WT/DS267/RW
Page 1
Organization
WT/DS267/RW
18 December 2007
(07-5499)
Original: English
united states – subsidies on upland cotton
Recourse to Article 21.5 of the DSU by Brazil
Report of the Panel
WT/DS267/RW
Page 1
TABLE OF CONTENTS
Page
I.introduction
II.background
III.factual aspects
A.products at issue
B.Developments concerning the measures found to be wto-inconsistent by the original panel
1.User marketing (Step 2) payments, marketing loan payments, market loss assistance payments and counter-cyclical payments
(a)User marketing (Step 2) payments
(b)Marketing loan payments
(c)Market loss assistance payments
(d)Counter-cyclical payments
2.Export credit guarantees
IV.Parties' requests for findings and recommendations
V.arguments of the parties
VI.arguments of the third parties
VII.interim review
A.changes requested by the parties regarding the "factual aspects" section of the interim report
B.changes requested by the parties with respect to the panel's description of arguments of the parties
C.requests for changes with respect to the panel's factual and legal analysis
D.editorial corrections
VIII.procedural matters
A.Request of Brazil That the Panel Exercise Its Discretion to Seek Certain Information From the United States under Article 13 of the DSU
B.Request of the United States for open hearing
C.Servicing of submissions
D.Request of the European Communities for a Finding or Ruling on the Panel's Composition
E.Least Developed Country Members
IX.general considerations and issues relating to the scope of this proceeding
A.standard of review, burden of proof and Rules of treaty interpretation
1.Standard of review
2.Burden of proof
3.Rules of treaty interpretation
B.scope of this proceeding under article 21.5 of the dsu
1.Introduction
2.Whether Brazil's claims relating to export credit guarantees for pig meat and poultry meat are outside the scope of this proceeding
(a)Main arguments of the parties
(b)Main arguments of third parties
(c)Evaluation by the Panel
3.Whether Brazil's claims with respect to the marketing loan and counter-cyclical payment programmes are outside the scope of this proceeding
(a)Whether Brazil's claims with respect to the marketing loan payment and counter-cyclical programmes are outside the scope of this proceeding because these programmes were not subject to recommendations and rulings of the DSB in the original proceeding
(i)Main arguments of the parties
(ii)Main arguments of third parties
(iii)Evaluation by the Panel
(b)Whether Brazil's claims with respect to the marketing loan and counter-cyclical payment programmes are outside the scope of this proceeding because these programmes have not been changed in response to DSB recommendations and rulings or otherwise and therefore are not "measures taken to comply" within the meaning of Article 21.5 of the DSU
4.Whether Brazil's claim regarding the failure of the United States to take measures between 22September 2005 and 31 July 2006 is outside the scope of this proceeding
(a)Main arguments of the parties
(b)Main arguments of third parties
(c)Evaluation by the Panel
5.Whether "payments" made after 21 September 2005 pursuant to the marketing loan and counter-cyclical payment programmes are within the scope of this proceeding
(a)Main arguments of the parties
(b)Evaluation by the Panel
X.FINDINGS ON brazil's claims of "present" serious prejudice under articles5(c) and 6.3 of the SCM Agreement
A.Introduction
B.brazil's claim of "present" serious prejudice within the meaning of articles 5(c) and 6.3 (c) of the scm agreement
1.Introduction – overview of the main arguments of the parties
2.Arguments of third parties
3.Preliminary considerations relating to the Panel's evaluation of Brazil's claim under Articles 5(c) and 6.3(c) of the SCM Agreement
(a)Text of legal provisions
(b)Period to be considered by the Panel
(i)Main arguments of the parties
(ii)Main arguments of third parties
(iii)Evaluation by the Panel
(c)Whether marketing loan and counter-cyclical payments are specific subsidies
