Document: COMMENTS OF THE UNITED STATES TO THE 11 FEBRUARY 2004 ANSWERS OF BRAZIL TO PANEL QUESTION 276
Date: 11 February 2004
Document codes: WT/DS267/R/Add.2
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

ANNEX I-21

COMMENTS OF THE UNITED STATES
TO THE 11 FEBRUARY 2004 ANSWERS
OF BRAZIL TO PANEL QUESTION 276

Question 276. “The Panel notes the parties' responses and comments relating to Question
No. 252 concerning the time period within whic h any prohibited measure must be withdrawn
within the meaning of Article 4.7 of the SCM Agreement. Please supplement your original
response, taking into account the particular natu re of each alleged prohibited subsidy measure
(i.e. "Step 2" payments under Section 1207(a) of the 2002 FSRI Act, export credit guarantee
programmes and the ETI Act) and the functioning of the US legal and regulatory system in
respect of these measures.”

1. The United States appreciates this opportunity to comment on the response of Brazil to Panel
question 276, posed on 3 February 2004. As an initial matter, the United States notes that the
question poses a hypothetical situation: that any of the measures at issue in this dispute might be
found to be a prohibited subsidy. The United States of course has explained that Brazil has not shown
that any of the measures at issue is a prohibited subs idy. That being said, the United States offers the
following comments on Brazil’s response.

2. Of note, in its response Brazil has recognized that its previous answer to Question 252 from
the Panel was inadequate. In full, that answer provided: “Brazil suggests that the Panel follow the
precedent of all previous WTO panels that made find ings of prohibited subsidies and specify that the
measure must be withdrawn within 90 days.”
1 Brazil has now revised – from 90 days to six months –
its recommendation to the Panel of the time period th at would constitute withdrawing “without delay”
subsidies allegedly provided by the export credit guarantee programmes. However, Brazil’s response
sets out a faulty analysis of the meaning of “without delay” in Article 4.7 as applied in previous
reports and therefore identifies what would be inappropriately short time periods for withdrawal of the
measures at issue if they were prohibited subsidies, which they are not.

3. Article 4.7 of the Agreement on Subsidies and Countervailing Measures (“Subsidies
Agreement”) establishes that “[i]f the measure in question is found to be a prohibited subsidy, the
panel shall recommend that the subsidizing Member w ithdraw the subsidy without delay. In this
regard, the panel shall specify in its recommendati on the time-period within which the measure must
be withdrawn”. The Agreement does not further define “without delay”, although Brazil concedes
that the “text [of Article 4.7] does not state ‘immediately’”.
2

4. Past panels have dealt with the meaning of the term “without delay,” and have concluded that
this involves an examination of the nature of the changes to be effected and the domestic legal process
involved. For example, in Canada – Certain Measures Affecting the Automotive Industry , the panel
found that “in examining what time-period would repr esent withdrawal ‘without delay’ in a particular
case, we consider that we may take into account th e nature of the steps necessary to withdraw the
prohibited subsidy”.
3 Similarly, in Australia – Subsidies Provided to Producers and Exporters of

1 Brazil’s Answer to Question 252 from the Panel, para. 167 (22 December 2003) (footnotes omitted).
2 Brazil’s Answer to Question 276 from the Panel, para. 2.
3 WT/DS139/R, WT/DS142/R, paras. 11.6-11.7 (adopted as modified 19 June 2000) (italics added).

Automotive Leathe r4, the panel found that “the nature of the measures and issues regarding
implementation might be relevant” to the time period for withdrawal of the subsidies”.5

5. The analysis by these panels is similar to th at undertaken by arbitrators under Article 21.3 of
the Understanding on Rules and Procedures Go verning the Settlement of Disputes (“DSU”) in
considering the period of time for a Member to implement DSB recommendations and rulings. There,
arbitrators have also considered that Article 21.3 calls for an analysis of the nature of the changes to
be effected and “the shortest period possible within the legal system of the Member to implement the
recommendations and rulings of the DSB”.
6 Thus, in practical terms, the “reasonable period of time”
standard of DSU Article 21.3 has been interprete d to mean something akin to without “delay”
(“procrastination; lingering; putting off”7).

6. DSU Article 21.3 is part of the context of Article 4.7. Brazil attempts to distinguish
Article 4.7 of the Subsidies Agreement from Article 21.3 of the DSU.
8 However, Brazil argues that a
key difference is that Article 21.3 uses the term “rea sonable”. Brazil thus appears to argue that under
Article 4.7 any time period specified should not be reasonable. The United States agrees that there are
differences between Article 4.7 of the Subsidies Ag reement and Article 21.3 of the DSU. But those
differences do not amount to a requirement that pa nels require unreasonable actions. Rather, one key
difference is that DSU Article 21.3(c) provides arb itrators with a “guideline” that the “reasonable
period of time” to implement panel or Appe llate Body recommendations “should not exceed
15 months from the date of adoption of a panel or Appellate Body report” whereas Article 4.7 does
not.9

7. In the current dispute, the measures at issu e all involve legislation and any change would
require legislative action. Brazil has proposed that withdrawal “without delay” should be considered
to mean withdrawal within 90 days for allegedly prohibited subsidies under the Step 2 programme and
the ETI Act and withdrawal within 6 months fo r alleged export subsidies under the export credit
guarantee programmes. However, Brazil’s proposed time periods are not supported by considerations
relating to the nature of the measures at issue nor the US legislative process that would be necessary
to effect changes to those measures.

8. Specifically, Brazil concedes that statutory changes would be necessary to withdraw the
allegedly prohibited subsidies at issue in this dispute.
10 However, the panel reports Brazil cites as

4 WT/DS126/R, paras. 10.4-10.7 (adopted 16 June 1999).
5 See also the panel reports in the Aircraft disputes between Canada and Brazil, in which the panels
took into account the nature of the measures and the procedures which may be required to implement the panels’
recommendations.
6 Report of the Arbitrator, United States – Continued Dumping and Subsidy Offset Act of 2000 ,
WT/DS217/14, WT/DS234/22, para. 42 (13 June 2003) (quotation marks and footnote omitted) (citing
3 previous reports of arbitrators).
7 The New Shorter Oxford English Dictionary, vol. 1, at 623 (1993 ed.).
8 Brazil’s response to Question 276, para. 2.
9 In the earliest arbitrations under Article 21.3(c), arbitrators viewed the guideline as meaning that each
party bore the burden of proof that the reasonable period of time should depart from the 15 months period,
which would be a significant difference from Article 4.7. That approach has now evolved into the practice
described above of the shortest possible period of time within the legal system of the Member to implement the
recommendations and rulings of the DSB.
10 Brazil’s Answer to Question 276 from the Panel, para. 10 (11 February 2004) (eliminating Step 2
“simply requires the repeal of Section 1207(a) of the 2002 FSRI Act); id., para. 11 (for export credit guarantee
programmes, “the prohibited subsidies must be withdrawn by enacting the necessary changes to the statutes and
regulations providing for GSM102, GSM 103, and SCGP”); id., para. 12 (90 days “represents an appropriate
period of time . . . to withdraw the ETI Act”).

support for the proposition that “without delay” gene rally means 90 days dealt with subsidies that
required only executive or administrative action to withdraw:
11

In Canada – Certain Measures Affecting the Automotive Industry, the panel found:
“we note that the [challenged measures] ar e both Orders-in-Council, and as such are
acts of the executive, and not the legislativ e branch of government. The amendment
of an act of the executive branch can nor mally be effectuated more quickly than
would be the case if legislative action were required.” 12 The report further notes that
“in those disputes involving a prohibited subsidy in which legislative action was not
required, panels have specified a time-period of 90 days”.
13
In Australia – Subsidies Provided to Producers and Exporters of Automotive
Leather,14 taking into account that the dispute involved payments made under a grant
contract between the Australian Government and a private company, the panel
recommended that the measures be withdrawn within 90 days.
In Canada – Export Credits and Loan Guarantees for Regional Aircraft,
15 involving
executive action concerning financing provided by Canada for particular transactions,
the panel found that “Canada should withdr aw the export subsidies within 90 days
(“without delay”).
In Brazil – Export Financing Programme for Aircraft, with respect to payments under
the interest rate equalization component of PROEX, 16 the panel report found that,
“taking into account the nature of the measures and the procedures which may be
required to implement our recommendation, ” Brazil should withdraw the measures
within 90 days.17
In Canada – Measures Affecting the Export of Civilian Aircraft, 18 with respect to
certain executive action concerning financ ing and funds provided to the Canadian
civil aircraft industry, the panel repor t found that, “[t]aking into account the
procedures that may be required to impl ement our recommendation”, Canada should
withdraw the measures within 90 days.
Thus, in every panel report in which the “without delay” time period has been set as 90 days, only
executive action (and not statutory amendment) has been necessary. Thus, these reports offer little
guidance to the Panel, other than to indicate that 90 days would not be an adequate time period, given
that Brazil recognizes that legislation would be required to modify the measures in dispute.

9. Brazil notes, almost in passing, that “[t]he re is only one precedent applying the Article 4.7
‘without delay’ provision to prohibited subsidy measures requiring legislative changes” 19: the panel

11 Brazil’s Answer to Question 276 from the Panel, para. 10 n.15.
12 WT/DS139/R, WT/DS142/R, paras. 11.6-11.7 (adopted as modified 19 June 2000) (italics added).
13 Id., para. 11.7 n. 910 (citing panel reports in Australia – Leather , Brazil – Aircraft , and Canada –
Aircraft).
14 WT/DS126/R, paras. 10.4-10.7 (adopted 16 June 1999).
15 WT/DS222/R, paras. 8.1-8.4 (adopted 19 February 2002).
16 PROEX was being maintained by provisional measures issued by the Brazilian Government on an
monthly basis, and the financing terms for which interest rate equalization payments were made were set by
Ministerial Decrees. WT/DS46/R, paras. 2.1, 2.3 (adopted 20 August 1999).
17 Id., paras. 8.2-8.5.
18 WT/DS70/R, paras. 10.3-10.4 (adopted as modified 20 August 1999).
19 Brazil’s Answer to Question 276 from the Panel, para. 5 (11 February 2004).

report in United States – FSC .20 However, Brazil fails to quote or discuss that panel report’s
discussion of the “without delay” language, which woul d seem to be particularly relevant given that
Brazil has challenged the ETI Act – the successor to the FSC programme – in this dispute. Brazil
erroneously cites this report as supporting the pr oposition that “without delay” generally means
withdrawal within 90 days21, but there is no discussion of a 90-day period in the report.

10. Upon finding that the FSC scheme provided expor t subsidies inconsistent with Article 3.1(a)
of the Subsidies Agreement, the FSC panel first recommended, “pursuant to Article 4.7 of that
Agreement, that the DSB request the United States to withdraw the FSC subsidies without delay”. 22
The panel examined what should be its recommendati on with respect to the time-period within which
the measure must be withdrawn. The panel noted that the time period specified “must be consistent
with the requirement that the subsidy be withdrawn ‘without delay’”. The panel then went on to find,
and recommend:

Given that the implementation of the Pane l’s recommendation will require legislative
action (a fact recognized by the European Communities), that the United States fiscal
year 2000 starts on 1 October 1999, and th at this report is not scheduled for
circulation to Members until September 1999 (and, if appealed, might not be adopted
until as late as early spring 2000), it is not in our view a practical possibility that the
United States could be in a position to ta ke the necessary legislative action by 1
October 1999. That being so, and acting in good faith, there is no way that this could
be described as a ‘delay.’ However, this objective timing constraint would not be
present with effect from the following fiscal year (2001), which commences on 1
October 2000. As this would be the first pr acticable date by which the United States
could implement our recommendation, it satis fies the ‘without delay’ standard found
in Article 4.7. Accordingly, we specify that FSC subsidies must be withdrawn at the
latest with effect from 1 October 2000.
23
Brazil recognizes that statutory changes would be n ecessary to modify the measures at issue in this
dispute. However, Brazil fails to discuss the various considerations identified by the FSC panel
report, such as the potential date of circulation of the Panel’s report and the effect of appeal on the
timing of adoption. Neither does Brazil discuss whether there would be a “practical possibility” of
legislative action within its suggested time periods.

11. With respect to the potential date of circul ation, the Panel’s current schedule provides for the
final report to be issued to the parties on 19 Ma y. Circulation to all Members would be upon
translation into the official WTO languages. Conservatively assuming one month for completion of
translation of what may be a very lengthy panel re port, the report would be circulated in mid-June.
Panel reports may not be considered for adoption until 20 days after they have been circulated to all
Members
24 – approximately early July. If the Panel repor t is appealed, the Appellate Body report will
likely be issued 90 days from the notice of appeal 25 – approximately early October. The Appellate
Body report would be adopted (unless the DSB decides by consensus not to adopt it) within 30 days
of circulation
26 – approximately early November.

20 Panel Report, United States – Tax Treatment for “Foreign Sales Corporations” , WT/DS108/R
(adopted 20 March 2000) (“United States – FSC”).
21 Brazil’s Answer to Question 276 from the Panel, para. 10 n.15 (11 February 2004).
22 United States – FSC, WT/DS108/R, para. 8.3.
23 United States – FSC, WT/DS108/R, para. 8.8.
24 DSU Article 16.1.
25 See Statistical Information on Recourse to WTO Dispute Settlement Procedures: Background Note
by the Secretariat, Job(03)/225, circulated 11 December 2003, Section IV.B and Table 8.
26 DSU Article 17.14.

12. The current US Congress is scheduled to adjourn on 1 October 2004. Accordingly, no
legislative action would be possible until afte r the new Congress convenes in 2005 and organizes
itself. The United States has previously stated that , in the event of a prohibited subsidy finding, it
should be given until the end of “this year” to comp lete the legislative process. However, given the
probable time line for this dispute noted above, that is not a possibility.

13. Once the new Congress convenes and organizes (a process that we would not expect to be
completed before mid-February), any legislation wo uld then need to proceed through the legislative
process. In the United States, this involves the following.
27

The US Legislative Process

14. Under the United States system of constituti onal government, any changes to a federal statute
must be enacted by the US Congress, which sets its own procedures and timetable. The Executive
branch of the US Government has no control over these procedures and timetable. Securing the
enactment of legislation in the US Congress is a complex and lengthy process. Moreover, only a
small fraction of the thousands of bills introduced in each Congress ever become law. This indicates
that the process of obtaining the votes necessary to en act legislation is difficult and time-consuming.
Viewed in this light, there is no “practical possi bility” that this process will take, as Brazil suggests,
3 months for the Step 2 programme and ETI Act a nd 6 months (including time for administrative
action) for the export credit guarantee programmes.

15. The power to legislate is vested in the Un ited States Congress, which has two chambers, the
House of Representatives and the Senate. Both cham bers must approve all legislation in identical
form, before it is sent to the President of the Unite d States for signature or other action. Only after
presidential approval does proposed legislation become law. Proposed legislation that will become
public law usually takes the form of a “bill”. From the time that a bill is introduced in Congress to the
time that it is approved by both chambers, it will ha ve passed through at least ten steps. These ten
steps include: (1) the bill is introd uced in the House of Representatives or the Senate by a member of
Congress; (2) the bill is referred to a standing co mmittee or committees having jurisdiction over the
subject matter of the bills, which may also refer the proposed legislation to various subcommittees;
(3) the merits of the bill are considered by a subcommittee, which may include public hearings;
(4) when hearings are completed, the subcommitte e meets to “mark-up” the bill (make changes and
amendments) prior to deciding wh ether to recommend (or “report”) th e bill to the full committee;
(5) the full committee (considering the subcommi ttee’s report) may conduct further study and
hearings and then votes whether to report the bill, e ither as originally introduced without amendment,
or as revised, to the full House; (6) the House c onsiders the bill on its merits and, after voting on
amendments, the House immediately votes on the bill itself with any adopted amendments; (7) if the
bill is passed, the bill must be referred to the Se nate, which, following its own legislative process and
consideration, may approve the bill as received, reje ct it, ignore it, or change it; (8) if the Senate
amends the bill or passes its own similar but not identical legislation, a conference committee is
organized to reconcile differenc es between the House and Senate versions; (9) if the committee
reaches agreement on a single bill, a “conference re port” must be approved by both chambers, in
identical form, or the revised legislation dies; an d (10) after the bill proposed by the conference
committee is approved by both chambers, it is sent to the President for approval. Most bills that are
introduced do not survive this pr ocess to become law, and those that do are likely to have been
significantly amended along the way.

27 A more detailed description of the US legislative process may be found in paragraphs 21-35 of the
Submission of the United States in the Arbitration under Article 21.3(c) of the DSU in the dispute United States
– Continued Dumping and Subsidy Offset Act of 2000 , WT/DS217 & 234 (13 April 2003) (available at
http://www.ustr.gov/enforcement/briefs.shtml).

16. In addition, Brazil has recognized that a fi nding that the programmes are prohibited export
subsidies would necessarily require “changes to the statutes and regulations” providing for the
programmes.
28 The regulatory changes could not be made until after the legislative changes are
finalized. Thus, the time period that would constit ute withdrawal “without delay” would have to
allow for both legislative and regulatory changes.

17. No panel report considering Article 4.7 has ev er awarded a period of less than three months.
Moreover, panels have found that “[t]he amendment of an act of the executive branch can normally be
effectuated more quickly than would be the case if legislative action were required”.29

18. Indeed, in a recent arbitration under DSU Ar ticle 21.3(c) in a dispute where compliance by
the United States involved both legislative and regul atory action, the arbitrator concluded that
15 months was the reasonable period of time for implementation.30

19. In light of the foregoing considerations, under the hypothetical situation that any of the
measures at issue would be a prohibited subsid y, the United States suggests that a panel
recommendation that the measure be withdrawn 15 months after adoption of the DSB
recommendations and rulings would be “without delay” in the circumstances of this dispute.

28 Brazil’s Answer to Question 276 from the Panel, para. 11.
29 Canada – Certain Measures Affecting the Automotive Industry , WT/DS139/R, WT/DS142/R,
paras. 11.6-11.7.
30 Award of the Arbitrator, United States – Anti-Dumping Measures on Certain Hot-rolled Steel
Products from Japan: Arbitration under Article 21.3(c) of the DSU , WT/DS184/13, circulated
19 February 2002.

Table of Cases

EC – Hormones (US,
Canada)
Arbitrator Report, European Communities – Measures Concerning Meat
and Meat Products (Hormones) , WT/DS26/ARB and WT/DS48/ARB,
circulated 12 July 1999.
EC – Bananas
(Ecuador)
Arbitrator Report, European Communities – Regime for Import, Sale and
Distribution of Bananas, WT/DS27/ARB, circulated 9 April 1999.
EC – Bananas (US) Arbitrator Report, European Communities – Regime for Import, Sale and
Distribution of Bananas , WT/DS27/ARB/ECU, circulated 24 March
2000.
Brazil – Aircraft Arbitrator Report, Brazil – Export Financing Programme for Aircraft ,
WT/DS46/ARB, circulated 28 August 2000.
Japan – Agricultural
Products
Appellate Body Report, Japan – Measures Affecting Agricultural
Products, WT/DS76/AB/R, adopted 19 March 1999.
US – FSC Arbitrator Report, United States – Tax Treatment for “Foreign Sales
Corporations”, WT/DS108/ARB, circulated 30 August 2002.
US – Sheet/Plate from
Korea
Panel Report, United States – Anti-Dumping Measures on Stainless Steel
Plate in Coils and Stainless Steel Sheet and Strip from Korea , WT
/DS179/R, adopted 1 February 2001.
Canada – Aircraft II Arbitrator Report, Canada – Export Credits and Loan Guarantees for
Regional Aircraft, WT/DS222/ARB, circulated 17 February 2003.
US – Lumber CVD
Final
Appellate Body Report, United States – Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from Canada ,
WT/DS/257/AB/R, not yet adopted.

1. Introduction

1. Brazil sets forth its response to the US 11 February 2004 Comments on Brazil’s 28 January
Comments and Requests regarding the US Data (“US 11 February 2004 Comments”). Brazil
demonstrates in Sections 2 and 3 that the US criti que of any methodology for tabulating “support to a
specific commodity” is based on (1) a faulty lega l interpretation that only subsidies tied to the
production of a specific commodity can be counted for the purposes of Article 13(b)(ii) of the
Agreement on Agriculture, and (2) a faulty factual assumption that the non-green box US contract
payments did not provide support to maintain US production of upland cotton between MY 1999-
2002. In Section 5, Brazil responds to the US 11 February 2004 Comments by demonstrating that
applying Brazil’s and the US methodologies (along with two slight variations thereof) to the
incomplete and inadequate US summary data (i ncluding the most recent 28 January 2004 data)
demonstrates that the US budgetary expenditu res in MY 1999-2002 exceed the level of support
decided in MY 1992. Finally, Brazil responds to a number of other points raised by the US
11 February 2004 Comments in Sections 4, and 6-10.

2. The US Critique of Brazil’s Methodology Is Based on the Flawed US Interpretation of
“Support to a Specific Commodity” and, Alternatively, “Non-Product Specific Support”

2. The United States’ 11 February 2004 Comments challenging Brazil’s methodology for
counting contract payments are premised on a faul ty interpretation of Article 13(b)(ii) of the
Agreement on Agriculture. The US comments continue the US interpretation that the Panel can only
count as “support” in MY 2002 those non-green box subsidies that require the production of upland
cotton.
1 But this leaves behind a number of subsidies that significantly and directly support
production of upland cotton. As Brazil has previous ly argued, the Panel is required to count under
Article 13(b)(ii) as “support to upland cotton” for MY 1999-2002 all identifiable non-green box
support to upland cotton that supports, either directly or indirectly, the production or sale of upland
cotton.2

 2.1 US 11 February 2004 Comments Improp erly Interpret the Phrase “Support to a
Specific Commodity”

3. The United States argues that no allocation methodology can be applied by the Panel under
Article 13(b)(ii) of the Agreement on Agricultu re. This US argument is based on the US
11 February 2004 Comments that “support to” mean s support “tied to” the production of a specific
commodity.
3 In evaluating this argument the Panel should examine the ordinary meaning of the
phrase “support to a specific commodity” in Article 13(b)(ii). The word “support” is defined as “the
action of preventing a person from giving way or of backing-up a person or group; assistance,
backing”.4 “Support” does not mean or require, as the US comments suggest, an “incentive” or
“encouragement” to produce. The SCM Agreem ent Annex IV, paragraph 3 phrase “tied to the
production or sale of a [specific commodity]” is not found in Article 13(b)(ii). Rather, the word
“support” has a more general sense of “backing up” a group of agricultural farmers producing a
specific commodity. For example, subsidies that cover costs of production when a farmer chooses to
grow a crop, “back up” or “support” that farmer. While some non-green box subsidies at issue in this
dispute may create a greater incentive to produce ( i.e., marketing loan, counter-cyclical payments, or
crop insurance subsidies) than other subsidies (PFC or direct payments), all of these subsidies at issue
in this dispute “support” production of upland cotton because they cover (or contribute to) the costs of
production of a crop.

1 See US 11 August 2003 Answer to Question 38, para 81.
2 Brazil’s 22 August 2003 Rebuttal Submission, para. 14-16.
3 Brazil’s 11 February 2004 Comments, paras. 7-9.
4 New Shorter Oxford Dictionary, Volume II, p. 3152 (first definition).

4. The distinction between “support for production” and “incentive for” (or “tied to”) production
becomes relevant only when examining the effects these subsidies have in causing serious prejudice,
within the meaning of Part III of the SCM Agreem ent. Brazil and the United States agree that the
contract payments, which do not require production, create less direct incentives to produce than, e.g.,
marketing loan payments, Step 2 payments and crop insurance subsidies. But it is improper to impose
an “incentive to” or “tied to” production test when counting up the non-green box “support” to a
specific commodity under Article 13(b)(ii) of the Agreement on Agriculture. As noted above, the
meaning of the phrase “support to” is a far broader concept. Indeed, the chapeau of Article 13(b)(ii)
confirms this broader meaning of “support,” becau se it includes all types of non-green box measures,
without regard to whether they create direct production incentives.

5. The United States’ comments continue to repeat the flawed mantra that “support to a specific
commodity” means exactly the same thing as “product-specific support”. 5 Negotiators presumably
knew what they intended when they used the very particular term “product-specific support”. They
used the term repeatedly in th e Agreement on Agriculture, and even defined “non-product-specific
support” in Article 1(a) – yet they declined to use “product-specific support” in Article 13(b)(ii).
Accepting arguendo the US narrow interpretation of “product-specific” 6, one reason may be that the
“support to a specific commodity” phrase was not intended to mean only support that is tied to one
product, but rather is intended to include all support that is provided, either directly or indirectly, to a
product. The term “specific” clarifies that Article 13(b)(ii) focuses on any support to an individual
commodity, not a group of commodities such as “grains”7 or even all commodities. In fact, the notion
of a “specific commodity” is very analogous to the “like product” in, inter alia, Articles 5 and 6 of the
SCM Agreement and Article XVI of GATT 1994 – pr ovisions that are expressly referenced in
Article 13(b)(ii) of the Agreement on Agriculture.

6. The United States argues that the Panel is prohibited from even including as “support to”
upland cotton, let alone applying any allocation methodology to, any non-green box domestic support
measure.
8 This would be true even where a measure may provide billions of dollars of support to
producers of a “specific commodity”. This, of course, is based on the US view that only support
directly tied to the production of a specifi c product is covered by Article 13(b)(ii).
9 But because
Article 13(b)(ii) captures all non-green box domestic subsidies that support a commodity, it may
require the application of an allocation met hodology for many trade- and production-distorting
domestic support measures that may provide support to more than one commodity. The issue under
Article 13(b)(ii) is whether a particular commod ity receives “backing” or “support” from a domestic
support measure. But the sole fact that multiple commodities are supported by a single type of (trade-
and production-distorting) measure does not mean that the “support” or backing suddenly disappears
when tabulating the amounts of support for the purpose of Article 13(b)(ii).

7. Applying a methodology such as that proposed by Brazil is consistent with the object and
purpose of Article 13(b)(ii) – to capture all iden tifiable non-green box trade distorting subsides that
“support” upland cotton production. To allow hu ge amounts of trade- and production-distorting
support – such as the almost $1 billion in counter-cyclical payments received by almost every upland
cotton farmer in MY 2002 – to remain uncounted renders any disciplines during the implementation
period inutile. Were this the intention of nego tiators, as the United States argues, then it would
certainly have been stated explicitly – with langua ge such as “exempt from actions … provided that
measures which are paid upon the production of a specific commodity do not grant support to a
specific commodity in excess of that decided duri ng the 1992 marketing year”. Or with language

5 US 11 February 2004 Comments, paras. 11-14.
6 Brazil disagrees with the US interpretation, as set out in Section 2.2, infra.
7 Brazil’s 11 August 2003 Answer to Question 42, paras. 59-60.
8 US 11 February 2004 Comments, para 36 (arguing that “support to a specific commodity” really
means “product-specific support”).
9 US 11 August 2003 Answers to Question 38, para. 81.

such as “exempt from actions … provided that measures are directed only at a specific commodity do
not grant support … .” It would have been simp le to include these explicit phrases limiting support
measures to only subsidies tied to production. But no such limitations were made in the sui generis
provisions of Article 13(b)(ii).

8. In rejecting the narrow US “required production” test for “support to” in Article 13(b)(ii), the
Panel must also reject the US criticisms of Br azil’s methodology for calculating support to upland
cotton. This is because the US challenge to Br azil’s methodology is premised on incorporating into
Article 13(b)(ii) the test that the only trade and pr oduction distorting support that can be counted is
support that is de jure “tied to the production or sale of a give n product”. Yet, this “tied to the
production” language is found onl y in Annex IV, paragraph 3 of the SCM Agreement – not
Article 13(b)(ii) of the Agreement on Agriculture.

 2.2 The US 11 February 2004 Comments Improperly Interpret the Phrase
“Product-Specific”

9. Brazil has argued, in the alternative , that the contract payments would also be considered to
be “product-specific” support if the term “product-sp ecific” had actually been used in the text of
Article 13(b)(ii).
10 Brazil argued that the meaning of “product-specific” AMS must be governed by
the only term providing some guidance to what it means – the definition of “non-product-specific
support” in Article 1(a) of the Agreement on Agriculture. 11 Because the United States raised this
issue in its 11 February 2004 Comments, 12 Brazil addresses it below, referencing Brazil’s earlier
arguments.

10. As a preliminary matter, however, Brazil must correct an error in the US 11 February 2004
Comments. The United States falsely asserts that Brazil has “conceded that ‘support to a specific
commodity’ refers to ‘product-specific support’”.
13 The alleged “concession” by Brazil14 becomes the
foundation for the US arguments in paragraphs 11-17 of the US 11 February 2004 Comments.

11. As the Panel knows, Brazil argued extensively – and correctly – in th e peace clause phase of
this dispute that the phrase “support to a specific commodity” is not the same as “product-specific
support”.
15 Brazil’s earlier arguments noted that under the facts of this case, all of the non-green box
support payments challenged by Brazil as “suppor t to a specific commodity” would also be
considered “product-specific support”, within the meaning of Article 1(a) of the Agreement on
Agriculture.16 However, this argument was only made in the alternative, to demonstrate that, even
under the incorrect US theory, the amount of “p roduct-specific” support for upland cotton in MY
1999-2002 exceeded the level of “product-specific” support for upland cotton decided in MY 1992.

10 Brazil’s 11 August 2003 Answers to Questions 40-41; Brazil’s 11 August 2003 Rebuttal
Submission, paras. 24-52.
11 Brazil’s 11 August 2003 Answers to Questions 40-41; Brazil’s 22 August 2003 Rebuttal
Submission, para. 19.
12 US 11 February 2004 Comments, paras. 11-14.
13 US 11 February 2004 Comments, paras. 11, 14.
14 The text of the alleged “concession” made by Brazil is “In sum, Brazil maintains its position –
supported by all third parties – that the support from contract payments that can be allocated to upland cotton is
product-specific support within the meaning of the Agre ement on Agriculture.” What the United State neglects
to note in its “concession” assertion is that Brazil then cited to its 22 August 2003 Rebuttal Submission,
paras. 3-23 and 24-52, where Brazil argued exactly th e same position it has set forth in these comments.
Therefore, there was no “concession” or otherwise by Brazil.
15 Brazil’s 22 August 2003 Rebuttal Submission, paras. 13-22. Brazil’s 22 July 2003 Oral Statement,
paras. 13-26. Brazil’s 24 July 2003 Closing Statement, para. 8.
16 Brazil’s 22 August 2003 Rebuttal Submission, paras. 13-52. Brazil’s 22 August 2003 Comments on
US Answers to Questions 38-39, paras. 48-53, Question 43, para. 58.

12. The US 11 February 2004 Comments now go so far as to argue that any allocation
methodology under Article 13(b)(ii) – which it argues means “product-specific” support – is
prohibited by the Agreement on Agriculture. 17 One interpretative guide to determine whether support
is “product-specific” is found in the definition of “non-product-specific support” in Article 1(a) of the
Agreement on Agriculture. Brazil demonstrated that only non-product specific support is actually
defined and that it includes “support provided in favour of agricultural producers in general”.18 The
United States asserts that Brazil’s definition of “g eneral” is obsolete and that “general” means any
support provided to more than one commodity. 19 But this is a tortured reading of the term “in
general”. “Non-obsolete” definitions of “general” include “relating to a whole class of objects” and
“not partial, local or sectional”. 20 As with the so-called “obsolete” definition criticized by the
United States, these definitions fully support the ordinary meaning of “non-product-specific” support
as support provided to a broad range of producers covering a wide variety of agricultural products, not
simply more than one, as the United States argues.

13. Further context for the existence of some sort of an allocation methodology in the Agreement
on Agriculture is Annex 3, paragraph 7, which pr ovides that “[m]easures di rected at agricultural
processors shall be included to the extent that such measures benefit the producers of the basic
agricultural products”. This use of the term “benef it” is very similar to the notion of “support” as
used in Article 13(b)(ii). The assessment of the extent to which measures directed at agricultural
processors benefit producers of a particular produc t necessitates a delineation of support that actually
benefit upstream agricultural producers. This requires an allocation methodology.

14. Further, the narrow US interpretation is contra dicted by Annex 3, paragraphs 7, 8, 12 and 13
of the Agreement on Agriculture, which include as “product-specific” many types of domestic support
not tied to the production of a particular commodity.
21 Nor do the Agreement on Agriculture citations
in paragraph 12 of the US 11 February 2004 Comments provide guidance as to where to draw the line
for “non-product specific support”.

15. While future negotiators may decide to cl arify exactly what “product-specific” means in
future revisions of the Agreement on Agriculture, the present text does not provide the “hard and fast”
“production-requirement” subsidy rules advanced by the United States in this dispute. Indeed, Brazil
notes that all commenting third parties in this disp ute have stated their belief that the US counter-
cyclical payments and crop insuran ce subsidies were “product-specific”.
22 This suggests that the
United States’ trading partners do not agree that there is a “production-requirement” test for “product-
specific support”. Consistent with these third part y views, there is nothing in the text of the
Agreement on Agriculture to support a finding that “product-specific” is determined solely by the de
jure form of the payment or by whether the payment is tied to the production of the crop. Nor does
the Agreement on Agriculture support the US hard a nd fast “tied to production” test. Absent such
guidance, the determination of whether agricu ltural support is specific or “general” is a factual issue
that must be decided on a case-by-case basis.

17 US 11 February 2004 Comments, paras 11 and 36 (“the definitions of product-specific support and
non-product specific support (and thei r application in the Agreement on Agriculture) do not permit any such
allocation … ”.).
18 Brazil's 11 August 2003 Answers to Questions 40-41.
19 US 11 February 2004 Comments, para. 10.
20 New Shorter Oxford Dictionary, Volume I, p. 1073 (definitions 1, 3, 4).
21 Brazil’s 22 August 2003 Rebuttal Submission, pa ras. 17-18 (illustrating that many non-green box
measures considered as “product-specific” support do not contain “tied-to” production requirements). The
United States never rebutted this argument.
22 See New Zealand’s 11 August 2003 Answer to Third Party Question 15; Argentina’s 11 August
2003 Answer to Third Party Question 15 and 23 July 2003 Oral Statement, para. 8; EC’s 11 August 2003
Answer to Third Party Question 15 See also Exhibit Bra-144 (G/AG/R/31, paras. 29-32).

16. The US 11 February 2004 Comments further state that “product-specific” and “non-product-
specific” are disjunctive, and that Article 6.4 of the Agreement on Agriculture requires de minimis
levels of support to be categorized into “product-specific” and “non-product-specific”.
23 This is true,
but begs the question of how and when to dr aw the line between product-specific and non-product-
specific support. For example, the United States ha s argued that MY 2002 counter-cyclical payments
for upland cotton are non-product specific. 24 But in MY 2002, upland cotton counter-cyclical
payments of almost $1 billion were received by producers holding only 1.7 per cent of US farmland.25
Brazil agrees with the EC, New Zealand, and Argen tina that such payments are “partial, local or
sectional” to particular US producers. 26 They are not provided “in general” to a broad group of US
producers. Thus, they should be allocated as “p roduct-specific support,” including for purposes of an
Article 6.4 de minimis analysis.

17. The United States argues that a single type of domestic support measure cannot be both
“product-specific” and “non-product-specific” support.
27 Once again, the answer to this question
would depend on the facts of the case. For example, if 95 per cent of the expenditures of a so-called
decoupled payment ended up in the pockets of fa rmers producing a single commodity (such as upland
cotton counter-cyclical payments), these facts w ould support the finding of product-specific support
for that commodity. Whether the other nine commodities eligible to receive a similar type of payment
were also receiving product-specific support would have to be decided on a case-by-case basis.
Similarly, if a decoupled payment programme gave farmers the flexibility to grow four different
crops, but these crops represented onl y 10 per cent of total commodity production in that Member,
then the support for each of these crops might be considered to be “product-specific”.

18. In sum, the use of the term “in general” in Article 1(b) of the Agreement on Agriculture
implies that this is a question of fact, the answ er to which depends on a host of factors, not a
simplistic and non-textually based “tied to production” rule, as advanced by the United States. Any
other interpretation would write text into the Agre ement on Agriculture that is not there and was not
agreed to by Members. As the comments of th e EC, New Zealand and Argentina in this dispute
vividly illustrate, there is not an universal understanding that product-specific support means only
domestic support that is de jure tied to production. By defining “non-product-specific support” using
the “in general” language, Members provided flexibility to examine, on an case-by-case basis,
whether the domestic support was so linked to a handful of products that it could not be considered
“non-product specific support”.

19. Finally, Brazil does not believe that the Panel, in this dispute settlement proceeding, is
required to interpret “product-specific” support to resolve the now-expired peace clause provisions of
Article 13(b)(ii). The concept of “product-specific” continues to be a significant issue with respect to
ongoing negotiations and in future interpretations of Members’ obligations to comply with their “total
AMS” requirements. Brazil’s claims in this dispute do not challenge the “total AMS” of the
United States. Brazil has never cl aimed that “AMS” must be interpreted in this dispute. The
interpretative issues relating to the peace clause can and should be r esolved by interpreting the terms
actually used in that provision – “support to a sp ecific commodity” – not by interpreting the term
“product-specific” that the United States now seeks to substitute in place of a carefully negotiated
text.

23 US 11 February 2004 Comments, para. 12.
24 US 22 August 2003 Rebuttal Submission, paras. 86-88.
25 Brazil’s 11 August 2003 Answers to Question 44, paragraph 62 (first and next to last bullets).
26 See New Zealand’s 11 August 2003 Answer to Third Party Question 15; Argentina’s 11 August
2003 Answer to Third Party Question 15 and 23 July 2003 Oral Statement, para. 8; EC’s 11 August 2003
Answer to Third Party Question 15 See also Exhibit Bra-144 (G/AG/R/31, paras. 29-32).
27 US 11 February 2004 Comments, paras. 13-14.

3. Brazil’s Methodology is Supported by Undisputed Evidence that the Contract Payments
were Essential to Maintain Upland Cotto n Production Between MY 1999-2002, and,
thus, are Support to Upland Cotton

20. The US critique of Brazil’s methodology rests not only on an incorrect legal interpretation of
“support to a specific commodity,” but more fundamentally on its false assumption that contract
payments do not support the production of upland cotton. This factual assumption permeates all of
the 32 pages of the US 11 February 2004 Comments. It is articulated by asserting that the contract
payments are “decoupled” or “not tied to” the production of upland cotton. Ultimately, the
combination of these flawed legal interpretations a nd factual assumptions result in the equally flawed
US assertion that its Annex IV methodology is the only way to allocate contract payments (albeit only
for purposes of Part III of the SCM Agreement).

21. In evaluating which methodology to use to count contract payment as “support to cotton”, the
starting point is the necessary fact that all the contract payments at issue are non-green box support.
28
For example, direct payments and counter-cyclical payments are not properly considered “decoupled
income support”, within the chapeau of paragraph 6 of Annex 2 of the Agreement on Agriculture. 29
This means that each of the contract payments is linked (or coupled), to some extent, to the production
of one or more agricultural commodities. In addition, prior to applying the methodology, it must have
been determined that the non-green box measures are “support to a specific commodity”.

22. Having demonstrated these first two steps, the next question is the “amount of the support” to
a specific commodity. This is a factual question and requires assessing to what extent a particular
non-green box subsidy supports or maintains the production of a specific commodity or commodities.
This initially requires an examination of the lega l structure of the support mechanism. But more
importantly, it requires an examination of the reco rd evidence concerning the extent to which the
payments de facto support or maintain the production of a specific commodity. Applied to this case,
it means that the stronger the requirement for the contract payments to maintain ( i.e., cover the costs
of) production of upland cotton, the more appropriate it is to use a methodology that treats each dollar
of payments received directly by producers of upland cotton as “support to” upland cotton.

23. The US “Annex IV” methodology assumes that a ll four contract payments are not tied in any
significant way to the production of upland cotton. The primary evidence relied on by the
United States are the legal provisions of the 1996 FAIR Act and the 2002 FSRI Act, which permit
“producers” to grow other crops (except fruits, vegeta bles and wild rice) and still receive the contract
payments. The United States argued that the legally permitted “decoupled” form of the support
requires the payment to be spread out over the entire value of a farm’s production.
30 It is this
assumption that underpins the US Annex IV methodology.

24. Calculating the amount of contract payments that is “support” to upland cotton by allocating
the benefit of those payments across total producti on of farms receiving the payments might make
sense if the four contract payments had, in fact, no significant role in maintaining the production of
upland cotton. But the US methodology runs headlong into the overwhelming weight of the evidence
showing a direct and significant link between “produ cers” receiving upland cotton contract payments
and “producers” planting upland cotton. Brazil produced extensive evidence showing the link

28 The Panel would not be able to count these programmes for purposes of Article 13(b)(ii) unless they
are out of the green box, and thus, “non-green box” support.
29 See e.g. Brazil’s 24 June 2003 First Submission, Section 3.2.7 and 3.2.8; Brazil’s 22 August 2003
Rebuttal Submission, Section 2.1.

between these contract payments and th e maintenance of upland cotton production.
31 Consider the
following key uncontested facts:

• 96 per cent of MY 2002 upland cotton acreage w as planted on farms that hold upland cotton
base.
32 This demonstrates that the overwhel ming majority of current US upland cotton
production is planted on upland cotton base a nd shows that, in fact, direct and counter-
cyclical payments are directly linked to current production.

• US upland cotton producers would have lost $332.79 per acre between MY 1997-2002 if they
had not received upland cotton contract payments. 33 This demonstrates the critical role
contract payments play in sustaining production of upland cotton during MY 1999-2002.

• Without direct and counter-cyclical payments in MY 2002, the average US cotton farmer
would have lost 14.36 cents per pound. With th ese two payments, they earned a “profit” of
4.2 cents per pound with the cotton DP and CCP payments.34

• Producers growing crops on upland cotton acreage receive much higher per acre payments
than all other “covered commodities”, except rice. The higher per acre payments are directly
related to the higher costs to pro duce cotton compared to other crops. 35 This fact highlights
the expectation that former producers would continue to be present producers. 36 This is an
expectation that is a reality, since 96 per cen t of upland cotton farmers do plant upland cotton
on high per-acre payment upland cotton base acreage.

• Upland cotton producers in MY 2002 recei ved $446.8 million in upland cotton direct
payments, representing a subsidization rate of 13.1 per cent.37

• Upland cotton producers in MY 2002 recei ved $986.4 million in upland cotton counter-
cyclical payments, representing a subsidization rate of 28.9 per cent. 38

• The amount of US planted cotton acreage has s hown only relatively small shifts over the past
ten years regardless of market price movements, confirming the influence of the contract

31 Brazil’s 9 October 2003 Closing Statement, Annex I (Summary of Evidence Demonstrating that
Upland Cotton Producers in MY 1999-2002 Produced Upland Cotton on Upland Cotton, Rice, or Peanut Base
Acreage); see also Brazil’s 27 October 2003 Answers to Question 125(a), paras. 7-25; Brazil’s
18 November 2003 Further Rebuttal Submission, Sections 2.1 and 3.1; Brazil’s 2 December 2003 Oral
Statement, paras. 25-27.
32 See Annex A, Section 1, para. 16. This figure might be slightly overstated by possible aggregation
problems. However, Brazil notes that the total amount of upland cotton base on farms planting upland cotton
and holding upland cotton base exceeds MY 2002 plantin gs by 800,000 (13.8 million acres v 13 million acres),
suggesting that any aggregation problem for MY 2002 is not significant.
33 Brazil’s 2 December 2003 Oral Statement, paras 25-27 and Exhibit Bra-353.
34 Brazil’s 22 August 2003 Rebuttal Submission, paras. 39-41.
35 Brazil’s 18 November 2003 Further Rebuttal Submission, para. 70 and Exhibit Bra-324 (NCC
Chairman’s Report by Kenneth Hood, 24 July 2002, p. 2)..
36 See Brazil’s 9 September 2003 Further Submission, para. 344 and Exhibit Bra-109 (Testimony (Full)
of Robert McLendon, Chairman, NCC Executive Committee, before th e House Agriculture Committee,
National Cotton Council, p. 5-7) arguing for higher upland cotton loan rates and “decoupled commodity
payment rate[s].”
37 See Annex A, Section 1, Table 1.5. See Table 3.8 for the total value of the upland cotton crop on all
farms producing upland cotton.
38 See Annex A, Section 1, Table 1.5. See Table 3.8 for the total value of the upland cotton crop on all
farms producing upland cotton.

payments in maintaining large volumes of production. 39 This evidence is consistent with
NCC testimony and USDA data showing that mo st upland cotton farmers do not shift out of
specializing in upland cotton production towards the production of other crops to any great
extent.
40

• NCC officials repeatedly stat ed that their cotton farmer members cannot produce upland
cotton without contract payments, and they have always treated contract payments as an
integral part of an overall subsidy package of support for upland cotton production.
41

25. In addition to the above, the provisions of th e 2002 FSRI Act are evidence that upland cotton
contract payments were intende d to support the production of upland cotton. First, Section
1104(c)(1)(F) of the 2002 FSRI Act sets a “target pr ice” for upland cotton of 72.4 cents per pound,
which guarantees high revenues in much the same way that deficiency payments worked before MY
1996. This upland cotton-specific “target price” was requested by the NCC in 2001 and exists to
support upland cotton – not the production of other cr ops. The cotton target price results in much
higher per acre counter-cyclical payments for upland cotton than other crops (except rice). Second,
Sections 1103(a) and 1104(a) require payments to current producers growing on covered crop base
acreage. In other words, Congress intended that onl y farmers actually planting crops (or sharing the
risk of planting a crop if one would have been pro duced) would directly receive the payments. Third,
Section 1103(b) of the 2002 FSRI Act establishes very high direct payment rates for upland cotton
base relative to other “covered commodities”
42

26. The facts set out above are crucial for understanding why the US “Annex IV” methodology
rests on a completely false assumption. That assumptio n is that US producers of upland cotton do not
need or rely on the full amount of upland cotton pa yments to cover their long-term losses from the
production of upland cotton . The United States implements this assumption by proposing that the
only methodology that can be used is one that w ould spread the entire amount of the contract
payments across the total value of an upland co tton farmer’s production. But the record shows
conclusively that most upland cotton farmers simp ly could not produce upland cotton profitably in
MY 1999-2002 without using all contract payments they demanded and received for their upland
cotton production.

