WORLD TRADE WT/DS22/R
17October 1996
ORGANIZATION (96-4287)
Original: English
BRAZIL -MEASURES AFFECTING DESICCATED COCONUT
Report ofthePanel
Thereport ofthePanel onBrazil -Measures Affecting Desiccated Coconut isbeing
circulated toallMembers, pursuant totheDSU. Thereport isbeing circulated asan
unrestricted document from 14October 1996 pursuant totheprocedures forthe
Circulation andDerestriction ofWTO Documents (WT/L/160/Rev.1). Members are
reminded thatinaccordance withtheDSU onlyparties tothedispute mayappeal a
panel report, anappeal shallbelimited toissues oflawcovered inthepanel report
andlegalinterpretations developed bythepanel, andthatthere shallbenoexparte
communications with thepanel orAppellate Body concerning matters under
consideration bythepanel orAppellate Body.-i-
TABLE OFCONTENTS
I. INTRODUCTION ..........................................1
II. FACTUAL ASPECTS ........................................2
III. FINDINGS AND RECOMMENDATIONS REQUESTED BYTHE PARTIES ....3
IV. MAIN ARGUMENTS OFTHE PARTIES ...........................4
A. Preliminary Arguments ..................................4
1. Applicable Law ..................................4
(a) Principles ofInternational Law ...................5
(i) Article 28oftheVienna Convention ...........5
(ii) Other provisions oftheVienna Convention .......9
(b) Article 32.3oftheSCM Agreement ................10
(c) Transition Decisions oftheTokyo Round SCM Committee .12
(d) Right tochoose legalbasis forclaims ...............14
(e) Interpretation ofArticle VIofGATT 1994 ............15
(f) Application oftheAgreement onAgriculture ...........16
2. Terms ofReference ................................16
(a) Articles IandIIofGATT 1994 ...................18
(b) Failure torevoke andreimburse ...................18
(c) Failure toconsult ............................19
(d) Injury andtheAgreement onAgriculture .............19
3. Burden ofProof ..................................21
4. Scope ofthePanel'sExamination ofBrazil 'sDecision ..........23
5. Translation ofDTIC Opinion 006/95 .....................25
B. Failure toConsult ......................................25
C. Subsidy Issues ........................................26
1. Reliance onBestInformation Available ...................26
2. Existence ofSubsidies ..............................28
3. Downstream subsidy analysis .........................31
(a) ThePorkPanel .............................31
(b) Commercial availability issue ....................33
4. Calculation issues .................................38
(a) Constructed price ............................39
(b) Costs andyields ofhybrid andtalltrees ..............40
D. Injury Issues .........................................41
1. LikeProduct ....................................41
2. Material Injury ..................................43
3. Causation ......................................44
(a) Volume ..................................44
(b) Price ....................................45
(c) Impact ofImports andOther Factors ................47
E. Agreement onAgriculture ................................49-ii-
V. ARGUMENTS PRESENTED BYTHIRD PARTIES ....................51
A. Canada ............................................51
B. European Communities ..................................52
C. Indonesia ...........................................54
D. SriLanka ...........................................55
E. United States .........................................55
VI. FINDINGS ...............................................58
A. Applicable Law.......................................58
1. Applicability ofGATT 1994 ..........................58
(a) Applicability oftheSCM Agreement ................59
(b) Separability ofArticle VIofGATT 1994 andtheSCM
Agreement .................................60
(i) Textual analysis ........................61
(ii) Object andPurpose ......................63
(iii) GATT precedents .......................68
(iv) Transition totheWTO System andtheconsequences
ofafinding ofnon-separability ...............69
2. Applicability oftheAgreement onAgriculture ...............76
B. Failure toConsult ......................................77
C. Translation ofDTIC Opinion 006/95 ..........................78
VII. CONCLUDING REMARKS ....................................79
VIII. CONCLUSIONS ...........................................79
ANNEX 1.....................................................81
ANNEX 2.....................................................86
ANNEX 3.....................................................89WT/DS22/R
Page1
I. INTRODUCTION
1. On27November1995,thePhilippinesrequestedconsultationswithBrazilunderArticleXXIII:1
oftheGeneral Agreement onTariffs andTrade 1994 ("GATT 1994") concerning thecountervailing
dutyimposed byBrazil onimports ofdesiccated coconut fromthePhilippines. (WT/DS22/1/Rev.1).
2. On8December 1995, Brazil replied thatitwasprepared toenter intoconsultations withthe
Philippinesaslongasitwasmutuallyunderstoodthatthoseconsultationswouldbeundertakenexclusively
under the1979 Agreement onInterpretation andApplication ofArticles VI,XVIandXXIII ofthe
General Agreement onTariffs andTrade ("Tokyo Round SCM Code"), under theauspices ofwhich
Brazil conducted thecoconut subsidies investigations andimposed thecountervailing duties.
3. On13December 1995, thePhilippines replied thatBrazil 'sresponse constituted arefusal of
therequest forconsultations under Article XXIII:1.
4. Taking theviewthatBrazil hadfailed toenter intoconsultations within theperiod provided
forintheUnderstanding onRules andProcedures Governing theSettlement ofDisputes ("DSU"),
thePhilippines, on17January 1996, requested theestablishment ofaPanel withstandard terms of
reference, pursuant toArticle XXIII:2 ofGATT 1994andArticles 4.3and6oftheDSU. (WT/DS22/2).
5. AtBrazil 'srequest, acopyofdocument SCM/193, ontheissue ofthecountervailing duties
inquestion, wascirculated totheDispute Settlement Body ("DSB"). Inthatdocument, Brazil stated
itsview thattheTokyo Round SCM Code wastheonlylegal framework applicable tothedispute.
Brazil alsoindicated itsunderstanding thattheDSBwasnottheappropriate forum forthediscussion
onthedispute withthePhilippines, andthatdocument SCM/193 wascirculated forinformation purposes
onlyandwithout prejudice toitsrights under theTokyo Round SCM Code andtoitsposition onthe
applicable law. (WT/DS22/3, attached asAnnex 1).
6. Atthe31January 1996meeting oftheDSB, thePhilippines stated that,forreasons mutually
agreed to,thePhilippines hadnotobjected topostponing consideration ofitsrequest forestablishment
ofapanel, butwould make astatement atthenextmeeting oftheDSBwhen thisrequest would be
considered. Brazil noted thatitsarguments concerning thedispute were explained indocument
WT/DS22/3, andthatitinvited thePhilippines forconsultations onthequestion oftheapplicable law
before anyfurther steps were taken toward establishment ofapanel. TheDSBagreed torevert to
thematter atitsnextmeeting. (WT/DSB/M/10).
7. Continuing totaketheviewthatBrazil hadfailed toenter intoconsultations within theperiod
provided forintheDSU, thePhilippines, on5February 1996, again requested theestablishment of
aPanel withstandard terms ofreference, pursuant toArticle XXIII:2 ofGATT 1994andArticles 4.3
and6oftheDSU. (WT/DS22/5, attached asAnnex 2).
8. Atitsmeetingof21February1996,theDSBconsideredthePhilippines'requestforestablishment
ofapanel. BoththePhilippines andBrazil stated theirviews onthematter ofthecountervailing duties
imposed byBrazil onimports ofdesiccated coconut fromthePhilippines, andthequestion ofthelaw
applicable tothedispute. Therepresentatives ofIndonesia, speaking onbehalf ofASEAN countries,
andSriLanka, supported thePhilippines 'request forestablishment ofapanel. Brazil considered it
premature toestablish apanel atthatmeeting, andtheDSBagreed torevert tothematter atitsnext
meeting. (WT/DSB/M/11, attached asAnnex 3).
9. Atitsmeetingof5March1996,pursuanttothePhilippines'requestandwithBrazil'sacceptance,
theDSB established aPanel toexamine thematter. ThePhilippines requested thatthePanel be
established withstandard terms ofreference. Brazil requested consultations ontheterms ofreference.WT/DS22/R
Page2
TheDSBauthorized theChairman todraw upterms ofreference inconsultation withtheparties, in
accordance withArticle 7.3oftheDSU.
10. On22March 1996theparties agreed thatthePanel would havethefollowing terms ofreference:
"Toexamine, inthelightoftherelevant provisions inGATT 1994andtheAgreement
onAgriculture, thematter referred totheDSB bythePhilippines indocument
WT/DS22/5, taking intoaccount thesubmission made byBrazil indocument
WT/DS22/3 andtherecord ofdiscussions atthemeeting oftheDSBon21February
1996, andtomake suchfindings aswillassist theDSBinmaking therecommendations
oringiving therulings provided forinthose agreements". (WT/DS22/6).
11. On16April 1996, thePanel wasconstituted withthefollowing composition:
Chairman: Mr.Maamoun Abdel-Fattah
Members: Mr.Zdenek Jung
Mr.Joseph Weiler
12. Canada,theEuropeanCommunity,Indonesia,Malaysia,SriLankaandtheUnitedStatesreserved
theirrights asthirdparties tothedispute. Malaysia laterwithdrew asathirdparty.
II. FACTUAL ASPECTS
13. Thisdispute concerns countervailing duties imposed byBrazil onimports ofdesiccated coconut
fromthePhilippines. On21June1994, based onarequest foraninvestigation bythedomestic industry
filedon17January 1994, Brazil initiated aninvestigation regarding allegedly subsidized imports of
desiccated coconut andcoconut milkfrom thePhilippines, Côted'Ivoire, Indonesia, Malaysia, and
SriLanka. On23March 1995, Brazil imposed provisional duties onimports ofdesiccated coconut
fromthePhilippines, Côted'Ivoire, Indonesia, andSriLanka, andonimports ofcoconut milkfrom
SriLanka.1On18August 1995, Brazil issued Interministerial Ordinance No.11(the"Ordinance"),
pursuant towhich itimposed acountervailing dutyintheamount of121.5 percentonimports of
desiccated coconut from thePhilippines.2
14. Brazil investigated eightPhilippine programmes which allegedly conferred subsidies oncoconut
fruit.3However, Brazil considered thatitwasunable, based ontheinformation obtained from the
1Interministerial Decree No.113(23March 1995).
2Interministerial Ordinance No.11(18August 1995). Imports ofdesiccated coconut fromtheother countries
under investigation were alsofound tobesubsidized, aswellasimports ofcoconut milkfrom SriLanka. Those
aspects ofthedetermination arenotbefore thePanel.
3Theeight programmes investigated were:
1)theProgramme under Presidential Decree No.582/74,
2)theNationalCoconutProductivityProgramme, anditssuccessors,theExpandedNationalCoconutIntercropping
Programme andtheFarm Assistance andLivelihood project,
3)theSmall Coconut Farm Development Project,
4)theAgrarian Reform Programme,
5)theCountry Economic Development Programme,
6)theSmall Coconut Farmer Organizations,
(continued...)WT/DS22/R
Page3
Philippines, todetermine theamount ofthesubsidy conferred oncoconut fruitbyeachprogramme.
Brazil alsoconcluded thatdesiccated coconut indirectly benefitted fromthesubsidy provided tococonut
fruit. Brazil determined theamount ofthesubsidy conferred ondesiccated coconut bycomparing the
price ofsubsidized desiccated coconut, based ontheprice actually paidforcoconut fruit, anda
constructed unsubsidized price, based onwhatitconsidered tobetheconstructed unsubsidized price
forcoconut fruit. Brazil considered thatthedifference between theprices equalled thesubsidy amount
thataffected theprice ofdesiccated coconut.
15. Brazil further found thatthesubsidized imports, onacumulated basis, caused material injury
totheBrazilian industry.