(d)Magnitude of the marketing loan and counter-cyclical payments
(i)Marketing loan payments
(ii)Counter-cyclical payments
(e)Product at issue, like product, relevant "market" and "price"
(f)Significant price suppression as the effect of the subsidy
4.The alleged "substantial proportionate influence" of US upland cotton production and exports
(a)Main arguments of the parties
(b)Evaluation by the Panel
5."Structure, design and operation" of the marketing loan and counter-cyclical payments
(a)Main arguments of the parties
(b)Evaluation by the Panel
6.Alleged "large magnitude" of the marketing loan payments and counter-cyclical payments
(a)Main arguments of the parties
(b)Evaluation by the Panel
7.Alleged "link between high levels of US subsidies and high levels of US planted acreage, production and exports"
(a)Main arguments of the parties
(b)Evaluation by the Panel
8.Alleged "discernible temporal coincidence" of suppressed world market prices and large marketing loans and counter-cyclical payments
(a)Main arguments of the parties
(b)Evaluation by the Panel
9.Alleged gap between long-term costs of production and market revenues of US upland cotton producers
(a)Main arguments of the parties
(b)Evaluation by the Panel
(i)Description of the data on commodity cost and returns
(ii)Whether certain items (land, unpaid labour and capital recovery costs) should be included as variable costs
(iii)Cash or opportunity costs
(iv)Total or variable costs of production
(v)The role of off-farm income
(vi)US upland cotton producers' long-term costs of production and market revenues
(vii)Other arguments
10.The economic simulation model submitted by Brazil in this proceeding
(a)Introduction
(b)Main arguments of the parties
(i)Structure of the model
(ii)Parameters of the model
(c)Evaluation by the Panel
11.Impact of the elimination of Step 2 payments
(a)Introduction
(b)Main arguments of the parties
(c)Evaluation by the Panel
(i)Assessing the effects on US cotton exports
(ii)Indirect effect on marketing loan and counter-cyclical payments
12.Other factors impacting the world market price for upland cotton
(a)Main arguments of the parties
(b)Evaluation by the Panel
13.Summary and conclusion of the Panel's analysis of Brazil's claim of serious prejudice within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement
C.claim of brazil of "present" serious prejudice within the meaning of articles 5(c) and 6.3(d) of the scm agreement
1.Main arguments of the parties
2.Evaluation by the Panel
XI.BRAZIL's claim OF THREAT OF SERIOUS PREJUDICE UNDER ARTICLES5(C) AND 6.3 OF THE SCM AGREEMENT
XII.brazil's claim of "present" serious prejudice under articles5(c), 6.3(c) and 6.3(d) of the scm agreement as a result of the failure of the united states to take any action between 22september 2005 and 31 July 2006
XIII.ATTACHMENT 1: OVERVIEW OF NEW ECONOMIC LITERATURE ON COUNTER-CYCLICAL PAYMENTS
A.IMPACT OF COUNTER-CYCLICAL PAYMENTS
1.Studies cited by the United States
2.Studies cited by Brazil
B.ARE COUNTER-CYCLICAL PAYMENTS CAPITALIZED INTO HIGHER LAND VALUES?
1.Studies cited by the United States
XIV.FINDINGS ON BRAZIL'S CLAIMS UNDER ARTICLES 10.1 AND 8 OF THE AGREEMENT ON AGRICULTURE AND articles 3.1(A), 3.2 AND 4.7 OF THE SCM AGREEMENT WITH RESPECT TO EXPORT CREDIT GUARANTEES
A.Introduction
1.Description of the export credit guarantees at issue in this dispute
2.Summary of the original panel and Appellate Body's findings concerning export credit guarantees
B.Brazil's claims with respect to export credit guarantees outstanding on 1July2005
1.Introduction
2.Main arguments of the parties
3.Main arguments of third parties
4.Evaluation by the Panel
(a)Introduction
(b)Panel and Appellate Body reports in Brazil – Aircraft (Article 21.5 – Canada)
(c)Whether the obligation to "withdraw the subsidy" includes an obligation to abstain from performing on outstanding financial commitments
(d)Meaning of the term "withdraw"