27. The US 11 February 2004 Comments argue that Brazil’s methodology for counting support to
upland cotton makes “no economic sense”.
43 But it is the US Annex IV methodology, as applied to
contract payments to US upland cotton producers, th at makes no economic sense. For example, if
upland cotton farmers were, in fact, using these paymen ts to support unprofitable dairy, livestock, or
fish farming operations, then they would have lost money on their upland cotton production. The fact
that US producers were able to grow any upland cotton at all in MY 2002 after four straight years of
huge “losses” (totalling $872 per acre by MY 2002,
44 comparing production costs and market
revenue) demonstrates conclusively the production-sustaining effects of these subsidies.45 Indeed, the

39 See Brazil’s 27 October 2003 Answers to Questions, paras. 35-36; Brazil’s 18 November 2003
Further Rebuttal Submission, paras. 81-88.
40 Brazil’s 9 October 2003 Closing Statement, Annex I (Summary of Evidence Demonstrating that
Upland Cotton Producers in MY 1999-2002 Produced Upland Cotton on Upland Cotton, Rice, or Peanut Base
Acreage, paras. 9-12.
41 Exhibits Bra-3, 108, 109, 111 and 252. Brazil’s 9 October 2003 Closing Statement, Annex I
(Summary of Evidence Demonstrating that Upland Cotton Producers in MY 1999-2002 Produced Upland
Cotton on Upland Cotton, Rice, or Peanut Base Acreage, paras. 14-19.
42 See Exhibit Bra-29 (2002 FSRI Act).
43 US 11 February 2004 Comments, para. 37.
44 Brazil’s 27 October 2003 Answers to Questions, paras. 35-36
45 Without contract payments, US producers would have lost $332.79 per acre over the 6-year period.
Brazil’s 2 December 2003 Oral Statement, paras. 25-27 and Exhibit Bra-353.

continued high levels of plantings in MY 2002 d espite these losses are strong evidence that upland
cotton producers did in fact (a) receive, and (b) u se upland cotton contract payments to sustain their
upland cotton production during MY 1999-2002. If not , US upland production would have been far
lower, as farmers simply could not have survived economically. Thus, the US assumption in its
“Annex IV” methodology that producers did not need or use upland cotton payments to sustain high-
cost upland cotton production is simply wrong.

28. By contrast, Brazil’s methodology properly reflects the economic reality of the key role these
payments played in sustaining US upland cotton production in MY 1999-2002. Brazil, like the NCC,
believes that the contract payments were necessary for the maintenance and the survival of US upland
cotton production during MY 1999-2002.
46 In keeping with the key ro le that upland cotton contract
payments played in sustaining upland cotton production, the principal element of Brazil’s
methodology focuses only on upland cotton contract pa yments made to producers of upland cotton.
Such “cotton to cotton” payments represent the va st bulk of contract payments received by upland
cotton producers. For example, under Brazil’s methodology, 99.1 per cent of the MY 2002 direct
payments received by upland cotton producers were upland cotton payments.
47 Similarly, under
Brazil’s methodology, 99.8 per cent of the MY 200 2 counter-cyclical payments received by upland
cotton producers were upland cotton payments. 48 Treating all of these “cotton to cotton” payments as
support to upland cotton is fully supported by th e essential role these cotton payments play in
sustaining US upland cotton production.

29. The second (and relatively minor) part of Br azil’s methodology is to account for the non-
upland cotton contract payments received by cu rrent upland cotton producers. These non-upland
cotton base payments represented a tiny 0.9 per cent in MY 2002 of the total direct payments
allocated to upland cotton under Brazil’s methodology, and 0.2 per cent in MY 2002 of the counter-
cyclical payments allocated to upland cotton under Brazil’s methodology. This small part of Brazil’s
methodology first pools any contract payments receiv ed for base acres not plan ted to their respective
base crop and then distributes them as support to these contract payment crops according to their
share of total “overplanted” base acreage on the farm.

30. The facts show that it is appropriate for Braz il to allocate these payments over the plantings of
the other “covered commodities” produced by an upland cotton producer. Brazil demonstrated that,
for each of the marketing years from 2000-2002, an upland cotton producer growing upland cotton on
non-contract acreage would have suffered considerable losses.
49 Even growing on non-upland cotton
(except rice) base acreage would have resulted in losses during most of the period of investigation. 50
Therefore, the relatively few upland cotton producers planting on some other type of base acreage
needed and relied on the non-upland cotton payments to come close to making a profit. Without such
payments, the average producer would have not been able to sustain upland cotton production.

31. In addition, the allocation across all contract crops (as opposed to all farm products produced)
is justified by the evidence of the “specific” na ture of the “covered commodity” payments. The
United States never contested Brazil’s evidence or argument that the contract payments are “specific”
subsidies within the meaning of the SCM Agreemen t. For example, the United States never rebutted
evidence that the 2002 FSRI Act “covered commoditi es” represented only 24 per cent of the value of
US farm receipts (and 30 per cent of US farm acreage) in MY 2002, and that the 1996 FAIR Act
“programme crops” represented less than 14 per cent of the value of US crops (and 22 per cent of the

46 Brazil’s 24 June 2003 First Submission, para. 1.
47 See Annex A.2, Tables 2.9, 2.21 and 2.21.
48 See Annex A.2, Tables 2.9, 2.20 and 2.21.
49 Brazil’s 27 October 2003 Answers to Question 125(c), paras. 15-25; Brazil’s 22 August 2003
Rebuttal Submission, paras. 39-44, and 30-31.
50 Brazil’s 27 October 2003 Answers to Question 125(c), paras. 15-25; Brazil’s 22 August 2003
Rebuttal Submission, paras. 39-44, and 30-31.

acreage) during MY 1999-2001. 51 Nor did the United States ever rebut any of the numerous
statements of the users and recipients of the cont ract payments – the NCC – that they needed and
received contract payments to survive.52

32. In sum, the proper allocation methodology under Article 13(b)(ii) of the Agreement on
Agriculture must be consistent with the extent to which the domestic support payments directly
maintain the production of a specific commodity. Br azil’s methodology reflects the crucial role that
each of the four contract payments plays in main taining the production of US upland cotton. By
contrast, the US “Annex IV” methodology assumes incorrectly that these payments do not support
upland cotton any more than they support catfish farming or other production activities on an upland
cotton farm. For the above reasons , Brazil requests that the Panel re ject the US arguments, and adopt
Brazil’s methodology for allocating the contract payments.

4. A Methodology to Count Contract Payments Is Appropriate Based on the Text of
Article 13(b)(ii) of the Agreement on Agriculture

33. The United States criticizes Brazil’s met hodology (and presumably any other methodology)
because it is not based in the “text” of th e peace clause or the Agreement on Agriculture.
53 Instead,
the United States argues that the Panel should use Annex IV of the SCM Agreement as the basis for
its calculation of the amount of the contract payments.54

34. Article 13(b)(ii) of the Agreement on Agri culture does not provide explicit guidance on how
to count up the amount of support for contract or any other type of payments. 55 But that does not
mean that no counting methodology can be used. The absence of explicit guidance on implementing
more general provisions has not stopped WTO panels or parties from proposing and using
methodologies to tabulate the amount of subsidies, costs, and volumes of trade impacted.

35. The Panel only need to look as far as the expor t credit guarantee arguments in this dispute as
an example. Item (j) establishes that export cred it guarantee programmes constitute export subsidies
if they are operated at premium rates that are in adequate to cover the long-term operating costs and
losses of the programmes. 56 There is no explicit methodology provided in the text of item (j) that
would define how to apply this provision. Yet, the United States has repeatedly argued for the
application of a cash-basis accounting methodology to tabulate the amount of costs and losses.

36. Similarly, DSU Article 22.7 requires any suspen sion of concessions to be “equivalent to the
level of nullification or impairment”. As with Ar ticle 13(b)(ii) of the Agreement on Agriculture, this
requires the tabulation of amounts – in the case of Article 22.7, the amounts of trade impacted through
the non-implementation of WTO-inconsistent measures. Again, there is no methodology provided in
Article 22.7 to assess the level of nullification or impairment. Nevertheless, arbitrators, at the urging,
inter alia, of the United States, have applied DSU Artic le 22.7 using a variety of methodologies
developed on a case-by-case basis to assess the level of nullification or impairment.
57

51 Brazil’s 22 August 2003 Rebuttal Submission, paras. 24-25; Brazil’s 9 September Further
Submission, paras. 46, 55.
52 See e.g. Brazil’s 22 July 2003 Oral Statement, paras 52-53, 58-60; Brazil’s 24 June 2003 First
53 US 11 February 2004 Comments, para. 8.
54 The United States argues that its methodology can only be used in connection with Part III of the
SCM Agreement, not the Agreement on Agriculture. (See e.g. US 11 February 2004 Comments, paras. 2, 86).
55 Nor does Annex IV, as discussed in Section 4 below.
56 Brazil also claims that the export credit guarant ee programmes constitute export subsidies under the
terms of Articles 1.1. and 3.1(a) of the SCM Agreement.
57 Arbitrator Report, EC – Bananas (US) , WT/DS27/ARB; Arbitrator Report, EC – Bananas
(Ecuador), WT/DS27/ARB; Arbitrator Report, EC – Hormones (US, Canada) , WT/DS26/ARB and

37. Finally, other provisions of the WTO Agre ement similarly require WTO Members, as a
practical matter, to implement ge neral obligations by applying di fferent valuation and allocation
methodologies under general Anti-Dumping Agreement and the SCM Agreement rules.
58

38. The United States argues that only Annex IV of the SCM Agreement offers any useful
context. While it derides Brazil’s methodology as being “invented”, a close look at the text of
Article IV reveals that it is ill-equipped to address th e tabulation of support issue before the Panel.
Annex IV, which is entitled “Calculation of the Total Ad Valorem Subsidization (Paragraph 1(a) of
Article 6)” deals – as the title indicates – with th e calculation of subsidization rates, within the
meaning of Article 6.1(a) of the SCM Agreement. However, the “support to cotton” question before
this Panel is not establishing an ad valorem subsidization rate, but rather the calculation of the amount
of support to upland cotton, within the meaning of Article 13(b)(ii) of the SCM Agreement.

39. But setting aside the problem that Annex IV d eals with calculation of a subsidization rate, the
US contract payments at issue in this dispute are de facto tied to upland cotton production. Thus,
Annex IV paragraph 3 would be implicated, i.e., the subsidization rate is determined by dividing the
total amount of the tied contract payment subsidies by the total value of upland cotton sales. But this
presupposes that the amount of the payments subsid ies is known. Thus, Annex IV does not answer
the crucial question how to determine the amount of the de facto tied contract payments that constitute
support to upland cotton. Instead, it only offers a methodology to calculate the subsidization rate for
known amounts of subsidies.

40. Indeed, Annex IV itself recognizes that there are holes in its provisions, stipulating in
footnote 62 to Annex IV that “[a]n understanding among Members should be developed, as necessary,
on matters which are not specified in this Annex or which need further clarification for purposes of
paragraph 1(a) of Article 6”. One such matter coul d have been the scope of the meaning of “tied to
the production or sale of a given product” . Must the “tie to production” be de jure as the United
States argues, or de facto as Brazil asserts? But no understanding or clarification of this, or any other
issue relating to Annex IV, was agreed to by Members prior to the expiration of Annex IV in 2000.

41. Thus, Annex IV does not assist the Panel in determining the amount of support to upland
cotton, within the meaning of Article 13(b)(ii) of the Agreement on Agriculture. Contrary to the US
arguments, paragraph 2 of Annex IV is inapplicable b ecause the subsidies at issue are de facto tied to
upland cotton production. Further, paragraph 3 of Annex IV does not provide any guidance on how to
calculate the amount of the subsidy which is the goal of the Article 13(b)(ii) exercise.

42. In conclusion, it is incorrect to assert that the absence of any specific methodology precludes
the Panel from applying one for the purposes of Article 13(b)(ii). It is also incorrect to claim that
Annex IV provides defini tive guidance, because it could only be useful for establishing a rate of
subsidization, and not for calculating the amount of the subsidy. Thus, as with its item (j) analysis,
the Panel needs to adopt a reasonable methodology to be applied for purposes of the peace clause in
assessing the amount of support to upland cotton from th e four contract payment programmes. This
methodology must reflect the facts in the record an d be consistent with the text, context and object

WT/DS48/ARB; Arbitrator Report, Brazil – Aircraft , WT/DS46/ARB; Arbitrator Report, US – FSC ,
WT/DS108/ARB; Arbitrator Report, Canada – Aircraft II, WT/DS222/ARB.
58 See e.g. Appellate Body Report, US – Lumber CVDs Final , WT/DS257/AB/R, paras. 155-166
(Appellate Body affirmed panel’s finding that a “pass-through” methodology analysis must be performed by
investigating authorities to determine the amount of subs idies benefiting down-stream purchases of subsidized
products; this was despite the fact that no specific methodology for pass through was explicitly set out in
Articles 10 and 32.1 of the SCM Agreement); Panel Report, US – Sheet/Plate from Korea , WT /DS179/R,
paras. 6.135-36 (finding USDOC methodology applying multiple averaging periods during the investigation
appropriate to implement “fair comparison” standard of Article 2.4 of the Anti-Dumping Agreement).

and purpose of Article 13(b)(ii). As Brazil has ar gued, its methodology – or some variant of its
methodology such as the cotton-to-cotton methodology – is reasonable given the key role that contract
payments played in the maintenance of upland cotton production during MY 1999-2002.59

5. The Evidence in the Reco rd Supports a Finding, under any Methodology, that the
United States’ Level of Support Provided in MY 1999-2002 Exceeded the amount of
Support Decided in MY 1992

43. Brazil responds in this section to the US 11 February 2004 Comments asserting that Brazil
has not established that the amount of “support to upland cotton” in MY 1999-2002 is greater than the
support decided in MY 1992. 60 Brazil’s basic response to these ar guments is that even if the United
States does not produce the farm-specific inform ation by 3 March 2004, the Panel has before it
sufficient evidence, including the ev idence of any adverse inferences, to establish the amount of four
contract payments for MY 1999-2002. The less-than-i deal data analyzed below confirms, in the first
instance, Brazil’s 14/16 th methodology. Moreover, even if the Panel were to rely directly on the
figures generated below from the application of Brazil’s methodology, the US Annex IV methodology
and a variation of each of those methodologies to the incomplete US data, 61 these figures support a
finding that the US support to upland cotton in MY 1999-2002 exceeded the level decided in
MY 1992.

44. Brazil’s analysis of the data below is necessary because Brazil’s 28 January 2004 original
analysis of the incomplete US data submitted on 18/19 December 2003 did not include additional data
the United States recognized
62 it failed to produce on 18/19 December 2003, and subsequently
produced on 28 January 2004. Brazil has made certa in adjustments to respond to criticisms of the
United States. Further, to assist the Panel, Brazil presents the calculations from a minor variation of
Brazil’s methodology and of the US Annex IV met hodology. In the final analysis, these various
methodologies are “tools” (not “claims”) that assist the Panel in making an objective assessment of
the US data and other evidence before it for pur poses of making a peace clause finding (and, if the
Panel deems this necessary, the amount of subsidization for Brazil’s serious prejudice claims).

45. Below, Brazil presents its updated results of the two methodologies applied in Sections 9 and
10 of its 28 January 2004 Comments and Requests Re garding US Data. This update is based on the
revised US data provided by the United States on 28 January 2004.
63 For detailed calculations, Brazil
refers the Panel to Annex A to this submission.

59 See Section 3, supra. The fact that the great majority of upland cotton is planted on upland cotton
base (86.34 per cent in MY 1999, 82.05 per cent in MY 2000, 80.10 percent in MY 2001 and 96.17 per cent in
MY 2002) lends considerable support for this conclusion . These amounts are calculate d as the share of upland
cotton production planted on farms holding upland cotton base (up to the amount of upland cotton base) of total
upland cotton plantings. MY 1999-2001 data are taken from category “1” farms and total upland cotton
planting from the rPFCsum.xls file provided by the United States on 28 January 2004. Data for MY 2002 is
taken from “Enrolled in Cotton PFC and planted cotton” farms and total upland cotton plantings from the
rDCPsum.xls file provided by the United States on 28 January 2004.
60 See US 11 February 2004 Comments, paras. 15-17. This section also responds to the US comments
that Brazil has not established a prima facie case of the amount of the contract payment subsidies for the
purpose of its serious prejudice claims.
61 Brazil recalls that even the revised US summary data produced on 28 January 2004 suffers from
aggregation problems and falls short of enabling the Pa nel and Brazil to account for soybean market loss
assistance and peanut direct and counter-c yclical payments in its allocations. See Section 3 of Brazil’s
28 January 2004 Comments and Requests Regarding US Data.
62 US 28 January 2004 Letter to the Panel and accompanying CD-Rom.
63 See US 28 January Letter to the Panel.

Cotton-to-Cotton Methodology

46. Brazil first presents the results of using a s light variation of Brazil’s methodology. Brazil
notes the US arguments that only upland cotton cont ract payments could be included in any “support
to” upland cotton. Counting only upland cotton paym ents would undercount the amount of contract
support, as Brazil argues in Section 9, infra.
64 But even though it undercounts the amount of support,
a methodology that examines only “cotton-to-cotton” payments is supported by the evidence in the
record described in Section 3 supra, including the fact that in MY 2002 96 per cent of upland cotton
was planted on upland cotton base acreage.65

47. Brazil sets out the results of examining only the upland cotton contract payments received by
producers planting upland cotton for MY 1999-2002 in Table 1.5 below:66

Annex A Table 1.5

Cotton-to-Cotton Methodology 67
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $515,310,673.4 $512,801,043.5 - -
2000 $482,422,346.0 $513,554,489.0 - -
2001 $387,916,892.8 $535,792,287.0 - -
2002 - - $446,796,377.9 $986,357,993.8

48. As Brazil described in its 28 January 2004 Co mments, the results of this analysis may be
distorted somewhat because the revised US su mmary data does not control for aggregation
problems.68 However, given the fact that the United States can be deemed to know the amount of
payments from a cotton-to-cotton match, any contin ued refusal of the United States to produce the
data should permit the Panel to infer that the data outlined above is accurate.

Brazil’s Methodology

49. Brazil also presents the results of applying its proposed methodology. However, given the
absence of farm-specific information, Brazil can present only a modified version of its proposed
methodology, as discussed in more detail in its 20 January 2004 Answers to Additional Questions
69
and applied in its 28 January 2004 Comments and Requests Regarding US Data.70 The data presented
below updates Brazil’s earlier calculations by usi ng the 28 January 2004 revised US summary data

64 US 11 February 2004 Comments, paras. 47-51. See also US 28 January 2004 Comments, paras. 34-
52, 208.
65 Calculated as the share of upland cotton production planted on farms holding upland cotton base (up
to the amount of upland cotton base) of total upland cotton plantings. MY 1999-2001 data are taken from
category “1” farms and total upland cotton planting from the rPFCsum.xls file provided by the United States on
28 January 2004. Data for MY 2002 is taken from “Enrolled in Cotton PFC and planted cotton” farms and total
upland cotton plantings from the rDCPsum.xls file provided by the United States on 28 January 2004.
66 This is because only in MY 2002 was less acreage planted to upland cotton than the total amount of
upland cotton base acreage held by farms producing upland cotton and holding upland cotton base. In MY
1999-2001, the amount of upland cotton acreage slightly exceeded the amount of upland cotton base. This
phenomenon is the effect of the base update allowed for under the 2002 FSRI Act.
67 For details of the calculations, see Annex A.1.
68 Brazil notes that the US summary data requested by the Panel on 3 February 2004 (part (b) of the
Panel’s Request for Information under DSU Article 13) would not result in aggregation problems tainting the
results, nor would farm-specific data withheld by the United States and requested by Brazil on 3 December 2003
and by the Panel on 8 December 2003, 12 January 2004 and 3 February 2004 (part (a) of the Panel’s Request for
Information under DSU Article 13).
69 See Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55.
70 See Section 9 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data.

that includes information on contract payments to farms not holding upland cotton base but producing
upland cotton.71 The following table shows the results of applying Brazil’s allocation methodology to
the revised US summary data.72

Table 2.21

Brazil’s Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $574,488,456.1 $571,690,622.7 - -
2000 $538,079,545.3 $572,803,412.3 - -
2001 $428,007,676.4 $591,165,829.7 - -
2002 - - $450,924,339.1 $988,252,054.4

Modified US Annex IV methodology

50. Brazil also applied the revised US summary data to a modified “Annex IV” methodology
allocating total contract payments to farm s producing upland cotton over the value of contract
payment crops produced on these farms. This methodology is based on two assumptions: first,
contract payments are support only to contract payment crops; and second, contract payments are
allocated pursuant to the value of these contract crops’ production on upland cotton producing farms.

51. Brazil believes that this methodology is not appropriate because it improperly undercounts the
amount of support provided to maintain the production of upland cotton. Nevertheless, the analysis of
this methodology permits the Panel to assess the impact of different assumptions on the amount of
contract payments allocated. Further, because the “cotton-to-cotton” and “Brazil’s” methodologies
are supported by the strong link between cont ract payments and maintaining upland cotton
production, the same evidence would more than support the modified Annex IV methodology. The
following table shows the results of this allocation methodology. Brazil notes these figures are
understated due to the fact that the United States di d not provide any data concerning soybean market
loss assistance payments and peanut direct and counter-cyclical payments.
73

Annex A Table 3.10

Modified Annex IV Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $576,544,351.0 $573,736,505.1 - -
2000 $546,052,507.2 $581,290,893.0 - -
2001 $399,648,260.3 $551,995,696.4 - -
2002 - - $431,923,303.9 $722,082,667.7

US Annex IV Methodology

52. Finally, Brazil has applied the revised US summary data to the US-proposed methodology –
updating the calculations presented in Section 10 of Brazil’s 28 January 2004 Comments and
Requests Regarding US Data. The data presented here updates Brazil’s earlier calculations by using
the 28 January 2004 revised US summary data that includes information on contract payments to

71 Calculations based on this data continue to suffer from aggregation problems and the missing
information on soybean contract payments and peanut direct and counter-cyclical payments to farms producing
upland cotton. (See Section 3 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data).
72 For details of the calculations, see Annex A.2.
73 For details of the calculations, see Annex A.3.

farms not holding upland cotton base but producing upland cotton.
74 The following table shows the
results of applying the US-proposed allocation methodology to the revised US summary data.75

Annex A Table 4.8

US Annex IV Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $440,061,035.8 $437,917,881.4 - -
2000 $432,996,788.7 $460,939,354.1 - -
2001 $304,243,319.2 $420,222,029.1 - -
2002 - - $383,057,256.1 $640,389,168.2

53. For purposes of comparison, Brazil reproduces the results of its “14/16 th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September 2003 Further Submission.

Results of Brazil’s 14/16
th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

54. Brazil notes that the results from each of th e four methodologies applied to the revised US
summary data suffer from shortcomings due to th e incomplete and non-farm-specific data. Brazil
would have to re-calculate all of these numbers if the United States produces the actual data on
3 March 2004. As it stands, the data current ly available undercounts the support under each of the
methodologies (except the cotton-to-cotton), b ecause no information on soybean market loss
assistance payments and peanut direct and coun ter-cyclical payments to farms producing upland
cotton was provided by the United States. Further, due to the manner in which the US data is
provided, distortions from the aggregation of farm -specific data possibly over- or under-state the
results, as discussed in Section 6 below. Therefore, Brazil remains of the view that in the absence of
complete farm-specific aggregated data, the Panel should rely on Brazil’s 14/16th methodology.

55. While Brazil does not believe that the Pane l should rely on either the two Annex IV-type
methodologies, or even the “cotton-to-cotton” meth odology, it is noteworthy that all four of the
methodologies show that the United States does not enjoy peace clause protection.
76 The table below
shows the results of the comparison of US suppor t to upland cotton decided in MY 1992 with US
support to upland cotton provided in MY 2002. Under any methodology, the US support to upland
cotton in MY 2002 exceeds the support decided in MY 1992 considerably – by at least $464 million.

74 Calculations based on this data continue to suffer from aggregation problems and the missing
information on soybean contract payments and peanut direct and counter-cyclical payments to farms producing
upland cotton. (See Section 3 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data).
75 For details of the calculations, see Annex A.4.
76 Only under methodology (4) in MY 2000 is the s upport provided in that marketing year below the
support decided in MY 1992.

Budgetary Outlays For Upland Cotton MY 1992, 200277
1992 2002 (1) 2002 (2) 2002 (3) 2002 (4) 2002 (5) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 None none none none none
Direct Payments none 466.8 450.9 432.9 383.1 454.5
CCP Payments none 986.4 988.3 722.1 640.4 935.6
Marketing Loan Gains
and LDP Payments78 866 898 898 898 898 898
Step 2 Payment 207 415 415 415 415 415
Crop Insurance 26.6 194.1 194.1 194.1 194.1 194.1
Cottonseed Payments none 50 50 50 50 50
Total 2,117.0 2,990.3 2,996.3 2,711.1 2,580.6 2,947.2
(1) Cotton-to-Cotton Methodology
(2) Brazil’s Methodology
(3) Modified Annex IV Methodology
(4) US Annex IV Methodology
(5) Brazil’s 14/16
th Methodology

56. Brazil presents the tabulations for MY 1999- 2001 in Annex B. These data show that the
United States also exceeds the MY 1992 limits unde r each of the four methodologies (except for
methodology (4) in MY 2000) and under Brazil’s 14/16
th methodology.79

6. The US Critique of Brazil’s Allocation Methodology Is Baseless

57. Brazil recalls that its methodology allocat es support paid for upland cotton base that is
“planted to” upland cotton. It further allocates proportionally any other contract crop base payments
that are not allocated to plantings of the respective contract payments crop.
80 Brazil’s methodology,
as well as the “cotton-to-cotton” methodology, generates results that are very close to Brazil’s 14/16th
methodology. This is not surprising since the 14/16th methodology is based on the assumption of very
high percentages of upland cotton “planted on” upland cotton base acreage. All three of these
methodologies reflect the economic reality in MY 1999-2002 that each allocated contract dollar
received by upland cotton producers over a four-year period was needed to cover the costs of
producing upland cotton. The fact that the vast majority of upland cotton was actually planted on
upland cotton base is further confirmation of the reasonableness of these three methodologies.

58. Much of the US criticism of Brazil’s methodology is tainted by the wrong assumption that
contract payments provide “decoupled income support”.
81 For example, the United States states, at
paragraph 38 of its 11 February 2004 Comments, th at “fundamentally, Brazil’s approach is in error

77 The table below reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal
Submission as updated by paragraph 8 of Brazil’s 22 December 2003 Answers to Questions and paragraphs 12-
14 of the US 22 December 2004 Answers to Questions. Step 2 and marketing loan payments have been updated
in light of the US answer to Question 196. See US 22 December 2004 Answers to Questions, para. 12.
78 “Other Payments” have been included in the marketing loan figures.
79 Besides conclusively demonstrating that the US non-green box domestic support measures are not
exempt from action by virtue of Article 13(b)(ii) of th e Agreement on Agriculture, the table above, as well as
the tables in Annex B, indicate the amount of subsidization of upland cotton by contract payments. Thus,
should the Panel consider that an allocation methodology is warranted under Part III of the SCM Agreement, the
record provides the factual basis for a finding that Brazil has met its burden of proof and established a prima
facie case of the amount of subsidization.
80 Brazil’s 20 January 2004 Answers to Additional Questions, para. 43-55 and Brazil’s 28 January 2004
Comments and Requests Regarding US Data, Section 9.
81 See inter alia US 11 February 2004 Comments, paras. 37. See also US 28 January 2004 Comments,
paras. 217, 219, 222-223.

because it assumes that there is a tie between th e decoupled payments and current production”. The
United States is correct – Brazil’s methodologies do make that assumption, for the very good reason
that that assumption reflects the economic cost realities and the cotton-to-cotton planting on the
ground, discussed in Section 3 supra. Similarly, the United States claims, at paragraph 37 of its
comments, that “decoupled payments by their na ture provide income support not tied to the
production or sale of any given commodity”. But this ignores the vast weight of the evidence, which
demonstrates the link between upland cotton produ ction and upland cotton base acre payments (and
other payments) in MY 1999-2002.

59. The United States raises a number of hypothe tical “problems” with Brazil’s methodology.
82
But the extent of any such problems, if any, can only be assessed by examining the actual farm-
specific data. It is not credible for the United St ates to refuse to produce key farm-specific data and
then speculate about potential problems for individual farms. Upon receipt of the US response to the
Panel’s request, Brazil looks forward to providing the Panel with such an analysis.

60. A principle complaint of the United States is that Brazil’s allocation of non-upland cotton
contract payments results in differential subsidization rates on different acres planted to upland
cotton.83 Similarly, the United States criticizes Br azil for potentially allocating more than one non-
upland cotton base acre payments to one planted acre of upland cotton. 84 Both of these alleged
problems with the allocation of non-upland cotton contract payments do not exist for MY 2002. This
is because Brazil’s methodology allocates for each planted acres of upland cotton only one upland
cotton base acre payment.
85 In MY 2002, the vast majority of contract payments allocated as support
to upland cotton are upland cotton contract payments. In MY 2002, 99.1 per cent of direct payments86
and 99.8 per cent of the counter-cyclical payments 87 received by upland cotton producers were upland
cotton contract payments. This is because the vast majority of upland cotton is grown on farms
holding upland cotton base, which in MY 2002 exceed s acreage planted to upland cotton. Farms
growing upland cotton but not holding upland cotton base accounted for only 0.9 and 0.2 per cent of
total allocated direct and counter-cyclical payments respectively. Since the two main US criticisms
affect only the allocation of non-upland cotton contract payments, they affect, at most, 0.9 per cent of
the payments at issue for MY 2002.88

61. Brazil notes that the “cotton-to-cotton” met hodology, discussed in Section 5, does not allocate
any non-upland cotton base payments. Therefore, none of the US criticisms, at paragraphs 37-42 of
its 11 February 2004 Comments, affects the “cott on-to-cotton” results for MY 1999-2002. Thus,
these results reflect the worst case scenario of an y alleged over-counting in Brazil’s methodology.
Comparing the results of both methodologies, reproduced in Section 5 and Annex B demonstrates that
even under the “cotton-to-cotton” methodology the Un ites States surpasses its peace clause limits.
The tables below reproduce the results of both methodologies:

82 US 11 February 2004 Comments, paras. 37-42.
83 US 11 February 2004 Comments, para. 37.
84 US 11 February 2004 Comments, para. 38-42.
85 The United States has not criticized Brazil’s allo cation of one payments on one contract payment
base acres to one planted acre of cotton and the other contract payment crops. In other word, the United States
accepts that the one-to-one allocation between planted and base acres.
86 See Annex A.2, Tables 2.9, 2.21 and 2.21.
87 See Annex A.2, Tables 2.9, 2.20 and 2.21.
88 The United States has not criticized Brazil’s allo cation of one payments on one contract payment
base acres to one planted acre of cotton and the other contract payment crops. In other word, the United States
accepts that the one-to-one allocation between planted and base acres.

Cotton-to-Cotton Methodology (Table 1.5 of Annex A.1)

MY PFC Payments MLA Payments 89 Direct Payments CCP Payments
1999 $515,310,673.4 $512,801,043.5 - -
2000 $482,422,346.0 $513,554,489.0 - -
2001 $387,916,892.8 $535,792,287.0 - -
2002 - - $446,796,377.9 $986,357,993.8

Brazil’s Methodology (Table 2.21 of Annex A.2)

MY PFC Payments MLA Payments 90 Direct Payments CCP Payments
1999 $574,488,456.1 $571,690,622.7 - -
2000 $538,079,545.3 $572,803,412.3 - -
2001 $428,007,676.4 $591,165,829.7 - -
2002 - - $450,924,339.1 $988,252,054.4

62. As the Panel can readily see, the differen ces in the results of both methodologies are minor
(with $118 million in MY 1999, $114 million in MY 2000, $95.5 million in MY 2001, and
$5.7 million in MY 2002).

63. In addressing the specific US criticism a ffecting MY 1999-2001, Brazil notes that its
methodology involves analysing the planting patterns a nd base acres of individual farms. Each farm
is unique. Some farms will have gr eater base acres than planted acres and vice versa. Some farms
will plant different crops than they used to estab lish their base acres, and, as in the case of most
upland cotton farms, they will continue to plan t upland cotton holding upland cotton base acres.
Brazil’s methodology accounts for all contract payments as support to contract crops planted on farms
holding base. This means that some farms will ha ve “extra” base acres payments that will need to be
allocated over fewer planted acres of contract payments crops or vice versa. This reflects economic
realities for farms that have many different combinations of base and planted acres.

64. The US comments, at paragraph 37 of its 11 February 2004 Comments, raise theoretical
“arbitrary” attribution problems relating to “excess cotton acreage” or “excess” base acreage
situations for a hypothetical farm. But the pur pose of any methodology is not to determine the
“subsidization” rate of a particular farm, but ra ther to assess, in the aggregate, the amount of
payments. Of course, different farms will have diffe rent crop subsidization rates given the inherently
unique base acreage and planting combinations. Ther efore, Brazil’s methodology, which is based on
examining individual farm data, may result, in certa in cases, in different crop subsidization rates for
different farms. But this is neither remarkable nor illogical, as the United States claims, but rather
reflects economic reality.

89 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton”, USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.
90 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton”, USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.

65. The United States further complains that Br azil allocates all “excess” contract payments in
MY 1999-2000 and almost all “excess” contract payments in MY 2001 to upland cotton.
91 However,
the data shows that in those three marketing years, all contract payment crops (except upland cotton)
were planted to a degree that fell short of the base acreage for these crops. Thus, the simple fact that
upland cotton farms during MY 1999-2001 increased their amount of upland cotton plantings at the
expense of other contract payment crops suggest s that some of the payments for these non-upland
cotton base acres were devoted to supporting upland cotton production. This is reflected in Brazil’s
28 January 2004 calculations (as well as in its upda ted calculations in Annex A.2). Brazil’s
calculations, therefore, reflect the reality of up land cotton production in those marketing years –
production on upland cotton farms shifted to upla nd cotton and away from other contract payment
crops. Brazil notes that no such “excess” upland cott on production exists in MY 2002. This appears
to be – at the very least in part – a direct con sequence of the base update aligning contract payments
base with production trends during MY 1998-2001. 92 The re-linkage of production meant that more
current upland cotton production takes place on base acreage than during MY 1999-2001.

66. Finally, the United States asserts that the a ggregation problems inherent in the US summary
data will necessarily increase the amount of payments allocated to upland cotton. 93 This criticism is
again an ironic assertion by a party that has refused to provide the very data that would answer this
criticism. Whether the aggregation problem leads to an upward or downward error in estimating the
amount of support to upland cotton is a factual question that cannot be answered in the abstract, as
suggested by the United States.
94 Indeed, the effect of the aggregation problem is that upland cotton
contract payments on farms that have “excess” upland cotton base are treated as upland cotton
payments to farms that have “excess” upland cotton plantings. 95 Whether such a treatment leads to
over- or under-counting depends entirely on what the amount of support allocated to the “excess”
planted upland cotton acres would be, which can only be derived with using farm-specific data. Only
if it is lower then the support for an upland cott on base acre (allocated due to the aggregation effect)
would the aggregation problem lead to over-counting. And this is a factual, not a theoretical question.
The amount of support allocated to the “excess” acre s planted to upland cotton could rank from zero
(no contract payments available for allocation on that farm) to an amount that exceeds the upland
cotton per-acre payment rate (for instance, rice base or payments for more than one base acre).
Again, it bears repeating, that there will be no “aggregation problems” if the United States produces
complete farm-specific data on 3 March 2004.

67. In sum, Brazil maintains that, in view of the de facto tied nature of the US contract payments
at issue, Brazil’s methodology is a reasonable means of calculating the support to upland cotton. As
for some of the US criticisms that might affect the results (except for MY 2002), Brazil will control
for these effects once the United States provides aggreg ate data in the manner requested by the Panel.
Yet, Brazil is of the firm view that none of the US criticisms will meaningfully affect its results.

7. The US Critique of Brazil’s Applicatio n of the Improper Annex IV Methodology
is Baseless

68. Brazil has earlier demonstrated, in Section 4 above, the inability of Annex IV of the SCM
Agreement to provide useful guidance regarding the calculation of the amount of the contract
payments that constitute support to upland cotton. Brazil further demonstrated that the entire premise
behind the US attempt to use an Annex IV-like methodology is wrong, since contract payments
during MY 1999-2002 were de facto tied to the production of upland cotton.

91 US 11 January 2004 Comments, paras. 40.
92 Brazil notes that part of the phenomenon also results from reduced upland cotton plantings.
93 US 11 January 2004 Comments, para. 42.
94 US 11 January 2004 Comments, para. 42.
95 See Brazil’s 28 January 2004 Comments and Requests Regarding US Data, para. 13-15.

69. Nevertheless, as an alternative argument, Brazil attempted in its 28 January 2004 Comments
to apply the Annex IV paragraph 2 non-tied subsidy allocation methodology to the US summary data.
As a preliminary matter, Brazil notes that the Unite d States has never presented any data in support of
its methodology. 96 Instead, the United States has repeatedly argued that it is not its “burden” to
establish the amount of contract payments under its own methodology. The United States has gone
even further and refused, to date, to provide the data that would permit the calculation of its “across
the value of total production on the farm” methodology. As a result, Brazil had to make a number of
assumptions to fill the data gaps. The United States has reserved its energy regarding its methodology
for a spirited critique of Brazil’s attempt to appl y the US methodology. Brazil responds to these to
these arguments, and the incorrect US calculations, below.

70. First, the United States challenges, in para graph 51 of its 11 February 2004 Comments, the
use of non-upland cotton base acreage payments. This criticism is incorrect, since the Panel must
make an objective assessment of the amount of “support to” upland cotton under Article 13(b)(ii),
including support provided from non-upland cotton b ase payments. Therefore, Brazil’s inclusion of
all contract payments in its calculation was prope r. Brazil sets out its arguments in Section 9 infra.97
Consequently, all of the US calculations at pa ragraphs 59-60 of the US 11 February 2004 Comments
are incorrect, because they exclude all non-upland cotton payments.98

71. Second, the United States criticizes Brazil fo r not having included all farm and non-farm
income of a farm into its calculations.
99 There is no legitimate basis to include social security and
stock market investment income in any payment calculation.100 Brazil has earlier responded to similar
US arguments in cost of production discussions. 101 The focus of Article 13(b)(ii) is on tabulating the
amount of agricultural domestic support to a specific commodity.

72. Third, the United States claims that Brazil s hould have included the value of livestock raised
by upland cotton farmers. The United States has pr ovided no data to support its own methodology or
its implied assertion that livestock production is a major component of upland cotton farms’
production. However, the record supports Brazil’s decision not to include any livestock value. A
USDA 1997 ARMS study on costs of production on cott on farms showed that only between 0-6 per
cent (depending on the category and location) of US upland cotton farms specialize in livestock
production.
102 Since no significant amount of livestoc k production is found on upland cotton farms,
distortions in Brazil’s results, if any, would be very minor.

96 As the party asserting this fact, the United States bears the burden of proving it. See e.g. Appellate
Body Report, Japan – Apples, WT/DS245/AB/R, para. 157 (“It is important to distinguish, on the one hand, the
principle that the complainant must establish a prima facie case of inconsistency with a provision of a covered
agreement from, on the other hand, the pr inciple that the party that asserts a fact is responsible for providing
proof thereof.”).
97 See also US 11 January 2004 Comments, paras. 46-50.
98 Otherwise, all figures seem to reflect Brazil’s calculations.
99 US 11 January 2004 Comments, paras. 46, 55 and note 50.
100 Brazil has addressed the US argument that off-farm income may be responsible for closing the gap
between upland cotton market revenue and production co sts in paragraph 28 of its 2 December 2003 Oral
Statement.
101 US 18 November 2003 Further Rebuttal Submission, paras. 111, 137. Brazil is further puzzled by
the fact that the United States argues for inclusion of off-farm income over which contract payments have to be
allocated. In its 18 November 2003 Further Rebuttal Submission, the United States argued that off-farm income
(such as social security benefits) could be support to upland cotton (para. 111). It follows that the United States
would argue that social security benefits support the production of upland cotton, while contract payments
support social security benefits.
102 Exhibit Bra-16 (“Characteristics and Production Costs of US Cotton Farms”, USDA, October 2001,
Appendix Tables 1-4 p. 23-26).

73. The United States also raises several issues with respect to Brazil’s calculation methodology.
The United States correctly points out that Brazil s hould have used yields on planted acreage, rather
than applying yields on harvested acreage to all acreage planted.
103 Brazil has corrected for this in its
updated analysis, set out in Annex A.4 – albeit only for its calculation of the value of upland cotton
production.104 Since yield information on planted acreage for other crops is not available to Brazil –
assuming that the US allegation is correct and the yi eld data in Exhibit Bra- 420 is, indeed, based on
harvested acres – Brazil continues to apply this data with respect to planted acreage for other crops.
Any bias caused by this inaccuracy will naturally overstate the value of the non-upland cotton crop
production on upland cotton farms 105 and, thus, undervalue the amount of contract payments
constituting support to upland cotton.106

74. The United States also criticizes Brazil’s exclusion of fruits and vegetables from the
calculation of the value of non-contract payment crop plantings. 107 However, the contract payment
programmes themselves exclude fruits and vegetables as possible beneficiaries of that support, by
prohibiting the growing of these crops on base acres. There is no legitimate reason to assume that
these payments could be support to fruits and vegetables. 108 In any event, Brazil notes that the
United States required reporting of fruits, vegeta bles and wild rice acr eage on all farms receiving
contract payments from MY 1999-2002 and that the Panel has requested this information. 109 Thus,
the extent of any distortions, if any, can only be assessed when the actual data is reviewed.

