of causation do not withstand scrutiny"502;
(b) in relation to the quantification of subsidies:
(i) "accepting Brazil’s argument that, for purposes of a serious prejudice claim,
Brazil need not allege and demonstrat e, and the Panel need not find, the
amount of the challenged subsidy that benefits upland cotton"503;
(ii) finding "that subsidies not tied to current production of upland cotton
(decoupled payments) need not be al located over the total sales of the
recipients"504; and
(iii) failing to determine "the extent to which processed cotton benefits from
subsidies provided with respect to raw cotton"505; and
(c) in relation to the effect of subsidies over time:
(i) concluding "that the payments need not be allocated to the marketing year to
which they relate"506; and
(ii) "making a finding of present serious prejudice related to past recurring
subsidy payments", in the absence of a finding "that the past recurring
subsidy payments at issue (that is, those from marketing years 1999-2001)
had continuing effects at the time of panel establishment".507

502Ibid., para. 180.
503Ibid., para. 240.
504Ibid., para. 264.
505Ibid., para. 301.
506Ibid., para. 277.
507Ibid., para. 278.

(c) Meaning of "Significant Price Suppression"
423. A central question before the Panel with regard to Article 6.3(c) of the SCM Agreement was
whether the effect of the subsidy is "significant price suppression". 508 It is worth setting out the
Panel's understanding of the meaning of the term "price suppression". In explaining this term, the
Panel stated, in paragraph 7.1277 of the Panel Report:
Thus, "price suppression" refers to the situation where "prices" – in
terms of the "amount of money set for sale of upland cotton" or the
"value or worth" of upland cotton – either are prevented or inhibited
from rising (i.e. they do not increase when they otherwise would
have) or they do actually increase, but the increase is less than it
otherwise would have been. Price depression refers to the situation
where "prices" are pressed down, or reduced.
1388

 1388 In the remainder of our analysis, we use the term "price suppression"
to refer both to an actual decline (which otherwise would not have declined,
or would have done so to a lesser degree) and an increase in prices (which
otherwise would have increased to a greater degree). (emphasis added)
424. Although the Panel first identified "price suppression" and "price depression" as two separate
concepts in paragraph 7.1277, footnote 1388 of the Panel Report suggests that, for its analysis, the
Panel used the term "price suppression" to refer to both price suppression and price depression. We
recognize that "the situation where 'prices' ... are pr evented or inhibited from rising" and "the situation
where 'prices' are pressed down, or reduced" 509 may overlap. Nevertheless, it would have been
preferable, in our view, for the Panel to avoid using the term "price suppression" as short-hand for
both price suppression and price depression, given that Article 6.3(c) of the SCM Agreement refers to
"price suppression" and "price depression" as distinct c oncepts. We agree, however, that the Panel's
description of "price suppression" in paragraph 7. 1277 of the Panel Report reflects the ordinary
meaning of that term, particularly when read in conjunction with the French and Spanish versions of
Article 6.3(c) 510, as required by Article 33(3) of the Vienna Convention on the Law of Treaties
(the "Vienna Convention").511

508According to the Panel, Brazil claimed that certain United Stat es subsidies "significantly
suppress[ed] upland cotton prices" within the meaning of Article 6.3(c). (Panel Report, para. 7.1108(i))
509Panel Report, para. 7.1277.
510The French version states, in part, "la subvention ... a pour effet d' empêcher des hausses de prix ou
efecto significativo de contención de la subida de los precios, reducción de los precios". (emphasis added)
511Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.
Article 33(3) provides: "The terms of the treaty are presumed to have the same meaning in each authentic text."

425. The Panel described its task in assessing "price suppression" under Article 6.3(c) as follows:
We need to examine whether these prices were suppressed, that is,
lower than they would have been without the United States subsidies
in respect of upland cotton.
512
426. As regards the word "significant" in the context of "significant price suppression" in
Article 6.3(c), the Panel found that this word means "important, notable or consequential".513
427. Article 6.3(c) does not set forth any specific me thodology for determining whether the effect
of a subsidy is significant price suppression. There may well be different ways to make this
determination. However, we find no difficulty with the Panel's approach in the particular
circumstances of this dispute. We therefore turn to an examination of how the Panel carried out its
assessment.
(d) Panel's Order of Analysis
428. In addressing Brazil's claims of serious prejudice under Articles 5(c) and 6.3(c) of the SCM
Agreement, the Panel began by examining whether the effect of the challenged subsidies was
significant price suppression within the meaning of Article 6.3(c). The Panel explained that it adopted
this order of analysis because both parties agreed th at the Panel could not make an affirmative finding
of serious prejudice under Article 5(c) without making an affirmative finding that the effect of the
challenged subsidies is significant price suppression within the meaning of Article 6.3(c). 514 Neither
party appeals this decision by the Panel.
429. Having determined the relevant products, market, and price, the Panel continued its analysis
with respect to Article 6.3(c) in the following order:
Is there "price suppression"?515
Is it "significant" price suppression?516
"The effect of the subsidy"517

513Ibid., para. 7.1326.
514Ibid., para. 7.1228.
515Ibid., heading (ii) to paras. 7.1275-7.1315.
516Ibid., heading (iii) to paras. 7.1316-7.1333.
517Ibid., heading (k) to paras. 7.1334-7.1363.

430. The United States contests the Panel's decision to address "significant price suppression"
before addressing "the effect of the subsidy", arguing that "[a] finding of price suppression without
any prior finding of 'the effect of the subsidy' woul d be meaningless; how could one know that prices
were lower than they otherwise would have been without knowing what allegedly caused the prices to
be lower?".518 The United States also contends that the Panel used "circular" reasoning by assuming
causation in finding price suppression and using its conclusion on price suppression to support its
finding on causation (the effect of the subsidy).519
431. As noted above, Article 6.3(c) is silent as to the sequence of steps to be followed in assessing
whether the effect of a subsidy is significant price suppression. We note that Article 6.8 indicates that
the existence of serious prejudice pursuant to Articles 5(c) and 6.3(c) is to be determined on the basis
of information submitted to or obtained by the pa nel, including informati on submitted in accordance
with Annex V of the SCM Agreement.
520 Annex V provides some limited guidance about the type of
information on which a panel might base its assessment under Article 6.3(c). But we find little other
guidance on this issue. The text of Article 6.3(c) does not, however, preclude the approach taken by
the Panel to examine first whether significant price s uppression exists and then, if it is found to exist,
to proceed further to examine whet her the significant price suppression is the effect of the subsidy.
The Panel evidently considered that, in the absence of significant price suppression, it would not need
to proceed to analyze the effect of the subsidy. We see no legal error in this approach.
432. One might contend that, having decided to separate its analysis of significant price
suppression from its analysis of the effects of the challenged subsidies, the Panel's price suppression
analysis should have addressed prices without refe rence to the subsidies and their effects. For
instance, in its significant price suppression analysis, the Panel could have addressed purely price
developments in the world market for upland cotto n, such as whether prices fell significantly during
the period under examination or whether prices were significantly lower during that period than other
periods. Then, in its "effects" analysis, the Pane l could have addressed causal factors related to the
nature of the subsidies, their relationship to pr ices, their magnitude, and their impact on production
and exports. In this causal analysis, the Panel could also have addressed factors other than the
challenged subsidies that may have been suppressing the prices in question.
433. However, the ordinary meaning of the transitive verb "suppress" implies the existence of a
subject (the challenged subsidies) and an object (i n this case, prices in the world market for upland
cotton). This suggests that it would be difficult to make a judgement on significant price

518United States' appellant's submission, para. 230. (original emphasis)
519Ibid., para. 131.
520Annex V contains "Procedures for Developing Information Concerning Serious Prejudice".

suppression without taking into account the effect of the subsidies. 521 The Panel's definition of price
suppression, explained above 522, reflects this problem; it includes the notion that prices "do not
increase when they otherwise would have" or "they do actually increase, but the increase is less than
it otherwise would have been". 523 The word "otherwise" in this context refers to the hypothetical
situation in which the challenged subsidies are absent . Therefore, the fact that the Panel may have
addressed some of the same or similar factors in its reasoning as to significant price suppression and
its reasoning as to "effects" is not necessarily wrong.524
434. The specific factors that the Panel examined in determining whether or not "price
suppression" had occurred were: "(a) the relativ e magnitude of the United States' production and
exports in the world upland cotton market; (b) ge neral price trends; and (c) the nature of the
subsidies at issue, and in particular, whether or not the nature of these subsidies is such as to have
discernible price suppressive effects". 525 In the absence of explic it guidance on assessing significant
price suppression in the text of Article 6.3(c), we have no reason to reject the relevance of these
factors for the Panel's assessment in the present ca se. An assessment of "general price trends" 526 is
clearly relevant to significant price suppression (although, as the Panel itself recognized, price trends
alone are not conclusive). 527 The two other factors—the nature of the subsidies and the relative
magnitude of the United States' production and export s of upland cotton—are also relevant for this
assessment. We are not persuaded that the fact that these latter factors were also considered in
connection with the Panel's analysis of "the effect of the subsidy"
528 amounts to legal error for that
reason alone.

521Similarly, it might be difficult to ascertain whether imports or expo rts are "displace[d]" or
"impede[d]" under paragraphs (a) or (b) of Article 6.3 of the SCM Agreement without considering the effect of
the challenged subsidy. By way of contrast, it might be possible to determine whether the world market share of
a subsidizing Member has increased within the meaning of Article 6.3(d) before assessing whether any increase
is the effect of the subsidy.
522Supra, para. 423.
523Panel Report, para. 7.1277. (emphasis added)
524An analysis under Article 6.3(c) SCM Agreement could involve assessing similar facts from
different perspectives in order to answer different factual and legal questions when addressing "significant price
suppression" and "the effect of" the challenged subsidies.
525Panel Report, para. 7.1280.
527Ibid., para. 7.1288.
528We discuss these factors infra, paras. 449 and 450.

435. Turning to the Panel's assessment of the "effect of the subsidy" 529, the Panel addressed the
question whether there was a "causal link" 530 between the price-contingent subsidies and the
significant price suppression it had found. It then addressed the impact of "[o]ther alleged causal
factors".531 We observe that Article 6.3(c) does not use the word "cause"; rather, it states that "the
effect of the subsidy is ... significant price suppressi on". However, the ordinary meaning of the noun
"effect" is "[s]omething ... caused or produced; a result, a consequence". 532 The "something" in this
context is significant price suppression, and thus the question is whether significant price suppression
is "caused" by or is a "result" or "consequence" of the challenged subsidy. The Panel's conclusion
that "[t]he text of the treaty requires the establis hment of a causal link between the subsidy and the
significant price suppression" 533 is thus consistent with this ordi nary meaning of the term "effect".
This is also confirmed by the context provided by Article 5(c) of the SCM Agreement , which
provides:
 No Member should cause, through the use of any subsidy
referred to in paragraphs 1 and 2 of Article 1, adverse effects to the
interests of other Members, i.e.:

(c) serious prejudice to the interests of another Member.
436. As the Panel pointed out, "Articles 5 and 6.3 ... do not contain the more elaborate and precise
'causation' and non-attribution language" f ound in the trade remedy provisions of the SCM
Agreement.534 P a r t V o f t h e SCM Agreement , which relates to the imposition of countervailing
duties, requires, inter alia, an examination of "any known factors other than the subsidized imports
which at the same time are in juring the domestic industry".535 However, such causation requirements
have not been expressly prescribed for an examination of serious prejudice under Articles 5(c) and
Article 6.3(c) in Part III of the SCM Agreement. This suggests that a panel has a certain degree of
discretion in selecting an appropriate methodology fo r determining whether the "effect" of a subsidy
is significant price suppression under Article 6.3(c).

529Panel Report, heading (k) to paras. 7.1334-7.1363.
530Ibid., heading (i) to paras. 7.1347-7.1356.
531Ibid., heading (ii) to paras. 7.1357-7.1363.
532Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 793.
533Panel Report, para. 7.1341.
534Ibid., para. 7.1343.
535See Article 15.5 of the SCM Agreement . Article 3.5 of the Anti-Dumping Agreement and
Article 4.2(b) of the Agreement on Safeguards are broadly analogous to Article 15.5 of the SCM Agreement.

437. Nevertheless, we agree with the Panel that it is necessary to ensure that the effects of other
factors on prices are not improperly attributed to the challenged subsidies. 536 Pursuant to
Article 6.3(c) of the SCM Agreement, "[s]erious prejudice in the sense of paragraph (c) of Article 5
may arise" when "the effect of the subsidy is ... significant price suppression". (emphasis added) If
the significant price suppression found in the world market for upland cotton were caused by factors
other than the challenged subsidies, then that pr ice suppression would not be "the effect of" the
challenged subsidies in the sense of Article 6.3(c). Therefore, we do not find fault with the Panel's
approach of "examin[ing] whether or not 'the eff ect of the subsidy' is the significant price suppression
which [it had] found to exist in the same world market"
537 and separately "consider[ing] the role of
other alleged causal factors in the record before [it] which may affect [the] analysis of the causal link
between the United States subsidies and the significant price suppression."538
438. The Panel's approach with respect to causation a nd non-attribution is similar to that reflected
in Appellate Body decisions in the context of other WTO agreements. In connection with the
Agreement on Safeguards , the Appellate Body has stated that a causal link "between increased
imports of the product concerned and serious injury or threat thereof" 539 "involves a genuine and
substantial relationship of cause and effect between these two elements" 540, and it has also required
non-attribution of effects caused by other factors. 541 In the context of the Agreement on
Implementation of Article VI of the Ge neral Agreement on Tariffs and Trade 1994 (the " Anti-
Dumping Agreement "), the Appellate Body has stated: "[ i]n order that investigating authorities,
applying Article 3.5, are able to ensure that th e injurious effects of the other known factors are not
'attributed' to dumped imports, they must appropr iately assess the injurious effects of those other
factors."542 It must be borne in mind that these provisions of the Agreement on Safeguards and the
Anti-Dumping Agreement , as well as the provisions of Part V of the SCM Agreement , relate to a
determination of "injury" rather than "serious prejudice", and they apply in different contexts and with
different purposes. Therefore, they must not be automatically transposed into Part III of the SCM
Agreement. Nevertheless, they may suggest ways of assessing whether the effect of a subsidy is
significant price suppression rather than it being the effect of other factors.

536Panel Report, para. 7.1344.
537Ibid., para. 7.1345.
538Ibid., para. 7.1346.
539Article 4.2(b) of the Agreement on Safeguards . Compare Article 15.5 of the SCM Agreement and
Article 3.5 of the Anti-Dumping Agreement.
540Appellate Body Report, US – Wheat Gluten, para. 69.
541Appellate Body Report, US – Line Pipe, para. 208.
542Appellate Body Report, US – Hot-Rolled Steel, para. 223.

(e) Rationale for the Panel's Finding that the Effect of the Price-
Contingent Subsidies is Significant Price Suppression
439. We now address the United States' appeal relati ng to the specific reasons behind the Panel's
conclusion that the effect of the price-contingent subsidies is significant price suppression within the
meaning of Article 6.3(c) of the SCM Agreement. The United States alleges that the Panel ignored or
failed to take into account certain evidence and ar guments in analyzing the effect of the price-
contingent subsidies, and that the four main gr ounds on which the Panel based its analysis "do not
withstand scrutiny".543 We begin by addressing the three key elements that the United States alleges
the Panel failed to include in its analysis, and th en we address the reasons the Panel relied upon for its
conclusion that the effect of the price-contingent subsidies is significant price suppression.
440. First, the United States contends that the Panel failed to address the relevant economic
decision faced by United States upland cotton farmers at the time of planting, namely, the decision of
whether to plant upland cotton or alternative crops (and how much of each). According to the United
States, planted acreage of United States upland cotton responds to expected market prices at the time
of harvest, rather than current prices at the time of planting.
544 Brazil counters that farmers decide
what to plant based on expected market prices as well as expected payments under the challenged
subsidy programs, such that planted acreage responds to both these factors. 545 Brazil also points out
that farmers sell their upland cotton throughout the course of a year, at whatever prices they can
obtain during the year. 546 During the oral hearing, the United States accepted that farmers decide
what to plant based on expected mark et prices as well as expected subsidies. 547 However, according
to the United States, for the 1999-2001 and 2003 crop years, when farmers made their planting
decisions, the expected upland cotton price (that is , the price the farmers expected to receive upon
harvest) was higher than the "income guarantee set by the marketing loan rate, suggesting that the
effect of the subsidy on the planting decision was minimal".
548
441. We note that the United States presented extens ive evidence and arguments to the Panel in
relation to expected prices and planting decisions. 549 Brazil also points to several questions asked by

544United States' appellant's submission, paras. 154 and 155.
546Brazil's response to questioning at the oral hearing.
547See also United States' further rebuttal submission to the Panel, paras. 95-97.
548United States' statement and response to questioning at the oral hearing.
549See, for example: United States' further submission to the Panel, paras. 55-60; United States' further
rebuttal submission to the Panel, paras. 95-97 and 152-177.

the Panel and responses to the Panel regarding planting decisions of United States upland cotton
producers to demonstrate that the Panel was aware of the United States' arguments in this regard and
took them into account. 550 The Panel Report makes it clear that the Panel specifically addressed
"upland cotton planting decisions", "expected prices", and "expected market revenue". 551 The way in
which United States upland cotton farmers make decisions relating to the production of upland cotton,
and the basis on which they make such decisions, are factual matters that fall within the Panel's task
of weighing and assessing the relevant evidence, and we will not review these matters. However, in
our view, the application of the legal requirements of Article 6.3(c) to the facts determined by the
Panel falls within the scope of appellate review.552
442. Turning first to Chart 2 at paragraph 7.1293 of the Panel Report, the United States submits
that it is defective because it "assumes that co tton production decisions are made continuously
throughout the marketing year", it "does not identify the planting decision period", and it "does not
identify the expected harvest season prices at the time of that planting decision". 553 The Panel
explained that it used this chart to demonstrate "that the per unit payment under the marketing loan
programme increases when the gap between the adju sted world price and the loan rate widens" 554 and
"that except for a short period in MY 2000, the adjusted world price was below the marketing loan
rate throughout virtually the whole period from MY 1999-2002".555 The Panel concluded from this
graph, in connection with marketing loan program payments, that "[t]he further the adjusted world
price drops, the greater the extent to which United States upland cotton producers' revenue is insulated
from the decline, numbing United States production decisions from world market signals".556
443. The Panel explained how the marketing loan pr ogram payments operate and found that these
payments accounted for more than half of United States upland cotton producer revenue. 557 T h i s
demonstrates that, in assessing the effect of mark eting loan program payments under Article 6.3(c),
the Panel took into account the magnitude of the paym ents relative to the revenue of United States

550Brazil's appellee's submission, para. 685 (referring, inter alia, to Brazil's response to Question 167
posed by the Panel (Panel Report, pp. I-216-217, para.151); United States' response to Question 212 Posed by
the Panel (Panel Report, p. I-360, para. 51); Question 213 Posed by the Panel (Panel Report, p. I-361)).
551Panel Report, para. 7.1362.
552See the discussion supra, para. 399.
553United States' statement at the oral hearing.
554Panel Report, para. 7.1293.
555Ibid., para. 7.1294. (original emphasis)
556Ibid., para. 7.1294.
557Ibid., para. 7.1294.

upland cotton producers and found that marketing loan program payments made up a significant
proportion of producers' revenue.558
444. During the oral hearing, the United States pr esented data to show that, when planting
decisions were made for the 1999, 2000, 2001, and 2003 upland cotton crops, the expected upland
cotton price upon harvest was higher than the marketing loan rate. 559 Accordingly, the United States
contends, the marketing loan program payments would have had only a minimal effect on planting
decisions, because farmers would have expected to receive a higher price from the sale of their upland
cotton and no marketing loan program payments.
445. We note, based on the evidence provided by the United States, that, for four of the five upland
cotton crops between 1999 and 2003, the expected harvest price at the time of making planting
decisions was always substa ntially higher than the actual price realized at the time of harvest of the
crop. This suggests that although farmers had e xpected higher prices in making their planting
decisions, they were also aware that if actual prices were ultimately lower, they would be
"insulated"560 by government support, including not only marketing loan program payments but also
counter-cyclical payments, which were based on a target upland cotton price of 72.4 cents per
pound.561 We are therefore satisfied that the Panel adopt ed a plausible view of the facts in connection
with expected prices and planting decisions, even though it attributed to these factors a different
weight or meaning than did the United States. As the Appellate Body has said, it is not necessary for
panels to "accord to factual evidence of the parties the same meaning and weight as do the parties".562
446. Turning to the second key element of the Unite d States' submission, the United States argues
that the Panel ignored data showing that "U.S. cott on planted acreage did respond to expected market
prices of cotton and other competing crops", "U.S. farmers change cotton acreage commensurately
with changes made by cotton farmers in the rest of the world", and "the U.S. share of world cotton
production has been stable, again demonstrating that U.S. farmers respond to the same market signals
as cotton farmers in the rest of the world do".
563 The Panel Report contains several passages
suggesting that the Panel did take into account ev idence of this kind. For example, the Panel

558We return to the issue of quantification of the price-contingent subsidies in section VI.A.5(f) below.
559This data corresponds with the United States' wr itten argument that "the uncontroverted evidence
before the Panel ... showed that U.S. cotton plantings respond to expected prices at the time planting
decisions are taken". (United States' appellant's submission, para. 137) (original emphasis) The United States
presented similar data to the Panel. (See, for example, United States' further rebuttal submission to the Panel,
paras. 162-163)
560Panel Report, para. 7.1294.
561Ibid., para. 7.225.

considered the United States' evidence regarding expected upland cotton prices 564 and set out the
United States' share of world upland cotton production during the relevant period. 565 It would not
amount to an error in the application of Article 6.3( c) to the facts of this case for the Panel not to
address specifically in its Report every item of ev idence provided and to refer explicitly to every
argument made by the parties, if the Panel consid ered certain items or arguments less significant for
its reasoning than others.566
447. We now address the third key element of the Un ited States' submission. The United States
argues that "the Panel should have considered to what extent other market participants would increase
supply or reduce demand in response to any alleged increase in cotton prices resulting from the
absence of U.S. payments".
567 Brazil responds that the Panel took this factor into account because it
took into account relevant aspects of certain econometric models incorporating this factor: "the
models track price effects that would occur as a result of reduced U.S. upland cotton supply and
increased supply from other countries". 568 The participants agree that these models incorporate the
supply response of third countries.569 The dispute lies in whether the Panel took into account supply
responses of third countries, as reflected in these models or otherwise.
448. Whether and to what extent other upland cott on producers would have increased supply or
reduced demand in the absence of the United States ' price-contingent subsidies is ultimately an
empirical inquiry. The answer to this inquiry de pends on an assessment of various factors bearing on
the ability of cotton producers to assess and respond to supply and demand in the world upland cotton
market. We note that the Panel indicated expressly that it had taken the models in question into
account.570 It would have been helpful had the Panel re vealed how it used these models in examining
the question of third country responses. Nevertheless, we are not prepared to second-guess the Panel's

564Panel Report, para. 7.1362.
565Ibid., para. 7.1282. In this paragraph, the Panel stated: "In the marketing years 1999 to 2002, the
respective shares of the United States in world production of upland cotton were approximately 19.2, 19.3, 20.6
and 19.6 per cent, respectively".
566Appellate Body Report, EC – Hormones, paras. 135 and 138.
568Brazil's appellee's submission, paras. 793-798 (referring to Panel Report, paras. 7.1205, 7.1209,
and 7.1215). (original emphasis)
569In relation to models presented by Brazil, both parties refer to Brazil's further submission to the
Panel of 9 September 2003, paras. 9-10 of Annex I (which is entitled "A Quantitative Simulation Analysis of the
Impact of U.S. Cotton Subsidies on Cotton Prices and Quantities by Professor Daniel Sumner"). (United States'
appellant's submission, para. 235; Brazil's appellee's subm ission, para. 793) In relation to third party studies,
see United States' appellant's submission, para. 236 and Brazil's appellee's submission, paras. 795-796.
570Panel Report, paras. 7.1205, 7.1209 and 7.1215.

appreciation and weighing of the evidence before it, and we do not see any error on the part of the
Panel in the application of the law to the facts in addressing this question.
449. We now turn to the four main grounds 571 on which the Panel based its conclusion that "a
causal link exists between" the price-contingent subsidies and the significant price suppression it had
found572, which the United States contests.573 The first reason the Panel provided for finding a "causal
link"574 was the "substantial proportionate influence" of the United States "in the world upland cotton
market ... flow[ing] ... from the magnitude of th e United States production and export of upland
cotton".575 The United States counters that, "absent some analysis of how U.S. cotton competes with
cotton from other sources, relative sizes are meaningless." 576 We agree that, in and of itself, the
degree of influence of the United States in the wo rld market for upland cotton may not be conclusive
as to the effect of the price-contingent subsidies on prices in that market. However, if the price-
contingent subsidies increased United States produc tion and exports or decreased prices for United
States upland cotton, then the fact that United States production and exports of upland cotton
significantly influenced world market prices would ma ke it more likely that the effect of the price-
contingent subsidies is significant price suppression. Accordingly, this fact seems to support the
Panel's conclusion, when read in conjunction with its other findings.
450. The second reason the Panel provided for finding a "causal link"
577 was its view that the
price-contingent subsidies "are directly linked to world pri ces for upland cotton". 578 This conclusion
flowed from the Panel's earlier assessment—in conn ection with its analysis of significant price
suppression—of the nature of the price-contingent subsidies. 579 The nature of a subsidy plays an
important role in any analysis of whether the effect of the subsidy is significant price suppression
under Article 6.3(c). With respect to marketing lo an program payments, the Panel found that "[t]he
further the adjusted world price drops, the greater the extent to which United States upland cotton
producers' revenue is insulated from the decline".
580 As a result, during the 1999-2002 marketing
years, United States production and exports remained stable or increased, even though prices of

572Panel Report, para. 7.1355.
574Panel Report, para. 7.1347.
575Ibid., para. 7.1348.
577Panel Report, para. 7.1347.
578Ibid., para. 7.1349.
579Supra, para. 434.
580Panel Report, para. 7.1294.

United States upland cotton decreased. 581 The Panel found that Step 2 payments stimulate domestic
and foreign demand for United States upland cotton 582 by "eliminating any positive difference
between United States internal prices and international prices of upland cotton". 583 The Panel stated
that Step 2 payments "result in lower world mark et prices than would prevail in their absence". 584
Finally, the Panel found that market loss assistance payments and counter-cyclical payments are made
in response to low prices for upland cotton 585 and stimulate United States production of upland cotton
by reducing the "total and per unit revenue risk associated with price variability". 586 The United
States contends that the Panel's analysis of the price-contingent subsidies was "deficient". 587
However, the Panel found that the price-contingent subsidies stimulated United States production and
exports of upland cotton and thereby lo wered United States upland cotton prices. 588 This seems to us
to support the Panel's conclusion that the effect of the price-contingent subsidies is significant price
suppression.589
451. The third reason the Panel provi ded for finding a "causal link" 590 was that "there is a
discern[i]ble temporal coincidence of suppressed wo rld market prices" and the price-contingent
subsidies.591 The United States describes this as "an exercise in spurious correlation". 592 However, in
our view, one would normally expect a discernible correlation between significantly suppressed prices
and the challenged subsidies if the effect of these subsidies is significant price suppression.
Accordingly, this is an important factor in any analysis of whether the effect of a subsidy is significant
price suppression within the meaning of Article 6.3( c). However, we recognize that mere correlation
between payment of subsidies and significantly suppressed prices would be insufficient, without
more, to prove that the effect of the subsidies is significant price suppression.

581Panel Report, para. 7.1296.
582Ibid., para. 7.1299.
583Ibid., para. 7.1298.
584Ibid., para. 7.1299.
585Ibid., para. 7.1301.
588Panel Report, para. 7.1291, 7.1295-7.1296, 7.1299, and 7.1308-7.1311.
589We do not exclude the possibility that challenged subsidies that are not "price-contingent" (to use the
Panel's term) could have some effect on production and exports and contribute to price suppression.
590Panel Report, para. 7.1347.
591Ibid., para. 7.1351.

452. The fourth reason the Panel provided for finding a "causal link" 593 was the "divergence
between United States producers' total costs of production and revenue from sales of upland cotton
since 1997".594 The United States argues that the Panel s hould have examined variable rather than
total costs 595 in assessing whether "United States upla nd cotton producers would ... have been
economically capable of remaining in the productio n of upland cotton had it not been for the United
States subsidies at issue".596
453. We agree with the general proposition of the Unite d States that variable costs may play a role
in farmers' decision-making as to whether to plan t upland cotton or some alternative crop, and how
much of each crop to plant. From a short-term perspective, variable costs may be particularly
important. However, from a longer-term perspectiv e, total costs may be relevant. Based on the
evidence before it regarding upland cotton production in the United States, the Panel concluded that
"the six-year period from 1997-2002 ... lends itself to an assessment of the medium- to longer-term
examination of developments in the United States upland cotton industry". 597 The Panel found that
"the effect of the subsidies was to allow United St ates producers to sell upland cotton at a price lower
than would otherwise have been n ecessary to cover their total costs". 598 In the circumstances of this
dispute, we do not consider that the Panel's relian ce on total rather than variable costs of production
amounts to an error vitiating the Panel's analysis under Article 6.3(c).
454. Finally, we consider the "other causal factors alleged by the United States" 599 to have had an
effect on prices. The United States argues that the Panel erred in addressing upland cotton planting
decisions as an "other causal factor", given that th e United States maintained that the price-contingent
subsidies did not cause price suppression at all. 600 We disagree. We have already addressed the
United States' arguments with respect to planting decisions, and we find no fault in the Panel's
consideration of the issue of "planting decisions".601

593Panel Report, para. 7.1347.
594Ibid., para. 7.1353. (footnote omitted)
596Panel Report, para. 7.1353.
597Ibid., para. 7.1354.
598Ibid., para. 7.1353.
599Ibid., para. 7.1357.
601Supra, paras. 440-445.

455. The United States also argues that United States upland cotton exports increased during 1998-
2002602 because textile imports increased in the same period, leading to a decline in the use of cotton
by domestic mills.603 The Panel regarded this factor as "c oncerning support, rather than suppression,
of world cotton prices". 604 However, even assuming that increasi ng textile imports led to increased
exports of upland cotton, this does not mean that the price-contingent subsidies did not have the effect
of significant price suppression. It was not unreasonable for the Panel to conclude that the "effect" of
the price-contingent subsidies was significant price suppression, even if some other factor might also
have price-suppressive effects.605
456. The remaining three "other causal factors" that the Panel examined were weakness in world
demand for upland cotton, the strong United States dollar, and the release by China of government
upland cotton stocks between 1999 and 2001.606 The United States does not specifically address these
three factors in its appellant's submission. Howe ver, the Panel's discussion of these "other factors"
was part of the reasoning leading to the Panel' s conclusion under Article 6.3(c), which the United
States does appeal.607 The Panel found that the United States' argument that weak demand caused low
prices was inconsistent with the increase in United States upland cotton production and the absence of
"pronounced declines" in world upland cotton consumption. 608 With regard to the United States
dollar, the Panel stated that exchange rates would af fect market prices, but that market prices did not
guide "United States producer decisions (except to the extent that, when th ey are lower than the
marketing loan rate, they dictate the magnitude of United States government subsidies to
producers)".609 The Panel pointed to evidence on the reco rd confirming that marketing loan program
payments and Step 2 payments "offset" declines in market prices. 610 With respect to upland cotton
stocks released by China, the Panel agreed with the United States (and Brazil) that "an infusion of a
large amount of supply onto the market would exert a downward pressure on prices". 611 However, the

602The United States also argues that 1998 was an inap propriate base year for the Panel's examination
because of unusually weak world demand and reduced Unite d States production due to drought. (United States'
appellant's submission, para. 209)
604Panel Report, para. 7.1359.
606Panel Report, paras. 7.1358, 7.1360, and 7.1361.
607In appealing this finding, the United States refers in a footnote to paras. 7.1107-7.1416 and 8.1(g)(i)
of the Panel Report. (United States' appellant's submission, footnote 531 to para. 516(8))
608Panel Report, para. 7.1358.
609Ibid., para. 7.1360.
610Ibid., footnote 1477 to para. 7.1360.
611Ibid., para. 7.1361.

Panel pointed out that the stock released by th e Chinese government "was smaller in magnitude than
the United States exports over this period".612
457. The Panel concluded:
Although some of these factors may have contributed to lower, and
even suppressed, world upland cotton prices during MY 1999-2002,
they do not attenuate the genuine a nd substantial causal link that we
have found between the United Stat es mandatory price-contingent
subsidies at issue and the significant price suppression. Nor do they
reduce the effect of the mandatory price-contingent subsidies to a
level which cannot be considered "significant".
613
In sum, the Panel Report shows that it examined the other factors raised by the United States.
Although the Panel found that some of them had price-suppressive effects, it did not attribute those
effects to the United States' price-contingent subsidies.
458. Unlike in certain other instances under the WTO agreements, a panel conducting an analysis
under Article 6.3(c) of the SCM Agreement is the first trier of facts, rather than a reviewer of factual
determinations made by a domestic investigating authority. Bearing this in mind, we underline the
responsibility of panels in gathering and analyzi ng relevant factual data and information in assessing
claims under Article 6.3(c) in order to arrive at reasoned conclusions. In this case, the voluminous
evidentiary record before the Panel included sev eral economic studies, and substantial data and
information. For its part, the Panel posed a large number of questions to which the parties submitted
detailed answers. Overall, the Panel evidently conducted an extensive analysis, but we believe that, in
its reasoning, the Panel could have provided a more detailed explanation of its analysis of the complex
facts and economic arguments arising in this disput e. The Panel could have done so in order to
demonstrate precisely how it evaluated the different factors bearing on the relationship between the
price-contingent subsidies and significant price suppr ession. Nevertheless, in the light of the Panel's
examination of the relevant evidence, coupled with its legal reasoning, we find no legal error in the
Panel's causation analysis.
(f) Amount of the Price-Contingent Subsidies
459. In reaching the conclusion that the effect of th e price-contingent subsidies is significant price
suppression within the meaning of Article 6.3(c) of the SCM Agreement , the Panel made the
following statements with respect to the amount of the price-contingent subsidies as a whole:

612Panel Report, para. 7.1361.
613Ibid., para. 7.1363.

We have readily available informa tion on the record showing us that
the price-contingent subsidies in question involve very large amounts
of United States government money benefiting United States upland
cotton.
614
[W]hile we do not believe that it is strictly necessar[y] to calculate
precisely the amount of the subsidies in question, we observe that we
have readily available information on the record showing us that the
price-contingent subsidies in question involve very large amounts of
United States government money benefiting United States upland
cotton production.
615
In addition, the Panel made statements regarding th e amount of individual price-contingent subsidies,
namely marketing loan program payments and Step 2 payments.616
460. On appeal, the United States raises several point s. First, the United States argues that the
Panel was required to quantify the amount of th e price-contingent subsidies benefiting upland
cotton.617 Secondly, the United States submits that counter-cyclical and market loss assistance
payments to recipients who did not produce upla nd cotton did not benefit upland cotton at all and
therefore could not have caused serious prejudice. 618 As for counter-cyclical and market loss
assistance payments to recipients who produced both upland cotton and other products, the Panel
should have "allocated [the subsidies] over the total sales of the recipients".
619 Thirdly, the United
States maintains that the Panel erred, in its Article 6.3(c) analysis, by failing to identify the amount of
benefit flowing to processed cotton from price-contingent subsidies paid to producers of raw cotton.620
461. Beginning with the text of Article 6.3(c), we note that this provision does not state explicitly
that a panel needs to quantify the amount of the challenged subsidy. However, in assessing whether
"the effect of the subsidy is ... significant price suppression", and ultimately serious prejudice, a panel

614Panel Report, para. 7.1308.
615Ibid., para. 7.1349.
616"While we do not believe it is necessary to calculate the precise amount of the subsidies in question,
we observe that we have this information readily available on the record. This is a very large amount". (Panel
Report, paras. 7.1297 and 7.1300) (footnote omitted)
617United States' appellant's submission, para. 240. The United States does not contest the Panel's view
that, in assessing the price-contingent subsidies und er Article 6.3(c), it was not required to quantify precisely
the amount of the subsidies benefiting upland cotton. (S ee United States' appellant's submission, para. 258;
Panel Report, paras. 7.1173, 7.1186 and 7.1226) The United States clarified this point in response to
questioning during the oral hearing.
619Ibid., para. 264.
620Ibid., para. 301 and footnote 314 to para. 301. In response to questioning during the oral hearing, the
United States confirmed that its appeal regarding "raw" and "processed" cotton relates to all the price-contingent
subsidies.

will need to consider the effects of the subsidy on prices. The magnitude of the subsidy is an
important factor in this analysis. 621 A large subsidy that is closely linked to prices of the relevant
product is likely to have a greater impact on prices th an a small subsidy that is less closely linked to
prices. All other things being equal, the smalle r the subsidy for a given product, the smaller the
degree to which it will affect the costs or revenue of the recipient, and the smaller its likely impact on
the prices charged by the recipient for the product. However, the size of a subsidy is only one of the
factors that may be relevant to the determination of the effects of a challenged subsidy. A panel needs
to assess the effect of the subsidy taking into account all relevant factors.
462. In order for a panel to find that a subsidy has the effect of significant price suppression, or
some other effect mentioned in Article 6.3(c), the panel must determine that the payment is a specific
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement.622 The Panel did so in this
dispute623, and we do not understand the United States to contest this conclusion. Rather, the United
States argues that a panel needs to quantify the am ount of the "benefit" conferred on the subsidized
product by a challenged subsidy. 624 However, the definitions of a specific subsidy in Articles 1 and 2
do not expressly require the quantification of the "ben efit" conferred by the subsidy on any particular
product.
463. Turning to the context of Article 6.3(c), we note that Article 6.1(a)—which has now
expired—contains the only reference in Part III of the SCM Agreement to a calculation of ad
valorem subsidization of a product. Footnote 14 to Article 6.1(a) explains that this calculation is to
be performed in accordance with Annex IV on the "Calculation of the Total Ad Valorem
Subsidization (Paragraph 1(a) of Article 6)". No similar provisions are found in Article 6.3(c), which
suggests that no precise quantification is envisaged in that provision.
464. The United States does not argue, as a general matte r, that the methodologies in Part V of the
SCM Agreement apply directly to a serious prejudice analysis under Part III of the SCM
Agreement.625 However, the United States identifies Part V as providing relevant context for the

621Supra, para. 432.
622As the United States points out, the word "subsidy" in Article 6.3(c) is defined in Article 1.1 of the
 SCM Agreement , and the subsidies subject to the disciplines in Part III of the SCM Agreement (including
Articles 5(c) and 6.3(c)) must be "specific" pursuant to Article 1.2. A "subsidy" as defined in the SCM
Agreement involves the conferral of a "benefit" under Article 1.1(b). (See United States' appellant's
submission, paras. 244 and 245)
623Panel Report, paras. 7.1120 and 7.1154.
625Ibid., para. 258, as confirmed during the oral hearing.

interpretation of Articles 5(c) and 6.3(c) of the SCM Agreement .626 We note that the apparent
rationale for Part III differs from that for Part V of the SCM Agreement. Under Part V, the amount of
the subsidy must be calculated because, under Article 19.4 of the SCM Agreement and Article VI:3
of the GATT 1994, countervailing duties cannot be levied in excess of that amount. In contrast, under
Part III, the remedy envisaged under Article 7.8 of the SCM Agreement is the withdrawal of the
subsidy or the removal of the adverse effects. This remedy is not specific to individual companies.
Rather, it targets the effects of the subsidy more gene rally. Article 6.3(c) thus goes in the same vein
and does not require a precise quantification of the subsidies at issue.
465. The provisions of the SCM Agreement regarding quantification of subsidies reveal that the
methodological approaches to quantification may be quite different, depending on the context and
purpose of quantification. 627 The absence of any indication in Ar ticle 6.3(c) as to whether one of
these methods, or any other method, should be used suggests to us that no such precise quantification
was envisaged as a necessary prerequisite for a panel's analysis under Article 6.3(c).
466. Pursuant to Article 6.8, "the existence of ser ious prejudice" under Article 6.3(c) "should be
determined on the basis of the information su bmitted to or obtained by the panel, including
information submitted in accordance with the provisions of Annex V" of the SCM Agreement. The
United States is correct that Annex V refers to "information ... as necessary to establish the existence
and amount of subsidization" (in paragraph 2) and "data concerning the amount of the subsidy in
question" (in paragraph 5)628, but Annex V also refers to other information. 629 This demonstrates that
the amount of the subsidy, as well as other elements , are relevant for the assessment of whether price
suppression exists. But we do not read Annex V as mandating the precise quantification of subsidies
in order to determine their effect under Article 6.3(c).
467. In sum, reading Article 6.3(c) in the context of Article 6.8 and Annex V suggests that a panel
should have regard to the magnitude of the challe nged subsidy and its relati onship to prices of the

627In relation to countervailing duties, Article 19.4 of the SCM Agreement specifies that the amount of
the subsidy is to be "calculated in terms of subsidization per unit of the subsidized and exported product".
Article 14 of the SCM Agreement adds that this calculation is to be done "in terms of the benefit to the
recipient". In contrast, under Article 6.1(a) and paragraph 1 of Annex IV of the SCM Agreement, which relate
to a claim of serious prejudice as mentioned above, the "total ad valorem subsidization of a product" is to be
calculated "in terms of the cost to the granting government". (footnote omitted)
628United States' appellant's submission, paras. 247-252.
629For example, paragraph 3 of Annex V refers to information such as "customs data concerning
imports and declared values of the products concerned". Paragraph 5 of Annex V refers to information such as
"prices of the subsidized product, prices of the non-subsidized product, prices of other suppliers to the market,
changes in the supply of the subsidized product to the market in question and changes in market shares".

product in the relevant market when analyzing whet her the effect of a subsidy is significant price
suppression. In many cases, it may be difficult to decide this question in the absence of such an
assessment. Nevertheless, this does not mean that Article 6.3(c) imposes an obligation on panels to
quantify precisely the amount of a subsidy benefitin g the product at issue in every case. A precise,
definitive quantification of the subsidy is not required.
468. In the present case, the Panel could have been more explicit and specified what it meant by
"very large amounts" 630, beyond including cross-references to its earlier findings regarding certain
subsidies. Nevertheless, the in formation before the Panel clearl y supports the Panel's general
statements regarding the magnitude of the price-contingent subsidies.631
469. In addition to its arguments regarding quantification, the United States contends that the Panel
should have used an allocation methodology to determine the amount of "decoupled" market loss
assistance payments and counter-cyclical payments th at benefits a given product. It argues that
Annex IV of the SCM Agreement contains an "economically neutral" 632 allocation methodology
agreed by WTO Members, pursuant to which "the subsidy would be allocated to the product
according to the ratio of sales of that product to the total value of the recipient firm's sales".
633 It is
clear that use of the Annex IV methodology is not expressly required by Article 6.3(c). We also
observe that the Panel described as "appropriate" 634 certain alternative allocation methodologies to the
one it relied upon that sought to reduce the amount of payments with respect to upland cotton base
acres within the base acre dependent programs to ac count only for payments corresponding to acres
that were actually planted with upland cotton. 635 In our view, even using these alternative allocation
methodologies for market loss assistance payments and counter-cyclical payments, the Panel's
conclusion regarding the order of magnitude of the price-contingent subsidies stands.636
470. Finally, we address the related United States argu ment that the Panel failed to determine the
extent to which the "benefit" of price-contingent subsidies paid to producers of "raw" cotton flowed
through to "processed" cotton. We note that th e Panel seemed to regard market loss assistance
payments and counter-cyclical payments as be nefiting the production of upland cotton lint. 637 As for

630Supra, para. 459.
631Panel Report, paras. 7.596 and 7.641; United States' response to questions posed by the Panel (Panel
Report, p. I-126, para. 211).
633Ibid., para. 268.
634Panel Report, para. 7.646.
635Ibid., "Attachment to Section VII:D", paras. 7.634-7.647.
636Table 3 of Annex 2.

marketing loan program payments and Step 2 paymen ts, the Panel suggested that it is a condition of
eligibility for these payments that harvested cotton containing cotton lint and cottonseed "be 'baled'
and/or 'ginned'".638
471. The United States contends that the Appellate Body's reasoning in US – Softwood Lumber IV
indicates that it cannot be presumed that a "subsidy", as defined in Article 1.1 of the SCM Agreement,
provided to a producer of an input (such as raw cotton) "passes through" to the producer of the
processed product (in this case, upland cotton lint). 639 However, the Appellate Body's reasoning in
that dispute focuses not on the requirements for establishing serious prejudice under Articles 5(c)
and 6.3(c) of the SCM Agreement, but on the conduct of countervailing duty investigations pursuant
to Part V of the SCM Agreement.
640
472. As we have already noted 641, the requirement in Article VI:3 of the GATT 1994 and
Article 19.4 of the SCM Agreement that countervailing duties on a product be limited to the amount
of the subsidy accruing to that product finds no para llel in the provisions on actionable subsidies and
pertinent remedies under Part III of the SCM Agreement . Therefore, the need for a "pass-through"
analysis under Part V of the SCM Agreement is not critical for an assessment of significant price
suppression under Article 6.3(c) in Part III of the SCM Agreement. Nevertheless, we acknowledge
that the "subsidized product" must be properly identified for purposes of significant price suppression
under Article 6.3(c) of the SCM Agreement . And if the challenged payments do not, in fact,
subsidize that product, this may undermine the conclu sion that the effect of the subsidy is significant
suppression of prices of that product in the relevant market.
473. For these reasons, we find that the Panel did not err in its assessment of the amount of the
subsidies for the purpose of its analysis under Article 6.3(c) of the SCM Agreement.

