WT/DS341/R
Page B-5

ANNEX B

THIRD PARTY SUBMISSIONS

Contents / Page
Annex B-1 Executive Summary of the Third Party Submission of Canada / B-2
Annex B-2 Executive Summary of the Third Party Submission of China / B-6
Annex B-3 Executive Summary of the Third Party Submission of Japan / B-8
Annex B-4 Executive Summary of the Third Party Submission of Norway / B-13
Annex B-5 Executive Summary of the Third Party Submission of the UnitedStates / B-18
Annex B-6 Third Party Oral Statement of Canada / B-24
Annex B-7 Third Party Oral Statement of the United States / B-25

ANNEX B-1

EXECUTIVE SUMMARY OF THE THIRD PARTY

SUBMISSION OF CANADA

(21 June 2007)

I. INTRODUCTION

1. Canada considers that these proceedings raise significant systemic issues regarding countervailing investigations conducted under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). Canada's submission focuses on two issues. The first issue concerns the necessity for investigating authorities to ensure that the procedural rights of parties to the investigations are respected. The second issue relates to the necessity for a Member to demonstrate the pass through of a subsidy. That is, in circumstances where an input subsidy is received by someone other than the producer or exporter of the product under investigation, investigating authorities may not impose countervailing measures on the product unless they have demonstrated that the subsidy was passed through to the producer or exporter of the product under investigation.

II. ARGUMENT

1. Procedural Claims

2. Canada notes that, among its specific claims of violation, the European Communities (the EC) alleges several procedural violations by the Mexican investigating authority both before and during the course of the investigation. These include the failure: to afford the EC an opportunity for consultations prior to the initiation of the investigation, contrary to Article 13.1 of the SCM Agreement; to require the complainant to provide non-confidential summaries of confidential information, contrary to Article 12.4.1 of the SCM Agreement; to disclose essential facts, contrary to Article 12.8 of the SCM Agreement; and to provide a reasoned and adequate explanation of key determinations underpinning the imposition of countervailing duties.

3. Canada, and indeed the broader WTO Membership, has an overarching systemic interest in ensuring that the investigating authorities of all Members adhere to the basic requirements of due process (procedural fairness) as prescribed in the covered agreements, including the SCM Agreement. In this regard, while Canada does not intend to opine on the merits of the EC's individual claims of procedural violation, it feels compelled to raise certain concerns about the potential broader ramifications of the denial of due process in trade remedy investigations.

4. Each party to a countervail investigation (or, for that matter, an anti-dumping or safeguard investigation) is entitled to a reasonable opportunity to defend its interests. This ability depends directly upon the party having adequate knowledge of the opposing case (i.e., of the specific allegations and supporting evidence of parties adverse in interest), and being afforded a reasonable opportunity to present its own case (i.e., to present arguments and evidence in support of its own position and to rebut opposing positions). Clearly, the EC's claims of violation – if borne out – would constitute critical breaches of the basic due process requirements set out in the SCM Agreement. In this regard, if substantiated, the failure of the Mexican investigating authority to provide an opportunity for pre-initiation consultations would have deprived the EC of any prospect of influencing the initiation decision, while the authority's failures in respect of the disclosure of information in the record would have deprived the EC of adequate knowledge of the case against it. Likewise, if demonstrated, the absence of reasoned and adequate explanations of key determinations would have compromised the ability of the EC to identify and assess all potential grounds for the invocation of further related proceedings (e.g., administrative or judicial review).

2. Pass-Through

5. Canada would like to stress the importance of, when dealing with input products, conducting a pass-through analysis where circumstances require it. The necessity of a pass-through analysis flows from the GATT 1994 and the SCM Agreement and has been acknowledged by panels and the Appellate Body.

6. When conducting an investigation concerning allegedly subsidized products, a Member must establish that a subsidy exists before it may impose countervailing duties, and it may not impose such duties in an amount greater than the amount of the subsidy demonstrated to exist. Article VI:3 of the GATT 1994 sets out this fundamental obligation. The obligation to not impose countervailing measures in excess of any subsidy demonstrated to exist is reaffirmed in Article 10 of the SCM Agreement.

7. Finally, Article 32.1 of the SCM Agreement confirms that the imposition of duties is unlawful where a Member fails in this obligation. It provides that "[n]o specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement."

8. Nothing in the context or object and purpose of these provisions alters the fundamental obligation to demonstrate the existence and the amount of a subsidy with respect to a product before imposing countervailing duties on that product. This includes, in the context of an investigation concerning allegedly subsidized input products, the requirement to demonstrate that an input subsidy to an upstream recipient has been passed through to the downstream producers or exporters of the product under investigation.

9. Article 1.1 of the SCM Agreement sets out an exhaustive definition of "subsidy" that applies to this obligation. Under this provision, there is no "subsidy" when a "benefit" has not been conferred upon a recipient. The panel in US – Softwood Lumber IV, referring to the findings of the Appellate Body in Canada – Aircraft, found that the term "benefit" "implies some kind of comparison" and that the "marketplace" provides a basis for this comparison.

10. In a pass-through context, the obligation on Members is to compare the transactions in question to the marketplace to determine whether, and to what extent, a benefit under Article1.1(b) of the SCM Agreement is conferred. As explained by the panel in US – Softwood Lumber IV, the results of such analysis may not be presumed:

The heart of the pass-through issue is whether, where a subsidy is received by someone other than the producer or exporter of the product under investigation, the subsidy nevertheless can be said to have conferred benefits in respect of that product. If it is not demonstrated that there has been such a pass-through of subsidies from the subsidy recipient to the producer or exporter of the product, then it cannot be said that subsidization in respect of that product, in the sense of Article 10, footnote 36, and Article VI:3 of GATT 1994, has been found. Thus, we find that a pass-through analysis is required by these provisions … where there are such upstream transactions.