C.Brazil's claims concerning GSM 102 export credit guarantees issued after 1July2005
1.Introduction
2.Brazil's claims under Articles 8 and 10.1 of the Agreement on Agriculture
3.Are GSM 102 export credit guarantees "export subsidies" – legal bases for Brazil's arguments
4.Brazil's arguments under item (j) of the Illustrative List of Export Subsidies
(a)Original panel's analysis under item (j) of the Illustrative List of Export Subsidies
(i)Past performance of the programmes
(ii)Structure, design and operation of the programme
(iii)Overall conclusion by the original panel
(iv)Appellate Body
(b)"Quantitative" analysis under item (j)
(i)Main arguments of the parties
(ii)Evaluation by the Panel
(c)Comparison with MPRs under the OECD Arrangement
(i)Main arguments of the parties
(ii)Main arguments of third parties
(iii)Evaluation by the Panel
(d)Structure, design and operation of the GSM 102 programme
(i)Main arguments of the parties
(ii)Evaluation by the Panel
(e)Overall conclusion of the Panel's analysis under item (j) of the Illustrative List
5.Whether the United States has applied GSM 102 guarantees in a manner that results in circumvention of its export subsidy commitments under the Agreement on Agriculture
(a)Introduction
(b)Unscheduled products
(c)Scheduled products
6.Claims that GSM 102 export credit guarantees are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement
D.Claims with respect to lysine, lyocell and wood products
XV.conclusions and recommendation
LIST OF ANNEXES
ANNEX A
FIRST WRITTEN SUBMISSIONS OF PARTIES AND THIRD PARTIES
Contents / PageAnnex A-1Executive Summary of the First Written Submission of Brazil / A-2
Annex A-2Executive Summary of the First Written Submission of the United States (Including Request for Preliminary Rulings) / A-9
Annex A-3Third Party Submission of Argentina / A-18
Annex A-4Third Party Submission of Australia / A-22
Annex A-5Third Party Submission of Canada / A-31
Annex A-6Third Party Submission of Chad / A-38
Annex A-7Third Party Submission of the People's Republic of China / A-52
Annex A-8Third Party Submission of the European Communities / A-57
Annex A-9Third Party Submission of Japan / A-72
Annex A-10Third Party Submission of New Zealand / A-79
ANNEX B
REBUTTAL SUBMISSIONS OF PARTIES
Contents / PageAnnex B-1Executive Summary of the Rebuttal Submission of Brazil / B-2
Annex B-2Executive Summary of the Rebuttal Submission of the UnitedStates / B-8
Annex B-3Executive Summary of Brazil's Submission Regarding US Requests for Preliminary Ruling / B-16
ANNEX C
ORAL STATEMENTS OF PARTIES AND THIRD PARTIES AT THE
MEETING WITH THE PANEL
Contents / PageAnnex C-1Opening Statement of Brazil (Executive Summary) / C-2
Annex C-2Closing Statement of Brazil / C-10
Annex C-3Opening Statement of the United States (Executive Summary) / C-18
Annex C-4Closing Statement of the United States / C-26
Annex C-5Third Party Oral Statement of Argentina / C-29
Annex C-6Third Party Oral Statement of Australia / C-34
Annex C-7Third Party Oral Statement of Canada / C-37
Annex C-8Third Party Oral Statement of Chad / C-40
Annex C-9Third Party Oral Statement of the People's Republic of China / C-45
Annex C-10Third Party Oral Statement of the European Communities / C-47
Annex C-11Third Party Oral Statement of India / C-56
Annex C-12Third Party Oral Statement of Japan / C-58
Annex C-13Third Party Oral Statement of New Zealand / C-61
Annex C-14Third Party Oral Statement of Thailand / C-64
ANNEX D
RESPONSES OF PARTIES TO THE PANEL'S QUESTIONS AND
OTHER COMMENTS AND DOCUMENTS RECEIVED FROM PARTIES
Contents / PageAnnex D-1Brazil's Request for the Panel to Seek Production of Documents and Information Pursuant to Article 13 of the DSU / D-2
Annex D-2Responses of Brazil to the Panel's Questions on the DSU Article 13 Issue / D-18
Annex D-3Responses of the United States to the Panel's Questions on the DSU Article 13 Issue / D-21
Annex D-4Comments of Brazil on the Oral Statements of the United Statesat the Meeting with the Panel / D-24