75. Finally, the United States repeats its flawed arguments that contract payments have to be
reduced by about two-thirds to reflect the fact that only upland cotton farms that own their land in fact
benefit from contract payments.
110 Brazil refers the Panel to its 28 January 2004 Comments for its
arguments on this issue.111

76. In sum, none of the US criticisms summarized at paragraphs 57 and 60 of its
11 February 2004 Comments withstand close scrutiny. Brazil’s calculations under the US Annex IV
methodology, based on the incomplete non-farm-specific data, are not biased.
112 By contrast, all of

104 US 11 February 2004 Comments, para. 52 and accompanying table.
105 This is because the upland cotto n value is correct, whereas all the values of all other crops are
overstated, reducing the share of the upland cotton value of total crop production on the farm.
106 The United States also asserts, at paragraph 53 of its 11 February 2004 Comments, that Brazil
should have used state-by-state data in the determination of the value of sales from non-contract payment crops.
Brazil is puzzled by this US argument, as it was the United States that withheld the farm-specific data, including
data that would have enabled Brazil to use state-by-state figures on non-contract payment crop plantings for the
calculation of the value of non-contr act payment crop plantings. The US summary data simply does not allow
for a proper weighting of any state-by-state values of non-contract payments crop plantings, if such data were
indeed available. Similarly, the US reference to farming in Alaska is irrelevant. Any value of production in that
state would not meaningful affect ag gregates for the United States. In fact, it would be the US burden to
produce data that would allow for the application of its proposed methodology. As the party asserting a fact, the
United States bears the burden of proving it. See e.g. Appellate Body Report, Japan – Apples ,
WT/DS245/AB/R, para. 157 (“It is important to distinguish, on the one hand, the principle that the complainant
must establish a prima facie case of inconsistency with a provision of a covered agreement from, on the other
hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”).
107 US 11 January 2004 Comments, para. 54.
108 See Section 6 above. See also Brazil’s 28 January 2004 Comments and Requests Regarding US
Data, paras. 92. Brazil’s 20 January 2004 Answers to Questions, para. 73.
109 3 February 2004 Communication from the Panel.
110 US 11 February 2004 Comments, paras. 56, 60; See also US 28 January 2004 Comments, para. 22.
111 Brazil’s 28 January 2004 Comments, paras. 192-214.
112 For instance, Brazil has used yields on harveste d acres for all non-upland cotton planted acres,
thereby significantly overstating the value of th e non-upland cotton pr oduction and understating the amount of
support allocated to upland cotton. In fact, Brazil’s calculations are conservative.

the calculations presented by the United States in its 11 February 2004 Comments were improperly
based on upland cotton contract payments only.113

8. Brazil Has Established, in the Alternativ e, the Amount of Contract Payments for
Purposes of its SCM Serious Prejudice Claims

77. The United States 11 February 2004 Comments continue the US argument that there is an
explicit allocation requirement in Part III of the SCM Agreement “for determining the ‘subsidization’
of a product set out in Annex IV.”
114 The US Comments also argue that “Brazil has expressly
disavowed any allocation methodology for purposes of its serious prejudice claims on decoupled
income support payments [and has] failed to make a prima facie case on these claims.” 115 B o t h
assertions are incorrect.

78. Brazil has argued that Part III of the SCM Agreement does not require detailing the precise
amount of the subsidies or a subsidization rate.
116 But it has presented evidence and argument, in the
alternative, regarding the size and subsidization rate of the subsidies it has challenged.117 For the four
contract payments, the subsidy quantities are thos e amounts generated for the purposes of the “peace
clause” analysis. The amount of a subsidy for purposes of establishing “support to a specific
commodity” for purposes of Article 13(b)(ii) is the same amount for Brazil’s serious prejudice
claims. This conclusion is supported by the fact that the phrase “domestic support” in the Agreement
on Agriculture is the same as “subsidy” in the SCM Agreement (assuming the elements of a subsidy
for the “support” have been established). Thus, Brazil has offered the contract payment quantities (as
well as the other subsidies) established in the peac e clause phase of the proceedings as the “amount of
subsidization,” to the extent this is required, in the serious prejudice phase of the proceedings.

9. The United States Improperly Seeks to Limit the Scope of the Non-Green Box Support
Measures to be Examined for Determining the Amount of Support for Purposes of the
Peace Clause

79. The United States’ 11 February 2004 Comments argue that the Panel cannot examine any
evidence of payments received by upland cotton producers growing upland cotton on non-upland
cotton base acreage, because Brazil’s request for the establishment of a panel (“Brazil’s panel
request”) violates DSU Article 6.2.
118 There is no factual or legal merit to these arguments.

80. First, the Panel’s obligation is to conduct an objective assessment of the facts and arguments
before it. The issue of the amount of contract payments is a key i ssue that is part of the broader
question of the amount of support to upland cotton under Artic le 13(b)(ii) of the Agreement on
Agriculture. This broader issue is ultimately the key legal question and it is clearly within the Panel’s
terms of reference. Determining the amount of support requires an objective assessment by the Panel
as to the amount of non-green box support to pro ducers and users of upland cotton in MY 1992 and
MY 1999-2002. It requires the Panel to include a ll support to upland cotton from the evidence before
it – regardless of whether Brazil’s panel request is broad enough to encompass all of the same
subsidies for the purpose of its serious prejudice claims. For example, the fact that the Panel has ruled

113 US 11 February 2004 Comments, paras. 58-59.
114 US 11 February 2004 Comments, paras. 20.
115 US 11 February 2004 Comments, paras. 22-24.
116 See e.g., Brazil’s 11 February 2004 Comments on US Answers to Questions Posed by the Panel
Following the Second Substantive Meeting of the Panel, paras. 196-197, 216; Brazil’s 18 November 2003
Further Rebuttal Submission, paras. 97-107; Brazil’s 2 December 2003 Oral Statement, paras 3-5.
117 See e.g., Brazil’s 11 February 2004 Comments on US Answers to Questions Posed by the Panel
Following the Second Substantive Mee ting of the Panel, para.216; Brazi l’s 2 December 2003 Oral Statement ,
para. 5; Brazil’s 9 September 2003 Further Submi ssion, Table 1 (setting out the amount and rate of
subsidization of each of the four contract payment subsidies based on the 14/16th Methodology).
118 US 11 February 2004 Data Comments, paras. 47-50.

that certain cottonseed payments are not within its terms of reference for purposes of Brazil’s serious
prejudice claims does not mean that these same subsidies cannot be counted as “support to upland
cotton” for the purposes of the peace clause. The amount of these payments is within the Panel’s
terms of reference in order to resolve the peace clause issues, because they are “support to” upland
cotton. Indeed, identical payments made in MY 1999 have been notified by the United States as
“product-specific” upland cotton support.
119

81. Second, with respect to the new US Articl e 6.2 assertion, Brazil notes that the US comments
acknowledge that Brazil’s panel request is broad en ough to cover the contract payments received by
upland cotton producers.
120 But the United States no w claims the request is too broad claiming it
“provides virtually no information that would allo w identification of the specific measure at issue”. 121
This argument is both untimely122 and contradicted by Brazil’s request.

82. Brazil’s request complied fully with DSU Artic le 6.2 by identifying the specific measures at
issue. Brazil’s request (1) identified by name th e specific laws providing for contract payments, i.e.,
the 1996 FAIR Act, the 2002 FSRI Act, and the 1998-2001 appropriation acts for market loss
assistance payments, (2) identified by name the specific payments, i.e., PFC, market loss assistance,
direct and counter-cyclical payments, which were re quired to be paid from those laws, (3) identified
by name the specific recipients of those payments, i.e., upland cotton producers, and (4) identified the
specific time period when those payments were made, i.e., MY 1999-2007. Yet, the United States
would read into DSU Article 6.2 a requirement to go to a further level of detail and identify the sub-
category ( i.e., payments on non-upland cotton and on upland cotton base acreage) of the specific
measures that were identified (contract payments to upland cotton producers). This would impose an
unprecedented and unjustified level of detail in a panel request that is not required by DSU
Article 6.2.

83. In sum, it is undisputed that Brazil’s panel re quest covered all types of contract payments to
upland cotton producers, not just those based on upl and cotton base acreage. Thus all types of
contract payment provided to upland cotton produ cers, as properly allocated, are support to upland
cotton that are well-within the Panel’s terms of reference.

84. Finally, the United States now claims that its due process rights were somehow violated
because Brazil did not present its methodology for allocating contract payments when it filed its first
submission on 24 June 2004.
123 This is simply not credible. Brazil did not realize until early
November 2003 that the United States had inaccurately de nied for almost one year that it did not have
specific information that would allow the computati on of the amount of contract payments received
by upland cotton producers planting upland cotton. 124 Without farm-specific data, there is no basis to
develop, let alone apply, Brazil’s methodology. Brazil could only develop a methodology to apply to
actual data when it received the EWG data in mid- November, and when it then sought farm-specific

119 See Exhibit Bra-47 (G/AG/N/USA/43, p. 20).
120 US 11 February 2004 Comments, para. 48.
121 US 11 February 2004 Comments, para. 48.
122 Brazil notes that the United States did not make this assertion even at the Panel meeting of 2-
3 December 2004 even thoug h Brazil’s 18 November 2003 Further Rebu ttal Submission unequivocally stated
that non-upland cotton contract payments were includ ed when calculating the amou nt of contract support
payments. For example, in Brazil’s 18 November 2003 Further Rebuttal Submission, Brazil stated in paragraph
16 in presenting the EWG data that “the best evidence that would permit the Panel to calculate the most precise
amount of support to upland cotton from these contract payments is (sic) amount of upland cotton ( and other)
contract acreage that is planted to upland cotton”. The footnote to this statement indicated that “these payments
include all contract payments for upland cotton base acreage and payments for other crop base acreage that
are received by US producers of upland cotton.” (emphasis added).
123 See US 16 February 2004 Letter to the Panel.
124 See Brazil’s 18 February 2004 Comments on US Answers to Questions, para. 26 (setting out the
chronology of Brazil’s and the Panel’s requests for information).

data from the United States. 125 This methodology then would be applied to actual data, and replace
Brazil’s 14/16th methodology. Thus, it is disingenuous in the extreme for the United States to claim
now126 that Brazil should have presented its methodol ogy on 24 June 2003. Any delay in the United
States receiving notice of Brazil’s methodology is due directly to the regrettable pattern of US
misrepresentations in this dispute beginning in December 2002. 127 In any event, the United States’
due process rights have hardly been violated, since they have had more than sufficient opportunity to
comment on Brazil’s methodology. 128 Unfortunately, Brazil cannot say the same, since it has not
been able to apply its methodology because the Un ited States has not produced farm specific data
requested by the Panel on several occasions.

10. The United States Arguments Concerning Various Issues Related to the Amount of
Support “Decided” in MY 1992 Compared to the Amount Supported in MY 1999-2002
are without Merit

85. Brazil briefly responds to several arguments that the US level of support decided in MY
1999-2002 was less than that decided in MY 1992. The United States first argues that because it
could not know in MY 1992 what its exact expe nditures would be, it is inappropriate to use a
budgetary outlay methodology for calculating the amount of support to upland cotton.
129 Brazil will
not repeat all of its arguments concerning th e meaning of “decided” and “support provided”. 130
However, the United States cannot deny that when it passed the implementing Uruguay Round
legislation and Congress approved the SAA in late 1994, it was well aware of all, or the vast majority
of, the budgetary support for upland cotton provid ed in MY 1992. Had the United States been
concerned about the certainty of its peace clause “p rotection”, it would not have been difficult for
Congress, in the 1996 FAIR Act or even the 2002 FSRI Act, to include a “circuit breaker” provision
directing the USDA Secretary to stop funding of any upland cotton budgetary outlays in excess of the
1992 levels. Such a provision would have allowed the United States to ensure that it remained
protected by the peace clause throughout the implementation period.
131

125 See Brazil’s 18 November 2003 Further Rebuttal Submission, para 16.
126 The United States points to questions raised by Brazil in the Annex V procedures – questions the
United States refused to answer. US 11 February 2004 Data Comments, para. 69. While Brazil focused some
of its questions on upland cotton base acreage, it also focused on total market loss assistance and CCP payments
to the US upland cotton industry and US upland cotton farmers in Questions 11.1 and 13.1. Exhibit Bra-49
(Questions for Purpose of Annex V Procedure). Similarly, Brazil’s questions 3.6 in the consultations focused
on total amount of PFC and DP to “upland cotton” for marketing years 1992-2002, and question 11.1 asked for
the “total amount of market loss assistance payments made to US upland cotton industry in marketing years
1998 through 2001”. Exhibit Bra-101 (Questions for Purposes of the Consultations). Obviously, Brazil is not
precluded from seeking information or arguing that “support to upland cotton” also included payments to upland
cotton producers on non-cotton base acreage. No party is required to cast in stone its arguments concerning a
never-before interpreted WTO Agreement in responding to hundreds of questions, exhibits, and more than a
thousand pages of arguments. Given the 10 months of briefing in this extraordinary panel proceeding – and the
US refusal to provide requested information – it is disi ngenuous for the United States to claim that Brazil is
prevented from further elaborating on its methodologies for allocating contract payments.
127 Given the refusal of the United States for the past sixteen months to produce information regarding
contract payments, it is incredible for the United Stat es to argue that Brazil “has provided virtually no
information that would allow identification of the specific measures at issue”. US 11 February 2004 Comments,
para. 48.
128 See US 11 February 2004 Comments, paras 35-43.
129 US 11 February 2004 Comments, para. 16.
130 Brazil’s 22 August 2003 Rebuttal Submission, paras. 68-87; Brazil’s 22 July 2003 Oral Statement,
paras. 27-36.
131 Of course, the United States was not required to enact such a measure, because the “peace clause”
does not create an obligation on Members to bring their la ws into conformity, since it is in the nature of an
affirmative defence.

86. Furthermore, the United States asserts that under any methodology of calculating “support to
upland cotton”, it provided support in MY 1999- 2002 below the level of support decided in
MY ^1992.
132 The United States performs this legal ma gic by (1) making $4.7 billion in contract
payments133, including a billion dollars of CCP upland cotton payments in MY 2002 alone, simply
disappear, (2) assuming that $5.5 billion 134 in marketing loan payments were never made by applying
a price-gap support methodology it never actually used or notified, 135 and (3) imposing its “statute of
limitations” calculation to end MY 2002 payments on 18 March 2002. 136 Brazil has addressed all of
these creative attempts to cover-up billions of dolla rs in support payments and will not repeat them
here.

11. The United States Comments Regarding the Appellate Body’s Japan – Agricultural
Products Decision Are Misplaced

87. Brazil has studied the US comments regarding Japan – Agricultural Products137 carefully and
believes Brazil’s initial analysis of the decision largely addresses the points raised in the US
comments.138 The United States continu es to incorrectly interpret Japan – Agricultural Products by
confusing “claims” with “arguments”. The Un ited States argues in paragraph 33 of its
11 February 2004 Comments that because Brazil allegedly has not argued that Annex IV is the proper
methodology, the Panel cannot request information fr om the United States relevant to the application
of that methodology. 139 But Japan – Agricultural Products stands for the proposition that a Panel
cannot make a “claim” for a party, i.e., a legal claim that would be required to be set out in a request
for the establishment of a panel. It does not stand for the proposition that a panel is prevented from
requesting information from a party that would be relevant to determine the merits of arguments made
by that same party.

88. Further, the United States’ entire premise in relying on Japan – Agricultural Products is
wrong. In its 28 January 2004 Comments and Requ ests Regarding US Data, Brazil has made an

132 US 11 February 2004 Comments, para. 17 and accompanying notes.
133 This figure is based on Brazil’s 14/16 th methodology, but all other methodologies performed in
Annex A generate very similar amounts of support to upland cotton from the four contract payment
programmes.
134 See Brazil’s 2 December 2003 Oral Statement, Section 5.2.
135 See US 22 August 2003 Rebuttal Submission, paras. 114-119. See Brazil’s response in its
27 August 2003 Comments, paras. 10-16 and Brazil’s 28 January 2004 Comments, paras. 29-36.
136 US 11 August 2003 Answer to Questions, para. 69, 133-134; US 22 August 2003 Rebuttal
Submission, para. 115 note 145. See Brazil’s response in its 22 August 2003 Rebuttal Submission, paras. 88-96;
22 August 2003 Comments, para. 33; Brazil’s 2 December 2003 Oral Statement, paras. 7-10.
137 US 11 February 2004 Comments, paras 27-34.
138 Brazil’s 28 January 2004 Comments and Requests Regarding US Data, paras. 99-106.
139 US 11 February 2004 Comments, para. 33.

“argument,” in the alternative, regarding a methodology proposed by the United States. The Panel’s
3 February 2004 request for information on non-c ontract acreage crops grown by upland cotton
producers was entirely consistent with the Unit ed States’ suggestion of the US Annex IV
methodology and with Brazil’s attempt in its 28 January 2004 comments to apply the US Annex IV
methodology. The United States responded to Braz il’s argument on 11 February 2004. There is no
doubt that receipt of the non-contract acreage crops grown on cotton farms would allow a more
precise tabulation of the amount of payments usi ng the Annex IV methodology. Thus, the Panel’s
various requests are fully consistent with the holding by the Appellate Body in Japan – Agricultural
Products that a “panel is entitled to seek informat ion … to help it understand and evaluate the
evidence submitted and the arguments made by the parties.”140

140 WT/DS76/AB/R, para. 129.

Annexes A: Calculations of the “Support To” Upland Cotton Using
Various Methodologies

and

Annex B: Peace Clause Comparisons

Annex A

Calculation of Contract Payment Support to Upland Cotton

1. In this Annex, Brazil sets forth the details of its calculation of contract payments that
constitute support to upland cotton, within the meaning of Article 13 of the Agreement on
Agriculture. All of Brazil’s calculations are ba sed on the revised US summary files produced on 28
January 2004 and other USDA documents provided as exhibits to the Panel. Brazil explains its
calculations either in the narrative of this annex or in the footnotes accompanying the tables.

1. Upland Cotton Contract Payments Only

2. The calculations in this section are based on the presumption that only upland cotton contract
payments would be relevant for calculating support to upland cotton. As Brazil has explained in the
main text of these comments, Brazil strongly opposes the US arguments that all non-upland cotton
contract payments have to be ex cluded from the calculation of support to upland cotton. All contract
payments, including those made on non-upland cotton base acreage, are properly within the Panel’s
terms of reference. Further, the Panel needs to include all contract payments, including those made on
non-upland cotton base acreage, in its objective eval uation of the applicability of the peace clause
exemption. Nevertheless, Brazil provides below th e necessary calculations for allocating only upland
cotton contract payments as “support to” upland cotton.

3. These calculations are performed in two different manners: First, the total amount of upland
cotton contract payments to farms actually producing upland cotton is calculated. Second, the amount
of upland cotton contract payments to farms actua lly producing upland cotton is adjusted pursuant to
the amount of upland cotton actually produced by farms holding upland cotton base. Under this
approach, only upland cotton payments for upland cotton base acres that are actually planted to
upland cotton would be considered support to upla nd cotton. Since plantings of upland cotton on
farms also holding upland cotton base exceed the upland cotton base acreage in MY 1999-2001, 1 the
adjustment only affects MY 2002 figures.2

4. The first step is performed by multiplying th e amount of upland cotton payments units on
farms producing upland cotton and holding upland cotton base
3 (as reported by the United States in its
28 January 2004 summary files) by the applicable payment rate for upland cotton in each of the
marketing years 1999-2002.

1 See rPFCsum.xls and rDPCsum.xls files provided by the United States on 28 January 2004.
2 Both approaches exclude any non-upland cotton c ontract payments received by farms that produce
upland cotton and (1) hold upland cotton base, or (2) do not hold upland cotton base (but possible other base).
3 These farms are called “1” in the rPFCsum.xls file and “Enrolled in Cotton PFC and planted cotton”
in the rDCPsum.xls file. Presumably the latter should be called “Enrolled in Cotton DCP and planted cotton.”

Table 1.1

Upland Cotton Contract Payments to Farms Producing Upland Cotton and
Holding Upland Cotton Base
MY Programme Payment Units 4 Payment Rate5
(cents per pound) Subsidy Amount6
1999 PFC Payments 6,539,475,550.8 7.88 $515,310,673.4
2000 PFC Payments 6,581,478,117.7 7.33 $482,422,346.0
2001 PFC Payments 6,476,075,004.9 5.99 $387,916,892.8
Direct Payments 7,107,791,953.5 6.67 $474,089,723.3 2002 CCP Payments 7,622,807,085.5 13.73 $1,046,611,412.8

5. The table below summarizes the total amount of upland cotton contract payments received by
farms producing upland cotton and holding upland cotton base.

Table 1.2

Total Upland Cotton Contract Payment Amounts on Farms Producing Upland Cotton and
Holding Upland Cotton Base 7
MY PFC Payments MLA Payments 8 Direct Payments CCP Payments
1999 $515,310,673.4 $512,801,043.5 - -
2000 $482,422,346.0 $513,554,489.0 - -
2001 $387,916,892.8 $535,792,287.0 - -
2002 - - $474,089,723.3 $1,046,611,412.8

6. For purposes of comparison, Brazil reproduces the results of its “14/16
th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September Further Submission.

Table 1.3

Results of Brazil’s 14/16
th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

7. As the Panel can see, the results of this methodology are not considerably different from the
results of Brazil’s 14/16th methodology.

4 Payment Units for MY 1999-2001 are taken from category “1” farms from the rPFCsum.xls file
provided by the United States on 28 January 2004. Payment Units for MY 2002 are taken from the
rDCPsum.xls file provided by the United States on 28 January 2004.
5 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19).
6 Subsidy Amount = Payment Units * Payment Rate.
7 See Table 1.1 for the underlying calculations.
8 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton,” USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.

8. In a second step, Brazil adjusts the above cal culated subsidy amount pursuant to the amount
of upland cotton actually planted on farms holding upland cotton base. These calculations are
possible distorted due to the aggregation problem s discussed in Brazil’s 20 January 2004 Comments
and Requests Regarding US Data.
9 The adjustment factor is calcu lated as the ratio of upland cotton
planted acreage to upland cotton base acreage (capped a 1).

Table 1.4

Adjustment Factor to Be Applied to Upland Cotton Contract Payments to Farms
Producing Upland Cotton and Holding Upland Cotton Base
MY Upland Cotton
Planted Acreage10
Upland Cotton
Base Acreage11 Ratio12 Adjustment Factor 13
1999 13,540,382.7 12,581,724.8 1.07619 1
2000 14,170,477.5 12,625,168.7 1.12239 1
2001 14,118,952.4 12,386,499.4 1.02176 1
2002 13,022,668.9 13,818,215.2 0.94243 0.94243

9. The table below includes the amount of contr act payments that woul d constitute “support to”
upland cotton, if only payments for upland cotton base acreage that is actually planted to upland
cotton were considered.

Table 1.5

Cotton-to-Cotton Methodology
MY PFC Payments MLA Payments 14 Direct Payments CCP Payments
1999 $515,310,673.4 $512,801,043.5 - -
2000 $482,422,346.0 $513,554,489.0 - -
2001 $387,916,892.8 $535,792,287.0 - -
2002 - - $446,796,377.9 $986,357,993.8

10. For purposes of comparison, Brazil reproduces the results of its “14/16 th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September Further Submission.

9 See inter alia Brazil’s 28 January 2004 Comments and Requests Regarding US Data, paras. 13-15.
10 Upland Cotton Planted Acreage for MY 1999-2001 are taken from category “1” farms from the
rPFCsum.xls file provided by the United States on 28 January 2004. Upland Cotton Planted Acreage for MY
2002 is taken from “Enrolled in Cotton PFC and planted cotton” farms from the rDCPsum.xls file provided by
the United States on 28 January 2004.
11 Upland Cotton Base Acreage for MY 1999-20 01 are taken from category “1” farms from the
rPFCsum.xls file provided by the United States on 28 January 2004. Upland Cotton Base Acreage for MY 2002
is taken from “Enrolled in Cotton PFC and planted cotton” farms from the rDCPsum.xls file provided by the
United States on 28 January 2004.
12 Ratio = Upland Cotton Planted Acreage / Upland Cotton Base Acreage.
13 The Adjustment Factor equals the Ratio of Upla nd Cotton Planted Acreage to Upland Cotton Base
Acreage capped at 1. This means all upland cotton contract payments are deemed to be support to upland cotton
if more (or equal) upland cotton is planted than there is upland cotton base. If upland cotton plantings are short
of upland cotton base, only the respective ratio is considered to be support to upland cotton.
14 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton,” USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.

Table 1.6

Results of Brazil’s 14/16
th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

11. The results of this methodology are only marginally below the results of Brazil’s 14/16 th
methodology, although this methodology would assume that upland cotton produced on farms that do
not hold upland cotton base would not receive any cont ract payments at all, and that upland cotton
contract payments on farms that produce upland co tton and hold base would only allocated up to the
share of contract acreage that is actually planted to upland cotton. The reason for the close similarity
between the 14/16 th methodology and the cotton-to-cotton methodology results is that the
overwhelming majority of upland cotton is planted on upland cotton base (86.34 per cent in MY 1999,
82.05 per cent in MY 2000, 80.10 per cent in MY 2001 and 96.17 per cent in MY 2002).15
2. Brazil’s (Simplified) Allocation Methodology

12. In this section of Annex A, Brazil provides an update of its calculati ons in Section 9 of its
28 January 2004 Comments and Requests Regardi ng US Data taking into account the revised
summary data produced by the United States on 28 January 2004. Brazil has discussed its
methodology in considerable detail in its 20 January 2004 response to Question 258 16 and has applied
it in Section 9 of its 28 January 2004 Comments and Requests Regarding US Data. Brazil recalls that
its methodology considers as support to a particular cr op all crop contract payments for that crop that
are made for base acres actually planted to that crop. All remaining support is pooled and allocated as
support to contract crops according to their share of total “overplanted” contract crop acreage on a
farm.

13. While the revised US summary data provi ded on 28 January 2004 neither addresses the
aggregation problems resulting from the particular manner in which the United States produced its
summary data,
17 nor the shortcomings in terms of soybean market loss assistance payments and
peanut direct and counter-cyclical payments, the Un ited States provides information on contract base
of farms that plant upland cotton, but do not hold upland cotton base. To reflect this additional
information, Brazil has updated its earlier calculations.18

14. In a first step, Brazil analyses farms that pl ant upland cotton and hold upland cotton base. By
marketing year, the following four tables provide, first, by crop the total amount of contract payments
received by farms that produce upland cotton and hold upland cotton base.

15 Calculated as the share of upland cotton production planted on farms holding upland cotton base (up
to the amount of upland cotton base) of total upland cotton plantings. MY 1999-2001 data are taken from
category “1” farms and total upland cotton planting from the rPFCsum.xls file provided by the United States on
28 January 2004. Data for MY 2002 is taken from “Enrolled in Cotton PFC and planted cotton” farms and total
upland cotton plantings from the rDCPsum.xls file provided by the United States on 28 January 2004.
16 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55.
17 No such aggregation problem exists with respect to the summary data as requested by the Panel on
3 February 2004.
18 Since there are also minor changes to the summary data on farms that plant upland cotton and hold
upland cotton base, Brazil has recalculated all of the figu res presented in Section 9 of its 28 January 2004
Comments and Requests Regarding US Data following the very same calculation methodology.

Table 2.1

MY 1999 PFC Payments by Crop for Farms Producing Upland Cotton
And Holding Upland Cotton Base
Crop Programme Payment Units 19 Payment Rate20
(US$ per unit) Subsidy Amount21
Upland
Cotton PFC Payments 6,539,475,550.8 0.0788 $515,310,673.4
Wheat PFC Payments 95,664,040.0 0.6370 $60,937,993.5
Oats PFC Payments 4,237,510.4 0.0300 $127,125.3
Rice PFC Payments 1,737,257,447.2 0.0128 $22,236,895.3
Corn PFC Payments 161,779,123.3 0.3630 $58,725,821.8
Sorghum PFC Payments 85,161,081.8 0.4350 $37,045,070.6
Barley PFC Payments 6,144,577.9 0.2710 $1,665,180.6

Table 2.2

MY 2000 PFC Payments by Crop for Farms Producing Upland Cotton And
Holding Upland Cotton Base
Crop Programme Payment Units 22 Payment Rate23
(US$ per unit) Subsidy Amount24
Upland
Cotton PFC Payments 6,581,478,117.7 0.0733 $482,422,346.0
Wheat PFC Payments 97,234,507.3 0.5880 $57,173,890.3
Oats PFC Payments 4,307,676.7 0.0280 $120,614.9
Rice PFC Payments 1,835,587,326.3 0.0118 $21,659,930.5
Corn PFC Payments 160,180,015.1 0.3340 $53,500,125.0
Sorghum PFC Payments 85,770,731.7 0.4000 $34,308,292.7
Barley PFC Payments 6,408,296.1 0.2510 $1,608,482.3

19 Payment Units for MY 1999 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
20 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
21 Subsidy Amount = Payment Units * Payment Rate.
22 Payment Units for MY 2000 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
23 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
24 Subsidy Amount = Payment Units * Payment Rate.

Table 2.3

MY 2001 PFC Payments by Crop for Farms Producing Upland Cotton
And Holding Upland Cotton Base
Crop Programme Payment Units 25 Payment Rate26
(US$ per unit) Subsidy Amount27
Upland
Cotton PFC Payments 6,476,075,004.9 0.0599 $387,916,892.8
Wheat PFC Payments 92,731,181.0 0.4740 $43,954,579.8
Oats PFC Payments 4,096,334.8 0.0220 $90,119.4
Rice PFC Payments 1,963,467,470.7 0.0095 $18,652,941.0
Corn PFC Payments 154,693,661.2 0.2690 $41,612,594.9
Sorghum PFC Payments 82,952,147.8 0.3240 $26,876,495.9
Barley PFC Payments 5,564,922.0 0.2060 $1,146,373.9

Table 2.4

MY 2002 Direct and Counter-Cyclical Payments by Crop for Farms Producing
Upland Cotton And Holding Upland Cotton Base
Crop28 Programme Payment Units 29 Payment Rate30
(US$ per unit) Subsidy Amount31
DP Payments 7,107,791,953.5 0.0667 $474,089,723.3Upland
Cotton CCP Payments 7,622,807,085.5 0.1373 $1,046,611,412.8
DP Payments 68,412,316.3 0.5200 $35,574,404.5Wheat CCP Payments 70,209,721.9 0.0000 $0
DP Payments 3,202,016.5 0.0200 $64,040.3Oats CCP Payments 3,227,085.9 0.0000 $0
DP Payments 1,972,478,301.5 0.0107 $21,105,517.8Rice CCP Payments 2,133,694,144.3 0.0075 $16,002,706.1
DP Payments 118,220,781.7 0.2800 $33,101,818.9Corn CCP Payments 132,055,130.0 0.0000 $0
DP Payments 63,545,759.2 0.6300 $40,033,828.3Sorghum CCP Payments 64,258,624.9 0.0000 $0
DP Payments 4,494,711.7 0.2400 $1,078,730.8Barley CCP Payments 4,663,526.3 0.0000 $0
DP Payments 32,002,425.3 0.4400 $14,081,067.1Soybeans CCP Payments 35,163,355.6 0.0000 $0

25 Payment Units for MY 2001 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
26 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
27 Subsidy Amount = Payment Units * Payment Rate.
28 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
29 Payment Units for MY 2002 are taken from category “Enrolled in Cotton PFC and planed cotton”
farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
30 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
31 Subsidy Amount = Payment Units * Payment Rate.

15. The next four sets of calculations indicate the amount of base and planted acreage for each
crop and the amount of crop contract payments allocated to each crop as well as the amount of
contract payments available for allocation to othe r crops. They finally also indicate the amount of
contract payments that constitute support to upla nd cotton on farms that plant upland cotton and hold
upland cotton base.
32

Table 2.5

MY 1999 Farms Producing Upland Cotton And Holding Upland Cotton Base
(PFC Payment Allocation)
Crop Contract Acres 33 Planted Acres 34 Subsidy
Allocated35
Subsidy Available for
Allocation36
Upland
Cotton 12,581,724.8 13,540,382.7 $515,310,673.4 $0.0
Wheat 3,071,118.0 2,363,687.3 $46,900,953.1 $14,037,040.4
Oats 110,232.9 72,349.1 $83,436.1 $43,689.2
Rice 466,080.3 451,264.0 $21,530,003.1 $706,892.2
Corn 2,214,514.8 1,306,755.6 $34,653,322.9 $24,072,498.9
Sorghum 1,809,835.7 1,747,475.2 $35,768,629.3 $1,276,441.4
Barley 119,385.9 59,080.0 $824,040.9 $841,139.7

16. Since planted acreage exceeds base acreage onl y for upland cotton, the entire amount of 1999
PFC payments available for allocation ( $40,977,701.8) is allocated to upland cotton. Therefore the
amount of PFC payments that constitute support to upland cotton on farms planting upland cotton and
holding upland cotton base in MY 1999 is $556,288,375.2.37

32 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton but do not hold upland cotton base, as discussed below.
33 Contract Acres for MY 1999 are taken from cate gory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
34 Planted Acres for MY 1999 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
35 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.1 for the
calculation of the total MY 1999 PFC payment by crop).
36 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
37 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton but do not hold upland cotton base, as discussed below.

Table 2.6

MY 2000 Farms Producing Upland Cotton And Holding Upland Cotton Base
(PFC Payment Allocation)
Crop Contract Acres 38 Planted Acres 39 Subsidy
Allocated40
Subsidy Available for
Allocation41
Upland
Cotton 12,625,168.7 14,170,477.5 $482,422,346.0 $0.0
Wheat 3,127,581.2 2,866,488.2 $52,400,967.8 $4,772,922.5
Oats 112,722.9 80,100.4 $85,708.4 $34,906.5
Rice 491,929.7 350,319.2 $15,424,743.7 $6,235,186.8
Corn 2,201,781.0 1,439,083.7 $34,967,672.9 $18,532,452.1
Sorghum 1,833,506.9 1,458,672.4 $27,294,448.5 $7,013,844.2
Barley 124,232.0 55,138.4 $713,899.3 $894,583.0

17. Since planted acreage exceeds base acreage onl y for upland cotton, the entire amount of 2000
PFC payments available for allocation ( $37,483,895.1) is allocated to upland cotton. Therefore the
amount of PFC payments that constitute support to upland cotton on farms planting upland cotton and
holding upland cotton base in MY 2000 is $519,906,241.1.42

38 Contract Acres for MY 2000 are taken from cate gory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
39 Planted Acres for MY 2000 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
40 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.2 for the
calculation of the total MY 2000 PFC payment by crop).
41 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
42 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton but do not hold upland cotton base, as discussed below.

Table 2.7

MY 2001 Farms Producing Upland Cotton And Holding Upland Cotton Base
(PFC Payment Allocation I)
Crop Contract Acres 43 Planted Acres 44 Subsidy
Allocated45
Subsidy Available for
Allocation46
Upland
Cotton 12,386,499.4 14,118,952.4 $387,916,892.8 $0.0
Wheat 2,948,042.9 2,235,873.5 $33,336,312.8 $10,618,267.0
Oats 105,068.0 155,272.1 $90,119.4 $0.0
Rice 530,490.2 437,596.1 $15,386,625.9 $3,266,315.1
Corn 2,149,751.1 1,272,872.9 $24,638,919.5 $16,973,675.4
Sorghum 1,785,775.2 2,228,624.6 $26,876,495.9 $0.0
Barley 106,907.6 53,286.2 $571,389.8 $574,984.1

18. The total amount of PFC payment that is av ailable for allocation over crops whose planted
acreage exceeds their base acreage is allocated as detailed in the following table:

Table 2.8

MY 2001 Farms Producing Upland Cotton And Holding Upland Cotton Base
(PFC Payment Allocation II)
Crop (Contract Acres 47) –
(Planted Acres48)
Share of Total
Overplanted Base49
Total Subsidy
Available for
Allocation50
Additional
Subsidy
Allocated51
Upland
Cotton 1,732,453.0 77.85 per cent $31,433,241.7 $24,469,312.4
Oats 50,204.1 2.26 per cent $31,433,241.7 $709,086.9
Sorghum 442,849.4 19.89 per cent $31,433,241.7 $6,254,842.3
Total 2,225,506.5 100 per cent $31,433,241.7 $31,433,241.7

19. The amount of PFC payments that constitute support to upland cotton on farms planting
upland cotton and holding upland cotton base in MY 2001 is $412,386,205.2.52,53

43 Contract Acres for MY 2001 are taken from cate gory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
44 Planted Acres for MY 2001 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
45 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.3 for the
calculation of the total MY 2001 PFC payment by crop).
46 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
47 Contract Acres for MY 2001 are taken from cate gory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
48 Planted Acres for MY 2001 are taken from category “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
49 See “Total” in the preceding column.
50 The figures in this column represent the total of the amount of MY 2001 PFC payments available for
allocation as calculation in the “Subsidy Available for Allocation” column of Table 2.7.
51 Additional Subsidy Allocated = Share of Total Overplanted Base * Total Subsidy Available for
Allocation.
52 Calculated as the sum of the two bolded figures in Tables 2.7 and 2.8.

20. Since in MY 2002, the amount of upland cotton acreage (13,022,668.9 acres
54) on farms that
planted upland cotton and held upland cotton b ase was below the amount of upland cotton base
(13,818,215.255), no additional contract payments would be allocated. Instead, the amount of support
to upland cotton is calculated by multiplying the am ount of upland cotton direct and counter-cyclical
payments on these farms by 0.94243. 56 The table below shows the amount of payments allocated as
support to upland cotton.

Table 2.9

MY 2002 Allocated Upland Cotton Direct and Counter-Cyclical Payments
 Total Payments 57 Share To Be Allocated 58 Payments Allocated 59
Direct Payments $474,089,723.3 94.243 per cent $446,796,377.9
CCP Payments $1,046,611,412.8 94.243 per cent $986,357,993,8

21. In a second step, Brazil analyses farms that plant upland cotton but do not hold upland cotton
base. By marketing year, the following four tables provide, first, by crop the total amount of contract
payments received by farms that produce upland cotton and hold upland cotton base.

Table 2.10

MY 1999 PFC Payments by Crop for Farms Producing Upland Cotton But Not
Holding Upland Cotton Base
Crop Programme Payment Units 60 Payment Rate61
(US$ per unit) Subsidy Amount62
Upland
Cotton PFC Payments 0 0.0788 $0
Wheat PFC Payments 20,027,129.9 0.6370 $12,757,281.7
Oats PFC Payments 801,406.4 0.0300 $24,042.2
Rice PFC Payments 579,443,200.3 0.0128 $7,416,873.0
Corn PFC Payments 34,650,665.6 0.3630 $12,578,191.6
Sorghum PFC Payments 12,138,759.1 0.4350 $5,280,360.2
Barley PFC Payments 551,544.3 0.2710 $149,468.5

53 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton but do not hold upland cotton base, as discussed below.
54 Taken from category “Enrolled in Cotton PFC and planted cotton” farms from in rDCPsum.xls
provided by the United States on 28 January 2004.
55 Taken from category “Enrolled in Cotton PFC and planted cotton” farms from in rDCPsum.xls
provided by the United States on 28 January 2004.
56 This figure represents the share that upland co tton planted acreage constitutes of upland cotton base
acreage.
57 See Table 2.4 for the calculation of the total uplan d cotton MY 2002 direct and counter-cyclical
payments.
58 This figure represents the share that upland co tton planted acreage constitutes of upland cotton base
acreage – calculated based on data taken from “Enrolled in Cotton PFC and planted cotton” farms column from
in rDCPsum.xls provided by the United States on 28 January 2004.
59 Payments Allocated = Total Payments * Share To Be Allocated.
60 Payment Units for MY 1999are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
61 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
62 Subsidy Amount = Payment Units * Payment Rate.

Table 2.11

MY 2000 PFC Payments by Crop for Farms Producing Upland Cotton But Not
Holding Upland Cotton Base
Crop Programme Payment Units 63 Payment Rate64
(US$ per unit) Subsidy Amount65
Upland
Cotton PFC Payments 0 0.0733 $0
Wheat PFC Payments 22,244,808.9 0.5880 $13,079,947.6
Oats PFC Payments 952,045.1 0.0280 $26,657.3
Rice PFC Payments 633,534,085.0 0.0118 $7,475,702.2
Corn PFC Payments 36,445,141.6 0.3340 $12,172,677.3
Sorghum PFC Payments 12,928,302.9 0.4000 $5,171,321.2
Barley PFC Payments 558,190.5 0.2510 $140,105.8

Table 2.12

MY 2001 PFC Payments by Crop for Farms Producing Upland Cotton But Not
Holding Upland Cotton Base
Crop Programme Payment Units 66 Payment Rate67
(US$ per unit) Subsidy Amount68
Upland
Cotton PFC Payments 0 0.0599 $0
Wheat PFC Payments 22,428,260.7 0.4740 $10,630,995.6
Oats PFC Payments 942,768.1 0.0220 $20,740.9
Rice PFC Payments 777,335,099.0 0.0095 $7,384,683.4
Corn PFC Payments 38,743,300.2 0.2690 $10,421,947.8
Sorghum PFC Payments 13,988,512.5 0.3240 $4,532,278.1
Barley PFC Payments 583,440.6 0.2060 $120,188.8

63 Payment Units for MY 2000 are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
64 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
65 Subsidy Amount = Payment Units * Payment Rate.
66 Payment Units for MY 2001 are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
67 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
68 Subsidy Amount = Payment Units * Payment Rate.

Table 2.13

MY 2002 Direct and Counter-Cyclical Payments by Crop for Farms Producing
Upland Cotton But Not Holding Upland Cotton Base
Crop69 Programme Payment Units 70 Payment Rate71
(US$ per unit) Subsidy Amount72
DP Payments 0 0.0667 $0Upland
Cotton CCP Payments 0 0.1373 $0
DP Payments 8,301,576.6 0.5200 $4,316,819.8Wheat CCP Payments 8,541,723.9 0.0000 $0.0
DP Payments 161,464.9 0.0200 $3,229.3Oats CCP Payments 164,737.2 0.0000 $0.0
DP Payments 495,586,654.0 0.0107 $5,302,777.2Rice CCP Payments 498,858,849.4 0.0075 $3,741,441.4
DP Payments 16,302,167.4 0.2800 $4,564,606.9Corn CCP Payments 18,440,044.0 0.0000 $0.0
DP Payments 5,944,728.1 0.6300 $3,745,178.7Sorghum CCP Payments 5,882,846.2 0.0000 $0.0
DP Payments 127,254.2 0.2400 $30,541.0Barley CCP Payments 129,400.5 0.0000 $0.0
DP Payments 1,732,743.1 0.4400 $762,407.0Soybeans CCP Payments 1,855,963.7 0.0000 $0.0

22. The next four sets of calculations indicate the amount of base and planted acreage for each
crop and the amount of crop contract payments allocated to each crop as well as the amount of
contract payments available for further allocati on to other crops. They finally also indicate the
amount of contract payments that constitute support to upland cotton on farms that plant upland cotton
but do not hold upland cotton base.
73

69 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
70 Payment Units for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planed
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
71 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). Rice payment
units are expressed in US$ per pound rather than in US$ per hundredweight as reported in that exhibit ( i.e.,
divided by 220.46).
72 Subsidy Amount = Payment Units * Payment Rate.
73 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton and hold upland cotton base, as discussed above.

Table 2.14

MY 1999 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(PFC Payments)
Crop Contract Acres 74 Planted Acres 75 Subsidy
Allocated76
Subsidy Available for
Allocation77
Upland
Cotton 0 1,032,580.8 $0 $0
Wheat 664,033.9 377,929.2 $7,260,697.5 $5,496,584.2
Oats 20,442.4 12,284.9 $14,448.2 $9,594.0
Rice 133,161.8 74,642.6 $4,157,458.7 $3,259,414.3
Corn 495,800.2 205,429.0 $5,211,626.2 $7,366,565.4
Sorghum 224,604.4 141,533.7 $3,327,401.1 $1,952,959.1
Barley 13,086.9 3,021.1 $34,504.7 $114,963.8

23. Since for none of the non-upland cotton crops planted acreage exceeds base acreage, the
entire amount of 1999 PFC payments available for allocation ( $18,200,080.9
78) is allocated to upland
cotton.79

74 Contract Acres for MY 1999 are taken from cate gory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
75 Planted Acres for MY 1999 are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
76 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.10 for the
calculation of the total MY 1999 PFC payment by crop).
77 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
78 Sum of “Subsidy Available for Allocation” in Table 2.14.
79 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton and hold upland cotton base, as discussed above.