III. FINDINGS AND RECOMMENDATIONS REQUESTED BYTHE PARTIES
16. ThePhilippinesrequeststhePaneltomakethefollowingrulings,findings,andrecommendations:
"(a) ThatthePanel findthattheOrdinance imposing acountervailing dutyof121.5 percent
ondesiccated coconut from thePhilippines foraperiod offiveyears from
18August 1995 isinconsistent withBrazil ’sobligations under Articles IandII,and
isnotjustified byArticle VI:3andVI:6(a) ofGATT 1994.
"(b) ThatthePanel findthatBrazil 'sfailure torevoke theOrdinance andtoreimburse any
duties paidunder it,notwithstanding therepresentations ofthePhilippines, was
inconsistent withitsobligations under Article VI:3and6(a)ofGATT 1994.
"(c) ThatthePanel recommend thatBrazil bring theabove measure intoconformity with
itsobligations under GATT 1994.
"(d) ThatBrazil 'srefusal toholdconsultations under Article XXIII:1 ofGATT 1994 on
itsmeasures affecting desiccated coconuts wasinconsistent withBrazil 'sobligation
under thatArticle andArticle 4:1,2and3oftheUnderstanding onRules and
Procedures Governing theSettlement ofDisputes.
"(e) Intheevent thePanel weretofindthatthecountervailing dutyimposed byBrazil was
consistent withArticles IandIIofGATT 1994 orjustified byArticle VIofGATT
1994, thePhilippines requests thatthePanel findthattheimposition ofthe
countervailing dutyanditssubsequent non-revocation wereinconsistent withArticle 13
oftheAgreement onAgriculture, andrecommend thatBrazil bring themeasure referred
toabove intoconformity withitsobligations under theAgreement onAgriculture".
17. Brazil asksthePanel tomake thefollowing findings:
(a) Thattheonlyobligations applicable tothisdispute arethose intheTokyo Round SCM
Code, andthatpotential violations ofthatCode cannot beaddressed bythisPanel.
(b) ThatBrazil 'sinjury finding, itsobligations under Articles IandIIofGATT 1994,
itsobligations under theAgreement onAgriculture, anditsalleged failure toconsult
3(...continued)
7)Income TaxExemptions andCredits, Deductions, andother TaxBenefits, and
8)TheCoconut Replanting Programme andProgramme ofAdditional Incentives toAccelerate theCoconut
Production Programme.WT/DS22/R
Page4
arenotwithin theterms ofreference ofthePanel, andarguments concerning those
matters should beexcluded from theproceeding.
(c) ThatthePhilippines failed todemonstrate thattherequirements fortheexemption it
claims under theAgreement onAgriculture were met.
(d) Intheevent thePanel reaches thesubstance ofBrazil 'sdetermination, thatBrazil 's
actions were fullyconsistent withitsobligations under Article VIofGATT 1994.
IV. MAIN ARGUMENTS OFTHE PARTIES
A. Preliminary Arguments
18. Brazil requested that,asaninitial matter, thePanel make apreliminary ruling onthequestions
ofapplicable lawandthescope oftheterms ofreference. Brazil argued thatbothissues areprocedural
innature, notsubstantive, andthataspeedy resolution would greatly promote theefficiency ofthe
panel process bypermitting thePanel andtheparties tofocus onthesubstantive issues. Brazil asserted
thattherewasprecedent under GATT 1947forsuchearlyrulings onprocedural issues, referring, inter
alia,toEC-Imposition ofAnti-Dumping Duties onImports ofCotton Yarn from Brazil, ADP/137
(adopted30October1995)("CottonYarn"),para.4,inwhichthePanelissuedanearlyrulingconcerning
which claims were covered bytheterms ofreference.4
19. Brazil viewed thefirstquestion asfundamental: whatobligations toconsider indetermining
whether Brazil 'sactions wereconsistent withitsmultilateral obligations. Brazil hadmaintained from
thestartoftheconsultation process thatsincethesubsidy investigation wasconducted under theauspices
oftheTokyo Round SCM Code, itshould bejudged inrelation toBrazil 'sobligations under thatCode,
byapanel established under thatCode. InBrazil 'sview, because theanswer tothequestion affected
bothwhich issues would bebriefed andwhether thePanel should consider thedispute, thisissuemerited
immediate decision.
20. Thesecond issue alsoconcerned aprocedural matter -whether certain claims raised bythe
Philippines initsfirstsubmission tothePanel wereproperly within theterms ofreference ofthisPanel.
Brazil alleged thatthePhilippines 'claims concerning Brazil 'sinjury finding, Articles IandIIofGATT
1994, theWTO Agreement onAgriculture, andBrazil 'salleged refusal toconsult, aswellasmost
oftherequested findings andrecommendations, werenotwithin theterms ofreference ofthisPanel
andurged thePanel toissueanimmediate ruling tothateffect inorder toavoid thenecessity ofarguing
irrelevant points.
1. Applicable Law
21. ThePhilippines invoked theprovisions ofArticles I,II,andVIofGATT 1994andArticle 13
oftheAgreement onAgriculture. ThePhilippines didnotinvoke theprovisions oftheTokyo Round
SCM Code ortheAgreement onSubsidies andCountervailing Measures (the"SCM Agreement").
4Inthisregard, Brazil alsoreferred tothePanel decisions inUnited States -Measures Affecting Alcoholic
andMaltBeverages, DS23/R (adopted 19June1992) BISD 39S/206, United States -Denial ofMost-Favoured-
NationTreatmentastoNon-RubberFootwearfromBrazil,DS18/R(adopted19June1992)BISD39S/129,("Non-
RubberFootwearMFN"),andReportofKorea-RestrictionsonImportsofBeef,L/6503,L/6504,L/6505(adopted
7November 1989) BISD 36S/268, 202, 234, respectively.WT/DS22/R
Page5
22. BrazilarguedthatthePhilippinesmaynotinvokeanyprovisionsofGATT1994ortheAgreement
onAgriculture inthisdispute. Brazil contended thatonlytheprovisions oftheTokyo Round SCM
Code areapplicable tothismatter, andthatthePhilippines isentitled onlytodispute settlement under
theprovisions ofthatCode. Brazil further argued thattheTokyo Round SCM Code isnotacovered
agreement under Article 1.1oftheDSU, andthatthePanel maytherefore notapply thatCode inthis
dispute.
(a) Principles ofInternational Law
(i) Article 28oftheVienna Convention
23. Brazil argued thatcustomary rules ofpublic international lawdonotpermit theretroactive
application oftreaty obligations. Brazil pointed outthattheinvestigation atissue inthisdispute was
initiated in1994, atwhich timetheTokyo Round SCM Code, andBrazilian lawwhich incorporated
therequirements ofthatCode, were ineffect. Brazil hadnoobligations under GATT 1994 orthe
WTO Agreement atthattime, because those agreements didnotenterintoforce until1January 1995.
Article 28oftheVienna Convention ontheLawofTreaties ("Vienna Convention") states thatatreaty
doesnot"bind aparty inrelation toanyaction orfactwhich tookplace oranysituation which ceased
toexistbefore thedateofentry intoforce ofthattreaty withrespect tothatparty". Brazil tookthe
position thattherelevant actatissue inthisdispute wastheinitiation andsubsequent conduct ofa
countervailing dutyinvestigation, which began on21June1994, before thedateofentry intoforce
oftheWTO Agreement andGATT 1994 on1January 1995. Therefore, GATT 1994 could notbind
Brazil withrespect tothisinvestigation.
24. Brazil argued thatinthecontext ofthecurrent dispute, anactcould mean theinvestigation
which mustbeconsidered tohavetaken place atthetimeofinitiation. Brazil proposed several reasons
forsuchaninterpretation. First, therighttochallenge acountervailing dutyinvestigation arises at
thetimeoftheinitiation.5Second, theinvestigation mustreview factsthatalready exist. Inthisdispute,
Brazil looked atsubsidies toPhilippine coconut growers intheperiod May1993 through April 1994
todetermine whether imports fromthePhilippines weresubsidized. Third, inBrazil 'sview, theconduct
oftheinvestigation, whatinformation wasconsidered andthebasisforthedetermination, wereatissue
inthisdispute. Such procedural rulescould notchange during thecourse oftheinvestigation. Had
theMembers intended tochange therules forinvestigations initiated prior to1January 1995, they
would nothaveincluded Article 32:3intheSCM Agreement.
25. ThePhilippines argued thatBrazil 'sreliance onArticle 28oftheVienna Convention was
misguided because theactinquestion inthisdispute wastheimposition ofthecountervailing measure
on18August 1995, aftertheWTO Agreement wasinforce between theparties. Itwasatthispoint
thatthePhilippines suffered nullification ofitsrights under theWTO Agreements, specifically GATT
1994. According tothePhilippines, theonlyactthatBrazil undertook andcompleted priortotheentry
intoforce oftheWTO Agreements wastheinitiation oftheinvestigation. Allother significant acts,
e.g.theimposition ofprovisional measures, theconclusion oftheinvestigation, theorder imposing
thefinalcountervailing duty, andthelevying ofthefinalcountervailing duties, occurred aftertheWTO
Agreements came intoforce. Ofthese fouracts,thePhilippines wascontesting onlytheimposition
andlevying ofthecountervailing duty. ThePhilippines emphasized thatthecountervailing dutydid
notmerely continue aftertheeffective dateoftheWTO Agreements, butwasinfactimposed after
thatdate. InthePhilippines 'view, relating theimposition ofthedutytothedateoftheapplication
forcountervailing dutywasachronological fiction. ThePhilippines argued thatBrazil, ineffect, sought
5Inthisregard, Brazil referred tothedecision ofthePanel inUnited States -Measures Affecting Imports
ofSoftwood Lumber from Canada, SCM/162 (adopted 27-28 October 1993) BISD 40S/358.WT/DS22/R
Page6
toconvert thepre-WTO initiation oftheinvestigation intoaprotective umbrella, similar toagrandfather
clause, thatwould shield measures imposed aftertheentry intoforce oftheWTO fromtheapplication
ofWTO norms. InthePhilippines 'view, there wasawide gapbetween theinitiation ofBrazil 's
investigation before theentry intoforce oftheWTO andtheimposition ofthefinalcountervailing
measure. Article 28oftheVienna Convention doesnotprovide anumbrella toshield thiskindof
gap-anyshield against retroactive application applied onlyuntiltheentry intoforce ofthenewtreaty.
26. ThePhilippines argued thatgeneral principles ofinternational law,ascodified intheVienna
Convention,requirethatevenpre-existingmeasuresmustbereviewedinlightofnewobligationsimposed
byanewagreement. Therefore, inthePhilippines 'view, evenifBrazil 'sinvestigation hadbeen
concluded andthecountervailing measure hadbeenimposed before theentry intoforce oftheWTO
Agreement,Brazil'scontinuedimplementationofsuchapre-existingmeasurewouldhavetobereviewed
andexamined inlightofitsobligations under GATT 1994. Because infactBrazil 'sinvestigation ended
andthecountervailing dutywasimposed after theentry intoforce oftheWTO Agreement, the
Philippines maintained thatGATT 1994 andtheAgreement onAgriculture areapplicable.