638Panel Report, footnote 258 to para. 7.197. See also ibid., footnotes 1339 and 1340 to para. 7.1225.
639United States' appellant's submission, paras. 304 and 305 (quoting Appellate Body Report, US –
Softwood Lumber IV, para. 142).
640Appellate Body Report, US – Softwood Lumber IV , paras. 140-142. The Appellate Body there
addressed the need for authorities to ensure that the s ubsidy at issue confers a benefit on the product against
which countervailing duties are to be im posed (pursuant to Article 1.1 of the SCM Agreement) and that those
duties do not exceed the total amount of the subsidy accruing to that product (pursuant to Artic le VI:3 of the
GATT 1994). The facts in that case are also quite different from those in the present dispute. In US – Softwood
Lumber IV, it was undisputed that lumber is a distinct product from trees or logs, and countervailing duties were
imposed on exported lumber and not on trees or logs. (Appellate Body Report, US – Softwood Lumber IV ,
para. 124) In contrast, in the present dispute, no su ch clear distinction exists between cotton lint and "raw
cotton", meaning (presumably) harvested cotton containing cottonseed and cotton lint.
641Supra, para. 464.

(g) Effect of the Price-Contingent Subsidies Over Time
474. The United States asserts that the Panel erre d in making serious prejudice findings with
respect to the price-contingent subsidies provided in marketing years 1999 to 2001. 642 According to
the United States, a "recurring" subsidy payment does not confer a benefit after the year for which it is
paid, and therefore it is no longer a "subsidy" under Article 1 of the SCM Agreement. A subsidy that
is paid annually must be "allocated" or "expensed" 643 to the year "for which the payment is made" 644,
and the effect of such a payment cannot be "sig nificant price suppression" in any other year. The
price-contingent subsidies "are made annually with respect to a particular marketing year" 645, and
therefore the effect of those subsidies cannot exte nd to any later marketing year. In any case, the
United States argues that the Panel did not fi nd that these subsidy pa yments had "continuing
effects".646 The Panel was established in marketing year 2002 647 and, therefore, the Panel could not
have found that the effect of the price-conti ngent subsidies for marketing years 1999 to 2001 is
significant price suppression.648
475. We observe that the United States' contention that the effect of a subsidy must be "allocated"
or "expensed" to the year in which it is paid is confined to "recurring" subsidies, that is, subsidies paid
on an annual basis. The United States acknowledges that "non-recurring" subsidies could be
"allocated" to subsequent years as well. Article 6.3(c) of the SCM Agreement applies to a subsidy
whether it is "recurring" or "non-recurring". This Artic le does not suggest that the effect of a subsidy
is limited to or continues only for a specified period of time.
476. In this appeal, we are asked to address the limited question of whether the effect of a subsidy
may continue beyond the year in which it was paid, in the context of a significant price suppression
analysis under Article 6.3(c) of the SCM Agreement . Whether the effect of a subsidy begins and

642See supra, para. 422(c). "Because the recurring subsidies provided in each of marketing years 1999,
2000, and 2001 ceased to exist when th e benefit was used up for production in those years, the effect of those
subsidies cannot be the subject of subsidies claims in marketing year 2002." (United States' appellant's
submission, para. 284)
644The United States argues that "recurring" subsidies should be "allocated ... to the marketing year to
which they relate". (United States' appellant's submission, para. 275) In response to questioning during the oral
hearing, the United States clarified that when it refers to the year to which a subsidy relates it means "the year
for which the payment is made".
646Ibid., para. 278.
647The DSB established the Panel on 18 March 2003. (WT/DS267/15; Panel Report, para. 1.2) "The
date on which the Panel was established fell during the 2002 marketing year for upland cotton in the United
States, which began on 1 August 2002 and ended on 31 July 2003." (Panel Report, para. 7.185)

expires in the year in which it is paid or begins in one year and continues in any subsequent year, and
how long a subsidy can be regarded as having eff ects, are fact-specific questions. The answers to
these questions may depend on the nature of the s ubsidy and the product in question. We see nothing
in the text of Article 6.3(c) that excludes a priori the possibility that the effect of a "recurring" subsidy
may continue after the year in which it is paid. Artic le 6.3(c) deals with the "effect" of a subsidy, and
not with the financial accounting of the amount of the subsidy.649
477. The context of Article 6.3(c) within Part III of the SCM Agreement does not support the
suggestion that the effect of a subsidy is immediate, short-lived, or limited to one year, regardless of
whether or not it is paid every year. Article 6.2 of the SCM Agreement refers to the possibility of the
subsidizing Member demonstrating that "the subsidy in question has not resulted in any of the
effects enumerated in paragraph 3". 650 (emphasis added) The word "resulted" in this sentence
highlights the temporal relationship between the subs idy and the effect, in that one might expect a
time lag between the provision of the subsidy and the resulting effect. 651 In addition, the use of the
present perfect tense in this provision implies that some time may have passed between the granting
of the subsidy and the demonstration of the absence of its effects.652
478. Article 6.4 of the SCM Agreement is also relevant context for interpreting Article 6.3(c).
Article 6.4 requires that the displacement or impeding of exports be demonstrated "over an
appropriately representative period", which "shall be at least one year", so that "clear trends" in
changes in market share can be demonstrated. 653 This suggests that the effect of a subsidy under
Article 6.4 must be examined over a sufficiently long period of time and is not limited to the year in
which it was paid. As the Panel has also pointed out in the context of Article 6.3(c), "[c]onsideration

649Although the accounting treatment of a subsidy may be relevant, it does not control the assessment
of the effect of the subsidy under Article 6.3(c).
650The French version of Article 6.2 states that "la subvention ... n'a eu aucun des effets énumérés au
paragraphe 3". The Spanish version of Article 6.2 states "la subvención en cuestión no ha producido ninguno de
651The Spanish version of Article 6.2 uses the word "producido" for "resulted", again suggesting a time
lag between the provision of the subsidy and the resulting effect. The French version of Article 6.2 uses a more
neutral term, "eu", which includes but perhaps does not emphasize this temporal connotation as strongly. See
supra, footnote 650.
652The French and Spanish versions of Article 6. 2 also use the present perfect tense. See supra,
footnote 650.
653Article 6.4 reads in relevant part:
[T]he displacement or impeding of exports shall include any case in which
... it has been demonstrated that there has been a change in relative shares of
the market to the disadvantage of the non-subsidized like product ( over an
appropriately representative period sufficient to demonstrate clear trends in
the development in the market for the product concerned, which, in normal
circumstances, shall be at least one year). ... (emphasis added)

of developments over a period of longer than one year ... provides a more robust basis for a serious
prejudice evaluation than merely paying attention to developments in a single recent year".654
479. The United States supports its arguments regard ing the "allocation" of "recurring" and "non-
recurring" subsidies by referring to several sources. 655 The United States submits that "the Appellate
Body has acknowledged that 'non-recurring' subsidies may be allocated over time" 656, citing the
following statement of the Appellate Body in US – Lead and Bismuth II:
[W]e agree with the Panel that while an investigating authority may
presume, in the context of an administrative review under
Article 21.2, that a "benefit" continues to flow from an untied, non-
recurring "financial contribution", this presumption can never be
"irrebuttable".
657
In our view, this statement does not support the Unit ed States' argument. A proper reading of this
statement reveals that it was made in the context of Part V of the SCM Agreement, and it focuses on
the benefit flowing from a "non-recurring" financial contribution rather than the effect of a subsidy.
Indeed, the Appellate Body's conclusion that inv estigating authorities cannot adopt an irrebuttable
presumption that a benefit continues to flow from certain non-recurring financial contributions
highlights the importance of examining the particular characteristics of a given subsidy in evaluating
its impact.
480. In addition, the United States refers to paragraph 7 of Annex IV to the SCM Agreement658,
which provides that "[s]ubsidies granted prior to the entry into force of the WTO Agreement, the
benefits of which are allocated to future produc tion, shall be included in the overall rate of
subsidization." Although this provision recognizes that the be nefits of some subsidies may be
allocated to future production, it does not specify that this applies exclusively to "non-recurring"

654Panel Report, para. 7.1199.
655United States' appellant's submission, paras. 282 and 283, citing: SCM Agreement, paragraph 7 of
Annex IV; Guidelines on Amortization and Depreciation adopted by the Tokyo Round Committee on Subsidies
and Countervailing Measures, SCM/64, BISD 32S/154 (25 April 1985), para. 1; Anti-Dumping Agreement ,
Article 2.2.1.1; Appellate Body Report, US – Lead and Bismuth II , para. 62; Report by the Informal Group of
Experts to the Committee on Subsidies and Countervailing Measures, G/SCM/W/415/Rev.2 (15 May 1998),
Recommendation 1 and paras. 1-12.
657Appellate Body Report, US – Lead and Bismuth II, para. 62.
658The title of Annex IV of the SCM Agreement is "Calculation of the Total Ad Valorem
Subsidization (Paragraph 1(a) of Article 6)". (footnote omitted)

subsidies. In any event, as the Panel noted, the "effect" of a subsidy cannot be equated with the
"benefit" of a subsidy.659
481. The United States also points to Article 2.2.1.1 of the Anti-Dumping Agreement , which
relates to the calculation of costs in constructing a normal value under Article 2.2, in order to calculate
a dumping margin in certain circumstances. Article 2.2. 1.1 states, in relevant part, that "costs shall be
adjusted appropriately for those non-recurring items of cost which benefit future and/or current
production". However, this provision pertains to the method of calculation of producers' costs in
constructing the normal value of a product, which is a different inquiry. It does not apply in assessing
the effect of a subsidy under Article 6.3(c) of the SCM Agreement.
482. For these reasons, we are not persuaded by the Un ited States' contention that the effect of
annually paid subsidies must be "allocated" or "expen sed" solely to the year in which they are paid
and that, therefore, the effect of such subsid ies cannot be significant price suppression in any
subsequent year. We do not agree with the proposi tion that, if subsidies are paid annually, their
effects are also necessarily extinguished annually.
483. Turning to the effect of the subsidies at issue in this appeal, we note that the Panel found that
the effect of the price-contingent subsidies for marketing years 1999 to 2002 660 "is significant price
suppression ... in the period MY 1999-2002".661 The Panel did not specify which subsidies had effects
in which years; nor did it specifically state that the effect of the subsidies for marketing years 1999-
2001 was significant price suppression in marketing year 2002. This is consis tent with the Panel's
earlier statement regarding the way in which it would conduct its analysis:
[I]n our price suppression analysis under Article 6.3(c), we examine
one effects-related variable – pr ices – and one subsidized product –
upland cotton. To the extent a sufficient nexus with these exists
among the subsidies at issue so that their effects manifest themselves
collectively, we believe that we may legitimately treat them as a
"subsidy" and group them and their effects together.
662

659Panel Report, para. 7.1179.
660Ibid., para. 7.1108.
661Ibid., para. 7.1416. Before the Panel, Brazil also cl aimed that United States subsidies to be granted
from marketing year 2003 to marketing year 2007 threaten to cause serious prejudice to Brazil's interests. (Ibid.,
para. 7.1478) However, the payments to be made in marketing years 2003-2007 and the issue of threat of
serious prejudice under the SCM Agreement do not form part of this appeal.
662Ibid., para. 7.1192.

484. For this reason, the Panel examined the price- contingent subsidies for marketing years 1999
to 2002 as a group 663, and its finding of significant price suppression in marketing years 1999 to
2002664 applied to this group of subsidies. As we noted above, the effects of a "recurring" subsidy
may continue after the year in which it is paid. 665 Given that the Panel found significant price
suppression in the period 1999 to 2002 as a whole, a nd this period includes the marketing year 2002,
we are unable to agree with the United States' asser tion that the Panel erred in not making a specific
finding that the price-contingent subsidies for marketing years 1999 to 2001 "had continuing effects at
the time of panel establishment".666
6. Serious Prejudice under Article 5(c) of the SCM Agreement
485. Having found that the effect of the price-contingent subsidies is significant price suppression
within the meaning of Article 6.3(c) of the SCM Agreement667, the Panel then considered whether the
United States had caused adverse effects in the form of serious prejudice to the interests of Brazil
through the use of these subsidies, contrary to Article 5(c) of the SCM Agreement. The Panel found
that the significant price suppression it had found under Article 6.3(c) of the SCM Agreement
amounted to serious prejudice within the meaning of the Article 5(c) of the SCM Agreement668, based
on the following findings:
[A]n affirmative conclusion that the effects-based situation in
Article 6.3(c) exists is a sufficient basis for an affirmative conclusion
that "serious prejudice" exists for the purposes of Article 5(c) of the
SCM Agreement.
669
[A]ssuming arguendo that any sort of additional demonstration is
necessary to establish that the "significant price suppression" we
have found to exist in the same world market constitutes prejudice
amounting to "serious prejudice" with in the meaning of Article 5(c),
... Brazil has also fulfilled that burden.670
486. Thus, the Panel provided two alternative reasons for finding that the significant price
suppression it had found amounted to serious prejudice within the meaning of the Article 5(c) of the

663Panel Report, para. 7.1290.
664Ibid., para. 7.1416.
665Supra, para. 482.
667Panel Report, paras. 7.1355-7.1356 and 7.1363.
668Ibid., paras. 7.1395 and 8.1(g)(i).
669Ibid., para. 7.1390.
670Ibid., para. 7.1391.

SCM Agreement.671 The Panel's primary reason was that if the effect of a subsidy is significant price
suppression within the meaning of Article 6.3(c), this is sufficient, without more, to conclude that the
subsidizing Member has caused serious prejudice to the interests of another Member within the
meaning of Article 5(c).672 The Panel's alternative reason was that, even if this is not sufficient, Brazil
had fulfilled the burden of demonstrating that th e United States had caused serious prejudice to the
interests of Brazil within the meaning of Article 5(c).673
487. In its Notice of Appeal, and in the "Conclusion" section of its Appellant's Submission, the
United States challenged the Panel's finding "that 'significant price suppression' is sufficient to
establish 'serious prejudice' for purposes of Ar ticles 5(c) and 6.3 of the SCM Agreement". 674 Brazil
asks us to dismiss this claim because the United Stat es did "not appear to have advanced arguments in
its Appellant's Submission" in relation to it. 675 In response to questioning during the oral hearing, the
United States clarified that, in its Notice of Appeal , it intended to challenge only the first of the two
findings mentioned above (that is , the Panel's finding in paragra ph 7.1390 of the Panel Report).
However, the United States indicated that it did not pursue this claim in its appellant's submission.
488. As neither party has appealed the Panel's fi nding in paragraph 7.1390 of the Panel Report
(regarding the sufficiency of a finding of an effect under Article 6.3(c) for a finding of serious
prejudice under Article 5(c), in general terms) or the Panel's alternative finding in paragraph 7.1391 of
the Panel Report (regarding serious prejudice to the in terests of Brazil in the particular circumstances
of this dispute), we express no opinion on either of those findings. Nor do we address the Panel's
consequential finding that the significant price suppr ession that it had found to be the effect of the
price-contingent subsidies under Article 6.3(c) of the SCM Agreement amounted to serious prejudice
within the meaning of Article 5(c) of the SCM Agreement .676 Accordingly, upon adoption of the
Panel Report by the DSB, the Panel's findings in pa ragraphs 7.1390 and 7.1391 of the Panel Report as
mentioned above677 would stand, without endorsement or rejection by the Appellate Body.

671Panel Report, paras. 7.1395 and 8.1(g)(i).
672Ibid., para. 7.1390.
673Ibid., para. 7.1391.
674United States' Notice of Appeal (WT/DS267/17, 18 October 2004, attached as Annex 1 to this
676Panel Report, paras. 7.1395 and 8.1(g)(i).
677Supra, para. 485.

7. Basic Rationale under Article 12.7 of the DSU
489. The United States contends that, contrary to Ar ticle 12.7 of the DSU, the Panel failed to set
out the basic rationale behind its finding that the effect of the price-contingent subsidies is significant
price suppression within the meaning of Article 6.3(c) of the SCM Agreement. Article 12.7 of the
DSU requires a panel to set out in its report "the findings of fact, the applicability of relevant
provisions and the basic rationale behind any findings and recommendations that it makes".
490. The United States submits that the Panel "provi ded no explanation of what degree of price
suppression it had found to be 'significant.'"
678 In fact, the Panel based its reasoning in this regard on
the ordinary meaning of "significant"679, explaining that the "significance" of price suppression could,
depending on the circumstances, have both quantitative and qualitative aspects. 680 We find that the
Panel adequately explained the basis for its c onclusion that the price suppression it had found was
"significant" with the meaning of Article 6.3(c). 681 We therefore see no failure on the part of the
Panel to comply with Article 12.7 of the DSU in this regard.
491. The United States also argues that the Panel "fa iled to set out the basic rationale behind its
findings and recommendations ... with respect to the amount of the subsidy".682 We have already held
that the Panel did not err in interpreti ng or applying Article 6.3(c) of the SCM Agreement in relation
to the amount of the challenged subsidies. 683 In addition, we note that the Panel articulated a basic
rationale for its conclusions in this regard. 684 Accordingly, we decline to find an error on the part of
the Panel under Article 12.7 of the DSU.
492. In addition, the United States contends that, c ontrary to Article 12.7 of the DSU, the Panel
failed to set out the basic rationale behind several st eps in its reasoning leading to the conclusion that

679Panel Report, para. 7.1325 (referring to The New Shorter Oxford English Dictionary (1993)).
680"The 'significance' of any degree of price suppression ... may not solely depend upon a given level of
681Panel Report, paras. 7.1316-7.1333.
683Supra, para. 473.
684Panel Report, paras. 7.1166-7.1190. In assessing the need to quantify the benefit conferred on
upland cotton by the subsidies at issue, the Panel compar ed the specific provisions in Parts III and V of the
 SCM Agreement , as well as certain aspects of Articles VI and XVI of the GATT 1994. It highlighted the
different remedies contained in the provisions of Part III and V and the rationale behind these different parts.
The Panel identified the specific arguments of the United States that it was addressing as well as the relevant
Appellate Body pronouncements. The Panel's basic rationale for deciding that it need not quantify precisely the
benefit conferred on upland cotton by the subsidies at issue appears to have been that "the more precise
quantitative concepts and methodologies found in Part V of the SCM Agreement are not directly applicable in
our examination of Brazil's actionable s ubsidy claims under Part III of the SCM Agreement". (Panel Report,
para. 7.1167)

the effect of the price-contingent subsidies is significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement. The United States contends that the Panel "prejudged ... the
outcome of its causation analysis" in making its finding of price suppression 685 and that the Panel
"never explained why it did not analyze the farm er's planting decision and the use of expected
prices".686 In the present dispute, the Panel set out the basic rationale for its findings on "significant
price suppression" and the "causal link" with the price-contingent subsidies. 687 As we have already
explained, the Panel did address the "planting decision" and "expected prices" 688, and the overlap
between different sections of the Panel's analysis stemmed in part from the elements that constitute
"price suppression" under Article 6.3(c).689
493. In its appellant's submission, the United States argues that the Panel failed to comply with
Article 12.7 of the DSU, inter alia, in making its findings as to: (i) "why the processed cotton was a
'subsidized product' and why [the Panel] could a ssume that all of the subsidies paid to cotton
producers for raw cotton passed through to the processor"690; and (ii) "why any price suppression that
it found meant that there was serious prejudice to the interests of Brazil".691
494. However, paragraph 10 of the United States' No tice of Appeal (which contains the United
States' allegations in connection with Article 12. 7 of the DSU) does not refer to the "subsidized
product", "pass through", or "serious prejudice". No r does the general statement in paragraph 10 of
the issues covered in the United St ates' claim under Article 12.7 of the DSU appear to extend to these
two findings.692
495. We acknowledge that the wording of paragraph 10 of the United States' Notice of Appeal
(and, in particular, the use of the words "for ex ample") suggests that the findings listed in this
paragraph are simply examples of findings challenged in connection with Article 12.7 of the DSU,

686Ibid., para. 324.
687Panel Report, paras. 7.1275-7.1363. The Panel re ferred to and addressed a great deal of factual
evidence provided by the parties. The Panel also clearly identified the provisions of the covered agreements that
it considered relevant to this issue and gave detailed explanations for its conclusions at each step.
688Supra, para. 441.
689Supra, para. 433.
691Ibid., para. 329.
692It could be argued that the "pass-through" issue is encompassed in the reference to "the amount of
the challenged subsidies" in paragraph 10. However, if the United States wished to include this issue in its
claim of error under Article 12.7, as described in paragraph 10 of the Notice of Appeal, one might have
expected it to do so more explicitly, given that a substantive claim of error regarding the need for a "pass-
through" analysis is raised specifically in paragraph 8( d) of the Notice of Appeal in respect of the issues
appealed regarding "serious prejudice".

and that the United States' claim of error under Artic le 12.7 extends to other Panel findings. In other
words, paragraph 10 purports to provide an illustrative rather than exhaustive list of the findings that
the United States intends to challenge under Articl e 12.7 of the DSU. However, the fact that
paragraph 10 purports to provide an illustrative lis t is not conclusive as to whether the Notice of
Appeal contains a sufficient reference to the Panel' s findings described in paragraph 493 above for us
to conclude that these findings are included in the United States' appeal. The significance of terms
such as "for example" is likely to depend on the pa rticular claim in question and the particular context
in which the term is used in a given appeal. In our view, the United States' Notice of Appeal did not
provide adequate notice to Brazil, as contemplated by Rule 20(2) of the Working Procedures for
Appellate Review (the " Working Procedures")693, that the United States intended to make a claim of
error under Article 12.7 of the DSU with respect to the Panel's findings described in paragraph 493
above. We therefore decline to rule on these findings in connection with Article 12.7 of the DSU.
8. Conclusion
496. For these reasons, the United States has not pers uaded us that the Panel committed a legal
error in interpreting the relevant legal requirements of Article 6.3(c) or in applying its interpretation to
the facts of this case. We therefore uphold the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of
the Panel Report, that the effect of marketing lo an program payments, Step 2 payments, market loss
assistance payments, and counter-cyclical payments is significant price suppression within the
meaning of Article 6.3(c) of the SCM Agreement.694 We also find that the Panel set out the findings
of fact, the applicability of relevant provisions, a nd the basic rationale behind this finding, as required
by Article 12.7 of the DSU.
B. World Market Share under Article 6.3(d) of the SCM Agreement
1. Introduction
497. In addition to its claim that it had suffered serious prejudice resulting from price suppression
under Article 6.3(c) of the SCM Agreement, Brazil also made claims before the Panel alleging that
the effect of the challenged subsidies was serious prejudice resulting from an increase in the United
States' world market share in upland cotton under Article 6.3(d) of that Agreement. 695 The principal

693See supra, footnote 18.
694See supra, para. 488.
695The Panel listed the following as subsidies at issue for purposes of Brazil's claim under Article 6.3(d)
of the SCM Agreement: "user marketing (Step 2) payments to domestic users and exporters; marketing loan
programme payments; [production flexibility contract] payments; [market loss assistance] payments; [direct]
payments; [counter-cyclical] payments; crop insurance payments; and cottonseed payments". (Panel Report,
para. 7.1418) (footnote omitted)

disagreement between the parties regarding the applica tion of Article 6.3(d) related to the meaning of
the phrase contained therein, "world market shar e". Brazil submitted that this phrase meant "a
Member's share of the world market for exports" 696, and put forward evidence regarding increases in
the United States' share of the world market for exports of upland cotton. The United States
contended that the United States' share of the "world market" for upland cotton encompassed all
consumption of all upland cotton, including consumption by a country of its own cotton production.697
498. The Panel rejected Brazil's contention that the "world market share" referred to in
Article 6.3(d) was limited to the world market for exports. 698 The Panel also rejected the United
States' argument that "world market share" focu ses on a Member's share of consumption, based
largely upon an interpretation of the object and purpose of subsidies disciplines 699 and logical
inconsistencies in the United States' arguments.700 Instead, the Panel reached the view that:
... the phrase "world market share" of the subsidizing Member in
Article 6.3(d) of the SCM Agreement refers to share of the world
market supplied by the subsidizing Member of the product
concerned.701
499. In view of the fact that the evidence and argumentation submitted by Brazil "focused
exclusively upon a different, and in [the Panel's] view erroneous, legal inte rpretation of the phrase
'world market share' in Article 6.3(d)", the Pane l found that "Brazil has not established a prima facie
case of violation of Article 6.3(d) or Article 5(c) of the SCM Agreement".702
500. Brazil appeals the Panel's finding that it failed to make a prima facie case of violation under
Article 6.3(d) (and Article 5(c)) of the SCM Agreement . Its appeal has two sequential elements.
First, Brazil appeals the Panel's legal interpretation of Article 6.3(d). Brazil stresses that its appeal
regarding the Panel's legal interpretation of the phrase "world market share" is not conditional .703
Brazil suggests that the text of Article 6.3(d) is silent on the question of whether "world market share"
refers to world market share of exports or world market share of something else. 704 However, the

696Panel Report, para. 7.1424. (footnote omitted)
697Ibid., para. 7.1425.
698Ibid., paras. 7.1438-7.1450, and 7.1455-7.1463.
699Ibid., paras. 7.1451-7.1453.
700Ibid., footnote 1527 to para. 7.1451.
701Ibid., para. 7.1464. (underlining added)
702Ibid., para. 7.1465. (footnote omitted)
703Brazil's other appellant's submission, para. 264.
704Ibid., para. 275.

use of the word " trade" in footnote 17 to Article 6.3(d) (in the context of "multilaterally agreed
specific rules apply to the trade in the product or co mmodity") suggests that the focus of the provision
is upon a Member's share of world trade in a product, which requires a focus on exports, not
production, as the Panel found. 705 Brazil argues that Article XVI:3 of the GATT 1994 addresses a
Member's "share of world export trade" and that structural similarities between Article XVI:3 and
Article 6.3(d) require the phrase "world market share" in the latter provision to be read in the same
way.706 Brazil also points to the context provided by pa ragraphs (a) and (b) of Article 6.3, as well as
Articles 6.4 and 6.7, and argues that the focus of a serious prejudice analysis under Article 6.3 is on
the effects of the subsidies on like products from the complaining Member. 707 In addition, Brazil
argues that the Panel's reasoning subverts the object and purpose of the SCM Agreement, which is to
reduce trade distortions caused by subsidies. The Panel's reading de nies any remedy to countries that
lose market share to subsidized products.708
501. Secondly, Brazil requests us to complete the analysis of its claim of serious prejudice under
Article 6.3(d). Brazil makes this element of its appeal conditional upon us reversing the Panel's
findings that United States price-contingent subsidies 709 caused significant price suppression in terms
of Article 6.3(c) of the SCM Agreement. Brazil submits that findings by the Panel and undisputed
facts on the record would allow us to complete the analysis and find a violation of Article 6.3(d) by
the United States.710
502. The United States counters that the Panel was corre ct to reject the Brazilian interpretation that
"world market share" in Article 6.3(d) means "wor ld market share of exports". The Panel correctly
reasoned that nothing in the ordinary meaning of "world market share" s uggests that it should not
include the domestic market of the Member concerned. 711 The United States recalls that the Panel
distinguished between Article 6.3(d) (which deals with "world market share") and Article XVI:3 of
GATT 1994 (which deals with "share of world export trade") and suggests that the distinct choice of

705Brazil's other appellant's submission, paras. 276-277.
706Ibid., paras. 275-280.
707Ibid., paras. 281-288.
708Ibid., paras. 289-294.
709That is, marketing loan program payments, Step 2 payments, market loss assistance payments and
counter-cyclical payments.
710Brazil's other appellant's submission, paras. 296-315.
711Indeed (and although the United States does not appeal this point), the United States stresses that the
Panel's interpretation that the focus in the phrase "w orld market share" is upon production is too narrow,
because it focuses only on supply in the world "market" and not upon demand. A correct interpretation would
take into account demand—that is consumption—as well. On this basis, the focus in Article 6.3(d) is not upon
a share of the world's supply or production, but rather upon total sales. (United States' ap pellee's submission,
paras. 148-152)

words reflected in these provisions contains impor tant context to suggest that the coverage of
Article 6.3(d) is different from that of Article XVI:3. 712 The United States rebuts Brazil's arguments
regarding footnote 17 to Article 6.3(d) by stressing that the term "trade" in the footnote does not
purport to limit the scope of the otherwise broad term "world market share" in the text of
Article 6.3(d) itself. 713 Other elements of the context in wh ich Article 6.3(d) appears, such as
paragraphs (a) and (b) of Article 6. 3 and Articles 6.4 and 6.7 of the SCM Agreement, explicitly limit
the aspects of the market that th ey address. This contrasts with Article 6.3(d), which focuses only
upon the general concept "world market share". The United States also contests Brazil's view that the
Panel's interpretation of Article 6. 3(d) reduces the provision to inutility. 714 With respect to Brazil's
conditional request to complete the analysis, the Un ited States submits that, even if the Appellate
Body accepts Brazil's arguments with respect to the interpretation of Article 6.3(d), there are
insufficient facts available for the Appellate Body to complete the analysis of Brazil's claim on this
matter. The United States observes that the Panel did not undertake an analysis regarding a causal
link between the subsidies at issue and an increase in the United States' world market share of exports
in upland cotton, and that the causation analysis re garding price suppression under 6.3(c) could not be
transposed into an analysis of world market share under Article 6.3(d).715
503. Benin and Chad, third participants in this a ppeal, support Brazil's interpretation of the phrase
"world market share" in Article 6.3(d) of the SCM Agreement.716 Benin and Chad argue that, in the
event we agree with Brazil that "world market sh are" refers to a Member's share of world exports,
then we should complete the analysis. In the vi ew of Benin and Chad, the undisputed evidence on
record demonstrates that the effect of the United St ates' subsidies is serious prejudice to the interests
of Benin and Chad as well, within the mean ing of Articles 6.3(d) and 5(c) of the SCM Agreement.
Benin and Chad submit that the "interests of anothe r Member" in Article 5(c) are not limited only to
the interests of the complaining Member and ask us to find accordingly.717

713Ibid., paras. 154-156.
714Ibid., para. 161.
715Ibid., paras. 163-165.
716Benin and Chad's third participants' submission, paras. 75-79.
717Ibid., paras. 80-91.

2. Analysis
504. Article 6.3 of the SCM Agreement provides, in relevant part:
Serious prejudice in the sense of pa ragraph (c) of Article 5 may arise
in any case where one or several of the following apply:

(d) the effect of the subsidy is an increase in the world market
share of the subsidizing Member in a particular subsidized
primary product or commodity 17 as compared to the average
share it had during the previous period of three years and this
increase follows a consistent trend over a period when
subsidies have been granted.
Article 5(c).718 Article 6.3(d) addresses a situation in which subsidies have the effect of increasing the
"world market share of the subsidizing Member in a particular subsidized product or commodity".
The Panel held that the phrase "world market share" of the subsidizing Member in Article 6.3(d) of
the SCM Agreement "refers to share of the world market supplied by the subsidizing Member of the
product concerned".719 As Brazil had failed to submit evidence pertaining to this le gal interpretation,
the Panel found that Brazil had failed to make a prima facie case of violation of this provision.720
506. Brazil's appeal with respect to the application of Article 6.3(d) of the SCM Agreement has
two elements. First, Brazil appeals the Panel's in terpretation of the phrase "world market share" in
that provision. Second, Brazil requests us to complete the analysis of this issue and rule that the effect
of certain United States subsidies is an increase in the world market share of the United States in
upland cotton. This second element of Brazil's appeal is conditional upon us reversing the Panel's
findings with respect to the interpretation of Article 6.3(c) of the SCM Agreement.

718On the relationship between Articles 5(c) and 6.3 of the SCM Agreement , see supra, paras.
485-488.
719Panel Report, para. 7.1464. (emphasis added)
720Ibid., para. 7.1465.

507. We observe with regard to the interpreta tion of the phrase "world market share" in
Article 6.3(d) that, above 721, we upheld the Panel's finding that th e effect of the price-contingent
subsidies at issue in these proceedings is si gnificant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement . We observe, therefore, that the condition upon which the
second part of Brazil's appeal is contingent is not fulfilled, and thus there is no need for us to
complete the analysis and to examine whether or not the United States subsidies at issue have the
effect of increasing the United States' world market share in upland cotton.
508. Nor do we believe that it is necessary to make a finding on the interpretation of the phrase
"world market share" in Article 6.3(d) of the SCM Agreement. We recall that Article 17.12 of the
DSU requires that the "Appellate Body shall addr ess each of the issues raised in accordance with
paragraph 6 [of Article 17] during the appellate proceed ing". In addition, we note that Article 3.3 of
the DSU explains that:
The prompt settlement of situati ons in which a Member considers
that any benefits accruing to it directly or indirectly under the
covered agreements are being impaired by measures taken by another
Member is essential to the effective functioning of the WTO and the
maintenance of a proper balance between the rights and obligations
of Members.
For its part, Article 3.4 of the DSU provides that "[r]ecommendations or rulings made by the DSB
shall be aimed at achieving a satisfactory settlement of the matter". Similarly, Article 3.7 states that
"[t]he aim of the dispute settlement mechanism is to secure a positive solution to a dispute".
509. In US – Wool Shirts and Blouses, the Appellate Body cautioned that:
Given the explicit aim of dispute settlement that permeates the DSU,
we do not consider that Article 3.2 of the DSU is meant to encourage
either panels or the Appellate Body to "make law" by clarifying
existing provisions of the WTO Agreement outside the context of
resolving a particular dispute.
722
510. With this in mind, we observe that although an interpretation by the Appellate Body, in the
abstract, of the meaning of the phrase "world market share" in Article 6.3(d) of the SCM Agreement

721Supra, para. 496.
722Appellate Body Report, US – Wool Shirts and Blouses, p. 19, DSR 1997:I, 323 at 340.

might offer at best some degree of "guidance" on that issue, it would not affect the resolution of this
particular dispute.723 Indeed, irrespective of whether we were to uphold or reverse the Panel's finding
on this issue, upon adoption of the recommendations and rulings by the DSB, the United States would
be under no additional obligation re garding implementation. Thus, a lthough we recognize that there
may be cases in which it would be useful for us to review an issue, despite the fact that our ruling
would not result in rulings and recommendations by the DSB, we find no compelling reason for doing
so in this case.
511. Accordingly, we believe that an interpreta tion of the phrase "world market share" in
Article 6.3(d) of the SCM Agreement is unnecessary for purposes of resolving this dispute. We
emphasize that we neither uphold nor reverse the Panel's findings on the interpretation of the phrase
"world market share" in Article 6.3(d) of the SCM Agreement.
512. Finally, we recall that Article 24.1 of the DSU requires that "[a]t all stages of the
determination of the causes of a dispute and of dispute settlement procedures involving a least-
developed country Member, particular consideration shall be given to the special situation of least-
developed country Members". We fully recognize th e importance of this provision. However, we
recall that Benin and Chad request us to find that their interests have suffered serious prejudice in the
sense of Article 5(c) of the SCM Agreement , if we find Brazil has suffered serious prejudice as a
result of an increase in the United States' world market share in upland cotton in the sense of
Article 6.3(d) of the SCM Agreement . As we do not find it necessary to rule on Brazil's appeal
regarding the interpretation of the phrase "world mark et share" in Article 6.3(d), we therefore are not
in a position to accede to Benin and Chad's request to complete the analysis and to find that, in
addition to Brazil, Benin and Chad also have suffere d serious prejudice to their interests in the sense
of Articles 6.3(d) and 5(c) of the SCM Agreement . We note that Benin and Chad's request to
complete the analysis was predicated upon us revers ing the Panel's interpretation of the phrase "world
market share" in Article 6.3(d) of the SCM Agreement.
724 This condition is not met.