11. Accordingly, where a subsidy is received by "someone other than the producer or exporter of the product under investigation", a Member must establish whether and to what extent the benefit to an upstream recipient passes to a downstream entity through the purchase of an input product.

12. In US – Softwood Lumber IV, the Appellate Body agreed with the panel's interpretation. Drawing on the text of Article VI:3 of the GATT 1994, the Appellate Body found that a Member may not presume that a subsidy passes through transactions where "the producer of the input is not the same entity as the producer of the processed product". The Appellate Body also explained in no uncertain terms that analysis under Article 1.1(b) of the SCM Agreement is required:

Where a subsidy is conferred on input products, and the countervailing duty is imposed on processed products, the initial recipient of the subsidy and the producer of the eventually countervailed product, may not be the same. In such a case, there is a direct recipient of the benefit – the producer of the input product. When the input is subsequently processed, the producer of the processed product is an indirect recipient of the benefit – provided it can be established that the benefit flowing from the input subsidy is passed through, at least in part, to the processed product. Where the input producers and producers of the processed products operate at arm's length, the pass-through of input subsidy benefits from the direct recipients to the indirect recipients downstream cannot simply be presumed; it must be established by the investigating authority. In the absence of such analysis, it cannot be shown that the essential elements of the subsidy definition in Article 1 are present in respect of the processed product.

13. Thus, the Appellate Body and panels have stressed the importance of demonstrating that a product is subsidized before imposing countervailing duties.

14. In this case, the different steps that led from the production of olives to the exportation of olive oil and the relationships between the entities involved are not entirely clear to Canada. However, Canada observes that the EC Regulation that established the production aid scheme indicated that the subsidy was granted to olive growers, albeit on the basis of the olive oil produced from their olives. In these circumstances, it would appear to Canada that olives constitute an input product in relation to the processed product, olive oil, that is exported from the EC to Mexico.

15. Moreover, Canada notes the EC argument that the great majority of exporting EC companies had no involvement with olive growing and that their dealings were carried out entirely at arm's length.

16. Therefore, under the circumstances of this case, it appears to Canada that the subsidy was received by someone other than the producer or exporter. Accordingly, the requirement to demonstrate the pass through of a subsidy under Article VI of the GATT and Articles 10 and 32.1 of the SCM Agreement applies. So too does the reasoning of the Appellate Body in US – Softwood Lumber IV, where it stated that in such circumstances a Member may not presume that the product under investigation was subsidized; rather, a Member must demonstrate subsidization by means of a pass-through analysis.

17. Where input producers, here olive growers, and producers and/or exporters of the processed product, olive oil, operate at arm's length, the SCM Agreement requires clear evidence that input subsidy passed through to the producers of the processed product, so that there is a clear demonstration that the product against which countervailing measures are imposed is in fact subsidized.

18. Accordingly, under the circumstances of this case, the investigating authority was required to conduct a pass-through analysis to determine whether the subsidy that was granted to the olive growers benefited the producers and/or exporters of the olive oil subject to the investigation before it imposed countervailing measures to offset any such subsidization.

WT/DS341/R
Page B-7

ANNEX B-2

EXECUTIVE SUMMARY OF THE THIRD PARTY

SUBMISSION OF CHINA

(21 June 2007)

EXECUTIVE SUMMARY

China participates, as a third party, in this panel proceeding concerning the Mexico's imposition of definitive countervailing measures on imports of olive oil originating in EC. In this submission, China will briefly address three issues:

(1) Whether a Petitioner Must Have Actual Output When It Files a Petition for a Countervailing Duty Investigation?

China believes that this question requires a careful interpretation of the term producer. While EC does not explicitly state so, its argument in this proceeding is to narrow the term to actual producers who have live output. Broader reading of the term, however, may also include potential producers who are substantially committed to the production of like product.

The ordinary meaning of the text in Article 11.4 of the SCM Agreement does not provide definitive answer. The textual analysis does not either support a reading that producers may include potential producers or preclude it.

The context of the text of Article 11.4, however, warrants a broader reading of the term producer. If EC's narrow reading of the term producer were supported, no petition alleging injury in the form of retardation would have been permissible. This would undermine footnote 45 of the SCM Agreement and make the injury in the form of "retardation of the establishment of such an industry" meaningless. Accordingly, China believes that EC's narrow reading of the term producer is not warranted.

EC's own practice does not support such a narrow reading of the term producer as EC suggested in this case. In an antidumping investigation on Imports of DRAMs from Japan conducted by EC, the European investigating authority did not adopt such a narrow reading. In that proceeding, the Commission found that the community industry comprises four producers. None of them, however, had actual output when the application for investigation was filed.

(2) Whether the Domestic Industry Cannot Be "Injured" When the Petitioner Has No Actual Output during the POI-Subsidy But Had Output during the POI-Injury?

Obviously, EC's claim 2 and claim 7 are closely related. Both of them are based upon an allegation that no domestic industry of olive oil existed in Mexico. However, the time point and period for assessment of whether a domestic industry exists are different. For claim 2 (standing issue), such time point, as EC put it, is "at the time of the application." On the other hand, for claim 7 (injury issue), such time period is "during the period of investigation used for the determination of the existence and amount of subsidy."