27. Moreover, thePhilippines noted thatBrazil, inresponse toaquestion from thePhilippines,
hadadmitted thattheWTO Agreements presumably apply totheactual collection ofduties after
18August 1995. InthePhilippines 'view, thepractical effect ofapplying theWTO Agreements to
continued collection oftheduties wastheapplication oftheWTO Agreements totheimposition of
themeasures. Inthisregard, thePhilippines referred tothedecision oftheAppellate Body in
United States -Standards forReformulated andConventional Gasoline.6ThePhilippines considered
thattheAppellate Body hadexamined theUnited States 'rule-making process, which tookplace prior
totheeffective dateoftheWTO Agreements, inassessing thevalidity oftheUnited States 'standards
forreformulated andconventional gasoline atissue inthatdispute, which standards werethemselves
imposed priortotheeffective dateoftheWTO Agreements. InthePhilippines 'view, thisdemonstrated
thatthePanel could consider events priortotheentry intoforce oftheWTO Agreements inevaluating
theconsistency ofameasure withthose Agreements. Moreover, thePhilippines noted that,inresponse
toaquestion from thePhilippines, Brazil denied neither thefactnorthepropriety oftheAppellate
Body'sconsideration oftherulemaking process inReformulated Gasoline.
28. Brazil, ontheotherhand, maintained thatthedecision inReformulated Gasoline didnotsupport
thePhilippine position. InBrazil 'sview, inthatcaseVenezuela andBrazil hadchallenged thecontinued
maintenance ofdiscriminatory standards bytheUnited States aftertheentry intoforce oftheWTO,
butnottherule-making process thathadledtotheimposition ofthose standards. Thus, interms of
thecurrent case, theanalogous challenge would betothecontinued imposition ofduties, notthe
investigation anddecision toimpose duties. Moreover, Brazil noted thatunlike thecurrent case,there
wasnomechanism forareview oftheUnited States 'standards under domestic lawintheReformulated
Gasoline situation, whereas inthiscase,thePhilippines hadtheability under theSCM Agreement and
Brazilian lawtorequest areview ofthecontinued imposition ofcountervailing measures, under the
standards oftheSCM Agreement.
29. ThePhilippines argued thatthePanel'sdecision inU.S.-Countervailing Duties onNon-Rubber
Footwear fromBrazil (adopted 13June1995), SCM/94, paras. 4.5and4.10("Non-Rubber Footwear"),
recognized thatgeneral principles ofinternational lawrequired thatpre-existing measures must be
reviewed inlightofnewobligations imposed byanewagreement. ThePhilippines argued thatin
Non-Rubber Footwear thePanel concluded thatthecontinued imposition ofcountervailing measures
firstimposed bytheUnited States prior totheentry intoforce oftheTokyo Round SCM Code was
6WT/DS2/R (29January 1996), WT/DS2/AB/R (22April 1996) (both adopted 20May1996) ("Reformulated
Gasoline").WT/DS22/R
Page7
subject totheCode'srequirement ofaninjury test.ThePhilippines maintained thatapplying thelogic
ofthatdecision tothiscaserequired thatBrazil 'scountervailing measures besubject totherequirements
ofGATT 1994.
30. BrazilcontendedthatthePaneldecisioninNon-RubberFootweardidnotsupportthePhilippines'
argument. Even assuming arguendo thatthereport hadprecedential orinterpretive value, inBrazil 's
view, thePanel hadconcluded thatanyobligation under theTokyo Round SCM Code would bemet
byconducting areview inconformity withthenewobligations attherequest ofaninterested party.7
Non-Rubber Footwear, paras. 4.4and4.6. Brazil pointed outthatBrazilian lawandArticle 21of
theSCM Agreement permit reviews upon request. Under Brazilian law,suchareview would be
conducted inaccordance withBrazil 'sobligations under theSCM Agreement. Brazil noted thatthe
Philippines hadnotrequested suchareview.8
31. Inaddition, Brazil contended thatNon-Rubber Footwear states thatArticle 28oftheVienna
Convention prevents applying thenewtreaty tothepre-existing act,i.e.,theactual investigation, and
onlypermits itsapplication tothecontinuing implementation.9Brazil distinguished between the
investigation andfindings made thatledtoimposition offinalcountervailing duties, andthecontinued
collection ofduties. According toBrazil, thefindings made intheinvestigation could onlybechallenged
under therules thenapplicable -theTokyo Round SCM Code. Moreover, Brazil noted thatitdid
notargue thattheWTO anditscovered agreements donotapply tothecontinued collection ofthe
duties, onlythatthose obligations donotapply totheconduct oftheinvestigation andthedeterminations
made aspartofthatinvestigation. Thecontinued collection ofthedutyconstitutes a"situation" within
themeaning ofArticle 28.Thus, since thatsituation hascontinued afterentry intoforce oftheWTO,
thecollection ofduties issubject totheWTO Agreements, andthePhilippines canseekareview to
ensure thatthecontinued collection isconsistent withtheWTO rules.
32. Brazil referred tothedecision ofthePermanent Court ofInternational Justice inPhosphates
inMorocco("Phosphates")asprovidingguidanceonthemeaningoftheconceptofretroactiveapplication
addressed inArticle 28.Inthatcase,thereisalengthy discussion ofwhether the"situation" wassubject
totheAgreement atissueorwhether itoccurred priortothatAgreement. Themajority opinion notes:
"Thesituations andfactswhich formthesubject ofthelimitation ratione temporis have
tobeconsidered from thepoint ofview bothoftheirdateinrelation tothedateof
ratification andoftheirconnection withthebirthofthedispute. Situations orfacts
subsequent totheratification could serve tofound theCourt 'scompulsory jurisdiction
onlyifitwaswithregard tothem thatthedispute arose. ...itisnecessary always to
bearinmindthewilloftheStatewhich onlyaccepted thecompulsory jurisdiction within
7Brazil observed thatthePanel report alsoindicates thattheobligation atissue inthatcase, aninjury finding,
wasnotanewobligation, butrather apre-existing obligation under Article VIofGATT 1947. Non-Rubber
Footwear, para. 4.10
8Brazil argued thatthePanel report inNon-Rubber Footwear indicates thatuntilarequest forreview ismade,
there canbenoviolation, referring tothefollowing language:
"If,however, thesignatory subject tothepre-existing countervailing dutywere tochoose not
toinvoke itsright asofthatdatebutmade itsrequest atalaterdate, again there wasnothing
inArticle VIorinitssubsequent interpretation intheCode toimply thatanyearlier datethan
thedateoftherequest would berelevant foraninjury determination andpossible revocation
ofcountervailing duties".
Non-Rubber Footwear, para. 4.6.
9Non-Rubber Footwear, para. 4.5.WT/DS22/R
Page8
specified limits, andconsequently onlyintended tosubmit tothatjurisdiction disputes
having actually arisen fromsituations orfactssubsequent toitsacceptance. Butitwould
beimpossible toadmit theexistence ofsucharelationship between adispute and
subsequent factors which either presume theexistence oraremerely theconfirmation
ordevelopment ofearlier situations orfactsconstituting therealcause ofthedispute".10
Inthatdispute theItalian government hadraised acomplaint against theFrench government overthe
"monopolization" ofthephosphate tradeasaresult ofaregime created in1920, priortotheratification
in1931 oftheAgreement under which thecomplaint wasbrought. TheCourt found thattheact
underlying thedispute wastheregime creating thecartel thatledtomonopolization. Therefore, even
though thismonopolization continued after1931, itwasbecause ofanactinitiated prior tothatdate,
andtherefore could notbebrought under theAgreement. InBrazil 'sview, thisdecision established
theinternational lawprinciple reflected inArticle 28oftheVienna Convention. Similar tothesituation
inthePhosphates case, theWTO Members onlyintended tobesubject toWTO obligations afterthe
dateofentry intoforce, asevidenced bythecreation ofadateofentry intoforce fortheWTO
Agreement, rather thanhaving itenterintoforceassoonasasufficient number ofcountries hadratified
them.
33. ThePhilippines argued thatthedecision inPhosphates didnotsupport Brazil 'sdefinition of
retroactive application. InthePhilippines 'view, theCourt inthatcasehadsimply heldthatithad
nojurisdiction overdisputes involving alleged international lawviolations thatoriginated indefinitive
actsthatoccurred before theparties ratified theinstruments through which theysubmitted totheCourt 's
compulsory jurisdiction. Inthatcase, theactswere a1920 lawanda1925 administrative decision
issued priortoratification oftheCourt 'scompulsory jurisdiction agreement. However, theCourt ruled
that"situations orfactssubsequent totheratification could serve tofound theCourt 'scompulsory
jurisdiction. ...ifitwaswithregard tothem thatthedispute arose". Phosphates at18.Moreover,
thedateoftheactunderlying adispute wasdetermined withreference tothe"definitive act"thatresulted
inthealleged violation. InthePhilippines 'view, inthiscase, therelevant actwastheimposition of
thefinalcountervailing duty, which occurred aftertheWTO Agreements came intoeffect.
34. ThePhilippines, moreover, viewed therighttoareview under Brazilian lawaslimited, and
thusnotaneffective remedy. ThePhilippines noted thatunder Brazilian law,areview would nottake
place foratleastoneyearafterimposition ofthemeasures, andeventhen, achange incircumstances
oranewfactwasrequired forinitiation ofareview. Moreover, suchareview would onlyaddress
thecontinued imposition ofthemeasures, nottheoriginal imposition.
35. Brazil asserted thatDecree No.93,962 (22January 1987) permitted reviews upon request
beginning oneyearaftertheimposition ofcountervailing duties. Thecurrent law,Decree No.1751
(19December 1995), permits reviews upon request beginning oneyearafterimposition ofduties.
Inexceptional cases areview maybeinitiated sooner upon therequest oftheexporting government
oronBrazil 'sowninitiative. Brazil alsonoted thatthiswasconsistent withthepractice ofother
Members, forexample theUnited States andtheEuropean Union.
36. ThePhilippines asserted that,while Article 32.3oftheSCM provides aparty theoption to
seekareview ofthecontinuation ofameasure (butnottheoriginal imposition), theinitiation ofsuch
review isnotmandatory, andinanyevent would onlyaddress thecontinued imposition ofthemeasure,
notitsoriginal imposition. Moreover, referring tothereport ofthePanel inUnited States -Imposition
ofCountervailing Duties onImports ofFresh andChilled Atlantic Salmon fromNorway ("Salmon"),
SCM/153 (adopted 24April 1994), paras. 218-220, thePhilippines argued thattherewasnorequirement
10Phosphates inMorocco, Permanent Court ofInternational Justice (14June 1938) at18.WT/DS22/R
Page9
inanyWTO Agreement thataparty firstseekareview fromthecountry imposing ameasure before
resorting tomultilateral dispute resolution. IfthePhilippines werelimited toseeking areview during
thistransitional period, instead ofbeing abletoresort immediately tothedispute settlement mechanism
oftheWTO, itwould besubjected todelay andcontinued tradelosses, effectively nullifying itsrights
offreetrade under theWTO. ThePhilippines, initsview, wasentitled toresort toWTO dispute
resolution proceedings inorder toinvoke WTO norms against Brazil 'scountervailing measures.
(ii) Other provisions oftheVienna Convention
37. ThePhilippines alsoreferred toArticle 30:3oftheVienna Convention, which provides that
where there aresuccessive treaties relating tothesame subject-matter among thesame parties, "the
earlier treaty applies onlytotheextent thatitsprovisions arecompatible withthose ofthelatertreaty",
andargued that,between thePhilippines andBrazil, theWTO Agreement andGATT 1994, asthe
subsequent treaty, override theTokyo Round SCM Code.
38. Brazil argued thatArticle 30.3oftheVienna Convention didnotrequire thattheapplicable
lawinthisdispute beGATT 1994. Even assuming theWTO Agreement applied inthiscaseasthe
successive treaty, theportion ofthattreaty relating tothesame subject matter astheTokyo Round
SCM Code istheSCM Agreement. Article 32.3oftheSCM Agreement provides that"theprovisions
ofthisAgreement shallapply toinvestigations, andreviews ofexisting measures, initiated pursuant
toapplications made onorafterthedateofentry intoforce foraMember oftheWTO Agreement".