723We note, in this regard, that, in US – Steel Safeguards , the Appellate Body noted that "several
participants expressed an interest in having [it] ru le on causation as it would provide guidance to Members on
applying safeguard measures in the future consistently with their WTO obligations". (Appellate Body Report,
US – Steel Safeguards , para. 484) Despite this request for guidance, the Appellate Body declined to make a
ruling on this specific aspect of the case. (Appellate Body Report, US – Steel Safeguards, para. 483)
724Benin and Chad's third participants' submission, para. 83.

VII. Import Substitution Subsidies and Export Subsidies
A. Step 2 Payments to Domestic Users
1. Introduction
513. We examine next the United States' claims agai nst the Panel's findings relating to the Step 2
payments provided to domestic users and e xporters of United States upland cotton under
Section 1207(a) of the FSRI Act of 2002.
514. According to the Panel 725, the program pursuant to which Step 2 payments are granted has
been authorized since 1990 under successive le gislation, including the FAIR Act of 1996 726 and the
FSRI Act of 2002. 727 Under the program, marketing certificates or cash payments (collectively
referred to by the Panel as "user marketing (Step 2) payments")728 are issued to eligible domestic users
and exporters of eligible upland cotton when certain market conditi ons exist such that United States
cotton pricing benchmarks are exceeded. "Eligi ble upland cotton" is defined as "domestically
produced baled upland cotton which ba le is opened by an eligible dom estic user ... or exported by an
eligible exporter".729 An "eligible domestic user" of upland cotton is defined under the regulations as:
A person regularly engaged in the business of opening bales of
eligible upland cotton for the purpose of manufacturing such cotton
into cotton products in the United States (domestic user), who has
entered into an agreement with CCC
[730] to participate in the upland
cotton user marketing certificate program.731

725Panel Report, para. 7.209.
726Section 136 of the FAIR Act of 1996, reproduced in Exhibits BRA-28 and US-22.
727Section 1207 of the FSRI Act of 2002, reproduced in Exhibits BRA-29 and US-1, implemented
under 7 CFR 1427, Subpart C, reproduced in Exhibit BRA-37.
728The Panel explained that "[f]or the purposes of this dispute, on the basis of the views of the parties,
we make no distinction between user marketing (Step 2) cash payments and marketing certificates". (Panel
Report, footnote 284 to para. 7.209, referring to Brazil' s and the United States' respective responses to Panel
Question No. 110 (a))
7297 CFR Section 1427.103(a).
730Additional information about the CCC is provided, infra, footnote 859; see also Panel Report,
para. 7.702.
7317 CFR Section 1427.104(a)(1).

515. For its part, an "eligible exporter" of upland cotton is:
A person, including a producer or a cooperative marketing
association ... regularly engaged in selling eligible upland cotton for
exportation from the United States (exporter), who has entered into
an agreement with CCC to partic ipate in the upland cotton user
marketing certificate program.732
516. The Panel explained that, under the FAIR Ac t of 1996, the United States Secretary of
Agriculture "issued user marketing (Step 2) paym ents to domestic users and exporters of upland
cotton for documented purchases by domestic users and sales for export by exporters made in a week
following a consecutive four-week period when the lowest price quotation for United States cotton
delivered to Northern Europe ex ceeded the Northern Europe price quotation by more than 1.25 cents
per pound, and the adjusted world price did not ex ceed 130 per cent of the marketing loan rate for
upland cotton."
733 The payments to domestic users and e xporters are calculated "at a rate per pound
equal to the difference between the two price quotati ons during the fourth week of the period, minus
the 1.25 cents per pound threshold". 734 Step 2 payments continued to be authorized under the FSRI
Act of 2002, although with certain modifications. The Panel pointed out that "[i]n particular,
application of the 1.25 cents per pound threshol d has been delayed until 1 August 2006 (i.e. for the
2002 through 2005 marketing years)".735 The consequence of this, the Panel explained, is that "Step 2
payments are issued following a consecutive four-w eek period when the lowest price quotation for
United States cotton delivered to Northern Europe exceeded the Northern Europe price quotation by
any amount and the adjusted world price did not ex ceed 134 per cent (not 130 per cent, as under the
FAIR Act of 1996) of the marketing loan rate". 736 Domestic users and exporters receive payments
that are calculated "at a rate per pound equal to the difference between the two price quotations during
the fourth week of the period, with no reduction for the threshold".737
517. We address first the United States' appeal of the Panel findings in respect of Step 2 payments
to domestic users of United States upland cotton. We examine the United States' appeal of the

7327 CFR Section 1427.104(a)(2).
733Panel Report, para. 7.210.
734Ibid., para. 7.210 (referring to Section 136(a) of the FAIR Act of 1996 reproduced in Exhibits
BRA-28 and US-22). The Panel added that Section 136(a)(5) limited total expenditures under this program to
$701 million, but this was later repealed. (Ibid., footnote 286 to para. 7.210)
735Ibid., para. 7.211.
736Ibid.
737Ibid., para. 7.211 (referring to Section 1207(a) of the FSRI Act of 2002, reproduced in Exhibits
BRA-29 and US-1, and 7 CFR 1427.107 (1 January 2003 edition), reproduced in Exhibit BRA-37).

Panel's finding in respect of Step 2 payments to exporters of United States upland cotton in the next
Section of this Report.
2. Panel Findings
518. Before the Panel, Brazil argued that Step 2 pa yments to domestic users of upland cotton are
per se import substitution subsidies that are inconsis tent with Articles 3.1(b) and 3.2 of the
SCM Agreement.738 Brazil explained that Step 2 payments to domestic users are "contingent on the
use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement"
because the payments "are 'conditional' on proof of consumption of domestically produced upland
cotton".739
519. The United States did not dispute that Step 2 payments are "subsidies" and that to receive a
Step 2 payment a domestic user must "open a ba le of domestically produced baled upland cotton". 740
The United States, however, asserted that Step 2 pa yments to domestic users of upland cotton are
included, and they comply with, the United Stat es' domestic support reduction commitments pursuant
to Article 6.3 of the Agreement on Agriculture .741 As Step 2 payments to domestic users are
permitted under the Agreement on Agriculture, the United States argued that these payments cannot
be contrary to Article 3 of the SCM Agreement . This is because the introductory language of
Article 3.1 of the SCM Agreement makes it clear that that provision applies "[e]xcept as provided in
the Agreement on Agriculture ".742 The United States additionally asserted that "pursuant to
Article 21 of the Agreement on Agriculture , all of the Annex 1A agreements (including the SCM
Agreement) apply subject to the provisions of the Agreement on Agriculture".743
520. The Panel began its examination by observing that "[t]he introductory clause of Article 3.1 of
the SCM Agreement ('[e]xcept as provided in the Agreemen t on Agriculture') indicates that any
examination of the WTO-consistency of a s ubsidy for agricultural products under the SCM

738Panel Report, para. 7.1019. Before the Panel, Brazil also claimed that Step 2 payments to domestic
users are contrary to Article III:4 of the GATT 1994 an d that they are not justified under Article III:8(b)
because they are not exclusively paid to domestic producers of cotton, but rather to domestic users.
The Panel exercised judicial economy in respect of this claim, in the light of the fact that it had already
found the same measure to be inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement. Brazil has not
appealed the Panel's exercise of judicial economy. (Ibid., paras. 7.1099 and 7.1106)
739Ibid., para. 7.1019.
740Ibid., para. 7.1022 (quoting the United States' response to Question 144 Posed by the Panel (Panel
741Ibid., para. 7.1023.
742Ibid., para. 7.1024.
743Ibid.

Agreement may depend upon the provisions of the Agreement on Agriculture.744 The Panel then
examined Article 21.1 of the Agreement on Agriculture and observed that this provision "expressly
acknowledges the application of the GATT 1994 and the SCM Agreement to agricultural products,
while indicating that the Agreement on Agriculture would take precedence in the event, and to the
extent, of any conflict".745 The Panel described the situations in which, in its view, Article 21.1 of the
Agreement on Agriculture applies746, and then turned to "the relevant provisions of the Agreement on
Agriculture in order to discern whether, and/or to what extent, these provisions affect a claim
concerning the prohibition on import substitution subsidies in Article 3.1(b) of the SCM
Agreement."747 The Panel concluded that "none of the situ ations" it described arises in this dispute
from the relevant provisions in the Agreement on Agriculture.748
521. The Panel examined Article 13 of the Agreement on Agriculture , but concluded that this
provision did not affect its analysis of Brazil's claims under Article 3.1(b) of the SCM Agreement.749
The Panel then looked at Article 6.3 and paragraph 7 of Annex 3 of the Agreement on Agriculture ,
rejecting the United States' contention that "user marketing (Step 2) payments to upland cotton
domestic users that provide support to domestic pr oducers contingent on the use of domestic goods
[are] consistent with the Agreement on Agriculture".750 The Panel reasoned instead that:
Article 6.3 does not provide that compliance with such "domestic
support reduction commitments" shall necessarily be considered to
be in compliance with other appli cable WTO obligations. Nor does
it contain an explicit textual indication that otherwise prohibited
measures are necessarily justified by virtue of compliance with the
domestic support reduction commitm ents. The obligations are
parallel, and the operation of Article 6.3 of the Agreement on
Agriculture does not pre-empt or exclude the operation of the
obligation under Article 3.1(b) of the SCM Agreement.
751
522. From this the Panel concluded that "Article 3.1(b) of the SCM Agreement can be read
together with the Agreement on Agriculture provisions relating to domestic support in a coherent and
consistent manner which gives full and eff ective meaning to all of their terms". 752 Accordingly, the

744Panel Report, para. 7.1034. (footnote omitted)
745Ibid., para. 7.1036.
746Ibid., para. 7.1038. See infra, para. 532.
747Ibid., para. 7.1041. (footnote omitted)
748Ibid., para. 7.1039.
749Ibid., para. 7.1052.
750Ibid., para. 7.1056.
751Ibid., para. 7.1058. (original emphasis)
752Ibid., para. 7.1071.

Panel found no conflict between the dom estic support provisions of the Agreement on Agriculture
and Article 3.1(b) of the SCM Agreement and, therefore, saw no n ecessity to apply the rules in
Article 21.1 of the Agreement on Agriculture.753
523. Having examined the relationship between the relevant provisions of the Agreement on
Agriculture and the SCM Agreement, the Panel proceeded to examin e whether the Step 2 payments
to domestic users are contingent on the use of domest ic products contrary to Article 3.1(b) of the
SCM Agreement. The Panel noted that the United States had acknowledged that "to receive a
payment under the user marketing (Step 2) pr ogramme, a domestic user must open a bale of
domestically produced baled upland cotton" and, ther efore, did "not dispute that user marketing
(Step 2) payments to domestic users constitute a subsidy conditional or dependent upon the use of
domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement".754 The
Panel also conducted its own examination and found that:
... user marketing (Step 2) payments to domestic users under
section 1207(a) of the FSRI Act of 2002 will not be made except
upon proof of consumption of eligible upland cotton – which must be
"domestically produced", and "not imported". It is not just that it will
invariably be easier for domestic users to meet the conditions for user
marketing (Step 2) payments to domestic users by using domestic --
rather than imported -- upland cotton. The text of the measure
explicitly requires the use of domestically produced upland cotton as
a pre-condition for receipt of the payments.
The use of United States domestically produced upland cotton is a
condition for obtaining the subsidy. User marketing (Step 2)
payments to domestic users under section 1207(a) of the FSRI Act of
2002 are clearly conditional, or dependent upon, such use.
755
524. The Panel, furthermore, recalled its finding that the "fact that the user marketing (Step 2)
payments are also available in another factual situ ation ... —i.e. exporters—w ould not have the effect
of dissolving such contingency in respect of domestic users, particularly ... where the other factual
contingency (upon export performance) also gives rise to a prohibited subsidy".756

753Panel Report, para. 7.1071.
754Ibid., para. 7.1082 (referring to the United States' response to Question 144 Posed by the Panel
(Panel Report, p. I-249, para. 58) and Appellate Body Report, Canada – Autos, para. 126). (footnotes omitted)
755Ibid., paras. 7.1085-7.1086. (original emphasis)
756Ibid., para. 7.1087.

525. Therefore, the Panel concluded that "secti on 1207(a) of the FSRI Act of 2002 providing for
user marketing (Step 2) payments to domestic user s is inconsistent with Article 3.1(b) of the
SCM Agreement".757 In addition, the Panel found that "[t]o the extent that section 1207(a) of the FSRI
Act of 2002 providing for user marketing (Step 2) pa yments to domestic user s is inconsistent with
Article 3.1(b), it is, consequently, also inconsistent with Article 3.2 of the SCM Agreement".758
3. Arguments on Appeal
526. On appeal, the United States requests us to re verse the Panel's findings. According to the
United States, the Panel's conclusion fails to give meaning to the introductory phrase "[e]xcept as
provided in the Agreement on Agriculture" of Article 3.1 of the SCM Agreement.759 This phrase not
only applies to export subsidies covered by Article 3.1(a) of the SCM Agreement, but also to import
substitution subsidies covered by Article 3.1(b). Th e United States contends that Step 2 payments to
domestic users are properly classified as domestic support subject to reduction commitments under
Article 6 of the Agreement on Agriculture.760 Indeed, paragraph 7 of Annex 3 requires that measures
directed at agricultural processors shall be include d in the AMS to the extent that such measures
benefit the producers of the basic agricultural products. This approach is consistent with the objective
of the Agreement on Agriculture of providing for substantial progressive reductions in agricultural
support and protection sustained over an agreed period of time. 761 Furthermore, the United States
argues that the lack of any reference to domes tic content subsidies in Article 13(b) of the Agreement
on Agriculture does not support the Panel's interpretation. 762 Article 13(b) does not refer to Article 3
of the SCM Agreement because the substantive obligation of Article 3.1(b) does not apply in the case
of domestic content subsidies in favour of agricultural producers.
527. Brazil requests that we uphold the Panel's findings. According to Brazil, "[t]he obligations in
the Agreement on Agriculture and the SCM Agreement apply cumulatively, unless there is an
exception or a conflict".763 In Brazil's view, no conflict arises. Under the Agreement on Agriculture,
WTO Members enjoy a right to grant domestic suppor t in favour of agricultural producers. However,
this does not create a conflict with Article 3.1(b) of the SCM Agreement , because it is perfectly
possible for Members to grant domestic support w ithout making payments contingent on domestic

757Panel Report, para. 7.1097. (footnote omitted)
758Ibid., para. 7.1098.
759United States' appellant's submission, paras. 429-430.
760Ibid., para. 434.
761Ibid., para. 435.
762Ibid., paras. 431-432.

content. In other words, Members can fully enjoy their right to grant domestic support and comply
with Article 3.1(b).764
528. Brazil asserts that this interpretation is cons istent with a primary objective of the covered
agreements, namely, avoiding discrimination under the na tional treatment rule. It is also consistent
with an adopted 1958 GATT panel report involving a subsidy to agricultural producers that was
contingent on purchase of domestic goods. 765 Thus, Brazil states that domestic content subsidies in
favour of agricultural producers have been underst ood to be impermissible since 1958, so there is
nothing novel about Brazil’s complaint.766 The Agreement on Agriculture did not mark a step back
to allowing discrimination and protection that was prohibited under the GATT 1947. Therefore,
domestic support under the Agreement on Agriculture can and must be granted consistently with
Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994.767
4. Does Article 3.1(b) of the SCM Agreement Apply to Agricultural Products?
529. At the outset, we note that the United States did not dispute before the Panel that, if the
SCM Agreement were applicable, "user marketing (Step 2) payments to domestic users [would]
constitute a subsidy conditional or dependent upon the use of do mestic over imported goods within
the meaning of Article 3.1(b)" of that Agreement. 768 Instead, before the Panel and on appeal, the
United States asserts that Article 3.1(b) of the SCM Agreement is inapplicable to Step 2 payments to
domestic users because these payments are consis tent with the United States' domestic support
reduction commitments under the Agreement on Agriculture.769

According to Brazil, that panel recognized that the GA TT contracting parties were entitled to grant support to
agricultural producers but found that this could be done without granting domestic content subsidies.
767Ibid., paras. 863-865.
768Panel Report, para. 7.1082.
769Ibid., para. 7.1023; United States' appellant's submission, paras. 434-436.

530. Article 3.1(b) of the SCM Agreement provides:
Article 3
Prohibition
Except as provided in the Agreem ent 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.
We note that the introductory language of the chapeau makes it clear that the Agreement on
Agriculture prevails over Article 3 of the SCM Agreement , but only to the extent that the former
contains an exception.
531. Article 21.1 of the Agreement on Agriculture , which deals more broadly with the
relationship between that Agreement and the other covered agreements relating to the trade in goods,
provides:
The provisions of GATT 1994 and of other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement shall apply subject
to the provisions of this Agreement.770
532. We agree that Article 21.1 could apply in the three situations described by the Panel, namely:
... where, for example, the domestic support provisions of the
Agreement on Agriculture would prevail in the event that an explicit
carve-out or exemption from the disciplines in Article 3.1(b) of the
SCM Agreement existed in the text of the Agreement on Agriculture.
Another situation would be where it would be impossible for a
Member to comply with its domestic support obligations under the
Agreement on Agriculture and the Article 3.1(b) prohibition
simultaneously. Another situation might be where there is an explicit
authorization in the text of the Agreement on Agriculture that would
authorize a measure that, in th e absence of such an express
authorization, would be prohib ited by Article 3.1(b) of the
SCM Agreement.
771

770The SCM Agreement is among the Multilateral Trade Agreements in Annex 1A to the WTO
Agreement.
771Panel Report, para. 7.1038. (original emphasis) The Panel concluded that "none of the situations just
mentioned arise[s] in this dispute from the relevant provisions in the Agreement on Agriculture". (Panel Report,
para. 7.1039)

The Appellate Body has interpreted Article 21.1 to mean that the provisions of the GATT 1994 and of
other Multilateral Trade Agreements in Annex 1A apply, "except to the extent that the Agreement on
Agriculture contains specific provisions dealing specifically with the same matter". 772 There could
be, therefore, situations other than those iden tified by the Panel where Article 21.1 of the Agreement
on Agriculture may be applicable.
533. The key issue before us is whether the Agreement on Agriculture contains "specific
provisions dealing specifically with the same matter" as Article 3.1(b) of the SCM Agreement, that
is, subsidies contingent upon the use of domestic over imported goods. We, therefore, turn to the
relevant provisions of the Agreement on Agriculture.
534. The United States draws our attention to the domestic support provisions in the Agreement on
Agriculture, particularly to Article 6.3 and to pa ragraph 7 of Annex 3. Article 6 of the Agreement on
Agriculture deals with domestic support commitments. Pursuant to Article 6, WTO Members have
committed themselves to reduce the domestic support that they provide to their agricultural sector. 773
For this purpose, domestic support is calculated usi ng what is known as the AMS, which is defined in
Article 1(a) as:
... the annual level of support, expr essed in monetary terms, provided
for an agricultural product in favour of the producers of the basic
agricultural product or non-product-specific support provided in
favour of agricultural producers in general, other than support
provided under programmes that qualify as exempt from reduction
under Annex 2 to this Agreement ...
A WTO Member's domestic support reduction commitments are registered in Part IV of its Schedule.
535. Article 6.3 of the Agreement on Agriculture, the particular provision relied on by the United
States, reads:
A Member shall be considered to be in compliance with its domestic
support reduction commitments in any year in which its domestic
support in favour of agricultural pr oducers expressed in terms of
Current Total AMS does not exceed the corresponding annual or
final bound commitment level specified in Part IV of the Member's
Schedule.

772Appellate Body Report, EC – Bananas III , para. 155. (See also Appellate Body Report, Chile –
Price Band System, para. 186)
773Certain domestic measures are exempted from these reduction commitments under Articles 6.4
and 6.5 and Annex 2 of the Agreement on Agriculture.

The United States also relies on paragraph 7 of Annex 3 of the Agreement on Agriculture . This
Annex explains how WTO Members are to calculate AMS. Paragraph 7 of Annex 3 states, in relevant
part, that "[m]easures directed at agricultural pro cessors shall be included [in the AMS calculation] to
the extent that such measures benefit the producers of the basic agricultural products".
536. Before determining whether Article 6.3 and paragraph 7 of Annex 3 of the Agreement on
Agriculture deal specifically with the same matter as Article 3.1(b) of the SCM Agreement, we must
address the question whether the Step 2 payments to domestic users of United States upland cotton
fall within paragraph 7 of Annex 3 because the United States claims that they are "[m]easures directed
at agricultural processors" and "benefit the producer s of the basic agricultural products". The United
States argues that Step 2 payments to domestic users fall within paragraph 7 of Annex 3 because, even
though the payment is provided to persons opening a bale of cotton, the payment benefits producers
of United States cotton. The United States explains that this is the case "because [the program] serves
to maintain the price competitiveness of U.S. cott on vis-a-vis foreign cotton through a payment to
capture some differential between prevailing foreign and domestic cotton prices."774
537. We recall that "domestic users" are defined, under the United States' regulations, as "person[s]
regularly engaged in the business of opening bale s of eligible upland cotton for the purpose of
manufacturing such cotton into cotton products in the United States". 775 The United States has
acknowledged that the domestic users of United Stat es cotton that receive Step 2 payments include
textile mills.776 There is no dispute between the parties th at the producers of United States cotton are
"producers of ... basic agricultural products" for pur poses of paragraph 7 of Annex 3. Moreover,
Brazil has not disputed the United States' claim that Step 2 payments to domestic users may "benefit"
the producers of United States cotton. Therefore, we will proceed with our examination on the
assumption that Step 2 payments to domestic users of United States cotton are contemplated by
paragraph 7 of Annex 3 of the Agreement on Agriculture.777
538. We thus turn to the issue raised by the United States' appeal, that is, whether Article 6.3 and
paragraph 7 of Annex 3 of the Agreement on Agriculture are "specific provisions dealing specifically
with the same matter" as Article 3.1(b) of the SCM Agreement, namely, subsidies contingent upon
the use of domestic over imported goods.

775See supra, para. 514.
776United States' response to questioning at oral hearing.
777In this dispute we do not decide whether subsidies paid to textile manufacturers on their purchases of
cotton could be regarded as measures directed at "agricultural processors" within the meaning of paragraph 7 of
Annex 3.

539. The United States finds in the second senten ce of paragraph 7 of Annex 3 of the Agreement
on Agriculture an exception to the broad prohibition ag ainst subsidies contingent upon the use of
domestic over imported goods that is esta blished in Article 3.1(b) of the SCM Agreement. We note
that Annex 3 sets out instructions on how to cal culate WTO Members' AMS. Paragraph 7 is one
of 13 paragraphs contained in Annex 3. It reads:
The AMS shall be calculated as close as practicable to the point of
first sale of the basic agricultural product concerned. Measures
directed at agricultural processors sh all be included to the extent that
such measures benefit the producers of the basic agricultural
products.
540. Neither of the two sentences in paragraph 7 of Annex 3 refers to import substitution subsidies.
Paragraph 7 of Annex 3 reflects a preference for ca lculating domestic support as near as possible to
the stage of production of an agricultural good. Henc e, the first sentence of paragraph 7 of Annex 3
provides that "[t]he AMS shall be calculated as close as practicable to the point of first sale of the
basic agricultural product concerned". The sec ond sentence of paragraph 7 recognizes situations
where subsidies are not provided directly to the ag ricultural producer, but rather to an agricultural
processor, yet the measures may benefit the producer s of the basic agricultural good. This sentence
also clarifies that only the portion of the subsidy th at benefits the producers of the basic agricultural
good, and not the entire amount, shall be included in a Member's AMS.
541. It may well be that a measure that is an import substitution subsidy could fall within the
second sentence of paragraph 7 as "[m]easures direct ed at agricultural processors [that] shall be
included [in the AMS calculation] to the extent th at such measures benefit the producers of the basic
agricultural products". There is nothing, however, in the text of paragraph 7 that suggests that such
measures, when they are import substitution subsidies, are exempt from the prohibition in
Article 3.1(b) of the SCM Agreement . We agree with the Panel that there is a clear distinction
between a provision that requires a Member to include a certain type of payment (or part thereof) in
its AMS calculation and one that would authorize subs idies that are contingent on the use of domestic
over imported goods.
778
542. The United States argues that, if payments to processors that fall within paragraph 7 are not
exempted from the prohibition in Article 3.1(b) of the SCM Agreement , paragraph 7 would be
rendered inutile.779 According to the United States, if domestic users were allowed to claim Step 2
payments, regardless of the origin of the cotton, this "would cause the benefit to [domestic] cotton

778Panel Report, para. 7.1059.

producers to evaporate" and the "subsidy would be transformed from a subsidy 'in favor of
agricultural producers' to a simple input subsidy". 780 Rather than "a cotton subsidy", it would become
a "textile subsidy". 781 Like the Panel, we do not believe that the scope of paragraph 7 is limited to
measures that have an import s ubstitution component in them. Th ere could be other measures
covered by paragraph 7 of Annex 3 that do not necessarily have such a component. Indeed, Brazil
submits that if the Step 2 payments were provided to United States processors of cotton, regardless of
the origin of the cotton, th ese processors "would still buy at least some U.S. upland cotton, so
producers would continue to derive some benefit". 782 Thus, paragraph 7 of Annex 3 refers more
broadly to measures directed at agricultural processors that benef it producers of a basic agricultural
product and, contrary to the United States' asser tion, it is not rendered inutile by the Panel's
interpretation. WTO Members may still provide subs idies directed at agricultural processors that
benefit producers of a basic agricultu ral commodity in accordance with the Agreement on
Agriculture, as long as such subsidies do not include an import substitution component.
543. In addition to paragraph 7 of Annex 3, the Unite d States draws our attention to Article 6.3 of
the Agreement on Agriculture. The United States points out that Article 6.3 explicitly provides that a
WTO Member "shall be considered to be in compliance with its domestic support reduction
commitments in any year in which its domestic support in favour of agricultural producers expressed
in terms of Current Total AMS does not exceed the corresponding annual or final bound commitment
level". (emphasis added)
544. Like paragraph 7 of Annex 3, Article 6.3 does not explicitly refer to import substitution
subsidies. Article 6.3 deals with domestic support. It establishes only a quantitative limitation on
the amount of domestic support that a WTO Member can provide in a given year. The quantitative
limitation in Article 6.3 applies generally to all domestic support measures that are included in a WTO
Member's AMS. Article 3.1(b) of the SCM Agreement prohibits subsidies that are contingent—that
is, "conditional"
783—on the use of domestic over imported goods. 784
545. Article 6.3 does not authorize subsidies that are contingent on the use of domestic over
imported goods. It only provides that a WTO Member shall be considered to be in compliance with
its domestic support reduction commitments if its Current Total AMS does not exceed that Member's
annual or final bound commitment level specified in its Schedule. It does not say that compliance

781Ibid. (emphasis omitted)
782Brazil's appellee's submission, footnote 1242 to para. 854. (original emphasis)
784See Panel Report, para. 7.1067.

with Article 6.3 of the Agreement on Agriculture insulates the subsidy from the prohibition in
Article 3.1(b). We, therefore, agree with the Panel that:
Article 6.3 does not provide that compliance with such "domestic
support reduction commitments" shall necessarily be considered to
be in compliance with other appli cable WTO obligations. Nor does
it contain an explicit textual indication that otherwise prohibited
measures are necessarily justified by virtue of compliance with the
domestic support reduction commitments.
785
546. For these reasons, we find that paragraph 7 of Annex 3 and Article 6.3 of the Agreement on
Agriculture do not deal specifically with the same matter as Article 3.1(b) of the SCM Agreement,
that is, subsidies contingent upon the use of domestic over imported goods.
547. We are mindful that the introductory language of Article 3.1 of the SCM Agreement clarifies
that this provision applies "[e]xcept as provided in the Agreement on Agriculture". Furthermore, as
the United States has pointed out, this introductory language applies to both the export subsidy
prohibition in paragraph (a) and to the prohibition on import substitution subsidies in paragraph (b) of
Article 3.1. As we explained previously, in our review of the provisions of the Agreement on
Agriculture relied on by the United States, we did not fi nd a provision that deals specifically with
subsidies that have an import substitution component. By contrast, the prohibition on the provision of
subsidies contingent upon the use of domestic over imported goods in Article 3.1(b) of the SCM
Agreement is explicit and clear. Because Article 3.1(b) treats subsidies contingent on the use of
domestic over imported products as prohi bited subsidies, it would be expected that the drafters would
have included an equally explicit and clear provision in the Agreement on Agriculture if they had
indeed intended to authorize such prohibited subsidies provided in connection with agricultural goods.
We find no provision in the Agreement on Agriculture dealing specifically with subsidies contingent
upon the use of domestic over imported agricultural goods.
548. Our approach in this case is consistent with the Appellate Body's approach in EC –
Bananas III. In that case, the European Comm unities relied on Article 4.1 of the Agreement on
Agriculture in arguing that the market access concessi ons it made for agricultural products pursuant
to the Agreement on Agriculture prevailed over Article XIII of the GATT 1994. 786 The Appellate
Body, however, found that "[t]here is nothing in Artic les 4.1 or 4.2, or in any other article of the
Agreement on Agriculture , that deals specifically with the allocation of tariff quotas on agricultural

785Panel Report, para. 7.1058. (original emphasis)
786Appellate Body Report, EC – Bananas III, para. 153.

products".787 It further explained that "[i]f the negot iators had intended to permit Members to act
inconsistently with Article XIII of the GA TT 1994, they would have said so explicitly". 788 The
situation before us is similar. We have found nothing in Article 6.3, paragraph 7 of Annex 3 or
anywhere else in the Agreement on Agriculture that "deals specifically" with subsidies that are
contingent on the use of domestic over imported agricultural products.
549. We recall that the Agreement on Agriculture and the SCM Agreement "are both
Multilateral Agreements on Trade in Goods contained in Annex 1A of the Marrakesh Agreement
Establishing the World Trade Organization (the "WTO Agreement"), and, as such, are both 'integral
parts' of the same treaty, the WTO Agreement, that are 'binding on all Members'". 789 Furthermore, as
the Appellate Body has explained, "a treaty interpre ter must read all applicable provisions of a treaty
in a way that gives meaning to all of them, harmoniously". 790 We agree with the Panel that
"Article 3.1(b) of the SCM Agreement can be read together with the Agreement on Agriculture
provisions relating to domestic support in a cohe rent and consistent manner which gives full and
effective meaning to all of their terms".791
550. In sum, we are not persuaded by the United States' submission that the prohibition in
Article 3.1(b) of the SCM Agreement is inapplicable to import s ubstitution subsidies provided in
connection with products falling under the Agreement on Agriculture . WTO Members may still
provide domestic support that is consistent with their reduction commitments under the Agreement on
Agriculture. In providing such domestic support, howeve r, WTO Members must be mindful of their
other WTO obligations, including the prohibition in Article 3.1(b) of the SCM Agreement on the
provision of subsidies that are contingent on the use of domestic over imported goods.
551. Turning to the particular measure before us in this dispute, we recall that the United States
acknowledged before the Panel that, if the SCM Agreement were applicable, "user marketing
(Step 2) payments to domestic users [would] cons titute a subsidy conditiona l or dependent upon the

787Appellate Body Report, EC – Bananas III, para. 157.
788Ibid.
789Appellate Body Report, Argentina – Footwear (EC) , para. 81 (quoting from WTO Agreement ,
Article II:2). (original emphasis) In that case, the Appellate Body was referring to the GATT 1994 and the
Agreement on Safeguards.
790Appellate Body, Argentina – Footwear (EC), para. 81 and footnote 72 thereto (referring to Appellate
Body Report, Korea – Dairy, para. 81; Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 3 at 21;
Appellate Body Report, Japan – Alcoholic Beverages II , p. 12, DSR 1996:I, 97 at 106; and Appellate Body
Report, India – Patents (US), para. 45). (original emphasis)
791Panel Report, para. 7.1071.

use of domestic over imported goods within the me aning of Article 3.1(b)" of that Agreement. 792 The
Panel also conducted its own analysis and concluded that:
The use of United States domestically produced upland cotton is a
condition for obtaining the subsidy. User marketing (Step 2)
payments to domestic users under section 1207(a) of the FSRI Act of
2002 are clearly conditional, or dependent upon, such use.793
The United States has not appealed this finding and, therefore, we need not review it.
552. Accordingly, we uphold the Panel's findings, in paragraphs 7.1088, 7.1097-7.1098 and 8.1(f)
of the Panel Report, that Step 2 payments to domestic users of United States upland cotton, under
Section 1207(a) of the FSRI Act of 2002, are s ubsidies contingent on the use of domestic over
imported goods that are inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.
B. Step 2 Payments to Exporters
553. We turn to the United States' claim that the Panel erred in finding that Step 2 payments
provided to exporters of United States upland cotton, under Section 1207(a) of the FSRI Act
of 2002, are subsidies contingent on exportation an d, therefore, are inconsistent with Articles 3.3
and 8 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement . We
described the Step 2 payments program in the previous Section of this Report, where we examined the
Panel's findings relating to Step 2 payments provided to domestic users of United States upland
cotton.794
554. Before the Panel, Brazil argued that Step 2 payments to exporters are per se export subsidies
listed in Article 9.1(a) of the Agreement on Agriculture and are inconsistent with Article 3.3 and/or
Article 8 of the Agreement on Agriculture , as well as with Articles 3.1 and 3.2 of the
SCM Agreement.795 The United States denied that Step 2 payments constitute export subsidies for
purposes of the Agreement on Agriculture or Articles 3.1(a) and 3.2 of the SCM Agreement ,
arguing that these payments are available not only to exporters, but also to domestic users of upland
cotton.796

792Panel Report, para. 7.1082.
793Ibid., para. 7.1086.
794See also ibid., paras. 7.209-7.211.
795Ibid., para. 7.649(i). Brazil also made an a lternative claim under Article 10.1 of the Agreement on
Agriculture, but the Panel found it unnecessar y to examine this clai m because of its findings under Article 9.
(Ibid., para. 7.750)
796Ibid., para. 7.651(i).

555. Because Brazil challenged the alleged United States export subsidies under the Agreement on
Agriculture and the SCM Agreement , the Panel first examined the relationship between these
Agreements. The Panel explained what it considered to be the proper order of analysis as follows:
... it is appropriate to examine an a lleged export subsidy in respect of
an agricultural product first under the Agreement on Agriculture
before, if and as appropriate, turning to any examination of the same
measure under the SCM Agreement.797
556. Accordingly, the Panel began its examination of Brazil's claims against the Step 2 payments
to exporters with Article 9.1 of the Agreement on Agriculture . In this respect, the Panel observed
that the United States did not appear to dispute that Step 2 payments are subsidies provided by a
government to producers of agricultural products, or to cooperatives or associations of such producers
for purposes of Article 9.1(a) of the Agreement on Agriculture.798 The "key issue" before it, the Panel
explained, was whether Step 2 payments to exporters are subsidies "contingent on export
performance" within the meaning of Article 9.1(a) of the Agreement on Agriculture.799
557. The Panel then noted that the Agreement on Agriculture does not define the phrase
"contingent on export performance". Given that a similar phrase is used in the SCM Agreement, the
Panel saw no reason to read the phrase differently in the Agreement on Agriculture.800 The Panel also
equated Brazil's claim that Step 2 payments to exporters are " per se" export subsidies with a claim
that the subsidies are de jure export contingent under Article 3.1(a) of the SCM Agreement.801 Such
a claim of de jure export contingency had to be demonstrated , according to the Panel, "on the basis
of the words of the relevant legislati on, regulation or other legal instrument" 802 o r " w h e r e t h e
condition to export can be derived by necessary im plication from the words actually used in the
measure".803

797Panel Report, para. 7.673. The order of analysis was not an issue on appeal.
798Ibid., para. 7.695. The Panel also conducted it own assessment and concluded that the measure
meets the description in Article 9.1(a). (Ibid., para. 7.696)
799Ibid., para. 7.697.
800Ibid., para. 7.700 and footnote 872 thereto (relying on Appellate Body Report, US – FSC, para. 141
and Appellate Body Report, US – FSC (Article 21.5 – EC), para. 192).
801Ibid., para. 7.702.
802Ibid., (relying on Appellate Body Report, Canada – Aircraft, para. 167).
803Ibid., para. 7.702 (relying on Appellate Body Report, Canada – Autos, para. 100 and Appellate Body
Report, US – FSC (Article 21.5 – EC), para. 112).

558. In assessing whether the Step 2 payments to e xporters are contingent on export performance
under Article 9.1(a) of the Agreement on Agriculture, the Panel found:
It is undeniable that a condition of the receipt of user marketing
(Step 2) payments to exporters under section 1207(a) of the FSRI Act
of 2002 will always and inevitably be proof of exportation. The only
way to receive such a payment is through exportation. Export
performance is, therefore, a condition of receipt for this discrete
segment of eligible recipients.
Every user marketing (Step 2) payment to an eligible exporter is
contingent upon export.
804
559. The Panel rejected the United States' contention that Step 2 payments are not contingent on
export performance because they are available to both exporters and domestic users. According to the
Panel, the program under which Step 2 payments are granted "involves payment to two distinct sets of
recipients (exporters or domestic users) in two di stinct factual situations (export or domestic use)". 805
In the Panel's view, "[t]he fact that the subsidi es granted in the second situation may not be export
contingent does not dissolve the export contingency arising in the first situation".806
560. Having found that Step 2 payments to expor ters are mandatory when certain market
conditions exist807, the Panel concluded:
We therefore find that section 1207(a) of the FSRI Act of 2002
providing for user marketing (Step 2) payments to exporters
constitutes a subsidy "contingent on export performance" within the
meaning of Article 9.1(a) of the Agreement on Agriculture.
808

804Panel Report, paras. 7.734 and 7.735.
805Ibid., para. 7.732.
806Ibid., para. 7.739 and footnote 907 thereto (relying on Appellate Body Report, US – FSC
(Article 21.5 – EC), para. 119).
807Ibid., paras. 7.7745 and 7.746.
808Ibid., para. 7.748.