Table 2.15

MY 2000 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(PFC Payments)
Crop Contract Acres 80 Planted Acres 81 Subsidy
Allocated82
Subsidy Available for
Allocation83
Upland
Cotton 0 1,217,550.3 $0 $0
Wheat 749,812.2 429,019.3 $7,483,940.6 $5,596,007.0
Oats 25,096.0 19,731.5 $20,959.1 $5,698.2
Rice 147,118.7 70,088.3 $3,561,472.9 $3,914,229.3
Corn 523,505.2 231,096.1 $5,373,505.8 $6,799,171.5
Sorghum 244,894.8 162,155.4 $3,424,154.6 $1,747,166.6
Barley 13,533.9 2,808.5 $29,074.2 $111,031.6

24. Since for none of the non-upland cotton crops planted acreage exceeds base acreage, the
entire amount of 2000 PFC payments available for allocation ( $18,173,304.2
84) is allocated to upland
cotton.85

80 Contract Acres for MY 2000 are taken from cate gory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
81 Planted Acres for MY 2000 are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
82 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.11 for the
calculation of the total MY 2000 PFC payment by crop).
83 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
84 Sum of “Subsidy Available for Allocation” in Table 2.15.
85 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton and hold upland cotton base, as discussed above.

Table 2.16

MY 2001 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(PFC Payments)
Crop Contract Acres 86 Planted Acres 87 Subsidy
Allocated88
Subsidy Available for
Allocation89
Upland
Cotton 0 1,344,982.1 $0 $0
Wheat 716,566.2 393,648.9 $5,840,185.8 $4,790,809.8
Oats 23,851.4 32,464.5 $28,230.8 -$7,489.9
Rice 182,597.4 105,932.1 $4,284,152.0 $3,100,531.4
Corn 569,027.1 228,127.0 $4,178,232.8 $6,243,715.0
Sorghum 264,349.3 182,763.6 $3,133,488.4 $1,398,789.7
Barley 13,343.0 2,783.6 $25,073.6 $95,115.2

25. Since for none of the non-upland cotton crops planted acreage exceeds base acreage, the
entire amount of 2001 PFC payments available for allocation ( $15,621,471.2
90) is allocated to upland
cotton.91

86 Contract Acres for MY 2001 are taken from cate gory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
87 Planted Acres for MY 2001 are taken from category “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
88 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.13 for the
calculation of the total MY 2001 PFC payment by crop).
89 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
90 Sum of “Subsidy Available for Allocation” in Table 2.16.
91 Additional PFC payments will be allocated as support to upland cotton on farms that produce upland
cotton and hold upland cotton base, as discussed above.

Table 2.17

MY 2002 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(Direct Payments)
Crop92 Contract Acres 93 Planted Acres 94 Subsidy
Allocated95
Subsidy Available for
Allocation96
Upland
Cotton 0 518,837.0 $0 $0
Wheat 243,967.7 231,183.7 $4,090,616.8 $226,203.0
Oats 4,049.8 11,842.4 $3,229.3 $0.0
Rice 111,611.5 49,723.9 $2,362,433.6 $2,940,343.6
Corn 197,312.6 145,345.6 $3,362,408.3 $1,202,198.6
Sorghum 108,062.4 104,094.2 $3,607,650.6 $137,528.1
Barley 3,368.5 1,697.3 $15,388.8 $15,152.2
Soybeans 98,409.5 140,070.8 $762,407.0 $0.0

26. The total amount of MY 2002 direct payments that is available for allocation over crops
whose planted acreage exceeds their base acreage is allocated as detailed in the following table:

Table 2.18

MY 2002 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(Direct Payments)
Crop (Contract Acres97) –
(Planted Acres98)
Share of Total
Overplanted
Base99
Total Subsidy
Available for
Allocation100
Additional
Subsidy
Allocated101
Upland
Cotton 518,837.0 91.298 per cent $4,521,425.4 $4,127,961.2
Oats 7,792.60 1.371 per cent $4,521,425.4 $61,999.3
Soybeans 41,661.30 7,331 per cent $4,521,425.4 $331,464.9
Total 568,290.90 100 per cent $4,521,425.4 $4,521,425.4

92 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
93 Planted Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
94 Contract Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
95 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.14 for the
calculation of the total MY 2002 direct payment by crop).
96 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.
97 Contract Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
98 Planted Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
99 See Total in the preceding column
100 The figures in this column represent the total of the amount of MY 2002 direct payments available
for allocation as calculated in the “Subsidy Available for Allocation” column in Table 2.17.
101 Additional Subsidy Allocated = Share of Total Overplanted Base * Total Subsidy Available for
Allocation.

27. The total amount of 2002 direct payments th at constitute support to upland cotton on farms
that produce upland cotton but do not hold upland cotton base is therefore $4,127,961.2.102

Table 2.19

MY 2002 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(CCP Payments)
Crop103 Contract Acres 104 Planted Acres 105 Subsidy
Allocated106
Subsidy Available for
Allocation107
Upland
Cotton 0 518,837.0 $0 $0
Wheat 243,967.7 231,183.7 $0 $0
Oats 4,049.8 11,842.4 $0 $0
Rice 111,611.5 49,723.9 $1,666,844.9 $2,074,596.5
Corn 197,312.6 145,345.6 $0 $0
Sorghum 108,062.4 104,094.2 $0 $0
Barley 3,368.5 1,697.3 $0 $0
Soybeans 98,409.5 140,070.8 $0 $0

28. The total amount of MY 2002 counter-cyclical pa yments that is available for allocation over
crops whose planted acreage exceeds their base acreage is allocated as detailed in the following table:

102 Additional direct payments will be allocated as support to upland cotton on farms that produce
upland cotton and hold upland cotton base, as discussed above.
103 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
104 Contract Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” from the rDCPsum.xls file provided by the United States on 28 January 2004.
105 Planted Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” from the rDCPsum.xls file provided by the United States on 28 January 2004.
106 The subsidy allocated is the entire amount of contract payments for that crop if planted acreage
exceeds or equals base acreage. The subsidy allocated is amount of contract payments for that crop adjusted by
the ratio of planted acreage to base acreage if planted acreage is below base acreage. ( see Table 2.14 for the
calculation of the total MY 2002 counter-cyclical payment by crop).
107 The amount of subsidy available for allocation to other contract payment crops is the residuum of
crop contract payments that has no t been allocated to the respective crop because planted acreage was below
base acreage.

Table 2.20
MY 2002 Farms Producing Upland Cotton But Not Holding Upland Cotton Base
(CCP Payments)
Crop (Contract Acres108) –
(Planted Acres109)
Share of Total
Overplanted
Base110
Total Subsidy
Available for
Allocation111
Additional
Subsidy
Allocated112
Upland
Cotton 518,837.0 91.298 per cent $2,074,596.5 $1,894,060.6
Oats 7,792.60 1.371 per cent $2,074,596.5 $28,447.6
Soybeans 41,661.30 7,331 per cent $2,074,596.5 $152,088.3
Total 568,290.90 100 per cent $2,074,596.5 $2,074,596.5

29. The amount of 2002 counter-cyclical paymen ts that constitute support to upland cotton on
farms that produce upland cotton but do not hold upland cotton base is therefore $1,894,060.6.113

30. In a third step, Brazil presents the total amount of contract payments received by farms that
produce upland cotton that constitute support to upl and cotton, whether or not these farms actually
hold upland cotton base.
114

Table 2.21

Total Contract Payment Support to Upland Cotton on Farms Producing
Upland Cotton and Holding Upland Cotton Base
MY PFC Payments MLA
Payments115 Direct Payments CCP Payments
1999 $574,488,456.1 $571,690,622.7 - -
2000 $538,079,545.3 $572,803,412.3 - -
2001 $428,007,676.4 $591,165,829.7 - -
2002 - - $450,924,339.1 $988,252,054.4

108 Contract Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
109 Planted Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
110 See Total in the preceding column
111 The figures in this column represent the total of the amount of MY 2002 direct payments available
for allocation as calculated in the “Subsidy Available for Allocation” column in Table 2.17.
112 Additional Subsidy Allocated = Share of Total Overplanted Base * Total Subsidy Available for
Allocation.
113 Additional counter-cyclical payments will be allocated as support to upland cotton on farms that
produce upland cotton and hold upland cotton base, as discussed above.
114 These figures have been calculated as the sum of the contract payments allocated as support to
upland cotton on farms that either hold or do not hold upland cotton base and produce upland cotton.
115 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton,” USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.

31. For purposes of comparison, Brazil reproduces the results of its “14/16 th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September Further Submission.

Table 2.22

Results of Brazil’s 14/16
th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

32. As the Panel can readily see, both me thodologies produce quite similar results.

3. Annex IV-Type Methodology Over Contract Crop Values Only

33. The calculations in this section apply an Annex IV-type allocation methodology to all
contract payments received by farms that prod uce upland cotton, whether or not those farms hold
upland cotton base. The approach is the same as in Section 10 of Brazil’s 28 January Comments and
Requests Regarding US Data. – with the sole excep tion that the allocation is performed only over the
value of programme crops produced on the farm, rather than over the entire value of the upland cotton
farms (crop) production.
116

34. As a first step, Brazil tabulates the total amount of contract payments received by farms that
produce upland cotton, as calculated in Section 2 above. The following four tables show the results of
this calculation indicating the amount of contract payments by contract payment crop.

Table 3.1

Total Amount of MY 1999 PFC Payments
Crop
Farms Holding
Upland Cotton
Base117
Farms Not Holding
Upland Cotton Base118
Total PFC
Payment119
Upland Cotton $515,310,673.4 $0.0 $515,310,673.4
Wheat $60,937,993.5 $12,757,281.7 $73,695,275.2
Oats $127,125.3 $24,042.2 $151,167.5
Rice $22,236,895.3 $7,416,873.0 $29,653,768.3
Corn $58,725,821.8 $12,578,191.6 $71,304,013.4
Sorghum $37,045,070.6 $5,280,360.2 $42,325,430.8
Barley $1,665,180.6 $149,468.5 $1,814,649.1
Total $696,048,760.5 $38,206,217.2 $734,254,977.7

116 This calculation based on the revised 28 January 2004 US data is replicated in Section 4 below.
117 See Table 2.1 for the calculations resulting in these subsidy figures.
118 See Table 2.10 for the calculations resulting in these subsidy figures.
119 Sum of the two preceding columns

Table 3.2

Total Amount of MY 2000 PFC Payments
Crop
Farms Holding
Upland Cotton
Base120
Farms Not Holding
Upland Cotton Base121
Total PFC
Payment122
Upland Cotton $482,422,346.0 $0.0 $482,422,346.0
Wheat $57,173,890.3 $13,079,947.6 $70,253,837.9
Oats $120,614.9 $26,657.3 $147,272.2
Rice $21,659,930.5 $7,475,702.2 $29,135,632.7
Corn $53,500,125.0 $12,172,677.3 $65,672,802.3
Sorghum $34,308,292.7 $5,171,321.2 $39,479,613.9
Barley $1,608,482.3 $140,105.8 $1,748,588.1
Total $650,793,681.7 $38,066,411.4 $688,860,093.1

Table 3.3

Total Amount of MY 2001 PFC Payments
Crop
Farms Holding
Upland Cotton
Base123
Farms Not Holding
Upland Cotton Base124
Total PFC
Payment125
Upland Cotton $387,916,892.8 $0.0 $387,916,892.8
Wheat $43,954,579.8 $10,630,995.6 $54,585,575.4
Oats $90,119.4 $20,740.9 $110,860.3
Rice $18,652,941.0 $7,384,683.4 $26,037,624.4
Corn $41,612,594.9 $10,421,947.8 $52,034,542.7
Sorghum $26,876,495.9 $4,532,278.1 $31,408,774.0
Barley $1,146,373.9 $120,188.8 $1,266,562.7
Total $520,249,997.7 $33,110,834.6 $553,360,832.3

120 See Table 2.2 for the calculations resulting in these subsidy figures.
121 See Table 2.11 for the calculations resulting in these subsidy figures.
122 Sum of the two preceding columns
123 See Table 2.3 for the calculations resulting in these subsidy figures.
124 See Table 2.12 for the calculations resulting in these subsidy figures.
125 Sum of the two preceding columns

Table 3.4

Total Amount of MY 2002 Direct and Counter-Cyclical Payments
Crop126 Programme
Farms Holding
Upland Cotton
Base127
Farms Not
Holding Upland
Cotton Base128
Total DP and CCP
Payments129
DP Payments $474,089,723.3 $0.0 $474,089,723.3Upland
Cotton CCP Payments $1,046,611,412.8 $0.0 $1,046,611,412.8
DP Payments $35,574,404.5 $4,316,819.8 $39,891,224.3Wheat CCP Payments $0.0 $0.0 $0.0
DP Payments $64,040.3 $3,229.3 $67,269.6Oats CCP Payments $0.0 $0.0 $0.0
DP Payments $21,105,517.8 $5,302,777.2 $26,408,295.0Rice CCP Payments $16,002,706.1 $3,741,441.4 $19,744,147.5
DP Payments $33,101,818.9 $4,564,606.9 $37,666,425.8Corn CCP Payments $0.0 $0.0 $0.0
DP Payments $40,033,828.3 $3,745,178.7 $43,779,007.0Sorghum CCP Payments $0.0 $0.0 $0.0
DP Payments $1,078,730.8 $30,541.0 $1,109,271.8Barley CCP Payments $0.0 $0.0 $0.0
DP Payments $14,081,067.1 $762,407.0 $14,843,474.1Soybeans CCP Payments $0.0 $0.0 $0.0
DP Payments $619,129,131.0 $18,725,559.9 $637,854,690.9Total CCP Payments $1,062,614,118.9 $3,741,441.4 $1,066,355,560.3

35. In a second step the value of all contract pa yment crops produced on farms that also produce
upland cotton is determined. Therefore, the total amount of acreage planted to each of the contract
payment crops is multiplied by the average yield and the average farm price for the crop. This is
shown in the following four tables.

126 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
127 See Table 2.4 for the calculations resulting in these subsidy figures.
128 See Table 2.13 for the calculations resulting in these subsidy figures.
129 Sum of the two preceding columns

Table 3.5

MY 1999 Value of Programme Crop Production on Upland Cotton Farms
Crop
Crop Plantings
on Farms
Holding Upland
Cotton Base130
Crop Plantings on
Farms Not Holding
Upland Cotton
Base131
Average
Yield132
Farm
Price
per
unit133
Total Value134
Upland
Cotton 13,540,382.7 1,032,580.8 536.095 $0.45 $3,515,621,790.4
Wheat 2,363,687.3 377,929.2 42.7 $2.48 $290,326,220.9
Oats 72,349.1 12,284.9 59.6 $1.12 $5,649,488.8
Rice 451,264.0 74,642.6 5,866 $0.027 $82,912,712.7
Corn 1,306,755.6 205,429.0 133.8 $1.82 $368,241,145.1
Sorghum 1,747,475.2 141,533.7 69.7 $1.57 $206,712,354.9
Barley 59,080.0 3,021.1 59.2 $2.13 $7,830,700.3
Total 19,540,993.90 1,847,421.30 - - $4,477,294,413.0

130 Planted Acres for MY 1999 are taken from categ ory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
131 Planted Acres for MY 1999 are taken from categ ory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
132 Upland cotton yields per planted acre (adjusted for abandonment) are taken from Exhibit Bra-4
(“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4). All other yields are taken from Exhibit Bra-420
(Agricultural Outlook Tables, November 2003, Table 17). If these yields should constitute yields on harvested
acres (the USDA document relied on by Brazil does not provide this information), then the use of these figures
would bias the results leading to lower allocations for up land cotton. No other yield figures are available to
Brazil.
133 Average farm prices are taken from Exhibit Bra-420 (Agricultural Outlook Tables, November 2003,
Table 17).
134 Total Value = (Crop Plantings on Farms Holding Upland Cotton Base + Crop Plantings on Farms
Not Holding Upland Cotton Base) * Average Yield * Farm Price per Unit.

Table 3.6

MY 2000 Value of Programme Crop Production on Upland Cotton Farms
Crop
Crop Plantings
on Farms
Holding Upland
Cotton Base135
Crop Plantings on
Farms Not Holding
Upland Cotton
Base136
Average
Yield137
Farm
Price
per
unit138
Total Value139
Upland
Cotton 14,170,477.5 1,217,550.3 525.84 $0.498 $4,029,636,988.1
Wheat 2,866,488.2 429,019.3 42.0 $2.62 $362,637,645.3
Oats 80,100.4 19,731.5 64.2 $1.10 $7,050,128.8
Rice 350,319.2 70,088.3 6,281 $0.025 $67,139,462.6
Corn 1,439,083.7 231,096.1 136.9 $1.85 $422,998,087.0
Sorghum 1,458,672.4 162,155.4 60.9 $1.89 $186,558,900.6
Barley 55,138.4 2,808.5 61.1 $2.11 $7,470,572.3
Total 20,420,279.80 2,132,449.40 - - $5,083,491,784.8

135 Planted Acres for MY 200 are taken from category “1” farms from the rPFCsum.xls file provided by
the United States on 28 January 2004.
136 Planted Acres for MY 2000 are taken from categ ory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
137 Upland cotton yields per planted acre (adjusted for abandonment) are taken from Exhibit Bra-4
(“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4). All other yields are taken from Exhibit Bra-420
(Agricultural Outlook Tables, November 2003, Table 17). If these yields should constitute yields on harvested
acres (the USDA document relied on by Brazil does not provide this information), then the use of these figures
would bias the results leading to lower allocations for up land cotton. No other yield figures are available to
Brazil.
138 Average farm prices are taken from Exhibit Bra-420 (Agricultural Outlook Tables, November 2003,
Table 17).
139 Total Value = (Crop Plantings on Farms Holding Upland Cotton Base + Crop Plantings on Farms
Not Holding Upland Cotton Base) * Average Yield * Farm Price per Unit.

Table 3.7

MY 2001 Value of Programme Crop Production on Upland Cotton Farms
Crop
Crop Plantings
on Farms
Holding Upland
Cotton Base140
Crop Plantings on
Farms Not Holding
Upland Cotton
Base141
Average
Yield142
Farm
Price
per
unit143
Total Value144
Upland
Cotton 14,118,952.4 1,344,982.1 607.25 $0.298 $2,798,361,319.1
Wheat 2,235,873.5 393,648.9 40.2 $2.78 $293,864,905.3
Oats 155,272.1 32,464.5 61.4 $1.59 $18,327,973.3
Rice 437,596.1 105,932.1 6,496 $0.019 $68,010,000.7
Corn 1,272,872.9 228,127.0 138.2 $1.97 $408,653,226.8
Sorghum 2,228,624.6 182,763.6 59.9 $1.94 $280,217,777.2
Barley 53,286.2 2,783.6 58.2 $2.22 $7,244,442.4
Total 20,502,477.80 2,290,701.80 - - $3,874,679,644.8

140 Planted Acres for MY 2001 are taken from categ ory “1” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
141 Planted Acres for MY 2001 are taken from categ ory “3” farms from the rPFCsum.xls file provided
by the United States on 28 January 2004.
142 Upland cotton yields per planted acre (adjusted for abandonment) are taken from Exhibit Bra-4
(“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4). All other yields are taken from Exhibit Bra-420
(Agricultural Outlook Tables, November 2003, Table 17). If these yields should constitute yields on harvested
acres (the USDA document relied on by Brazil does not provide this information), then the use of these figures
would bias the results leading to lower allocations for up land cotton. No other yield figures are available to
Brazil.
143 Average farm prices are taken from Exhibit Bra-420 (Agricultural Outlook Tables, November 2003,
Table 17).
144 Total Value = (Crop Plantings on Farms Holding Upland Cotton Base + Crop Plantings on Farms
Not Holding Upland Cotton Base) * Average Yield * Farm Price per Unit.

Table 3.8

MY 2002 Value of Programme Crop Production on Upland Cotton Farms
Crop145
Crop Plantings
on Farms
Holding Upland
Cotton Base146
Crop Plantings on
Farms Not Holding
Upland Cotton
Base147
Average
Yield148
Farm
Price
per
unit149
Total Value150
Upland
Cotton 13,022,668.9 518,837.0 566.676 $0.445 $3,414,772,646.8
Wheat 2,685,236.6 231,183.7 35.3 $3.56 $366,500,706.3
Oats 145,601.7 11,842.4 56.7 $1.81 $16,158,015.7
Rice 373,548.5 49,723.9 6,578 $0.019 $53,252,747.8
Corn 1,641,968.8 145,345.6 130.0 $2.32 $539,054,023.0
Sorghum 1,621,276.2 104,094.2 50.7 $2.32 $202,944,967.9
Barley 49,167.3 1,697.3 54.9 $2.72 $7,595,509.0
Soybeans 1,966,061.6 140,070.8 38.0 $5.53 $442,582,662.5
Total 21,505,529.60 1,202,794.90 - - $5,042,861,279.0

36. The following table shows the share that the upland cotton value represents of the total value
of contract payments crops produced on farms that also produce upland cotton.

Table 3.9

Percentage of Upland Cotton Value of Total Programme Crop Value
151
MY 1999 MY 2000 MY 2001 MY 2002
78.521 per cent 79.269 per cent 72.222 per cent 67.715 per cent

37. Finally, Brazil applies these percentages (the share of upland cotton value of total contract
payment crop value) to the total amount of contract payments, as calculated in the first step. The
resulting figures represent the total amount of cont ract payments that constitute support to upland
cotton under this methodology. The following tabl e shows the amount of support to upland cotton if
an Annex IV-type methodology is applied to allocat e the value of contract payments over the total
value of contract crops produced on farms that also produce upland cotton.

145 Brazil has not calculated the amounts of payments for other minor oilseeds, as the figures were so
small and payment rates were not available to Brazil. Any distortion resulting from this omission would only
reduce the amount of contract payments that are considered support to upland cotton.
146 Planted Acres for MY 2002 are taken from category “Enrolled in Cotton PFC and planted cotton”
farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
147 Planted Acres for MY 2002 are taken from category “Not Enrolled in Cotton PFC and planted
cotton” farms from the rDCPsum.xls file provided by the United States on 28 January 2004.
148 Upland cotton yields per planted acre (adjusted for abandonment) are taken from Exhibit Bra-4
(“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4). All other yields are taken from Exhibit Bra-420
(Agricultural Outlook Tables, November 2003, Table 17). If these yields should constitute yields on harvested
acres (the USDA document relied on by Brazil does not provide this information), then the use of these figures
would bias the results leading to lower allocations for up land cotton. No other yield figures are available to
Brazil.
149 Average farm prices are taken from Exhibit Bra-420 (Agricultural Outlook Tables, November 2003,
Table 17).
150 Total Value = (Crop Plantings on Farms Holding Upland Cotton Base + Crop Plantings on Farms
Not Holding Upland Cotton Base) * Average Yield * Farm Price per Unit.
151 These figures have been calculated as “Total Value” of upland cotton divided by “Total Value” of
all crops reported in Tables 3.5-3.8.

Table 3.10

Total Contract Payments Allocated as Support to Upland Cotton
152
MY PFC Payments MLA
Payments153 Direct Payments CCP Payments
1999 $576,544,351.0 $573,736,505.1 - -
2000 $546,052,507.2 $581,290,893.0 - -
2001 $399,648,260.3 $551,995,696.4 - -
2002 - - $431,923,303.9 $722,082,667.7

38. For purposes of comparison, Brazil reproduces the results of its “14/16 th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September Further Submission.

able 3.11

Results of Brazil’s 14/16th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

4. US-Proposed Annex IV Methodology

39. In this section, Brazil provides updated calcula tions for allocating contract payments over the
entire sales of crops produced on farms producing upland cotton. 154 In Section 3 of this annex, Brazil
calculated the total amounts of contract payments received by farms producing upland cotton
(Tables 3.1-3.4). Brazil also calculated the value of the contract programme crop production on farms
producing upland cotton (Tables 3.5-3.8). To avoi d repetition, Brazil refers to Panel to these
calculations.

40. While the revised US summary data provi ded on 28 January 2004 neither addresses the
aggregation problems resulting from the particular manner in which the United States produced its
summary data,
155 nor the shortcomings in terms of soybean market loss assistance payments and
peanut direct and counter-cyclical payments, the Un ited States provides information on contract base
of farms that plant upland cotton, but do not hold upland cotton base. To reflect this additional
information, Brazil has updated its earlier calculations.156

152 These figures have been calculated by multiplying the percentage amount in Table 3.9 by the total
amount of PFC, direct and counter-cyclical payments in Tables 3.1-3.4.
153 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton”, USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.
154 Brazil’s original calculations ar e contained in Section 10 of its 28 January 2004 Comments and
Requests Regarding US Data.
155 No such aggregation problem exists with respect to the summary data as requested by the Panel on 3
February 2004.
 156 Since there are also minor changes to the summary data on farms that plant upland cotton and hold
upland cotton base, Brazil has recalculated all of the fi gures presented in Section 10 of its 28 January 2004
Comments and Requests Regarding US Data following the very same calculation methodology.

41. Allocating the total amount of contract payments over the entire sales of crops produced on
farms that also produce upland cotton requires de termining the value of the non-programme crop
production on these farms. In a first step, Brazil calculates the amount of acreage planted to non-
programme crops on farms that produce upland cotton.

Table 4.1

MY 1999 Non-Contract Payment Crop Acres on Upland Cotton Farms
Total Acreage on Farms Holding Upland Cotton
Base157 27,912,407.1 acres
Total Acreage on Farms Not Holding Upland
Cotton Base158 2,716,150.3 acres
Total Acreage on Upland Cotton Farms159 30,628,557.4 acres
Total Contract Crop Acreage on Farms Holding
Upland Cotton Base160 19,540,993.9 acres
Total Contract Acreage on Farms Not Holding
Upland Cotton Base161 1,847,421.3 acres
Total Contract Crop Acreage on Upland
Cotton Farms162
21,388,415.2 acres
Total Non-Contract Crop Acreage on Upland
Cotton Farms163
9,240,142.2 acres

157 Data taken from category “1” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
158 Data taken from category “3” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
159 Sum of the two above figures.
160 Sum of figures reported in Table 2.5.
161 Sum of figures reported in Table 2.14.
162 Sum of the two above figures.
163 Difference between “Total Acreage on Upland Cotton Farms” and “Total Contract Crop Acreage on
Upland Cotton Farms.”

Table 4.2

MY 2000 Non-Contract Payment Crop Acres on Upland Cotton Farms
Total Acreage on Farms Holding Upland Cotton
Base164 28,104,322.2 acres
Total Acreage on Farms Not Holding Upland
Cotton Base165 2,986,458.7 acres
Total Acreage on Upland Cotton Farms166 31,090,780.9 acres
Total Contract Crop Acreage on Farms Holding
Upland Cotton Base167 20,420,279.8 acres
Total Contract Acreage on Farms Not Holding
Upland Cotton Base168 2,132,449.4 acres
Total Contract Crop Acreage on Upland
Cotton Farms169 22,552,729.2 acres
Total Non-Contract Crop Acreage on Upland
Cotton Farms170 8,538,051.7 acres

Table 4.3

MY 2001 Non-Contract Payment Crop Acres on Upland Cotton Farms
Total Acreage on Farms Holding Upland Cotton
Base171 27,412,998.5 acres
Total Acreage on Farms Not Holding Upland
Cotton Base172 3,222,775.5 acres
Total Acreage on Upland Cotton Farms173 30,635,774.0 acres
Total Contract Crop Acreage on Farms Holding
Upland Cotton Base174 20,502,477.8 acres
Total Contract Acreage on Farms Not Holding
Upland Cotton Base175 2,290,701.8 acres
Total Contract Crop Acreage on Upland
Cotton Farms176 22,793,179.6 acres
Total Non-Contract Crop Acreage on Upland
Cotton Farms177 7,842,594.4 acres

164 Data taken from category “1” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
165 Data taken from category “3” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
166 Sum of the two above figures.
167 Sum of figures reported in Table 2.6.
168 Sum of figures reported in Table 2.15.
169 Sum of the two above figures.
170 Difference between “Total Acreage on Upland Cotton Farms” and “Total Contract Crop Acreage on
Upland Cotton Farms.”
171 Data taken from category “1” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
172 Data taken from category “3” farms column in rPFCsum.xls file provided by the United States on
28 January 2004.
173 Sum of the two above figures.
174 Sum of figures reported in Table 2.7.
175 Sum of figures reported in Table 2.16.
176 Sum of the two above figures.
177 Difference between “Total Acreage on Upland Cotton Farms” and “Total Contract Crop Acreage on
Upland Cotton Farms.”

Table 4.4

MY 2002 Non-Contract Payment Crop Acres on Upland Cotton Farms
Total Acreage on Farms Holding Upland Cotton
Base178 26,576,970.2 acres
Total Acreage on Farms Not Holding Upland
Cotton Base179 1,564,115.0 acres
Total Acreage on Upland Cotton Farms180 28,141,085.2 acres
Total Contract Crop Acreage on Farms Holding
Upland Cotton Base181 21,505,529.6 acres
Total Contract Acreage on Farms Not Holding
Upland Cotton Base182 1,202,794.9 acres
Total Contract Crop Acreage on Upland
Cotton Farms183 22,708,324.5 acres
Total Non-Contract Crop Acreage on Upland
Cotton Farms184 5,432,760.7 acres

42. Brazil notes that the calculation of the average value of the production from a non-contract
crop acre in the United States is unaffected by the new summary data provided by the United States
on 28 January 2004. For ease of reference, Brazil reproduces the average values in the table below.

Table 4.5

Average Per-Acre Value from Production of Non-Contract Programme Crops
in the United States
185
MY 1999 MY 2000 MY 2001 MY 2002
$150.28 $155.58 $154.92 $118.42

43. Multiplying the per acre value of non-contract crop production by the amount of acreage
planted to non-programme crops provides the total value of this production, as shown in the table
below.

178 Data taken from category “Enrolled in Cotton PFC and planted cotton” farms column in
rDCPsum.xls file provided by the United States on 28 January 2004.
179 Data taken from category “Not Enrolled in Cotton PFC and planted cotton” farms column in
rDCPsum.xls file provided by the United States on 28 January 2004.
180 Sum of the two above figures.
181 Sum of planted acre figures on category “Enrolled in Cotton PFC and planted cotton” farms from
rDCPsum.xls provided by the United States on 28 January 2004.
182 Sum of figures reported in Tables 2.17 and 2.18.
183 Sum of the two above figures.
184 Difference between “Total Acreage on Upland Cotton Farms” and “Total Contract Crop Acreage on
Upland Cotton Farms.”
185 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data).
Brazil has provided this file also electronically as ‘allocation calculations.xls’ on 28 January 2004.

Table 4.6

Total Value of Non-Contract Programme Crops Production
on Upland Cotton Farms
186
MY 1999 MY 2000 MY 2001 MY 2002
$1,388,608,569.8 $1,328,350,083.5 $1,214,974,724.4 $643,347,522.1

44. These figures are added to the value of contr act programme crops determined in Section 3 and
presented below.

Table 4.7

Total Value of Crop Production on Upland Cotton Farms
 MY 1999 MY 2000 MY 2001 MY 2002
Value of
Contract
Programme
Crops
187
$4,477,294,413.0 $5,083,491,784.8 $3,874,679,644.8 $5,042,861,279.0
Value of
Non-
Contract
Payment
Crops
188
$1,388,608,569.8 $1,328,350,083.5 $1,214,974,724.4 $643,347,522.1
Total
Value189 $5,865,902,982.8 $6,411,841,868.3 $5,089,654,369.2 $5,686,208,801.1
Upland
Cotton
Value190
$3,515,621,790.4 $4,029,636,988.1 $2,798,361,319.1 $3,414,772,646.8
Upland
Cotton
Value as a
Percentage
of Total
Value
191
59.933 per cent 62.857 per cent 54.981 per cent 60.054 per cent

45. Applying this percentage rate to the total amount of contract payments received by farms
producing upland cotton gene rates the amount of contract paymen ts that constitute support to upland
cotton under this methodology. The figures are shown in the table below.

186 Total Value = “Average Per-Acre Value of Non-Contract Payment Crop Production in the
United States” (as reported in Table 4.5) * “Total Non-Contract Crop Acreage on Upland Cotton Farms” (as
reported in Tables 4.1-4.4).
187 See Tables 3.5-3.8.
188 See Table 4.6.
189 Sum of the two preceding figures.
190 See Tables 3.5-3.8.
191 Calculated by dividing “Upland Cotton Value” by “Total Value.”

Table 4.8

Total Contract Payments Allocated as Support to Upland Cotton192
MY PFC Payments MLA
Payments193 Direct Payments CCP Payments
1999 $440,061,035.8 $437,917,881.4 - -
2000 $432,996,788.7 $460,939,354.1 - -
2001 $304,243,319.2 $420,222,029.1 - -
2002 - - $383,057,256.1 $640,389,168.2

46. For purposes of comparison, Brazil reproduces the results of its “14/16 th” methodology, as
presented to the Panel at paragraphs 8 of Braz il’s 22 December 2003 Answers to Questions and
Brazil’s 9 September Further Submission.

Table 4.9

Results of Brazil’s 14/16th Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $547,800,000 $545,100,000 - -
2000 $541,300,000 $576,200,000 - -
2001 $453,000,000 $625,700,000 - -
2002 - - $454,500,000 $935,600,000

192 Calculated by applying the “Upland Cotton Value as a Percentage of Total Value” (reported in
Table 4.7) to the total amount of contract payments reported in Tables 3.1-3.4.
193 Market Loss Assistance Payments are calculated as PFC payments multiplied by the ratio of upland
cotton market loss assistance payments to upland cotton PFC payments, as contained in Exhibit Bra-4 (“Fact
Sheet: Upland Cotton”, USDA, January 2003, p. 6). Since payment rates are not available directly, this ratio
provides the information because both subsidies are paid based off the same payment units. Brazil notes that the
market loss assistance payment amounts are understated by the non-allocated amount of soybean market loss
assistance payments for which the United States has not produced any information.

Annex B

Peace Clause Comparisons MY 1999-2001 Under Various Allocation Methodologies

Budgetary Outlays For Upland Cotton MY 1992, 1999
1
1992 1999 (1) 1999 (2) 1999 (3) 1999 (4) 1999 (5) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none none
PFC Payments none 515.3 574.5 576.5 440.1 547.8
MLA Payments none 512.8 571.7 573.7 437.9 545.1
Marketing Loan
Gains and LDP
Payments2
866 1,761 1,761 1,761 1,761 1,761
Step 2 Payment 207 422 422 422 422 422
Crop Insurance 26.6 169.6 169.6 169.6 169.6 169.6
Cottonseed Payments none 79 79 79 79 79
Total 2,117.0 3,459.7 3,577.8 3,581.8 3,309.6 3,524.5
(1) Adjusted Total Upland Cotton Contract Pa yments to Farms Producing Upland Cotton and
Holding Upland Cotton Base; (Under The N on-Adjusted Methodology, The Amount Would
Be Identical)
(2) Brazil’s Allocation Methodology
(3) Annex IV-Type Allocation Over Valu e of Contract Payment Crops Only
(4) US-proposed Methodology
(5) Brazil’s 14/16
th Methodology

Budgetary Outlays For Upland Cotton MY 1992, 20003
1992 2000 (1) 2000 (2) 2000 (3) 2000 (4) 2000 (5) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none none
PFC Payments none 482.4 538.1 546.1 433.0 541.3
MLA Payments none 513.6 572.8 581.3 460.9 576.2
Marketing Loan
Gains and LDP
Payments4
866 636 636 636 636 636
Step 2 Payment 207 236 236 236 236 236
Crop Insurance 26.6 161.7 161.7 161.7 161.7 161.7
Cottonseed Payments none 185 185 185 185 185
Total 2,117.0 2,214.7 2,329.6 2,346.1 2,112.6 2,336.2
(1) Adjusted Total Upland Cotton Contract Pa yments to Farms Producing Upland Cotton and
Holding Upland Cotton Base; (Under The N on-Adjusted Methodology, The Amount Would
Be Identical)
(2) Brazil’s Allocation Methodology
(3) Annex IV-Type Allocation Over Valu e of Contract Payment Crops Only
(4) US-proposed Methodology
(5) Brazil’s 14/16
th Methodology

1 The table below reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal
Submission.
2 “Other Payments” have been included in the marketing loan figures.
3 The table below reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal
Submission.
4 “Other Payments” have been included in the marketing loan figures.

Budgetary Outlays For Upland Cotton MY 1992, 20015
1992 2001 (1) 2001 (2) 2001 (3) 2001 (4) 2001 (5) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none none
PFC Payments none 387.9 428.0 399.6 304.2 453.0
MLA Payments none 535.8 597.2 552.0 420.2 625.7
Marketing Loan
Gains and LDP
Payments
6
866 2,609 2,609 2,609 2,609 2,609
Step 2 Payment 207 196 196 196 196 196
Crop Insurance 26.6 262.9 262.9 262.9 262.9 262.9
Cottonseed Payments none none none none none none
Total 2,117.0 3,991.6 4,093.1 4,019.5 3,792.3 4,146.6
(1) Adjusted Total Upland Cotton Contract Pa yments to Farms Producing Upland Cotton and
Holding Upland Cotton Base; (Under The N on-Adjusted Methodology, The Amount Would
Be Identical)
(2) Brazil’s Allocation Methodology
(3) Annex IV-Type Allocation Over Valu e of Contract Payment Crops Only
(4) US-proposed Methodology
(5) Brazil’s 14/16
th Methodology

5 The table below reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal
Submission.
6 “Other Payments” have been included in the marketing loan figures.

ANNEX I-23

COMMENTS OF THE UNITED STATES
TO THE 18 FEBRUARY 2004 COMMENTS OF BRAZIL

3 March 2004

Introduction

1. The United States thanks the Panel for th is opportunity to provide comments on the
18 February comments filed by Brazil relating to the data submitted by the United States on 18 And
19 December 2003. As an initial matter, the Un ited States finds it odd that Brazil’s 18 February
comments advance a number of new arguments con cerning the applicability of the Peace Clause at
this late stage in the proceedings, long after the time when the Peace Clause portion of the dispute was
supposed to have been concluded. This only dem onstrates the shifting nature of Brazil’s arguments
and approach to the legal provisions at issue.

2. In these comments, we proceed as follows:

• First, the United States sets forth how Brazil’s arguments on the use of the December data are
mistaken because of Brazil’s erroneous interpretation of the Peace Clause phrase “support to a
specific commodity.”

• Second, we rebut Brazil’s argument that support to a specific commodity may be determined
by an analysis of whether the payment in ques tion “cover[s] (or contribute[s] to) the costs of
production of a crop.” Brazil’s “costs of production” principle finds no support in the text of
the Peace Clause or of any WTO agreement and in fact collapses when applied to its logical
conclusion.

• Third, we demonstrate that Brazil’s argument that decoupled income support payments are de
facto tied to production is in error.

• Fourth, we explain that Brazil has not made a prima facie case under its subsidies claims with
respect to decoupled payments because it has failed to advance evidence and arguments to
allow for identification of the challenged subsidy and subsidized product.

• Fifth, we demonstrate that Brazil’s various allocation methodologies, in addition to being
irrelevant for Peace Clause Purposes and ina pplicable for serious prejudice claims, are
internally inconsistent and illogical and that its so-called “Annex IV” methodologies are in
fact unrelated to the text of Annex IV.

• Finally, we conclude by noting that Brazil’s interpretation of the Peace Clause and application
of the December data would upset the balance of rights and obligations of members in the
WTO agreements.

Brazil Misinterprets the Peace Clause1 Phrase, “Support to a Specific Commodity”

3. We begin by noting that the entirety of secti on 2, and many other parts, of Brazil’s comments
are based on an argument that Brazil invents and fa lsely ascribes to the United States. Brazil seeks to
paint the US interpretation of the Peace Clause pr oviso as “based on” an understanding that “‘support
to’ means ‘tied to’ the production of a specific commodity” – that is, that “support to” in
Article 13(b)(ii) of the Agreement on Agriculture means something like “tied to the production or sale
of a given product” in paragraph 3 of Annex IV of the Subsidies Agreement. 2 Brazil’s argument,
however, is not based on any submission of the United States since the United States has never linked
the Peace Clause to Annex IV. Indeed, in the US February 11 comments, we specifically noted that:

[T]he terms “support to a specific commodity” and “product-specific support” are not
found in Part III of the Subsidies Agreement, nor in Article 1 or Annex IV. Neither
are the terms “subsidy,” “benefit,” or “s ubsidized product” from the Subsidies
Agreement found in the Peace Clause proviso or any supporting text. Thus, the plain
language of the Peace Clause and [Subsidi es Agreement] Articles 5 and 6 indicate
that these provisions refer to wholly different approaches and suggest that the
methodology for allocating non-tied (decoupled) payments under the Subsidies
Agreement may not be relevant under the Ag reement on Agriculture. The definitions
of product-specific support and non-product-sp ecific support in Article 1(a) of the
Agreement on Agriculture confirm that the Annex IV allocation methodology does
not apply for purposes of the Peace Clause.
3
Thus, contrary to Brazil’s assertions, the United States is plainly not inappropriately attempting to
interpret the phrase “support to” in the Peace Clause in light of the phrase “tied to” in Annex IV. 4
Having laid down a patently incorrect understanding of the US argument, Brazil proceeds never to
address the true bases for the US interpretati on of the Peace Clause phrase “support to a specific
commodity”.

4. Although Brazil correctly suggests that the Panel should look to the ordinary meaning of the
phrase “support to a specific commodity,” it only provides a dictionary definition for one term in the
phrase, “support” (“assistance, backing”).
5 Brazil’s reliance on “support” is misplaced. When Brazil
states: “The issue under Article 13(b)(ii) is whet her a particular commodity receives ‘backing’ or
support’ from a domestic support measure,” Br azil fundamentally misunderstands the issue. 6 “Non-
product-specific support” is also “support” to various agricultural commodities. The simple fact that
it supports those commodities (on a non-specific basi s) does not thereby convert that support into

1 In paragraph 19 of Brazil’s 18 February comments, Brazil in passing charact erizes the Peace Clause
as “now-expired”. As the United St ates has explained earlier in this pr oceeding, the issue of the date of
expiration of the Peace Clause is not at issue in this proceeding. Brazil accepts th at the Peace Clause was in
effect when the Panel was established. However, the United States has also explained that the Peace Clause has
not yet expired for the United States or other Members whose relevant “year” began later in 1995, so Brazil’s
characterization is inaccurate as well.
3 US February 11 Comments, para. 20 (footnote omitted).
4 Similarly, we are puzzled by Braz il’s lengthy argument in section 4 of its comments that it is the US
position that “only Annex IV of the SCM Agreement offers any useful context” to finding some methodology to
apply to decoupled payments for pur poses of the Peace Clause analysis . Brazil’s 18 February Comments,
paras. 38-41. As set out above, the Peace Clause determination is made on the basis of its text in its context; the
United States does not rely on Annex IV as context or otherwise for inte rpretation of the Peace Clause; and no
methodology to allocate non-product-specific support to a specific commodity can be found in the Agreement
on Agriculture.

support to a “specific commodity” for purposes of Article 13(b)(ii). In addition, by solely defining
“support,” Brazil avoids the ordinary meaning of the phrase as a whole – that is, “assistance” or
“backing” “specially . . . pertaining to a particular” “agricultural crop”
7 – a meaning which runs
directly contrary to Brazil’s approach under whic h support to multiple commodities is at the same
time support to particular commodities. Brazil not only fails to look to the ordinary meaning of all of
the terms in this phrase 8, it also fails to read the phrase “support to a specific commodity” in light of
any other provision of the Agreement on Agricultur e (the most immediate context for the Peace
Clause) that contains any of the terms “support,” “specific,” or “commodity”.9

5. For example, the phrase “support to a specifi c commodity” contains elements found in the
phrases product-specific and non-product-specific suppor t – but Brazil denies that those concepts
have any relevance to the Peace Clause.
10 Brazil also fails to discuss (and therefore presumably
believes irrelevant) the similarities between the phrase “ support to a specific commodity ” and the
phrases “support . . . provided for an agricultural product in favour of the producers of the basic
agricultural product” (Article 1(a)) and “ support for basic agricultural products ” (Article 1(h)),
which, respectively, define and refer to product-sp ecific support (without using those exact words).
Brazil’s interpretation of the Peace Clause phrase “s upport to a specific commodity”, in addition to
ignoring the ordinary meaning of the phrase as a w hole, ignores relevant context as well – that is,
those phrases in the Agreement on Agriculture that, b ecause of their close similarities, must inform a
valid interpretation.