Thus, inBrazil 'sview, since theinvestigation atissue herewasinitiated pursuant toanapplication
made before thedateofentry intoforce oftheWTO Agreement, theSCM Agreement doesnotapply.
39. ThePhilippines referred toArticles 18,26,and31oftheVienna Convention asindicating
thefundamental principle ininternational lawthatparties toatreaty mustactconsistent withthetreaty 's
objectives. Signatories bindthemselves fullytoallsubstantive obligations ofthetreaty andmustrefrain
fromactswhich defeat theobject andpurpose ofthetreaty. InthePhilippines 'view, thisrequirement
existed before thenewtreaty entered intoforce, andapplied evenmore strongly afterthenewtreaty
entered intoforce. Therefore, theWTO Agreement mustbeinterpreted inaccordance withtheordinary
meaning tobegiven totheterms ofthetreaty intheirproper context andinlightofitsobject and
purpose. InthePhilippines 'view, itwasnotreasonable toinfer thatthenegotiators oftheWTO
AgreementsintendedaninterpretationoftheAgreementsthatwouldsuspendtherightsofWTOMembers
fortwoyears (while thetransitional decisions regarding theTokyo Round SCM Code wereineffect),
preventing themfromseeking dispute settlement under theWTO Agreements, bylimiting themtoeither
dispute settlement under theTokyo Round SCM Code orareview under thedomestic lawoftheMember
imposing themeasure, ofameasure imposed eight months aftertheWTO Agreements entered into
force.
40. Brazil contested thePhilippines 'argument thatBrazil 'sinterpretation suspends WTO Members '
rights fortwoyears. Brazil maintained thatthePhilippines misstated thepurpose ofArticle 18ofthe
Vienna Convention inarguing thatitcreates adutytoensure thatallactions prior toentry intoforce
oftheWTO Agreements wereconsistent withBrazil 'sobligations under those Agreements. InBrazil 's
view, Article 18reflects anobligation toactingood faithandnottoactinsuchawayastomake
itmore difficult orimpossible foranyparty tothetreaty tomeetitsobligations. Theimposition of
countervailing duties based onpre-existing obligations doesnotmake itimpossible foranyparty to
theWTO Agreement tomeetitsobligations. Moreover, inBrazil 'sview, theinterpretation ofArticle 18
proposed bythePhilippines would conflict withtherequirement ofArticle 28oftheVienna Convention
thatatreaty notbeapplied retroactively unless theparties agreed tosuchretroactive application. For
thePanel toaccept thePhilippine interpretation would mean thattheconduct ofallinvestigations begun
priorto1January 1995issubject toWTO review under Article VIofGATT 1994. Brazil consideredWT/DS22/R
Page10
itunlikely thatsuchamajor stepwould havebeencontemplated bythenegotiators without anexpress
provision inthetext.
41. Brazil noted thatunder Article 32.3oftheSCM Agreement, WTO Members haveimmediate
rights withrespect toanycountervailing dutyinvestigation orreview initiated based onanapplication
filedonorafter1January 1995. Inaddition, Members havetheright tochallenge theconduct of
acountervailing dutyinvestigation atanytimeintheinvestigation proceeding; theydonothaveto
waituntiltheinvestigation iscompleted. WTO Members alsohavetherighttorequest thenational
authorities toreview anypre-1995 investigation, which review would besubject toWTO obligations
andcould bechallenged under theDSU. Further, thetransition decisions oftheTokyo Round SCM
Committee givethesignatories totheTokyo Round SCM Code, including thePhilippines, theright
through 31December 1996 tochallenge aninvestigation initiated prior to1January 1995, under the
procedures oftheTokyo Round SCM Code.
(b) Article 32.3oftheSCM Agreement
42. Brazil argued thatArticle VIofGATT 1994mustbeconsidered inconjunction withtheSCM
Agreement. Article II:2oftheMarrakesh Agreement Establishing theWorld Trade Organization (the
"Marrakesh Agreement") states thatthe"agreements andassociated legalinstruments", including the
SCMAgreementandGATT1994,areintegralpartsoftheMarrakeshAgreement.Moreover,Article10
oftheSCM Agreement states that"Members shalltakeallnecessary stepstoensure thattheimposition
ofacountervailing duty...isinaccordance withtheprovisions ofArticle VIofGATT 1994 andthe
terms ofthisAgreement ..."(emphasis added). Thus, inBrazil 'sview, Article II:2oftheMarrakesh
Agreement andArticle 10oftheSCM Agreement contemplate thatArticle VIofGATT 1994andthe
SCM Agreement mustbeconsidered together. Brazil asserted that,considered together, Article 32.3
states explicitly thattheydonotapply toinvestigations begun before 1January 1995. InBrazil 'sview,
thiswasanecessary corollary oftheintegrated nature oftheWTO. Otherwise, aPanel could interpret
anarticle ofGATT 1994inamanner different thanthedetailed WTO Agreement onthesame subject
matter.
43. ThePhilippinesdisputedBrazil'spositionthatArticleVIofGATT1994andtheSCMAgreement
mustbeinvoked together. ThePhilippines noted thatlanguage virtually identical toArticle 10ofthe
SCM Agreement wasfound intheTokyo Round SCM Code. Yet,thishadnotprecluded signatories
tothatCode from invoking onlyArticle VIofGATT 1947 indispute resolution. Inthisregard, the
Philippines alsonoted that,intheReformulated Gasoline dispute, boththePanel andtheAppellate
Body resolved thedispute withreference onlytoGATT 1994, anddidnotaddress therequirements
oftheAgreement onTechnical Barriers toTrade, which hadalsobeeninvoked bythecomplaining
parties asapplicable tothedisputed U.S.measures.
44. ThePhilippines contended thatBrazil 'sposition regarding Article 32.3misrepresented thescope
andfunctions ofthatprovision. ThePhilippines tooktheposition thatArticle 32.3clearly applies
onlytoprocedural obligations under theSCM Agreement -notGATT 1994 ortheAgreement on
Agriculture -andonlytotheobligations relating toinvestigations. InthePhilippines 'view, Article 32.3
could notbeusedtobaraclaim premised onasubstantive right clearly provided forinArticle VI
ofGATT 1994. Thepurpose ofthisprovision wastoprevent WTO Members from having toredo
investigations which werestarted before theywerebound bytheSCM Agreement inorder toapply
thenewandmore detailed procedural requirements governing theconduct ofinvestigations setout
inthatAgreement. Inaddition, Article 32.3 wasneeded toclarify atwhich stage inongoing
investigations theswitch tothenewprocedural requirements oftheSCM Agreement would haveto
takeplace. InthePhilippines 'view, these rationales underlying Article 32.3didnotapply tothe
requirements ofArticle VIofGATT 1994because thestandards under thatprovision arenottextuallyWT/DS22/R
Page11
different fromthose ofArticle VIofGATT 1947, which already existed forWTO Members whowere
alsoContracting Parties ofGATT 1947 atthetimeoftheentry intoforce oftheWTO Agreement.
45. BrazilagreedwiththePhilippinesthatthepurposeofArticle32.3wastopreventWTOMembers
fromhaving toredoinvestigations which werestarted before theywerebound bytheSCM Agreement.
Brazil maintained thatthiswasprecisely thesituation atissue here. ThePhilippines wasattempting
tousetheWTO toobject toaninvestigation begun before Brazil wasbound bytheWTO Agreements.
Brazil didnotbelieve itshould havetoredoaninvestigation toconform toobligations thatdidnot
existwhen theinvestigation wasstarted.
46. ThePhilippines alsomaintained thatBrazil ’sinterpretation ofArticle 32.3obscured therights
andobligations ofWTO Members whowerenotsignatories totheTokyo Round SCM Code. Inthe
Philippines 'view, ifArticle VIofGATT 1994weredeemed inapplicable toinvestigations conducted
priortotheentryintoforceoftheWTO Agreement, suchMembers would bedenied anyremedy against
countervailing measures imposed onthem aftertheentry intoforce oftheWTO Agreement. The
Philippines maintained thatthisresult could nothavebeencontemplated bytheWTO Agreement.
47. ThePhilippines argued thatArticle 32.3oftheSCM Agreement doesnotautomatically preclude
theapplication oftheSCM Agreement tomeasures imposed afterthedateofentry intoforce ofthe
WTO Agreement pursuant toinvestigations initiated priortotheentryintoforceoftheWTO Agreement.
Indeed, Article 32.3provides thatareview ofanexisting measure, i.e.oneinexistence onthedate
ofentry intoforce oftheWTO Agreement, initiated pursuant toanapplication filedaftertheentry
intoforce oftheWTO Agreement, issubject totherequirements oftheSCM Agreement. Obviously,
theinvestigation thatpreceded suchanexisting measure would havebeeninitiated prior totheentry
intoforce oftheWTO Agreement. Thus, inthePhilippines 'viewthefactthataninvestigation was
initiated prior totheeffective dateoftheWTO doesnot,assuch, preclude application oftheSCM
Agreement ifthatinvestigation leads toameasure imposed aftertheeffective dateoftheWTO which
thenbecomes thesubject ofreview under theWTO. Moreover, thePhilippines noted thatthemeasure
inquestion herewasnotimposed prior totheeffective dateoftheWTO Agreement, andthuswas
notanexisting measure asofthatdate. Thus, inthePhilippines 'view, Article 32.3didnotresolve
thequestion ofwhatlawwasapplicable tothemeasure.
48. ThePhilippines argued thatBrazil could notbesurprised atthesubstance ofthestandards under
GATT 1994, andthusthere wasnoinequity insubjecting themeasures imposed aftertheeffective
dateofthatagreement toitsrequirements. Theprovisions ofArticles I,IIandVIofGATT 1994
wereidentical tothose ofArticles I,IIandVIofGATT 1947, which applied tobothBrazil andthe
Philippines. Thetextoftheprovisions ofGATT 1947 applied when theinvestigation wasinitiated,
andtheprovisions ofGATT 1994wereineffect in1995when Brazil imposed thecountervailing duties.
ThePhilippines therefore wasnotasking thePanel toapply tothemeasures ruleswhose content did
notalready exist when theprocedures thatledtotheir imposition were initiated, andwhen the
countervailing duties were imposed.
49. InBrazil 'sview, thefactthatthelanguage ofArticle VIofGATT 1994 isthesame asthe
language ofArticle VIofGATT 1947didnotpermit retroactive application oftheprovisions ofGATT
1994 tothemeasures inquestion. Brazil noted that,according toArticle II:4oftheMarrakesh
Agreement, GATT 1994 andGATT 1947 arelegally distinct documents. Thus, theobligations of
GATT 1947 arenotlegally binding onceitterminated on31December 1995, andbecause oftheir
legally distinct status, application ofGATT 1994 would beretroactive application which iscontrary
tocustomary rules ofpublic international law.WT/DS22/R
Page12
50. ThePhilippines asserted thatthelegaldistinction between GATT 1947 andGATT 1994 was
notintended topreclude WTO Members from invoking GATT 1994 asagainst identical provisions
inGATT 1947, butrather toavoid the"free-rider" problem posed bytheprospect ofGATT 1947
Contracting Parties demanding andobtaining WTO benefits onthebasis ofthemost-favoured-nation
clause inGATT 1947. Thus, inthePhilippines 'view, thelegaldistinction between GATT 1947and
GATT 1994 didnotsupport Brazil 'sposition onretroactivity. ThePhilippines alsoreferred tothe
decision oftheAppellate Body inReformulated Gasoline, which noted thattherelevant provisions
inthatcasehadnotchanged asaresult oftheUruguay Round negotiations. ThePhilippines argued
thatthelegaldistinction between GATT 1947 andGATT 1994 didnotbartheinterpretation ofthe
latter inlightoftheformer.