561. Consequently, the Panel also found:
User marketing (Step 2) payments to exporters under section 1207(a)
of the FSRI Act of 2002 are an export subsidy listed in Article 9.1 of
the Agreement on Agriculture . In providing such subsidies, the
United States has acted inconsiste ntly with its obligation under
Article 3.3 of the Agreement on Agriculture to "not provide subsidies
in respect of any agricultural product not specified in ... its
Schedule". The United States has furthermore acted inconsistently
with its obligation in Article 8 of the Agreement on Agriculture "not
to provide export subsidies otherwise than in conformity with [the
Agreement on Agriculture] and with the commitments as specified in
[its] Schedule".
809
562. As for Brazil's claims under the SCM Agreement, the Panel found "that section 1207(a) of
the FSRI Act of 2002 providing for user marketing (Step 2) payments to exporters is inconsistent with
Article 3.1(a) of the SCM Agreement ".810 The Panel additionally found that "[t]o the extent that
section 1207(a) of the FSRI Act of 2002 providing for u ser marketing (Step 2) payments to exporters
is inconsistent with Article 3.1(a), it is, conseque ntly, also inconsistent with Article 3.2 of the
SCM Agreement".811
563. On appeal, the United States requests us to reverse the Panel's findings that Step 2 payments
provided to exporters of United States upland co tton are export subsidies within the meaning of
Article 9.1(a) of the Agreement on Agriculture and, therefore, are inconsistent with Articles 3.3
and 8 of that Agreement. The United States also requests that we reverse the Panel's finding that
Step 2 payments to exporters are inconsis tent with Articles 3.1(a) and 3.2 of the SCM Agreement,
because they are not exempted from action by Article 13(c) of the Agreement on Agriculture.812
564. The United States does not contest that Step 2 payments are subsidies to producers of an
agricultural product for purposes of Article 9.1(a) of the Agreement on Agriculture ; nor does it
contest the Panel's finding in this regard. The focu s of the United States' appeal is the Panel's finding
that Step 2 payments are contingent on export performance under Article 9.1(a). 813 In support of its
claim, the United States reiterates on appeal the argum ents that it made before the Panel. The United
States asserts that Step 2 payments are not contingent on export performance because Step 2 payments

809Panel Report, para. 7.749.
810Ibid., para. 7.760.
811Ibid., para. 7.761.
813Ibid., para. 442.

are also available to domestic users of United States upland cotton.814 The United States contends that
the payments are contingent on use, not exportation.
565. Brazil requests that we uphold the Panel's finding that Step 2 payments to exporters are
contingent upon export performance. 815 According to Brazil, the m easure pursuant to which Step 2
payments are granted establishes two mutually ex clusive conditions of payment that address two
different factual situations where a Step 2 payment can be made. 816 These situations are mutually
exclusive because the same bale of cotton cannot be both opened for domestic use and exported.817 In
one situation under the Step 2 measure, proof of exportation is required as a condition of payment.
This export contingency is not dissolved because the payment can also made in another situation to
domestic users, on other conditions.818
566. In addition, Brazil rejects the United States' contention that Step 2 payments are contingent on
use and not on exportation. Brazil explains that St ep 2 payments do not apply to all United States
production of upland cotton because domestic brokers, resellers and other persons not regularly
engaged in opening bales of cotton for manufactur ing are not eligible to receive the payments. 819
Furthermore, Brazil asserts that, in the case of St ep 2 payments to exporters, the payment is not
contingent on use because the measure is indiffere nt to whether, how or when the upland cotton is
used so long as it is exported.820
567. The issue raised on appeal is whether the Step 2 payments provided to exporters of United
States upland cotton, under Section 1207(a) of the FSRI Act of 2002, are contingent on export
performance within the meaning of Article 9.1(a) of the Agreement on Agriculture and Article 3.1(a)
of the SCM Agreement.

814United States' appellant's submission, para. 443. The United States submits that its position is
consistent with the reasoning of the panel in Canada – Dairy . ( Ibid., para. 444 (relying on Panel Report,
Canada – Dairy, para. 7.41))
816Ibid., para. 888.
817Ibid.
818Brazil finds support for its argument in the Appellate Body's reasoning in US – FSC (Article 21.5 –
EC). See supra, footnote 806. (Brazil's appellee's submission, paras. 883-884)
820Ibid., para. 891.

568. Article 9.1(a) of the Agreement on Agriculture reads :
[T]he provision by governments or th eir agencies of direct subsidies,
including payments-in-kind, to a firm, to an industry, to producers of
an agricultural product, to a coopera tive or other association of such
producers, or to a marketing board, contingent on export
performance[.]
569. Article 3.1(a) of the SCM Agreement provides:
Article 3
Prohibition
Except as provided in the Agreem ent on Agriculture, the following
subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact
4, whether solely or as
one of several other conditions, upon export performance,
including those illustrated in Annex I
5;

 4 This standard is met when the fact s demonstrate that the granting of a
subsidy, without having been made legally contingent upon export
performance, is in fact tied to actual or anticipated exportation or export
earnings. The mere fact that a subsidy is granted to enterprises which export
shall not for that reason alone be considered to be an export subsidy within
the meaning of this provision.

5 Measures referred to in Annex I as not constituting export subsidies
shall not be prohibited under this or any other provision of this Agreement.
570. In previous appeals, the Appellate Body has explained that the WTO-consistency of an export
subsidy for agricultural products has to be examined, in the first place, under the Agreement on
Agriculture821; the examination under the SCM Agreement would follow if necessary. Turning,
then, to the Agreement on Agriculture , we note that Article 1(e) of that Agreement defines "export
subsidies" as "subsidies contingent upon export perf ormance, including the export subsidies listed in
Article 9 of this Agreement".
571. Although an export subsidy granted to agricultu ral products must be examined, in the first
place, under the Agreement on Agriculture , we find it appropriate, as has the Appellate Body in
previous disputes, to rely on the SCM Agreement for guidance in interpreting provisions of the
Agreement on Agriculture . Thus, we consider the export-contin gency requirement in Article 1(e) of

821See, for example, Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US),
para. 123.

the Agreement on Agriculture having regard to that same requireme nt contained in Article 3.1(a) of
the SCM Agreement.822
572. The Appellate Body has indicated, in this regard , that the ordinary meaning of "contingent" is
"conditional" or "dependent"823 and that Article 3.1(a) of the SCM Agreement prohibits subsidies that
are conditional upon export performance, or ar e dependent for their existence on export
performance.824 It has also emphasized that "a 'relati onship of conditionality or dependence', namely
that the granting of a subsidy should be 'tied to' th e export performance, lies at the 'very heart' of the
legal standard in Article 3.1(a) of the SCM Agreement".825 We are also mindful that in demonstrating
export contingency in the case of subsidies that ar e contingent in law upon export performance, 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".826
573. It is clear that the legal provisions pursuant to which Step 2 payments are granted to exporters
of United States upland cotton, on their face, apply to exporters of United States upland cotton.
Section 1207(a) of the FSRI Act of 2002 provides th at, when certain market conditions exist, the
United States Secretary of Agriculture:
... shall issue marketing certificates or cash payments, at the option of
the recipient, to domestic users and exporters for documented
purchases by domestic users and sales for export by exporters.
(emphasis added)

822Appellate Body Report, US – FSC (Article 21.5 – EC), para. 192.
824Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47. See also Appellate Body
Report, Canada – Aircraft, para. 166.
825Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 47 (quoting Appellate Body
Report, Canada – Aircraft, para. 171).
826The legal instrument does not have to provide expressly for the export contingency; the
conditionality may be derived by necessa ry implication from the text of th e measure. (Appellate Body Report,
Canada – Autos, para. 100)

The regulations define "eligible exporters" as:
A person, including a producer or a cooperative marketing
association ... regularly engaged in selling eligible upland cotton for
exportation from the United States (exporter), who has entered into
an agreement with CCC[ 827] to participate in the upland cotton user
marketing certificate program.828
"Eligible upland cotton" is defined as "domestica lly produced baled upland cotton which bale is
opened by an eligible domestic user ... or exported by an eligible exporter."829
574. Furthermore, in order to clai m Step 2 payments, exporters must submit an application and
provide supporting documentation to the CCC, includ ing "proof of export of eligible cotton by the
exporter".830 This provision confirms that the paymen t is "tied to" exportation. As the Panel
explained, "a condition of the receipt of user marketing (Step 2) payments to exporters under
section 1207(a) of the FSRI Act of 2002 will alwa ys and inevitably be proof of exportation". 831 Thus,
on the face of the statute and regulations pursuant to which Step 2 payments are granted to exporters,
the payments are "conditional upon export performance" or "dependent for their existence on export
performance".832
575. The United States directed the Panel's attenti on to the fact that the same statute and
regulations also provide for sim ilar payments to domestic users c onditioned on the domestic use of
United States upland cotton. According to the Un ited States, Step 2 payments to exporters and
domestic users are governed by a single legislativ e provision and a single set of regulations. In
addition, the form and payment ra te to domestic users and exporters are identical, and the payments
are made from a single fund. 833 As Step 2 payments are available to both domestic users and
exporters, the United States submits that exportati on is not a condition to receive payment and,
therefore, the payments are not export-contingent.834
576. We are not persuaded by the United States' argu ments. Like the Panel, we recognize that
Step 2 payments to exporters and domestic users are governed by a single legislative provision and a

827Additional information about the CCC is provided, infra, footnote 859; see also Panel Report,
para. 7.702.
8287 CFR Section 1427.104(a)(2).
8297 CFR Section 1427.103(a). (emphasis added)
8307 CFR Section 1427.108(d).
831Panel Report, para. 7.734.
832See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47.
834Ibid., para. 454.

single set of regulations, that the form and rate of payment to exporters and domestic users are
identical, and that the fund from which payments are made is a single fund. 835 Nevertheless, we agree
with the Panel that the statute and regulations pur suant to which Step 2 payments are granted do not
establish a "single class" of recipients of the payments; rather, the statute and regulations clearly
distinguish between two types of eligible recipients , namely, eligible exporte rs and eligible domestic
users.
836 As we have seen, an eligible exporter must be "[a] person, including a producer or a
cooperative marketing association ... regularly e ngaged in selling eligible upland cotton for
exportation from the United States". 837 In contrast, an "eligible domestic user" is "[a] person
regularly engaged in the business of opening bale s of eligible upland cotton for the purpose of
manufacturing such cotton into cotton products in the United States". 838 Thus, the statute and
regulations themselves clearly distinguish between exporters and domestic users.
577. In addition, the statute and regulations establis h different conditions that eligible exporters
and eligible domestic users must meet to receive St ep 2 payments. An eligible domestic user must
"open" a bale of cotton to qualify for payment. 839 For its part, an eligible exporter must demonstrate
the upland cotton has been exported. These are dis tinct conditions that the statute and regulations
themselves set out for the two distinct recipients of Step 2 payments. Because the conditions to
qualify for payment are different, the documenta tion required from eligible domestic users and
eligible exporters is also different. An eligible exporter must submit proof of exportation; an eligible
domestic user must provide documentation indicating the number of bales opened. 840 We agree,
therefore, with the Panel's view that the statute a nd regulations pursuant to which Step 2 payments are
granted "involve[] payment to two distinct sets of recipients (exporters or domestic users) in two
distinct factual situations (export or domestic use)".841
578. Furthermore, we agree with the Panel's conclu sion that the fact that the subsidy is also
available to domestic users of upland cotton does not "dissolve" the export-contingent nature of the
Step 2 payments to exporters. 842 The Panel's reasoning is consistent with the approach taken by the

835Panel Report, para. 7.709.
836Ibid., paras. 7.721-7.723.
8377 CFR Section 1427.104(a)(2). (emphasis added)
8387 CFR Section 1427.104(a)(1).
839United States' response to questioning at oral hearing. 7 CFR Section 1427.103(a).
840Panel Report, para. 7.727.
841Ibid., para. 7.732.
842Ibid., para. 7.739.

Appellate Body in US – FSC (Article 21.5 – EC).843 In that case, the United States argued that the tax
exclusion at issue was not an export-contingent s ubsidy because it was available for both (i) property
produced within the United States and held for use outside the United States and (ii) property
produced outside the United States and held for u se outside the United States. The United States
asserted that, as the tax exemption was available in both circumstances, it was "export-neutral". 844
According to the United States, the panel's separat e examination of each situation in which the tax
exemption was available "artificially bifurcat[ed]" the measure.845
579. The Appellate Body rejected th e United States' contention in US – FSC (Article 21.5 – EC)
because it considered it necessary, under Article 3.1(a) of the SCM Agreement , "to examine
separately the conditions pertaining to the grant of the subsidy in the two different situations". 846 It
then confirmed the Panel's finding that the tax exem ption in the first situation, namely for property
produced within the United States and held for use out side the United States, is an export-contingent
subsidy.847 In its reasoning, the Appellate Body explai ned that whether or not the subsidies were
export-contingent in both situations envisaged by the measure would not alter the conclusion that the
tax exemption in the first situation was contingent upon export:
Our conclusion that the ETI measure grants subsidies that are export
contingent in the first set of circumstances is not affected by the fact
that the subsidy can also be obtained in the second set of
circumstances. The fact that the subsidies granted in the second set
of circumstances might not be export contingent does not dissolve
the export contingency arising in the first set of circumstances.

Conversely, the export contingency arising in these circumstances
has no bearing on whether there is an export contingent subsidy in
the second set of circumstances.848

843The Panel also found support for its reasoning in the Appellate Body's statement, in Canada –
Aircraft, that:
... the fact that some of TPC's contribu tions, in some industry sectors, are
not contingent upon export performance, does not necessarily mean that the
same is true for all of TPC's contributions. It is enough to show that one or
some of TPC's contributions do cons titute subsidies "contingent ... in
fact … upon export performance".
 (Appellate Body Report, Canada – Aircraft, para. 179) (original emphasis)
844Appellate Body Report, US – FSC (Article 21.5 – EC), para. 110.
845Ibid.
846Ibid., para. 115.
847Ibid., para. 120.

580. As in US – FSC (Article 21.5 – EC) , the Panel in this case found that Step 2 payments are
available in two situations, only one of which involves export contingency.849 The Panel's conclusion,
therefore, is consistent with the Appellate Body's holding in US – FSC (Article 21.5 – EC) quoted
above that "the fact that the subsidies granted in the second set of circumstances might not be export
contingent does not dissolve the export contingency arising in the first set of circumstances".
581. The United States submits that the facts in this case are similar to those before the panel in
Canada – Dairy .850 In that dispute, the complaining parties argued that the provision of milk to
exporters/processors under various mechanisms (de scribed as "special milk classes") constituted
export-contingent subsidies. The panel in Canada – Dairy found, nevertheless, that certain special
milk classes were not export-contingent because the "milk unde r such other classes is also available
(often exclusively) to processors wh ich produce for the domestic market". 851 The Panel, in this
dispute, did not see any relevance in the Panel Report in Canada – Dairy because, in that case,
"there was no explicit condition limiting a discret e segment of the payments of the subsidies
concerned to exporters".852 Brazil also seeks to distinguish the factual situation in Canada – Dairy,
explaining that it involved a single regulatory class of milk instead of two mutually exclusive
regulatory categories, as is the case in the present dispute. 853 We agree with the Panel and Brazil that
the facts in Canada – Dairy differ from those of the present dispute. In this case, we have before us
a statute and regulations that clearly distinguish between two sets of recipients—that is, eligible
exporters and eligible domestic users—that must meet different conditions to receive payment. 854 In
the case of one set of recipients, eligible expor ters, exportation is a nece ssary condition to receive
payment.
582. In sum, we agree with the Panel's view that Step 2 payments are export-contingent and,
therefore, an export subsidy for purposes of Article 9 of the Agreement on Agriculture and
Article 3.1(a) of the SCM Agreement. The statue and regulations pursuant to which Step 2 payments
are granted, on their face, condition payments to exporters on exportation. 855 In order to claim
payment, an exporter must show proof of exporta tion. If an exporter does not provide proof of
exportation, the exporter will not receive a payment. This is sufficient to establish that Step 2

849See, supra, para. 577.
850United States' appellant's submission, paras. 444-445 (referring to Panel Report, Canada – Dairy ,
851Panel Report, Canada – Dairy, para. 7.41.
852Panel Report, para. 7.718.
853Brazil's appellee's submission, paras. 898-899.
854See supra, para. 577.
855Panel Report, para. 7.734.

payments to exporters of United States upland cotton are "conditional upon export performance" or
"dependent for their existence on export performance". 856 That domestic users may also be eligible to
receive payments under different conditions does not eliminate the fact that an exporter will receive
payment only upon proof of exportation.
583. For these reasons, we uphold the Panel's findings, in paragr aphs 7.748-7.749 and 8.1(e) of
the Panel Report, that Step 2 payments to expor ters of United States upland cotton, pursuant to
Section 1207(a) of the FSRI Act of 2002, constitute subsidies contingent upon export performance
within the meaning of Article 9.1(a) of the Agreement on Agriculture and that, therefore, in
providing such subsidies the United States has act ed inconsistently with its obligations under
Articles 3.3 and 8 of the Agreement on Agriculture.
584. Having explained that there is no reason to read the export-contingency requirement in the
Agreement on Agriculture differently from that contained in Article 3.1(a) of the SCM Agreement857,
and having found that Step 2 payments to exporte rs of United States upland cotton are contingent
upon export performance within the meaning of Article 9.1 of the Agreement on Agriculture, we also
find that such payments are export-contingent for purposes of Article 3.1(a) of the SCM
Agreement.858 Consequently, we uphold the Panel's findings, in para graphs 7.760-7.761 and 8.1(e)
of the Panel Report, that Step 2 payments provi ded to exporters of United States upland cotton,
pursuant to Section 1207(a) of the FSRI Act of 2002, are inconsistent with Articles 3.1(a) and 3.2 of
the SCM Agreement.
C. Export Credit Guarantees – Article 10.2 of the Agreement on Agriculture
585. We turn next to the United States' and Brazil' appeals of the Panel's findings relating to the
United States' export credit guarantee programs.
1. United States' Export Credit Guarantee Programs
586. Brazil challenges three types of export credit guarantee programs. The first two programs,
GSM 102 and GSM 103, provide guarantees to exporters when credit is extended by foreign financial

856See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47.
857See supra, para. 571.
858As the Panel observed, pursuant to Article 13(c)(ii) of the Agreement on Agriculture, "to the extent
that the export subsidy at issue does not conform fully to the provisions of Part V of the Agreement on
Agriculture, it is not exempt from actions based on Articles 3.1(a) and 3.2 of the SCM Agreement". (Panel
Report, para. 7.751)

institutions. The third type, the SCGP, applies wh en credit is extended by the exporter to the
purchaser of United States agricultural products.859
587. The GSM 102 program is available to cover co mmercial exports of United States agricultural
commodities on credit terms of between 90 days a nd 3 years. To obtain the credit guarantee under
GSM 102, the exporter must have received a letter of credit in its favour from the foreign bank and
must apply for the guarantee before making the e xportation. The exporter will pay a fee for the
guarantee based on a schedule of rates that vary according to the credit period, but are capped by law
at one per cent of the guaranteed dollar value of th e transaction. In the even t that the foreign bank
fails to make a payment, the exporter informs the CC C of the default and "[t]he CCC generally covers
98 per cent of the principal and a portion of the interest".860
588. The GSM 103 is similar to the GSM 102. The difference between the two programs is that
GSM 103 guarantees export credits that have longer terms. Specifically, GSM 103 guarantees credits
with terms of between 3 and 10 years. An additiona l difference is that, contrary to GSM 102, the fee
that an exporter must pay to obtain a guarantee under GSM 103 is not capped by law.
589. The SCGP guarantees credits extended by the exporter itself to foreign buyers of United
States agricultural commodities. Under the SCGP, th e United States exporter is required to submit to
the CCC a promissory note signed by the importer prio r to exportation. The exporter will pay a fee at
a rate that varies according to th e term of the loan, and, like GSM 102, is capped by law at one per
cent of the guaranteed dollar value of the transaction. If the importer defaults on the promissory note,
then the CCC will pay the exporter 65 per cent of the dollar value of the e xported product (excluding
interest).
2. Panel Findings
590. Before the Panel, Brazil asserted that these three United States export credit guarantee
programs—GSM 102, GSM 103 and SCGP—violate Articles 10.1 and 8 of the Agreement on
Agriculture and are therefore not exempt, under Article 13(c)(ii) of the Agreement on Agriculture ,

859These export credit guarantee programs are establis hed under Section 5622 of Title 7 of the United
States Code and implemented in Part 1493 of Title 7 of the United States Code of Federal Regulations. (See
Panel Report, para. 7.250(vi)) Subpart B of Part 1493 relates to the GSM 102 and the GSM 103 programs and
Subpart D deals with the SCGP program. GSM 102 and 103 export credit guarantees have been issued since
late 1980, while the SCGP program began in 1996. (U nited States' first written submission to the Panel,
paras. 151 and 152 and footnote 133 thereto) Export credit guarantee programs are administered through the
CCC, created under the Commodity Credit Corporation Char ter Act of 1948. The CCC is a federal corporation
established within the USDA. (Panel Report, para. 7.236 and footnote 346 thereto) A further description of the
GSM 102, GSM 103 and SGCP is provided in Panel Report, paras. 7.236-7.244.
860Panel Report, para. 7.242.

from actions based on Articles 3.1(a) and 3.2 of the SCM Agreement.861 Brazil also argued that the
three programs violate Articles 3.1(a) and 3.2 of the SCM Agreement.862
591. The United States responded that Article 10.2 of the Agreement on Agriculture makes it
clear that the export subsidy disciplines in the Agreement on Agriculture and the SCM Agreement
are not applicable to export credit guarantee program s. According to the United States, Article 10.2
of the Agreement on Agriculture "reflects the deferral of disciplines on export credit guarantee
programs contemplated by WTO Members". 863 The United States argued that, even if the export
subsidy disciplines in the SCM Agreement were applicable, its export credit guarantee programs are
not prohibited export subsidies under Article 3.1(a) b ecause they do not meet the criteria in item (j) of
the Illustrative List of Export Subsidies attached to the SCM Agreement as Annex I, namely that the
premiums are inadequate to cover the programs' long-term operating costs and losses.864
592. At the outset of its analysis, the Panel observed that it would adopt the parties' shared view
that "export credit guarantees are not included in the non-exhaustive list of export subsidies in
Article 9.1, and that Article 10 of the Agreement on Agriculture is the relevant provision". 865 The
Panel then stated that Article 10.1 "covers any subsidy contingent on export performance that is not
listed in Article 9.1". 866 The Panel observed that, other than the list of export subsidies listed in
Article 9.1, the Agreement on Agriculture does not specify what is a subsidy contingent upon export
performance.867 Thus, the Panel sought contextual guidance in the SCM Agreement, to assist it in its
interpretation of the term "export s ubsidies" in Article 10.1 of the Agreement on Agriculture . In
particular, the Panel looked at item (j) of the Illu strative List of Export Subsidies annexed to the
SCM Agreement, observing that "there is no disagreement between the parties ... that, if an export
credit guarantee programme meets the elements of item (j), it is a per se export subsidy".868

861Panel Report, para. 7.765.
862Ibid., para. 7.765.
863United States' first written submission to the Panel, para. 160 (quoted in Panel Report, para. 7.770).
864Panel Report, para. 7.772.
865Ibid., para. 7.788.
866Ibid., para. 7.796.
867Ibid., para. 7.797.
868Ibid., para. 7.803.

593. The Panel then examined whether the Un ited States' export credit guarantee programs
challenged by Brazil met the criteria set out in item (j) and concluded that:
On the basis of the totality of the record evidence, including
approaches regularly relied upon by the United States government
itself, we find that Brazil has established that the United States CCC
provides the GSM 102, GSM 103 and SCGP export credit guarantee
programmes "at premium rates whic h are inadequate to cover the
long-term operating costs and losses of the programmes" within the
meaning of item (j) of the Illustrative List of Export Subsidies in
Annex I of the SCM Agreement.
869
594. Having reached this general conclusion, the Pa nel next examined Brazil's claims that the
United States' export credit guarantees "result[ ] in" or "threaten[ ] to lead to" circumvention of the
United States' export subsidy commitments, contrary to Article 10.1 of the Agreement on Agriculture.
In its analysis, the Panel distinguished between , on the one hand, "suppor ted" and "unsupported"
products, and, on the other, "scheduled" and " unscheduled" products. The Panel used the term
"supported products" to refer to products for which there was evidence in the record showing that they
were not only eligible under the programs, but that export credit guarantees were in fact received in
connection with exports of those products. 870 "Scheduled products" are those for which a WTO
Member has assumed a commitment to limit the amount of export subsidies in terms of budgetary
outlays and quantities exported pursuant to Articles 3, 8, and 9 of the Agreement on Agriculture.871
595. The Panel found that, "in respect of upland cotton and other such [supported] unscheduled
agricultural products on record, the United States applies export credit guarantees constituting export
subsidies in a manner which results in circ umvention of its export subsidy commitments
inconsistently with Article 10.1 of the Agreement on Agriculture ".872 In addition, the Panel found
that "the United States has applied export credit guarantees constituting export subsidies within the

869Panel Report, para. 7.867.
870Ibid., para. 6.32; see also footnote 1056 to para. 7.875. At the oral hearing, the participants
confirmed that this is also their understanding of what the Panel meant by the distinction that it drew between
"supported" and "unsupported" products. In respect of "supported" products, the Panel stated that "[t]o the
extent that it identifies products within the product coverage of the Agreement on Agriculture that are within
our terms of reference, we consider Exhibit BRA-73 to be the relevant record evidence of such products for the
purposes of this dispute". (Panel Report, footnote 1056 to para. 7.875; see also ibid., footnote 1575 to
para. 8.1(d)(i))
871The Panel noted that "[t]he United States has scheduled export subsidy reduction commitments in
respect of the following thirteen commodities: wheat, coarse grains, rice, vegetable oils, butter and butter oil,
skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, eggs".
(Panel Report, footnote 1057 to para. 7.876 (referring to Schedule XX of the United States of America, Part IV,
Section II, entitled "Export Subsidies: Budgetar y Outlays and Quantitative Reduction Commitments",
reproduced in Exhibit BRA-83 and Exhibit US-13))
872Panel Report, para. 7.875. (original emphasis)

meaning of Article 10.1 – and therefore, necessaril y, not listed in Article 9.1 – in a manner which
results in circumvention of export subsidy co mmitments in respect of" rice (a scheduled
commodity).873 The Panel, nonetheless, found that "[i]t has not been established, however, that such
actual circumvention has resulted in respect of the twelve other United States scheduled
commodities".874 Finally, the Panel "decline[d] to find that the export credit guarantee programmes at
issue are generally applied to scheduled agricultu ral products other than rice and other unscheduled
agricultural products (not supported under the progra mmes) in a manner which threatens to lead to
circumvention of United States' export subsidy commi tments within the meaning of Article 10.1 of
the Agreement on Agriculture."875
596. After making these findings, the Panel turned to the United States' argument that "the text of
Article 10.2 of the Agreement on Agriculture reflects the deferral of disciplines on export credit
guarantee programmes contemplated by [WTO] Members". 876 This argument was rejected by the
Panel, which was of the opposite view, namely, that the text of Article 10.1 "clearly indicat[es] that
export credit guarantee programmes constituting export subsidies for the purposes of Article 10.1
must not be applied in a manner which results in, or which threatens to lead to, circumvention of
export subsidy commitments".
877 The Panel found support for this interpretation in the provision's
context and in its object and purpose, emphasizing in particular that Article 10.2 is a subparagraph of
Article 10. According to the Panel, "[t]he title of Ar ticle 10, and the text of Article 10.1, indicates an
intention to prevent Members from circumventing or 'evading' their 'export subsidy commitments'". 878
The Panel also rejected the United States' argume nts based on subsequent practice and the drafting
history.879 In respect of the United States' argument on subsequent practice, the Panel stated that
"[t]he record ... does not suggest that there is a discernible pattern of acts or pronouncements implying
an agreement among WTO Members on the United States' interpretation of Article 10.2". 880

873Panel Report, para. 7.881.
874Ibid.
875Ibid., para. 7.896.
876Ibid., para. 7.900.
877Ibid., para. 7.901.
878Ibid., para. 7.912. (footnote omitted)
879Ibid., paras. 7.928-7.944.
880Ibid., para. 7.929. (footnotes omitted)

Although the Panel did not see a need to examine the drafting history, it found that "nothing in the
drafting history of [Article 10.2] would compel [the Panel] to reach a different conclusion".881
597. Finally, the Panel turned to Brazil's cl aims under Articles 3.1(a) and 3.2 of the SCM
Agreement, and found:
To the extent that the United States export credit guarantee
programmes at issue – GSM 102, GSM 103 and SCGP – do not
conform fully to these provisions in Part V of the Agreement on
Agriculture and do not benefit from the exemption from actions
provided by Article 13(c)(ii) of the Agreement on Agriculture , they
are also export subsidies prohibited by Article 3.1(a) ...

To the extent that the three Un ited States export credit guarantee
programmes at issue are inconsistent with Article 3.1(a), they are,
consequently, also inconsistent with Article 3.2 of the SCM
Agreement.
882
3. Arguments on Appeal
598. The United States contends that the Panel erre d in analyzing whether export credit guarantees
are export subsidies subject to the disciplines of Article 10.1 solely by reference to the
SCM Agreement. According to the United States, the prope r context in which to analyze the meaning
of Article 10.1 with respect to export credit guarantees is Article 10.2 of the Agreement on
Agriculture.883 This provision reflects the fact that, during the Uruguay Round, WTO Members did
not agree on disciplines to be applied to agricu ltural export credits, export credit guarantees, and
insurance programs, opting instead to continue discussions, deferring the imposition of substantive
disciplines until a consensus was achieved.
599. According to the United States, this interpretati on of Article 10.2 is consistent with Article 10
as a whole. 884 Article 10.2 contributes to the preven tion of circumvention of export subsidy
commitments by imposing two obligations on Members: first, they must undertake to work toward the
development of internationally agreed discip lines on export credit guarantees; and second "after

881Panel Report, para. 7.933. The Panel did not see a need to examine the drafting history because it
considered that its "examination of the text of Article 10.2 of the Agreement on Agriculture, in its context and in
light of the object and purpose of that agreement leads to a clear interpretation of the text". (Panel Report,
para. 7.933)
882Ibid., paras. 7.947 and 7.948. (footnote omitted)
884Ibid., para. 346.

agreement on such disciplines", they must provide export credit guarantees "only in conformity
therewith".885 Moreover, excluding export credit guarantees from the application of Article 10.1 is
also consistent with the treatment of food aid tr ansactions under Article 10. Because Article 10.4 of
the Agreement on Agriculture does not explicitly exempt food aid transactions from the applicability
of Article 10.1, the Panel's interpretative approach would mean that all food aid transactions constitute
export subsidies under Article 10.1.886
600. The United States submits that the negotiating history confirms its interpretation that
Article 10.2 makes the export subsidy disciplines in Article 10.1 inapplicable to export credit
guarantees.887 In addition, the United States argues that it defies logic, as well as the object and
purpose of the Agreement on Agriculture , to take the view of the Panel whereby export credit
guarantees, export credits and insurance programs would be treated as already disciplined export
subsidies, yet would not be permitted to be in cluded within the applicable reduction commitments
expressly contemplated by the text.888 The United States therefore requests that we reverse the Panel's
finding that export credit guarantees are subject to th e disciplines of Article 10.1. In addition, the
United States requests that we reverse the Panel's findings that export credit guarantees to agricultural
commodities are subject to Articles 3.1 and 3.2 of the SCM Agreement. The United States asserts
that, because export credit guarantees currently are no t subject to export subsidy disciplines under the
Agreement on Agriculture , the export subsidy disciplines of the SCM Agreement are also
inapplicable to these measures pursuant to Article 21.1 of the Agreement on Agriculture and the
introductory language of Article 3.1 of the SCM Agreement.889
601. Brazil requests that we reject the United Stat es' appeal from the Panel's finding that export
credit guarantees are subject to the export subsidy disciplines in Article 10.1 of the Agreement on
Agriculture. Brazil asserts that subsidized export credit guarantees are covered by the general
definition of "export subsidies" under Article 1(e) of the Agreement on Agriculture and that these
measures are, therefore, subject to Article 10.1 of the Agreement on Agriculture, unless an exception
is provided in Article 10.2. 890 The text of Article 10.2 establishes two obligations, but does not
provide an exception.891

885Quoting Article 10.2 of the Agreement on Agriculture.
886United States' appellant's submission, paras. 349 and 358.
887Ibid., paras. 367-380.
888Ibid., paras. 384-385.
889Ibid., para. 391.
890Brazil's appellee's submission, paras. 905-906.
891Ibid., para. 912.

602. According to Brazil, the Panel's interpretation is consistent with the context and object and
purpose of Article 10.2. Each of the paragra phs in Article 10 pursues the aim of "preventing
circumvention" of export subsidy commitments and, thereby, contributes to the purpose of the
Agreement on Agriculture of establishing specific binding commitments on export competition.
Therefore, Article 10.2 also must be interpreted in a manner that ensures that it contributes to the
purpose of preventing circumvention of commitments on export competition. 892 The United States’
interpretation of Article 10.2 would tend in the opposite direction, leaving Members free to grant
unlimited export subsidies in the form of e xport credit guarantees and would permit wholesale
circumvention of commitments. 893 Brazil, furthermore, disagrees with the United States' assertion
that the Panel's interpretation is an "assault" on international food security. 894 According to Brazil,
food aid is subject to the specific disciplines in Article 10.4 of the Agreement on Agriculture, as well
as to the general disciplines in Article 10.1.895
603. In addition, Brazil disagrees with the conclusions drawn by the United States from the
negotiating history of the Agreement on Agriculture .896 Brazil also rejects the United States'
contention that the Panel’s reading of Article 10.2 is "manifestly unreasonable". 897 Brazil explains
that, at the close of the Uruguay Round, Members ag reed that they would calculate their respective
export subsidy commitment levels using exclusively the export subsidies listed in Article 9.1 and thus
chose to leave out of the calculation export subsid ies referred to in Article 10.1. Finally, Brazil
emphasizes that the Panel's interpretation does not mean that Members cannot grant export credit
guarantees. Instead, it means that subsidized e xport credit guarantees are subject to disciplines as
trade-distorting measures, and cannot be used to override export subsidy commitments.898
604. Argentina, Australia, Canada, and New Zealand are of the view that Article 10.2 of the
Agreement on Agriculture does not provide an exception from WTO export subsidy disciplines for
export credit guarantees, export credits or insuran ce programs, and assert that the Panel correctly
interpreted this provision.899 Before the Panel, the European Communities submitted that Article 10.2

892Brazil's appellee's submission, paras. 951-952.
893Ibid., para. 953.
896Ibid., para. 975.
897Ibid., paras. 926-934 (referring to the United States' appellant's submission, para. 384).
898Ibid., paras. 977-978.
899Argentina's third participant's submission, para. 39; Australia's third participant's submission,
para. 71; Canada's third participant's submission, para. 42; and New Zealand's third participant's submission,
para. 3.65.

of the Agreement on Agriculture cannot be seen as exempting export credit guarantees granted to
agricultural products from WTO disciplines as this provision makes it clear that export credit
guarantees are not one of the types of export subsidi es listed in Article 9.1 that a Member is given a
limited authorization to apply 900; the European Communities did no t express a view on this issue on
appeal.
4. Does Article 10.2 Exempt Export Credit Guarantee Programs from Export
Subsidy Disciplines?901
605. The United States argues that because export cred it guarantees are specifically dealt with in
Article 10.2, and this provision expressly acknowledges that Uruguay Round negotiators did not reach
an agreement on the disciplines that apply to them, th ey cannot properly be considered to be included
within the "export subsidies" covered by Article 10.1.
606. As usual, our analysis begins with the text of the provision in question. Article 10.2 reads:
Members undertake to work toward the development of
internationally agreed disciplines to govern the provision of export
credits, export credit guarantees or insurance programmes and, after
agreement on such disciplines, to provide export credits, export credit
guarantees or insurance programmes only in conformity therewith.
607. Article 10.2 refers expressly to export cred it guarantee programs, along with export credits
and insurance programs. Unde r Article 10.2, WTO Members have taken on two distinct
commitments in respect of these three types of meas ures: (i) to work toward the development of
internationally agreed disciplines to govern thei r provision; and (ii) after agreement on such
disciplines, to provide them only in conformity therewith. The text includes no temporal indication
with respect to the first commitment. There is no deadline for beginning or ending the negotiations.
The second commitment does have a temporal connotation, in the sense that it is triggered only "after
agreement on such disciplines". This means that "a fter" international disciplines have been agreed
upon, Members shall provide export credit guarantees, export credits and insurance programs only in
conformity with those agreed disciplines. There is no dispute between the parties that, to date, no
disciplines have been agreed internationally pursuant to Article 10.2.

900Panel Report, para. 7.781.
901A separate opinion on this issue of one of the Members of the Division is set out infra,
paras. 631-641. The relevant findings and conclusions for purposes of the recommendations and rulings to be
adopted by the DSB in this dispute, pursuant to Article 17.14 of the DSU, are those set out in paragraph 763(e)
and (f) of this Report.

608. Article 10.2 does not, however, expressly define the disciplines that currently apply to
export credits, export credit guarantees and insurance programs under the Agreement on Agriculture.
The Panel reasoned that "in order to carve out or exempt particular categories of measures from
general obligations such as the prevention of ci rcumvention of export subsidy commitments in
Article 10.1 of the Agreement on Agriculture, it would be reasonable to expect an explicit indication
revealing such an intention in the text of the Agreement". 902 The Panel saw "no language in
Article 10.2 which would modify the scope of appli cation of the general export subsidy disciplines in
Article 10.1 in the Agreement on Agriculture so as to carve out or exempt export credit guarantees
from the export subsidy disciplines imposed by that Agreement".903
609. We agree with the Panel's view that Article 10.2 does not expressly exclude export credit
guarantees from the export subsidy disciplines in Article 10.1 of the Agreement on Agriculture . As
the Panel observes, were such an exemption inte nded, it could have been easily achieved by, for
example, inserting the words "[n]otwithstanding th e provisions of Article 10.1", or other similar
language at the beginning of Article 10.2. 904 Article 10.2 does not include express language
suggesting that it is intended as an exception, nor does it expressly state that the application of any
export subsidy disciplines to export credits or e xport credit guarantees is "deferred", as the United
States suggests. Given that the drafters were aw are that subsidized export credit guarantees, export
credits and insurance programs could fall with in the export subsidy disciplines in the Agreement on
Agriculture and the SCM Agreement, it would be expected that an exception would have been clearly
provided had this been the drafters' intention.
610. Moreover, as the Panel explained, Article 10. 2 "contrasts starkly with the text of other
provisions in the covered agreements, which clearly ca rve out or exempt certain products or measures
from certain obligations that woul d otherwise apply pending the de velopment of further multilateral
disciplines".905 The Panel referred to Article 6.1(a) and the footnote 24 to Article 8.2(a) of the
SCM Agreement and Article XIII of the General Agreement on Trade in Services , which expressly
indicate that existing disciplines do not apply pending the negotiation of future disciplines. 906
However, Article 10.2 does not expressly exclude th e application of the existing disciplines in the
Agreement on Agriculture until such time as the specific disciplines on export credits, export credit
guarantees and insurance programs are internationally agreed upon.

902Panel Report, para. 7.903. (footnote omitted)
903Ibid., para. 7.904.
904Ibid., para. 7.909.
905Ibid., para. 7.906.
906Ibid., paras. 7.907-7.908.

611. The Panel rejected the United States' submission 907 that Brazil's approach would render
Article 10.2 irrelevant. 908 In the Panel's view, "the purpose of any eventual disciplines could be
further to facilitate the determination of when export credit guarantee programmes in respect of
agricultural products constitute export subsidies per se by developing and refining existing
disciplines".909 Put another way, "the work envisaged in Article 10.2 would presumably elaborate
further and more specific disciplines that could fac ilitate identification of the extent to which such
export credit guarantee programmes constitute export subsidies, or to what extent export credit
guarantee programmes are not permitted". 910 The use of the term "development" in Article 10.2 is
consistent with this view. The definitions of the term "development" include: "[t]he action or process
of developing; evolution, growth, maturation; ... a gradual unfolding, a fuller working-out" and "[a]
developed form or product ... an addition, an elaboration". 911 This suggests that the disciplines to be
internationally agreed will be an elaboration of the export subsidy disciplines that are currently
applicable.
612. This interpretation is consistent with the reference in Article 10.2 to internationally agreed
disciplines "to govern the provision of" export credits, export credit guarantees or insurance programs;
alternatively, Article 10.2 could have referred to internationally agreed disciplines "to govern" export
credits, export credit guarantees or insurance program s. The latter formulation ("to govern") would
have been broader in scope, whereas the formulation used in Article 10.2 ("to govern the provision")
is narrower. If the drafters had intended that cu rrently no disciplines at all would apply to export
credit guarantees, export credits and insurance program s, it would have made more sense for them to
have chosen the broader formulation "to govern". The drafter's choice of the narrower formulation "to
govern the provision of" suggests that export credit guarantees, export credits and insurance programs
are not "undisciplined" in all respects, and that the disciplines to be developed have to do only with
their provision. In other words, export credit guarantees, export credits and insurance programs are
governed by Article 10.1 of the Agreement on Agriculture, but WTO Members will develop specific
disciplines on the provision of these instruments.

907United States' first written submission to the Panel, paras. 163-165.
908Panel Report, para. 7.925.
909Ibid.
910Ibid., para. 7.926. (footnote omitted)
911Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 662.