6. As we have previously noted, “support to a specific commodity” must be read not only
according to the ordinary meaning of the terms, but also in light of the structure of the Agreement on
Agriculture. Brazil asserts that Members woul d have used the exact phrase “product-specific
support” instead of “support to a specific commodity” if they had meant the two to be read as having
the same meaning,
11 but Brazil sets up a false dichotomy. The Agreement elsewhere defines
(Article 1(a)) and refers to (Article 1(h)) this concept without using that exact phrase. Indeed, the
Agreement on Agriculture nowhere uses the exact phrase “product-specific support”. A close
approximation is the phrase “product-specific domestic support” in Article 6. 4(a)(i); in Annex 3,
paragraph 1, the term “product-specific” is used in the context of describing the AMS to be calculated
for each basic agricultural product. 12 Despite the absence in the te xt of the exact phrase “product-
specific support”, even Brazil has no difficulty r ecognizing that such a concept exists in the
Agreement on Agriculture; thus, that the exact phras e “product-specific support” was not used in the

7 See US First Written Submission, para. 77 (July 11, 2003) (citing dictionary definitions of each term).
8 According to the customary rules of interpretation of public international law, the Agreement is to “be
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose.” See Vienna Convention on the Law of Treaties, Article 31
(General rule of interpretation).
9 See, e.g., Agreement on Agriculture, Articles 1(a), 1(d), 1(f), 6.4, and Annex 3 (paragraphs 1 and 7).
10 Instead, Brazil claims that all of its arguments relating to product-specific support and non-product-
specific support have been arguments “ in the alternative. ” Brazil also faults the United States for “falsely
assert[ing] that Brazil has ‘conceded that ‘support to a specific commodity’ refers to ‘product-specific support.’”
Brazil’s 18 February Comments, paras. 9-10. The United States notes that the Brazilian statement previously
referred to by the United States (that is, “the support from contract payments that can be allocated to upland
cotton is product-specific support with in the meaning of the Agreement on Agriculture”, Br azil’s 28 January
Comments, para. 73) did not contain any indication that it was made “in the alternative”. Nonetheless, in these
comments, the United States proceeds as if Brazil’s 18 February comments are its final position.
11 Brazil’s February 18 Comments, para. 5 (“Negotiators presumably knew what they intended when
they used the very particular term ‘product-specific support’. They used the term repeatedly in the Agreement
on Agriculture, and even defined ‘non-product-specific support in Article 1(a) – yet they declined to use
‘product-specific support’ in Article 13(b)(ii)”.).
12 See Agreement on Agriculture, Annex 3, para. 1 (“Subject to the provisions of Article 6, an
Aggregate Measurement of Support (AMS) shall be calc ulated on a product-speci fic basis for each basic
agricultural product receiving market price support, non-exempt direct payments, or any other subsidy not
exempted from the reduction commitment (‘other non-exempt policies’).”).

Peace Clause is no bar to finding that this is the correct interpretation of “support to a specific
commodity”.13
7. In addition, Brazil’s suggestion that “support to a specific commodity” was intended to clarify
that the Peace Clause test involves only “support to an individual commodity, not a group of
commodities such as grains or even all commodities”14, does not withstand scrutiny.
• First, the phrase “support to a commodity,” wit hout the use of the word “specific”, conveys
the same meaning as “support to an individual commodity” (Brazil’s proffered interpretation);
thus, Brazil’s interpretation renders the use of the term “specific” inutile.
• Second, under Brazil’s interpretation of the Peace Clause, support to “a group of
commodities” or “even all commodities” could be support to a specific commodity because
the payments may be allocated to an individu al commodity depending on what the recipient
produces. Thus, Brazil’s own Peace Clause interpretation contradicts this distinction between
“support to an individual commodity” and support “to a group of commodities”.
In addition, Brazil’s suggestion that “the chapeau of Article 13(b)(ii) confirms this broader meaning
of ‘support,’ because it includes all types of non-green box measures” 15, simply begs the question.
“Domestic support measures that conform fully to the provisions of Article 6” (the language in the
chapeau) may be either product-specific or non-pro duct-specific, and even Brazil would agree that
non-product-specific support is not “support to a specif ic commodity”. Thus, just because a measure
falls within the Article 13(b)(ii) chapeau does not as sist in determining whether that measure provides
“support to a specific commodity”.
8. What may be most striking about the Brazilian critique of the US reading of the Peace Clause
is that it nowhere presents nor rebuts the basis fo r the US interpretation. The basis for the US
interpretation is set out plainly in the US February 11 comments:
The lack of grounding of Brazil’s methodology in the WTO agreements stems from
its erroneous interpretation of “support to a specific commodity.” . . . . Brazil has
consistently failed to read together the definitions of product- specific support and
non-product-specific support in Article 1(a) of the Agreement on Agriculture. Read
in conjunction with one another, non-produc t-specific support (“support provided in
favour of agricultural producers in general” ) is a residual category of support that is
not product-specific (“support . . . provided for an agricultural product in favour of
the producers of the basic agricultural product”).
16
Brazil nowhere addresses the US argument relating to the definition of product-specific support in
Article 1(a) of the Agreement on Agriculture. In fact, whereas in Brazil’s Peace Clause submissions
it serially misquoted the definition of product-sp ecific support in Article 1(a), dropping key words, 17
in its 18 February comments Brazil avoids that inconvenient definition by simply never mentioning
it.18 At the same time, however, Brazil relies heavily on the definition of non-product-specific support

13 For convenience sake, the United States will use th e term “product-specific support” as a shorthand
for the concept of support to a specific commodity, in contrast to “non-product-specific support”.
16 US 11 February Comments, para. 10 (emphasis added).
17 See US Rebuttal Submission, para. 82 (22 August 2003); US Comments on Brazil’s Rebuttal
Submission, para. 23 n.30 (27 August 2003).
18 See, e.g., Brazil’s February 18 Comments, para. 9 (“Brazil has argued that th e meaning of ‘product-
specific’ AMS must be governed by the only term providing some guidance as to what it means – the definition
of ‘non-product-specific support’ in Article 1(a) of the Agreement on Agriculture”.).

in Article 1(a).
19 Thus, once again, Brazil invites the Pane l to commit legal error in interpreting the
phrase “non-product-specific support provided in favour of agricultural producers in general” devoid
of the context provided by the immediately preceding definition of product-specific support.

9. That Brazil’s position is untenable is de monstrated by comparing Annex 3, entitled
“Calculation of Aggregate Measurement of Support, ” with Article 1(a), which defines “Aggregate
Measurement of Support” or “AMS”. Paragraph 1 of Annex 3 specifies that two different types of
AMS shall be calculated:

• First, “an Aggregate Measurement of Support (AMS) shall be calculated on a
product-specific basis for each basic agricultural product.” Second, “[s]upport which is
non-product specific shall be totalled into one non-pr oduct-specific AMS in total monetary
terms”.

Thus, Annex 3 distinguishes and calls for the separ ate calculation of non-product-specific support and
product-specific support, which together comprise the AMS. Article 1(a), defining AMS, contains the
identical distinction. While only non-product-specific support is identified by name, the structure of
the AMS definition – which parallels Annex 3, pa ragraph 1 – demonstrates that product-specific and
non-product-specific support together comprise the AMS:

• “‘Aggregate Measurement of Support’ and ‘AMS’ mean the annual level of support,
expressed in monetary terms, [1] provided fo r an agricultural product in favour of the
producers of the basic agricultural product or
 [2] non-product-specific support provided in
favour of agricultural producers in general . . . [bold and italics added].”20

That is, just as the calculation of AMS (which uses the term “product-specific”) distinguishes product-
specific from non-product-specific support, logically, so too does the definition of AMS (which does
not use that term).
21 Thus, it is simply not credible for Brazil to refer to the definition of “non-
product-specific support” in Article 1(a) but to ignore the immediately preceding definition of
product-specific support.22

10. her, Brazil’s discussion of the meaning of the term “in general” in the definition of non-
product-specific support is disappointing because Brazil mischaracterizes the US position and
presents the Panel with an interpretation that is not the ordinary meaning of the term. In so doing,
Brazil renews a faulty argument advanced in its Peace Clause submissions. In case there were any
confusion, the United States clarifies the issue here.

• Brazil has, in fact, never used a dictionary de finition of “in general,” the exact phrase in the
definition of non-product-specific support. Ra ther, Brazil has attempted to define “in
general” by providing definitions of the word “ general” as “relating to a whole class of

19 See, e.g., Brazil’s 18 February Comments, paras. 9, 12, and 18.
20 Agreement on Agriculture, Article 1(a).
21 See also Agreement on Agriculture, Article 6.4(a) (for purposes of de minimis support,
distinguishing “product-specific domestic support” from “non-product-specific domestic support”).
22 See, e.g., Brazil’s 18 February Comments, para. 12 (“One interpretive guide to determine whether
support is ‘product-specific’ is found in the definition of ‘non-product-specific support’ in Article 1(a) of the
Agreement on Agriculture. Brazil demonstrated that only non-product-specific support is actually defined . . .
.”) (emphasis added).

objects” and “not partial, local or sectional”. 23 However, in the same dictionary from which
Brazil quotes, there is a definition of “in general,” which Brazil continues to avoid.24

• The definition of “in general” that comes clos est to Brazil’s use (for example, “including,
involving, or affecting all or nearly all the part s of a (specified or implied) whole”) is “in a
body; universally; without exception.” However, that definition of “in general” is marked
“obsolete” in Brazil’s own dictionary.25
• Thus, Brazil errs when it argues that the United States has asserted “that Brazil’s definition of
‘general’ is obsolete”. Rather, the United St ates has asserted that Brazil has advanced a
reading of the phrase “in general” that employs an obsolete meaning.26
• In contrast, the non-obsolete definition of “in general” is “in general terms, generally”.27
Thus, the ordinary meaning of “non-product-speci fic support provided in favour of agricultural
producers in general” in Ar ticle 1(a) would be support not “specially . . . pertaining to a particular” 28
product provided in favour of agricultural producers “generally”.
11. Brazil uses its faulty definition of non-pr oduct-specific support to conclude that US
decoupled payments are not non-product-specific. However, Brazil recognizes that decoupled income
support payments do not require any production 29, a recipient may produce nothing at all or may
produce any of numerous commodities. Thus, decoupled income support payments are non-product-
specific because they do not “specially . . . pert ain[] to a particular” product and are support
“generally” to producers of whatever commodities they choose to produce (if any).
12. We also pause to note that Brazil argues th at the EC, New Zealand, and Argentina believe
that decoupled income support in the form of counter-cyclical payments are product-specific. 30
However, Brazil points to nothing in the arguments of these third parties that differs from its own
flawed interpretation, which the United States has thoroughly rebutted. Moreover, Brazil now
explicitly argues that the Peace Clause “may require the application of an allocation methodology for
. . . domestic support measures that may provide support to more than one commodity”.31
• However, in the Peace Clause phase of this disput e, Brazil had asserted that “[t]he use of the
word ‘specific’ [in “support to a specific commodity”] makes cl ear that AoA [Agreement on
Agriculture] Article 13(b)(ii) addresses actionable subsidy challenges made on a

23 Brazil’s 18 February Comments, para. 12 (footnote omitted); Brazil’s Answer to Question 40 from
the Panel (para. 54) (defining “general” as “‘including, involving, or affecting all or nearly all the parts of a
(specified or implied) whole’”).
24 See US Rebuttal Submission, para. 83 (22 August 2003).
25 US Comments on Brazil’s Rebuttal Submission, para. 23 (noting that the definition of “in general” as
“in a body; universally; without exception” was marked “obsolete” in The New Shorter Oxford English
Dictionary).
26 US 11 February Comments, para. 10 (“As the United States has pointed out before, not only does this
reading of ‘in general’ rely on an obsolete meaning, which therefore cannot be the ordinary meaning of the
terms, but Brazil has consistently failed to read together the definitions of product-specific and non-product-
specific support in Article 1(a) of the Agreement on Agriculture.”) (emphasis added; footnote omitted).
27 “In general” means “in general terms, generally” and “as a rule, usually.” The New Shorter Oxford
English Dictionary, vol. 1, at 1073 (1993 ed.).
28 The New Shorter Oxford English Dictionary , vol. 2, at 2972 (“specific”: second definition); see also
id. (fifth definition: “Clearly or explicitly defined; precise, exact, definite.”).
29 Brazil’s 18 February Comments, para. 4 (“Brazil and the United States agree that the contract
payments, which do not require production . . . .”).

product-by-product basis, as opposed to challenges regarding support for multiple
commodities”.
32

• Further, we recall that the European Communities argued that “support which is provided to a
number of crops cannot at the same time be considered ‘support to a specific commodity’.
Such support is ‘support to several commodities’ or ‘support to more than one commodity’”.33

Thus, the European Communities has set out an understanding of “support to a specific commodity”
in the Peace Clause that directly contradicts Brazil’s current allocation methodology. Had Brazil
revealed (or conceived of) its allocation methodol ogy during the Peace Clause phase of the dispute,
the third parties would have been in a better positi on to provide their informed opinions as to Brazil’s
Peace Clause interpretation and characterization of particular measures.

13. We also note that the context to which Br azil cites in support of its allocation methodology
for Peace Clause purposes lends no support to its interpre tation. First, Brazil argues that “[f]urther
context for the existence of some sort of an a llocation methodology in the Agreement on Agriculture
is Annex 3, paragraph 7”.
34 However, even if this provision were to suggest “ some sort of an
allocation methodology” in the Agreement on Agricu lture, it only applies to calculate AMS with
respect to measures directed at processors and do es not suggest any methodology that would allocate
non-product-specific support as “support to a specific commodity.” Brazil also suggests that
paragraphs 7, 8, 12, and 13 of Annex 3 “include as ‘product-specific’ many types of domestic support
not tied to the production of a particular commodity.” 35 The United States has noted that it is Brazil
that has put forward this “tied to the production” definition; the US position is that product-specific
support means what Article 1(a) says it does: “support . . . provided for an agricultural product in
favour of the producers of the basic agricultural prod uct.” That said, none of the paragraphs cited by
Brazil speak to an allocation of non-product-specific support as product-specific support. That is,
whether measures referred to in those provisions are product-specific or non-product-specific must be
determined on the basis of the definition found in Article 1(a).
36

14. Finally, Brazil argues that “Article 13(b )(ii) of the Agreement on Agriculture does not
provide explicit guidance on how to count up the amount of support for contract or any other types of
payments. But this does not mean that no counting methodology can be used. The absence of explicit
guidance on implementing more general provisions has not stopped WTO panels or parties from
proposing and using methodologies to tabulate the amount of subsidies, costs, and volumes of trade
impacted.”
37 We disagree with Brazil’s diagnosis and remedy.

• First, the Peace Clause is not a “general prov ision[]” lacking “explicit guidance on how to
count up the amount of support.” In fact, th e Peace Clause provides “explicit guidance”
through the phrase “support to a specific commodity”. Read according to its ordinary
meaning and in its context, this phrase re fers to product-specific support as defined in

32 Brazil’s First Submission, para. 136 (24 June 2003) (emphasis added).
33 Oral Statement by the EC at the First Panel Meeting, para. 21. The same logic would apply to crop
insurance payments: support is provided to multiple commodities through premium payments for approved
insurance products. See, e.g., US Rebuttal Submission, paras. 93-98 (22 August 2003).
36 For example, Brazil cites to paragraph 8 of Annex 3 on the calculation of “market price support”.
This provision refers to “the quantity of production eligible to receive the applied administered price”; assuming
that “the applied administered pri ce” relates to production of one produc t, such a measure would be product-
specific. Paragraph 12 of Annex 3 refers to “[n]on-exempt direct payments which are based on factors other
than price” being measured using budg etary outlays; paragraph 13 refers to the measurement of the value of
other non-exempt direct payments; neither provision speaks to the distinction between non-product-specific
support and product-specific support nor to the allocation of the former to the latter.

Article 1(a) of the Agreement on Agriculture. The definitions in Article 1(a) establish a
methodology by which product-specific support is included in “count[ing] up the amount of
support” for Peace Clause purposes while non-product-specific is not.

• Second, given the balance struck in concluding the Uruguay Round between the need to
achieve binding reduction commitments on agricu ltural support and the need of Members to
be able to design measures to conform to tho se commitments – a point to which we return
later – it is difficult to imagine that Members would have left the issue of how to calculate the
“support to a specific commodity” for Peace Clau se purposes undefined, putting the Panel in
the difficult position of “proposing and using [a] methodolog[y]” on such a crucial issue. In
fact, the Peace Clause provides a methodol ogy for calculating that support. The measures to
be included in the calculation are identified by the phrase “support to a specific commodity,”
as explained in the preceding bullet. The unit of measure to be used in the Peace Clause
comparison is identified by the way in which the Member “decided” support during the 1992
marketing year.
38

Thus, Members did not put the Panel in the untenable position of “adopt[ing] a reasonable
methodology” with respect to its Peace Clause findings. Rather, they agreed to language that provides
an explicit methodology both for the Panel’s pur poses as well as for the pu rposes of Members who
wished to ensure their measures would conform to the Peace Clause. Neither Brazil’s allocation
“methodology [n]or some variant of its methodolog y” – however “reasonable” Brazil may believe
those to be – can serve those purposes or find an y basis in the Peace Clause and the Agreement on
Agriculture.

15. Thus, we end where we began: the interp retation of the Peace Clause phrase “support to a
specific commodity” we have provided is based on its ordinary meaning and in light of the context
provided by relevant provisions of the Agreement on Agriculture,
39 in particular, the definition of
product-specific support in Article 1(a). Brazil, on the other hand, does not read this phrase according
to the ordinary meaning of all of its terms, ignores the context provided by those provisions of the
Agreement on Agriculture that use the terms “s upport”, “specific,” and “commodity,” ignores the
definition of product-specific support in Article 1( a), and instead points to provisions that do not
provide any relevant context.

16. The Panel may ask itself: can a methodology that (as Brazil’s tortured allocation methodology
would have it) results in a payment so metimes being considered as support to no commodity (if the
recipient produces nothing), sometimes as support to one commodity (if the recipient has planted a
number of acres of a crop at least equal to the number of recipient’s base acres of that crop), or
sometimes as support to multiple commodities (if the recipient plants fewer acres of any crop for
which the recipient has base acres) provide any m eaningful interpretation of the phrase “support to a
specific commodity”? The United States believes th at the answer is no. Brazil has, at best,
appreciated the reality of the payments in question: they are paid to producers in any of the situations
it has described. Such support is not “support to a specific commodity” under the ordinary meaning
of the terms (assistance or backing specially pert aining to a particular agricultural crop) or the
Article 1(a) definition (support provided for an agricu ltural product in favour of the producers of the
basic agricultural products). Rather, it is non-product specific support (support not specially
pertaining to a particular product provided in favour of agricultural producers generally).

38 Thus, in the case of the United States, the support “decided during the 1992 marketing year” was a
rate of support provided by the target price for deficiency payments of 72.9 cents per pound and the marketing
loan rate of 52.35 cents per pound. See US February 11 Comments, paras. 15-17.
39 See, e.g., Agreement on Agriculture, Articles 1(a), 1(d), 1(f), 6.4, and Annex 3 (paragraphs 1 and 7).

Brazil’s Costs of Production Approach to De termine Whether Payments are “Support to a
Specific Commodity” Does Not Withstand Scrutiny

17. In the foregoing section, the United States set out the textual and contextual basis for reading
the Peace Clause phrase “support to a specific commod ity” according to the definition of product-
specific support in Article 1(a). We also pointed out that it is not the United States that has attempted
to apply Subsidies Agreement concep ts to the Peace Clause analysis as Brazil incorrectly asserted.
Rather, it is Brazil that has attempted to apply an (incorrect) allocation methodology as might be
relevant for purposes of actionable subsidies clai ms under the Subsidies Agreement to the Peace
Clause analysis. In so doing, Brazil has asserte d a principle for determining whether a subsidy
provides support to a commodity – that is, whether “they cover (or contribute to) the costs of
production of a crop”
40 – that is unworkable and illogical.

18. First, we note that Brazil defines “support” as re lating to the recipient, but later elides this into
support for a crop. For example, Brazil writes: “[T]he word ‘support’ has a more general sense of
‘backing up’ a group of agricultural farmers producing a specific commodity. For example,
subsidies that cover costs of production when a farmer chooses to grow a crop, ‘back up’ or ‘support’
that farmer”.
41 However, the Peace Clause text is “support to a specific commodity” not support to
farmers producing a specific commodity. This distincti on is also found in the Article 1(a) definition
of product-specific support: “support . . . provided for an agricultural product in favour of the
producers of the basic agricultural product”. The difference is that income support provided to farmers
is not “support to a specific co mmodity” because the support is not “provided for an agricultural
product” over any other; the farmer can (in Braz il’s words), “choose[] to grow a crop”, choose to
grow no crop, or choose to grow multiple crops. Even if all recipients of a decoupled payment chose
to produce one crop in particular, the payment would still not be support “for an agricultural product”;
the support is “for” no specific product but rather is support not “specially . . . pertaining to a
particular” product that supports prod ucers generally. It is those producers, in turn, who may choose
to produce one crop in particular.

19. Brazil then, without further explanation, links the notion that support has a “sense” of backing
up a farmer who “chooses to grow a crop” to the notion that such support is “support to a specific
commodity” by asserting that “all of these subsidies at issue in this dispute ‘support’ production of
upland cotton because they cover (or contribut e to) the costs of production of a crop”.
42 Brazil
nowhere provides any basis in the text of the P eace Clause or the Agreement on Agriculture for this
test. Neither does Brazil explain the necessary implications of its approach.

20. For example, if a decoupled payment is “support to a specific commodity” if it “cover[s] (or
contribute[s] to) the costs of production of a crop” then the same payment will be product-specific for
some producers but not others. Brazil has pointed to survey data from 1997 – that the United States
has explained is technologically and structurally out-of date
43 – for the notion that average total costs
of production for US producers are $0.73 per pound. On this basis, Brazil has (incorrectly) claimed
that decoupled payments were necessary to cover th e gap between market revenue and costs. Putting
aside the extensive US critique of Brazil’s argument (such as its reliance on total costs instead of
operating costs)
44, however, the out-of-date per pound total average cost on which Brazil relies is just

41 Brazil’s 18 February Comments, para. 3 (italics added).
43 US Further Rebuttal Submission, paras. 123-33.
44 The United States has presented a detailed critique of Brazil’s alleged costs of production vs. total
revenue “gap” in paragraphs 105-41 of its further rebuttal submission of 18 November 2003. As further
confirmation that Brazil’s “average total costs of production” argument is wrong, we note that Brazil silently has
de-emphasized its assertion that, to cover their high costs of production, upland cotton producers must have
planted upland cotton “on” upland cotton, rice, or peanut base acreage to reap decoupled payments for these

that, an average. In claiming that all decoupl ed payments received by upland cotton producers
(satisfying its complicated allocation methodolo gy) are support to upland cotton, Brazil takes no
account of the distribution of costs across farms. That is, some farms produce at costs below the
average and some produce at costs above the average. 45 Brazil attempts no analysis of whether
decoupled payments received by producers who pr oduce cotton at costs below the average “cover (or
contribute to) the costs of production of” upland cotton.

• However, under Brazil’s own rationale , if the decoupled payments do not “cover (or
contribute to) the costs of production of a crop”, then those payments do not support
production of that crop and are not support to a specific commodity.

Thus, those payments could not form part of Brazil’s Peace Clause analysis, but Brazil has not
accounted for this.

21. Consider further Brazil’s argument that “[w] ithout direct and counter-cyclical payments in
MY 2002, the average US cotton farmer would ha ve lost 14.36 cents per pound. With these two
payments, they earned a ‘profit’ of 4.2 cents per pound with the cotton DP and CCP payments”.
46 But
Brazil has asserted that payments are “support to a specific commodity” only if they “cover (or
contribute to) the costs of production of a crop”.

• Thus, under Brazil’s own rationale, the 4.2 cents per pound of “profit” – that is, returns above
and beyond total costs of production – that Brazi l attributes to decoupled payments cannot be
“support to” upland cotton.

Brazil, of course, fails to carry through its rationale to this ex tent because this would reduce the
decoupled payments it has calculated as support to upland cotton under its own (incorrect) approach.

22. In addition, Brazil’s argument that paymen ts are “support to a specific commodity” only if
they “cover (or contribute to) the costs of produc tion of a crop” carried through to its logical end
would not only run contrary to the definitions of product-specific support and non-product-specific
support in Article 1(a) of the Agreement on Agricult ure but would produce illogical results. Consider
the situation of marketing loan payments for soybeans:

• In the US view, there is no question that these payments are “support to a specific
commodity” within the meaning of the Peace Clause because they are “support . . . provided
for an agricultural product in favour of the producers of the basic agricultural product”
(Article 1(a)).

base acres. See, e.g., Brazil’s Closing Statement at the Second Se ssion of the First Panel Meeting, Annex I
(summary of evidence demonstrating that upland cotton producers in MY 1999-2002 produced upland cotton on
upland cotton, rice, or peanut base acreage) (October 9, 2003). In fact, without having repudiated its earlier
argument, Brazil’s 28 January calculations demonstrate that Brazil’s allocation methodology results in payments
for many other programme crops being allocated to cotton. For example, for farms producing cotton and having
cotton base, in marketing year 1999, payments for wheat, oats, rice, corn, and sorghum are allocated to cotton;
in marketing year 2000, payments for wheat, rice, corn, sorghum, and barley are allocated to cotton; and in
marketing year 2001, payments for wheat, rice, corn, and barley are allocated to cotton, oats, and sorghum.
Brazil’s 18 February Comments, Annex A, paras. 15-19 (Tables 2.5-2.8). That is, under Brazil’s 20 January
allocation methodology, upland cotton is allegedly “planted on” base acres for each of the programme crops just
listed, not the cotton, rice, or peanut acres in Br azil’s costs argument. Brazil has never explained the
contradiction in its two arguments.
45 For example, the 1997 study shows that in that year the 25 per cent of US cotton farms with the
lowest cost (accounting for 36 per cen t of cotton production) had average operating costs of $0.31 cents per
pound and average total costs of $0.55 cents per pound. Exhibit BRA-16, at tbl. 2.
46 Brazil’s 18 February Comments, para. 24 (third bullet) (footnote omitted).

• Under Brazil’s rationale, however, marketing loan payments for soybeans might not be
“support to” soybeans because they might not “cover (or contribute to) the costs of production
of [that] crop”.

• To determine whether, under Brazil’s theory, those marketing loan payments for soybeans are
“support to” soybeans or “support to” some other commodity (such as upland cotton)
“requires an examination of the record eviden ce concerning the extent to which the payments
de facto support or maintain the production of a specific commodity”.
47

• Under some combination of facts, then, mark eting loan payments for soybeans could be
deemed, under Brazil’s theory, to be support to upland cotton (or some other commodity).

This cannot be the right result since, if the ma rketing loan payments provide any incentive to
production (which will depend on the expected harvest season prices at planting), they provide an
incentive to plant soybeans, not upland cotton (and if payments are made, they are made to producers
of soybeans, not upland cotton). A correct readi ng of the Peace Clause does produce the right result
since such payments are “support to a specific commodity,” soybeans 48, regardless of “the record
evidence concerning the extent to which the payments de facto support or maintain the production of
a specific commodity”.

23. Finally, as a factual matter, we would note th at Brazil has not addressed the most telling data
that contradicts its assertion that decoupled paym ents “directly maintain the production of” upland
cotton. This is the significant amount of upland cotton acreage planted by farms without any upland
cotton base acres.

• Under the 1996 Act, farms without any upland cotton base acres planted 1.0 million acres of
upland cotton in marketing year 1999, 1.2 million acres of upland cotton in marketing year
2000, 1.3 million acres in marketing year 2001, and 1.5 million acres in marketing year
2002.
49

• After new base acreages were established in the 2002 Act (for purposes of direct and counter-
cyclical payments), farms without any uplan d cotton base acres planted 0.5 million acres of
upland cotton in marketing year 2002.

Under Brazil’s theory, none of these acres should have been planted since without decoupled
payments for upland cotton base acres, these producer s “would have lost $332.79 per acre between
MY 1997-2002” and “would have lost 14.36 cents per pound” in marketing year 2002.
50 The fact that
such large numbers of acres were planted without decoupled paym ents for upland cotton base acres
demonstrates that, as a factual matter, US upland cotton producers can and do plant upland cotton
without the allegedly indispensable decoupled payments for upland cotton base acres.
51

47 Brazil’s 18 February Comments, para. 22; see also id., para. 32 (“In sum, the proper allocation
methodology under Article 13(b)(ii) of the Agreement on Agriculture must be consistent with the extent to
which the domestic support payments directly maintain the production of a specific commodity.”).
48 Under Article 1(a), marketing loan payments for soybeans are “support . . . provided for an
agricultural product [soybeans] in favour of the producers of the basic agricultural product”. Under the ordinary
meaning of the terms “support to a specific commodity,” marketing loan payments for soybeans are “assistance”
or “backing” “specially . . . pertaining to a particular” “agricultural product”: soybeans.
49 US Letter to Panel (28 January 2004) (file “rPFCsum.xls”: category 3 under column “cotton planted
acres”).
50 Brazil’s 18 February Comments, para. 24 (second and third bullets).
51 The data submitted in response to the Panel’s supplementary request for information further proves
the point. In marketing year 2002, for example, th e 52,504 farms in category B planted 7.0 million acres of

24. Thus, the principle Brazil advances to dete rmine whether and to what extent decoupled
payments are support to a specific commodity – that is, whether they “cover (or contribute to) the
costs of production of a crop” – must fail. This pr inciple is not applied by Brazil to its logical ends
because to do so would reduce the amount of suppor t to upland cotton Brazil has calculated to upland
cotton. Most importantly, Brazil’s costs of producti on principle finds no support in the text of the
Peace Clause or any WTO agreement (such as the definition of product-specific support in
Article 1(a)). Thus, the Panel should reject Brazil’s erroneous approach.

Brazil’s Argument that Decoupled Income Support Payments Are De Facto Tied to Production
Is Wrong

25. Brazil argues that the decoupled income suppor t measures at issue in this dispute cannot be
allocated across “the total valu e of the recipient firm’s sales” under paragraph 2 of Subsidies
Agreement Annex IV because the payments are “ de facto tied to upland cotton production”.
52 Brazil
also argues that the amount of subsidies that support upland cotton canno t be determined under
Annex IV, paragraph 3, and theref ore “Annex IV does not assist the Panel in determining the amount
of support to upland cotton, within the meani ng of Article 13(b)(ii) of the Agreement on
Agriculture”.53 On this latter point, we are in agr eement with Brazil: as set out above, the Peace
Clause establishes the relevant support through the ordinary meaning of the phrase “support to a
specific commodity” in its context, not by way of Annex IV. Under a correct reading of the phrase
“support to a specific commodity”, no allocation methodology may be applied to allocate non-
product-specific support as “support to a specific comm odity”. Here, however, we note that Brazil’s
argument relating to the alleged de facto tie of payments to production does not hold.

26. In fact, the evidence does not support Braz il’s argument that decoupled income support
payments are “tied to the produc tion or sale of a given product”.
54 These payments are received by
recipients that may choose to produce no, one, or many different products. The evidence presented by
the United States – fully consistent with the Environmental Working Group data presented by Brazil55
– is that approximately 47 per cent of upland co tton farms eligible for decoupled income support
payments planted no cotton in marketing year 2002. 56 Thus, payments are not “tied to the production
or sale of a given product” since nearly half of the recipients do not plant even a single acre of cotton.

upland cotton and had, in the aggregate, 5.4 million base acres of upland cotton; the 7,420 farms in category C
planted 0.5 million acres of upland cotton and had 0 base acres of upland cotton. In marketing year 2001, the
61,854 farms in category B planted 10.0 million acres of upland cotton and had 6.4 million base acres of upland
cotton; the 20,322 farms in category C planted 1.3 million acres of upland cotton and had no upland cotton base
acres. In marketing year 2000, the 62,557 farms in category B planted 9.8 million acres of upland cotton and
had 6.4 million base acres of upland cotton; the 18,001 farms in category C planted 1.2 million acres of upland
cotton and had no upland cotton base acres. In marketing year 1999, the 59,793 farms in category B planted 9.0
million acres of upland cotton and had 6.0 million base acres of upland cotton; the 15,812 farms in category C
planted 1.0 million acres of upland cotton and had no upland cotton base acres. Under Brazil’s theory, none of
the tens of thousands of category B farms should have planted more upland cotton acres than their respective
quantities of upland cotton base acres, and none of the tens of thousands of category C farms should have
planted upland cotton at all.
55 Brazil’s Further Rebuttal Submission, para 23 (EWG data showed that 46, 45, and 45 per cent of
farms receiving upland cotton contract payments received no marketing loan payments in 2000, 2001, and 2002,
respectively).
56 US Oral statement at Second Panel Meeting, para. 56 (2 December 2003); US Answer to Panel
Question 125(9).

27. Brazil points to evidence that it asserts demonstr ates the “crucial role that each of the four
contract payments plays in maintain ing the production of US upland cotton”.
57 That is, Brazil argues
that without the decoupled income support payments , many US producers would not have been able
to continue producing cotton. However, Brazil’s argument is not, as in Annex IV, that “the subsidy is
tied to the production or sale of a given product”, but rather that the production or sale of a given
product is tied to the subsidy. The two statements are not equivalent. That an upland cotton farmer
could not produce upland cotton without a subsidy payment (an argument which the United States has
rebutted) does not mean that the payment is “tied to the production or sale of a given product” if
recipients may produce or sell othe r than a given product. This is precisely the case with respect to
decoupled income support payments: there is no “tie” to the production or sale of upland cotton
because payment recipients can choose not to produce upland cotton (or any other crop).

28. Thus, Brazil has not established that the decoupled income support payments are “ de facto
tied to upland cotton production”; rather, the facts th at demonstrate that nearly half of the payment
recipients choose not to plant upland cotton at all de facto contradict Brazil’s argument.

Brazil Has Not Made a Prima Facie Case under its Subsidies Claims with respect to Decoupled
Payments

29. The United States has previously explained that Brazil has not properly interpreted the Peace
Clause proviso and has not demonstrated that the challenged US measures are in breach of the Peace
Clause. This ends the analysis with respect to Brazil’s subsidies claims under Subsidies Agreement
Articles 5 and 6 and GATT 1994 Article XVI:1. However, even if the Panel were to look beyond the
Peace Clause to Brazil’s subsidies claims, Brazil has not established a prima facie case with respect to
decoupled payments.
58

30. Brazil now argues that, while “Part III of th e Subsidies Agreement does not require detailing
the precise amount of the subsidies”, Brazil “has pre sented evidence and argument, in the alternative,
regarding the size and subsidization rate of the subsidies challenged.” 59 Brazil further claims that it
“has offered the contract payment quantities (as well as the other subsidies) established in the peace
clause phase of the proceedings as the ‘amount of subsid ization’, to the extent this is required, in the
serious prejudice phase”. In light of Brazil’s repeat ed disavowals of any need to identify the amount
of the subsidy for purposes of its subsidies claims, 60 the United States does not believe that this and
two other comments referenced by Brazil demonstr ate that Brazil has argued and advanced evidence
relating to identification of the challenged subsidy.61

58 The United States has elsewhere explained that Br azil has not demonstrated serious prejudice, or
threat thereof, from upland cotton marketing loan payments or any other challenged US measures. See, e.g., US
Further Rebuttal Submission, paras. 1-177; US Further Submission, paras. 16-133.
59 Brazil’s 18 February Comments, para. 78. The United States continues to be surprised by Brazil’s
denial of the significance of the amount of the subsidy for purposes of determining “the effect of the subsidy’
under its serious prejudice claims. For example, had the DSB initiated the Annex V information-gathering
process, that process would have been concerned, in part, with establishing “the amount of subsidization,”
Subsidies Agreement, Annex V, para. 2, and “the amount of the subsidy in question,” id., Annex V, para. 7.
Brazil’s position that “the effect of the subsidy” may be evaluated without identifying the amount of the subsidy
is akin to saying that one can determine “the effect of eating” without knowing how much is being eaten.
60 See, e.g., US 11 February comments, para. 24.
61 See Brazil’s Comment on US Answer to Question 214 from the Panel, para. 216 (28 January 2003)
(“Detailing the precise amount of the financial contribution ending up in the bank accounts of US upland cotton
producers is not a legal pre-requisite to Brazil’s actionable subsidy claims. If the Panel finds that Brazil is
legally required to examine the exact amount of the subsidies in order to assess their ‘effects,’ . . . Brazil refers
the Panel to evidence and the allocation of the amount of ‘support to upland cotton’ it has presented in the peace
clause portion of its various submissions. This evidence is part of the record pursuant to Brazil’s alternative
arguments and is offered as evidence of the amount of such subsidy payments.”); Brazil’s Opening Statement at

31. Nonetheless, even if the Panel were to fi nd that Brazil’s comments dated 28 January 2004,
and 11 February 2004 – that is, more than eight m onths into this dispute and after scheduled panel
meetings and written submissi ons have been concluded 62 – advanced an argument in the alternative,
Brazil still would not have made a prima facie case with respect to decoupled payments. As set out in
the US 11 February comments63, Brazil has never presented evidence nor made arguments that would
allow the Panel to evaluate “the effect of the subsidy [decoupled income support payments]”. In
particular, Brazil has never presented information rela ting to the total value of the recipients’ sales as
would be necessary to determine the amount of the se subsidies benefiting upland cotton that are not
tied to the production or sale of a given product. Th e reason for this omission is simple: Brazil has
never believed, nor does it today, that the Annex IV methodology is necessary or even relevant to
identify the subsidy benefit and subsidized product. 64 Because Brazil believes Annex IV is irrelevant
for the Peace Clause but has offered its Peace Cl ause calculations (again, in the alternative) “as
evidence of the amount of such subsidy payments” 65, logically, Brazil must believe that Annex IV
“does not assist the Panel in determining the amount of [the subsidy]”.66

32. We do note that Brazil has argued that, “as an alternative argument, Brazil attempted in its
28 January 2004 Comments to apply the Annex IV paragraph 2 non-tied subsidy allocation
methodology to the US summary data”. 67 We later set out in more detail the infirmities in Brazil’s
calculations. Here, we note that, Brazil evidentl y believes that by liberally assigning the “in the
alternative” label, it will be able to assert that it has advanced evidence and arguments relating to
whatever methodology the Panel adopts. Such an approach speaks volumes to Brazil’s confidence in
its approach to its serious prejudice clai ms, but it is also not enough to meet its prima facie case. A
party may not make an argument, even if “in the alternative”, for the first time nine months into
briefing in a dispute, in its 18 February “Comments on US 11 February Comments on Brazil's
28 January ‘Comments and Requests Regarding Data Provided by the United States on
18/19 December 2003 and the US Refusal to Provi de Non-Scrambled Data on 20 January 2004”, in
order to later claim to have carried its burden of making a prima facie case should the Panel decide to
rely on this new argument. (The Panel will a ppreciate the irony that the party that has been
complaining incessantly about delay in the proceedings has now been reduced to improperly trying to
take advantage of that delay.) To allow this w ould deny the United States due process – as the entire
dispute has been argued on other grounds and en ormous amounts of time and resources have been

the Second Panel Meeting, para. 5 (“In any event, Br azil has demonstrated a collective subsidization rate
averaging 95 per cent and subsidies in the amount of $12.9 billion.”).
62 Article 12 and Appendix 3 of the DSU contempl ates a process which all WTO dispute settlement
proceedings must follow in order to ensure due process for the parties involved. Such a process requires that the
parties “present the facts of the case, their arguments and their counter-arguments” before the first substantive
meeting of the panel ( see para. 4 of the Working Procedures of th e Panel), present their case at the first
substantive meeting of the panel ( see para. 5 of the Working Procedures of the Panel), and then present their
formal rebuttals by the second substantive meeting of the panel ( see para. 6 of the Working Procedures of the
Panel). In this regard, for Brazil to present new argu ments for the first time now, or to use recently submitted
US data to try to meet Brazil’s initial burden of proof now, outside of the confines of the established panel
process and without allowing the United States to provide counter-arguments or rebuttals, would appear
contrary to the due process safeguards provided by the DSU and the Working Procedures of the Panel.
63 US 11 February Comments, paras. 22-34.
64 See, e.g., Brazil’s 18 February Comments, para. 38 (“[A] close look at the text of Annex IV reveals
that it is ill-equipped to address the tabulation of support issue before the Panel.”); id., para. 41 (“Thus,
Annex IV does not assist the Panel in determining the amount of support to upland cotton, within the meaning
of Article 13(b)(ii) of the Agreement on Agriculture.”).
65 See Brazil’s Comment on US Answer to Question 214 from the Panel, para. 216.
66 Brazil’s 18 February 18 Comments, para. 41 (“Thus, Annex IV does not assist the Panel in
determining the amount of support to upland cotton, within the meaning of Article 13(b)(ii) of the Agreement on
Agriculture.”).

devoted to defending against the arguments Brazil did make – and deprive the Panel of the
opportunity to receive fully considered briefing with respect to those issues.

33. Finally, through its belated and patently inadequate arguments and evidence relating to
Annex IV, Brazil has put the Panel in the ina ppropriate position of “mak[ing] the case for the
complaining party” were it to base any serious prejudice findings on decoupled payment subsidies
allocated using the Annex IV methodology. As we stated in the February 11 comments:

• “Brazil has neither sought nor presented any evidence relating to the total value of the
recipient firms’ sales. Brazil has also not only not argued that the Annex IV methodology is
necessary to identify the subsidized product and the subsidy benefit, Brazil has also
continually argued against use of the Annex IV methodology since, in its view, no allocation
of the payment or quantification of the benef it is warranted under Part III of the Subsidies
Agreement. Thus, it would appear that Brazil has resisted making the necessary legal
arguments and refused to submit any evidence relating a proper analysis of its claims.”
68

Brazil chose to challenge decoupled income support payments not tied to production or sale of a given
product but also chose not to seek, develop, and pr esent evidence relating to the total value of the
recipients’ sales. In fact, Brazil has not presented evidence that would allow that methodology to be
applied.69 Therefore, due to its own litigation choices, Brazil has not established the amount of the
challenged subsidies and therefore has not established a prima facie case that the effect of decoupled
income support payments is to cause serious prej udice to Brazil’s interests. The United States
respectfully requests the Panel to so find.

34. The United States has reviewed Brazil’s new comments regarding the Japan – Agricultural
Products Appellate Body report and believes that Brazil c ontinues to misread that report. In fact,
Brazil does not address any of the facts relating to the “claims” and “arguments” made by the
United States in that dispute, instead relying on gene ralizations as to “the proposition” that that report
“stands for”.
70 The United States refers the Panel to its previous comments on this report for a more
complete analysis.71

35. The United States does note that Brazil argues that any evidence sought by the Panel that
would allow an Annex IV calculation to be made “was entirely consistent” with the US proposal of
that methodology and Brazil’s in the alternative argu ment. We have already shown that Brazil’s “in
the alternative” evidence and arguments are patently insufficient, and this was done without the need
for additional information or the need to run an y Annex IV calculations. Further, it requires no
information to understand and evaluate the US rebut tal that Brazil had not brought forward evidence
and arguments relating to the Annex IV methodol ogy necessary for Brazil to identify the subsidy
benefit and subsidized product. In other words, Brazil cannot use a US defence as rationale to insist
that the Panel seek information and make all the Annex IV calculations necessary to make Brazil’s
prima facie case for Brazil.

Brazil’s Various Allocation Methodologies, In Addition to Being Irrelevant for Peace Clause
Purposes and Inapplicable for Serious Prejudice Claims, Are Internally Inconsistent and
Illogical

36. The United States here addresses Brazil’s revised, and in some cases new, allocation
methodologies. Brazil advances all of these allocatio n calculations for purposes of the Peace Clause
(and, in the alternative, to identify the amount of the challenged subsidies). For purposes of the Peace

68 US 11 February Comments, para. 33.
69 See US 11 February Comments, paras. 44-60.
71 US 11 February Comments, paras. 31-34.

Clause, as set out above, the United States believ es that no allocation methodology may be employed
since the only relevant support is product-specific. For purposes of Brazil’s serious prejudice claims,
we have already explained that the Annex IV methodology would be necessary to identify the subsidy
benefit and subsidized product for each of the challenged decoupled income support measures – and
Brazil has not brought forward evidence and argume nts to allow the Annex IV methodology to be
used. Nonetheless, here we present certa in additional comments on Brazil’s allocation
methodologies.