(c) Transition Decisions oftheTokyo Round SCM Committee
51. ThePhilippines argued thattheTokyo Round SCM Committee 'sDecision onTransitional Co-
Existence oftheAgreement onInterpretation andApplication ofArticles VI,XVIandXXIII ofthe
General Agreement onTariffs andTrade andtheMarrakesh Agreement Establishing theWorld Trade
Organization ("Decision onTransitional Co-Existence")11accorded atemporary andlimited rightto
looktotheTokyo Round SCM Code evenafteritstermination, butwasnotintended tocurtail the
rightofaWTO Member toresort tothedispute settlement procedures oftheWTO. ThePhilippines
noted thattheDecision onTransitional Co-Existence provided thattheTokyo Round SCM Code would
"continue toapply withrespect toanycountervailing dutyinvestigation orreview which isnotsubject
toapplication oftheWTO [Subsidies] Agreement pursuant totheterms ofArticle 32.3 ofthat
Agreement".ThePhilippinesreferredtosub-paragraph(d)oftheDecisiononTransitionalCo-Existence,
which provides inpertinent partthat:
"With respect tosuchdisputes forwhich consultations arerequested afterthedateof
thisDecision, signatories andpanels willbeguided byArticle 19oftheUnderstanding
onRules andProcedures Governing theSettlement ofDisputes inAnnex 2oftheWTO
Agreement".
Inturn, Article 19oftheDSU (aswellasArticle 3.2towhich itrefers) cautions thataWTO Panel
"cannot addtoordiminish therights andobligations provided inthe[WTO] covered agreements".
Thus, inthePhilippines 'view, theDecision onTransitional Co-Existence isnotinderogation ofa
WTO Member 'srighttoinvoke theWTO Agreement.
52. InthePhilippines 'view, theDecision onTransitional Co-Existence recognized thatinvocation
oftheWTO Agreement wasnotconstrained byanyTokyo Round SCM Code obligations. Indeed,
theDecision indicates thataMember 'sinvocation oftheWTO Agreement precluded another Member
from objecting based onanypurported inconsistency withtheTokyo Round SCM Code.
53. Brazil tookadifferent viewoftheeffect ofthetransition decisions oftheTokyo Round SCM
Committee. Brazil argued thattheDecision onTransitional Co-Existence andtheDecision on
Consequences ofWithdrawal fromorTermination oftheAgreement onInterpretation andApplication
ofArticles VI,XVIandXXIII oftheGeneral Agreement onTariffs andTrade ("Decision on
Consequences ofTermination")12reflected theintent thatthere would benoretroactive application
ofthenewAgreements. InBrazil 'sview, theDecision onTransitional Co-Existence, bypermitting,
butnotrequiring, theadoption during thetransition period ofanymeasure consistent withtheSCM
11SCM/186 (adopted 8December 1994).
12SCM/187 (adopted 8December 1994).WT/DS22/R
Page13
Agreement, regardless ofwhether itwasconsistent withTokyo Round SCM Code obligations, gives
some guidance ontheapplicable law.Because itdoesnotrequire parties toadopt immediately measures
consistent withtheWTO, itcontemplates thecontinuing application ofTokyo Round SCM Code
obligations, atleasttothemeasures initiated under theTokyo Round SCM Code. Paragraph 2(a),
referred tobythePhilippines initsrequests fordispute settlement proceedings, permits disputes to
bebrought inaccordance withtheDSU butdoesnotaddress what lawisapplicable inconsidering
thedispute. Finally, theDecision onTransitional Co-Existence provides thatforitspurposes theTokyo
Round SCM Code terminated oneyearafterentry intoforce oftheWTO, i.e.on31December 1995.
Thus, inaccordance withthisDecision, theTokyo Round SCM Code isterminated andwasterminated
before thisPanel wasrequested. Therefore, thePhilippines 'reliance onthisDecision asabasis for
thisPanel wasunfounded.
54. Brazil alsoargued thattheDecision onConsequences ofTermination addresses disputes arising
oncetheTokyo Round SCM Code wasterminated, asisthecasehere. Itprovides, interalia,that
fordispute settlement purposes, theTokyo Round SCM Committee shallcontinue inforce fortwo
years aftertheentry intoforce oftheWTO, i.e.through 31December 1996. Thus, inBrazil 'sview,
during 1996 theDecision onConsequences ofTermination controls disputes originating outofa
countervailing dutyinvestigation begun before 1January 1995, asisthecasehere. Paragraph (a)
provides thattheTokyo Round SCM Code shallcontinue toapply withrespect toanyinvestigation
orreview begun prior totheentry intoforce oftheWTO. Brazil maintained thatthiswasconsistent
withArticle 32.3oftheSCM Agreement, allowing forcoverage ofallsubsidies disputes. Brazil
contended that,inaccordance withtheDecision onConsequences ofTermination, theapplicable law
forthecurrent dispute istheTokyo Round SCM Code. TheDecision onConsequences ofTermination
alsoprovides, inparagraph (d),fordisputes toberaised inaccordance with"rules andprocedures
forthesettlement ofdisputes arising under theAgreement applicable immediately prior tothedate
ofentry intoforce oftheWTO Agreement" foranydisputes arising outofaninvestigation orreview
begun prior toentry intoforce oftheWTO.
55. InBrazil 'sview, thePhilippines 'reliance ononeprovision ofparagraph (d)oftheDecision
onConsequences ofTermination insupport ofitsclaim thatGATT 1994applies reads thatprovision
outofcontext. Paragraph (d)states thatthedispute rulesineffect immediately priortoentry intoforce
oftheWTO apply, butthatifconsultations arerequested afterentry intoforce oftheWTO Agreement,
Article 19oftheDSU shallguide panels. Article 19oftheDSU saysonlythat,where aviolation
isfound, thePanel shallrecommend thattheviolating Member bring itsmeasure intoconformity with
theviolated agreement andmaysuggest ways therecommendations could beimplemented. Thisdoes
not,inBrazil 'sview, mean either thatthecomplaint canbebrought under theDSU orthatGATT
1994 oritscovered agreements constitute theapplicable law. Brazil noted thattheDecision on
Consequences ofTermination willremain ineffect through 31December 1996, andtherefore, the
Philippines hashadandwillcontinue tohaverecourse todispute settlement under theTokyo Round
SCM Code until1January 1997.13
13Inthisregard, Brazil noted that,intheanti-dumping area, where there aresimilar transition agreements,
Canada hadrecently requested conciliation under the1979 Tokyo Round Anti-Dumping Code against Mexico,
(ADP/142), theUnited States hadrecently heldconsultations (under theauspices ofthe1979 Tokyo Round Anti-
Dumping Code) withBrazil ontheBrazilian imposition ofanti-dumping duties onblood collection tubes from
theUnited States, andtheUnited States hadbeenconsidering requesting consultations ontheEUanti-dumping
duties onsodaashfrom theUnited States. These proceedings indicated that,under factssimilar tothose atissue
here, Canada andtheUnited States continued tohave recourse to,andCanada, Mexico, andtheUnited States
consider theappropriate rules andforum forresolving disputes involving aninvestigation initiated under aTokyo
Round Code, tobetheTokyo Round Code, notArticle VIofGATT 1994. Brazil argued thatsubsequent practice
oftheparties toatreaty isoneoftheprimary sources forinterpretation ofthattreaty, referring toArticle 31.3(b)
oftheVienna Convention.WT/DS22/R
Page14
56. ThePhilippinesarguedthatwhatevertheeffectoftheTokyoRoundSCMCommittee'stransition
decisions, adecision ofthesignatories totheTokyo Round SCM Code didnotbindtheMembers of
theWTO, themajority ofwhich werenotsignatories tothatCode. While thesignatories totheTokyo
Round SCM Code mayhavedecided toadjust theirrights andobligations under thatCode totakeinto
account theexistence oftheWTO Agreement, theWTO adopted nocorresponding decision onthe
coexistence oftheTokyo Round SCM Code andtheWTO Agreement. NordidWTO Members adopt
anyother decision thatcould beinterpreted asanunderstanding thatMembers 'rights under theWTO
Agreement areinanywaydiminished bytheexistence orcontinued application oftheTokyo Round
SCM Code. Hence, thePhilippines argued thatasaWTO Member, itwasfreetoenforce itsrights
under theWTO Agreement.
(d) Right tochoose legal basis forclaims
57. ThePhilippines considered itwellestablished thatwhere aparty hasalternative legalgrounds
uponwhich tobaseitsclaim, theparty hastherighttochoose thelegalbasisforitsclaim, andsuggested
thattoquestion thatrightwould betodenythecomplaining party itsrights under anyagreements that
theother party argues should notbeapplied. Inthisregard, thePhilippines referred tothePanel
decisions inUnited States -Countervailing Duties onFresh, Chilled andFrozen Porkfrom Canada
(adopted 11July1991), BISD 38S/30 ("Pork") andEEC-Payments andSubsidies PaidtoProcessors
andProducers ofOilseeds andRelated Animal-Feed Proteins (adopted 25January 1990), BISD 37S/116,
para. 110("Oilseeds"). Inthose cases, thedecision ofGATT Contracting Parties whowere also
signatories totheTokyo Round SCM Code toproceed under provisions oftheGATT 1947, rather
thantheTokyo Round SCM Code, wasnotquestioned bytherespective Panels.
58. InthePhilippines 'view, there were important legal andpolicy orinstitutional reasons why
panels haveconsistently respected therightoftheparticipants tochoose thelegalbasisoftheirclaims.
Thisrightpermitstheparticipantsinthemultilateraltradingsystemtochoosetheinstrumentthatcontains
themostfavourable substantive provisions andthatismosteffectively enforced. Itthereby strengthens
themultilateral trading order.
59. ThePhilippines noted inparticular thatinPork, Canada chose toinvoke itsrights under GATT
1947 rather thantheTokyo Round SCM Code apparently because thedispute settlement procedures
oftheTokyo Round Agreements hadbroken down. ThefactthatCanada hadthechoice ofinvoking
itsGATT rights furthered theobjectives ofthesystem, which might otherwise havebeen wholly
frustrated. Similarly, thePhilippines inthiscaseconsidered thedispute settlement procedures and
covered agreements oftheWTO tobemore effective thanthose ofthenow-terminated Tokyo Round
SCM Code. ThePhilippines believed that,bychoosing toexercise itsrights under theWTO Agreement,
itfurthered itstradeinterests aswellastheinterests ofallparticipants inthemultilateral trading system
byinvoking themosteffective instrument currently available governing theapplication ofcountervailing
duties.
60. Brazil argued thatthePhilippines 'position thatitcould resort todispute settlement under the
WTO, invoking GATT 1994, because WTO dispute settlement wasmore effective didnotaffect the
central issue ofdetermining whatsetofobligations wereinforce during theinvestigation inorder to
determine theappropriate procedures fordispute settlement. InBrazil 'sview, there wasnosupport
forthechoice ofdispute settlement procedures onthebasis ofwhat isconsidered "most effective"
independent ofthealleged violation. There arespecific dispute settlement procedures foreachcase
andGATT 1994 obligations cannot beinvoked forpastactsmerely because oneMember considers
itsdispute settlement procedures "more effective" thanthose oftheapplicable law.Brazil argued that
there should beaclearseparation between thedispute settlement procedures aMember mayinvoke
andtheobligations concerning theinvestigation process. Under thePhilippines 'sview, Brazil argued,
itwould bepossible toinvoke GATT 1994 dispute settlement procedures atanytimeand,asaWT/DS22/R
Page15
consequence, itwould bepossible toinvoke theWTO DSUwithregard toobligations under anyprior
agreement whatsoever.