613. The Panel's interpretation of Article 10.2, whic h is based on a plain reading of the text, is
confirmed when, in accordance with the customary rules of treaty interpretation codified in Article 31
of the Vienna Convention, that provision is examined in its cont ext and in the light of the object and
purpose of the Agreement on Agriculture , and in particular Article 10, which is entitled "Prevention
of Circumvention of Export Subsidy Commitments".
614. We note that Article 10.1 of the Agreement on Agriculture , the provision that immediately
precedes Article 10.2, reads:
Export subsidies not listed in paragr aph 1 of Article 9 shall not be
applied in a manner which results in , or which threatens to lead to,
circumvention of export subsid y commitments; nor shall non-
commercial transactions be used to circumvent such commitments.
615. Although Article 10.2 commits WTO Members to work toward the development of
internationally agreed disciplines on export credit gu arantees, export credits and insurance programs,
it is in Article 10.1 that we find the disciplines that currently apply to export subsidies not listed in
Article 9.1. A plain reading of Article 10.1 indicates that the only export subsidies that are excluded
from its scope are those "listed in paragraph 1 of Article 9". The Un ited States and Brazil agreed that
export credit guarantees are not listed in Article 9.1.
912 Thus, to the extent that an export credit
guarantee meets the definition of an "export subsidy" under the Agreement on Agriculture, it would be
covered by Article 10.1. Article 1(e) of the Agreement on Agriculture defines "export subsides" as
"subsidies contingent upon export performance, including the export subsidies listed in Article 9 of
this Agreement". (emphasis added) The use of th e word "including" suggests that the term "export
subsidies" should be interpreted broadly and that the list of export subsidies in Article 9 is not
exhaustive. Even though an export credit guarantee may not necessarily include a subsidy
component, there is nothing inherent about export credit guarantees that precludes such measures
from falling within the definition of a subsidy. 913 An export credit guarantee that meets the definition
of an export subsidy would be covered by Article 10.1 of the Agreement on Agriculture because it is
not an export subsidy listed in Article 9.1 of that Agreement.

912Panel Report, para. 7.788.
913For discussion of the definitional elements of a subsidy in the context of the Agreement on
Agriculture, see Appellate Body Report, US – FSC , para. 136, and Appellate Body Report, Canada – Dairy ,
para. 87.

616. We find it significant that paragraph 2 of Article 10 is included in an Article that is titled the
"Prevention of Circumvention of Export Subsidy Commitments". As Brazil correctly points out, each
paragraph in Article 10 pursues this aim. 914 Article 10.1 provides that WTO Members shall not apply
export subsidies not listed in Article 9.1 of the Agreement on Agriculture "in a manner which results
in, or which threatens to lead to, circumven tion of export subsidy commitments; nor shall non-
commercial transactions be used to circumvent such commitments". Article 10.3 pursues the aim of
preventing circumvention of export subsidy commitments by providing special rules on the reversal of
burden of proof where a Member exports an agricultural product in quantities that exceed its reduction
commitment level; in such a situation a WTO Member is treated as if it has granted WTO-
inconsistent export subsidies for the excess quantities, unless the Member presents adequate evidence
to "establish" the contrary.
915 Article 10.4 provides disciplines to prevent WTO Members from
circumventing their export subsidy commitments through food aid transactions. Similarly,
Article 10.2 must be interpreted in a manner th at is consistent with the aim of preventing
circumvention of export subsidy commitments that pervades Article 10. Otherwise, it would not have
been included in that provision.
617. The United States submits that Article 10.2 cont ributes to the prevention of circumvention
because it commits WTO Members to work toward the development of internationally agreed
disciplines and to provide export credit guarantees, export credits and insurance programs only in
conformity with these disciplines on ce an agreement has been reached. 916 We are not persuaded by
this argument. The necessary implication of the Unit ed States' interpretation of Article 10.2 is that,
until WTO Members reach an agreement on internat ional disciplines, export credit guarantees, export
credits and insurance programs are subject to no disciplines at all. In other words, under the United
States' interpretation, WTO Members are free to "circumvent" their export subsidy commitments
through the use of export credit guarantees, export credits and insurance programs until
internationally agreed disciplines are developed, whenever that may be. We find it difficult to believe
that the negotiators would not have been aware of and did not seek to address the potential that
subsidized export credit guarantees, export credits and insurance programs could be used to

914Brazil's appellee's submission, para. 951. See Appellate Body Report, US – FSC , para. 148 and
Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 74.
915Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 74.
Article 10.3 of the Agreement on Agriculture provides:
Any Member which claims that any quantity exported in excess of a
reduction commitment level is not subsidized must establish that no export
subsidy, whether listed in Article 9 or not, has been granted in respect of the
quantity of exports in question.

circumvent a WTO Member's export subsidy reduction commitments. Indeed, such an interpretation
would undermine the objective of preventing circumvention of export subsidy commitments, which
is central to the Agreement on Agriculture.
618. The United States submits that, under the Panel's approach, international food aid transactions
would be subject to the "full array of export subsidy disciplines" because they are not expressly
excluded from Article 10.1.
917 According to the United States, this would adversely affect food
security in the less developed world, which cannot be construed as the intent of the drafters. 918
Furthermore, the United States asserts, the Panel's approach would mean that international food aid
transactions are subject to both the specific disciplin es in Article 10.4 and those in Article 10.1 of the
Agreement on Agriculture.919
619. We are unable to subscribe to the United States' arguments because we do not see
Article 10.4920 as excluding international food aid from the scope of Article 10.1. 921 International
food aid is covered by the second clause of Article 10.1 to the extent that it is a "non-commercial
transaction". Article 10.4 provides specific disciplin es that may be relied on to determine whether
international food aid is being "used to circumve nt" a WTO Member's export subsidy commitments.
There is no contradiction in the Panel's approach to Article 10.2 and its approach to Article 10.4. The
measures in Article 10.2 and the transactions in Ar ticle 10.4 are both covered within the scope of
Article 10.1. As Brazil submits, "Article 10.4 provides an example of specific disciplines that have
been agreed upon for a particular type of measur e and that complement the general export subsidy

918Ibid., para. 350.
919Ibid., para. 358.
920Article 10.4 of the Agreement on Agriculture provides:
4. Members donors of international food aid shall ensure:
(a) that the provision of international food aid is not tied
directly or indirectly to comm ercial exports of agricultural
products to recipient countries;
(b) that international food aid transactions, including bilateral
food aid which is monetized, shall be carried out in
accordance with the FA O "Principles of Surplus Disposal
and Consultative Obligations", including, where
appropriate, the system of Usual Marketing Requirements
(UMRs); and
(c) that such aid shall be prov ided to the extent possible in
fully grant form or on terms no less concessional than
those provided for in Article IV of the Food Aid
Convention 1986.
A new Food Aid Convention was concluded in 1999.

rules" but, like Article 10.2, it does not "establish any exceptions for the measures that [it] covers". 922
WTO Members are free to grant as much food aid as th ey wish, provided that they do so consistently
with Articles 10.1 and 10.4. Thus, Article 10.4 does not support the United States' reading of
Article 10.2.
620. The United States also relies on the negotiating history of the Agreement on Agriculture to
support its position. 923 The Panel identified the drafting history in the record. It referred to
paragraph 22 of the Framewor k Agreement on Agriculture Reform Programme (known as the
"DeZeeuw Text"), circulated in July 1990, which envisaged "concurrent negotiations to govern the
use of export assistance, including 'disciplines on export credits'". 924 There was also a "Note on
Options in the Agriculture Negotiations" of June 1991, in which the Chairman of the negotiations
"requested decisions by the principals on 'whether subsidized export credits and related practices ...
would be subject to reduction commitments unless they meet appropriate criteria to be established in
terms of the rules that would govern export competition'". 925 An addendum circulated in August
of 1991 set out an Illustrative List of Export Subsid y Practices and included, as item (i), "[s]ubsidized
export credit guarantees or insurance programs". 926 In December 1991, a "Draft Text on Agriculture"
was circulated by the Chairman, Article 9.3 of whic h stated that "[f]or the purposes of this Article,
whether export credits, export credit guarantees or insurance programmes provided by governments or
their agencies constitute export subsidies shall be de termined on the basis of paragraphs (j) and (k) of
Annex 1 to the [ SCM Agreement ]."927 That paragraph was omitted from the "Draft Final Act
Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations" 928, which was
circulated later that month. Article 10.2 of the Draft Final Act reads as follows:

923The United States refers to the negotiating history pursuant to Article 32 of the Vienna Convention.
(United States' appellant's submission, para. 367; see also Panel Report, footnote 1112 to para. 7.933)
Article 32 provides that recourse may be had to s upplementary means of interpretation, including negotiating
history, to determine the meaning wh en the interpretation according to Artic le 31 "leads to a result which is
manifestly absurd or unreasonable".
924Panel Report, para. 7.934.
925Ibid., para. 7.935.
 926Ibid., para. 7.936. Item (h) referred to"[e]xport credits provided by governments or their agencies on
less than fully commercial terms."
927Panel Report, para. 7.937. Article 8.2 of that text listed export subsidies subject to reduction
commitments "somewhat resembling the current Article 9.1 of the Agreement on Agriculture", while Article 9.1
was similar to the current Article 10.1. (Panel Report, para. 7.937)
928MTN.TNC/W/FA (20 December 1991), reproduced in Exhibit US-29.

Participants undertake not to pr ovide export credits, export credit
guarantees or insurance programs otherwise than in conformity with
internationally agreed disciplines.
This language was subsequently replaced by the current text of Article 10.2.
929
621. The Panel did not consider that this negotia ting history supported the United States' position
that "the drafters intended to defer the applica tion of any and all disciplines on agricultural export
credit guarantees". 930 According to the Panel, "[t]he omis sion of paragraph 3 of Article 9 of the
December 1991 Draft Text is consistent with a deci sion that the words were mere surplusage, because
export credits, export credit guarantees and insuran ce programmes were within the disciplines on
export subsidies according to the terms of the agreement captured". 931 "The omission", the Panel
added, "is much less consistent with a decision to exclude such programmes from the disciplines
altogether, considering the clear textual ability of the disciplines to extend to such programmes and
the lack of any attention to an explicit carve-out of such programmes from the disciplines".932
622. On appeal, the United States again re lies on the drafting history of the Agreement on
Agriculture, which it considers "reflects that the Members very early specifically included export
credits and export credit guarantees as a subject for negotiation and specifically elected not to
include such practices among export subsidies in the WTO Agreements with respect to those goods
within the scope of ... the Agreement on Agriculture ".933 The United States adds that "[b]y deleting
an explicit reference to export credit guarantees from the illustrative list of export subsidies in
Article 9.1, Members demonstrated that they had no t agreed in the case of agricultural products that
export credit guarantees constitute export subsidie s that should be subject to export subsidy
disciplines".934 Finally, the United States takes issue with the Panel's explanation that draft Article 9.3
was omitted because it was mere surplusage.935
623. We agree with the Panel that the meaning of Ar ticle 10.2 is clear from the provision's text, in
its context and in the light of the object and purpose of the Agreement on Agriculture , consistent
with Article 31 of the Vienna Convention .936 The Panel did not think it necessary to resort to

929Panel Report, paras. 7.938-7.939.
930Ibid., para. 7.939.
931Ibid., para. 7.940.
932Ibid.
933United States' appellant's submission, para. 377. (original emphasis)
934Ibid., para. 378.
935Ibid., para. 379.
936Panel Report, para. 7.933.

negotiating history for purposes of its interpretation of Article 10.2. Even if the negotiating history
were relevant for our inquiry, we do not find that it supports the United States' position. This is
because it does not indicate that the negotiators did no t intend to discipline ex port credit guarantees,
export credits and insurance programs at all. To the contrary, it shows that negotiators were aware of
the need to impose disciplines on export credit gua rantees, given their potential as a mechanism for
subsidization and for circumvention of the expo rt subsidy commitments under Article 9. Although
the negotiating history reveals that the negotiators st ruggled with this issue, it does not indicate that
the disagreement among them related to whet her export credit guarantees, export credits and
insurance programs were to be disciplined at all. In our view, the negotiating history suggests that the
disagreement between the negotiators related to whic h kinds of specific disciplines were to apply to
such measures. The fact that negotiators felt that internationally agreed disciplines were necessary for
these three measures also suggests that the disciplines that currently exist in the Agreement on
Agriculture must apply pending new disciplines because, otherwise, it would mean that subsidized
export credit guarantees, export credits, and insuranc e programs could currently be extended without
any limit or consequence.
624. The United States contends that the Panel's interp retation leads to a result that is "manifestly
absurd or unreasonable".937 According to the United States, it "defies logic ... to take the view of the
Panel in which such practices would be treated as already disciplined export subsidies yet not
permitted to be included within the applicable re duction commitments expressly contemplated by the
text".938 The Panel's interpretation thus results in an enormous "windfall" for Brazil because the
United States would have been permitted to gran t export credit guarantees had such measures been
listed in Article 9 of the Agreement on Agriculture.939 The United States also submits that exemption
of export credit guarantees from export subsidy disciplines of the Agreement on Agriculture is
further demonstrated by the fact that "no export credit guarantees are reported in the schedules of the
United States or any other Members ... nor are they currently subject to reporting as export
subsidies".940
625. We do not agree with the United States' submissi on in this regard. There could have been
several reasons why Members chose not to incl ude export credit guarantees, export credits and
insurance programs under Article 9.1 of the Agreement on Agriculture . One reason, for instance,
may be that they considered that their export cr edit guarantee, export credit or insurance programs did

938Ibid., para. 384.
939Ibid.
940Ibid., para. 385. (footnote omitted) The United States makes this argument within the context of its
assertion that the Panel's interpretation leads to a result that is "manifestly absurd or unreasonable".

not include a subsidy component, so that there was no need to subject them to export subsidy
reduction commitments. There could have been othe r reasons. Thus, the fact that export credit
guarantees, export credits and insurance programs we re not included in Article 9.1 does not support
the United States' interpretation of Article 10.2. We also observe that whether WTO Members with
export credit guarantee programs have reported them in their export subsidy notifications is not
determinative for purposes of our inquiry into the me aning of Article 10.2. In any event, the United
States and Brazil disagree about whether such programs are subject to notification requirements.941
626. Accordingly, we do not believe that Article 10.2 of the Agreement on Agriculture exempts
export credit guarantees, export credits and insuran ce programs from the export subsidy disciplines in
the Agreement on Agriculture . This does not mean that export credit guarantees, export credits and
insurance programs will necessarily constitu te export subsidies for purposes of the Agreement on
Agriculture. Export credit guarantees are subject to the export subsidy disciplines in the Agreement
on Agriculture only to the extent that such measures include an export subsidy component. If no
such export subsidy component exists, then th e export credit guarantees are not subject to the
Agreement's export subsidy discip lines. Moreover, even when export credit guarantees contain an
export subsidy component, such an export cred it guarantee would not be inconsistent with
Article 10.1 of the Agreement on Agriculture unless the complaining party demonstrates that it is
"applied in a manner which results in, or which threat ens to lead to, circumvention of export subsidy
commitments". Thus, under the Agreement on Agriculture , the complaining party must first
demonstrate that an export credit guarantee program constitutes an export subsidy. If it succeeds, it
must then demonstrate that such export credit guara ntees are applied in a manner that results in, or
threatens to lead to, circumvention of the res ponding party's export subsidy commitments within the
meaning of Article 10.1 of the Agreement on Agriculture.
627. For these reasons, we uphold the Panel's finding, in paragraphs 7.901, 7.911 and 7.932 of the
Panel Report, that Article 10.2 of the Agreement on Agriculture does not exempt export credit
guarantees from the export subsidy disciplines in Article 10.1.
628. Before proceeding further, we refer to the order followed by the Panel in its analysis of
Brazil's claims against the United States' export cr edit guarantee programs. We do not find that the

941The notification requirements are set out in Notification Requirements and Formats under the WTO
Agreement on Agricultur e (PC/IPL/12, 2 December 1994), submitted by the United States to the Panel as
Exhibit US-99. The United States argues that the absence of a repor ting requirement for export credit
guarantees provides further proof that such measures are not subject to export s ubsidy disciplines under the
Agreement on Agriculture. (United States' appellant's submission, paras. 384-385) Brazil disagrees and submits
that, to the extent export credit guarantees constitute expo rt subsidies, such measures are subject to notification
requirements. (Brazil's appellee's submission, para. 934)

Panel's order of analysis was wrong or that it cons tituted legal error. Nor has the United States made
such a claim on appeal. Nevertheless, we are struck by the fact that the Panel addressed Article 10.2
only at the end of its analysis, especially given th at this provision constituted the core of the United
States' defence that the disciplines of the Agreement on Agriculture currently do not apply to export
credit guarantees at all.
5. Articles 3.1 and 3.2 of the SCM Agreement
629. We turn to the United States' appeal of the Pa nel's findings under Articles 3.1 and 3.2 of the
SCM Agreement. According to the United States, "Article 3 of the SCM Agreement ... is subject in its
application to Article 21.1 of the Agreement on Agriculture ".942 The United States then argues that,
because "export credit guarantees are not subject to the disciplines of export subsidies for purposes of
the Agreement on Agriculture , Article 21.1 of that Agreement renders Article 3.1(a) of the SCM
Agreement inapplicable to such measures". 943 Furthermore, the United States asserts that "the
exemption from action under Article 13(c) is inapplicable, because it only is effective with respect to
export subsidies disciplined under the Agreement on Agriculture."944
630. The United States' argument is premised on the proposition that Article 10.2 of the
Agreement on Agriculture exempts export credit guarantees from the export subsidy disciplines in
that Agreement. The Panel rejected this propositio n and we have upheld the Panel's finding in this
regard. Therefore, because it is premised on an incorrect interpretation of Article 10.2 of the
Agreement on Agriculture , we reject the United States' argument. We examine the United States'
appeals from other aspects of the Panel's assessme nt of the export credit guarantee programs under
Article 3 of the SCM Agreement in the following section of our Report.
6. Separate Opinion
631. One Member of the Division hearing this appeal wishes to set out a brief separate opinion. At
the outset, I would like to make it absolutely clear that I agree with the findings and conclusions and
reasoning set out in all preceding Sections of this Report, but one, namely, Section C above, which
relates to Article 10.2 of the Agreement on Agriculture. It is only on the interpretation of Article 10.2
that I must respectfully disagree.
632. First I wish to point out that although Article 10.1 of the Agreement on Agriculture covers a
range of export subsidies that do not fall within th e ambit of Article 9.1 of the Agreement, Members

943Ibid.
944Ibid., para. 395.

considered that it was necessary to carve out three types of programs, namely export credit
guarantees, export credits and insurance programs, a nd to spell out in Article 10.2 their commitments
with respect to those three areas. The fact that th ey chose to deal with th ese three types of measures
in Article 10.2 shows that this special treatment of the three types of measures must be given meaning
and weight. Put differently, Article 10.2 is the only provision in the Agreement on Agriculture that
speaks directly to export credit guarantees, e xport credits and insurance programs provided in
connection with agricultural goods. I read Article 10.2 as saying that WTO Members have committed
to two specific undertakings: (1) "to work toward the development" of international agreed
disciplines and (2) to provide export credit guara ntees in conformity with these disciplines " after
agreement on such disciplines". (emphasis added) Thus, the text of Article 10.2 obliges Members to
"work toward the development" of internationally agreed discip lines to regulate the provision of
export credit guarantees, as well as export credits and insurance programs.
633. A specific provision that calls on Members to "work toward the development " of disciplines
strongly suggests to me that disciplines do not yet exist. Certainly reference is not made in
Article 10.2 to any other disciplines found in the Agreement on Agriculture that apply to export
credit guarantees, export credits and insurance pr ograms provided in connection with agricultural
goods. Furthermore, the second part of Article 10.2 clearly limits the application of disciplines to
after such time as the international disciplines have been agreed upon. This is a further indication
that there are no current disciplines under the Agreement on Agriculture that apply to export credit
guarantees, export credit and insurance programs.
634. I recognize that the language of this provision is not free from ambiguity. As noted by my
colleagues on the Division, the drafters could ha ve—dare I say, should have—made their intentions
even more plain. If there were no Article 10.2, th en I might concur with my colleagues that to the
extent that an export credit guarantee provided an export subsidy then the Agreement on Agriculture
envisions that that subsidy portion should be addressed by Article 10.1. However, Article 10.2 does
exist and the meaning of the words as I read them is entirely prospective, at least with respect to the
existence of applicable disciplines.
635. I do not see my reading of Article 10.2 to be in consistent with the provision's context and
with the object and purpose of the Agreement on Agriculture . Article 10 is entitled "Prevention of
Circumvention of Export Subsidy Commitments". I see the first part of Article 10.1 as setting out a
catch-all provision, designed to potentially cover an export subsidy that is used to circumvent the
reduction commitments under Article 9. In contrast , as discussed above, Article 10.2 is designed to
specifically deal with export credit programs, expor t credits and insurance programs, and its

provisions are controlling with respect to any su ch programs. Although it speaks to prospective
development and application of agreed disciplines, Article 10.2 is also consistent with the objective of
prevention of circumvention. Its placement in Ar ticle 10 suggests a recognition that export credits,
export credit guarantees and insurance programs can ha ve the potential to circumvent export subsidy
commitments.945 Article 10.3 pursues the aim of preventing circumvention of export subsidy
commitments by providing special rules on reversal of burden of proof when a Member's exports
exceed the quantitative reduction commitments, a nd Article 10.4 itemizes a series of specific
commitments or disciplines that apply in the area of international food aid. It is accurate, as my
colleagues reason, that the language of Article 10.2 is quite different from that used in Article 10.4.
While Article 10.4 establishes disciplines for food ai d transactions, Article 10.2 merely foresees that
disciplines will be established, in the future, for export credit guarantees, export credits and insurance
programs. The fact that a single Article contains commitments with varying degrees of temporal
effect and both specific and general provisions, doe s not support an interpretation that the general
undertaking (Article 10.1) overrides the specific and prospective provision (that is, Article 10.2).
636. I also find support for my view in the negotiating history. Of course, care must be taken in
relying on negotiating history and I do not wish to imply that resort to Article 32 of the Vienna
Convention is strictly necessary in these circumstances. 946 Nevertheless, as I read it this history
confirms my view that at the end of the Uruguay Round, negotiators had not agreed to subject export
credit guarantees, export credits and insurance pr ograms provided in connection with agricultural
goods to the disciplines of the Agreement on Agriculture or to any other disciplines that existed at
that time. Article 10.2, in my view, was intende d to reflect this outcome. At one point in the
negotiations, there was a proposal for applying to agricultural products the disciplines in the
Illustrative List of Export Subsidies annexed to the SCM Agreement.947 This proposal was dropped in
the Draft Final Act in favour of an "undertak[i ng] not to provide export credits, export credit

945In this sense, I find the United St ates' term "deferral" to be more meaningful than "exception" in
thinking about the nature of Article 10.2 in that it acknowledges that Members are already under an obligation to
develop such disciplines, albeit in the future.
946I also recognize that the negotiating materials referred to by the Panel may not formally constitute
travaux préparatoires for purposes of Article 32 of the Vienna Convention.
947Panel Report, para. 7.937. Sp ecifically, in December 1991, a "Draft Text on Agriculture" was
circulated by the Chairman. Article 9. 3 of the draft text stated that "[f]or the purposes of this Article, whether
export credits, export credit guarantees or insurance progr ammes provided by governments or their agencies
constitute export subsidies shall be determined on the basis of paragraphs (j) and (k) of Annex 1 to the [SCM
Agreement]". ( Ibid., para. 7.937) Later, the Draft Final Act was circulated and it omitted paragraph 3 of
Article 9 that had appeared in the previous draft. (Ibid., para. 7.938)

guarantees or insurance programs otherwise than in conformity with internationally agreed
disciplines"948, which in turn was replaced by the current version of Article 10.2. The previous
version of Article 10.2 (in the Draft Final Act) re flected an immediate undert aking "not to provide
export credit guarantees, export credits or insuranc e programs otherwise than in conformity with
internationally agreed disciplines", whatever t hose may have been. In contrast, no immediate
commitment is evident from the current version of Article 10.2, which instead calls for continued
negotiations and for WTO Members to provide ex port credits, export credit guarantees or insurance
programs only in conformity with internationally agreed disciplines after agreement on such
disciplines. This suggests to me that the negotiato rs were aware of the need to impose disciplines on
export credit guarantees, given their potential as a mechanism for circumvention, but they were
unable to agree upon and identify the disciplines that were to apply to such measures until disciplines
were developed in the future. Thus, in my view, the negotiating history supports an interpretation that
Article 10.2 was inserted to commit WTO Members to continue negotiating on the disciplines that
would apply, in the future, and that no disciplin es would apply to such m easures until such time as
disciplines were internationally agreed upon.
637. As noted by my colleagues on the Division, the United States argues that "it defies logic, as
well as the obvious object and purpose of the agreemen t, to take the view of the Panel in which such
practices would be treated as already disciplined export subsidies yet not permitted to be included
within the applicable reduction commitment s expressly contemplated by the text".
949 Brazil argues
that the United States was never willing to accept th at its export credit guarantee programs constituted
an export subsidy and took a calculated risk by not including them under its Article 9 reduction
commitments.950
638. I agree with my colleagues on the Division that the decisions of WTO Members regarding
how to schedule their export subsidy commitmen ts have limited value for purposes of an
interpretation of Article 10. However, it seems anomalous that WTO Members with export credit
guarantee programs would not have sought to preserve some flexibility to provide subsidies through
such programs, which flexibility would have been av ailable to them had such programs been included
under Article 9 of the Agreement on Agriculture. My colleagues' reading of Article 10 perceives that
WTO Members intended to impose upon themselves the more onerous obligation of immediately
subjecting export credit guarantees, export credits and insurance programs to the export subsidy
disciplines of the Agreement on Agriculture rather than the less demanding obligation of working

948Panel Report, para. 7.938.
950Brazil's response to questioning at the oral hearing.

toward the development of such disciplines. We are bound to rely upon what we have before us in the
treaty provisions, and I find the same text and contex t leads me in the opposite direction. Namely,
that the absence of reference in Article 9 to export credit guarantees, export credits and insurance
programs suggests that it was believed that such measures would not be subject to any disciplines
until such time as disciplines were internationally agreed upon pursuant to Article 10.2.
639. In conclusion, for these reasons and particularly my reading of the text, it is my view that,
pursuant to Article 10.2, export credit guarantees, export credits and insurance programs are not
currently subject to export subsidy disciplines under the Agreement on Agriculture , including the
disciplines found in Article 10.1. In the light of Article 21.1 of the Agreement on Agriculture and the
introductory language to Article 3.1 of the SCM Agreement, I am also of the view that export credit
guarantees, export credits and insurance programs pr ovided in connection with agricultural goods are
not subject to the prohibition in Article 3.1(a) of the SCM Agreement.
640. I recognize that this interpretation of Article 10.2 perceives a significant gap in the
Agreement on Agriculture with respect to export credit gua rantees, export credits and insurance
programs that apply to agricultural products. This underscores the importance of working "toward the
development of international disciplines" as envisioned by Article 10.2.
641. I also recognize that this interpretation of Artic le 10.2 has consequential results for some of
the other claims on appeal brought by both the United States and Brazil in connection with the United
States' export credit guarantee programs. As to the other Sections of this Report dealing with export
credit guarantees
951, I agree that the legal interpretati on and analyses contained therein follow
logically from the view of my colleagues on the Divi sion with respect to Article 10.2, as set forth in
paragraphs 605 through 630 of this Report.952
D. Export Credit Guarantees – Burden of Proof
642. The United States submits that the Panel erred in three different ways in respect of the
application of the burden of proof in assessing the United States' export credit guarantee programs
under item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement. First, the
United States asserts that the Panel erred by applying the special rules on the burden of proof provided
in Article 10.3 of the Agreement on Agriculture in its examination of Brazil's claim under the SCM

951I am referring to Sections D. Export Credit Guarantees – Burden of Proof , E. Export Credit
Guarantees – Necessary Findings of Fact , F. Export Credit Guarantees – Circumvention , G. Export Credit
Guarantees – Articles 1.1 and 3.1(a) of the SCM Agreement of this Report.
952The relevant findings and conclusions for purposes of the recommendations and rulings to be
adopted by the DSB in this dispute, pursuant to Article 17.14 of the DSU, are those set out in paragraph 763(e)
and (f) of this Report.

Agreement. The United States emphasizes that "the burden of proof articulated in ... Article 10.3 has
no application to the SCM Agreement".953 Secondly, the United States argues that the Panel erred by
applying the special rules on burden of proof in Article 10.3 of the Agreement on Agriculture in
examining whether the United States circumvented its export subsidy commitments in respect of
upland cotton and certain other unscheduled agricultural products.954 According to the United States,
Article 10.3 does not apply at all in respect of e xport subsidies to an agricultural good for which the
respondent has no reduction commitments. 955 Finally, the United States refers to three specific
instances in which the Panel allegedly applied the wrong burden of proof.956
643. Brazil responds by highlighting the Panel’s fi nding that, whichever party bore the burden of
proof, Brazil had demonstrated that the export cr edit guarantee programs cons titute export subsidies
under the terms of item (j) of the Illustrative List of Export Subsidies.957
644. Before examining the specific points raised by the United States on appeal relating to the
Panel's application of the burden of proof, we recall the general rule that "the burden of proof rests
upon the party, whether complaining or defending, w ho asserts the affirmative of a particular claim or
defence".958 Article 10.3 of the Agreement on Agriculture , however, "provides a special rule for
proof of export subsidies that applies in certa in disputes under Articles 3, 8, 9 and 10 of the
Agreement on Agriculture".959 The text of Article 10.3 reads:
Any Member which claims that any quantity exported in excess of a
reduction commitment level is not subsidized must establish that no
export subsidy, whether listed in Artic le 9 or not, has been granted in
respect of the quantity of exports in question.
This provision "cleaves the complaining Member's claim" into two parts: a quantitative aspect, and
an export subsidization aspect, "allocating to different parties the burden of proof with respect to the
two parts".
960

953United States' appellant's submission, para. 400. (emphasis omitted)
954Ibid., para. 403.
955Ibid., para. 404.
956Ibid., paras. 405-408.
957Brazil's appellee's submission, paras. 95 and 1015 (referring to Panel Report, para. 7.793 and
footnote 948 thereto and para. 7.867).
958Appellate Body Report, US – Wool Shirts and Blouses, p. 14, DSR 1997:1, 323 at 335.
959Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 69.
960Ibid., para. 71.

645. As the Appellate Body has explained in a pr evious dispute, the burden of proof under
Article 10.3 operates in the following manner:
... where a Member exports an agricultural product in quantities that
exceed its quantity commitment level, that Member will be treated as
if it has granted WTO- inconsistent export subsidies, for the excess
quantities, unless the Member pre sents adequate evidence to
"establish" the contrary. This reve rsal of the usual rules obliges the
responding Member to bear the consequences of any doubts
concerning the evidence of export subsidization.
961 (original
emphasis)
Pursuant to Article 10.3 "the complaining Member .. . is relieved of its burden, under the usual rules,
to establish a prima facie case of export subsidization, provided that [it] has established the
quantitative part of [its] claim".962
646. Having briefly set out the applicable rules on the burden of proof, we now turn to the specific
points raised by the United States in this appeal. First, the United States alleges that the Panel erred
by applying the "special rule" on the burden of proof set out in Article 10.3 of the Agreement on
Agriculture to its examination of the export credit guarantees under the SCM Agreement , where
such a rule "has no application at all". 963 To support its contention that the Panel applied
Article 10.3 in the context of examining Brazil's claim under the SCM Agreement, the United States
points to the following statement by the Panel:
Moreover, recalling the burden of proof articulated in Article 10.3 of
the Agreement on Agriculture , the United States has not established
that it does not provide these export credit guarantee programmes at
premium rates which are inadequate to cover the long-term operating
costs and losses of the programmes.
964
647. We agree with the United States that Article 10.3 of the Agreement on Agriculture does not
apply to claims brought under the SCM Agreement . However, the Panel did not make the error
attributed to it by the United States. The Pane l made the statement relied on by the United States in
the context of its assessment of the United Stat es' export credit guarantee program under the
Agreement on Agriculture . Although the Panel made use of the criteria set out in item (j) of the
Illustrative List of Export Subsidies annexed to the SCM Agreement (providing these programs at
premium rates inadequate to cover long-term ope rating costs and losses) it did so as contextual

961Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 74.
962Ibid., para. 75.
963United States' appellant's submission, para. 399. (emphasis added)
964Panel Report, para. 7.868.

guidance for its analysis under the Agreement on Agriculture, and both the United States and Brazil
appear to have agreed with the appropriateness of this approach. 965 Thus, the Panel's reference to
Article 10.3 did not relate to its assessment of the United States' export credit guarantee programs
under the SCM Agreement.
648. Moreover, we note that in the immediately pr eceding paragraph, which the United States fails
to mention, the Panel stated:
We have conducted a detailed exam ination of the relevant evidence
and argumentation submitted by the parties. On the basis of the
totality of the record evidence, in cluding approaches regularly relied
upon by the United States government itself, we find that Brazil has
established that the United States CCC provides the GSM 102,
GSM 103 and SCGP export credit guarantee programmes "at
premium rates which are inadequate to cover the long-term operating
costs and losses of the programmes" within the meaning of item (j) of
the Illustrative List of Export Subsidies in Annex I of the SCM
Agreement. Our view is based on a careful consideration of the
evidence, taken as a whole, and no one element, in isolation, is
determinative.
966 (underlining added)
It is clear from this paragraph that the Panel placed the burden of proof on Brazil and determined that
Brazil met its burden of proving that the United States' export credit guarantees are provided at
premium rates that are inadequate to cover l ong-term operating costs and losses. The Panel's
statement on which the United States relies simply makes the point that the United States did not rebut
the case that was made out by Brazil. The reference to Article 10.3 does not, by itself, change the fact
that the Panel ultimately placed the burden of proof on Brazil.
649. After making its findings under the Agreement on Agriculture , the Panel examined the
United States' export credit guarantees under the SCM Agreement . There is no reference to
Article 10.3 of the Agreement on Agriculture in this discussion. 967 We are aware that the Panel
applied the "'contextual' analysis" that it had con ducted "under item (j) of the Illustrative List of
Export Subsidies ... for the purposes of determining whether or not an export subsidy exists within the
meaning of Article 10.1 of the Agreement on Agriculture" to its examination of "Brazil's claims under
item (j)/Article 3.1(a) of the SCM Agreement".968 In doing so, it would have been useful for the Panel
to have clarified that the special rules on the burden of proof in Article 10.3 of the Agreement on

965Panel Report, para. 7.803.
966Ibid., para. 7.867.
967See ibid., paras. 7.946-7.948.
968Ibid., para. 7.946 (footnote omitted)

Agriculture, to which it had referred previously in its "contextual" analysis of item (j) under the
Agreement on Agriculture , were not applicable for purposes of its analysis under the SCM
Agreement.969 Because we have found that the Panel did not ultimately relieve Brazil of its burden of
proof in determining that the United States' export credit guarantee programs constituted export
subsides under the Agreement on Agriculture, we do not believe that the Panel's failure to clarify that
Article 10.3 of the Agreement on Agriculture did not apply to its examination of the same measures
under the SCM Agreement constitutes reversible legal error.
650. Secondly, the United States submits that the Panel erred by applying the special rules on the
burden of proof in Article 10.3 of the Agreement on Agriculture in examining whether the United
States circumvented its export subsidy commitments in respect of upland cotton and certain other
unscheduled agricultural products. 970 According to the United States, Article 10.3 applies only to
agricultural products for which a WTO Member has assumed export subsidy reduction commitments
in its schedule, pursuant to Article 9.1 of the Agreement on Agriculture.971
651. The Panel's view was that Article 10.3 does apply to unscheduled products:
With respect to upland cotton and other unscheduled products, the
Panel considers that the United States' reduction commitment level,
for the purposes of Article 10.3, is zero for each unscheduled
product. By virtue of the second clause of Article 3.3, that is the
level to which a Member must reduce any Article 9.1 export
subsidies that were not in fact specifically made subject to
"scheduled" reduction commitments. Accordingly, in the case of
upland cotton and other unscheduled products the same sequence is
to be followed, with Brazil as the complaining party first having to
prove that United States' exports of unscheduled products exceed that
"zero" level.
972
652. We disagree with the Panel's view that Article 10.3 applies to unscheduled products. Under
the Panel's approach, the only thi ng a complainant would have to do to meet its burden of proof when
bringing a claim against an unscheduled product is to demonstrate that the respondent has exported
that product. Once that has been established, the respondent would have to demonstrate that it has not

969Panel Report, paras. 7.946-7.948.
971Ibid., para. 404.
972Panel Report, para. 7.793. (footnote omitted)

provided an export subsidy. 973 This seems to us an extreme result. In effect, it would mean that any
export of an unscheduled product is presumed to be subsidized. In our view, the presumption of
subsidization when exported quantities exceed the reduction commitments makes sense in respect of a
scheduled product because, by including it in its sche dule, a WTO Member is reserving for itself the
right to apply export subsidies to that product, within the limits in its schedule. In the case of
unscheduled products, however, such a presumption appears inappropriate. Export subsidies for both
unscheduled agricultural products and industrial products are completely prohibited under the
Agreement on Agriculture and under the SCM Agreement, respectively. The Panel's interpretation
implies that the burden of proof with regard to the same issue would apply differently, however, under
each Agreement: it would be on the respondent under the Agreement on Agriculture, while it would
be on the complainant under the SCM Agreement.
653. Although we disagree with the Panel's in terpretation of Article 10.3 of the Agreement on
Agriculture in respect of unscheduled products, we do not believe that the Panel's ultimate finding is
erroneous. This is because the Panel did not rely on its interpretation of Article 10.3. In a footnote to
the paragraph quoted above, the Panel stated:
In any event, even if there is no reduction commitment level in
respect of unscheduled products, affecting the rules of burden of
proof that apply to Brazil's claims pertaining to unscheduled products
so as to remove the burden entirely from Brazil or to place the entire
burden on Brazil to prove not only th at exports have been made, but
even that export subsidies have b een provided in respect of such
exported products, this would not ma terially affect our analysis, as
we are of the view that Brazil has discharged this burden as well, and
the United States has failed to disch arge its burden in this respect.
974
(original emphasis)
Thus the Panel placed the burden on Brazil to establish that the United States provided export
subsidies, through export credit guarantees, to upla nd cotton and other unscheduled products. This is
confirmed in the following paragraph:

973As the Appellate Body explained, when the special rule on burden of proof in Article 10.3 applies,
then "the complaining party is not required to lead in the presentation of evidence to panels, and it might well
succeed in its claim even if it presents no evidence—should the responding Me mber fail to meet its legal burden
to establish that no export subsidy has been granted w ith respect to the excess quantity". (Appellate Body
Report, Canada – Dairy (Article 21.5 – New Zealand and the US II), para. 75)
974Panel Report, footnote 948 to para. 7.793.

Recalling our discussion of the applicable burden of proof, we find
that Brazil has shown that export credit guarantees – constituting
export subsidies within the meani ng of Article 10.1 (and therefore,
necessarily, not listed in Article 9.1) – have been provided under the
programmes in question during the period we have examined in
respect of exports of upland cotton and certain other unscheduled
agricultural products. The United States has not shown that no
export subsidy has been granted in respect of such products. We
therefore conclude that, in respect of upland cotton and other such
unscheduled agricultural products on record, the United States
applies export credit guarantees c onstituting export subsidies in a
manner which results in circum vention of its export subsidy
commitments inconsistently with Article 10.1 of the Agreement on
Agriculture.
975 (footnote omitted; original emphasis)
654. It is clear from the first sentence in this paragraph that the Panel imposed on Brazil the burden
of demonstrating that export subsidies have b een granted to upland cotton and other unscheduled
agricultural products supported under the programs. The second sentence, on which the United States
relies in its submission, simply indicates that the United States did not rebut the evidence and
arguments put forward by Brazil; it does not indicate that the Panel erroneously placed the burden of
proof on the United States.
655. Finally, the United States refers to three speci fic instances in which the Panel allegedly erred
by improperly placing the burden of proof on the United States. The first example cited by the United
States is the Panel's statement that the premiums charged by the CCC for the export credit guarantees
"are not geared toward ensuring adequacy to cover long-term operating costs and losses for the
purposes of item (j)". 976 The United States assert that this is "a much higher threshold" than that
provided in text of item (j) of the Illustrative List of Export Subsidies annexed to the SCM
Agreement.977 Next, the United States takes issue with th e Panel's statements that "[i]n terms of the
structure, design, and operation of the export cr edit guarantee programmes [we] believe that the
programmes are not designed to avoid a net cost to government" 978 and that the Panel was entitled to
inquire whether revenue "would be likely to cover the total of all operating costs and losses under the
programme".979 According to the United States, "to 'avoid a net cost' prospectively is simply not the
requirement of item (j)" and the "'likelihood' sta ndard of performance" imposed by the Panel is

975Panel Report, para. 7.875.
976United States' appellant's submission, para. 406 (re ferring to Panel Report, para. 7.859). (emphasis
added by the United States)
977Ibid., para. 406.
979Ibid., para. 407 (referring to Panel Report, paras. 7.805 and 7.835).