Annex D-5Comments of the United States on the Oral Statements of Brazilat the Meeting with the Panel / D-46
Annex D-6Responses of Brazilto the Panel's First Set of Questions (Sections A-C) / D-78
Annex D-7Responses of Brazilto the Panel's First Set of Questions (Sections D&E) / D-114
Annex D-8Responses of the United States to the Panel's First Set of Questions (Sections A-C) / D-134
Annex D-9Responses of the United States to the Panel's First Set of Questions (Sections D&E) / D-152
Annex D-10Brazil's Comments on the Responses of the United Statesto the Panel's First Set of Questions / D-177
Annex D-11United States'Comments on the Responses of Brazil to the Panel's First Set of Questions / D-220
Annex D-12Responses of Brazilto the Panel's Second Set of Questions / D-269
Annex D-13Responses of the United States to the Panel's Second Set of Questions / D-355
Annex D-14Brazil's Comments on the Responses of the United States to the Panel's Second Set of Questions / D-443
Annex D-15United States'Comments on the Responses of Brazilto the Panel's Second Set of Questions / D-518
ANNEX E
COMMUNICATIONS FROM PARTIES
Contents / PageAnnex E-1Letter of the United States dated 7 November 2006 / E-2
Annex E-2Letter of the United States dated 20 November2006 / E-5
Annex E-3Letter of the United States dated 21 November2006 / E-8
Annex E-4Letter of Brazil dated 22 November2006 / E-10
Annex E-5Letter of Brazil dated 24 November2006 / E-13
Annex E-6Letter of Brazil dated 18 December2006 / E-15
Annex E-7Letter of the United States dated 19 December2006 / E-16
Annex E-8Letter of Brazil dated 22 January2007 / E-19
Annex E-9Letter of Brazil dated 7 February2007 / E-21
Annex E-10Letter of the United States dated 12 February2007 / E-22
ANNEX F
COMMUNICATIONS FROM THE PANEL TO PARTIES
Contents / PageAnnex F-1Communication of 8 November2006 / F-2
Annex F-2Communication of 27 November2006 / F-3
Annex F-3Communication of 28 November 2006 / F-4
Annex F-4Communication of 20 December2006[1] / F-5
Annex F-5Communication of 17 January2007 / F-6
Annex F-6Communication of 22 January2007 / F-7
Annex F-7Communication of 16 February2007 / F-8
Annex F-8Communication of 21 March2007 / F-9
ANNEX G
WORKING PROCEDURES AND TIMETABLE OF THE PANEL
Contents / PageAnnex G-1Working Procedures / G-2
Annex G-2Timetable (Final) / G-5
ANNEX H
REQUEST FOR THEESTABLISHMENT OF A PANEL
Contents / PageAnnex H-1Request for the Establishment of a Panel by Brazil / H-2
TABLE OF CASES CITED IN THIS REPORT
Short Title / Full Case Title and CitationAustralia – Salmon
(Article 21.5 – Canada) / Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to Article 21.5 of the DSU by Canada, WT/DS18/RW, adopted 20March 2000, DSR2000:IV, 2031
Brazil – Aircraft
(Article 21.5 – Canada) / Appellate Body Report, Brazil – Export Financing Programme for Aircraft
– Recourse by Canada to Article 21.5 of the DSU, WT/DS46/AB/RW, adopted 4August 2000, DSR2000:VIII, 4067
Brazil – Aircraft
(Article 21.5 – Canada) / Panel Report, Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU, WT/DS46/RW, adopted 4August 2000, as modified by Appellate Body Report, WT/DS46/AB/RW, DSR2000:IX, 4093
Canada – Aircraft
(Article 21.5 – Brazil) / Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted 4August 2000, DSR2000:IX, 4299
Canada – Aircraft
(Article 21.5 – Brazil) / Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft
– Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/RW, adopted 4August 2000, as modified by Appellate Body Report, WT/DS70/AB/RW, DSR2000:IX, 4315
Canada – Dairy / Panel Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WT/DS103/R, WT/DS113/R, adopted 27October1999, as modified by Appellate Body Report, WT/DS103/AB/R, WT/DS113/AB/R, DSR1999:VI, 2097
Canada – Dairy
(Article 21.5 – New Zealand and US) / Panel Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/RW, WT/DS113/RW, adopted 18December 2001, as reversed by Appellate Body Report, WT/DS103/AB/RW, WT/DS113/AB/RW, DSR2001:XIII, 6865
Canada – Dairy