61. ThePhilippines clarified thatithadidentified thegreater effectiveness ofdispute settlement
under theDSU asoneofitsreasons forexercising therighttoproceed under theWTO andnotthe
Tokyo Round SCM Code, notasthebasis ofthatright. InthePhilippines 'sview, thatrightexisted
independently ofthecomplaining party'sreasons forinvoking it.Forexample, thePhilippines argued
thatthePanels inPorkandOilseeds hadnotconditioned theexercise ofparties 'rights tochoose dispute
settlement under GATT 1947rather thanunder theapplicable Tokyo Round SCM Code onthereasons,
motives orpurposes ofthecomplaining party forexercising thatright. ThePhilippines stated that
itsprincipal reason forconsidering theWTO dispute settlement mechanism more effective wasthat,
under theWTO system, Brazil would nothavetheability toblock thereport ofthisPanel onthemerits
thatitwould havehadunder theoldGATT system. ThePhilippines asserted thatBrazil had,inthe
past, blocked adoption ofapanel report, referring toNon-Rubber Footwear (report issued
4October 1989, adopted 13June1995).
62. Brazil tookissuewiththesuggestion thatitwould block apanel report under theTokyo Round
SCM Code, thusrendering dispute settlement ineffective. Brazil asserted thatevery panel report in
adispute involving Brazil hadbeenadopted.
(e) Interpretation ofArticle VIofGATT 1994
63. Brazil alsoargued thatifthePanel decided thatArticle VIofGATT 1994applies tothisdispute,
itmustbeinterpreted without reference tothesubstantive provisions oftheTokyo Round SCM Code
ortheSCM Agreement. TheTokyo Round SCM Code interpreted Articles VI,XVIandXXIII of
GATT 1947, notGATT 1994. Article II:4oftheMarrakesh Agreement specifically states thatthe
twoGATTs arelegally distinct. Moreover, except fortheextension ofdispute resolution under the
Decision onConsequences ofTermination, theTokyo Round SCM Code terminated on
31December 1995 byagreement ofthesignatories totheCode. Therefore, itcannot beapplied to
interpret Article VIofGATT 1994. Moreover, Brazil argued thattoapply therights andobligations
contained intheTokyo Round SCM Code would either addtoordiminish therights andobligations
provided forinArticle VIofGATT 1994-anaction prohibited byArticles 3:2and19:2oftheDSU.
64. Brazil argued that,ifthePanel decided thatArticle VIofGATT 1994could beapplied tothis
dispute despite thefactthattheSCM Agreement didnotapply, thePanel should nonetheless reject
allarguments raised bythePhilippines thatrelyonconcepts, rights, andobligations found intheTokyo
Round SCM Code ortheSCM Agreement, butnotfound within theplain language ofArticle VIof
GATT 1994. Inthisregard, Brazil noted certain arguments raised bythePhilippines that,inBrazil 's
view, arose fromconcepts setforthinandrequirements oftheTokyo Round SCM Code ortheSCM
Agreement thatwerenotfound inArticle VIofGATT 1994. Brazil referred specifically totheargument
thattheAgrarian Land Reform programme isnotasubsidy because itisofgeneral application toall
poorPhilippinefarmers,theargumentthatBrazilwasrequiredtoconsiderwhethertherewasasignificant
increase inimports, aprice effect from theimports, andprice depression orsuppression inmaking
aninjury determination, andtheargument thatBrazil didnotadequately examine other factors that
adversely affected production ofdesiccated coconut. Brazil maintained thatArticle VIofGATT 1994
didnotcontain arequirement forafinding ofspecificity indetermining theexistence ofasubsidy,
anddidnotcontain anyrequirements ontheanalysis ofinjury.
65. ThePhilippines noted outthatArticle XVI:1 oftheMarrakesh Agreement permits WTO dispute
settlement panels toseekguidance from"decisions, procedures andcustomary practices followed by
theCONTRACTING PARTIES toGATT 1947andthebodies established intheframework ofGATT
1947". ThePhilippines alsoobserved thatinReformulated Gasoline, boththePanel andtheAppellateWT/DS22/R
Page16
Body sought guidance fromoldGATT decisions. Inaddition, thePhilippines asserted thatthePanel
inNon-Rubber Footwear hadacknowledged thatcertain interpretations ofArticle VIofGATT 1947
antedated, andwere merely reflected by,theTokyo Round SCM Code.14
(f) Application oftheAgreement onAgriculture
66. Brazil alsoargued thatapplication oftheAgreement onAgriculture tothisdispute would
constitute retroactive application andthattherewasnoagreement among theparties tosuchretroactive
application. Inaddition, Brazil maintained thatArticle 13oftheAgreement onAgriculture cannot
apply iftheSCM Agreement doesnotapply. Since theSCM Agreement -bytheterms ofArticle 32.3-
doesnotapply tothisdispute, Article 13oftheAgreement onAgriculture alsocannot apply.
67. Brazil noted thatthechapeau ofArticle 13isbased specifically ontheprovisions ofGATT
1994andtheSCM Agreement. Article 13actsasaconstraint uponactions taken under thecombined
auspices ofGATT 1994 andtheSCM Agreement. Because thisdispute isnotunder theauspices of
theSCM Agreement, because ofthewording ofArticle 32.3ofthatAgreement, Article 13cannot
apply tothisdispute. Inaddition, Article 13constrains countervailing duties asdefined infootnote 4
toArticle 13.Thatfootnote states thatthecountervailing duties soconstrained "arethose covered
byArticle VIofGATT 1994andPartVoftheAgreement onSubsidies andCountervailing Measures".
Therefore, forArticle 13tobeapplicable, theduties atissue mustbecovered byPartVoftheSCM
Agreement aswellasbyArticle VIofGATT 1994. Because theSCM Agreement doesnotapply to
thisinvestigation ortheresulting duties, byreason ofArticle 32.3, thecountervailing duties atissue
inthisdispute cannot besubject toArticle 13oftheAgreement onAgriculture.
68. ThePhilippines argued thatBrazil 'sreading ofArticle 13oftheAgreement onAgriculture
wasstrained andstilted. InthePhilippines 'view, theword "and" inArticle 13oftheAgriculture
Agreement mustbeunderstood inthedisjunctive sense andthusdidnotlimittheapplicability ofthe
Agreement onAgriculture onlytosituations where bothArticle VIofGATT 1994 andtheSCM
Agreement mustbeinvoked. Rather, thatprovision means thattheAgreement onAgriculture applies
tosituations covered byeither Article VIofGATT 1994 ortheSCM Agreement, orboth.
2. Terms ofReference
69. Brazil argued that,initsfirstsubmission tothePanel, thePhilippines hadsought tobroaden
thescope oftheterms ofreference beyond thematters setforth initsrequest forestablishment ofa
panel, which request defines thesubstantive mandate ofthePanel. Brazil identified thefollowing as
being beyond theproper scope ofthePanel'sterms ofreference:
(a) Articles IandIIofGATT 1994.
(b) Brazil 'sfailure torevoke theOrdinance andreimburse duties collected based on
representations bythePhilippines asaviolation ofArticle VIofGATT 1994.
(c) Brazil 'srefusal toconsult under GATT 1994 asinconsistent withitsobligations.
(d) Article 13oftheAgreement onAgriculture.
(e) Brazil 'sinjury determination.
14Non-Rubber Footwear, para. 4.10.WT/DS22/R
Page17
70. Brazil referred toArticle 6.2oftheDSU, which provides inpartthat"The request forthe
establishment ofapanel shallbemade inwriting. Itshallindicate whether consultations wereheld,
identify thespecific measures atissueandprovide abriefsummary ofthelegalbasisofthecomplaint
sufficient topresent theproblem clearly". Brazil asserted thatArticle 6.2oftheDSUreflects substantial
pastpanel practice thateachclaim inadispute must bespecified withsome particularity within the
documents included intheterms ofreference. Inthisregard, Brazil referred tothereport ofthePanel
inCotton Yarn, where thePanel stated that"thefundamental purpose" oftheterms ofreference is
togiveadvance notice tothedefendant andthirdparties oftheclaim atissueandtherefore, theclaim
hadtobe"expressly referred to"intherequest forestablishment ofapanel inorder tobewithin the
terms ofreference.15Brazil alsoreferred tothereport ofthePanel inSalmon, which noted thatthe
term"matter" identified intheterms ofreference "consisted ofthespecific claims stated byNorway
inthese documents [thePanel Request andaddendum] withrespect totheimposition ofthese duties
bytheUnited States".16ThePanel further addressed theimportance ofthenotice function oftheterms
ofreference:
"Thenotice function ofterms ofreference wasparticularly important inproviding the
basis foreachParty todetermine howitsinterests might beaffected andwhether it
would wishtoexercise itsrighttoparticipate inadispute asaninterested thirdparty.
ThePanel observed thatterms ofreference often were standard terms ofreference,
asinthepresent dispute, inwhich thedefinition ofthematter hadbeensupplied by
awritten statement prepared entirely bythecomplaining Party. Inthelightofthese
considerations, thePanel concluded thatamatter, including eachclaim composing that
matter, could notbeexamined byapanel under theAgreement unless thatsamematter
waswithin thescope of,andhadbeenidentified in,thewritten statement orstatements
referred toorcontained intheterms ofreference".17
Brazil alsonoted thatinNon-Rubber Footwear MFN,18thePanel hadfound thattheterms ofreference
werelimited tomatters raised byBrazil initsrequest forestablishment ofapanel. Thus, Brazil argued
thattherequirement thattheclaims bestated withsome particularity intherequest forestablishment
ofapanel (orother documents included within theterms ofreference) isalong-standing practice that
wasexplicitly recognized byArticle 6.2oftheDSU.
71. ThePhilippines asserted thatitsrequests forrelief didnotbroaden theterms ofreference.
ThePhilippines contended thatArticle 6.2oftheDSU requires onlythatthestatement ofaclaim be
specific enough "topresent theproblem clearly", which itcontended wasthecasehere. ThePhilippines
alsonoted thatthestandard terms ofreference under theoldGATT system ("examine inthelightof
therelevant GATT provisions") differed fromthestandard terms ofreference under Articles 7.1and
7.2oftheDSU ("address therelevant provisions inanycovered agreement cited bytheparties").
InthePhilippines 'view, thelatter more sharply defines thePanel'smandate toaddress the"relevant"
provisions inthecitedagreements, notonly"cited" provisions. Moreover, thePhilippines asserted
that,unlike PartF(a)oftheMontreal Improvements totheGATT Dispute Settlement Rules and
Procedures, L/6489 (13April 1989), Article 6.2oftheDSU omits anyreference toacomplaint 's
15Cotton Yarn, para. 463.
16Salmon, para. 212.
17Salmon, para. 208. Brazil noted thatthispoint wasreiterated inthecompanion anti-dumping Panel report.
UnitedStates-ImpositionofAnti-DumpingDutiesonImportsofFreshandChilledAtlanticSalmonfromNorway,
ADP/187 (adopted 24April 1994) ("Salmon ADP"), para. 336.
18Non-Rubber Footwear MFN, para. 6.2.WT/DS22/R
Page18
"factual" basisandsimply requires asummary ofthecomplaint 's"legal" basis. ThePhilippines argued
thatsomeofBrazil'scriticismsconfusedthenotionof"claims"withtheconceptsof"relevantprovisions"
andtherelief requested.