"higher than that found in item (j)". 980 The third example cited by the United States is the Panel's
statement that "[w]e have not been persua ded that cohort re-estimates over time, will necessarily not
give rise to a net cost to the United States government." 981 The United States contends that "[u]nder
the applicable burden of proof, however, it is not fo r the United States to make such incontrovertible
demonstrations to the Panel, and the Panel erred in requiring it".982
656. In our view, none of these statements demonstrates that the Panel improperly applied the rules
on burden of proof. The United States is selecting statements made by the Panel within its broader
analysis of how the United States' export credit guarantee programs operate, reading them in isolation,
and disregarding the context in which th ey were made. As indicated earlier 983, it is clear that the
Panel imposed on Brazil the overall burden of prov ing that the premiums charged under the United
States' export credit guarantee programs are inadequate to cover long-term operating costs and losses.
This approach is consistent with the usual rules on the allocation of the burden of proof whereby the
complaining party is responsible for proving its claim. 984 As for the Panel's rejection of the United
States' submissions relating to the cohort re-estimates 985, we agree with Brazil that "[a]s the party
asserting that the trends existed, the United States bore the burden of proving that they existed". 986
Thus, the Panel cannot be said to have improperly re versed the burden of proof. Accordingly, the
isolated statements referred to by the United States do not demonstrate an error by the Panel in the
application of the burden of proof.
657. We, therefore, reject the United States' allegations th at the Panel improperly applied the
burden of proof in finding that the United Stat es' export credit guarantee programs are prohibited
export subsidies under Article 3.1(a) of the SCM Agreement and are consequently inconsistent with
Article 3.2 of that Agreement.

981Ibid., para. 408 (quoting Panel Report, para. 7.853). (emphasis added by the United States) The
United States also mentions the following statement by the Panel: "[w]hile there may be a possibility (based on
the experience of certain of other cohorts) that this figure may diminish over the lifetime of the cohort
concerned, there is no assurance that this figure will necessarily evolve towards, and conclude as, zero or a
negative figure." (Panel Report, footnote 1028 to para. 7.853) (emphasis added by the United States)
984We emphasize that the United States' argument on this specific point is limited to the Panel's
application of the burden of proof. The United Stat es has not argued that the Panel incorrectly interpreted
item (j) as requiring that export credit guarantee programs be "geared toward ensuri ng adequacy to cover long-
term operating costs and losses" or that such programs "'avoid a net cost' prospectively".

E. Export Credit Guarantees – Necessary Findings of Fact
658. We turn to the United States' claim that the Panel erred by failing to make factual findings
that were allegedly necessary for the Panel's analysis of whether premiums are adequate to cover the
long-term operating costs and losses of the Unite d States' export credit guarantee programs under
item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement.
659. In the United States' view, "the absence of a specific factual finding on the basis for and
monetary extent to which the United States has a llegedly not covered its long-term operating costs
and losses for the CCC export credit guarantee program s, compels the reversal of the Panel’s finding
in respect of item (j)". 987 The United States explained that item (j) requires a determination whether
premium rates are inadequate to cover long-term costs and losses and that this requires some
determination as to what the operating costs and lo sses are. The United States further argued that the
Panel's failure consisted in not making any determination about how to treat the rescheduled debt
within operating costs and losses.988
660. Brazil responds that the United States has not made a proper claim under Article 11 of the
DSU and is thus precluded from challenging the Panel's appreciation of the facts. 989 In any event,
Brazil submits that neither item (j), nor Articles 3.1(a) and 3.2 of the SCM Agreement , nor
Articles 10.1 and 8 of the Agreement on Agriculture , required the Panel to make specific factual
findings on the "monetary extent to which" premiu m rates are inadequate to cover the long-term
operating costs and losses of the United States' expor t credit guarantee programs. It was sufficient for
the Panel to have found that, under any and all me thodologies that it reviewed and accepted, premium
rates are inadequate to cover the long-term operating cost s and losses of the export credit guarantee
programs.990
661. In addition, Brazil asserts that the Panel made sufficient factual findings "on the basis for" 991
its conclusion that premium rates are inadequate to cover the long-term operating costs and losses of
the export credit guarantee programs. Specifically , the Panel assessed the performance of the export
credit guarantee programs under the elements of item (j ) in various ways. In its assessment of the
past performance of the ECG programs during the peri od 1992-2002, the Panel used two accounting

988United States' response to questioning at the oral hearing.
990Ibid., para. 99.
991Ibid., para. 100.

methodologies— net present value accounting , and cash basis accounting —to determine whether
premium rates are inadequate to cover the long-term operating costs and losses of the programs.992
662. Before proceeding to the merits of the Unite d States' claim, we examine first Brazil's
allegation that the United States had to bring its claim, that the Panel did not make the necessary
findings of fact, under Article 11 of the DSU. Article 11 of the DSU provides that a "panel should
make an objective assessment of the matter before it, including an objective assessment of the facts of
the case".
993 The Appellate Body stated in Canada – Wheat Exports and Grain Imports that "an
appellant is free to determine how to characterize its claims on appeal" 994, but observed that "due
process requires that the legal basis of the claim be sufficiently clear to allow the appellee to respond
effectively."995
663. The United States has styled its claim as relate d to the interpretation and application of
item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement. According to the
United States, the Panel could not have reached a legal conclusion under item (j) without having
necessarily determined what were the long-term operating costs and losses of the United States' export
credit guarantee programs, and more specifically, made a determination in respect of the treatment of
rescheduled debt. We find no difficulty with the Un ited States' approach. Its claim relates to the
Panel's application of item (j) to the specific facts of the case. The United States is not asking us to
review the Panel's factual findings, nor is it arguing that the Panel's assessment of the matter was not
objective. Instead, the United States' claim relates to the application of the legal standard set out in
item (j) of the Illustrative List of Export S ubsidies to the specific facts of this case.996 It is an issue of
legal characterization.997 Thus, we do not agree with Brazil's contention that the United States was
under an obligation to bring its claim under Article 11 of the DSU. Consequently, our inquiry will be
limited to the Panel's application of the law to the facts in this case.

993The Appellate Body has emphasized that "a claim, by an appellant, that a panel erred under
Article 11 of the DSU, and a request for a finding to this effect, must be included in the Notice of Appeal, and
clearly articulated and substantiated in an appellant's submission with specific arguments". (Appellate Body
Report, US – Corrosion-Resistant Steel Sunset Review, footnote 60 to para. 71; see also Appellate Body Report,
Japan – Apples , para. 127; Appellate Body Report, US – Steel Safeguards , para. 498; and Appellate Body
Report, Canada – Wheat Exports and Grain Imports, para. 177)
994Appellate Body Report, Canada – Wheat Exports and Grain Imports, para. 177.
995The Appellate Body, however, did not need to decide in that appeal whether to reject the appellant's
claim on the basis that it was brought under the substantive provision at issue, rather than Article 11 of the DSU.
(Appellate Body Report, Canada – Wheat Exports and Grain Imports, para. 177)
996Appellate Body Report, Canada – Periodicals, p. 22, DSR 1997:1, 449 at 468.

664. Turning to the merits of the United States' allegation, we note that item (j) of the Illustrative
List of Export Subsidies, which is attached to the SCM Agreement as Annex I, reads:
The provision by governments (or special institutions controlled by
governments) of export credit guarantee or insurance programmes, of
insurance or guarantee programmes ag ainst increases in the cost of
exported products or of exchange risk programmes, at premium rates
which are inadequate to cover the long-term operating costs and
losses of the programmes.
665. The Panel provided the following explanation of the examination that is required under
item (j) of the Illustrative List of Export Subsidies:
... item (j) calls for an examination of whether the premium rates of
the export credit guarantee programme at issue are inadequate to
cover the long-term operating costs and losses of the programmes.
Beyond that, item (j) does not set forth, or require us to use, any one
particular methodological appro ach nor accounting philosophy in
conducting our examination. Nor are we required to quantify
precisely the amount by which costs and losses exceeded premiums
paid.
998
We agree with the Panel's approach. The text of item (j) does not suggest that this provision requires
a Panel to choose one particular basis for the calcu lation and then to make a precise quantification of
the difference between premiums and long-term opera ting costs and losses on that basis. Indeed, at
the oral hearing, the United States acknowledged that the text of item (j) does not, by its own terms,
require precise quantification, but asserted that the Panel should have precisely quantified the long-
term operating costs and losses "in this particular case".999
666. In our view, the focus of item (j) is on the inadequacy of the premiums. 1000 To us, this focus
suggests that what is required is a finding on whet her the premiums are insufficient and thus whether
the specific export credit guarantee program at issue constitutes an export subsidy, and not a finding
of the precise difference between premiums and long-term operating costs and losses.1001

998Panel Report, para. 7.804.
999United States' response to questioning at the oral hearing.
1000The Panel observed that there was no disagreemen t between the parties in this case about the
meaning of the term "premiums" for purposes of item (j). According to the Panel, "[u]nder the GSM 102,
GSM 103 and SCGP export credit guarantee programmes, su ch 'premiums' are the fees paid by the applicant
exporter constituting the consideration for the payment guarantee provided by the CCC". (Panel Report,
paras. 7.817-7.818)
1001"Inadequate" is defined as "Not adequate; insufficient". ( Shorter Oxford English Dictionary , 5th
ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University Press, 2002), Vol. 1, p. 1338)

667. Having said this, we recognize that item (j) sets out a test that is essentially financial, as it
requires a panel to look at the financial performance of an export credit guarantee program, that is, its
revenues from premiums and its long-term operating co sts and losses. Our review of the Panel record
confirms that, in this case, the Panel conducted a fina ncial analysis of the United States' export credit
guarantee programs using three approaches. First, the Panel looked at the method used by the United
States government, which "utilizes a 'net present valu e' approach to budget accounting for its export
credit guarantee programmes". 1002 The Panel explained that "a positive net present value means that
the United States government is extending a 'subsid y' to borrowers; a negative present value means
that the programme generates a 'profit' (excl uding administrative costs) to the United States
government".1003 Having explained the method used by the United States government, the Panel then
observed that:
The annual entries in the "guaranteed loan subsidy" line in the United
States budget, 1992-2002 (plus 2003 and 2004 estimates) show us
that, according to this formula, th ere has been a positive "guaranteed
loan subsidy" every year. If administrative expenses are added
thereto, the annual amount of cost to the United States government
increases under this formula by approximately $39 million.
1004
This shows that the Panel viewed the accounting da ta provided under this method used by the United
States government as evidence that the premiums charged for the export credit guarantees are
inadequate to cover long-term operating costs and losses.1005
668. Next, the Panel examined data submitted by Brazil based on a constructed "cost" formula. 1006
This formula compares the revenues and costs of the export credit guarantee programs. 1007 T h e
revenue column includes premiums collected, r ecovered principal and interest, and interest

1002Panel Report, para. 7.842. According to the Panel, the United States government adopted the "net
present value" approach star ting with fiscal year 1992, pursuant to the Federal Credit Reform Act of 1990 (the
"FCR Act of 1990"). A specific formula is provided under the FCR Act of 1990 for the "net present value"
calculation. (Ibid., footnotes 996 and 997 to para. 7.842)
1003Ibid., para. 7.842.
1004Ibid., para. 7.842. (footnotes omitted)
1005The Panel recognized that the "net pr esent value" approach relies on " initial estimates of the long-
term costs to the United States government". The Panel, however, stated that these were not "random guesses"
but rather were based on "[a]ctual historical experi ence". Furthermore, the Pa nel reasoned that "[t]he
consistently positive numbers in the United States budget guaranteed loan subsidy line indicate to us that the
United States government believes, based upon its own assessment, that it may not, even over the long term, be
able to operate the export credit gua rantee programmes without some net co st to government". (Panel Report,
para. 7.843) (original emphasis)
1006Ibid., para. 7.844.
1007In its appellee's submission, Brazil describes this method as following a "cash basis accounting"
approach, in which the programs' receipt s are netted against disbursements on a fiscal year basis. The data on
receipts and disbursements "reflect actual cash flows". (Brazil's appellee's submission, para. 985)

revenue.1008 The costs column includes administrative expenses, default claims, and interest
expense.1009 The data used in this formula are "taken fro m the 'prior year' column of the United States
government budget".1010 The formula shows that there was a difference of a little more than US$ 1
billion between premiums and long-term costs and losses for the period 1993-2002. 1011 Accordingly,
the data submitted by Brazil showed that the export credit guarantee programs of the United States did
not charge premiums that were adequate to cover long-term operating costs and losses.
669. After examining the data submitted by Brazil, th e Panel then referred to "fiscal year/cash
basis" evidence submitted by the United States. Ac cording to the United States, these data reflect
"actual performance of the programmes, unlike the da ta in the US budget to which Brazil alludes ...
which ... are based on estimates and re-estimates required under the Federal Credit Reform Act
of 1990".1012 The data submitted by the United States s howed that, during the same period, total
revenues exceeded total expenses by approximately US$ 630 million.1013
670. The Panel proceeded to compare the two sets of data. 1014 In contrasting the results under the
two methods, the Panel came to the conclusion that the difference between the two was mainly due to
treatment of rescheduled debt. This rescheduled debt amounted to approximately US$ 1.6 billion. 1015
The United States asserts that "the Panel did not make any determination about how to treat
rescheduled debt".1016 We disagree. In fact, the Panel reject ed the approach suggested by the United
States for the treatment of rescheduled debt. Unde r the United States' approach, rescheduled debt is

1008Brazil states that this is a "conservative" formula that credits the programs with interest revenue,
even though item (j) calls for only an assessment of revenue from premiums. (Brazil's appellee's submission,
para. 985)
1010Panel Report, para. 7.846.
1011Ibid., paras. 7.845-7.846.
1012United States' response to Question 264 Posed by the Panel (Panel Report, p. I-673, para. 21). The
data were presented in a spreadsheet and submitted to the Panel as Exhibit US-128. See also Panel Report,
para. 7.846.
1013Panel Report, para. 7.846.
1014The Panel acknowledged certain limitations inherent in the comparison, including the fact that some
of the data "may not directly correlate", that "Un ited States budget data may not always reflect 'actual
performance'" and the need to be especially "sensitive" to "the particular time periods covered by the data".
Nevertheless, the Panel concluded that "none of these considerations undermine[s] the comparison made".
1015Ibid., para. 7.846.
1016United States' response to questioning at the oral hearing.

not treated as an outstanding claim, but rather as a new direct loan. 1017 In the Panel's view, however,
this approach "understates the net cost to the United States government associated with the export
credit guarantee programmes at issue". 1018 Thus, contrary to the United States' submission, the Panel
did make a determination in respect of the treatment of rescheduled debt. 1019 Furthermore, we read
this as indicating that the Panel considered th at the data submitted by the United States, once
rescheduled debt was properly taken into account, also showed that premiums did not offset long-term
operating costs and losses.
671. The Panel went further in its analysis and considered the evidence submitted by the
United States concerning re-estimates. According to the Panel, this evidence showed a subsidy of
approximately US$ 230 million, without includ ing administrative expenses of approximately
US$ 39 million.1020 The Panel was not persuaded by the United States' submission that "over time"
the re-estimates would necessarily do away with the subsidy shown by the current figures. 1021 In
addition, we note that the Panel looked not only at the past financial performance of the United States'
export credit guarantee programs, but also at the structure, design, and operation of the programs.
The Panel concluded that the programs "are not designed to avoid a net cost to government"
1022 and
"the premiums are not geared toward ensuring ade quacy to cover long-term operating costs and losses
for the purposes of item (j)".1023
672. In the light of the above, it is clear th at the Panel undertook a sufficiently detailed
examination of the financial perfo rmance of the United States' export credit guarantee programs. Its
analysis showed that none of the methods proposed by the parties indicated that the premiums charged
under the United States' export credit guarantee progr ams are adequate to cover long-term costs and

1017Panel Report, para. 7.851. In its appellee's submission, Brazil states that it "accepted that
repayments made pursuant to re-scheduled debt agreements should be included as receipts under the [export
credit guarantee] programs ... [but] disagreed that the full amount of re-scheduled debt should be treated as
received the moment the re-scheduling agreement is co mpleted". Instead, according to Brazil, "the default
claim should continue to be treated as a loss unless the United States receives payment from the debtor, and only
then should be credited as a receipt in the amount actually received from the debtor". (Brazil's appellee's
submission, para. 988)
1018Panel Report, para. 7.851. The Panel was struck by the fact that "no amounts have actually been
determined uncollectible, written off or forgiven" after 1992. (Ibid., para. 7.848)
1019We recall that the United States has not challenged the Panel's assessment of the matter, including
the assessment of the facts of the case, pursuant to Article 11 of the DSU. Thus, the United States has not asked
us to review the evidentiary basis on which the Panel relied to reject the treatment of rescheduled debt by the
United States.
1020Panel Report, para. 7.852. The Panel noted that figures submitted by Brazil showed a subsidy of
US$ 211 million, without administrative expenses.
1021Ibid., para. 7.853.
1022Ibid., para. 7.857.
1023Ibid., para. 7.859.

losses. In these circumstances, we agree with the Panel that, in this particular case, it was not
necessary to choose a particular method nor dete rmine the precise amount by which long-term
operating costs and losses exceeded premiums. Although it did not provide a final figure for the long-
term operating costs and losses of the United States' export credit guarantee programs, as the United
States suggests it should have, the Panel found that th e various methods put forward by the parties led
to the same conclusion, namely, that the premiums for the United States' export credit guarantee
programs are inadequate to cover the programs' long-term operating costs and losses. The Panel's
decision not to choose between methods or make a finding on the precise difference between
premiums and long-term costs and losses does not, in our view, invalidate the Panel's ultimate
findings under Articles 3.1(a) and 3.2 of the SCM Agreement.
673. For these reasons, we reject the United States' claim that the Panel failed to make the
"necessary" findings of fact.
674. Consequently, we uphold the Panel's finding in paragraph 7.869 of the Panel Report that "the
United States export credit guarantee programmes at issue – GSM 102, GSM 103 and SCGP –
constitute a per se export subsidy within the meaning of item (j) of the Illustrative List of Export
Subsidies in Annex I of the SCM Agreement ". In addition, we uphold the Panel's findings, in
paragraphs 7.947 and 7.948 of the Panel Report, that these export credit guarantee programs are
export subsidies for purposes of Article 3.1(a) of the SCM Agreement and are inconsistent with
Articles 3.1(a) and 3.2 of that Agreement.
F. Export Credit Guarantees – Circumvention
1. Introduction

675. We turn to the issues raised by Brazil in rela tion to the Panel's findings under Article 10.1 of
the Agreement on Agriculture.
676. The Panel divided its analysis of Brazil's clai ms under Article 10.1 into different categories,
distinguishing between scheduled and unscheduled products, and supported and unsupported products
(and rice as a result of its finding in respect of this product). "Scheduled products" are those for
which a WTO Member has assumed a commitment to lim it the amount of export subsidies in terms of
budgetary outlays and quantities exported pursu ant to Articles 3, 8, and 9 of the Agreement on

Agriculture.1024 The Panel used the term "supported products " to refer to products for which there
was evidence in the record showi ng that they were not only eligible under the programs, but that
export credit guarantees were in fact received in connection with exports of those products.1025
677. The Panel first examined whether the United States' export credit guarantees to exports of
upland cotton and other unscheduled agricultural products supported under the export credit guarantee
programs are applied in a manner that "results in" circumvention for purposes of Article 10.1 of the
Agreement on Agriculture. In other words, the Panel examined whether there is actual circumvention
with respect to exports of these products. The Pane l found that, "in respect of upland cotton and other
such unscheduled agricultural products on record, the United States applies export credit guarantees
constituting export subsidies in a manner which resu lts in circumvention of its export subsidy
commitments inconsistently with Article 10.1 of the Agreement on Agriculture".1026 This finding has
not been appealed.
678. The Panel next examined whether the Unite d States' export credit guarantees to scheduled
products supported under the export credit guarantee programs are applied in a manner that "results
in" circumvention for purposes of Article 10.1 of the Agreement on Agriculture . The Panel found
that "the United States has applied export credit guarantees constituting export subsidies within the
meaning of Article 10.1 – and therefore, necessaril y, not listed in Article 9.1 – in a manner which
results in circumvention of export s ubsidy commitments in respect of" rice. 1027 In addition, the Panel
found, that "[i]t has not been established, however, that such actual circumvention has resulted in
respect of the twelve other United States scheduled commodities".1028 Brazil appeals the latter finding
by the Panel. According to Brazil, the Panel e rred in finding that the United States' export credit
guarantee programs are not applied in a manner that "results in" circumvention of the United States'

1024The Panel noted that "[t]he United States has scheduled export subsidy reduction commitments in
respect of the following thirteen commodities: wheat, coarse grains, rice, vegetable oils, butter and butter oil,
skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, eggs".
(Panel Report, footnote 1057 to para. 7.876 (referring to Schedule XX of the United States of America, Part IV,
Section II, entitled "Export Subsidies: Budgetar y Outlays and Quantitative Reduction Commitments",
reproduced in Exhibit BRA-83 and Exhibit US-13))
1025Panel Report, para. 6.32; see also footnote 1056 to para. 7.875. At the oral hearing, the participants
confirmed that this is also their understanding of what the Panel meant by the distinction that it drew between
"supported" and "unsupported" products. In respect of "supported" products, the Panel stated that "[t]o the
extent that it identifies products within the product coverage of the Agreement on Agriculture that are within
our terms of reference, we consider Exhibit BRA-73 to be the relevant record evidence of such products for the
purposes of this dispute". (Panel Report, footnote 1056 to para. 7.875; see also ibid., footnote 1575 to
para. 8.1(d)(i))
1026Ibid., para. 7.875.
1027Ibid., para. 7.881.
1028Ibid.

export subsidy commitments with respect to pig meat and poultry meat in 2001. 1029 Brazil further
submits that "[i]n making this finding, the Panel erred in the interpretation and application of
Article 10.1 of the Agreement on Agriculture, and also of Article 11 of the DSU".1030
679. The Panel also examined whether the United States' export credit guarantees to scheduled
products other than rice and unscheduled products not supported under the United States' export credit
guarantee programs are applied in a manner that "t hreatens to lead to" circ umvention of the United
States' export subsidy commitments for purposes of Article 10.1 of the Agreement on Agriculture .
The Panel "decline[d] to find that the export credit guarantee programmes at issue are generally
applied to scheduled agricultural products other than rice and other unscheduled agricultural products
(not supported under the programmes) in a manner which threatens to lead to circumvention of United
States' export subsidy commitments within the meaning of Article 10.1 of the Agreement on
Agriculture."
1031
680. Brazil makes two claims on appeal in relation to the Panel's examination of threat of
circumvention. First, Brazil submits that the Pa nel erred in the interpre tation and application of
Article 10.1 in examining Brazil's claims that the United States' export credit guarantee programs
"threaten[] to lead to" circumvention of the United States' export subsidy commitments. 1032 I f t h e
Appellate Body were to agree with Brazil and modi fy the Panel's interpretation, Brazil requests that
the Appellate Body complete the analysis and de termine that, contrary to Article 10.1 of the
Agreement on Agriculture , export credit guarantees have been applied in a manner that threatens to
lead to circumvention of the United States' expor t subsidy commitments for all agricultural products
eligible to receive these subsidies. 1033 Secondly, Brazil argues that the Panel erred "by confining its
examination of threatened circumvention to scheduled products other than rice and unsupported
unscheduled products", despite the fact that Brazil's claim "extended to all scheduled and unscheduled
agricultural products eligible to receive [export credit guarantees] export subsidies". 1034 We examine
Brazil's allegations, in turn, below.

1029Brazil's other appellant's submission, para. 65. Brazil initially included vegetable oil in this claim.
At the oral hearing, however, Brazil indicated that it was no longer pursuing this claim in respect of vegetable
oil. See infra, para. 683.
1030Ibid., para. 76.
1031Panel Report, para. 7.896.
1032Brazil's other appellant's submission, para. 63.
1033Ibid., para. 64.
1034Ibid., para. 75.

2. Actual Circumvention
681. We begin with Brazil's claim that the Panel erred by failing to find that the United States'
export credit guarantees are applied in a manner that led to actual circumvention of the United
States' export subsidy commitments with respect to pig meat and poultry meat in 2001.1035
682. The Panel found:
We note that the United States has not specifically discharged its
burden of establishing that it did not grant WTO-inconsistent export
subsidies, for the excess quantities of rice exported. Therefore, we
find that the United States has applied export credit guarantees
constituting export subsidies within the meaning of Article 10.1 –
and therefore, necessarily, not listed in Article 9.1 – in a manner
which results in circumvention of export subsidy commitments in
respect of this particular scheduled commodity. It has not been
established, however, that such actual circumvention has resulted in
respect of the twelve other United States scheduled commodities.
1036
683. In its appellant's submission, Brazil states that "according to uncontested evidence of record,
supplied by the United States, actual circumvention also occurred for pig meat and poultry meat in
2001, and for vegetable oils in 2002". 1037 Brazil adds that the Panel "f ailed to properly apply a proper
interpretation of Article 10.1 to the admitted facts". 1038 "By failing to do so", Brazil submits that the
Panel "erred in the application of Article 10.1 to uncontested facts", and also "failed to make an
objective assessment of the matter, including of admitted and uncontested facts supplied by the United
States, as required by Article 11 of the DSU". 1039 In its statement at the oral hearing, Brazil
acknowledged that data submitted by the United Stat es indicated that the United States did not exceed
its reduction commitment levels for vegetable o il in 2001-2002. We understand from Brazil's
statement that it no longer wished to pursue this claim in respect of vegetable oil.
684. The United States responds that Brazil has not made a proper claim under Article 11 of the
DSU. According to the United States, Brazil "is contesting findings of the Panel on matters of

1035The United States has scheduled export subsidy reduction commitments for pig meat and poultry
meat. Consequently, the special rule on the burden of proof established in Article 10.3 applies to any quantities
exported that exceed the United States ' reduction commitment levels. In re spect of these quantities, the United
States would be "treated as if it has granted WTO- inconsistent export subsidies ... unless the [United States]
presents adequate evidence to 'establish' the contrary". (Appellate Body Report, Canada – Dairy (Article 21.5 –
New Zealand and US II), para. 74. (original emphasis))
1036Panel Report, para. 7.881.
1037Brazil's other appellant's submission, para. 204. (footnote omitted)
1038Ibid., para. 210.
1039Ibid., para. 211. (footnote omitted)

disputed fact".1040 Because "Brazil does not appeal the Panel's factual findings that the facts did not
demonstrate that subsidized exports exceeded U.S. quantitative reduction commitments for poultry,
pig meat, and vegetable oils", the United States subm its that Brazil's appeal is improper as it does not
"stand by itself" and is not "substantiated with respect to the challenged findings".1041
685. In addition, the United States points out that Brazil's allegation of actual circumvention
related to the period July 2001 through June 2002. 1042 In contrast, quantitative data on exports under
the United States' export credit guarantee program ar e maintained on a fiscal year basis, which
extends from 1 October to 30 September of the following year. 1043 In any event, even if this
difference between periods can be overcome, the United States argues that "the actual data also
support[
 ] the Panel's finding that Brazil had not de monstrated actual circumvention for these
products".1044
686. We understand Brazil to argue that the Panel erre d both in the application of Article 10.1 of
the Agreement on Agriculture and in its assessment of the matter pursuant to Article 11 of the
DSU.1045 As we explained earlier, the application of a legal rule to the specific facts of a case is an
issue of legal characterization. 1046 In this case, we understand that Brazil's claim under Article 11 of
the DSU is additional to its claim of legal error in respect of Article 10.1. We thus turn first to
Brazil's claim that the Panel erred in it application of Article 10.1 of the Agreement on Agriculture to
the facts before it.
687. It will be recalled that Article 10.1 provides:
Export subsidies not listed in paragr aph 1 of Article 9 shall not be
applied in a manner which results in , or which threatens to lead to,
circumvention of export subsid y commitments; nor shall non-
commercial transactions be used to circumvent such commitments.

1040United States' appellee's submission, para. 50 (footnote omitted)
1041Ibid., para. 50 (referring to Appellate Body Report, US – Steel Safeguards , para. 498). (original
emphasis; footnote omitted)
1042Ibid., para. 56 (referring to Panel Report, para. 7.878 and Brazil's first written submission to the
Panel, para. 265 and Figure 18). We note that the period from July of one year to June of the next year is the
period used in the United States' schedule of concessi ons for its quantitative export subsidy commitments. See
Schedule XX of the United States submitted by Brazil to the Panel as Exhibit BRA-83.
1043The fiscal year of the United States federal government is designated according to the calendar year
in which it ends. Therefore, fiscal year 2001 ran from 1 October 2000 to 30 September 2001.
1045Brazil's response to questioning at the oral hearing; Brazil's other appellant's submission, para. 211.

688. Brazil asserts that "the Panel’s legal analysis of the circumstances in which actual
circumvention occurs for scheduled products was correct" and draws our attention to the Panel's
statement that "where the United States exports an agricultural product in quantities that exceed its
quantity commitment level, it will be treated for the purposes of Article 10.1 as if it has granted
WTO-inconsistent export subsidies, for the excess quantities, unless it presents adequate evidence to
'establish' the contrary".1047 Brazil adds that although the Panel co rrectly applied this interpretation to
rice, it failed to do so in respect of pig meat and poultry meat.1048
689. We observe that after finding that the United States had circumvented its commitments for
rice, the Panel went on to reject Brazil's claim in respect of the other scheduled products supported
under the programs without providing an explanation of the basis for its conclusion. Looking at the
Panel's analysis, we note that, in paragraph 7.878, the Panel recognized that Brazil's claim of actual
circumvention extended to thirteen agricultural prod ucts, including pig meat and poultry meat. In the
next paragraph, the Panel refers to the United St ates' submission that it was in compliance with
respect to nine of the products mentioned by Brazil", and that, in fiscal year 2002 it would also be true
for poultry meat".
1049 Pig meat is not mentioned at all. As for poultry meat, the use of the conditional
"would also be true" suggests some question about co mpliance with respect to that product as well, as
the condition is not identified. Oddly, however, these issues are not taken up by the Panel, which
does not examine any further whether there was actual circumvention for these products.
690. Instead, from that point on, the Panel focused exclusively on rice, in respect of which the
Panel found that the United States failed to establis h "that it did not grant WTO-inconsistent export
subsidies, for the excess quantities of rice exported." 1050 It would appear that the Panel satisfied itself
with what it considered to be an admission by the United States in respect of rice, and declined to
examine further Brazil's claim in respect of the othe r products. In concluding, the Panel merely stated
that "[i]t has not been established, however, that su ch actual circumvention has resulted in respect of
the twelve other United States scheduled commodities". 1051 There is no further explanation of the
reasons leading to this conclusion.
691. The Panel may have decided to satisfy itself w ith the United States' admission regarding rice
because it allowed it to avoid having to resolve the problem posed by the different time periods used,

1048Ibid., paras. 206-207.
1049Panel Report, para. 7.879.
1050Ibid., para. 7.881.
1051Ibid.

on the one hand, to track exports under the Unite d States' export credit guarantee programs and, on
the other, to determine the expor t subsidy reduction commitments under the United States' schedule.
Exports under the United States' export credit guarantee programs are tracked on a fiscal year basis,
extending from 1 October to 30 September of the following year. Meanwhile, the United States'
export reduction commitments are based on a year th at extends from 1 July to 30 June of the
following year. These periods overlap, albeit only in part.
692. We find nothing wrong in the Panel having relied on an admission by the United States
relating to rice to conclude that the United States had failed to rebut Brazil's initial allegation of
circumvention.
1052 This did not excuse the Panel, however , from specifically analyzing Brazil's claim
in respect of the other products. Consequently, we find no basis to support the Panel's finding that
"[i]t has not been established, however, that such ac tual circumvention has resulted in respect of the
twelve other United States scheduled commodities".1053
693. We must determine next whether there are suffici ent uncontested facts in the record to permit
us to complete the analysis with respect to the other commodities. 1054 In our view, there are not.
First, the parties disagree about the time period covered by Brazil's claim. The United States asserts
that Brazil's claim was limited to the period July 2001 to June 2002 , while Brazil contends that its
claim was not limited to that period.1055 Second, as we noted previously1056, different time periods are
used for the sets of data that have to be compared. The data regarding United States exports under the
export credit guarantee programs are maintained on a fiscal year basis, which extends from 1 October
to 30 September of the following year. 1057 The United States' expor t subsidy commitments are
registered based on a year that extends from 1 July to 30 June of the following year. Both Brazil and
the United States have sought to reconcile the data. 1058 In each case, Brazil and the United States
assert that the data support their position. Given the di fferences between the participants in respect of
the data that we would have to examine to dete rmine whether the United States applied export credit
guarantees in a manner that results in circumvention of its export subsidy commitments for pig meat

1052Panel Report, footnote 1060 to para. 7.880.
1053Ibid., para. 7.881.
1054Appellate Body Report, US – Section 211 Appropriations Act, para. 343.
1055Brazil's and the United States' responses to questioning at the oral hearing.
1056Supra, para. 691.
1057The fiscal year of the United States federal government is designated according to the calendar year
in which it ends. Therefore, fiscal year 2001 ran from 1 October 2000 to 30 September 2001.
1058United States' appellee's submission, paras. 58-60; Brazil's statement at the oral hearing.

and poultry meat, we do not believe there are sufficient undisputed facts in the record to enable us to
complete the analysis.
694. We recall that Brazil's claim on appeal is limite d to the Panel's findings relating to pig meat
and poultry meat. For the reasons mentioned above, we reverse the Panel's finding, in
paragraph 7.881 of the Panel Report, that Brazil di d not establish actual circumvention in respect of
poultry meat and pig meat. Nevertheless, because there are insufficient uncontested facts in the
record to enable us to do so, we do not complete the legal analysis to determine whether the United
States' export credit guarantees to poultry meat and pi g meat have been applied in a manner that
"results in" circumvention of the United States' export subsidy commitments.
695. Brazil has made an additional claim that the Panel failed to make an objective assessment of
the matter, as required by Article 11 of the DSU. Having reversed the Panel's ultimate finding, we
find that it is not necessary for us to rule on Brazil's additional claim under Article 11 of the DSU.
This is because, even if we were to agree with Br azil, it would lead to the same result that we have
reached after examining the Panel's ap plication of Article 10.1 of the Agreement on Agriculture to
the facts before it.
3. Threat of Circumvention
(a) Scheduled Products Other than Rice and Unscheduled Products not
Supported under the Export Credit Guarantee Programs
696. We move next to Brazil's two claims on app eal relating to the Panel's examination of threat
of circumvention. We recall that the Panel examined whether the United States' export credit
guarantees are applied in a manner that "threatens to lead to" circumvention of the United States'
export subsidy commitments in respect of scheduled products other than rice and unscheduled
products not supported under the export credit programs.
697. For ease of reference, we note again the text of Article 10.1, which reads:
Export subsidies not listed in paragr aph 1 of Article 9 shall not be
applied in a manner which results in , or which threatens to lead to,
circumvention of export subsid y commitments; nor shall non-
commercial transactions be used to circumvent such commitments.

698. The Panel explained that its conclusion on whet her the United States' export credit guarantees
are applied in a manner that threatens to lead to circumvention would depend on whether the Panel
considered that:
... the United States export credit guarantee programmes require the
provision of an 'unlimited amount' of subsidies, so that scheduled
commodities other than rice and unscheduled agricultural products
not supported under the programmes, therefore, benefit from those
subsidies when the reduction comm itment levels specified in the
United States' Schedule for those agricultural products have been
reached.
1059
The Panel cautioned, however, that even if it made an affirmative finding, "if these programmes are
not such as to necessarily create an unconditional legal entitlement to receive them, then there would
not necessarily be such a threat". 1060 The Panel therefore proceeded to "examine whether an
unconditional statutory legal entitlement to an export credit guarantee exists in respect of such
products".1061
699. In its examination, the Panel noted that "United States export credit guarantee programmes
are classified as 'mandatory' under the United States Budget Enforcement Act of 1990."1062 It went on
to explain, however, that it did "not believe that the 'mandatory/discretionary' distinction is the sole
legally determinative one for [its] examination of whether or not 'threat' of circumvention of export
subsidy commitments within the meaning of Article 10.1 of the Agreement on Agriculture has been
proven to the required standard". 1063 The Panel, moreover, stated that, "[i]n order to pose a 'threat'
within the meaning of Article 10.1 of the Agreement on Agriculture , [it did] not believe that it is
sufficient that an export credit guarantee programme might possibly, or theoretically, be used in a
manner which threatens to lead to circumvention of export subsidy commitments".1064
700. After examining the statutory and regulatory framework of the United States' programs under
which the export credit guarantees are issued, the Pa nel concluded that this statutory and regulatory
framework "is such that the CCC would not necessarily be required to issue guarantees in respect of
any other unscheduled agricultural product (not s upported under the programmes), or in respect of

1059Panel Report, para. 7.882. (footnote omitted)
1060Ibid., para. 7.883. (emphasis added)
1061Ibid., para. 7.883.
1062Ibid., para. 7.884. (footnote omitted)
1063Ibid., para. 7.886.
1064Ibid., para. 7.893.

scheduled agricultural products other than rice, in a manner which 'threatens to lead to' circumvention
of export subsidy commitments".1065 The Panel, therefore, found:
Keeping the applicable burden of proof in mind, we therefore decline
to find that the export credit guarantee programmes at issue are
generally applied to scheduled agricultural products other than rice
and other unscheduled agricultural products (not supported under the
programmes) in a manner which threatens to lead to circumvention of
United States export subsidy commitments within the meaning of
Article 10.1 of the Agreement on Agriculture.
1066
701. Brazil asserts that the Panel erred in inte rpreting and applying Article 10.1 of the Agreement
on Agriculture . According to Brazil, "[by] declaring that a 'possibility' of circumvention was not
sufficient for a 'threat' finding under Article 10.1, the Panel mischaracterized the threat obligation,
reducing it to situations of near certainty". 1067 Brazil explains that the ordinary meaning of the term
"threat" can "encompass events that are a possibility or that appear likely; the word can also include
events whose occurrence is indicated or portended by circumstances". 1068 Furthermore, Brazil asserts,
that the meaning of the term "threatens" is clarifie d by its immediate context, particularly by the use
of the word "prevent" in the title of Article 10. 1069 Brazil explains that "[t]o give proper meaning to
the aim of 'prevention,' the threat obligation should, therefore, be read in a way that it thwarts,
forestalls, or stops circumvention from occurring by requiring a Member to take appropriate
precautionary action".1070 If, on the contrary, "the degree of likelihood necessary to trigger the threat
obligation were set too high, the threat obligation w ould fail to 'prevent' circumvention, contrary to
the express aim of the provision".1071

1065Panel Report, para. 7.895.
1066Ibid., para. 7.896.
1067Brazil's other appellant's submission, para. 95. Braz il is referring to the Panel's statement that "[i]n
order to pose a 'threat' within the meaning of Article 10.1 of the Agreement on Agriculture , we do not believe
that it is sufficient that an export credit guarantee prog ramme might possibly, or theoretically, be used in a
manner which threatens to lead to circumvention of export subsidy commitments". (Panel Report, para. 7.893)
1068Brazil's other appellant's submission, para. 97.
1069Ibid., paras. 98-99. The title of Article 10 is "Prevention of Circumvention of Export Subsidy
Commitments".
1070Ibid., para. 100. According to Brazil, "[ t]his reading of Article 10.1 of the Agreement on
Agriculture is consistent with the Appellate Body's observation, in US – FSC , that the FSC measure did not
provide a mechanism for "stemming or otherwise controlling" the "flow" of export subsidies. (Appellate Body
Report, US – FSC, para. 149)
1071Brazil's other appellant's submission, para. 101.