Brazil’s Allocation Methodology Is Internally Inconsistent and Not Applied Consistently

37. In its February 18 comments, Brazil reaffirm s that “its methodology allocates support paid for
upland cotton base that is ‘planted to’ upland co tton. It further allocates proportionally any other
contract crop base payments that are not allocated to plantings of the respective contract payments
crop”.
72 We note that Brazil inserted quotation marks around “planted to” in the phrase “upland
cotton base that is ‘planted to’ upland cotton”. The reason for this is, as the United States has
explained, there are no physical “base acres” on a farm. Crop base acres are an accounting fiction that
do not represent any particular acres on the farm.73 Thus, base acres cannot be physically “planted to”
any crop; this expression merely means that a quan tity of acres has been planted that corresponds to
(are equal to or less than) a farm’s quantity of b ase acres. Thus, at the outset, there is no physical
basis to say that decoupled payments for base acres of a crop must be “support to” that crop to the
extent that the quantity of planted acres is less than or equal to the quantity of base acres – but that is
exactly the first step in Brazil’s flawed methodology.74

38. There is also no economic basis to conclude that (in Brazil’s words) payments for base acres
of a crop “planted to” that crop are support to that planted crop. Because a recipient of a decoupled
income support payment is free to plant no crop, pl ant one crop, plant multiple crops, or engage in
other economic activities, that payment is a subsid y to all of the recipient’s economic activities (if
any). Brazil’s “planted to” approach does not take into account the fungible nature of money: if the
payment recipient chooses to produce only upland cotton, that would be the sole “subsidized
product”, but if the recipient chooses to produce upland cotton and other products, all of those
products are the “subsidized product” since the paym ent could have been applied to any of those
activities. (In fact, recipients of decoupled payments do engage in a myriad of other activities; for
example, in marketing year 2002, the 137,160 cotton farms falling in Category A as defined by the
Panel (that is, that planted fewer cotton acres than their quantities of upland cotton base acres) planted
over 1 million acres of fruits and ve getables and nearly 7 million acres of “other crops” as compared
to nearly 6 million acres of upland cotton.)
75

39. Further, we note that Brazil’s reason for treating decoupled income support payments for
upland cotton base acres as “support to” upland cotton was allegedly based on the de facto tie between
such payments and upland cotton production. Th at is, Brazil argued that such payments were
necessary to support or mainta in upland cotton production. 76 But Brazil does not apply that analysis
throughout its methodology.

73 US 11 February Comments, para. 38.
74 Applied to decoupled payments for upland cotton base acres, this first step in Brazil’s methodology
is the “cotton-to-cotton” alternative methodology set out by Brazil. See, e.g., Brazil’s 18 February Comments,
Annex A, para. 3 (“Under this approach, only upland cotton payments for upland cotton base acres that are
actually planted to upland cotton would be considered support to upland cotton.”) (italics added). As set out in
the text above, base acres are not “actually planted to ” anything; thus, in additio n to not accounting for the
fungible nature of money, the cotton-to-cotton methodology is not based on any physical reality.
75 See file “DCP02-2W.xls” (Category A farms, “Total” row).
76 See, e.g., Brazil’s 18 February Comments, paras. 22-28.

• Brazil also allocates decoupled income suppor t payments for non-upland cotton base acres
first to the respective programme crops.
77

• However, Brazil has made no analysis of whether such decoupled payments for non-upland
cotton base acres support or maintain the production of the respective programme crop to
which they are allocated by Brazil.

Therefore, even under its own Peace Clause analysis , Brazil has provided no basis to a key step in its
allocation methodology – that is, the allocation of payments for non-upland cotton base acres first to
the respective programme crops.

40. Brazil’s current Peac e Clause allocation methodology also directly contradicts its position
earlier in this dispute. First, Brazil argued that all payments for upland cotton base acres were support
to upland cotton. Then, Brazil amended its argument and asserted that, in order to cover their total
costs, upland cotton producers must have plante d upland cotton “on” upland cotton base acres.
Subsequently, Brazil changed that argument to upland cotton must be “planted on” base acres for
upland cotton, rice, or peanuts.
78 Thus, the latter two of these arguments were predicated on the
notion that each planted acre of upland cotton corresponded to one base acre. Now, however, Brazil’s
allocation methodology could assign payments from multiple base acres to a single planted acre of
upland cotton.
79

41. Tellingly, Brazil has no response to this critique of its methodology, other than to assert that
“they affect, at most, 0.9 per cent of the payments at issue for MY 2002”
80 and a vague statement that
“[a]s for some of the US criticisms that might affect the results (except for MY2002), Brazil will
control for these effects once the United States provides aggregate data in the manner requested by the
Panel”.81

• That is, Brazil has no logical explanation for the internal inconsistency in its methodology,
that one upland cotton base acre should be allocated to one upland cotton planted acre while
multiple non-upland cotton base acres could be allocated to one upland cotton planted acre.

This internal inconsistency suggests that Brazil’ s methodology is an effort to assign the maximum
amount of payments to upland cotton, regardless of whether it provides any economically neutral
method to allocate decoupled payments (as Annex IV, paragraph 2, does).

42. As the United States has previously pointed out, moreover, there is no economic reason to
attribute decoupled income support payments to so me crops (programme crops) but not others and
some economic activities (programme crop production) but not others.
82 Brazil’s 18 February
calculations demonstrate the point. For farms with no upland cotton base acres, Brazil treats all
upland cotton planted acres as “overplanted base” (that is, planted acres in excess of base acres)

77 See, e.g., Brazil’s February 18 Comments, Annex A, Tables 2.5-2.7; id., Annex A, para. 15 n. 175
(“The subsidy allocated is th e entire amount of contract payments for that crop if planted acreage exceeds or
equals base acreage. The subsidy allocated is [the] amou nt of contract payments for that crop adjusted by the
ratio of planted acreage to base acreage if planted acreage is below base acreage.”).
78 See, e.g. , Brazil’s Closing Statement at the Second Session of the First Panel Meeting, Annex I
(summary of evidence demonstrating that upland cotton producers in MY 1999-2002 produced upland cotton on
upland cotton, rice, or peanut base acreage) (9 October 2003).
79 See US 11 February Comments, para. 38 (providing example of farm with 100 base acres of soy,
10 planted acres of soy, and 1 planted acre of cotton; under Brazil’s methodology, the 1 acre of cotton would be
“planted on” (receive payments related to) 90 base acres of soy).

eligible for an allocation of the total subsidies available from “excess” base acres for other programme
crops.83

• However, non-programme crops are in the identical position to upland cotton: that is, all non-
programme crops also have base acreage equal to zero.84
• Even on Brazil’s methodology, there is no reason (other than Brazil’s assertion that it is so) to
treat decoupled payments for non-upland cotton base acres as subsidizing upland cotton when
a farm has overplanted its (zero) upland cotton base but not to non-programme crops that also
(necessarily) have “overplanted” their base.
43. Finally, we note that, had Brazil desired to make its invented allocation methodology
consistent with other arguments in its 18 February comments, it s hould have allocated “excess” base
acres not to programme crops with “overplanted base” but rather to any crop (programme or not)
produced by a payment recipient for which such payments “cover (or contribute to) the costs of
production”.85 Where payments “cover (or contribute to) the costs of production,” according to
Brazil, payments must be “support to [that] specific commodity.”86 Further, if Brazil has not analyzed
whether the challenged payments “cover (or contribut e to) the costs of production” of other products
produced by payment recipients, Brazil cannot assert that any payments must be “support to” one
commodity over another since the payment might be necessary to “cover (or contribute to) the costs
of production” of more than one product. That Brazil was unwilling to apply its “costs of production”
principle throughout its allocation methodology sugg ests that Brazil’s approach to Peace Clause
interpretation has been a post hoc exercise in rationalization.
44. In sum, Brazil’s allocation methodology is irrelevant to the Peace Clause because the only
relevant support is product-specific. Unlike the Annex IV methodology, moreover, it is not a neutral
and economically rational methodology for allo cating a non-tied subsidy (such as decoupled
payments) in order to identify the subsidized produ ct and the amount of the subsidy. Finally, it is
internally inconsistent and even contradicts other ar guments Brazil has put forward in this dispute, for
example, its argument that a payment is “suppor t to a specific commodity” if it “cover[s] (or
contribute[s] to) the costs of production” of that commodity.
Brazil’s “Annex IV” Methodologies Are Nothing Like the Methodology Set Out in Annex IV
45. Brazil presents two other methodologies, a “modified Annex IV” calculation and a “US
Annex IV calculation”. Neither of these methodol ogies could serve as a basis to identify the amount
of subsidy and subsidized product for purposes of Brazil’s serious prejudice claims. The correct
methodology is neither a “modified” nor a “US” methodology; rather, it is the methodology set out in
the text of Annex IV. That text establishes that, if a payment is not “tied to the production or sale of a
given product,” the subsidized product is all of the recipient firm’s sales, and the subsidy for any one
product is that product’s share of “the total value of the recipient firm’s sales”. 87 Brazil does not use

83 See, e.g., Brazil’s 18 February Comments, Tables 2.17 & 2.18 (upland cotton base acres: 0; upland
cotton planted acres: 518,837.0; planted acres over which “excess” subsidy allocated: 518,837.0).
84 The data submitted in response to the Panel’s supplementary request for information reveals that in
marketing year 2002 (after base acres were established under the 2002 Act) farms planting upland cotton and
having no upland cotton base acres planted substantial amounts of non-programme crop acreage, for example,
64,917 acres of fruits and vegetables, 9,664 acres of tobacco, and 169,480 acres of other crops. See “DCP02-
2W.xls” file, Category C farms, “Total” row.
86 Recall that it is for purposes of the Peace Clause that Brazil asserts its allocation methodology; in the
alternative, Brazil argues that its Peace Clause methodolo gy would also calculate the amount of the subsidy for
its serious prejudice claims.
87 Subsidies Agreement, Annex IV, paras. 2-3.

“the total value of the recipient firm’s sales” in its “Annex IV calculations” and does not even attempt
to calculate total sales of upland cotton producers. Thus, neither of these methodologies can fairly be
called an “Annex IV” calculation.

46. With respect to Brazil’s “modified Annex IV” methodology, we note that Brazil allocated
total contract payments to farms pr oducing upland cotton “over the value of contract payment crops
produced on the farms” based on the assumption that “contract payments are support only to contract
payment crops”.
88 This approach is fundamentally incons istent with Annex IV , paragraph 2, under
which the subsidy is allocated over “the total value of the recipient firm’s sales.” Further, the
United States has set out above a rebuttal of Brazil’s assertion that decoupled income support
payments could be considered “support only to cont ract payment crops”. For example, such an
approach ignores the fungible nature of money and contradicts Brazil’s argument that payments are
support to those crops whose costs are covered by the payments.

47. With respect to Brazil’s “US Annex IV me thodology,” the United States has explained above
that Brazil has not made a prima facie case with respect to decoupled payments because it has not
presented evidence and arguments sufficient to allow an Annex IV calculation to be made. Brazil also
has not corrected for errors in its calculations th at the United States previously pointed out in its
11 February comments.

48. For example, Brazil’s “US Annex IV methodolo gy” errs in omitting the value of fruits and
vegetables in calculating the total value of non-pr ogramme crop production. Brazil justifies this
stance by asserting that fruits and vegetables coul d not possibly be “beneficiaries” of decoupled
payments because they may not be grown on base acr es. Again, this argument by Brazil ignores
Annex IV, paragraph 2, under which the subsidy is allocated over “the total value of the recipient
firm’s sales” and ignores the non-tied (decoupled) na ture of these payments. The aggregate data
submitted today demonstrates that, in marketing year 2002 alone, 1.2 million acres were planted to
fruits and vegetables on farms that reported cotton base acreage.
89 As pointed out in the US
comments of 11 February 90, excluding fruits and vegetables biases significantly downward the value
of non-programme crop acreage. For example, th e per-acre value of non-programme crops including
fruits and vegetables was estimated at $281 91 for 2002 – that is, 138 per cent higher than the $118 per
acre Brazil calculated when fruits and vegetables are excluded.92

49. Including fruits and vegetables in the total value of crop production gives a more accurate
reflection of the share of upland cotton as a per cent of the total value of crop production on farms that
planted upland cotton. As noted previously,93 had Brazil included fruits and vegetables in the value of
non-programme crop cropland, upland cotton would ha ve accounted for approximately 48.4 per cent
to 56.7 per cent of the total value of crop production on farms that planted cotton in 1999-2002.

50. Moreover, Brazil has not taken any account of the value of on-farm production other than
crops, and has presented no data that would allow that calculation to be made. Again, Brazil’s
approach is inconsistent with A nnex IV, paragraph 2, pursuant to wh ich the subsidy is allocated over
“the total value of the recipient firm’s sales.” Brazil asserts that its “decision not to include any
livestock value” is supported by the 1997 ARMS cotton costs of production survey, but that survey
only shows that a small number of cotton farms in the survey year “specialized” in livestock
production. Brazil does not define what “specializa tion” in livestock production would entail, but it
would seem that a farm may have sales of a produc t without “specializing” in that product. The

89 See file “DCP02-2W.xls” (“Grand Total (Farms A - C)” row).
91 See Exhibit US-154.
92 Brazil’s 18 February Comments, Annex A, Table 4.5.

evidence suggests that, had Brazil taken into acc ount the value of non-crop on-farm production, the
share of cotton as a per cent of total farm sales would be lower still. For example, in the 1997 ARMS
cotton costs of production survey, the US Departme nt of Agriculture found that, for 1997 when the
value of cotton was high, cotton accounted for only 44.5 per cent of the total value of agricultural
production on cotton farms.94

51. Brazil also fails to include off-farm economic activity, which can be substantial, in its
calculation. Annex IV, paragraph 2, establishes that the non-tied subsidy is allocated over “the total
value of the recipient firm’s sales”; there is no basis in that provision to limit the sales over which the
subsidy is allocated to farm sales. Brazil’s refusal to apply the Annex IV methodology in full
introduces yet another serious distortion in its calculation as cotton operations earn almost 30 per cent
of income from off-farm sources.95
52. Finally, Brazil contests the notion that, in calculating the amount of subsidy benefiting upland
cotton, it must take account of the fact that d ecoupled payments for base acres are capitalized into
higher land values and cash rents, thus benefiting la nd owners, not necessarily those farming the land,
referring the Panel to its 28 January comments. 96 There, Brazil asserts that it is for the United States
to demonstrate that payments on rented acres are cap italized into rents, thus impermissibly seeking to
shift its burden of establishing the amount of challenged subsidies to the United States as responding
party. Brazil also cites aggregate state-level data on cash rents to show that average cash rents in
some cotton-producing states increased by less than the rate of inflation over the 1996-2002 period.
97
Such analysis, however, ignores the aggregation bias introduced by averaging (1) cash rents from
farmland with programme base with (2) cash rents from farmland without programme base.
53. We recall that Brazil has previously conceded that, as of marketing year 1997, 34 to 41 cents
per dollar of production flexibility contract pa yments were capitalized into land rent. 98 Brazil now
argues that there is no evidence that further (i ncreased) shares of production flexibility contract
payments were capitalized in subsequent years. The Commission on the Application of Payment
Limitations for Agriculture, to which Dr. Sumner presented testimony, reached conclusions on this
very issue, however, and Brazil submitted this report as Exhibit BRA-276. The United States was
therefore disappointed to see that Brazil’s exhibit was missing pages 89-122, which precisely includes
the portion of Chapter 5 of the Report entitled “Eff ects of Further Payment Limitations on Farmland
Values.” We attach as Exhibit US-155 the missing pages from the report.
54. The analysis of the Report of the Commission on the Application of Payment Limitations for
Agriculture directly contradicts Brazil’s conclusion that cash rent data “do [not] appear to reflect to
any considerable extent the effects of PFC or other contract acreage payments”.
99 To the contrary, the
Commission’s Report explained:
In early 1997, professional farm managers indicated that in areas where competition
for rental land was intense, PFC payments were almost immediately captured by
landowners and reflected in rental rates and land values . Given the intense
competition for leased land in many areas, tenants operating on cash leases found
their lease rates being bid up until the landowner had captured most of the tenant’s
share of PFC payments. Producers with share leases reported that some landowners
reduced their share of expen ses, retained a larger crop share, or converted from share

94 See Exhibit BRA-16, table 3.
95 See US Further Rebuttal Submission, para. 137.
97 See Brazil’s Comments on US Answer to Panel Question 242, paras. 204-206 (28 January 2003).
98 Brazil’s Answer to Question 179 from the Panel, para. 165 (27 October 2003); Brazil’s Opening
Statement at the Second Panel Meeting, para. 57.
99 Brazil’s Comments on US Answer to Panel Question 242, para. 208 (28 January 2004).

leases to cash leases. Howeve r, in areas where competiti on for rental land was less
intense, tenants retained much of their PFC payments (Ryan et al). Goodwin and
Mishra estimate that each additional dolla r per acre of PFC payments increased US
average rents by $0.81 to $0.83 per acre during 1998-2000.
100
Thus, the missing pages from Brazil’s own exhib it reports that, during 1998-2000, an estimated
average of 81 to 83 per cent of production flexibilit y contract payments were captured by landowners
through increased rent.101 This conclusion is consistent with the US position that land owners capture
the benefit of decoupled payments for b ase acres made to producers on rented land. 102 The Report
also extends its conclusions to market loss assistance payments, direct payments, and counter-cyclical
payments.103

55. We also note Brazil’s argument that counte r-cyclical payments could not be captured by
landowners through increased rent because the paym ents are “triggered on a year-by-year basis
depending on low prices for upla nd cotton”, and a landowner “cannot know in what amount CCP
payments will be made”.
104 As noted, the Commission’s Report does not support Brazil’s position on
counter-cyclical payments. However, Brazil does not draw the logical conclusion from its assertion:
if that statement is true, then counter-cyclical payments cannot have effects on cotton farmers’
planting decisions and production because farmer s (and therefore landowners) cannot anticipate
receiving those payments. On the other hand, to suggest that counter-cyclical payments do have
production effects, Brazil has also argued that farmers do anticipate counter-cyclical payments being
made.105 If that is true, then Brazil’s own eviden ce demonstrates that those payments will be
capitalized. Brazil cannot have it both ways.

56. In sum, Brazil’s two “Annex IV” methodologi es are wholly inadequate because Brazil does
not even attempt to apply the methodology actually set out in Annex IV: that is, to allocate the value
of a non-tied subsidy across “the total value of the recipient firm’s sales”. Brazil has never sought nor

100 Exhibit US-155, at 106 (italics added).
101 We also note that this information directly contradicts Brazil’s previous argument that “contrary to
the premise of the Panel’s question [1 79], th[e] evidence suggests that PFC payments are somewhat, but not
‘largely capitalized’ into land rents”. Brazil’s Answer to Question 179 from the Panel, para. 165
(27 October 2003).
102 Brazil also attempts to draw a distinction betwee n land that is cash-rented versus share-rented.
However, the Commission’s Report describes a “non-operator landlord” as including those who “receiv[e] rent
in the form of the crop produced on the land.” Exhibit US-155, at 104. Thus, the Report’s conclusions that the
benefits of government payments largely accrue to non-operator landlords would appear to apply to owners who
share-rent their land as well.
103 See, e.g., Exhibit US-155, at 106 (“Barnard et al. (2001) estimated that $62 billion or 20 per cent of
the value of land producing the 8 major programme crops . . . was due to PFC payments, market loss assistance,
disaster payments, and marketing loan benefits.”); id. at 106 (“The effects of farm commodity payments on
cropland values vary geographically, reflecting differences in . . . payments for crops eligible for direct and
counter-cyclical payments and marketing loan benefits . . . .”); id. at 111 (“Government payments in the form of
direct payments, counter-cyclical payments, and marketin g loan benefits affect the value of farmland and land
rents. Several studies indicate that government payments in recent years have increased farmland values
nationally by 15-25 per cent.”)
104 Brazil’s Comments on US 22 D ecember 2003 Answers, para. 209 (28 January 2003 ). Brazil goes
on to say: “Further, as Brazil has demonstrated repeatedly, given the high non-land-related production costs
involved in producing cotton, most US producers simply could not profitably produce cotton without CCP
payments. Therefore, there is little, if any, basis fo r a non-producing landlord to demand increased rents to
capture CCP payments”. Id. The United States is puzzled by this assertion. It would appear that Brazil is
saying that landlords would not char ge higher rental rates because prod ucers “could not profitably produce
cotton without CCP payments”. This is not our understanding of how landlords choose to set rental rates.
105 For example, in Dr. Sumner's model, acreage is a function of the net return to planting cotton, which
includes prospective counter-cyclical payments. See Brazil’s Further Submission, Annex I, para. 28
(equation (1)).

presented the value of total sales of the recipients (upland cotton producers) of the challenged
decoupled income support payments. Brazil’s inad equate calculations cannot meet its burden of
establishing a prima facie case on decoupled income support payments for purposes of its serious
prejudice claims.

Conclusion: Brazil’s Interpretation of the Peace Clause Would Upset the Balance of Rights and
Obligations of Members in the WTO Agreements

57. Throughout this dispute, we have noted that Brazil’s Peace Clause interpretation is without
foundation in the text and context of that provision and would upset the balance of rights and
obligations set out in the Agreement on Agriculture. Brazil asserts that “[h]ad the United States been
concerned about the certainty of its peace clause ‘p rotection,’ it would not have been difficult for
Congress, in the 1996 FAIR Act or even the 2002 FSRI Act, to include a ‘circuit breaker’ provision
directing the USDA Secretary to stop funding any upland cotton budgetary outlays in excess of the
1992 levels”.
106 Of course, the United States has disciplin ed itself to grant support not in excess of
that decided during the 1992 marketing year by shifting away from the product-specific deficiency
payments with high target prices under the 1990 Act and instead to provide a mix of decoupled
income supports that are green box (direct payments) or non-product-specific (counter-cyclical
payments) and product-specific marketing loan paym ents. But Brazil’s assertion raises a number of
questions:

• How could the United States have known how to cap the budgetary outlays under the
decoupled income support measures to stay within the 1992 levels?

• How could the United States have known what payments would be considered “support to
upland cotton” under Brazil’s methodology, which only appeared on 20 January 2004?

• Which of Brazil’s five in-the-alterna tive methodologies – the “cotton-to-cotton
methodology”, “Brazil’s methodology”, the “m odified Annex IV methodology”, the “US
Annex IV methodology”, or “Brazil’s 14/16th methodology”
107 – should the United States
have been applying to ensure that budgetary outlays did not exceed the 1992 level?

Indeed, Brazil has ended this dispute taking th e position that “the Panel needs to adopt a reasonable
methodology to be applied for purposes of the pe ace clause in assessing the amount of support to
upland cotton from the four contract payment programmes”.
108 It is difficult to imagine how that
standard could have been incorporated into th e design of the challenged decoupled income support
measures to ensure Peace Clause compliance.

58. The United States submits that the Peace Clau se must be interpreted in a way that permits
Members to comply in good faith – that is, Members must be able to tell if they will breach the Peace
Clause or not. Putting legal interpretive issues aside , Brazil’s budgetary outlays approach does not do
that since, with price-based support such as ma rketing loan payments, the United States cannot
“decide” market prices.
109 Brazil’s allocation methodology also does not do that because the

107 See, e.g., Brazil’s 18 February Comments, para. 55. We note that the range of budgetary outlays
Brazil calculates under these five in-the-alternative methodologies range from, for 2002 direct payments,
$383.1 million to $466.8 million, and for 2002 counter-cyclical payments, from $640.4 million to
$988.3 million.
108 Brazil’s 18 February Comments, para. 42 (italics added).
109 We have previously noted that “support” does not mean “budgetary outlays”. US 11 February
Comments, para. 16 n.12. In addition, it is ironic that Brazil criticizes the US interpretation on the grounds that
the Peace Clause does not read “product-specific support” when the Peace Clause also does not read “budgetary

United States does not “decide” what a decoupled income support recipient chooses to produce (or not
to produce).
110 Brazil’s approach to Peace Clause issues would rob Members of the ability to design
price-based and income support measures to confor m to the Peace Clause and mean that Members
could not know if they had complied with the P eace Clause until it was too late to do anything about
it.

59. The United States has demonstrated that us ing any measurement that reflects the support
“decided” by the United States – rather than factors (such as market prices) beyond the United States’
control – US support to upland cotton in marketing years 1999 -2002 has not exceeded the 1992
marketing year level.
111 The question then is whether the Pa nel will find that the United States has
breached the Peace Clause simply b ecause market prices were lower in some recent years than they
were in 1992. We have demonstrated that the Unite d States has disciplined itself to grant support not
in excess of that decided during the 1992 marketing year. 112 Therefore, we are entitled to the
protection of the Peace Clause and respectfully request the Panel to so find.

outlays”; however, the latter is a defined term in Article 1(b) of the Agreement on Agriculture while the former
is not, suggesting that Members’ decision not to use “budgetary outlays” in the Peace Clause was deliberate.
110 As set out above, no allocation methodology can be applied to the Peace Clause as the only support
that is relevant to that determination is support to a specific commodity, read according to its ordinary meaning
and in context.
111 See, e.g., US 11 February Comments, paras. 15-17.
112 Recognizing, as the United States believes is requi red by the Peace Clause text, that “decided” and
“grant” cover only those parameters over which Members exercise control would also be consistent with this
approach of allowing “good faith” compliance since it would permit Members to control whether their measures
conformed to their obligations.

ANNEX I-24

RESPONSE OF THE UNITED STATES TO THE PANEL'S
3 FEBRUARY 2004 DATA REQUEST, AS CLARIFIED
ON 16 FEBRUARY 2004

3 March 2004

Introduction

1. The United States is submitting today 8 data files, as requested by the Panel in its
3 February 2004, supplementary request for information, as clarified by the Panel’s communication of
16 February 2004. The files are in an EXCEL format.

2. The data has been prepared in response to those letters, and has been prepared as well as
possible in the time allotted, involving much time and effort. We first address how the files were
derived and issues involved in their preparation, such as the handling of 1999 and 2000 crop soybeans
and 2002 peanuts. Because of the peanut and soybean issues, there were in essence two runs of data,
and both sets of data are presented.

3. In the first run, the United States ran the figures for 1999 and 2000 treating soybeans as a
non-base crop, and thus one which would not effect any categorizations based on comparing plantings
of total programme crops to total programme cr op bases (such as those necessary to sort farms into
B1, B2, and B3 categories). In the second run, soybeans were treated as a full programme crop for the
Market Loss Assistance payments for those years in which oilsee d payments were made (1999 and
2000) with an assigned base of zero for each farm as there were no farm bases for the soybean crops
for 1999 and 2000.

4. Likewise, for peanuts, there were separate runs for 2002. In the first run, the peanut crops for
Direct payments and Counter-cyclical paymen ts were treated as a non-programme crop for
categorization purposes. In the second run, peanuts were treated as a programme crop with a base of
zero for each farm.

5. These two runs took into account the directive of the Panel of 16 February. There, the Panel
instructed us to treat soybeans for Market Lo ss Assistance (MLA) as a programme crop and peanuts
as a Direct and Counter-cyclical Payment (DCP) crop. As indicated, this did raise a question, one
which is colored somewhat by a broader issue on the MLA payments themselves. There is no separate
base acreage or yields for MLA purposes. And, the oilseed programmes for 1999 and 2000 were not
farm based programmes. No farm had a soybean base for those years. Likewise, with peanuts, there
was no farm base for 2002, the first year that pean uts became a programme crop. Bases were not
assigned for peanuts until 2003 and could not be e ffective until that year. For 2002, the peanut
programme was a producer-based programme. The same was true for soybeans in 1999 and 2000.

6. Finally, we also present the results of our e fforts to identify any farms that would not have
protectable privacy interests under the Privacy Act of 1974, as requested in item (a) of the Panel’s
3 February supplementary request for information.

7. We then indicate how the files were put together and identify the files.

There were no Separate Market Loss Assistan ce Bases; Rather the Payments Were Made
Proportionately to the Production Flexibility Contract (PFC) Payments

8. The market loss assistance payments (MLAs) were after th e fact and simply supplemented
payments that were made to a person under a PFC contract. There were no new contracts, bases, or
yields. There were four MLA programmes. The first was for the 1998 crop. MLA programmes
followed for the 1999, 2000 and 200 1 crops, each under separate legislation, each after the fact – that
is after the crop was planted and in supplement of payments already made under the PFC contracts.

9. To respond to the Panel’s data request of 3 February 2004, the United States was called upon
to give information for the PFCs and the MLAs. Th e data request was for base acreage with respect
to farms that were in the programme. There we re no bases as such for MLAs. The payments were
proportional to what has been received in the PFC. The only slight difference was that for 2000,
where Congress simply prescribed a rate, drawing from the previous statute for the previous crop.
Thus, we have treated the request for MLA data ( as explained below, soybeans aside) to be a request
for the PFC data for the PFC year for which the PFC payment was supplemented by a particular MLA
payment.

There Was No Soybean Farm Base for the 1999 and 2000 Market Loss Assistance Programme
As There Were No Market Loss Assistance Programmes for Soybeans, and Oilseed Payments in
those Years were Producer-Based, Not Farm-Based

10. Soybeans complicate the analysis. The United States reads the Panel’s 16 February letter to
indicate that for purposes of the data request, soyb eans should be treated as an MLA crop. This
presents an analytical problem because no farm had a soybean base. We note that the data files do
contain for every category the soybean plantings for 1999 and 2000. (We note that there was no
oilseed programme, and therefore no payments for soybeans, for 2001.)

11. As an initial matter, soybean payments fo r 1999 and 2000 were part of an overall oilseeds
programme. There was no oilseed programme for the 2001 crop; therefore, there was no soybean
payment of any kind for that year. There was ne ver, even for 1999 and 2000, a base or yield for a
farm for oilseeds in the PFC era.

12. For the PFC programme crops like cotton, the “f arm” had a base. The “farm” had a yield.
“Producers” on the farm received the payment even if they were not the same person who had
produced the crops that produced the historic base or yield or had even been on the farm when the
base or yield were created. If the producer had an interest in several farms with base under the PFC
programmes, the producer received several checks. The base acreage and yield derived from
historical plantings on the farm.

13. In the oilseeds programme, it was completely different. The producer had a base. The
producer had a yield. The farm had no base. The fa rm had no yield. For the 1999 programme, if the
producer was on Farm X in 1999 and planted soybeans there, the producer could receive a payment
based on plantings that the producer may have had on Fa rms A, B, C, and D in the historical period.
Current producers on Farms A, B, C, and D, by cont rast, would have no “base.” In short, there was
no base for soybeans for any farm for oilseeds payments for 1999 or 2000.

14. Thus, this is the problem in terms of the data request for the Panel: the request considers
soybeans as a covered commodity for MLAs and seek s information for base acreage on “farms,” but
soybean base for 1999 and 2000 oilseed payments was producer-based, not farm-based. In order to be
as responsive as possible, we have run the data two wa ys. First, for 1999 and 2000, we treat soybeans
as a non-programme crop for purposes of categorizing the farms into subcategories (as explained in
more detail below), but show the actual soybean plan tings for all farms. In the second run, we treat

soybeans as a programme crop and, for categorization purposes, treat all farms as having a soybean
base of zero.

15. We respectfully refer the Panel to its 3 Febr uary 2004, letter. Category B farms are those
with cotton “overplantings” – that is with more cotton plantings than cotton base. Category B2 farms
are defined are those where, for all covered crops added together, the farm underplanted the total
aggregated base. B3 is the mirror image of B2. It is where there was an aggregated overplanting for
all programme crops taken together.
16. Assume the following plantings on Farm A:
 Cotton Base 10 Plantings 12
 Rice Base 5 Plantings 0
 Soybeans -- Plantings 5
If soybean plantings do not matter for categorization, then this farm is a B2 farm since the plantings
for rice and cotton would be 12 and the total base would be 15. But if soybeans are counted and
treated as having a zero base, then this farm is a B3 farm because the countable base would still be 15,
but the plantings would now be 17. This woul d only be the case for MLA. Since soybeans, under the
Panel’s February 16 letter, would only be counted for MLAs, the farm would still be a B2 farm for
purposes of the PFC calculations for the same year.
17. As we have indicated and set out further belo w, we have it covered both ways. We provide a
file in which soybeans are treated as a covered co mmodity (for MLA purposes) with a farm base of
zero. We also present a file in which soybeans ar e not considered a programme crop, in which the
PFC and MLA figures are the same.
Farms Had No Peanut Base in 2002 Because th e 2002 Peanut Programme was Producer-Based,
Not Farm-Based
18. The Peanut programme presents the same pr oblem for the 2002 Direct and Counter-cyclical
Programme (DCP) as do soybeans for the 1999 and 2000 programmes, since it too was a producer-
based, not a farm-based programme. There were no peanut bases for 2002 for any farm. The base
was assigned to a producer for 2002. That producer had to be a “historical peanut producer” –
someone who had produced peanuts in the base period. For the 2002 crop year, the producer received
one check for all of the producer’s base, calculated as the payment rate times the “payment acres of
the historic cotton producer” times the “average pea nut yield . . . for the historic cotton producer.”
1
However, starting in 2003, the base and yield had to be assigned by the historical producer to a farm
of that producer’s choice. The designated farm di d not have to be a farm in which the producer had
an interest, or one on which the producer had ever produced peanuts, or, for that matter, one on which
anyone had ever produced peanuts or would ever produce peanuts in the future.
19. The distinction is perhaps best demonstrated by example. Assume that a farmer had in 1998-
2001 produced peanuts on rented Farms A, B, and C. Assume that for 2002 the farmer decided to get
out of farming altogether, and was living in retirem ent in Denver, Colorado, far outside the peanut
belt and with no interest in any farm or any farm production anywhere. Under the terms of the 2002
Farm Bill, that historical producer would receive a payment based on that producer’s base and that
producer’s yield. If that farmer happened to be a producer in 2002 on Farm D, that farmer would
nonetheless receive payment based on his or her prod uction on Farms A, B, and C in the base period.

1 2002 Farm Bill, § 1303(c) (direct payments) (Exhibit US-1); see id. § 1304(e) (counter-cyclical
payments).

Producers in 2002 on Farms A, B, and C would rece ive nothing (unless they of course had their own
producer base).

20. For 2003, however, the farmer living in Denver would have to pick a farm on which to place
his base.

21. In short, there were no bases for any peanut farm in 2002, and the problem is the same as for
soybeans. As for soybeans, the data was run bot h ways – that is, treating peanuts as a covered
commodity for 2002 with a farm base of zero and not treating peanuts as a covered commodity.

How the Data was Compiled

22. The United States now explains the source of the data. We have previously mentioned the
limitations of crop reports, which is from where a ll the planting data in the aggregations presented
here are derived. Crop reports were not genera lly required until 2002, at which point they were
required for persons seeking benefits for crops other than peanuts in the form of direct payments,
counter-cyclical payments, or marketing loans. As for peanuts, similar reporting requirements apply
where the payments are in connection with farms for which a base is assigned. Hence, the peanut
reporting provision only begins to apply with the 2003 crop.

23. We note that the total number of acres acc ounted for in 2002 may exceed the total cropland
numbers set out in the 18-19 December 2003 data, as corrected on 28 January 2004. Differences may
result because: (1) farmers may have reported plan tings of grass on noncropl and; (2) there can be
double-cropping in some areas; and (3) CRP acres may not have been reported and counted as
available cropland.

The Categories of Farms for the Aggregated Data Files Responsive to Part “(b)” of the Panel’s
Request

24. We have sorted and aggregated the releva nt farms into those categories set out in the
3 February supplementary request from the Panel. Category A farms are those for which the farms
underplanted their cotton base. The panel also aske d for farms that did not plant any other covered
commodities and we have classified those as “A1" farms.

25. Category B farms are farms that overplanted th eir base. Subcategory B1 farms are farms that,
in total for all base crops, planted exactly thei r covered commodity base, while B2 farms under-
planted and B3 farms over-planted those total bases.

26. Category C farms planted cotton but had no base.

Data on Farms Without Privacy Interests Under the Privacy Act of 1974 As Set Out in Item (a)
of the Panel’s Request

27. We now address what was item (a) of the Pa nel’s 3 February supplementary request for
information. The Panel asked for information rela ting to those farms that do not have a privacy
interest and thus who could poten tially be subject to a detailed release of planted and base acreage
information. This information appears to be of little interest to Brazil at this point as Brazil indicated
in its 13 February letter that “because the United States apparently intends only to provide farm-
specific information for far less th an the total amount of farms (i.e., those that are not held by
‘individuals’) this information will be useless fo r calculating the exact amount of total contract
payments.”
2 By way of contrast, Brazil commented that, “[i]f the United States provides the complete
information requested in part (b) of the 3 Februa ry 2004 Request, then most of Brazil’s 28 January

2 Brazil’s 13 February 2004, Letter to the Panel, at 2.

Data Comments would be rendered moot,” and “[w]ith the actual and complete data, the Panel would
be in a position to apply any methodology it deems acceptable.”3

28. For non-closely held corporations, information voluntarily received from a corporation is to
be withheld if it is not the type of information cu stomarily released by the corporation to the public.
See Center for Auto Safety v. National Highway Traffic Safety Administration
, 244 F.3d 144 (D.C.
Cir. 2001).

29. Such is the case with respect to plantings prio r to 2002. It would therefore, be necessary to
examine, on a case by case basis, the circumstances of each “corporate” farming operation to
determine if it is a closely held corporation wh ich might enjoy a privacy interest and if the
information was voluntarily submitted and not the type of information customarily released by the
corporation to the public.

30. Given the time available, we used the y ear 2002 when in all cases, crop reports were
mandatory with the limits indicated above. The Un ited States conducted an electronic sort of cotton
farms to narrow the number of files to a manageab le number, which we then examined on a farm-by-
farm basis to see if they were closely-held corpora tions. The data file containing farm-by-farm base,
yield, and planted acreage information for these farms is described below.

The Data Files

31. The United States is providing the following data files via CD-ROM. This information is
sensitive, and we do not consent to the release of this information to the public domain. Therefore, as
with the data submitted on 18 and 19 December 2003, as corrected on 28 January 2004, pursuant to
paragraph 3 of the Panel’s working procedures, we designate this information as confidential.

32. File Name: PFC1999W.xls
: This file is the first 1999 PFC and MLA file treating soybeans as
a non-base crop and showing soybeans plantings.

33. File Name: PFC99-2W.xls
: This file is the second 1999 PFC and MLA file. Soybeans is
treated as a crop with a zero base on all farms.

34. File Name: PFC2000W.xls : This file is the 2000 PFC and MLA files with soybeans treated
as a non-base crop and showing soybeans plantings.

35. File Name: PFC00-2W.xls
: This file is the 2000 PFC and MLA files treating soybeans as a
crop with a zero base on all farms.

36. File Name: PFC2001W.xls
: This file is the 2001 PFC and MLA file.

37. File Name: DCP2002W.xls
: This file is the 2002 Direct and Counter-cyclical file with
peanuts treated as a non-base crop and showing peanuts plantings.

3 Brazil’s 13 February 2004, Letter to the Panel, at 5. Brazil further commented that “by producing the
complete aggregated information, there would no longer be a need to draw adverse inferences.” Id. In light of
the filing today of a complete response to item (b) of the Panel’s supplementary request, the United States
welcomes Brazil’s withdrawal of its request that the Panel draw adverse inferences in this dispute.

38. File Name: DCP02-2W.xls
: This file is the 2002 Direct and Counter-cyclical file with
peanuts treated as a crop with a zero base on all farms.

39. File Name: notclose.xls
: This is the result of the search for not closely held farms as
described above. (Each line corresponds to one farm. The base, yield, and planting fields are set out
in the file and are the same as those in the base/yield and planted acres data files provided on
28 January 2004 (as set out in Exhibit US-145).)

ANNEX I-25

UNITED STATES' RESPONSE TO QUESTION 264(B)
DATED 3 FEBRUARY 2004 FROM THE PANEL
TO THE PARTIES FOLLOWING THE
SECOND MEETING OF THE PANEL

3 March 2004

264. The Panel asks the United States to clarify certain aspects of Exhibit US-128:

(b) Does the US agree with the statement in paragraph 135 of Brazil's 28 January 2004
comments on US responses to questions that the difference between the $1,148 billion in
the chart at para. 165 of Brazil's 11 August answers to questions and the $666 million
amount in Exhibit US-128 ($1.75 billion) closely corresponds to the total "Claims
rescheduled" figure reported by the US in Exhibit US-128 (column F)?

1. The United States first notes that Exhibit US-128 portrays data on a cohort basis. The figures
in Brazil’s chart are on a fiscal-year basis, which do not necessarily correspond to figures on a cohort-
basis. In addition, data reflected in Exhibit US-128 commence with the 1992 cohort and end with the
2003 cohort. In contrast, Brazil’s chart commences with fiscal year 1993 and ends with fiscal year
2002.

2. Also, as indicated in response to question 264(c)
1, Exhibit US-128 does not reflect the receipt
of principal payments under the reschedulings. Exhibit US-148 (column F) reflects approximately
$205 million of principal collected on the reschedulings. As a theoretical matter, such “recovered
principal” should be reflected in the budget line 88.40 that Brazil cites in its chart. Accounting
research within the US Government suggests, howev er, that a significant portion of this amount has
not in fact been reflected in that budget line.

3. Although the $1.75 billion number cited in the question and the $1.637 billion number
pertaining to “claims rescheduled” are numerically of the same order of magnitude, for the reasons
noted above, a direct comparison between Exhibit US -128 and Brazil’s chart is not as appropriate or
facile as Brazil would suggest. Nevertheless, as a general matter, the United States acknowledges that
the most significant difference between the data re flected in Exhibit US-128 and the data in the
Brazilian chart arises as a function of the standard accounting treatment of reschedulings by the
Commodity Credit Corporation as no longer constituting an outstanding claim, but in fact a new direct

1 US Answers to Further Panel Questions Following Second Panel Meeting (11 February 2004),
para. 24

loan.
2 This is consistent with standard commerc ial practice in accounting for refinancings and
reschedulings.3 Such treatment is reflected in column F of Exhibit US-128.

2 Under FASAB: Original Pronouncements, Version 3 (01/2004), a “direct loan” is defined as “a
disbursement of funds by the government to a nonfederal borrower under a contract that requires the repayment
of such funds within a certain time with or without intere st. The term includes the purchase of, or participation
in, a loan made by another lender. (Adapted from OMB Circular A-11).”
http://www.fasab.gov/pdffiles/vol1v3.pdf, p. 1290. Section 185.3 of OM B Circular A-11 defines “direct loan”:
“a disbursement of funds by the Government to a non-Federal borrower under a contract that requires repayment
of such funds with or without interest. The term includes: [. . .] Financing arrangements that defer payment for
more than 90 days [. . .].” Exhibit BRA-116 (section 185.3, page 185-6).
3 In a routine case, a lender upon rescheduling or refinancing a loan would extinguish the prior loan
because payments are no longer due on the original schedule. The lend er simultaneously would book the new
rescheduled loan as the asset (receivable) pursuant to the terms of which payments would be received. Perhaps
the most familiar illustration of this type of transaction is a home mortgage refinancing where the applicable
interest rate and maturity are changed from the prior mortgage loan. Upon consummation of the refinancing, the
original note and mortgage are deem ed paid, and the new loan and its terms are booked as the new loan
receivable.