(Article 21.5 – New Zealand and US II) / Appellate Body Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW2, WT/DS113/AB/RW2, adopted 17January 2003, DSR2003:I, 213
Chile – Price Band System (Article 21.5 – Argentina) / Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by Argentina, WT/DS207/AB/RW, adopted 22 May 2007
EC – Bed Linen
(Article 21.5 – India) / Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/AB/RW, adopted 24April 2003, DSR2003:III, 965
EC – Bed Linen
(Article 21.5 – India) / Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/RW, adopted 24April 2003, as modified by Appellate Body Report, WT/DS141/AB/RW, DSR2003:IV, 1269
EC – Export Subsidies on Sugar / Appellate Body Report, European Communities – Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19May 2005
Indonesia – Autos / Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1, 2, 3 and 4, adopted 23July 1998, DSR1998:VI, 2201
Korea – Commercial Vessels / Panel Report, Korea – Measures Affecting Trade in Commercial Vessels, WT/DS273/R, adopted 11April 2005
Mexico – Corn Syrup
(Article 21.5 – US) / Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSUby the United States, WT/DS132/AB/RW, adopted 21November 2001, DSR2001:XIII, 6675
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) / Panel Report, United States – Countervailing Measures Concerning Certain Products from the European Communities – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS212/RW, adopted 27September 2005
US – FSC / Appellate BodyReport, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20March 2000, DSR2000:III, 1619
US – FSC / Panel Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/R, adopted 20March 2000, as modified by Appellate Body Report, WT/DS108/AB/R, DSR2000:IV, 1675
US – FSC
(Article 21.5 – EC) / Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29January 2002, DSR2002:I, 55
US – FSC
(Article 21.5 – EC) / Panel Report, United States – Tax Treatment for "Foreign Sales Corporations"
– Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW, adopted 29January 2002, as modified by Appellate Body Report, WT/DS108/AB/RW, DSR2002:I, 119
US – FSC
(Article 21.5 – EC II) / Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW2, adopted 14March 2006
US – FSC
(Article 21.5 – EC II) / Panel Report, United States – Tax Treatment for "Foreign Sales Corporations"
– Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW2, adopted 14March 2006, upheld by Appellate Body Report, WT/DS108/AB/RW2
US – Oil Country Tubular Goods Sunset Reviews / Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257
US – Oil Country Tubular Goods Sunset Reviews
(Article 21.5 – Argentina) / Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina – Recourse to Article 21.5 of the DSU by Argentina, WT/DS268/AB/RW, adopted 11 May 2007
US – Shrimp
(Article 21.5 – Malaysia) / Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/RW, adopted 21November 2001, upheld by Appellate Body Report, WT/DS58/AB/RW, DSR2001:XIII, 6529
US – Softwood Lumber IV (Article 21.5 – Canada) / Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to Article 21.5 of the DSU, WT/DS257/AB/RW, adopted 20December 2005
US – Softwood Lumber VI (Article 21.5 – Canada) / Appellate Body Report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, adopted 9May 2006
US – Upland Cotton / Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21March 2005
US – Upland Cotton / Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, and Corr.1, adopted 21March 2005, as modified by Appellate Body Report, WT/DS267/AB/R
US – Wool Shirts and Blouses / Appellate BodyReport, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R and Corr.1, adopted 23May 1997, DSR1997:I, 323
WT/DS267/RW
Page 1
I.introduction
1.1On 18 August 2006, Brazil requested the establishment of a panel pursuant to Article 21.5 of the Dispute Settlement Understanding ("DSU") concerning the alleged failure of the United States to implement the recommendations and rulings of the Dispute Settlement Body ("DSB") in US – Upland Cotton.[2]