702. Having set out its views on the meaning of the term "threatens" as used in Article 10.1 of the
Agreement on Agriculture , Brazil then distinguishes it from the connotation that the same term is
given in other covered agreemen ts. Brazil submits that the Agreement on Safeguards and the Anti-
Dumping Agreement require a higher degree of likelihood because, under both Agreements, the
demonstration of "threat" triggers the right of a WTO Member to apply trade remedy measures
involving suspension or modification of WTO commitments. 1072 In contrast, "Article 10.1 of the
Agreement on Agriculture aims at the effective enforcement of a Member's export subsidy
obligations".1073 Finally, Brazil submits that the assess ment of whether a threat exists under
Article 10.1 must be done on a case-by-case basis and suggests a list of factors that could be
considered as part of the assessment.
1074
703. The United States responds by asserting that Brazil mischaracterizes the Panel's findings.
Contrary to Brazil's argument, the Panel's findi ng that the export credit guarantee programs do not
threaten circumvention of export subsidy commitments is not an articulation of a broad standard that
circumvention of export subsidy commitments woul d only be "threatened" if beneficiaries had an
"absolute" or "unconditional statut ory legal entitlement" to receive th e subsidies such that the United
States would "necessarily" be required to grant s ubsidies after the commitment level had been
reached.1075 Rather, in concluding that the programs di d not pose a threat of circumvention, the
United States argues, the Panel simply was respond ing to and declining to adopt Brazil's erroneous
factual and legal characterizations of the program. 1076 The United States submits, furthermore, that
the Panel rightly distinguished these programs from the mandatory subsidies at issue in US – FSC ,
and the Panel's decision presents no conf lict with that Appellate Body Report. 1077 According to the
United States, Brazil effectively argued that a mere possibility of issuance of export credit guarantees
presented a threat of circumvention, and the Panel si mply did not adopt this theory in the context of
the export credit guarantee programs.1078

1072Brazil's other appellant's submission, para. 103.
1073Ibid., para. 104. (original emphasis)
1074Ibid., para. 105.
1075United States' appellee's submission, paras. 6 and 27 (referring to Brazil's other appellant's
submission, para. 89).
1076Ibid., paras. 6 and 30.
1077Ibid., para. 32.
1078Ibid., paras. 6 and 35.

704. The Appellate Body has explained that "under Ar ticle 10.1, it is not necessary to demonstrate
actual 'circumvention' of 'export subsidy commitments'". 1079 It suffices that "export subsidies" are
"applied in a manner which … threatens to lead to circumvention of export subsidy commitments".1080
We note that the ordinary meaning of the term "thr eaten" includes "[c]onstitute a threat to", "be likely
to injure" or "be a source of harm or danger". 1081 Article 10.1 is concerned not with injury, but rather
with "circumvention". Accordingly, based on its ordinary meaning, the phrase "threaten[] to lead to ...
circumvention" would imply that the export subsidies are applied in a manner that is "likely to" lead
to circumvention of a WTO Member's export subsid y commitments. Furtherm ore, we observe that
the ordinary meaning of the term "threaten" refers to a likelihood of something happening; the
ordinary meaning of "threaten" does not connote a sense of certainty.1082
705. The concept of "threat" has been discussed by th e Appellate Body within the context of the
Agreement on Safeguards and the Anti-Dumping Agreement. It has explained that "threat" refers to
something that "has not yet occurred, but remains a future event whose actual materialization cannot,
in fact, be assured with certainty". 1083 In US – Line Pipe , the Appellate Body stated that there is a
continuum that ascends from a "threat of seri ous injury" up to the "serious injury" itself. 1084 W e
emphasize that the Appellate Body's discussion of th e concept of "threat" in previous appeals related
to the interpretation of other covered agreements that contain obligations relating to injury that differ
from those relating to circumvention of export subsidy reduction comm itments contained in
Article 10.1 of the Agreement on Agriculture . Our interpretation of "thr eat" in Article 10.1 of the
Agreement on Agriculture is consistent with the Appellate B ody's interpretation of the term "threat"
in these other contexts.

1079Appellate Body Report, US – FSC, para. 148. (original emphasis)
1080Ibid., para. 148.
1081Shorter Oxford English Dictionary, 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 3251.
1082Both participants agree that the determination of threat of circumvention has to be done on a case-
by-case basis. (Brazil's and the United States' responses to questioning at the oral hearing.)
1083Appellate Body Report, US – Lamb , para. 125. (original emphasis) The Appellate Body was
interpreting the phrase "threat of serious injury " within the context of Article 4.1(b) of the Agreement on
Safeguards. Article 4.1(b) defines "threat of serious injury" as "serious injury that is clearly imminent, in
accordance with the provisions of paragrap h 2. A determination of the existence of a thr eat of serious injury
shall be based on facts and not merely on allegation, conjecture or remote possibility".
1084The Appellate Body explained that "[i]n terms of the rising continuum of an injurious condition of a
domestic industry that ascends from a 'threat of serious injury' up to 'serious injury', we see 'serious injury'—
because it is something beyond a 'threat'—as necessarily including the concept of a 'threat' and exceeding the
presence of a 'threat'". (Appellate Body Report, US – Line Pipe, para. 170) (original emphasis)

706. The Panel explained that, in its view, "threat " of circumvention under Article 10.1 requires
that there be a "an unconditional legal entitlement". 1085 We see no basis for this requirement in
Article 10.1. The Panel also stated that "[i]n order to pose a 'threat' within the meaning of Article 10.1
of the Agreement on Agriculture, [it did] not believe that it is sufficient that an export credit guarantee
programme might possibly, or theoretically, be used in a manner which threatens to lead to
circumvention of export subsidy commitments". 1086 In both of these statements, the Panel seems to
conflate the phrase "threaten to lead to .... circumve ntion" with certainty that the circumvention will
happen. We find it difficult, moreover, to reconc ile the Panel's interpretation with the ordinary
meaning of the term "threaten", which, as we indica ted earlier, connotes that something is "likely" to
happen.1087 We also find it difficult to reconcile these statements of the Panel with its own view that it
did "not believe that the 'mandatory/discretionary' di stinction is the sole legally determinative one for
our examination of whether or not 'threat' of circ umvention of export subsidy commitments within the
meaning of Article 10.1 of the Agreement on Agriculture has been proven to the required
standard".1088
707. Nor are we prepared to accept Brazil's suggesti on that the concept of "threat" in Article 10.1
should be read in a manner that requires WTO Me mbers to take "anticipatory or precautionary
action".1089 The obligation not to apply export subsidies in a manner that "threatens to lead to"
circumvention of their export subsidy commitments does not extend that far. There is no basis in
Article 10.1 for requiring WTO Members to take a ffirmative, precautionary steps to ensure that
circumvention of their export subsidy reduction commitments does not occur.1090
708. In concluding as it did, the Panel appears to have relied on the Appellate Body Report in
US – FSC for guidance.1091 In our view, however, the Panel misa pplies that analysis. We recall that,
in US – FSC, the Appellate Body underscored the importan ce of considering "the structure and other
characteristics of [the] measure" when examining whet her the specific measure at issue is "applied in

1085Panel Report, para. 7.883.
1086Ibid., para. 7.893.
1087Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 85.
1088Panel Report, para. 7.886.
1089Brazil's other appellant's submission, para. 100.
1090We note in this respect that Article 10 is title d "Prevention of Circumvention of Export Subsidy
Commitments". Brazil's assertion that Article 10.1 requ ires WTO Members to take precautionary action would
imply that the aim of the provision would also include the prevention of threat of circumvention.
1091In a footnote, the Panel states that the United States' export credit guarantee programs that it was
"examining are of a fundamentally different nature than the mandatory and essentially unlimited subsidy (in the
form of revenue forgone that is otherwise due) examined in US – FSC ". (Panel Report, footnote 1082 to
para. 7.894)

a manner which ... threatens to lead to circ umvention of export subsidy commitments". 1092 T h e
Appellate Body then went on to note that the speci fic measure at issue in that dispute created "a legal
entitlement for recipients to receive export subsidies, not listed in Article 9.1, with respect to
agricultural products, both scheduled and unscheduled". 1093 This meant that there was "no
discretionary element in the provision by th e government of the FSC export subsidies". 1094
Furthermore, the Appellate Body noted that the "l egal entitlement that the FSC measure establishes is
unqualified as to the amount of export subsidies that may be claimed". 1095 This meant that the
measure was "unlimited" because there was "no mechanism in the measure for stemming, or
otherwise controlling the flow of ... subsidies that may be claimed with respect to any agricultural
products".1096
709. A proper reading of the Appellate Body's statement in US – FSC, however, reveals that it did
not intend to provide an exhaustive interpretation of threat of circumvention under Article 10.1 of the
Agreement on Agriculture . In noting that the measure at issu e in that dispute created a "legal
entitlement" and had no "discretionary element" , the Appellate Body was merely describing
characteristics of the measure at issu e in that case that it found relevant for its analysis of "threat". In
other words, the Appellate Body did not foreclose, in US – FSC , the possibility that a measure that
does not create a "legal entitlement" or that has a "discretionary element" could be found to
"threaten[] to lead to circumvention" under Article 10.1 of the Agreement on Agriculture.
710. We therefore modify the Panel's interpretati on, in paragraphs 7.882-7.883 and 7.896 of the
Panel Report, of the phrase "threatens to lead to .... circumvention" in Article 10.1 of the Agreement
on Agriculture to the extent that the Panel's inte rpretation requires "an unconditional legal
entitlement" to receive the relevant export subsid ies as a condition for a finding of threat of
circumvention.
711. Having interpreted the phrase "threatens to lead to ... circumvention", we turn to Brazil's
request that we complete the legal analysis and find that, contrary to Article 10.1 of the Agreement on
Agriculture, the United States' export credit guarantee pr ograms have been applied in a manner that
threatens to lead to circumvention of the United States' export subsidy reduction commitments for all

1093Ibid. (original emphasis)
1094Ibid., para. 149.
1095Ibid. (original emphasis)
1096Ibid., para. 149.

agricultural products eligible to receive these subsidies.1097 According to Brazil, the alleged discretion
retained by the CCC, as found by the Panel, does not operate in a manner that "mitigates the threat of
circumvention".1098 Brazil submits that the initial allocations by country of funds available for export
credit guarantees "are repeatedly increased during the year". 1099 "The same is also true", Brazil
asserts, "of product allocations, although the CCC makes relatively limited use of these". 1100 I n
addition, Brazil points out that "the record does not contain one single example of a situation where
the CCC was unable to provide [export credit guarant ees] because a country or product allocation had
been exhausted ... [i]nstead, the record discloses th at country and product allocations are repeatedly
increased, by significant amounts, during the fiscal year as demand for [export credit guarantees]
exhausts existing allocations".
1101
712. Brazil also questions the significance attributed by the Panel to the fact that, under United
States law, export credit guarantees may not be provid ed in relation to exports to a country that the
Secretary of Agriculture determines "cannot adequately service the debt associated with such sale".1102
According to Brazil, this statutory provision does not constrain the overall amount of export credit
guarantees because "the possible exclusion of a coun try does not prevent the CCC from using all the
[export credit guarantees] that would have gone to that country to support exports to other, eligible
countries".1103 Moreover, Brazil submits that the record shows that the Secretary of Agriculture has
used this authority "other than sparingly" and that the current list of countries that are eligible under
the United States' export credit guarantee programs incl ude "the very large majority of the world's
highly indebted poor countries".1104
713. We are not persuaded that the arguments put forward by Brazil establish that the United
States' export credit guarantee programs are applie d in a manner that threatens to lead to
circumvention of the United States' export subsid y commitments in respect of scheduled products
other than rice and unscheduled products not supported under the programs. In our view, the fact
alone that exports of certain products are eligible for export credit guarantees is not sufficient to

1097Brazil's other appellant's submission, paras. 63-64 and 140.
1098Ibid., para. 187.
1099Ibid., para. 188.
1100Ibid., para. 189. According to Brazil, less than eight percent of allocations were product-specific
in 2003.
1101Brazil's other appellant's submission, para. 191. (footnote omitted)
1102Panel Report, para. 7.888 (quoting 7 USC 5622(f)(1)). The Panel stated that "[w]hile this does not
curtail the amount of guarantees that may ultimately be made available, it does indicate to us that there exists a
discretion (on the part of the Secretar y [of Agriculture]) to determine situations in which guarantees cannot be
made available". (Ibid., para. 7.888)
1103Brazil's other appellant's submission, para. 195.
1104Ibid., para. 196.

establish a threat of circumvention. This is par ticularly the case where there is no evidence in the
record that exports of such products have been "supported" by export credit guarantees in the past. 1105
As we stated earlier, Article 10.1 of the Agreement on Agriculture does not require WTO Members
to take affirmative, precautionary steps to ensure that circumvention of their export subsidy reduction
commitments never happens. Nor is it sufficient for Brazil to have alleged that the United States has
provided export credit guarantees to exports of other unscheduled products or to exports of
scheduled products in excess of its export subsidy re duction commitments. Therefore, we agree with
the Panel that Brazil has not established that th e United States applies its export credit guarantee
programs to scheduled agricultural products othe r than rice and other unscheduled agricultural
products (not "supported" under the programs) "i n a manner ... which threatens to lead to ...
circumvention" of the United States' export subsidy commitments.
714. We thus uphold, albeit for different reasons, the Pane l's finding, in paragraph 7.896, that
Brazil has not established that "the export credit gua rantee programmes at issu e are generally applied
to scheduled agricultural products other than rice and other unscheduled agricultural products (not
supported under the programmes) in a manner which threatens to lead to circumvention of United
States export subsidy commitments within the meaning of Article 10.1 of the Agreement on
Agriculture".
(b) Rice and Unscheduled Products Supported by the Export Credit
Guarantee Programs
715. We turn to Brazil's claim that the Panel imprope rly confined its examination of Brazil's threat
claim to scheduled products other than rice and unscheduled products not supported under the
programs. Put another way, Brazil submits that th e Panel's analysis of "threat" of circumvention
should have also included rice (a scheduled pr oduct) and unscheduled products supported by the
programs (including upland cotton).1106
716. As Brazil acknowledges, the products that th e Panel allegedly excluded from its "threat"
analysis had been the subject of the Pane l's analysis of "actual" circumvention. 1107 In fact, for these
products, the Panel had already found that the United States' export credit guarantees are applied in a
manner that "results in" circumvention. That is, the Panel found actual circumvention.1108 T h e

1105"Supported" products are described, supra, para. 676.
1106Brazil's other appellant's submission, para. 75.
1107Ibid., para. 135 (referring to Panel Report, paras. 7.875 and 7.881).
1108Panel Report, para. 7.875.

Panel, however, explained that it was unnecessary fo r it to examine whether export credit guarantees
for the same products were also applied in a manner that "threatens to lead to" circumvention:
Article 10.1 of the Agreement on Agriculture provides that export
subsidies not listed in Article 9.1 "shall not be applied in a manner
which results in, or which threatens to lead to, circumvention of
export subsidy commitments ..." (em phasis added). With respect to
rice and to unscheduled agricultural products supported under
programmes, we have found, in pa ragraphs 7.875 and 7.881, that the
United States applies export credit guarantee programmes
constituting export subsidies in a manner which results in
circumvention of its export subsidy commitments inconsistently with
Article 10.1. We consider that the "or" in Article 10.1 indicates that
either one (resulting in circumvention) or the other (threatening to
lead to circumvention) or both in combination would be adequate to
trigger the remedies associated with this provision. We also see
"resulting in circumvention" as including and exceeding the concept
of "threatening to lead to circumvention". ... We therefore do not
believe that it is necessary to co nduct any additional examination
here.
1109 (original emphasis)
717. We believe the Panel was within its discreti on in declining to examine whether scheduled
products other than rice and unscheduled products supported by the programs are applied in a manner
that "threatens to lead to" circumvention. The Panel had already found that the United States acted
inconsistently with Article 10.1 of the Agreement on Agriculture because it applied its export credit
guarantee program in a manner that "results in" (actual) circumvention of its export subsidy
commitments for these products. We do not see wh y the Panel had to examine also whether the
United States acted inconsistently with the same provision in respect of the same products, but on
the basis of there being a threat of circumvention, rather than actual circumvention.
718. The Appellate Body has stated that panels may exercise judicial economy and refrain from
addressing claims beyond those necessary to resolve the dispute. 1110 In this case, the Panel did not
expressly state it was exercising judicial economy.1111 We agree with the United States, however, that
the Panel's approach can be properly charact erized as an exercise of judicial economy. 1112 Moreover,
we believe that the Panel was within its discretion in refraining from making additional findings and it

1109Panel Report, footnote 1061 to para. 7.882.
1110Appellate Body Report, Canada – Wheat Exports and Grain Imports, para. 133.
1111The Panel stated that it did not believe it "necessary to conduct any additional examination". (Panel
Report, footnote 1061 to para. 7.882)
1112The United States asserts that "the Panel proper ly exercised judicial economy in not examining
threat of circumvention for agricultural products with respect to which it found actual circumvention". (United

was not improper for the Panel to have exercise d judicial economy given that its finding of actual
circumvention resolved the matter.1113
719. Therefore, we reject Brazil's appeal that th e Panel erred in confining its examination of
Brazil's threat of circumvention claim to scheduled products other than rice and unscheduled products
not supported under the United States' export credit guarantee programs.
G. Export Credit Guarantees – Articles 1.1 and 3.1(a) of the SCM Agreement
720. We turn now to Brazil's allegation that the Panel erred by exercising judicial economy in
respect of Brazil's claim that the United States' export credit guarantees are export subsidies within the
meaning of Articles 1.1 and 3.1(a) of the SCM Agreement.
721. The Panel first examined the United States' export credit guarantees under the Agreement on
Agriculture using the benchmark provided in item (j) of the Illustrative List of Export Subsidies
attached to the SCM Agreement as Annex 1, albeit as context.1114 The Panel found:
On the basis of the totality of the record evidence, including
approaches regularly relied upon by the United States government
itself, we find that Brazil has established that the United States CCC
provides the GSM 102, GSM 103 and SCGP export credit guarantee
programmes "at premium rates whic h are inadequate to cover the
long-term operating costs and losses of the programmes" within the
meaning of item (j) of the Illustrative List of Export Subsidies in
Annex I of the SCM Agreement.

We therefore find that the United States export credit guarantee
programmes at issue – GSM 102, GSM 103 and SCGP – constitute a
per se export subsidy within the meaning of item (j) of the
Illustrative List of Export Subsidies in Annex I of the SCM
Agreement.
1115
722. After completing its examination under the Agreement on Agriculture , the Panel moved to
Brazil's claims under the SCM Agreemen t. The Panel noted that it had "conducted a 'contextual'
analysis under item (j) ... for the purposes of determ ining whether or not an export subsidy exists
within the meaning of Article 10.1 of the Agreement on Agriculture" and, therefore, saw "no reason
... why this analysis may not also be applied directly in an examination of the merits of Brazil's claims

1113Appellate Body Report, Australia – Salmon, para. 223. See also Appellate Body Report, Canada –
Wheat Exports and Grain Imports, para. 133.
1114Panel Report, para. 7.803.
1115Ibid., paras. 7.867 and 7.869.

under item (j)/Article 3.1(a) of the SCM Agreement in respect of the export credit guarantee
programmes in this factual situation".1116 The Panel found:
To the extent that the United States export credit guarantee
programmes at issue – GSM 102, GSM 103 and SCGP – do not
conform fully to these provisions in Part V of the Agreement on
Agriculture and do not benefit from the exemption from actions
provided by Article 13(c)(ii) of the Agreement on Agriculture , they
are also export subsidies prohibited by Article 3.1(a) for the reasons
we have already given.
1125
Article 3.2 of the SCM Agreement provides: "A Member shall neither
grant nor maintain subsidies referred to in paragraph 1" of Article 3.
To the extent that the three Un ited States export credit guarantee
programmes at issue are inconsistent with Article 3.1(a), they are,
consequently, also inconsistent with Article 3.2 of the SCM
Agreement.
1117

 1125 We recall that Artic le 3.1(a) of the SCM Agreement sets out a
prohibition on subsidies contingent upon export performance, "including
those illustrated in Annex I". Annex I - the Illustrative List of Export
Subsidies - contains item (j). We have found that the challenged United
States export credit guarantee programmes meet the definitional elements of
a per se export subsidy in item (j). As they are among those "illustrated in
Annex I" for the purposes of Article 3.1(a), they are included in the
subsidies contingent upon export performance prohibited by Article 3.1(a)
of the SCM Agreement.
723. During the interim review, Brazil requested the Panel "to make certain additional 'factual'
findings regarding the parties' evidence and argumen tation relating to Brazil's allegation that the CCC
export credit guarantee programmes at issue constitute prohibited export subsidies under the elements
of Articles 1 and 3.1(a) of the SCM Agreement ".1118 Brazil asserted that "in the event one of the
parties appeals and the Appellate Body reverses the Panel's conclu sion on item (j), it might not have
the necessary facts at its disposal to 'complete th e analysis' with respect to Brazil's claims under
Articles 1 and 3.1(a) of the SCM Agreement".1119
724. The United States asked the Panel to reject Brazil's request, asserting that "the Panel ha[d]
already made findings on the claims cited by Brazil" and, therefore, Brazil was improperly requesting

1116Panel Report, para. 7.946. (footnote omitted)
1117Ibid., paras. 7.947-7.948. (footnote 1124 omitted)
1118Ibid., para. 6.31.
1119Ibid.

the Panel "to make unnecessary and unsupported additi onal factual findings with respect to its SCM
Agreement claims, and to reverse the applicable burden of proof".1120
725. The Panel declined Brazil's request because, in its view:
Brazil's allegation invoking the elemen ts of Articles 1 and 3.1(a) of
the SCM Agreement is not a separate claim, but merely another
argument, on a different factual basis, as to how the United States
export credit guarantee programmes would meet the definition of an
export subsidy in Article 3.1(a) of the SCM Agreement. Given our
finding in paragraphs 7.946-7.948, we do not believe that it is
necessary to address Brazil's additional arguments about how the
Article 3.1(a) definitional elemen ts would be fulfilled on another
factual basis in order to resolve this dispute. For greater clarity, we
have inserted footnote 1125.
1121
726. On appeal, Brazil asserts that the Panel's re jection of Brazil's request constitutes a false
exercise of judicial economy. According to Braz il, "[i]n concluding that Brazil's allegations under
item (j) and under Articles 1.1 and 3.1(a) of the SCM Agreement constitute alternative 'arguments, on
a different factual basis,' the Panel failed to r ecognize the distinct obligations that flow from
Article 3.1(a), and the potentially distinct c ourse of implementation triggered by a Member's
maintenance of export subsidies within the meaning of Articles 1.1 and 3.1(a)". 1122 Brazil explains
that "because of the different benchmarks that a pply under item (j), on the one hand, and Articles 1.1
and 3.1(a), on the other, a measure that no longer constitutes an export subsidy under item (j) may still
constitute an export subsidy under Articles 1.1 and 3.1(a)".1123
727. Brazil asserts that a "panel is obligated to address all claims on which a finding is necessary
to enable the Dispute Settlement Body to make sufficiently precise recommendations and rulings to
allow for 'prompt settlement' of the dispute, a nd for prompt compliance by a Member with those
recommendations and rulings 'in order to ensure eff ective resolution of disputes to the benefit of all
Members.'"1124 It then adds that "[b]ecause a measur e that no longer constitutes an export subsidy
under item (j) may still constitute an export subsidy u nder Articles 1.1 and 3.1(a), the Panel's exercise
of judicial economy in this case was in error".1125 Brazil further explains that the United States "could
comply with its obligations under item (j) but still fail to comply with its obligations under

1120Panel Report, para. 6.31.
1121Ibid. See supra, para. 722.
1123Ibid., para. 22.
1124Ibid., para. 23 (quoting Articles 3.2 and 21.1 of the DSU). (footnotes omitted)
1125Ibid., para. 23.

Articles 1.1 and 3.1(a)".1126 Therefore, in Brazil's view, the Panel's failure "to examine Brazil's claim
... leaves open a dispute and creates uncertainty concerning the scope of the United States' obligations,
and the consistency of its existing measures with those obligations".1127 If the Appellate Body were to
agree with Brazil's assertion that the Panel's exercise of judicial economy was improper, then Brazil
requests that the Appellate Body complete the analys is, and find that the United States' export credit
guarantee programs constitute export subsidi es under Articles 1.1 and 3.1(a) of the SCM
Agreement.1128
728. The United States requests us to reject Brazil's claim. According to the United States, any
further findings by the Panel would have been redun dant as the Panel had already determined that the
export credit guarantees "constitute per se export subsidies prohibited by Articles 3.1(a) and 3.2 of
the SCM Agreement."1129 The United States explains that "[n]either item (j) nor the Illustrative List
imposes obligations per se ".1130 Rather, the obligations regard ing export subsidies are found in
Articles 3.1(a) and 3.2. 1131 The United States asserts, furthermore, that an additional finding by the
Panel on the issue of whether the export credit gu arantees programs confer a "benefit" would not
change the United States' compliance obligations.1132
729. In addition, the United States submits that Br azil mischaracterizes what the Panel did as a
failure to address a claim by Brazil when, in fact, Brazil's request at the interim review stage was for
the Panel to make additional factual findings. 1133 Even if Brazil had made a separate claim before the
Panel under Articles 1.1 and 3.1 of the SCM Agreement, the United States submits that the Panel
could have properly exercised judicial economy, as the Appellate Body recognized, in US – Wool
Shirts and Blouses, that panels "need only address those claims which must be addressed to resolve
the matter in issue in the dispute". 1134 Finally, the United States rejects the contention that Brazil has
demonstrated that the United States' export credit guarantees confer a "benefit".1135

1126Brazil's other appellant's submission, para. 23.
1127Ibid.
1128Ibid., para. 42.
1129United States' appellee's submission, para. 62 (referring to Panel Report, para. 8.1(d)(i)).
1130Ibid., para. 66
1131Ibid., para. 66. The United States submits that, under Brazil's reading, the Illustrative List would be
1132Ibid., para. 80.
1133Ibid., paras. 81-82 (referring to Panel Report, para. 6.31).
1134Ibid., para. 85 (referring to Appellate Body Report, US – Wool Shirts and Blouses , p. 19,
DSR 1997:1, 323 at 339). (emphasis added)
1135Ibid., paras. 92-99.

730. We observe that Brazil premises its claim on appeal on its submission that item (j) of the
Illustrative List of Export Subsides annexed to the SCM Agreement is a distinct obligation from that
contained in Article 3.1(a), read together with Article 1.1. 1136 In other words, Brazil submits that the
requirement in item (j) for an export credit guarantee program to charge premiums that are adequate
to cover long-term operating costs and losses is di stinct from the requirement, under Articles 1.1
and 3.1(a), not to confer a "benefit". The United States rejects the premise of Brazil's argument,
asserting instead that the Illustrative List of Export Subsidies, and more specifically item (j), do not
establish a separate obligation from that in Article 3.1(a). 1137 Rather, the Illustrative List provides
examples (hence "illustrative") of the types of measu res that constitute "export subsidies" within the
meaning of Article 3.1(a) and "to the extent that it does address a practice this constitutes the standard
to determine whether a particular practice constitutes a prohibited export subsidy".1138
731. We need not decide, in this case, whether an export credit guarantee program that meets the
standard of item (j) of the Illustrative List of Export Subsidies—because the premiums charged are
adequate to cover long-term operating costs and losses—may nevertheless be challenged as a
prohibited export subsidy under Article 3.1(a) on the b asis that it confers a benefit. This is because,
even if we were to assume that such a claim were possible, we would conclude that the Panel was
within its discretion in exercising judicial economy in respect of Brazil's claim.
 1139
732. As we explained earlier, panels may refrain from ruling on every claim as long as it does not
lead to a "partial resolution of the matter". 1140 The Panel found that the United States' export credit
guarantee programs constitute a prohi bited export subsidy under Article 3.1(a) because they do not
meet the criteria in item (j) of the Illustrative List of Export Subsidies. This finding, in our view, is
sufficient to resolve the matter. Th erefore, we are not persuaded that the Panel's exercise of judicial

 1136Brazil's other appellant's submission, para. 22.
1138Ibid., para. 70.
1139The Panel did not expressly state that it was exercising judicial economy. Instead, the Panel stated
that it did not believe that it was "necessary to address Brazil's additional arguments". (Panel Report, para. 6.31)
(emphasis added) Brazil initially describes the Panel's failure as an error by the Panel in the "interpretation and
application of Article 3.1(a) of the SCM Agreement , as well as of Article 3.7 of the DSU". (Brazil's other
appellant's submission, para. 22) Later in its submission, however, Brazil describes the Panel's error as a
"misapplication of the principle of judicial economy". (Ibid., para. 23; see also ibid., paras. 33 and 39-41)

economy was improper, as Brazil has not demonstrated that it has led to "a partial resolution of the
matter".1141
733. For these reasons, we reject Brazil's claim that the Panel erred by exercising judicial economy
in respect of Brazil's allegation that the United States' export credit guarantees are prohibited export
subsidies, under Article 3.1(a) of the SCM Agreement , because they confer a "benefit" within the
meaning of Article 1.1.
H. ETI Act of 2000
734. We turn to Brazil's claim that the Panel erred in the "interpretation and application of the
burden of proof"
1142, in connection with its finding that Brazil did not establish a prima facie case
that the ETI Act of 2000 1143 and the subsidies granted thereunde r are inconsistent with Articles 8
and 10.1 of the Agreement on Agriculture and Articles 3.1 and 3.2 of the SCM Agreement , in
respect of upland cotton.
735. Before the Panel, Brazil argued that the ETI Act of 2000 provides an export subsidy to upland
cotton, within the meaning of Article 10.1 of the Agreement on Agriculture, because it eliminates tax
liabilities for exporters who sell upland cotton in foreign markets. According to Brazil, the ETI Act of
2000 threatens to circumvent the United States' export subsidy commitments by providing an export
subsidy to upland cotton, despite the fact that th e United States has not scheduled any export subsidy
reduction commitments for that commodity, thereby violating Articles 8 and 10.1 of the Agreement
on Agriculture . In addition, Brazil asserted that th e ETI Act of 2000 provides prohibited export

1141Appellate Body Report, Australia – Salmon , para. 223. As the United States argues, the
circumstances of this case are different from those in Australia – Salmon. In that case, the panel limited its
findings for other Canadian salmon to Article 5.1 of the SPS Agreement and "gave no convincing reason why
it examined Article 5.5 and 5.6 for only one category of the products in dispute, i.e., ocean-caught Pacific
salmon, and did not undertake the same analysis for other categories, i.e., other Canadian salmon". (Appellate
Body Report, Australia – Salmon, para. 225) The present case does not involve a panel incorrectly limiting its
findings under other provisions to certain products. Inst ead, Brazil is questioning the Panel's refusal to make an
additional finding of inconsistency with the same provision for the same products.
1142Brazil's other appellant's submission, para. 7.
1143Public Law 106-519. The ETI Act of 2000 is a measure that was taken by the United States to
comply with the recommendations and rulings of the DSB after the original FSC measure was found to be WTO-
inconsistent in US – FSC . (Appellate Body Report, US – FSC , para. 178) It is the same measure that the
European Communities challenged in US – FSC (Article 21.5 – EC), part of which the panel and Appellate Body
found, in that dispute, to be inconsistent with the United States' WTO obligations. (Appellate Body Report,
US – FSC (Article 21.5 – EC) , paras. 1 and 256(d)) Brazil acknowledges that, after the Panel Report was
circulated, the "United States enacted le gislation ... that seems to repeal mo st of the illegal aspects of the ETI
Act of 2000". (Brazil's other appellant's submission, para. 214) Brazil is referring to the American Jobs
Creation Act of 2004, enacted as Public Law 108-357.

subsidies to upland cotton within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement.1144
Brazil pointed out that, in US – FSC (Article 21.5 – EC) , both the panel and Appellate Body found
that the ETI Act of 2000 violates Articles 8 and 10.1 of the Agreement on Agriculture and
Articles 3.1(a) and 3.2 of the SCM Agreement . Brazil requested the Panel to apply the reasoning
developed by that panel, as modified by the Appellate Body, mutatis mutandis, to this dispute.1145
736. The United States responded that the Panel shoul d reject Brazil's claim because Brazil failed
to make a prima facie case. 1146 According to the United States, "[a]s a result of Brazil's ' mutatis
mutandis' approach, the Panel [was] in no position to ex ercise its judgment to follow, or decline to
follow, prior dispute settlement findings concerning the ETI Act of 2000, nor even in a position to
make factual findings concerning the Act".1147
737. The Panel began its analysis by noting that, apart from referring the Panel to the European
Communities' claims and arguments in US – FSC (Article 21.5 – EC), Brazil had submitted no direct
evidence reflecting the nature, function or WTO-inconsistency of the ETI Act of 2000. 1148 I t t h e n
observed that Brazil appeared to:

1144Panel Report, para. 7.950. (footnote omitted) Brazil explained that the subsidies granted to upland
cotton under the ETI Act of 2000 do not fully conform to Part V of the Agreement on Agriculture and,
therefore, are not exempt from action under the SCM Agreement pursuant to Article 13(c) of the Agreement on
Agriculture.
1145Panel Report, para. 7.949. (footnotes omitted) Brazil incorporated by reference into its submissions
(i) the Panel Report in US – FSC (Article 21.5 – EC), (ii) the Appellate Body Report in US – FSC (Article 21.5
– EC), and (iii) all submissions of the European Communitie s in that case. Brazil contends that an approach
whereby the complaining Member incorporates by reference the reasoning of another panel, as modified by the
Appellate Body, is consistent with the Appellate Body's reasoning in Mexico – Corn Syrup (Article 21.5 – US).
(Brazil's other appellant's submission, para. 224 (referring to Appellate Body Report, Mexico – Corn Syrup
(Article 21.5 – US), para. 109))
1146Panel Report, para. 7.951.
1147Ibid.
1148Ibid., para. 7.959.

... seek a Panel process whereby we would simply apply the
reasoning, and findings and conclusions of the panel, as modified by
the Appellate Body, in the US – FSC (Article 21.5 – EC) dispute,
without going through the ordinary procedural steps constituting
panel proceedings set out in the DSU, including the examination of
the legal claims against the measu res constituting the matter before
this Panel on the basis of direct evidence and argumentation
submitted by the complaining and defe nding parties in this dispute.
While Brazil has supplemented the evidence and argumentation in
that dispute, it has not purported directly to establish the elements
comprising the basis of the findings and conclusions in that
dispute.
1149
The Panel saw "no basis in the text of the DSU ... for such incorporation by reference of claims and
arguments made in a previous dispute nor fo r a quasi-automatic application of findings,
recommendations and rulings from a previous dispute" .1150 In addition, the Panel rejected Brazil's
reliance on Article 17.14 of the DSU 1151 to support its claim, reasoning that, because Brazil was not a
party in US – FSC (Article 21.5 – EC) , the panel and Appellate Body reports in that case "cannot be
taken as a providing a final resolution to the part of the matter before [it] concerning the ETI Act
of 2000".1152
738. The Panel then identified other differences between the present dispute and US – FSC
(Article 21.5 – EC) .1153 These differences meant, according to the Panel, that the evidence and
argumentation relating to the present dispute are distinct from those in US – FSC (Article 21.5 –
EC).1154 The differences in the evidence and argumentati on, in turn, led the Panel to decide that "no
direct transposition or incorporation of the panel a nd Appellate Body findings and conclusions would,
in any event, be appropriate on the basis of the evidence and argumentation submitted in this
dispute".1155 Moreover, the Panel observed that, in a written communication to the parties after the

1149Panel Report, para. 7.961. (footnotes omitted)
1150Ibid., para. 7.962.
1151Article 17.14 of the DSU provides:
An Appellate Body report shall be adopted by the DSB and unconditionally
accepted by the parties to the dispute unless the DSB decides by consensus
not to adopt the Appellate Body report within 30 days following its
circulation to the Members. (footnote omitted)
1152Panel Report, para. 7.967. (footnote omitted)
1153The Panel explained that, in US – FSC (Article 21.5 – EC), the claims under the SCM Agreement
were examined before those under the Agreement on Agriculture, an order contrary to that adopted by the Panel
in this case. (Panel Report, para. 7.971) Also, the Panel pointed out that, in US – FSC (Article 21.5 – EC), there
was no discussion relating to issues under Article 13 of the Agreement on Agriculture . (Panel Report,
para. 7.972) Finally, the Panel observed that the findings in US – FSC (Article 21.5 – EC) were not specific to
1154Ibid., para. 7.975.
1155Ibid.

first meeting, it had "put Brazil on notice that th e evidence and arguments submitted up to that point
in the Panel proceedings did not provide sufficient basis for [the Panel] to make a finding".1156
739. For these reasons, the Panel concluded:
[O]n the basis of the evidence and arguments submitted, we are not
in a position to conclude that Brazil has established a prima facie
case that the ETI Act of 2000 and subsidies granted thereunder are
inconsistent with Articles 8 and 10.1 of the Agreement on Agriculture
in respect of upland cotton.1157
740. On appeal, Brazil asserts that the Panel erred in the "interpretation and application of the
burden of proof under Articles 8 and 10.1 of the Agreement on Agriculture , and Articles 3.1(a)
and 3.2 of the SCM Agreement , in light of the goal of the WTO dispute settlement system, under
Article 3.3 of the DSU, to provide for the 'prompt settlement' of disputes". 1158 Brazil submits that it
challenged before the Panel exactly the same measu re that the panel and the Appellate Body in US –
FSC (Article 21.5 – EC) held violated the Agreement on Agriculture and the SCM Agreement. This
measure had not changed since it was enacted in 2000 1159 and thus the legislation that forms the basis
for the United States measure that is subject to Brazil’s claims is identical to the legislation at issue in
US – FSC (Article 21.5 – EC) .1160 According to Brazil, the United States did not dispute the identity
between the measures.1161

1156Panel Report, para. 7.980. The written communication is dated 5 September 2003 and in it the
Panel "indicated to the parties that, 'on the basis of the evidence and arguments presented to date, it is unable to
form any view on whether the ETI Act of 2000 satisfies the relevant provisions of the Agreement on
Agriculture'".
The Panel also referred to "its discretionary author ity to put questions to the parties to clarify the
factual and legal aspects of the matter". (Ibid., para. 7.983) In this respect, the Panel explained that its authority
to ask questions or seek information is not conditional on a party having established a prima facie case.
Nevertheless, the Panel observed that it was "not permitted to make Brazil's case for Brazil". (Ibid., para. 7.985)
1157Ibid., para. 7.986. The Panel also concluded that:
... in accordance with Article 13(c)(ii) of the Agreement on Agriculture , to
the extent that Brazil has not demonstrated that the United States ETI Act of
2000 is not in conformity with the United States export subsidy
commitments under Part V of the Agreement on Agriculture in respect of
upland cotton, the United States is "exempt from actions based on"
Articles 3.1(a) and 3.2 of the SCM Agreement . We therefore decline to
examine Brazil's claims based on those provisions.
(Ibid., para. 7.987) (footnote omitted)
1158Brazil's other appellant's submission, para. 7.
1159Brazil notes that legislation "that seems to repeal most of the illegal aspects of the ETI Act of 2000"
was enacted in 2004. (Brazil's other appellant's submission, para. 214) See supra, footnote 1143.
1160Brazil's other appellant's submission, para. 221.
1161Ibid.