List of Exhibits

‘Calculations Acreage Based Methodologies.xls’ provided in electronic
format Exhibit Bra-433
‘Calculations Value Based Methodologies.xls’ provided in electronic
format Exhibit Bra-434

I. INTRODUCTION

1. Brazil thanks the Panel for the opportunity to comment on the US data produced on
3 March 2004. Section II of this submission provides Brazil’s comments on the completeness and
usability of the 3 March 2004 US data. In Section I II, Brazil presents the results of its calculations
applying the same allocation methodologies as used in Brazil’s 18 February 2004 Data Comments. In
Section IV, Brazil offers four tables compari ng MY 1992 support to upland cotton with MY 1999-
2002 support to upland cotton as determined under the four allocation methodologies.
2. Brazil’s results – whether based off the 3 March 2004 US summary data or the earlier US
18/19 December 2003 or 28 January 2004 summary data – remain unchanged. Under any reasonable
methodology for allocating contract payment suppo rt to upland cotton, the US support to upland
cotton in MY 1999-2002 exceeds the support deci ded in MY 1992, within the meaning of
Article 13(b)(ii) of the Agreement on Agricultu re. Thus, the US domestic support measures
challenged by Brazil in this dispute are not “exempt from actions” under the SCM Agreement and
GATT Article XVI.
II. THE US 3 MARCH 2004 DATA REGA RDING PART B OF THE PANEL’S
3 FEBRUARY 2004 REQUEST IS GENE RALLY USABLE AND SHOULD BE
RELIED ON BY THE PANEL
3. Given the US refusal to provide farm-speci fic data, the aggregated data provided by the
United States on 3 March 2004 in response to part (b ) of the Panel’s 3 February 2004 Request is the
best information available before the Panel. Wh ile certain problems with the US 3 March 2004 data
remain (which particularly affect any value-b ased Annex IV-type allocation methodology), the Panel
can and should rely on this data in making its peace clause determination. Thus, Brazil notes that it
no longer considers that relying on its “14/16th” methodology would be appropriate.
4. With respect to part (b) of the Panel’s 3 Fe bruary 2004 Request, the United States appears to
have provided complete summary base and complete summary planted acreage data covering all crops
for which data was requested by the Panel and all farms covered by the Panel’s request.
5. However, the United States has engaged in a completely incorrect reading of the Panel’s
request for data on Category A farms. The Panel defined Category A farms as “farms [that] had fewer
upland cotton planted acres than upland cotton base acres”. 1 Unfortunately, the United States read
this request as covering all farms that had upland cotton base and planted less than their full upland
cotton base to upland cotton or that planted no upland cotton at all.
2 There is no basis for any such
interpretation. Farms with no planted acres do not have “fewer upland cotton planted acres” – which
refers to a positive amount – they have none. Indeed, from the context of the Panel’s 3 February 2004
Request is becomes clear that the entire purpose of th e Panel’s request was to facilitate the calculation
of support to upland cotton, within the meaning of Article 13(b)(ii) of the Agreement on Agriculture.
Neither Brazil, nor the United States, has ever ar gued that farms, which do not even plant upland
cotton, receive any “support to upland cotton”. Including these farms in the calculations would
inevitably lead to major distortions, as the calcula tions are impacted by base and planted acreage on
farms that are of no relevance to a dete rmination of the “support to upland cotton”. 3 H a d t h e
United States interpreted the Panel’s request accordi ng to its ordinary meaning, or, alternatively,

1 3 February 2004 Communication from the Panel, p. 1 (emphasis added).
2 This is apparent from the fact that the sum of all upland cotton base acres from Category A, B and C
farms in the US 3 March 2004 summary data equals the amount of total upland cotton base in the United States.
Logically, farms that gave up producing upland cotton must have been included in one of the categories and
could only have been included in Category A. Indeed, this inclusion explains that large amount of upland cotton
base relative to the upland cotton planted acreage on these farms.
3 Brazil notes that this problem does not affect the Cotton-To-Cotton Methodology, as discussed below.

provided the farm-specific information requested by the Panel on 8 December 2003, 12 January 2004
and 3 February 2004 (as part (a) of the Panel’s Request
4), this would not have been a problem.

6. Nevertheless, Brazil has been able to use the 28 January 2004 US summary data to largely
correct for this erroneous inclusion of additional non-upland cotton producing farms in Category A.
The 28 January 2004 US summary data contains a se parate category for farms that hold upland cotton
base but do not produce upland cotton. Brazil has used this aggregate information to subtract out of
Category A data any base and planted acreage on farms that do not produce upland cotton.
5 However,
this approach was not feasible for the US Annex IV Methodology, since the 28 January 2004 US
summary data does not contain all the data items contained in the 3 March 2004 US summary data. In
particular, specific data on planted acreage fo r non-contract payment crops is missing from the
28 January 2004 US summary data, limiting Brazil’s ability to correct all Category A farm data items
for the purposes of applying the data to the US A nnex IV Methodology. Similarly, a correction was
not feasible for soybean planted acreage during MY 1999-2001 and for peanut planted acreage in MY
2002, as discussed below. Thus, any remaining di stortions that might result from the necessary
exclusion of soybeans and peanuts of Brazil’s calculations under Brazil’s Methodology and under the
Modified Annex IV Methodology are directly a re sult of the US erroneous inclusion of non-upland
cotton producing farms in Category A (and its continued refusal to produce farm-specific data).

7. In addition, and again in contrast w ith the 28 January 2004 US summary data, the
United States’ 3 March 2004 response does not provid e contract payment yields or payments units
that would allow for a precise calculation of the total amounts of contract payments received by a
category of farms. While Brazil recognizes that th e Panel’s 3 February 2004 Request does not ask for
this information, the United States should have pr oduced in good faith the information on payment
units in order to avoid potential distortions (as it did when providing its 18/19 December 2003 and 28
January 2004 summary data). Brazil has been require d, therefore, to use the contract payment yield
information set out in the 28 January 2004 US summa ry data. Brazil believes this contract payment
yield information to be a useful proxy and the poten tial distortions that might result from the use of
this data to be relatively minor.
6

8. The United States’ 3 March 2004 summary data is furthermore inadequate because it does not
permit the calculation of support from soybean market loss assistance payments and peanut direct and
counter-cyclical payments. The United States notes that MY 1999-2000 soybean market loss
assistance payments and MY 2002 peanut direct and counter-cyclical payments were not “farm-
based” but “producer-based”.
7 Therefore, payments were received by (historic) producers, rather than
farms (or their owners). While the United Stat es produced data on soybean and peanut planted
acreage on upland cotton farms 8, the United States did not produce any information that would allow

4 Brazil notes that it is of the firm view that none of the farm-specific planting data requested by the
Panel would be covered by the US Privacy Act.
5 Brazil has subtracted from the Category A summary data provided on 3 March 2004 the amount of
planted and base acreage per covered commodity as reported in the 28 January 2004 US summary data for farms
that hold upland cotton base but do not plant upland cotton. This calculation corrects for any erroneous
inclusion of additional farms in Category A. Since the 28 January 2004 US summary data does not contain data
on MY 1999-2001 soybean plantings or base and MY 2002 peanut plantings or base by farms holding upland
cotton base but not producing upland cotton, no correction is possible that would cover these crops. Therefore,
both soybeans (for MY 1999-2001) and peanuts (for MY 2002) needed to be excluded from the calculations
under Brazil’s Methodology or the value-based allocation calculations under the Modified Annex IV
Methodology, as discussed below. In addition, no update of the US-Proposed Annex IV Methodology using the
US 3 March 2004 summary data was possible.
6 The United States obviously has no basis to complain about Brazil’s use of this yield proxy given its
failure to provide yield information on 3 March 2004 or to provide the farm-specific data.
7 US 3 March 2004 Response to the 3 February 2004 Request by the Panel, paras. 10-21.
8 The United States produced for MY 1999, 2000 and 2002 two sets of data, one treating soybeans and
peanuts as a contract payment crop and categorizi ng farms accordingly and one treating the soybeans and

the calculation of “producer-based” soybean market loss assistance and peanut direct and counter-
cyclical payments received by pr oducers operating upland cotton farms. 9 Yet, these payments should
be considered under any allocation exercise (exc ept the “Cotton-To-Cotton” Methodology). The
absence of this information prevents Brazil from including these payments in its allocation
calculations and, thus, biases Brazil’s calculations downward, as discussed below. Any distortions
resulting from this shortcoming of the 3 March 2004 us summary data are a consequence of the US
failure to produce data on these soybean and peanut payments.

9. With respect to part (a) of the Panel’s 3 February 2004 Request pursuant to DSU Article 13,
the US 3 March 2004 response provi ded – after four weeks of what the United States characterizes as
an analysis “involving much time and effort”
10 – a file (“NotClose.xls”) containing farm-specific data
on 28 farms for MY 2002 that would not be covered by the US Privacy Act. At the same time, the
United States indicated that, in MY 2002, 197,084 farms produced upland cotton and/or received
upland cotton direct and counter-cyclical payments. It is obvious that the farm-specific data covering
these 28 farms cannot provide information relevant to this dispute.11
10. Brazil reiterates that it does not consider farm -specific planting information to be covered by
the US Privacy Act. 12 (Certainly, Brazil’s summary calculations in Sections III and IV below, based
on the 3 March 2004 US summary data, could not possi bly be considered confidential.) But even if
the farm-specific planting information were conf idential under US law, DSU Article 13 would oblige
the United States to produce the info rmation for the Panel and Brazil. 13 Brazil also emphasizes that it
remains of the view that farm-specific data w ould permit the most precise calculation of the amount
of contract payments that constitute support to upland cotton, unde r whichever allocation
methodology the Panel deems appropriate.14
III. CALCULATION OF SUPPORT TO UPLAND COTTON UNDER VARIOUS
ALLOCATION METHODOLOGIES
11. In this Section, Brazil presents the results of applying the four allocation methodologies
discussed in Section 5 of Brazil’s 18 February 2004 Data Comments. That is, Brazil has applied two
acreage-based allocation methodologies (“‘Cott on-To-Cotton’ Methodology” and “Brazil’s
Methodology”) and two value-based methodologi es (“Modified Annex IV Methodology” and “US
Annex IV Methodology”) to the 3 March 2004 US summary data. 15 The results under Brazil’s

peanuts as a non-contract payment crop and categorizing farms accordingly. (See US 3 March 2004 Response to
the 3 February 2004 Request by the Panel, paras. 17, 21, 31-38).
9 As discussed above, no payment units are provided with the US 3 March 2004 summary data.
10 US 3 March 2004 Response to the Panel’s 3 February 2004 Request.
11 See Brazil’s 13 February 2004 Letter to the Panel, p. 2.
12 Brazil’s 18 February 2004 Comments, comments regarding answers 259(a)-(c), paras. 1-21. See also
Brazil’s 28 January 2004 Data Comments, Section 4.
13 See Brazil’s 28 January 2004 Data Comments, Section 5.
14 While Brazil stated at page 5 of its 13 February 2004 Letter to the Panel that “by producing the
complete aggregated information, there would no longer be a need to draw adverse inferences”, Brazil notes that
the data produced by the United Stat es is not complete, as discussed abov e. Should the United States argue or
the Panel believe that Brazil ought to have provided more accurate data on contract payments that constitute
support to upland cotton, Brazil requests the Panel to re ly nevertheless on the calculations provided by Brazil in
this submission. Any shortcoming in these results stems from the refusal of the United States to produce the
farm-specific data requested numerous times by the Panel and Brazil. Further, the United States’ refusal (1) to
produce the farm-specific data or (2) to produce proper data on Category A farms by excluding all farms that do
not produce upland cotton, as well as complete contract payment yield or payment unit information would
permit the Panel to draw the adverse inferences that this information – if produced – would have shown even
higher payments being allocated to upland cotton (see Brazil’s 28 January 2004 Data Comments, Section 6).
15 While Brazil uses these results for purposes of th e comparison required under Article 13(b)(ii) of the
Agreement on Agriculture, the Panel could also use these results to determine the amount of subsidies provided

Methodology replace the estimated amount of suppor t to upland cotton under Brazil’s so-called
“14/16th” methodology.

Cotton-To-Cotton Methodology
16

12. First, Brazil has applied the “Cotton-To -Cotton” Methodology to the 3 March 2004 US
summary data.17 This methodology is not affected by the Category A “over-inclusiveness” problem.18
The “Cotton-To-Cotton” Methodology allocates fo r each planted acre of upland cotton payments
associated with one upland cotton b ase acre – if available for that category of farms. For Category A
farms this means that for each acre planted to upl and cotton, payments associated with one upland
cotton base acre are allocated.19 For Category B1 to B3 farms this means that for each acre planted to
upland cotton, payments associated with one upla nd cotton base acre are allocated – up to the amount
of upland cotton base acres held by these farms.20 For category C farms this means that no allocations
are made.21

13. Since the 3 March 2004 US summary data did not include information on contract payment
yields or payment units by farm category, Brazil us ed the contract payment yield figures provided or
implied in the 28 January 2004 US summary data to calculate payment amounts. 22 After correcting
for and eliminating the non-upland cotton producing farms in Category A, Categories A, B1, B2 and
B3 consist of farms that previously were include d in Category 1 under the US 18/19 December 2003
and 28 January 2004 summary data, as farms planting upland cotton and holding upland cotton base.23

to upland cotton for purposes of Brazil’s actionable subsidy claims, should the Panel deem a finding on the
amount of subsidies necessary.
16 See Brazil’s 18 February 2004 Data Comments, paras. 46-48 and Annex A.1.
17 For the reasons discussed below in the context of “Brazil’s Methodology,” Brazil has relied on the
categorization treating soybeans in MY 1999-2000 and p eanuts in MY 2002 as a n on-contract payment crop.
That is, Brazil has used the following files: ‘PFC1999W.xls’, ‘PFC2000W.xls’, ‘PFC 2001W.xls’ and
‘DCP2002W.xls’ as provided by the United States on 3 March 2004. While the “Category A” problem does not
affect this methodology, to ensure comparability between the payment allocations for each category of farms,
Brazil has used the same categorization as for the calculations under Brazil’s Methodology.
18 Since Category A consists of farms that have more upland cotton base acres than upland cotton
planted acres, for each planted acre of upland cotton payments associated with one upland cotton base acre are
allocated. All remaining upland cotton and other crop base payments are ignored.
19 Brazil recalls that these farms are defined as farms that plant less acres of upland cotton than they
hold base acres.
20 Brazil recalls that these farms are defined as farms that plant more acres of upland cotton than they
hold base acres. Thus, there are not enough upland cotton base acres to allocate payments associated with one
upland cotton base acre to each acre planted to upland cott on. No additional allocations are applied under this
methodology and, therefore, some upland cotton planted acres are not allocated contract payments at all.
21 Brazil recalls that these farms are defied as fa rms that plant upland cotton but do not hold upland
cotton base acres. Therefore, no upland cotton contract payments are available for allocation and no non-upland
cotton contract payments are allocated under this methodology.
22 The file ‘rPFCsum.xls’ contains payment units and base acres per category of farms (1, 2, and 3
referring to farms that (1) hold upland cotton base and plant upland cotton, (2) hold upland cotton base and do
not plant upland cotton, and (3) do not hold upland cotton base but plant upland cotton). Since payment units
are defined as 85 per cent of the product of base acres and contract yields, payment units and base acres can be
used to calculate the required contr act yield (payment units / (base acres * 0.85)). The file ‘rDCPsum.xls’
contains contract yields for all three categories of farms (see above).

23 To avoid any confusion, Brazil presents the following table detailing the nomenclature of the farm
categories in the various US summary data submissions:
Farm Definitions 3 March 2004 Data 18/19 December 2003
28 January 2004
Farms Planting Less Cotton Than Their Cotton Base Category A (erroneously
also includes farms that
produce no cotton – all
formerly Category 2 farms)
Included in Category 1

Accordingly, Brazil applied the contract pa yment yield for Category 1 farms from the
28 January 2004 US summary data to these four categories of farms in the 3 March 2004 US
summary data. 24 The contract payment yield for Category C farms under the 3 March 2004 US
summary data corresponds to that of Category 3 farms under the 28 January 2004 US categorization.
14. Next, Brazil calculated the payment units by category of farms 25 and multiplied them by the
payment rate. 26 The details of Brazil’s calculations are presented (by farm category) in electronic
form as Exhibit Bra-433 (‘Calculations Acreage Based Methodologies.xls’).
15. The following table shows the amount of contract payments allocated as support to upland
cotton under the “Cotton-To-Cotton” Methodology.
Cotton-to-Cotton Methodology27
MY PFC Payments MLA Payments 28 Direct Payments CCP Payments
1999 434,945,069 $432,826,830 - -
2000 411,776,128 $438,349,261 - -
2001 329,593,231 $452,369,304 - -
2002 - - $391,846,198 $864,980,104
Brazil’s Methodology29
16. In applying Brazil’s Methodology to the ne w 3 March 2004 US summary data, Brazil again
corrected for the over-inclusiveness of farms in Category A 30 and applied the contract yields, as

Farms Planting Cotton And Holding Cotton Base
(contract payment crop planting equals crop base)
Category B1 Included in Category 1
Farms Planting Cotton And Holding Cotton Base
(contract payment crop planting falls short of crop
base)
Category B2 Included in Category 1
Farms Planting Cotton And Holding Cotton Base
(contract payment crop planting exceeds crop base)
Category B3 Included in Category 1
Farms Planting Cotton But Not Holding Cotton Base Category C Category 3
Farms Not Planting Cotton But Holding Cotton Base not requested, but
erroneously included in
Category A
Category 2

24 Any possible distortion stemming from slightly higher or lower contract yields in Categories A, B1,
B2 and B3 than the average contract yield that wa s reported for category 1 farms in the 28 January 2004
summary data is due to the failure of the United States to provide more specific information.
25 85 per cent of the product of base acres and contract yields (using the applicable contract yields).
26 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 17).
27 For details of the calculations, see Exhibit Bra-433 (‘Calculations Acreage Based
Methodologies.xls’).
28 As in previous calculations ( see Brazil’s 28 January 2004 Data Comments, Section 9 and 10;
Brazil’s 18 February 2004 Data Comments, Annex A), market loss assistance payments have been calculated by
adjusting the PFC payment according to the ratio of total upland cotton market loss assistance payments to total
upland cotton PFC payments (Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 6). The
United States has never criticized this approach and, in fact, confirmed its accuracy in paragraphs 8-9 of its
3 March 2004 response to the 3 February 2004 Request by the Panel.
29 See Brazil’s 20 January 2004 Answers to Questions, paras. 43-55; Brazil’s 28 January 2004 Data
Comments, Section 9 and Brazil’s 18 February 2004 Data Comments, paras. 50-51, Section 6 and Annex A.2.
30 For instance, Brazil has deducted the amount of upland cotton base held by farms that hold upland
cotton base but do not produce upland cotton (as provided by the United States on 28 January 2004) from the
amount of upland cotton base held by Category A farms (as provided by the United States in 3 March 2004). A
similar deduction has been applied to base and planted acr es for each crop for which such data was available in
the 28 January 2004 US summary data.

provided by the 28 January 2004 summary data
31, and the payment rates 32 to calculate the amount of
contract payments by category of farms. 33 Brazil recalls that its methodology allocates for each acre
planted to a contract payment crop payments associat ed with one base acre of that crop – as available.
All further contract payments not allocated to th eir respective contract payment crop are pooled and
allocated proportionally to the planted acres of cont ract payment crops to which no contract payments
have been assigned under the first step.34

17. For the purposes of Brazil’s methodology, Brazil treats soybeans as a non-contract payment
crop for purposes of MY 1999 and 2000 market loss assistance payments
35 and peanuts as a non-
contract payment crop for purposes of MY 2002 direct and counter-cyclical payments. This treatment
follows from Brazil’s inability to correct the Category A data concerning soybean and peanut
plantings, discussed above.36 In addition and as discussed above, Brazil has not been able to allocate
any MY 1999-2000 soybean market loss assistance pa yments or MY 2002 peanut direct and counter-
cyclical payments because no data on these payments has been provided. Accordingly, soybeans and
peanuts neither receive contract payment allocations , nor are soybean and peanut contract payments
allocated for the relevant marketing years.

18. The details of Brazil’s calculations are presen ted (by farm category) in electronic form as
Exhibit Bra-433 (‘Calculations Acreage Based Methodologies.xls’). Brazil applied the very same
calculation methodology as in its 28 January 2004 Data Comments and in its 18 February 2004 Data
Comments.
37 This methodology is not entirely identical to Brazil’s 20 January 2004 discussion of its
methodology, which anticipated the use of farm-specific data that was never produced by the
United States.38 Thus, certain adjustments, documented in Brazil’s 28 January 2004 Data Comments,
were necessary.39

19. The table below shows the results of Brazil’s calculations.

Brazil’s Methodology
40
MY PFC Payments MLA Payments 41 Direct Payments CCP Payments
1999 $501,450,663 $499,008,534 - -
2000 $478,926,663 $509,833,219 - -
2001 $385,723,950 $529,409,157 - -
2002 - - $421,367,874 $869,470,827

31 See above discussion in the context of the “Cotton-To-Cotton” Methodology and Section II.
32 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 17).
33 Brazil has used the following files: ‘PFC1999W.xls’, ‘PFC2000W.xls’, ‘PFC 2001W.xls’ and
‘DCP2002W.xls’ as provided by the United States on 3 March 2004.
34 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55.
35 Brazil recalls that the United States has informed Brazil and the Panel that there were no such
soybean payments in MY 2001. See US 3 March 2004 Response to the 3 February 2004 Request by the Panel,
para. 10.
36 See also the more detailed discussed in the context of the Modified Annex IV Methodology, below.
37 Brazil’s 28 January 2004 Data Comments, Section 9 and Brazil’s 18 February 2004 Data Comments,
paras. 50-51, Section 6 and Annex A.2.
38 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55.
39 See Brazil’s 28 January 2004 Data Comments, Section 9.
40 For details of the calculations, see Exhibit Bra-433 (‘Calculations Acreage Based
Methodologies.xls’).
41 As in previous calculations ( see Brazil’s 28 January 2004 Data Comments, Section 9 and 10;
Brazil’s 18 February 2004 Data Comments, Annex A), market loss assistance payments have been calculated by
adjusting the PFC payment according to the ratio of total upland cotton market loss assistance payments to total
upland cotton PFC payments (Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, USDA, January 2003, p. 6). The
United States has never criticized this approach and, in fact, confirmed its accuracy in paragraphs 8-9 of its 3
March 2004 response to the 3 February 2004 Request by the Panel.

20. The differences between results of the “Cotton-To-Cotton” Methodology and Brazil’s
Methodology result from the fact that under Brazil’s Methodology a limited amount of non-upland
cotton contract payments is allocated as “support to upland cotton.” However, the great majority of
upland cotton is planted on farms holding upland co tton base acres and their amount of upland cotton
base acres closely tracks their amount of upland cotton planted acres. Thus, upland cotton contract
payments account for the great majority of co ntract payments allocated even under Brazil’s
methodology. The following table presents, by mark eting year, the amount of upland cotton planted
acres for which there exists a corresponding upland cotton base acre farm category.

MY 1999 MY 2000 MY 2001 MY 2002
Marketing Year42
Category43 ---- acres ----
A 4,548,886 4,386,073 4,146,352 5,997,438
B1 87,034 94,377 78,075 166,619
B2 2,412,580 2,389,053 2,173,819 2,035,335
B3 3,570,724 3,906,688 4,125,899 3,220,762
C 0 0 0 0
Total 10,619,224 10,776,191 10,524,145 11,420,154
Total Planted Acres 14,572,963 15,388,028 15,463,934 13,541,506
Percentage 72.87 per cent 70.03 per cent 68.06 per cent 84.33 per cent

Modified US Annex IV Methodology44

21. In applying the first value-based methodolog y, the Modified Annex IV Methodology, to the
new 3 March 2004 US summary data, Brazil again co rrected for the over-inclusiveness of Category A
and applied contract payment yields, as provide d by the 28 January 2004 summary data, and the
contract payment rates to calculate the total amount of contract payments by category of farms.
45

22. Brazil was required to exclude soybeans
46 and peanuts from the allocation calculations under
this methodology47 (as well as under Brazil’s Methodology) for the following reasons: First, since the
United States did not provide data on soybean and peanut plantings with its 28 January 2004 summary
data, Brazil is unable to correct these data items in the US 3 March 2004 Category A summary data. 48
There were three theoretical options available to Br azil to address this problem. First, Brazil could
have left in Category A all farms which were included by the United States, but which do not produce
upland cotton. This approach would have resulte d in distortions because considerable amounts of
extra contract payments received by farms not producing upland cotton as well as unknown amounts
of extra contract payment crop value generated by these non-upland cotton producing farms would be
included in the calculations. Or, second, Brazil could have corrected the over-inclusiveness of

42 Brazil has used the following files: ‘PFC1999W.xls’, ‘PFC2000W.xls’, ‘PFC 2001W.xls’ and
‘DCP2002W.xls’ as provided by the United States on 3 March 2004.
43 For Category A farms, Brazil has used the amount of upland cotton planted acres, since on those
farms upland cotton base acres exceed upland cotton base acres. For the three Categories B1, B2 and B3, Brazil
has used upland cotton base acres since for those farm s upland cotton planted acres exceed upland cotton base
acres. Finally, for Category C farms, Brazil has used “0,” since those farms have no upland cotton base acres.
44 Brazil has discussed this methodology in paragraphs 50-51 and in Annex A.3 of its 18 February 2004
Data Comments.
45 See above discussion in the context of the “Cotton-To-Cotton” Methodology and in Section II.
46 This exclusion of soybeans does not apply to MY 2002, for which complete summary data is
available.
47 Consequently, Brazil has used to following files as the basis for its calculations: ‘PFC1999W.xls’,
‘PFC2000W.xls’, ‘PFC 2001W.xls’ and ‘DCP2002W.xls’ as provided by the United States on 3 March 2004.
48 This correction of course concerns the amount of soybean and peanut acreage planted by farms that
do not produce upland cotton.

Category A for all data items that it could correct leaving the additional soybean and peanut acreage
from non-upland cotton producing farms in the pool. This approach would have resulted in
distortions because unknown amounts of extra valu e of soybean and peanut production from non-
upland cotton producing farms would be included in the calculations. To avoid these distortions,
Brazil has selected the third optio n – to exclude soybeans and pea nuts from the allocation. This
choice enables Brazil to correct the Category A data for the inclusion of farms not producing upland
cotton, in the manner described above
49, and to proceed with its calculations.

23. Second, Brazil notes that the United States di stinguishes the soybean market loss assistance
and peanut direct and counter-cyclical payments in MY 1999, 2000 and 2002 as being producer-based
rather than farm-based payments. But, the United States never provided information on the amount of
these payments. However, payments received by producers of these crops that also owned upland
cotton producing farms (to which all other contr act payments were made) would need to be
considered for any allocations methodology (except the “Cotton-To-Cotton” Methodology).

24. No doubt Brazil’s choice not to include soybean and peanut planted acreage and soybean
market loss assistance and peanut direct and count er-cyclical payments leads to distortions. These are
unavoidable given the incorrect US reading of the definition of Category A farms. However, Brazil
believes that these distortions are relatively minor. Brazil has excluded payments stemming from
soybean market loss assistance and peanut direct and counter-cyclical payments
50 as well as the crop
value of soybean (for MY 1999-2001) and peanut (for MY 2002) production. 51 Thus, soybeans and
peanuts do not contribute contract payments to th e pool of payments allocated over the value of the
entire contract payment crop production of upland co tton producing farms. But, there are also no
contract payments being allocated to soybeans and peanuts for these years. This minimizes
distortions by roughly cancelling out over and under-counting effects from their exclusion from the
calculation. Brazil notes that, for other crops, the amount of crop plantings and crop payment base is
fairly proportionate.
52 Soybeans and peanuts in all likelihood follow a similar pattern. In excluding
these crops entirely from the calculations, Brazil minimizes the distortions resulting from the
shortcomings of the 3 March 2004 US summary data, based on the assumption that these crops would
contribute an equal (or very similar) amount of c ontract payments to the pool, as they would be
allocated based on their share of the total value of contract payment crop production.

25. As in its 18 February 2004 calculations, Brazil calculated, by category of farm, the value of
each contract payment crop produced on farms that make up the category. Brazil multiplied the
amount of planted acreage times the yield
53 and times the per unit price of the particular crop. 54 Total
contract payments for each category of farm were then allocated to upland cotton according to the
share of the upland cotton crop value of the total value of contract payment crop production on the
farms of that category. The details of Brazil’s calculations are presented (by farm category) in
electronic form as Exhibit Bra-434 (‘Calculations Value Based Methodologies.xls’).

26. The table below shows the resulting support to upland cotton under this methodology.

49 See Section II above.
50 For which the United States has not provided any payment information.
51 For which Brazil is not able to correct the Category A data given the respective data items missing in
the 28 January 2004 US summary data.
52 Compare crop base and crop plantings as re ported by the US 3 March 2004 summary data
(‘PFC1999W.xls’, ‘PFC2000W.xls’, ‘PFC 2001W.xls’ and ‘DCP2002W.xls’).
53 Brazil notes that similar to its 18 February 2004 calculations it has used yields on planted acres for
upland cotton and yields on harvested acres for all other contract payment crops, thereby overstating the latter’s
value and leading to understated allocations of contract payments to upland cotton. See Brazil’s
18 February 2004 Data Comments, para. 73 and Annex A.3, notes to Tables 3.5-3.8 for further explanation and
references to the data.
54 Exhibit Bra-420 (Agricultural Outlook Tables, USDA, November 2003, Table 17). Brazil notes that
the cover page of this exhibit appears to be wrong. The table is, however, correct.

Modified Annex IV Methodology55
MY PFC Payments MLA Payments 56 Direct Payments CCP Payments
1999 $562,922,665 $560,181,159 - -
2000 $540,877,974 $575,782,432 - -
2001 $394,791,930 $541,855,031 - -
2002 - - $462,037,836 $771,636,204

Brazil notes that these allocations are conservative. Absent data on yields per planted acre for any
non-upland cotton crop, Brazil applied yields on ha rvested acres to calcula te the amount of crop
produced from all planted acres, thereby ignoring aba ndonment. This calculation leads to overstating
the value of non-upland cotton crop production by ove rstating the amount of such production. By
contrast, the value of the upland cotton crop has been calculated by using yields on planted acres,
providing an accurate estimate.57 Thus, Brazil’s calculations overstate the value of non-upland cotton
contract payment crops produced in each of the fa rm categories, resulting in lower allocations to
upland cotton.

US Annex IV Methodology

27. Brazil could not perform any updated cal culations under this methodology based on the
3 March 2004 US summary data. The reason is th at Brazil could not exclude from Category A data
those farms that do not produce upland cotton.
58 The US Annex IV Methodology would necessitate
adjusting Category A data, inter alia , concerning planted soybeans acreage in MY 1999-2001 and
peanut acreage in MY 2002. However, no such planted acreage data is available in the
28 January 2004 US summary data and, therefore, no such adjustment to Category A can be
performed.

28. Further, for MY 2002, the 3 March 2004 US summ ary data provides more specific data items,
including acreage data for fruits and vegetables, ELS cotton, tobacco and peanuts for all categories of
farms. However, because these data items were also not provided in the 28 January 2004 US
summary data, Brazil cannot correct the over-inclusiveness of Category A for these data items. In
addition, the United States appears to have incl uded more acreage in its “All Other Use Acres” than
simply cropland. The sum of all non-contract payment crop acres in the 3 March 2004 US summary
data exceeds the additional cropland as reported in the 28 January 2004 US summary data. This again

55 For details of the calculations, see Exhibit Bra-434 (‘Calculations Value Based Methodologies.xls’).
56 As in previous calculations ( see Brazil’s 28 January 2004 Data Comments, Section 9 and 10;
Brazil’s 18 February 2004 Data Comments, Annex A), market loss assistance payments have been calculated by
adjusting the PFC payment according to the ratio of total upland cotton market loss assistance payments to total
upland cotton PFC payments (Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 6). The
United States has never criticized this approach and, in fact, confirmed its accuracy in paragraphs 8-9 of its
3 March 2004 response to the 3 February 2004 Request by the Panel.
57 See Brazil’s 18 February 2004 Data Comments, para. 73 and Annex A.3, notes to Tables 3.5-3.8 for
further explanation and references to the data.
58 As long as only data concerning contract payment crops was relevant (excluding soybeans and
peanuts under the Modified Annex IV Methodology), such an exclusion could be performed based on the
28 January 2004 US summary data, that provided congruous base and planted acreage summary information for
these contract payment crops on farms that are now erro neously included in Category A. This allowed for
deducting the base and planted acreage summary data for contract payment crops on farms that hold upland
cotton base but do not produce upland cotton from the identical summary data items in Category A of the
3 March 2004 US summary data. For instance, Brazil has deducted the amount of upland cotton base held by
farms that hold upland cotton base but do not produce upland cotton (as provided by the United States on
28 January 2004) from the amount of upland cotton base held by Category A farms (as provided by the
United States in 3 March 2004). A similar deduction has been applied to base and planted acres for each crop
for which such data was available in the 28 January 2004 US summary data.

precludes an adjustment of this data item in Category A for its over-inclusiveness, since the
28 January 2004 and the 3 March 2004 sets of summary data do not appear to be congruous.

29. Once more, the inability to exclude the non-upland cotton producing farms from Category A
is important, because including a large number of fa rms that do not produce upland cotton in the
allocation calculations would add a large potential for distortions given the significant amounts of
plantings and contract payment crop base by these farms.

30. Further, while the 28 January 2004 US summary data provided information on the amount of
non-contract payment crop acreage for MY 1999-2001, the 3 March 2004 US summary data fails to
do so. Thus, for those marketing years and for purposes of the US Annex IV Methodology, Brazil
could not rely on the 3 March 2004 US summary data and categorization of upland cotton farms at all,
since the 3 March 2004 US summary data does not contain any information on the plantings of non-
contract payment crops on these farms. For purposes of the US Annex IV Methodology, Brazil,
however, needs to rely on planting data for non-contr act payment crops to estimate the value of their
production on upland cotton producing farms – data su ch as that provided by the United States in its
18/19 December 2003 and 28 January 2004 data s ubmissions. Thus, Brazil’s 18 February 2004 US
Annex IV Methodology results base d on the 28 January 2004 US summary data are more accurate
than any calculations that could be performed b ased on the 3 March 2004 US summary data or some
adjusted version thereof. Therefore, Brazil reproduces below its 18 February 2004 results applying
the US Annex IV methodology to the 28 January 2004 US summary data.

Annex A.4 Table 4.8
59
US Annex IV Methodology
MY PFC Payments MLA Payments Direct Payments CCP Payments
1999 $440,061,035.8 $437,917,881.4 - -
2000 $432,996,788.7 $460,939,354.1 - -
2001 $304,243,319.2 $420,222,029.1 - -
2002 - - $383,057,256.1 $640,389,168.2

Brazil notes that these allocations are conservative fo r two reasons: (1) the calculations overstate the
value of non-upland cotton contract payment crops, as discussed in the context of the Modified
Annex V Methodology; and (2) the calculations do not account for soybean market loss assistance
payments in MY 1999-2000 and peanut direct and counter-cyclical payments in MY 2002.
60

IV. THE UNITED STATES MY 1999-2002 SUPPORT TO UPLAND COTTON EXCEEDS
THE MY 1992 SUPPORT TO UPLAND COTTON UNDER ANY METHODOLOGY

31. In the previous Section, Brazil has updated its 18 February 2004 calculations of the support to
upland cotton applying various acreage - and value-based allocation methodologies. In this Section,
Brazil combines its results with data on the amount of support to upland cotton from the other support
programmes, and provides the Panel with summary tables for each of the 1999-2002 marketing years
comparing the support to upland cotton in those marketing years with the MY 1992 level of support to
upland cotton.

59 See Annex A.4 of Brazil’s 18 February 2004 Data Comments.
60 Brazil’s 18 February 2004 Data Comments, para. 52 and note 75 thereto as well as Annex A.4,
para. 40. While the missing soybean and peanut contract payments could be corrected for by excluding these
crops from any allocations under the previous three methodologies, soybeans and peanuts are a firm part of the
allocation calculations under the US Annex IV Methodology because they are part of the overall farm’s revenue.
They were included in Brazil’s 18 February 2004 calculations based on the US 28 January 2004 summary data.
Thus, it is only the payment data that remains missing from these calculations resulting in understating the
amount of contract payments allocated to upland cotton.

32. As Brazil discussed in its 18 February 20 04 Data Comments, Article 13(b)(ii) of the
Agreement on Agriculture endorses no particular methodology. Thus, the Panel needs to choose a
reasonable methodology for allocating contr act payments as support to upland cotton. 61 Brazil
favours its methodology, based on an allocation pursuan t to the acreage planted to contract payment
crops, but also provides results under the Cotton-To-Cotton Methodology (similarly based on an
acreage comparison), as well as two value-based methodologies.

33. However, Brazil strongly urges the Panel to apply an acreage-based methodology – preferably
Brazil’s Methodology. A particular flaw in a va lue-based methodology is that allocating counter-
cyclical payments over the value of crop productio n means that allocations for a crop will decrease if
prices for that crop fall.
62 Thus, at the time when counter-cyc lical payments are “critically needed”63
to offset low prices for a crop, a value-based methodology would allocate these counter-cyclical
payments increasingly as support to other crops, who se prices have not fallen. Using a value-based
allocation methodology shifts the share of counter-cyclical payments that are allocated to the crop
with falling prices away from that crop and to crops with increasing or constant prices. By contrast,
allocating contract payments over the acreage plan ted to contract payment crops – as done by the
“Cotton-To-Cotton” Methodology and by Brazil’s Methodology – provides an allocation approach
that reflects the economic reality and intention behind the counter-cyclical payment support.

34. But Brazil emphasizes that, on the facts of this case, and using whichever methodology the
Panel may ultimately choose, the US MY 1999- 2002 support to upland cotton exceeds the MY 1992
level in each year and under each methodology (with the exception of the “Cotton-To-Cotton” and the
US Annex IV Methodology in MY 2000).
64

35. The following four tables present the peace cl ause comparisons for MY 1999-2002. The table
below presents Brazil’s peace clause comparison for MY 2002.

61 Brazil’s 18 February 2004 Data Comments, paras. 33-42.
62 Suppose that a farm produces in two consecutive years the same amount of upland cotton and rice.
The value of both crops is 50 in the first year leading to an allocatio n of half of the contract payments received
by that farm. In the second year, prices for upland cotton fall to half their pervious level, while rice prices
remain the same. Thus, the same amount of upland cotton is only worth 25 in the second year with the value of
the rice crop remaining at 50. It fo llows that upland cotton receives a third of the contract payments allocations
(its value is 25 out of a total crop value of 75) and rice receives two thirds of the contract payment allocations.
The same principle would apply if rice prices had fallen by half with upland cotton remaining constant. In this
case rice would receive an allocation of a third of the contract payments while upland cotton would receive two
thirds of the contract payments allocations. In both cases the crop whose price is falling receives a smaller share
of the support, contrary to the counter-cyclical (not pro-cyclical) approach of the payments involved.
63 Exhibit Bra 111, (“The Six Year World Outlook for Cotton and Peanuts: Implications for Production
and Prices,” Bob McLendon, National Cotton Council, p.1).
64 Brazil recalls that given the manner in which the United States presented its 3 March 2004 summary
data, Brazil was prevented to provide an updated US Annex IV Methodology calculation based on the
3 March 2004 US summary data. See Section III, above. Further, neither of the two methodologies captures all
support to upland cotton with the “Cotton-To-Cotton” Methodology not capturing any non-upland cotton
contract payments that constitute support to upla nd cotton and the US-Proposed Annex IV Methodology
suffering from various data problems, including the non-availability of data on soybean market loss assistance
payments for that year.

Budgetary Outlays For Upland Cotton MY 1992 and MY 2002
65
1992 2002 (1) 2002 (2) 2002 (3) 2002 (4) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none
Direct Payments none 391.8 421.4 462.0 383.1
CCP Payments none 865.0 869.5 771.6 640.4
Marketing Loan Gains
and LDP Payments66 866 898 898 898 898
Step 2 Payment 207 415 415 415 415
Crop Insurance 26.6 194.1 194.1 194.1 194.1
Cottonseed Payments none 50 50 50 50
Total 2,117.0 2,813.9 2,848.0 2,790.7 2,580.6
(1) Cotton-To-Cotton Methodology
(2) Brazil’s Methodology
(3) Modified Annex IV Methodology
(4) US Annex IV Methodology (based on 28 January 2004 US summary data)

36. The table below presents Brazil’s peace clause comparison for MY 2001.

Budgetary Outlays For Upland Cotton MY 1992 and MY 200167
1992 2001 (1) 2001 (2) 2001 (3) 2001 (4) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none
PFC Payments none 329.6 385.7 394.8 304.2
MLA Payments none 425.4 529.4 541.9 420.2
Marketing Loan Gains
and LDP Payments68 866 2,609 2,609 2,609 2,609
Step 2 Payment 207 196 196 196 196
Crop Insurance 26.6 262.9 262.9 262.9 262.9
Cottonseed Payments none none none none none
Total 2,117.0 3,849.9 3,983.0 4,004.6 3,792.3
(1) Cotton-To-Cotton Methodology
(2) Brazil’s Methodology
(3) Modified Annex IV Methodology
(4) US Annex IV Methodology (based on 28 January 2004 US summary data) 69

65 The table below includes the updated contract payment allocations to upland cotton and otherwise
reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal Submission as updated by paragraph 8
of Brazil’s 22 December 2003 Answers to Questions a nd paragraphs 12-14 of the US 22 December 2004
Answers to Questions. Step 2 and marketing loan payments have been updated in light of the US answer to
Question 196. See US 22 December 2004 Answers to Questions, para. 12.
66 “Other Payments” have been included in the marketing loan figures.
67 The table below includes the updated contract payment allocations to upland cotton and otherwise
reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal Submission.
68 “Other Payments” have been included in the marketing loan figures.
69 See Brazil’s 18 February 2004 Data Comments, Annex A.4 Table

37. The table below presents Brazil’s peace clause comparison for MY 2000.

Budgetary Outlays For Upland Cotton MY 1992 and MY 200070
1992 2000 (1) 2000 (2) 2000 (3) 2000 (4) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none
PFC Payments none 411.8 478.9 540.9 433.0
MLA Payments none 438.3 509.8 575.8 460.9
Marketing Loan Gains
and LDP Payments71 866 636 636 636 636
Step 2 Payment 207 236 236 236 236
Crop Insurance 26.6 161.7 161.7 161.7 161.7
Cottonseed Payments none 185 185 185 185
Total 2,117.0 2,068.8 2,207.4 2,335.4 2,112.6
(1) Cotton-To-Cotton Methodology
(2) Brazil’s Methodology
(3) Modified Annex IV Methodology
(4) US Annex IV Methodology (based on 28 January 2004 US summary data)

38. The table below presents Brazil’s peace clause comparison for MY 1999.

Budgetary Outlays For Upland Cotton MY 1992 and MY 199972
1992 1999 (1) 1999 (2) 1999 (3) 1999 (4) Year
Programme ----- $ million -----
Deficiency Payments 1017.4 none none none none
PFC Payments none 434.9 501.5 562.9 440.1
MLA Payments none 432.8 499.0 560.2 437.9
Marketing Loan Gains
and LDP Payments73 866 1,761 1,761 1,761 1,761
Step 2 Payment 207 422 422 422 422
Crop Insurance 26.6 169.6 169.6 169.6 169.6
Cottonseed Payments none 79 79 79 79
Total 2,117.0 3,299.3 3,432.1 3,554.7 3,309.6

(1) Cotton-To-Cotton Methodology
(2) Brazil’s Methodology
(3) Modified Annex IV Methodology
(4) US Annex IV Methodology (based on 28 January 2004 US summary data)

70 The table below includes the updated contract payment allocations to upland cotton and otherwise
reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal.
71 “Other Payments” have been included in the marketing loan figures.
72 The table below includes the updated contract payment allocations to upland cotton and otherwise
reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal Submission.
73 “Other Payments” have been included in the marketing loan figures.

39. In sum, the contract payment data provide d by the United States on 3 March 2004 (as well as
the data provided on 28 January 2004) demonstrates that the United States’ support to upland cotton
in MY 1999-2002 exceeds the support to upland cott on decided by the United States in MY 1992,
within the meaning of Article 13(b)(ii) of the Agreement on Agriculture. The results using any
allocation methodology applying any set of US summary data
74 demonstrates their robustness.