(a) Articles IandIIofGATT 1994
72. Brazil argued thatArticles IandIIofGATT 1994 were notevenmentioned inanyofthe
documents referred tointheterms ofreference. Thus, anyclaims under those Articles werebeyond
thescope ofthePanel'smandate. Brazil further maintained thatthePhilippines 'claim thatBrazil had
violated Article VIofGATT 1994 wasnotasufficient basis fromwhich toinferaclaim ofviolation
ofArticles IandIIofGATT 1994. Aclaim under Articles IandIImust bespecifically identified.
Inthisregard, Brazil referred tothePanel decision inNon-Rubber Footwear MFN.19Inthatcase,
thePanel disallowed claims under Articles XandXXIII:1(b) and(c)ofGATT 1947 because itfound
thatalthough thequestion ofdiscrimination hadbeenraised, ithadnotbeenraised insuchawayin
therequest forestablishment ofapanel astoimplicate Article X.With respect toArticle XXIII:1(b)
and(c),thePanel found thatBrazil hadargued theUnited States hadacted inconsistently withits
obligations buthadnotclaimed thatbenefits accruing toitunder theGeneral Agreement werenullified
orimpaired. Therefore, thePanel found thatmatters raised byBrazil withrespect toArticle XXIII:1(b)
and(c)were notwithin theterms ofreference ofthePanel.20Brazil maintained thatthiscasewas
similar, inthatthePhilippine request forestablishment ofapanel argued thatBrazil 'sactions were
inconsistent withArticle VIofGATT 1994, butdidnotclaim thattheywere inconsistent withits
obligations under Articles IandIIofGATT 1994.
73. ThePhilippines argued thatArticles IandIIofGATT 1994arecovered bytheterms ofreference
because theyarerelevant provisions oftheagreement, GATT 1994, cited bythePhilippines. The
Philippines asserted thatArticles IandIIlaydown thegeneral ruleofnon-discrimination, towhich
Article VIisanexception, citing thePorkPanel, para. 4.4. InthePhilippines 'view, Articles 7:1
and2oftheDSUindicate that,while apanel'smandate islimited totheagreement citedbytheparties
intheterms ofreference, apanel isauthorized toexamine andbaseitsruling onallrelevant provisions
ofthecitedagreement, inthiscase,GATT 1994. ThePhilippines considered Articles IandIIrelevant
because theylaydown themost-favoured-nation principle andthecommitment totariff bindings to
which Article VIallows alimited exception fortheimposition ofcountervailing duties.
(b) Failure torevoke andreimburse
74. Brazil noted thattherequest forestablishment ofapanel sought afinding thattheimposition
oftheduties wasaviolation ofArticle VIofGATT 1994, andarecommendation thattheduties be
revoked andreimbursed. However, inBrazil 'sview, thisdidnotconstitute aclaim thatafailure to
revoke themeasure andreimburse duties priortothecompletion ofthedispute settlement process was
itself aviolation ofGATT 1994. Brazil argued thatitwasincomprehensible howafailure torevoke
themeasure andreimburse duties could possibly constitute aviolation ofGATT 1994 intheabsence
ofafinding thattheimposition ofthemeasure wasinconsistent withitsobligations.
75. ThePhilippinesarguedthatitsrequestforreliefconcerningBrazil'sfailuretorevokethemeasure
andreimburse thecollected duties simply addressed Brazil 'scontinued implementation ofits
countervailing measure despite Philippine representations ontheimpropriety ofthatmeasure. The
Philippines clarified thatitwassimply requesting thePanel toinclude reimbursement ofduties paid
19Non-Rubber Footwear MFN, para. 6.2.
20Non-Rubber Footwear MFN.WT/DS22/R
Page19
under thedisputed measure among thereliefs tobegranted tothePhilippines, referring toWT/DS22/5,
page2,penultimate paragraph, sub-paragraph 2.
(c) Failure toconsult
76. Brazil recognized thattherequest forestablishment ofapanel described thePhilippines 'view
oftheconsultation history, butdenied thatthisinitself stated aclaim before thePanel. Brazil noted
thattheconsultation history isusually included inarequest forestablishment ofapanel, butargued
thatitdoesnotconstitute thebasis ofaclaim initsownrightunless aspecific claim wasidentified
intherequest forestablishment ofapanel, which Brazil maintained wasnotthecasehere.
77. ThePhilippines contended thatBrazil 'sargument thatthedescription oftheconsultation history
cannot form thebasis ofaclaim merely begsthequestion whether arefusal toconsult, which would
ofcourse bepartoftheconsultation history, could bethesubject matter ofaclaim. ThePhilippines
maintained thatitsrequest forestablishment ofapanel accused Brazil ofrefusing arequest for
consultations under Article XXIII:1 andalleged afailure toenterintoconsultations withthePhilippines
inaccordance withXXIII:1 ofGATT 1994, thereby violating itsobligations under Article XXIII:1
ofGATT 1994 andArticle 4oftheDSU.
(d) Injury andtheAgreement onAgriculture
78. Brazil argued thatthePhilippines 'claims regarding injury andtheAgreement onAgriculture
didnotmeet therequirement ofArticle 6.2oftheDSU thatarequest forestablishment ofapanel
"identify thespecific measures atissueandprovide abriefsummary ofthelegalbasisofthecomplaint
sufficient topresent theproblem clearly". InBrazil 'sview, none ofthepoints setforth inthe
Philippines 'request forestablishment ofapanel stated thelegalbasisofanyclaim withrespect toinjury
ortheAgreement onAgriculture. Brazil noted thatdocument WT/DS22/3 andstatements made by
Brazil andthePhilippines attheDSBmeeting where therequest forestablishment ofapanel wasfirst
discussed addressed onlythequestion ofapplicable law. Thus, inBrazil 'sview, theonlybasis for
raising claims concerning theinjury determination ortheAgreement onAgriculture would betherequest
forestablishment ofapanel itself. Brazil recognized thatWT/DS22/5 contained acitation toparagraph
6(a)ofArticle VIofGATT 1994, implicitly referencing injury, andacitation toArticle 13oftheWTO
Agreement onAgriculture. However, Brazil noted thattheterminjury wasnotevenusedintherequest
forestablishment ofapanel, although itdidrefertolikeproduct. Thatreference wasinthecontext
ofthesubsidy calculation, notinjury. Thus, inBrazil 'sview, noclaim wasraised withrespect to
likeproduct inthecontext ofBrazil 'sdetermination ofinjury. Moreover, Brazil contended thatthere
wasnoexplanationofhowthePhilippinesconsideredBraziltohaveviolatedeithertheinjuryrequirement
ofArticle VI,orArticle 13oftheAgreement onAgriculture. Thus, inBrazil 'sview, therequest for
establishment ofapanel didnotstateaclaim withrespect toeither provision.
79. Inthisregard, Brazil citedthePanel report inCotton Yarnasproviding adescription ofwhat
constitutes aclaim. According tothatreport, "aclaim [is]thespecification oftheparticular legaland
factual basisuponwhich itwasalleged thataprovision ofthisAgreement hadbeenbreached".21The
Panel alsonoted thatsince there maybemore thanonelegalbasisforalleging thebreach ofthesame
provision oftheAgreement aclaim foronewould notconstitute aclaim fortheother.22Finally, the
Panel indicated thatthelegalbasis fortheclaim mustbedescribed inthedocuments within theterms
21Cotton Yarn, para. 444.
22Cotton Yarn, para. 444.WT/DS22/R
Page20
ofreference.23Since, inBrazil 'sview, noneofthedocuments within theterms ofreference ofthis
Panel provided anydescription ofthelegalorfactual basisforthePhilippines 'claims regarding injury
andtheAgreement onAgriculture, suchclaims werenotwithin theterms ofreference ofthisPanel.
80. ThePhilippines maintained thatitsrequest forestablishment ofapanel adequately setforth
aclaim pertaining toBrazil 'sinjury determination, andthatBrazil hadhadnotice thatthePhilippines
considered thatdetermination deficient. ThePhilippines noted thatBrazil recognized thattherequest
forestablishment ofapanel implicitly referred totheissueofinjury byciting Article VI:6(a) ofGATT
1994. Moreover, thePhilippines 'request alsodiscussed likeproduct inthecontext ofcriticizing Brazil 's
calculation ofthecountervailing duty, inaddition tothecalculation ofthesubsidy. Inthisconnection,
thePhilippines 'request noted thatBrazil wasaproducer ofcoconuts anddesiccated coconut, both
ofwhich areavailable inthedomestic market ofBrazil. Thus, inthePhilippines 'view, Brazil was
dulyapprised thatthePhilippines wascontesting Brazil 'sinjury findings.
81. ThePhilippines referred tothereport ofthePanel inCotton Yarn ashaving recognized that
ageneral criticism ofananti-dumping methodology canencompass more specific aspects ofthat
methodology. Cotton Yarn, para. 463. ThePhilippines 'criticism ofBrazil 'sinjury andcausation
findingssimplyrelatedtothebasicrequirementofArticleVI:6(a)ofGATT1994thatsuchdeterminations
bebased onadequate factsandreasons. Thethrust ofthatcriticism wasthatBrazil hadrelied on
indeterminate andinconsistent facts, some ofwhich undercut Brazil 'sownconclusions, andadvanced
reasons thatcould notbesupported bysuchindeterminate facts. InthePhilippines 'view, theseasserted
deficienciesweresufficientlyencompassedbythebasiccriticismthattheinjuryfindingswereinconsistent
withArticle VI:6(a) ofGATT 1994. Moreover, thePhilippines pointed outthatfollowing aninformal
meeting between theparties on27October 1995 thePhilippines hadsentBrazil aletter requesting
additional information about Brazil 'sinjury determination, which showed thatBrazil wasfullyaware
ofthePhilippines 'questions about Brazil 'sinjury determination.
82. Finally, thePhilippines asserted thatitsrequest foraruling onthemeasure 'sinconsistency
withtheAgreement onAgriculture wasasufficient statement ofaclaim ofviolation ofthatAgreement.
ThePhilippines 'request forestablishment ofapanel clearly alleged thatthedisputed measure was
inconsistent withArticle 13oftheAgreement onAgriculture, andasserted thattheinvestigated
programmes, asimplemented byadeveloping country likethePhilippines, should nothavebeen
considered assubsidies perse.InthePhilippine 'sview, Brazil wasputsufficiently onnotice concerning
thePhilippines 'claims under theAgreement onAgriculture.
83. InBrazil 'sview, thePhilippines 'argument invited thePanel toignore therequirement setforth
inArticle 6:2oftheDSU thattherequest forestablishment ofapanel must"provide abriefsummary
ofthelegalbasis ofthecomplaint sufficient topresent theproblem clearly". Brazil asserted that,in
arguing thatBrazil wasonnotice concerning thePhilippines 'claims regarding injury, despite thefact
thattherequest forestablishment ofapanel doesnotevenmention theterm"injury," merely because
Brazil hadreceived questions from thePhilippines raising concerns about theinjury finding during
thecourse oftheinformal bilateral consultations, thePhilippines failed torecognize theimportance
ofthenotice function ofthepanel request. Brazil further noted thatthequestions referred tobythe
Philippines concerned Brazil 'sinjury determination inlightofBrazil 'sobligations under theTokyo
Round SCM Code. Thus, inBrazil 'sview, thesequestions didnotprovide anynotice ofconcern under
GATT 1994.