741. In addition, Brazil asserts that the United St ates never rebutted Brazil’s arguments, or the
supporting documents that Brazil referenced, that demonstrate the inconsistency of the ETI Act
of 2000 with Articles 8 and 10.1 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the
SCM Agreement.1162 Brazil refers to Mexico – Corn Syrup (Article 21.5 – US) , where the Appellate
Body held that a panel may incorporate the reasoning of another panel by reference and still meet the
requirement in Article 12.7 of the DSU to set out the "basic rationale" for its findings and
conclusions.1163 Brazil sees no reason why this reasoning should not also apply to submissions by a
complaining Member that incorporate by reference th e reasoning of another panel, as modified by the
Appellate Body, addressing the exact same measure. 1164
742. Brazil acknowledges that the "United States enacte d legislation ... that seems to repeal most
of the illegal aspects of the ETI Act of 2000". 1165 Consequently, Brazil expressly states that, were we
to modify the Panel's "interpretation and application of the burden of proof" 1166, it is not requesting us
to complete the legal analysis and find that the e xport subsidies to upland cotton, provided under the
ETI Act of 2000, are inconsistent with Articles 8 and 10.1 of Agreement on Agriculture and
Articles 3.1(a) and 3.2 of the SCM Agreement.1167
743. The United States responds that we should not decide Brazil’s appeal because Brazil
acknowledges that the appeal is not necessary to r esolve the dispute between the parties. Brazil
explicitly does not ask the Appellate Body to complete the analysis with respect to its claims. The
United States argues that the Appellate Body should abstain from deciding this issue because Brazil is
not asking "the Appellate Body to make findings that would result in DSB rulings and
recommendations with respect to the ETI Act". 1168 For that reason alone, the Appellate Body should
decline to decide Brazil’s appeal.1169
744. In any event, the United States submits that th e Panel correctly concluded that Brazil did not
make a prima facie case with respect to the ETI Act of 2000. Brazil simply did not present any
evidence at all regarding the ETI Act of 2000 itself. According to the United States, the Panel acted

1162Brazil's other appellant's submission, para. 222.
1163Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 109.
1164In addition, Brazil states that it submitted to the Panel arguments and evidence that addressed the
specific nature of its claims, in particular with respect to Article 13(c)(ii) of the Agreement on Agriculture .
(Brazil's other appellant's submission, para. 225)
1165Ibid., para. 214.
1166Ibid., para. 7.
1167Ibid., para. 214.
1168United States' appellee's submission, para. 100. The United States relies for support on the
Appellate Body Reports in US – Steel Safeguards and US – Wool Shirts and Blouses.

properly under the text of the DSU, including Article 11, by declining to find that the "short shrift"
that Brazil gave to the ETI Act of 2000 satisfied Brazil’s burden to make its prima facie case
concerning that Act.1170
745. At the outset, we observe that Article 17.6 of the DSU provides that appeals "shall be limited
to issues of law covered in the panel report and legal interpretations deve loped by the panel".
Furthermore, Article 17.12 of the DSU states that "[t]he Appellate Body shall address each of the
issues raised in accordance with paragraph 6 during the appellate proceeding". The United States
does not argue that Brazil has failed to appeal an issue of law or a legal interpretation. Thus, the
United States is not asserting that Brazil could not have brought this claim on appeal or that we are
legally precluded from addressing it. The Unite d States' assertion is that it is not necessary for us to
resolve Brazil's claim because Brazil is not requestin g us to make findings that would result in DSB
rulings and recommendations.
746. We agree. Article 3.3 of the DSU explains that the aim of the WTO's dispute settlement
system is the "prompt settlement of situations in which a Member considers that any benefits accruing
to it directly or indirectly under the covered agre ements are being impaired by measures taken by
another Member". For its part, Article 3.4 of th e DSU provides that "[r]ecommendations or rulings
made by the DSB shall be aimed at achieving a satisfactory settlement of the matter". Similarly,
Article 3.7 states that "[t]he aim of the dispute settlement mechanism is to secure a positive solution to
a dispute". The Appellate Body, moreover, has cau tioned that "[g]iven the explicit aim of dispute
settlement that permeates the DSU, ... Article 3.2 of the DSU is [not] meant to encourage either panels
or the Appellate Body to 'make law' by clarifying existing provisions of the WTO Agreement outside
the context of resolving a particular dispute".
 1171
747. In this case, Brazil's claim on appeal is limite d to the Panel's appli cation of the burden of
proof. Brazil has expressly stated that it is not requ esting us to complete the analysis. In view of
Brazil's request, our ruling would not result in recommendations or rulings by the DSB in respect of
the ETI Act of 2000. In these circumstances, we fail to see how our examination of Brazil's claim
would contribute to the "prompt" or "satisfactory settlement" of this matter or would contribute to

1171Appellate Body Report, US – Wool Shirts and Blouses, p. 19, DSR 1997:1, 323 at 340.

"secure a positive solution" to this dispute.1172 Even if we were to disag ree with the manner in which
the Panel applied the burden of proof, we would not make any findings in respect of the WTO-
consistency of the ETI Act of 2000. We recognize that there may be cases in which it would be useful
for us to make a finding on an issue, despite the f act that our decision would not result in rulings and
recommendations by the DSB. In this case, howev er, we find no compelling reason for doing so on
this particular issue.
748. For these reasons, we decline Brazil's request th at we reverse the Panel's conclusion that
Brazil did not make a prima facie case that the ETI Act of 2000 is inconsistent with the United
States' WTO obligations. In declining to rule on Brazil's request, we neither endorse nor reject the
manner in which the Panel applied the burden of pr oof in the context of examining Brazil's claim
against the ETI Act of 2000.
I. Interpretation of Article XVI:3 of the GATT 1994
1. Introduction
749. Before the Panel, Brazil claimed that the United States applied its domestic and export
subsidies to upland cotton during the 1999-2002 marketing years in a manner that resulted in the
United States having more than an equitable sh are of world export trade within the meaning of
Article XVI:3 of the GATT 1994, and thereby cau sed serious prejudice within the meaning of
Article XVI:1 of the GATT 1994.1173
750. In addressing this claim, the Panel considered whether paragraphs 1 and 3 of Article XVI
could be considered together, to address both th e domestic support and export subsidy measures at
issue. The Panel said that "we do not believe th at these provisions are susceptible to such joint
application", on the grounds that "each provision – Article XVI:1 and Article XVI:3 – requires

1172Our approach is consistent with the approach of the Appellate Body in US – Steel Safeguards ,
where it did not find it necessary to examine the Panel's findings on th e causation analysis because it had
"already found that the measur es before [it] are inconsistent with Ar ticle XIX:1(a) of the GATT 1994 and with
Articles 2.1, 3.1 and 4.2 of the Agreement on Safeguards ". (Appellate Body Report, US – Steel Safeguards ,
para. 483)
The Appellate Body noted, in that appeal, that "several participants expressed an interest in having [it]
rule on causation as it would provide guidance to Me mber on applying safeguard measures in the future
consistently with their WTO obliga tions". (Appellate Body Report, US – Steel Safeguards, para. 484) Despite
this request for guidance, the Appellate Body declined to make a ruling on this specific aspect of the case.
(Appellate Body Report, US – Steel Safeguards, paras. 485-491)
1173Brazil's further submission to the Panel, para. 277.

application in accordance with its own terms in re spect of measures that fall within its respective
scope of application".1174
751. The Panel dealt with Brazil's allegation that the subsidies at issue resulted in the United States
enjoying "more than an equitable share of world export trade" under Article XVI:3 of the GATT 1994
in the section of the Panel Report dealing with "Export Subsidies". 1175 The Panel examined whether
Article XVI:3 applies only to export subsidies, or whether it also applied to all of the types of
subsidies covered by Article XVI:1 as well. The Panel found that:
Article XVI:3 applies only to export subsidies as that term is now
defined in the Agreement on Agriculture and the SCM
Agreement.1176
752. Because the Panel had conclude d that Step 2 payments to exporters and export credit
guarantees under the GSM 102, GSM 103 and SC GP programs constitute d export subsidies
prohibited by the relevant provisions of the Agreement on Agriculture and the SCM Agreement, the
Panel—as it had done in respect of Brazil's clai ms under Article XVI:1 of the GATT 1994—exercised
judicial economy with respect to Brazil's claim under Article XVI:3 of the GATT 1994.1177
753. Brazil's appeal regarding the Panel's findings w ith respect to the application of Article XVI:3
of the GATT 1994 has two elements. First, Brazil appeals the Panel's finding that Article XVI:3
applies only to export subsidies as th at term is now defined in the Agreement on Agriculture and the
SCM Agreement. Brazil stresses that its appeal in this regard, that is, the Panel's legal interpretation of
the second sentence of Article XVI:3 of the GATT 1994, is not conditional.1178 Brazil argues that, in
reaching the view that Article XVI:3 applies only to export subsidies, as currently defined in the
SCM Agreement and the Agreement on Agriculture, the Panel misinterpreted the second sentence of
Article XVI:3, which establishes disciplines upon "any form of subsidy which operates to increase the
export of any primary product", that is, all subsidies that have an export-enhancing effect, and not just
subsidies that are contingent on export performance. According to Brazil, the focus of Article XVI:3

1174Panel Report, para. 7.992. The Panel thus addressed elements of Brazil's claim in different parts of
its Report. The Panel's response to Brazil's allegati on of "serious prejudice" under Article XVI:1 of the
GATT 1994 is dealt with in the section of the Panel Report addressing "Actionable Subsidies: Claims of
'Present' Serious Prejudice". (Ibid., Section VII:G) In the light of its findings of present serious prejudice under
Articles 5(c) and 6.3(c) of the SCM Agreement, the Panel exercised judicial economy with respect to Brazil's
claim of serious prejudice under Article XVI:1 of the GATT 1994. (Ibid., para. 7.1476)
1175Ibid., Section VII:E.
1176Ibid., para. 7.1016.
1177Ibid., para. 7.1017.
1178Brazil's other appellant's submission, para. 319.

is upon the effect of subsidies in enhancing export s, and not upon formal distinctions between export
contingent and other subsidies.1179
754. Secondly, Brazil conditionally requests the Appellate Body to complete the analysis of its
claim that United States price-contingent subsidies 1180 result in the United States having a "more than
equitable share of world export trade" in upland cotton, in violation of Article XVI:3, second
sentence.1181 Brazil's request to complete the analysis is conditional upon two events: (i) a reversal by
the Appellate Body of the Panel's finding regarding significant price suppression (resulting in
serious prejudice in terms of Articles 6.3(c) and 5(c) of the SCM Agreement); and, (ii) denial by the
Appellate Body of Brazil's request for a ruling that the United States' measures at issue resulted in an
increase of the United States' world market share in upland cotton (resulting in serious prejudice in
terms of Articles 6.3(d) and 5(c) of the SCM Agreement).1182 Brazil submits that there are sufficient
factual findings by the Panel or undisputed fact s on the record to allow the Appellate Body to
complete the analysis of Brazil's claim regarding violation of Article XVI:3 by the United States
price-contingent subsidies.1183
755. The United States emphasizes that the text of Article XVI distinguishes between "Subsidies in
General" (Section A) and "Additional Provisions on Export Subsidies" (Section B). By locating
Article XVI:3 in Section B, Members agreed that Article XVI:3 is a provision on export subsidies. 1184
The term "export subsidy" is now defined in the SCM Agreement and the Agreement on Agriculture
as referring to subsidies that are contingent on export performance. 1185 Both the context provided by
these Agreements, as well as their negotiating history, c onfirm that the export subsidies referred to in
Article XVI:3 are also subsidies contingent on export performance.1186
756. With respect to Brazil's conditional request to complete the analysis, the United States
contends that, even if the Appellate Body rever ses the Panel's interpretation regarding the scope of
Article XVI:3, there would be insufficient undisput ed facts on the record or factual findings by the
Panel to complete the analysis. The United States observes that the Panel did not make any findings

1179Brazil's other appellant's submission, paras. 323-327.
1180That is, marketing loan payments, Step 2 paymen ts, market loss assistance payments and counter-
cyclical payments.
1181Brazil's other appellant's submission, para. 318.
1182Ibid., para. 319. We observe that Brazil does not appeal the Panel's findings with regard to
Article XVI:1 and the relationship between Articles XVI:1 and XVI:3 (Panel Report, paras. 7.1470-7.1476), and
does not appear to rely to any great extent on Article XVI:1 in its arguments relating to this part of its appeal.
1183Brazil's other appellant's submission, paras. 371-379.
1185Ibid., para. 168.
1186Ibid., paras. 169-180.

on causation relative to trade shares. Nor has Brazil put forward a tenable standard for assessing what
is more than an "equitable" trade share.1187
2. Analysis
757. Article XVI of the GATT 1994 contains two sectio ns. "Section A" lays down certain rules
for "Subsidies in General". "Section B", contai ning paragraphs 2-5 of Article XVI, provides
"Additional Provisions on Export Subsidies". In Article XVI:2, the Members "recognize" that the
provision of "a subsidy on the export of any product may have harmful effects ...". Article XVI:3, the
provision at issue in this part of Brazil's appeal, sets forth that "[a]ccordingly":
Members should seek to avoid the use of subsidies on the export of
primary products. If, however, a Member grants directly or
indirectly any form of subsidy wh ich operates to increase the export
of any primary product from its territory , such subsidy shall not be
applied in a manner which results in that Member having more than
an equitable share of world export trade in that product, account
being taken of the shares of the Me mbers in such trade in the product
during a previous representative period, and any special factors
which may have affected or may be affecting such trade in the
product.* (ad note omitted; emphasis added)
758. The Panel found "that Article XVI:3 applies only to export subsidies as that term is now
defined in the Agreement on Agriculture and the SCM Agreement".
1188 In the light of its rulings under
the Agreement on Agriculture and the SCM Agreement with regard to the United States' export
subsidies at issue in the proceedings, the Panel ex ercised judicial economy with respect to Brazil's
claims under Article XVI:3 of the GATT 1994.1189
759. Brazil's appeal of these findings has two elements. First, Brazil's appeal focuses on the phrase
"any form of subsidy which operates to increase the export of any primary product". It argues that the
ordinary meaning of this phrase encompasses all subs idies with an export-enhancing effect, not just
those that are contingent on export performance. Second, Brazil requests the Appellate Body to
complete the analysis and find that the United States' price-contingent subsidies violate Article XVI:3,
second sentence, conditional upon two events: reversal by th e Appellate Body of the Panel's finding
of significant price suppression and serious prejudice within the meaning of Articles 6.3(c) and 5(c) of
the SCM Agreement , as well as denial, by the Appellate Body, of Brazil's appeal concerning the
interpretation and application of Articles 6.3(d) and 5(c) of the SCM Agreement.

1187United States' appellee's submission, paras. 181-187.
1188Panel Report, para. 7.1016.
1189Ibid., para. 7.1017

760. With respect to the second element of Brazil' s appeal, we note that, above, we upheld the
Panel's finding that the effect of the price-contingent subsidies at issue in these proceedings is
significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement .1190 W e
observe, therefore, that the initial condition upon whic h Brazil's request to complete the analysis of
this claim rests is not made out, and thus there is no need fo r us to complete the analysis and to
examine whether or not the United States subsidies challenged by Brazil resulted in the United States
having more than an equitable share of world export trade in upland cotton.
761. Nor do we believe that it is necessary to make a finding on the interpretation of the phrase
"any form of subsidy which operates to increase the export of any primary product" in the second
sentence of Article XVI:3 of the GATT 1994 in order to resolve this dispute. Given our ruling under
Article 6.3(c) of the SCM Agreement, we observe that, although any ruling by the Appellate Body on
the scope of the subsidies covere d by Article XVI:3 of the GATT 1994 in the abstract might at best
offer some degree of "guidance", it would not affect the resolution of this dispute. 1191 Indeed,
irrespective of whether we were to uphold or reve rse the Panel's finding on this issue, upon adoption
of the recommendations and rulings by the DS B, the United States would be under no additional
obligation regarding implementation. Thus, although we recognize that there may be cases in which it
would be useful for us to make a finding on an issue, despite the fact that our finding would not result
in recommendations and rulings by the DSB, we find no compelling reason for doing so in this case in
respect of this particular issue.
762. We therefore believe that an interpretation of the phrase "any form of subsidy which operates
to increase the export" in Article XVI:3 of the GATT 1994 is unnecessary for purposes of resolving
this dispute. We emphasize that we neither uphold nor reverse the Panel's interpretation of this phrase
in the second sentence of Article XVI:3.

1190Supra, para. 496.
1191We note in this regard that, in US – Steel Safeguards , the Appellate Body noted that "several
participants expressed an interest in having [it] ru le on causation as it would provide guidance to Members on
applying safeguard measures in the future consistently with their WTO obligations". (Appellate Body Report,
US – Steel Safeguards , para. 484) (original emphasis) Despite this request for guidance, the Appellate Body
declined to make a ruling on this specific aspect of the case. (Appellate Body Report, US – Steel Safeguards ,
paras. 485-491)

VIII. Findings and Conclusions
763. For the reasons set out in this Report, the Appellate Body:
(a) as regards procedural matters:
(i) in relation to production flexibility contract payments and market loss
assistance payments:
- upholds the Panel's finding, in paragraphs 7.118, 7.122, 7.128,
and 7.194(ii) of the Panel Report, that Articles 4.2 and 6.2 of the
DSU do not exclude expired measures from the potential scope of
consultations or a request for establishment of a panel and, therefore,
that production flexibility contract payments and market loss
assistance payments fell within the Panel's terms of reference; and
- finds
 that the Panel set out the findings of fact, the applicability of
relevant provisions, and the basic ra tionale behind this finding, as
required by Article 12.7 of the DSU; and
(ii) in relation to export credit guarantee programs:
- upholds the Panel's ruling, in paragraph 7.69 of the Panel Report, that
"export credit guarantees to facilitate the export of United States
upland cotton, and other eligible agricultural commodities ... are
within its terms of reference"; and
- upholds
 the Panel's ruling, in paragraph 7.103 of the Panel Report,
that "Brazil provided a statement of available evidence with respect
to export credit guarantee measures relating to upland cotton and
eligible United States agricultural pr oducts other than upland cotton,
as required by Article 4.2 of the SCM Agreement";

(b) as regards the application of Article 13 of the Agreement on Agriculture to this
dispute:
(i) in relation to Article 13(a)(ii):
- upholds the Panel's finding, in paragraphs 7.388, 7.413, 7.414,
and 8.1(b) of the Panel Report, that production flexibility contract
payments and direct payments are not green box measures that
fully conform to paragraph 6(b) of Annex 2 of the Agreement on
Agriculture; and, therefore, are not exempt from actions under
Article XVI of GATT 1994 and Part III of the SCM Agreement by
virtue of Article 13(a)(ii) of the Agreement on Agriculture; and
- declines to rule on Brazil's conditional request that the Appellate
Body find that the updating of base acres for direct payments under
the FSRI Act of 2002 means that direct payments are not green box
measures that fully conform to para graph 6(a) of Annex 2 of the
Agreement on Agriculture ; and, therefore, are not exempt from
actions under Article XVI of GATT 1994 and Part III of the SCM
Agreement by virtue of Article 13(a)(ii) of the Agreement on
Agriculture; and
(ii) in relation to Article 13(b)(ii):
- modifies
 the Panel's interpretation, set out in paragraph 7.494 of the
Panel Report, of the phrase "support to a specific commodity" in
Article 13(b)(ii) of the Agreement on Agriculture ; but upholds
 the
Panel's finding, in paragraphs 7.5 18 and 7.520 of the Panel Report,
that Step 2 payments to domestic users, marketing loan program
payments, production flexibility contract payments, market loss
assistance payments, direct payments, counter-cyclical payments,
crop insurance payments, and cott onseed payments (the "challenged
domestic support measures") granted "support to a specific
commodity", namely, upland cotton;

- declines to rule on the United States' appeal that only the price gap
methodology described in paragraph 10 of Annex 3 of the
Agreement on Agriculture may be used to measure the value of
marketing loan program payments and deficiency payments for the
purposes of the comparison required by Article 13(b)(ii) of the
Agreement on Agriculture; and
- upholds
 the Panel's finding, in paragraphs 7.608 and 8.1(c) of the
Panel Report, that the "challe nged domestic support measures"
granted, in the years 1999, 2000, 2001 and 2002, support to a specific
commodity, namely, upland cotton, in excess of that decided during
the 1992 marketing year; and, therefore, that these measures are not
exempt from actions based on Articles 5 and 6 of the SCM
Agreement and Article XVI:1 of the GATT 1994 by virtue of
Article 13(b)(ii) of the Agreement on Agriculture;
(c) as regards serious prejudice:
(i) in relation to Article 6.3(c) of the SCM Agreement:
- upholds
 the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of the
Panel Report, that the effect of the marketing loan program
payments, Step 2 payments, market loss assistance payments, and
counter-cyclical payments (the "p rice-contingent subsidies") is
significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement, by in turn upholding the Panel's findings:
(A) regarding the "market" and "price" in assessing whether "the
effect of the subsidy is ... significant price suppression ... in
the same market" within the meaning of Article 6.3(c) of the
SCM Agreement:
- in paragraphs 7.1238-7.1240 of the Panel Report,
that the "same market" may be a "world market";
- in paragraph 7.1247 of the Panel Report, that a
"world market" for upland cotton exists; and

- in paragraph 7.1274 of the Panel Report, that "the A-
Index can be taken to reflect a world price in the
world market for upland cotton"; and
(B) regarding the "effect" of the price-contingent subsidies under
Article 6.3(c) of the SCM Agreement:
- in paragraphs 7.1312 and 7.1333 of the Panel Report,
that "significant price suppression" occurred within
the meaning of Article 6.3(c);
- in paragraphs 7.1355 and 7.1363 of the Panel Report,
that "a causal link exists" between the price-
contingent subsidies and the significant price
suppression found by the Panel under Article 6.3(c)
and that this link is not attenuated by other factors
raised by the United States;
- in paragraphs 7.1173, 7.1186, and 7.1226 of the
Panel Report, that it was not required to quantify
precisely the benefit conferred on upland cotton by
the price-contingent subsidies and, consequently, not
identifying the precise amount of counter-cyclical
payments and market loss assistance payments that
benefited upland cotton; and
- in paragraph 7.1416 of the Panel Report, that the
effect of the price-contingent subsidies for marketing
years 1999 to 2002 "is significant price suppression
... in the period MY 1999-2002"; and
- finds
 that the Panel, as required by Article 12.7 of the DSU, set out
the findings of fact, the applicability of relevant provisions, and the
basic rationale behind its finding, in paragraphs 7.1416 and 8.1(g)(i)
of the Panel Report, that the effect of the price-contingent subsidies is
significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement; and

(ii) in relation to Article 6.3(d) of the SCM Agreement:
- finds it unnecessary, for the purposes of resolving this dispute, to rule
on the interpretation of the phr ase "world market share" in
Article 6.3(d) of the SCM Agreement , and neither upholds nor
reverses the Panel's findings in this regard; and
- declines to rule on Brazil's conditional request for the Appellate
Body to find that the effect of the price-contingent subsidies is an
increase in the United States' world market share in upland cotton
within the meaning of Article 6.3(d) of the SCM Agreement;
(d) as regards user marketing (Step 2) payments:
(i) upholds
 the Panel's findings, in paragra phs 7.1088, 7.1097-7.1098, and 8.1(f)
of the Panel Report, that Step 2 payments to domestic users of United States
upland cotton, under Section 1207(a) of the FSRI Act of 2002, are subsidies
contingent on the use of domestic ove r imported goods that are inconsistent
with Articles 3.1(b) and 3.2 of the SCM Agreement; and
(ii) upholds
 the Panel's findings, in para graphs 7.748-7.749, 7.760-7.761,
and 8.1(e) of the Panel Report, that Step 2 payments to exporters of United
States upland cotton, pursuant to Section 1207(a) of the FSRI Act of 2002,
are subsidies contingent upon export performance within the meaning of
Article 9.1(a) of the Agreement on Agriculture that are inconsistent with
Articles 3.3 and 8 of that Agreement and Articles 3.1(a) and 3.2 of the SCM
Agreement;
(e) as regards export credit guarantee programs:
(i) upholds
 the Panel's finding, in paragraphs 7.901, 7.911, and 7.932 of the
Panel Report, that Article 10.2 of the Agreement on Agriculture does not
exempt export credit guarantees from the export subsidy disciplines in
Article 10.1 of that Agreement1192;
(ii) finds that the Panel did not improperly apply the burden of proof in finding
that the United States' export credit guarantee programs are prohibited export

1192See Separate Opinion, supra, paras. 631-641.

subsidies under Article 3.1(a) of the SCM Agreement and are consequently
inconsistent with Article 3.2 of that Agreement;
(iii) declines to find that the Panel erred by failing to make the necessary findings
of fact in assessing whether the export credit guarantee programs are
provided at premium rates that are in adequate to cover long-term operating
costs and losses within the meaning of item (j) of the Illustrative List of
Export Subsidies annexed to the SCM Agreement; and, consequently,
(iv) upholds
 the Panel's finding, in paragraph 7. 869 of the Panel Report, that "the
United States export credit guarantee programmes at issue—GSM 102,
GSM 103 and SCGP—constitute a per se export subsidy within the meaning
of item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM
Agreement", and upholds
 the Panel's findings, in paragraphs 7.947 and 7.948
of the Panel Report, that these export credit guarantee programs are export
subsidies for purposes of Article 3.1(a) of the SCM Agreement and are
inconsistent with Articles 3.1(a) and 3.2 of that Agreement; and
(v) finds
 that the Panel did not err in exercising judicial economy in respect of
Brazil's allegation that the United States' export credit guarantee programs are
prohibited export subsidies, under Article 3.1(a) of the SCM Agreement ,
because they confer a "benefit" within the meaning of Article 1.1 of that
Agreement;
(f) as regards circumvention of export subsidy commitments:
(i) reverses
 the Panel's finding, in paragra ph 7.881 of the Panel Report, that
Brazil did not establish actual circumvention in respect of poultry meat and
pig meat; finds
, however, that there are insuffi cient uncontested facts in the
record to complete the legal analysis to determine whether the United States'
export credit guarantees to poultry meat a nd pig meat have been applied in a
manner that "results in" circumvention of the United States' export subsidy
commitments, within the meaning of Article 10.1 of the Agreement on
Agriculture;
(ii) modifies
 the Panel's interpretation, in paragraphs 7.882-7.883 and 7.896 of
the Panel Report, of the phrase "threatens to lead to .... circumvention" in
Article 10.1 of the Agreement on Agriculture to the extent that the Panel's

interpretation requires "an unconditional legal entitlement" to receive the
relevant export subsidies as a condition for a finding of threat of
circumvention, but upholds , for different reasons, the Panel's finding, in
paragraph 7.896 of the Panel Report, that Brazil has not established that "the
export credit guarantee programmes at issue are generally applied to
scheduled agricultural products other than rice and other unscheduled
agricultural products (not supported under the programmes) in a manner
which threatens to lead to circumve ntion of United States export subsidy
commitments within the meaning of Article 10.1 of the Agreement on
Agriculture"; and
(iii) finds
 that the Panel did not err in confin ing its examination of Brazil's threat
of circumvention claim to scheduled products other than rice and
unscheduled products not supported unde r the United States' export credit
guarantee programs;
(g) as regards the ETI Act of 2000, declines Brazil's request that the Appellate Body
reverse the Panel's conclusion that Brazil did not make a prima facie case that the
ETI Act of 2000 is inconsistent with the United States' WTO obligations; and
(h) as regards Article XVI:3 of the GATT 1994:
(i) finds it unnecessary, for the purposes of resolv ing this dispute, to rule on the
interpretation of the phrase "any form of subsidy which operates to increase
the export" in Article XVI:3 of th e GATT 1994, and neither upholds nor
reverses the Panel's findings in this regard; and
(ii) declines to rule on Brazil's conditional request for the Appellate Body to find
that the price-contingent subsidies cause the United States to have "more than
an equitable share of world export trade" in upland cotton, in violation of the
second sentence of Article XVI:3 of the GATT 1994.
764. The Appellate Body recommends that the Dispute Settlement Bo dy request the United States
to bring its measures, found in this Report and in th e Panel Report as modified by this Report to be
inconsistent with the Agreement on Agriculture and the SCM Agreement, into conformity with its
obligations under those Agreements.

Signed in the original in Geneva this 10th day of February 2005 by:

Merit E. Janow
Presiding Member

 _________________________ _________________________
 Luiz Olavo Baptista A.V. Ganesan
 Member Member

ANNEX 1

20 October 2004
 (04-4441)
 Original: English

Notification of an Appeal by the United States
under paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes ("DSU")

 The following notification, dated 18 October 2004, from the Delegation of the United States,
is being circulated to Members.

Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
United States hereby notifies its decision to appeal to the Appellate Body certain issues of law
covered in the Report of the Panel on (WT/DS267/R) and
certain legal interpretations developed by the Panel in this dispute.

1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
certain U.S. decoupled income support measures – that is, production flexibility contract payments
under the Federal Agricultural Impr ovement and Reform Act of 1996 ("1996 Act"), direct payments
under the Farm Security and Rural Investment Act of 2002 ("2002 Act"), and "the legislative and
regulatory provisions which establish and maintain the [direct payments] programme" – are not
exempt from actions under Article 13(a) of the Agreement on Agriculture.
1 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings include, for example, that these decoupled income support measures do not conform to
Annex 2.
2. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
certain U.S. domestic support measures 2 are not exempt from actions under Article 13(b) of the
Agreement on Agriculture .3 This conclusion is in error and is based on erroneous findings on issues
of law and related legal interpre tations. These erroneous findings include, for example, the Panel's
finding that the challenged U.S. measures granted support to a specific commodity in excess of that
decided in marketing year 1992 and therefore breached the proviso of Article 13(b) in each year from
marketing year 1999-2002.

1See, e.g., Panel Report, paras. 8.1(b), 7.337-7.414.
2See Panel Report, para. 7.337.
3See, e.g., Panel Report, paras. 8.1(c), 7.415-7.647.

3. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of unscheduled agricultura l products supported under the programs and one
scheduled commodity (rice) are "export subsidies app lied in a manner which results in circumvention
of United States export subsidy commitments, within the meaning of Article 10.1 of the Agreement on
Agriculture," are therefore inconsistent with Article 8 of the Agreement on Agriculture , and are not
exempt from actions under Article 13(c) of the Agreement on Agriculture.4 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings, include, for example, the Panel's findi ng that export credit guarantees, notwithstanding
Article 10.2 of the Agreement on Agriculture , constitute measures subject to Article 10.1 of the
Agreement on Agriculture.
4. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of other scheduled agricultural products constitute export subsidies within the
meaning of Article 10.1 of the Agreement on Agriculture.5 This conclusion is in error and is based on
erroneous findings on issues of law and related legal interpretations. These erroneous findings,
include, for example, the Panel's finding that e xport credit guarantees, notwithstanding Article 10.2 of
the Agreement on Agriculture , constitute measures subject to Article 10.1 of the Agreement on
Agriculture.
5. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
U.S. export credit guarantees under the GSM 102, GSM 103, and SCGP export credit guarantee
programs in respect of unscheduled agricultura l products supported under the programs and one
scheduled commodity (rice) are per se export subsidies prohibited by Articles 3.1(a) and 3.2 of the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement"). 6 This conclusion is in
error and is based on erroneous fi ndings on issues of law and relate d legal interpretations. These
erroneous findings include, for example, the Pa nel's finding that the program for each product
constitutes an export subsidy for purposes of the WTO Agreements and is provided by the United
States at premium rates which are inadequate to cover long-term operating costs and losses of the
programs within the meaning of item (j) of the Illustrative List of Export Subsidies in Annex I of the
SCM Agreement.
6. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
section 1207(a) of the 2002 Act, which provides for user marketing (Step 2) payments to exporters of
upland cotton, is an export subsidy that is listed in Article 9.1(a) of the Agreement on Agriculture that
is inconsistent with U.S. obligati ons under Articles 3.3 and 8 of the Agreement on Agriculture, is not
exempt from actions under Article 13(c) of the Agreement on Agriculture , and is inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement.
7 This conclusion is in error and is based on erroneous
findings on issues of law and rela ted legal interpretations. These erroneous findings include, for
example, the Panel's finding that payments under th e user marketing (Step 2) program are contingent
on export performance.
7. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
section 1207(a) of the 2002 Act providing for user ma rketing (Step 2) payments to domestic users of
upland cotton is an import substitution subsidy prohibited under Articles 3.1(b) and 3.2 of the

4See, e.g., Panel Report, paras. 8.1(d)(1), 7.762-7.945.
5See, e.g., Panel Report, paras. 8.1(d)(2), 7.762-7.945.
6See, e.g., Panel Report, paras. 8.1(d)(1), 7.787-7.869, 7.946-7.948.
7See, e.g., Panel Report, paras. 7.678-7.761, 8.1(e).

Agreement on Subsidies and Countervailing Measures .8 This conclusion is in error and is based on
erroneous findings on issues of law and related le gal interpretations. These erroneous findings
include, for example, the Panel's finding that dome stic support payments that are consistent with a
Member's domestic support reduction commitments under the Agreement on Agriculture may
nonetheless be prohibited under the SCM Agreement.
8. The United States seeks review by the Appellate Body of the Panel's legal conclusion that
"the effect of the mandatory, price contingent United States subsidies at issue – that is, marketing loan
programme payments, user marketing (Step 2) paym ents and MLA payments and CCP payments – is
significant price suppression in the same world market for upland cotton in the period MY 1999-2002
within the meaning of Articles 6.3(c) and 5(c)" of the SCM Agreement.
9 This conclusion is in error
and is based on erroneous findings on issues of law and related legal interpretations. These erroneous
findings include, for example, the following:
(a) the Panel's finding that Brazil need not de monstrate, and the Panel need not find, the
amount of the challenged subsidy that benefits the subsidized product, upland cotton;

(b) the Panel's finding that subsidies not directly tied to current production of upland
cotton (decoupled payments) need not be allocated to all products produced and sold by the
firms receiving such subsidies;

(c) that the Panel could make findings concer ning subsidies that no longer existed at the
time of panel establishment and that present serious prejudice could be, and was, caused by
such subsidies;

(d) the Panel's finding that the challenged s ubsidies provided to cotton producers "passed
through" to cotton exporters;

(e) the Panel's finding that there was price suppression "in the same market";

(f) the Panel's finding that significant price suppression existed;

(g) the Panel's finding that the price suppression it found under an erroneous legal
standard was "significant";

(h) the Panel's finding that "the effect of" the U.S. subsidies "is" significant price
suppression;

(i) the Panel's finding that "significant price suppression" is sufficient to establish
"serious prejudice" for purposes of Articles 5(c) and 6.3 of the SCM Agreement; and

(j) the Panel's finding that its "'present' se rious prejudice findings include findings of
inconsistency that deal with the FSRI Act of 2002 and subsidies granted thereunder in MY
2002."
10

9. The United States seeks review by the Appellate Body of the Panel's finding that decoupled
payments made with respect to non-upland cotton base acres were within its terms of reference. 11
This finding is in error and is based on erroneous findings on issues of law and related legal

8See, e.g., Panel Report, paras. 7.1018-7.1098, 8.1(f).
9Panel Report, paras. 7.1416, 7.1107-7.1416, 8.1(g)(i).
11See, e.g., Panel Report, paras. 7.129-7.136.

interpretations. These erroneous findings include , for example, the Panel's finding that these
payments were measures at issue within the meaning of Articles 4.4 and 6.2 of the DSU.
10. The United States requests the Appellate Body to find that the Panel failed to set out the
findings of fact, the applicability of the relevant pr ovisions, and the basic rationale behind its findings
and recommendations, as required by Article 12.7 of the DSU. The Panel's failure to set these out
include, for example, the findings or lack of findings concerning the following areas: the amount of
the challenged subsidies, including the amount of paym ents not directly tied to current production of
upland cotton (decoupled payments); that significan t price suppression existed; the degree of price
suppression it deemed "significant"; that "the effect of" the U.S. subsidies "is" significant price
suppression; that decoupled payments made with re spect to non-upland cotton base acres were within
its terms of reference; and the basis for its ability to make findings with respect to subsidies that no
longer existed at the time of panel establishment.
11. The United States seeks review by the Appellate Body of the Panel's finding that export credit
guarantees to facilitate the export of "other eligib le agricultural commodities" besides upland cotton
were within its terms of reference. 12 This finding is in error and is based on erroneous findings on
issues of law and related legal in terpretations. These erroneous findings include, for example, the
Panel's finding that such export credit guarantees were included in Brazil's consultation request and its
finding that, contrary to Articles 4.2, 4.4, and 6.2 of the DSU, it could examine measures that were not
included in Brazil's request for consultations.
12. The United States seeks review by the Appellate Body of the Panel's finding that Brazil
provided the statement of available evidence requi red by Article 4.2 of the SCM Agreement with
respect to export credit guarantee measures relating to eligible United States agricultural products
other than upland cotton, and that accordingly, Br azil's claims concerning these measures were within
the terms of reference of this dispute. 13 This finding is in error and is based on erroneous findings on
issues of law and related legal interpretations.
13. In the event Brazil appeals the Pa nel's exercise of judicial economy with respect to Brazil's
claims concerning the compatibility of U.S. export credit guarantee measures with Part III of the SCM
Agreement,14 in this U.S. appeal the United States co nditionally requests the Appellate Body to find
that Brazil also failed to provide a statement of av ailable evidence as required by Article 7.2 of the
SCM Agreement, and that accordingly, Brazil's claims concerning these measures would not be
within the terms of reference of this dispute.
14. The United States seeks review by the Appellate Body of the Panel's legal conclusion that two
types of expired measures, production flexibility c ontract payments and market loss assistance
payments, were within the Panel's terms of referen ce. This conclusion is in error and is based on
erroneous findings on issues of law and related le gal interpretations. These erroneous findings
include, for example, the Panel's finding that measures that are no longer in existence as of the date of
establishment of a panel are nonetheless within a panel's terms of reference.
15

ANNEX 2

Table 1: Comparison of Support for Purposes of Article 13(b)(ii) of the Agreement on Agriculture (using
budgetary outlays for marketing loan program payments and deficiency payments)

$ million MY 1992 MY 1999 MY 2000 MY 2001 MY 2002
Step 2 payments (domestic users) * 102.7 165.8 260 144.8 72.4
Crop insurance payments * 26.6 169.6 161.7 262.9 194.1
Cottonseed payments * 0 79 184.7 0 50
PFC payments + 0 434.9 411.7 329.5 0
MLA payments + 0 432.8 438.3 452.3 0
DP payments + 0 0 0 0 391.8
CCP payments + 0 0 0 0 864.9
Marketing loan program * 866 1761 636 2609 897.8
Deficiency payments * 1017.4 0 0 0 0
Total 2012.7 3043.1 2092.4 3798.5 2471

Table 2: Comparison of Support for Purposes of Article 13(b)(ii) of the Agreement on Agriculture (using
price gap methodology for marketing loan program payments and deficiency payments)

$ million MY 1992 MY 1999 MY 2000 MY 2001 MY 2002
Step 2 payments (domestic users) * 102.7 165.8 260 144.8 72.4
Crop insurance payments * 26.6 169.6 161.7 262.9 194.1
Cottonseed payments * 0 79 184.7 0 50
PFC payments
+ 0 434.9 411.7 329.5 0
MLA payments + 0 432.8 438.3 452.3 0
DP payments + 0 0 0 0 391.8
CCP payments + 0 0 0 0 864.9
Marketing loan program § -84 -133 -136 -162 -130
Deficiency payments § 867 0 0 0 0
Total 912.3 1149.1 1320.4 1027.5 1443.2

Table 3: Values Attributable to the Price-Contingent Subsidies

$ million MY 1999 MY 2000 MY 2001 MY 2002
Marketing loan program * 1761 636 2609 897.8
Step 2 payments (domestic users & exporters) # 279.3 445.3 235.7 177.8
MLA payments + 432.8 438.3 452.3 0
CCP payments + 0 0 0 864.9
Total 2473.1 1519.6 3297 1940.5

Notes to Tables:

 For the panel's findings regarding the values of support relevant for the analysis under
Article 13(b)(ii) of the Agreement on Agriculture, see Panel Report, para. 7.596.

* Panel Report, para. 7.596.

+ The values of production flexib ility contract payments, market loss assistance payments, direct
payments, and counter-cyclical payments are based on the " cotton to cotton " methodology, discussed
supra, paras. 377-380. Figures are drawn from Panel Report, para. 7.641.

# For the value of Step 2 payments to domestic u sers, see Panel Report, para. 7.596. To these figures
we have added data submitted by the United States for the value of Step 2 payments to exporters: see
United States' response to questions posed by the Panel, Panel Report, p. I-126, para. 211.