74 See Brazil’s results in its 28 January 2004 and 18 February 2004 Data Comments.

ANNEX I-27

BRAZIL'S COMMENTS ON US 3 MARCH 2004
ANSWER TO QUESTION 264(B)

10 March 2004

264. (b) Does the US agree with the statement in paragraph 135 of Brazil's
28 January 2004 comments on US responses to questions that the difference
between the $1,148 billion in the chart at para. 165 of Brazil's 11 August answers
to questions and the $666 million amount in Exhibit US-128 ($1.75 billion)
closely corresponds to the total "Claim s rescheduled" figure reported by the US
in Exhibit US-128 (column F)?
Brazil’s Comment:
1. The United States acknowledges, in paragra ph 3 of its 3 March 2004 response, that the
difference referred to in the Panel’s question aris es because the United States treats the principal
amounts of rescheduled defaults as an immediate, 100 per cent recovery that is passed through as a
dollar-on-dollar reduction from the amount of claims outstanding in the year the terms of the
rescheduling are agreed.
1
2. In paragraph 1 of its response, the United States argues that the Brazilian conclusion included
in the Panel’s question results from Brazil’s comparison of fiscal year data provided by Brazil with
cohort-specific data provided by the United States. In f act, as explained at paragraph 34 of Brazil’s
18 February 2004 Comments and illustrated in Exhib it Bra-431, Brazil reaches the same conclusion
with a comparison of 1993-2002 fiscal year data provided by Brazil with 1993-2002 fiscal year data
provided by the United States.2
3. In paragraph 2 of its response, the Unite d States asserts, citing undocumented “[a]ccounting
research within the US Government,” that “a significant portion” of principal collected on
reschedulings “has not been reflected” in US budge t line 88.40, tracked in column 2(a) of Exhibit
Bra-431, despite the United States’ acknowledgement that “[a]s a theoretical matter such ‘recovered
principal’ should be reflected in budget line 88.40”. As the party asserting this fact, the United States
bears the burden of proving it (particularly here, where it is addressing a line item from its own
budget).
3

1 For Brazil’s views on this aspect of the US cash-basis accounting methodology for making an
assessment under item (j), s ee Brazil’s 18 February 2004 Comments, paras. 34-40; Brazil’s 28 January 2004
Comments, paras. 134-137; Brazil’s 11 August 2003 Answers, para. 162; Brazil’s 22 July 2003 Oral Statement,
para. 122.
2 Exhibit US-147 also lists (undocumented) data for fiscal years 1992, 2003 and 2004. Including the
additional revenue and expense figures for these years doe s not change the fact that revenue for the CCC export
credit guarantee programmes fails to cover the costs and losses of the programs. Exhibit US-147 alleges
additional revenue of $38.5 million for 1992, $185.6 million for 2003, and $35.4 million for 2004; and
additional costs and losses of $3 million for 1992, $130.1 million for 2003, and $22.8 million for 2004.
Accounting for this data (($38.5 + $185.6 + $35.4) – ($3 + $130.1 + $22.8) = $103.6 million) would bring the
total net costs and losses down from $1.083 billion, arrived at in Exhibit Bra-431, to $979.4 million.
3 See e.g. Appellate Body Report, Japan – Apples , WT/DS245/AB/R, para. 157 (“It is important to
distinguish, on the one hand, the principle that the complainant must establish a prima facie case of
inconsistency with a provision of a covered agreement from, on the other hand, the principle that the party that
asserts a fact is responsible for providing proof thereof. ”). Moreover, Brazil again not es that the United States

4. Each and every figure used in Brazil’ s cash-basis accounting methodology for making an
assessment under item (j) represents actual (as opposed to estimated) data from official US documents
that Brazil has provided to the Panel.
4 The United States has not even cited to any documentary
support for the figures it has provided in Exhibit US-147 or US-148, let alone provided those
documents for the Panel’s review.

5. Thus, it is impossible for Brazil or the Panel to verify, for example, whether the CCC has, as
the United States asserts at paragraph 2, recovere d $205 million of the principal on its reschedulings.
Moreover, this figure conflicts with other data provided by the United States. In column F of Exhibit
US-147, the United States asserts that $1.64 billion of defaulted CCC guarantees have been
rescheduled over the period 1992-2003; in Exhibit US -153, the United States asserts that the principal
outstanding on these reschedulings amounts to $1.58 billion. Rather than recovering $205 million of
the principal on its reschedulings, this data shows that the CCC has recovered only $60 million.

6. In any event, even if the Panel accepts the United States’ unsupported assertion that the CCC
has recovered $205 million of the principal on its re schedulings, this would not mean that premiums
collected for the CCC export credit guarantee progra mmes meet the operating costs and losses of the
programmes. Even if the entire $205 million figure is added to the “claims recovered” column of
Brazil’s cash-basis accounting calculation (column 2(a) of Exhibit Bra-341) – which by its own
admission would be over-crediting the United States for recoveries of the principle on its
reschedulings
5 – the result is still that long-term operati ng costs and losses for the CCC export credit
guarantee programmes outpace revenue (not just premiums collected, but all revenue) by $878
million.6

bears the burden, under Artic le 10.3 of the Agreement on Agriculture, of proving that quantities exported in
excess of its reduction commitments have not benefited from export subsidies.
4 See chart included in paragraph 165 of Brazil’s 11 August 2003 Answers (reproduced in paragraph
129 of Brazil’s 28 January 2004 Comments).
5 In paragraph 2 of its response, the United States asserts that “a significant portion of” the principal
recovered on its reschedulings is not included in line ite m 88.40 and column 2(a) of Exhibit Bra-341 – not that
none of the principal recovered is included in that column.
6 Exhibit Bra-431 shows that the operating costs and losses outpace revenue by $1.083 billion.
Deducting the $205 million cited by the United States yields a loss of $878 million by the CCC export credit
guarantee programmes.

ANNEX I-28

COMMENTS OF THE UNITED STATES ON THE
10 MARCH 2004 COMMENTS OF BRAZIL ON
THE US DATA SUBMITTED ON 3 MARCH 2004

(15 March 2004)

Introduction

1. The United States thanks the Panel for this opportunity to respond to the 10 March comments
filed by Brazil
1 relating to the data submitted by the United States on 3 March 2004, in response to the
Panel’s supplemental request for information. Brazil’s 10 March comments consist primarily of a
series of calculations using the US 3 March data in each of the methodologies previously explained by
Brazil in its 18 February comments. The United States has previously explained, in filings on
11 February2 and 3 March 3, that none of these methodologies is pertinent for purposes of the Peace
Clause.4 Therefore, we will not repeat much of that analysis in these comments but rather will refer
the Panel, as appropriate, to those previous comments by the United States.

2. Brazil states that, because the US 3 March data “is the best information available before the
Panel,” Brazil “no longer considers that relying on its ‘14/16th methodology would be appropriate.’”
5
This means that, by Brazil’s own statement, the only methodology that Brazil had brought forward
from August 2003 until January 2004 to allegedly demonstrate a breach of the Peace Clause is
irrelevant to this dispute. Moreover, it is difficu lt to reconcile Brazil’s concession with its view that
the Panel need only apply a “reas onable” methodology to calculate the support to upland cotton since
Brazil alleges that the 14/16th methodology produces r esults that are similar to those under its other
(flawed) methodologies.

3. Brazil’s disavowal of its 14/16th methodology, however, does highlight the shifting nature of
Brazil’s Peace Clause arguments on decoupled payments. It may be of use to set out just how and
how many times Brazil’s theories have changed in this dispute.

4. First
, Brazil argued that all payments for upla nd cotton base acres were “support to upland
cotton.” For example, in response to Question 41 from the Panel following the first session of the
first substantive meeting, Brazil wrote:

“The only US domestic support measures that Brazil is aware of that would meet the
test of being ‘support to upland cotton’ are those that it listed for purposes of
calculating the level of support in its First Written Submission. In the view of Brazil,

1 Brazil’s Comments on US 3 March 2004 Data (10 March 2004) (“Brazil’s 10 March Comments”).
2 Comments of the United States of America on the Comments of Brazil to US Data Submitted on 18
and 19 December 2003 (11 February 2004) (“US 11 February Comments”).
3 Comments of the United States of America on the 18 February 2004, Comments of Brazil
(3 March 2004) (“US 3 March Comments”).
4 Agreement on Agriculture, Article 13 (“Agreement on Agriculture”).
5 Brazil’s 10 March Comments, paras. 2-3.

these non-green box domestic support measur es are the measures that constitute
‘support to’ upland cotton for the purpose of Article 13(b).”
6
The decoupled measures listed in Brazil’s first written submission (paragraphs 144, 148, and 149)
were all production flexibility contract payments, market loss assistance payments, direct payments,
and counter-cyclical payments for upland cotton base acres only . Thus, “in the view of Brazil” as of
the first session of the first substantive meeting, onl y these payments were within the Panel’s terms of
reference.7

5. Second
, in response to US criticisms, Brazil realized that, on its own terms, the theory that all
payments for upland cotton base acres were “support to upland cotton” was not tenable. Brazil’s
theory ignored the fact that th ere were fewer acres planted to upland cotton than there were upland
cotton base acres, suggesting that payment recipients utilized planting flexibility to plant other crops
or nothing at all.

Thus, following the first session of the first panel meeting, Brazil introduced the so-
called 14/16th methodology, which adjusted total expenditures for upland cotton base
acres “by the ratio of upland cotton base acres actually planted.” In Brazil’s words,
“only the portion of upland cotton [base] pa yments that actually benefits acres
planted to upland cotton can be considered support to upland cotton.”
8
That is, Brazil amended its theory, arguing that a ll upland cotton was planted “on” upland cotton base
acres.

6. Third , under Brazil’s fallacious argument that r eceipt of decoupled payments was necessary
for upland cotton producers to cover their costs, Brazil acknowledged that it was not “necessary” that
upland cotton be planted on upland cotton base acres – that is, rice and peanuts base acreage also
received payments that would allow these alleged cost s to be covered. However, Brazil argued that
the facts did not support the notion that upland co tton was “planted on” rice or peanuts base acreage.9
Rather, through the second session of the Panel’s first substantive meeting (that is, after the Peace
Clause phase of the dispute had concluded), Brazil continued to insist that “at a minimum a significant
majority of upland cotton farmers in MY 2002 were farming on upland cotton base acres.”
10

7. Fourth
, however, even Brazil’s own evidence indicated that not all upland cotton was planted
“on” upland cotton base acres. For example, as a result of pest eradication and adoption of
biotechnology, significant acres in the US Southeast previously planted to peanuts, corn, and other
crops were newly being planted to upland cotton. 11 Thus, Brazil altered its theory again and argued
that “Brazil’s methodology assumes that US producers of upland cotton grew upland cotton on upland
cotton base acreage,” which is “a reasonable proxy, because there will be some upland cotton that is
grown on rice (and peanut) base receiving higher paym ents, and some upland cotton that is grown on,
e.g., corn base receiving somewhat lower payments. On average, Brazil’s approach would roughly
cancel out the over-counting of rice and peanut pa yments and the under-counting of corn and any
other lower-paying programme crop payments.”12

6 Brazil’s Answer to Question 41 from the Panel, para. 58 (footnote omitted; italics added).
7 See US Comment on Brazil’s Answer to Question 204 from the Panel, paras. 36-39 (providing
additional citations) (28 January 2004).
8 Brazil’s Answer to Question 67 from the Panel, para. 130 (table fn. 2-5) (11 August 2003).
9 See, e.g., Brazil’s Rebuttal Submission, para. 32, 38 (22 August 2003).
11 See Brazil’s Answer to Question 125(7), para. 38 (27 October 2003) (“Testimony from NCC
representatives indicated that a number of producers in the south-eastern part of the United States grew upland
cotton on corn base acreage during MY1999-2001.”) (footnote omitted).
12 Brazil’s Answer to Question 125(8), para. 40 (27 October 2003).

8. Fifth , Brazil suggested in its further rebuttal submission of 18 November 2003, that “the
United States has refused to generate informati on regarding how much and which of the contract
payment base acreage was planted to upland cotton.”13 However, Brazil nowhere explained how such
an analysis of “how much and which of the c ontract payment base acreage was planted to upland
cotton” could be done. In fact, Brazil suggested that the Panel should request the United States to
produce information and that “Brazil would be pleased to provide the Panel with a precise list of
parameters and questions that should be answered in any such analysis.”14
9. Brazil, however, did not provide any such “pr ecise list of parameters and questions” until the
second panel meeting in December 2003. While Br azil requested certain information through its
request in Exhibit BRA-369, Brazil did not explain to the Panel or the United States how it proposed
to determine the amount of upland cotton acreage “planted on” base acreage for any particular
commodity. Indeed, the Panel was compelled on 12 January 2004, to ask Brazil to “submit a detailed
explanation of the method by which one could cal culate total expenditures to producers of upland
cotton under the four relevant programmes on the basis of the data which it seeks.”15
10. Sixth , Brazil put forward on 20 January 2004, for the first time its allocation methodology –
that is, after further rebuttal submissions had been filed and as the “serious prejudice” phase (and
indeed the dispute settlement proceeding) was conc luding. Here, Brazil se t out its notion of under-
and over-planting of programme crop base acreag e, which the United States has criticized and
rebutted in a series of filings over the last month.
11. Seventh , however, Brazil did not stop there. On 28 January 2004, in its comments on the US
18 and 19 December 2003, data (the comments that we re to have been filed on 20 January), Brazil set
forth yet another in-the-alternative methodology, a pur ported application of that December data to the
Subsidies Agreement Annex IV methodology.16
12. Eighth , Brazil put forward on 18 February 2004 – that is, in its last substantive filing in this
dispute – two more in-the-alternative methodologies to calcu late the alleged support to upland cotton
from decoupled payments. First, it explained a cotton-to-cotton methodology 17 under which only
decoupled payments for upland cotton base acres would be deemed support to upland cotton. Second,
it introduced a “modified (programme crop only) annex IV methodology” 18 under which decoupled
payments would be allocated only to programme crops in the proportions to which they contributed to
the value of programme crop production on a farm.
13. Given this never-ending stream of theories of how and to what extent decoupled income
support payments could be support to upland cotton, it would appear that Brazil has made any
argument that suited its immediate needs to maximize the purported support to upland cotton. There
can be no question that Brazil’s incessant in-the -alternative argumentation has prejudiced the
United States by significantly increasing the burden in evaluating and responding to Brazil’s theories.
14. Brazil has argued that “[w]ithout farm-specific da ta, there [was] no basis to develop, let alone
apply, Brazil’s methodology. Brazil could only deve lop a methodology to apply to actual data when

13 Brazil’s Further Rebuttal Submission, para. 50.
14 Brazil’s Further Rebuttal Submission, para. 48 (italics added).
15 Panel Communication of January 12, 2004 (Question 258).
16 The United States has elsewhere explained th at Brazil has not brough t forward evidence and
arguments to allow the Annex IV methodology to be applied for purposes of its subsidies claims. See, e.g., US
3 March Comments, paras. 29-35, 45-56.
17 Brazil’s 18 February Comments, para. 46 (“Brazil first presents the results of using a slight variation
of Brazil’s methodology.”).
18 Brazil’s 18 February Comments, para. 50 (“Brazil also applied the revised US summary data to a
modified ‘Annex IV’ methodology allocating total contract payments to farms producing upland cotton over the
value of contract payment crops produced on these farms.”).

it received the EWG data in mid-November, and wh en it then sought farm-specific data from the
United States.”
19 In this statement, however, Brazil c oncedes that it had not developed – because,
allegedly, “there [was] no basis to develop” – its methodology until, at the earliest, mid-
November 2003.

• It is simply incredible to read that a comp laining party should have chosen to challenge
payments which, on their face, are not product- specific support to upland cotton, yet not have
developed a methodology to determine the am ount of the payments it would consider
“support to [that] specific commodity” until at least 6 months into the dispute.

• That is, it is rather startling that Brazil, as th e complaining party, began this dispute without
the evidence, or even the legal theory, necessary to sustain its assertions.

Further, we note that, even if Brazil had developed its methodology in mid-November, it did not
choose to put this methodology forward until 20 January 2004 (eight months into this dispute), in
response to the Panel’s Question 258.

15. It is precisely this long delay in developing its Peace Clause arguments that led Brazil first to
focus solely on payments for upla nd cotton base acres, and then only six months or more into the
dispute to seek to bring in payments for non-upl and cotton base acres. As the United States has
argued, Brazil did not identify these payments that are not within the Panel’s terms of reference
20 and
which, if included in this dispute, would prejudice US rights of defence. 21 Furthermore, that Brazil
had not crafted its methodology for Peace Clause purpo ses until six or eight months into this dispute
undermines Brazil’s Peace Clause interpretation: that is, Brazil has cast and recast its Peace Clause
theories in order to find a theory that would r esult in US support exceeding the 1992 level. As the
United States has demonstrated, however, non-product-specific support (whether green box or not)
cannot be allocated as “support to a specific commodity” within the ordinary meaning of that phrase
and as defined in Article 1(a) of the Agreement on Agriculture.
22 Thus, there is no basis to allocated
decoupled income support payments to upland cotto n for purposes of Peace Clause. Brazil various
theories also rely on a “budgetary outlays” approach , which, for all the reasons the United States has
explained previously, is not found in the Peace Cl ause text and is the wrong approach for Peace
Clause purposes.

Brazil’s Attempt to Resurrect a Basis for the Use of Adverse Inferences Is Unsustainable

16. After stating that the US 3 March data “is the best information available before the Panel” and
that “the United States appears to have provided complete summary base and complete summary
planted data covering all crops for which data was re quested by the Panel and all farms covered by
the Panel’s request,”
23 Brazil nonetheless faults the United States for “certain problems” with the data
and argues, in the alternative, that the alleged US “refusal” to provide certain data “would permit the
Panel to draw the adverse inferences that this da ta – if produced – woul d have shown even higher
payments being allocated to upland cotton.” 24 Brazil’s effort to resuscitate its request for “adverse
inferences” to be drawn is misguided. First, in its 13 February letter, Brazil stated that “by producing
the complete aggregated information, there would no longer be a need to draw adverse inferences.” 25
As noted, Brazil has in its 10 March comments stat ed that the United States has produced “complete

20 US 11 February Comments, paras. 47-50.
21 See US Comments on Brazil’s Answer to Question 204 from the Panel, paras. 34-42
(28 January 2004).
22 See, e.g., US 3 March Comments, paras. 3-16.
23 Brazil’s 10 March Comments, paras. 3-4 (italics added).
24 Brazil’s 10 March Comments, para. 10 fn. 14.
25 Brazil 13 February 2004, Letter to the Panel, at 5.

summary base and complete summary planted data covering all crops for which data was requested by
the Panel and all farms covered by the Panel’s request.” Therefor e, Brazil has implicitly conceded
that there is no basis to draw adverse inferences, and its suggestion otherwise is yet another in-the-
alternative argument that only serves to add needlessly to the complexity of this dispute.

17. This conclusion is confirmed by examining th e data that the United States allegedly “refused”
to provide. First, Brazil faults the United States for providing data with respect to farms that had
upland cotton base acres but planted no upland cotton within Category A. 26 We note that the Panel’s
supplementary request for information asked for information on farms with “fewer upland cotton
planted acres than upland cotton base acres, or equal numbers of each,” 27 which does not exclude
farms with no planted acres from its ambit. Indeed, as Brazil points out, on 28 January 2004, and on
19 December 2003, the United States had provided pl anted and base acreage information relating to
(1) farms that both planted upland cotton and had upl and cotton base acres and (2) farms that did not
plant upland cotton and had upland cotton base acres. 28 It is not apparent from the text of item (b) of
the Panel’s supplementary request for information that the Panel was seeki ng the same information
that had previously been provided. Because th e United States provided the information requested
under item (b) with respect to Category A farms, th ere is no basis for any adverse inference to be
drawn.

18. Second, Brazil argues that the US 3 March data “does not provide contract payment yield or
payment[] units.” However, Brazil itself immediately concedes that “the Panel’s 3 February 2004
Request does not ask for this information.”
29 Thus, as the payment yield information was not
requested by the Panel, the United States could not have refused to provide it, and there is no basis for
any adverse inference to be drawn.30

19. Third, Brazil states that “the United States did not produce any information that would allow
the calculation of ‘producer-based’ soybean market loss assistance [that is, “oilseed payments” for
soybean producers
31] and peanut direct and counter-cyclical payments received by producers
operating upland cotton farms.”32 However, Brazil does not contest that these payments were made to
producers and that there were no base acres for the se payments on any farms for the relevant years
(soybeans in 1999 and 2000, peanuts in 2002). Th e United States recalls that the Panel’s
supplementary request for information related to “farms” with upland cotton base acres and/or upland
cotton planted acres. 33 Thus, the Panel’s request did not ask for “payments received by producers

26 Given Brazil’s repeated complaints in this dispute, it is ironic that Brazil now, in effect, complains
that the United States has provided too much information.
27 Panel’s Supplementary Request for Information, item (b) (3 February 2004).
28 Brazil’s 10 March Comments, para. 6 & fn. 5.
30 Brazil’s comment that the United States should have provided information on payment units in
“good faith” as it did in its data submissions of 18 and 19 December 2004, and 28 January 2004, fails to
mention that Brazil’s request for data specifically asked for contract yields to be provided. Exhibit BRA-369
(second paragraph, fourth bullet: requesting “payment yield for each programme crop”) (3 December 2003).
The United States has responded to all requests for data in this dispute in “good faith” by providing all the data
(within the limits of US law) requested.
31 See, e.g., Response of the United States of America to the Panel’s 3 February 2004, Data Request, As
Clarified on 16 February 2004, paras. 10-13.
33 See Panel’s Supplementary Request for Information, item (b) (first solid bullet: “How many farms
had fewer upland cotton planted acres than upland cotton base acres, or equal numbers of each? We refer to
these as ‘Category A’ farms.”; second solid bullet: “How many farms had more upland cotton planted acres than
upland cotton base acres? We refer to these as ‘Categor y B’ farms.”; third solid bullet: “How many farms had
upland cotton planted acres but no upland cotton base acres? We refer to these as ‘Category C’ farms.”)
(3 February 2004).

operating upland cotton farms,” and there is no basis to draw an adverse inference from an alleged
“failure” to provide information not requested.

20. In sum, Brazil’s in-the-alternative renewe d request concerning adverse inferences has no
basis in fact; either the Panel’s supplementary request for information did not request the information
or the United States properly responded to the request as drafted. Furthermore, to the extent that
Brazil argues that the contract payment yield data or soybeans or peanuts payments received by
producers operating upland cotton farms were “nece ssary” for its Peace Clause analysis, this would
demonstrate not that any adverse inference should be drawn but rather that Brazil, as the complaining
party bearing the burden of proof, has failed to bring forth evidence to make a prima facie case.

Brazil’s Allocation Methodologies Are Irrelevant for Peace Clause Purposes and, in any event,
Continue to Suffer from Conceptual and Methodological Flaws

21. The United States has set forth in other comments the reasons that no allocation methodology
may be employed for purposes of a Peace Clause analysis since the only relevant support is “support
to a specific commodity” – that is, “assistance” or “backing” “specially pertaining to a particular”
“agricultural crop” (in the ordinary meaning of th e terms) or “support . . . provided for a basic
agricultural product in favour of the producers of th e basic agricultural product” (read in the context
of the definition of product-specific support in Article 1(a) of the Agreement on Agriculture).
34

22. Further, we have explained that for pur poses of Brazil’s serious prejudice claims, the
Annex IV methodology35 would be necessary to identify the s ubsidy benefit and subsidized product
for each of the challenged decoupled income suppor t measures – and Brazil has not brought forward
evidence and arguments to allow the Annex IV methodology to be used.36

23. Finally, we have previously presen ted comments on each of Brazil’s allocation
methodologies.37 As the calculations in Brazil’s 10 Marc h Comments are substantially similar to
those it set out earlier, our comments on Brazil’s new calculations are limited but also substantially
similar to those we have previously provided. In particular, we note that Brazil has simply ignored
the US criticisms of its pseudo-“Annex IV” me thodology and excluded any sales from fruits and
vegetables production, non-crop on-farm activities, and all other off-farm economic activity.

Cotton-to-Cotton Methodology

24. The United States has previously set out its criticism of this methodology, under which
decoupled payments for upland cotton base acres on a fa rm that are equal to or less than the number
of upland cotton planted acres are deemed to be support to upland cotton. Indeed, Brazil has never
responded to the US explanation that “there are no physical ‘base acres’ on a farm. Crop base acres
are an accounting fiction that do not represent any particular acres on a farm.”
38 Thus, the very notion
that base acres are “planted to” any particular crop (or, conversely, that a crop is “planted on” any
particular base acre) is illusory.

25. We do note that the application of this err oneous methodology to the 3 March data does result
in significant downwards revisions in the calcula tions Brazil previously presented, ranging from
$58 million (MY2001 PFC) to $122 million (MY2002 CCP).
39

34 See US 3 March Comments, paras. 3-16; US 11 February Comments, paras. 7-14.
35 Agreement on Subsidies and Countervailing Measures , Annex IV, paras. 2-3 (“Subsidies
Agreement”).
36 See, e.g., US 3 March Comments, paras. 29-35; US 11 February Comments, paras. 18-21.
37 See, e.g., US 3 March Comments, paras. 36-56; US 11 February Comments, paras. 35-60.
38 See, e.g., US 3 March Comments, paras. 37-38.
39 Compare Brazil’s 10 March Comments, para. 15 with Brazil’s 18 February Comments, para. 47.

Brazil’s Methodology

26. Again, the United States has previously set out at length its criticisms of Brazil’s
methodology. The inconsistencies and logical flaws in this methodology are striking and demonstrate
the post hoc nature of Brazil’s attempt to force an al location methodology onto decoupled payments.
For example:

• There is no physical or economic basis to consid er that decoupled payments for base acres of
a crop are support to current production of that crop or to other (underplanted) programme
crops. Base acres are not physical acres and are not “planted to” anything. A decoupled
income support recipient may produce no, one, or multiple products; since money is fungible,
those payments in economic terms (but not for purposes of Peace Clause) may be attributed to
all (if any) of the recipient’s sales.

• Brazil has never examined whether decoupled payments for non-upland cotton base acres
“support or maintain” the production of those non-upland cotton programme crops – and thus
has demonstrated no basis (on its own theory) for allocating such payments to those crops
first.

• Brazil argues that base acres are “planted to” a particular commodity, one-for-one, but has no
explanation for how an upland cotton planted acr e can also be deemed to be “planted on”
multiple base acres at once, as occurs wh en “underplanted” base acres are totalled and
allocated proportionally to all “excess” planted acres (including cotton).40

• Brazil has never provided any logical expl anation for why decoupled income support
payments would be attributed to programme crops but not to other crops or other on-farm or
off-farm economic activities (as economics and th e Annex IV methodology would suggest is
necessary).

• Neither has Brazil attempted to apply its own rationale that decoupled payments are “support
to a specific commodity” when such paymen ts “cover (or contribute to) the costs of
production” of that commodity 41 to any other product produced by payment recipients, thus
invalidating its own methodology, under which pa yments for base acreage is first support to
the crop to which the acreage corresponds and then to other programme crops. Using Brazil’s
own “cost of production” principle, there is no basis to assert that order of analysis since
Brazil has presented no evidence that such paym ents “cover (or contribute to) the costs of
production” of those commodities but not others.

The United States has explored at some length th ese and other logical inconsistencies in Brazil’s
purported methodology for allocating decoupled payments to particular commodities. Although there
is no basis in the Peace Clause to allocate non-product-specific support as support to a specific

40 For example, in Exhibit BRA-433, Brazil presents calculations for allocating payments under its
methodology for the different categories of farms set out in the Panel’s supplementary request for information.
For marketing year 2002, Category B2 farms planted 2,703,663 acres of cotton and had 2,035,335 base acres of
cotton. Thus, Brazil calculates that there were 668,329 overplanted cotton acres eligible for allocated payments.
Base acreage for other programme crops for Category B2 farms exceeded planted acreage for those crops by
1,197,785 acres, and no other programme crop was planted in excess of its base acreage. Thus, Brazil allocated
the total payments “free to be allo cated” ($21,290,090) from the non-up land cotton base acreage entirely to
upland cotton. This means that the 668,329 overplanted cotton acres were “planted on” 1,197,785 “excess” base
acres for other programme crops, or each “excess” acre of cotton was “planted on” 1.79 non-upland cotton base
acres.

commodity, we nonetheless invite the Panel to consider these reasons why Brazil’s methodology
cannot serve as a neutral means to allocate decoupled payments.
42

27. We also pause to recall that one of Brazil’ s primary responses to the US criticism that its
methodology would result in different subsidiza tion rates for upland cotton on a single farm and
would result in the allocation of multiple non-up land cotton base acres per cotton planted acre was
that “both of these alleged problems . . . do not exist from MY 2002. This is because Brazil’s
methodology allocates for each planted acre[] of upl and cotton only one upland cotton base acre.”
Brazil then went on to suggest that because in MY 2002 greater than 99 per cent of direct and counter-
cyclical payments received by upland cotton producers were for upland cotton base acres and because
upland cotton base exceeded upland cotton planted acreag e, “the two main US criticisms affect . . . at
most, 0.9 per cent of the payments at issue for MY 2002.”
43

28. However, Brazil’s 10 March comments tell quite a different story. There, Brazil calculates
“the amount of upland cotton planted acres for wh ich there exists a corresponding upland cotton base
acre [by] farm category.”
44 The percentage of upland cotton planted acreage for which an upland
cotton base acre exists is 72.87 per cent in mark eting year 1999, 70.03 per cent in marketing year
2000, 68.06 per cent in marketing year 2001, and 84.33 per cent in marketing year 2002.

• That is, in any given year, approximately 15 to 22 per cent of upland cotton planted acres –
between 2.1 million and 4.9 million acres – were allocated payments for non-upland cotton
base acres and would be subject to the US criticisms dismissed by Brazil as de minimis .
Brazil simply ignores this issue in its 10 March comments.

Furthermore, we recall that Brazil stated that “[a]s for some of the US criticisms that might affect the
results (except for MY2002), Brazil will control for these effects once the United States provides
aggregate data in the manner requested by the Panel.”
45 The United States is not aware of any explicit
recognition by Brazil of “US criticisms that might a ffect the results” nor any effort by Brazil in its
10 March comments to “control for these effects.”

29. Finally, we note that the application of Br azil’s erroneous methodology to the 3 March data
again results in significant downwards revisions in the calculations Brazil previously presented,
ranging from approximately $43 million (MY2001 PFC) to $120 million (MY2002 CCP).
46

Modified US Annex IV methodology

30. Brazil presents largely unchanged “modified Annex IV” calculations, for example, excluding
both soybeans (marketing years 1999 and 2000) and peanuts (marketing year 2002) as a programme
crop.47 Under this “modified Annex IV” methodology, Brazil allocated total contract payments to

42 See US 3 March Comments, paras. 37-44; US 11 February Comments, paras. 35-43; US Comments
to Brazil’s Answer to Question 258 from the Panel, paras. 207-29 (28 January 2004).
46 Compare Brazil’s 10 March Comments, para. 19 with Brazil’s 18 February Comments, para. 49.
47 We note that the rice prices us ed by Brazil in its calculations in Exhibit BRA-434 are incorrect.
Brazil has mistakenly divided the average rice farm pr ice, reported in dollars per hundredweight (i.e.,
100 pounds), by 220.46 instead of by 100 to obtain a price expressed in dollars per pound.

upland cotton “according to the share of upland cotton crop value of the total value of contract
payment crop production.”48 Thus, the US view of this “modified” methodology remains unchanged:
Brazil’s approach is fundamentally inconsistent with Annex IV, paragraph 2, under which the subsidy
is allocated over “the total value of the recipient firm’s sales.” Furthermore, there is no plausible
basis to maintain that decoupled income support payments are support only to contract payment crops.
Brazil also improperly includes the total value of contract payments in its calculation when only
payments for upland cotton base acres are within the scope of this dispute.
“US Annex IV Methodology”
31. Brazil offers no new analysis in its 10 Ma rch comments but just repeats the calculations
presented in its 18 February filing. Thus, Brazil’ s “US Annex IV methodology” does not reflect the
“US” interpretation of Annex IV, wh ich is based on the text of Annex IV. That text establishes that,
if a payment is not “tied to the production or sale of a given product,” the subsidized product is all of
the recipient firm’s sales, and the subsidy for any one product is that product’s share of “the total
value of the recipient firm’s sales.”49 Brazil does not use “the total value of the recipient firm’s sales”
in its “US Annex IV calculation” and does not even attempt to calculate total sales of upland cotton
producers.
32. Because Brazil reiterates its 18 February cal culations, Brazil’s 10 March calculations are
similarly flawed. First, Brazil errs by omitting the value of fruits and vege tables in calculating the
total value of non-programme crop production. As th e US 3 3 March data shows, in marketing year
2002 alone, 1.2 million acres were planted to fruits and vegetables on farms that reported cotton base
acreage.50 As pointed out in the US comments of 11 February, 51 excluding fruits and vegetables
biases significantly downward the value of non- programme crop acreage. For example, the
United States estimated the per-acre value of non-programme crops including fruits and vegetables
was estimated at $28152 for 2002 – that is, 138 per cent higher than the $118 per acre Brazil calculated
when fruits and vegetables are excluded.53
33. Brazil suggests that it was not able to make any adjustment to its calculations because of its
inability to separate those farms with no planted acres of cotton from Category A. However, Brazil
does not explain why it was unable to use the actual planted acreage data, including that for fruits and
vegetables, for Category B farms. 54 Nor does Brazil explain why it was unable to use the state-by-
state information on plantings to make any adjustme nt to its use of “the average per-acre value of
production of non-programme crops in that marketing year in the entire United States.”55

 Brazil 1/ WASDE 2/
MY1999 $0.027 $0.0593
MY2000 $0.025 $0.0561
MY2001 $0.019 $0.0425
MY2002 $0.019 $0.0449
 1/ Exhibit BRA-434
2/ World Agricultural Supply and Demand Estimates, available at:
 http://www.usda.gov/agency/oce/waob/wasde/wasde.htm.
49 Subsidies Agreement, Annex IV, paras. 2-3.
50 See file “DCP02-2W.xls” (“Grand Total (Farms A - C)” row).
52 See Exhibit US-154.
53 Brazil’s 18 February Comments, Annex A, Table 4.5.
54 Category C farms had no upland cotton base acres and thus received no d ecoupled payments within
the scope of this dispute. To the extent Brazil disagr ees, however, the same criticism of Brazil’s failure to use
the actual planted acreage data applies.
55 Brazil’s 28 January Data Comments, para. 90 (italics added).

34. Further, Brazil has not taken any account of the value of on-farm production other than crops,
and has presented no data that would allow that cal culation to be made. Again, the 1997 ARMS
cotton costs of production survey suggested that, had Brazil taken into account the value of non-crop
on-farm production, the share of cotton as a per cent of total farm sales would be lower still. For
1997, when the value of cotton was high, the 1997 ARMS cotton costs of production survey reported
that cotton accounted for only 44.5 per cent of the total value of agricultural production on cotton
farms.
56

35. Brazil also fails to include off-farm economic activity, which can be substantial, in its
calculation. Annex IV, paragraph 2, establishes that the non-tied subsidy is allocated over “the total
value of the recipient firm’s sales,” not merely its farm sales. As we have previously noted, cotton
operations earn almost 30 per cent of income from off-farm sources.
57

36. Finally, Brazil continues not to make any adju stment for the fact that landowners capture the
subsidy benefit of payments on rented acres. As the United States has noted, Brazil has previously
conceded that, as of marketing year 1997, 34 to 41 cents per dollar of production flexibility contract
payments were capitalized into land rent.
58 Furthermore, certain missing pages from Exhibit BRA-
276 report that, during 1998-2000, the capture by landowners through increased rent of production
flexibility contract payments increased to an estimated average of 81 to 83 per cent. 59 Thus, Brazil’s
own evidence does not support its decision not to adjust the subsidy benefit to upland cotton
producers downwards to reflect the two-thirds of cotton acres that are rented by producers, not owned.

Conclusion: Brazil Can Only Prevail on the Peac e Clause Under an Incorrect Interpretation of
the Peace Clause

37. The United States has demonstrated that Brazil’ s reading of the Peace Clause is not tenable;
instead, Brazil invents the concept that non-produc t-specific support must be allocated to specific
commodities. This concept runs directly contrary to the ordinary meaning of the Peace Clause text
and directly contrary to its context, including the fundamental separation of product-specific and non-
product-specific support in the Agreement on Agriculture.

38. The United States has also demonstrated that Brazil’s approach to its “serious prejudice”
claims is misguided. As mentioned previously, Brazil’s notion that “the effect of the subsidy” may be
analyzed without knowing the amount of the challenged subsidy is akin to saying that “the effect of
eating” may be determined without knowing how much is being eaten.
60 Of course, to determine “the
effect of eating” one must also determine “wha t” is being eaten (in addition to “how much”);
similarly, “the effect of the subsidy” will depend on the nature of the challenged subsidy.61 Thus, the
United States believes that Brazil has failed to make a prima facie case with respect to decoupled
income support payments (direct and counter-cyclical payments) 62 under its serious prejudice claims
because it has not identified either the subsidy benefit or the subsidized product(s) using the Annex IV

58 Brazil’s Answer to Question 179 from the Panel, para. 165 (27 October 2003); Brazil’s Opening
Statement at the Second Panel Meeting, para. 57.
59 US 3 March Comments, paras. 52-54; Exhibit US-155, at 106.
61 See Subsidies Agreement, Article 7. 2 (request for consultations under Article 7.1 “shall include a
statement of available evidence with regard to (a) the existence and nature of the subsidy in question”) (italics
added).
62 Only direct and counter-cyclical payments were measures in existence at the time the Panel was
established during marketing year 2002. Both produc tion flexibility contract payments and market loss
assistance payments were recurring subsidies paid with respect to past production that had terminated by the
time of the panel request and panel establishment.

methodology. In addition, Brazil has failed to establish that the effect of these challenged payments is
“serious prejudice”; to the contrary, the United St ates has demonstrated that the effect of these
decoupled measures is no more than minimal.63

39. Finally, the United States has demonstrated that using any measurement that reflects the
support “decided” by the United States – rather than factors (such as market prices) beyond the
United States’ control – US support to upland cott on in marketing years 1999-2002 has not exceeded
the 1992 marketing year level.
64 Brazil’s proposed approach suffers from the key flaws (among
others) that it relies on the argument that:

 (1) budgetary outlays must be used, desp ite the fact that the United States never
“decided” an expenditure level (a point confirmed by Brazil’s own reliance on the
marketing loan rate and counter-cycli cal target price for purposes of its per se and
threat of serious prejudice claims
65); and

 (2) decoupled income support measures – the green box direct payments and the non-
product-specific counter-cyclical payments66 – can and must be allocated as “support
to a specific commodity,” despite the ordinary meaning of those terms in their context
in the Agreement on Agriculture.

40. That both of these conditions must be met is evident if one examines the four tables setting
out Brazil’s Peace Clause comparisons.
67

• For example, even using budgetary outlays, if decoupled income support payments are
removed from Brazil’s Peace Clause comparisons, US measures did not breach the Peace
Clause in marketing years 2002 and 2000 . The 1992 support would be $2,117.0 million, and
the 2002 and 2000 levels would be $1,557.1 million and $1,218.7 million, respectively.68

• On the other hand, even if decoupled income support measures were a llocated according to
any of Brazil’s four erroneous methodologies, US measures did not breach the Peace Clause
in marketing year 2001 if a price-gap calculation is used in place of outlays for marketing
loan payments. A price-gap calculation eliminates the effect of market prices on the support

63 See, e.g., US Comments on Brazil’s Comments on US Comments Concerning Brazil’s Econometric
Model, paras. 4-9 (28 January 2004).
64 See, e.g., US 11 February Comments, paras. 15-17.
65 See Brazil’s Further Submission, para. 432 (“The existence of the 72.4 cents per pound support price
under the 2002 FSRI Act alone causes production-enhancing and price-suppressing effects. The single fact that
these programmes exist ensures a guaranteed revenue amount from the production of upland cotton. This
revenue floor is a guaranteed entitlement. That guaranteed revenue floor has the effect of removing any
uncertainty and risk about the revenue farmers will receive for the crop. It means that regardless of the actual
price development during the marketing year, a farmer kn ows that he or she will rece ive at the very least the
loan rate for their product, plus price-triggered revenue support granted by the CCP programme.”).
66 Were the Panel to examine the terminated payments prior to the 2002 Farm Act, production
flexibility contract payments would be green box, and the market loss assistance payments would be non-
product-specific, as notified to the WTO.
67 Brazil’s 10 March Comments, paras. 35-38.
68 See Brazil’s 10 March Comments, paras. 35, 37. This calculation ignores the inappropriate inclusion
of crop insurance payments (non-product-specific), cottonseed payments (not in existence at time of panel
establishment), and “other payments” (not identified in Pa nel request). We also note that the marketing year
1999 budgetary outlay level would be $2,431.6 million if decoupled support is excluded. Brazil has alleged that
some portion of Step 2 payments are prohibited export subsidies, rather than domestic support, and the
United States has argued that “other payments” are not within the Panel’s terms of reference. The Panel’s view
of these issues could result in the 1999 budgetary outlay level too being below the 1992 level.

provided.
69 US measures conform to the Peace Cl ause in marketing year 2001 under two
different Brazilian allocation methodologies if a price-gap calculation is used.70

• Indeed, even without making any changes to Brazil’s data, under two of its current
“reasonable” methodologies, US measures did not breach the Peace Clause in 2000, the year
with the highest market prices and therefore the lowest marketing loan payments.71

41. The United States believes that a proper inte rpretation and application of the Peace Clause
must reflect the way in which the United States “decided” support in marketing years 1992 and 2002
72
– and, in the case of US measures, the support to upland cotton as “decided” was a rate of support.
However, the United States has demonstrated that even an AMS calculation that reflects the support
decided by the United States rather than market prices beyond our control would also demonstrate that
US measures conform to the Peace Clause. Br azil’s revised budgetary outlay calculations also
support this view.

• If neither condition set out above is met – th at is, decoupled income support measures are
properly excluded from the Peace Clause analysis and price-based marketing loan payments
are calculated using a price-gap methodology – US measures did not breach the Peace Clause
in any marketing year between 1999 and 2002.

• Support in marketing year 1992 would be $1,384 million,
73 well above the revised support
levels are $659.1 million for marketing year 2002, $458.9 million for marketing year 2001,
$582.7 million for marketing year 2000, and $670.6 million for marketing year 1999.74

• Again, these lower levels of support “decided” in recent years reflects the United States’
decision after the Uruguay Round to move away from the product-specific deficiency
payments with high target prices and instead to supplement producer income with a mix of
decoupled income supports that are green box (direct payments) or non-product-specific
(counter-cyclical payments).

69 See US Rebuttal Submission, paras. 114-17. By holding the external reference price fixed, support
measured using a price-gap calculati on shows the effect of changes in the level of support (the applied
administered price) decided by the United States, rather than changes in outlays that may result from forces
beyond our control, such as market prices.
70 For marketing year 2001, support measured usin g a price-gap calculation for price-based measures
and budgetary expenditures for other payments results in $1,251 million. For methodologies (1) (“cotton-to-
cotton”) and (4) (“US Annex IV methodology”), support was $1,240.9 million and $1,183.8 million. Again,
these calculations do not remove crop insurance payments (non-product-specific), any portion of “Step 2"
payments, or “other payments” (not within the scope of the dispute).
71 Brazil’s 10 March Comments, para. 37 (1992 budgetary outlays were $2,117.0 million; 2000 outlays
under the cotton-to-cotton methodology were $2,068.8 million; 2000 outlays under the “US Annex IV
Methodology” were $2,112.6 million).
72 The measures (subsidies) provided with respect to marketing years 1999-2001 were no longer in
existence at the time of Brazil’s panel request and panel establishment. To the extent the Panel were to examine
these measures, however, the same analysis would apply.
73 This figure uses the same $1,017.4 expenditure amount that Brazil used for deficiency payments.
This figure is not markedly different from the $1,009 price-gap figure calculated by the United States using
eligible acreage, but even if actual payment acreage we re used, the price-gap payment total would be $867
million. US Comments on New Material in Brazil’s Rebuttal Filings, para. 8 (27 August 2003). Thus, the 1992
level of support would still be higher than in marketing years 1999-2002.
74 These revised figures exclude decoupled payments and use the price-gap calculation for marketing
loan payments, which results in a zero level of support since the marketing loan rate was below the fixed
reference price. See US Rebuttal Submission, para. 117 & fn. 148 (22 August 2003). However, these revised
figures do not even remove crop insurance payments (non-product-specific), any portion of “Step 2" payments
(which Brazil alleges are, in part, prohibited export subsidies), or “other payments” (not within the scope of the
dispute).

42. Were the Panel to reach the question of serious prejudice or threat thereof, the United States
has demonstrated that Brazil has not made a prima facie case that the challenged US measures have
had that effect. However, the Panel should not ev en reach that question as the facts demonstrate that
the United States has disciplined itself to grant s upport not in excess of that decided during the 1992
marketing year. Brazil must argue that non-product-specific support can be allocated as support to a
specific commodity and must argue that support “d ecided” means budgetary outlays because without
those conditions, it cannot demonstrate a Peace Cl ause breach. The United States has demonstrated,
however, that Brazil’s approach is legally unsound a nd internally inconsistent . It would, moreover,
provide no certainty for Members who seek to confor m to their WTO obligations. Brazil’s constantly
shifting methodologies reflect its desire to find an a pproach to maximize the dollars it could argue are
support to upland cotton but do not reflect the lega l texts, structure, and concepts found in the
Agreement on Agriculture and the Subsidies Agreement.