84. Brazil argued thatwhether issues areraised intheprocess leading uptoarequest for
establishment ofapanel isaseparate question from whether theyareproperly within theterms of
23Cotton Yarn, para. 456.WT/DS22/R
Page21
reference ofthePanel bybeing setforthinthedocuments citedintheterms ofreference. Brazil argued
thatprevious Panels haverecognized theimportance ofthenotice function, notjustfortheparty against
whom thecomplaint ismade, but,equally importantly, forthird parties inorder toenable them to
determine whether theirinterests areaffected bythedispute. Inthisregard, Brazil referred tothe
Panel decision inSalmon, where thePanel stated:
"The Panel considered thattheterms ofreference served twopurposes: definition
ofthescope ofapanel proceeding, andprovision ofnotice tothedefending signatory
andother signatories thatcould beaffected bythepanel decision andtheoutcome of
thedispute. Thenotice function intheterms ofreference wasparticularly important
inproviding thebasisforeachsignatory todetermine howitsinterests might beaffected
andwhether itwould wishtoexercise itsrighttoparticipate inadispute asaninterested
thirdparty".24
More recently theCotton Yarn Panel stated:
"ThePanel considered thatitwasnotsufficient thatacontention simply "canreasonably
beinterpreted" asamounting toaclaim, asthatimplied there could beindeterminacy
orambiguity regarding theambit oftheclaim. Thiswould intheviewofthePanel,
runcounter tothefundamental purpose oftheterms ofreference, which wastogive
advance notice tothedefendant andtothirdparties oftheclaim atissue".25
Thus, inBrazil 'sview, thefactthatthePhilippines mayhaveindicated concerns atprior stages of
thisdispute wasaninsufficient basis fortheconclusion thattheyconstituted claims within theterms
ofreference ofthePanel, unless theywerespecifically stated intherequest forestablishment ofapanel.
Indeed, Brazil noted thatissues could wellhavebeendiscussed intheconsultation process andthen
notraised before thePanel, astheclarification andresolution ofissues ifpossible wasonefunction
oftheconsultations.
3. Burden ofProof
85. ThePhilippines tooktheposition thattheallowance ofcountervailing duties under Article VI:3
ofGATT 1947 isanexception tothebasic freetrade principles ofArticle I:1ofGATT 1947.
Accordingly,inthePhilippines'view,ArticleVI:3hasbeeninterpretednarrowly,andanypartyinvoking
ithastheburden ofproving compliance withitsrequirements.26These principles alsoapply tothe
identical provisions ofGATT 1994. Thus, thePhilippines argued thatBrazil boretheburden of
identifying positive evidence thatitsimposition ofacountervailing measure against Philippine desiccated
coconutmetallrequirementsfortheapplicationofacountervailingmeasureundertheexceptionprovided
forinArticle VI.ThePhilippines asserted that,consistent withGATT 1947precedents andpractice,
Article VIofGATT 1994prohibits theimposition ofacountervailing dutyunless thefollowing three
elements areestablished: (a)asubsidy oftherelevant product bythegovernment oftheexporting
country;(b)materialinjurytothedomesticindustryproducingthesameoralikeproductintheimporting
country; and,(c)acausal relationship between theallegedly subsidized imports andthealleged injury
tothepertinent domestic industry. ThePhilippines asserted thatBrazil hadfailed toprove anyofthe
necessary elements fortheimposition ofacountervailing duty.
24Salmon, para. 208.
25Cotton Yarn, para. 456.
26Insupportofthisposition,thePhilippinesreferredtothePanelreportsinPork,para.4.4,andNewZealand-
Imports ofElectrical Transformers from Finland, (adopted 18July1985), BISD 32S/55, para. 4:4.WT/DS22/R
Page22
86. Brazil tooktheposition thatlongstanding panel practice required thattheparty thatinvokes
thedisputesettlementprovisionssubstantiateitsclaims27,andthatthisburdenwasnotshiftedfordisputes
under Article VI.Brazil referred toseveral disputes inwhich, itasserted, Panels hadchosen notto
ruleonthequestion ofwhether Article VIconstituted anexception andhadproceeded toaccord the
burden tothecomplaining party, justaswithother GATT dispute settlements.28Thus, inBrazil 'sview,
theburden inthiscasewasonthePhilippines toestablish thatBrazil 'sactions wereinconsistent with
itsobligations.
87. ThePhilippines argued thatBrazil 'sreliance onthereport ofthePanel inUruguayan Recourse
toArticle XXIII wasmistaken andmisleading. ThePhilippines argued thatthePanel hadconcluded
inthatcasethatthecomplaining party hastheburden ofproof onlyinanon-violation complaint under
Article XXIII:1(b).29However, inthePhilippines 'view, thePanel hadrecognized thatinaviolation
complaint, theoffending "action would prima facie,constitute acaseofnullification orimpairment".30
AsthePhilippines 'request forestablishment ofapanel made clear, thisdispute involved aviolation
complaint under Article XXIII:1(a), inwhich theburden ofproof wasonBrazil asthepartythatimposed
thecountervailing duty. ThePhilippines alsoargued thatBrazil 'sreliance onAlcoholic Drinks was
misplaced andmisleading. InthePhilippines 'sview, theissue inthatcaseinvolved whether the
complaining party wasrequired toprove theexistence ofthepractices complained against where there
wasafactual dispute between theparties astotheexistence ofsome ofthose practices.31ThePanel
concluded thatitwasnecessary forthecomplaining party toprove theexistence ofthepractices
complained against before thePanel could evaluate those practices inlightofGATT obligations. In
thiscase, bycontrast, there wasnoquestion thatBrazil hadimposed thecountervailing measure at
issue. Thus, thePhilippines considered thatithadsatisfied thepreliminary needtoidentify theexistence
ofthedisputed measure, which Brazil thenhadtheburden ofjustifying.
88. Brazil tooktheposition thatalthough itagreed withthePhilippines 'contention thatinthecase
ofaprima facienullification orimpairment ofbenefits, there wasapresumption ofadverse impact
onthecomplaining party andtheresponding party boretheburden ofrebutting thatpresumption, that
wasnotthesituation before thisPanel. Acaseofprima facienullification andimpairment canbefound
onlyifaninfringement ofobligations isfirstfound. InBrazil 'sview, thequestion before thisPanel
waswhether therehadbeenaninfringement ofBrazil 'sobligations inthefirstplace. Inthatsituation,
Brazil considered thatpastpractice indicated thattheburden ofproof wasonthecomplaining party.
27Inthisregard, Brazil cited thePanel reports inUruguayan Recourse toArticle XXIII, L/1923 (adopted
16November 1962), BISD 11S/95, paras. 15-16 andCanada -Import, Distribution andSaleofCertain Alcoholic
Drinks byProvincial Marketing Agencies, DS17/R (adopted 18February 1992) ("Alcoholic Drinks"), BISD
39S/27, para. 5.3.
28Cotton Yarn, para. 516,EC-Anti-Dumping Duties onAudio Tapes inCassettes Originating inJapan,
ADP/136 (unadopted, 28April 1995) ("Audiocassettes") paras. 358-359, Salmon ADP, para. 483.
29ThePhilippines alsoconsidered thatArticle 26:1(a) oftheDSU recognizes thatitisonlywithrespect to
non-violationcomplaintsunderArticleXXIII:1(b)thatthecomplainantbearstheburdenof"present[ing]adetailed
justification insupport ofanycomplaint relating toameasure which doesnotconflict withtherelevant covered
agreement".
30Uruguayan Recourse toArticle XXIII, para. 15.
31Alcoholic Drinks, para. 5.3.WT/DS22/R
Page23
4. Scope ofthePanel 'sExamination ofBrazil 'sDecision
89. ThePhilippines asserted that,inexamining whether Brazil 'sfindings satisfied theprerequisites
ofArticle VIofGATT 1994 forimposition ofacountervailing measure, thePanel mustexamine the
factual andlegalreasons setforth intheOrdinance containing Brazil 'sfinaldetermination, butmust
disregard anyalleged evidence andreasons notcovered intheOrdinance itself, because totakeinto
account considerations beyond theOrdinance would betantamount toallowing aparty tomodify and
rationalize itsdetermination expostfacto.32InthePhilippines 'view, theOrdinance fellshort ofthe
requirements fortheimposition ofcountervailing duties, inthatBrazil didnotidentify adequate evidence
andreasons tosupport itsfindings, andignored evidence thatfavoured thePhilippines.
90. Brazil asserted thatthePanel should examine notonlythefactual andlegalreasoning setforth
inthefinalOrdinance butalsothatsetforthinDTIC Opinion 006/95. Brazil stated that,under Brazilian
law,theOrdinance, published intheDiario Official, isasummary ofthereasons andbases forits
decision, which arereflected more fully inDTIC Opinion 006/95. Brazil noted that,initsfirst
submission, thePhilippines hadrepeatedly referred toanother document, DTIC Opinion 004/95. Brazil
asserted thatthePhilippines erred inreferring toDTIC Opinion 004/95, because thefinaldetermination
wasbased onDTIC Opinion 006/95.33
91. Brazil stated that,while notpublished intheDiario Official, DTIC Opinion 006/95, which
wassigned bytheindividuals responsible fortheinvestigation andpreceded thepublished final
Ordinance, wasavailable toallinterested parties upon request. Brazil maintained thatconsideration
ofDTIC Opinion 006/95 would notconstitute anexpostfactomodification orrationalization ofBrazil 's
decision. Rather, Brazil contended, consideration ofDTIC Opinion 006/95 would beconsistent with
prior panel practice, referring tothePanel reports inKorea -Anti-Dumping Duties onImports of
Polyacetal Resins fromtheUnited States, ADP/92 (adopted 27April 1993) ("Polyacetal Resins"), BISD
40S/205, para. 211,andBrazil -Imposition ofProvisional andDefinitive Countervailing Duties on
MilkPowder andCertain Types ofMilkfromtheEuropean Economic Community, SCM/179 (adopted
28April 1994) ("Milk Powder"), para. 291. Brazil asserted that,unlike thetranscript ofdeliberations
thePanel declined toconsider inPolyacetal Resins, DTIC Opinion 006/95 isaformal statement of
theissues offactandlawconsidered material andthereasons andbases therefore, signed bythe
investigating authorities responsible, andmade publicly available totheinterested parties. Moreover,
following thePanel report inMilkPowder, where thePanel looked onlyattheexplanation provided
inthepublished notice ofBrazil 'sdetermination, stating that"itcould nothaveregard tofactual reasons
presented byBrazil tothePanel butnotstated inthepublic notice ofthefindings orotherwise contained
inapublic statement ofreasons issued bytheBrazilian authorities atthetimeofthatfinding," the
Brazilian authorities hadrevised theirprocedures. Consequently, inthisinvestigation, DTIC Opinion
006/95 wasissued bytheBrazilian authorities atthetimeofthefinalfinding andwaspublicly available
totheinterested parties uponrequest. Brazil noted thatDTIC Opinion 006/95 was,infact,requested
andprovided toonePhilippine exporter. Theco-petitioners hadalsorequested andreceived acopy.
Brazil maintained thatthePhilippine government wasoffered theopportunity toreview therecord and
32However, thePhilippines argued thattheadministrative record canbeconsidered inconnection withany
relevant evidence thattheOrdinance improperly ignored.
33Inthisregard, Brazil noted thattheOrdinance itself indicates thatDTIC Opinion 004/95 isnotthebasis
ofthefinaldetermination. Initsdiscussion ofthecasehistory, theOrdinance notes thatafter the21July1995
meeting withtheConselho Tecnico Consultivo (Technical Consultative Counsel) atwhich DTIC Opinion 004/95
wasconsidered, thatopinion wasdiscussed andtheinvestigation wascontinued untiladditional information had
been gathered.WT/DS22/R
Page24
receive acopyofDTIC Opinion 006/95 butdidnotavailitselfoftheopportunity.34Thus, inBrazil 's
view, DTIC Opinion 006/95 ispartofthepublic statement ofreasons accompanying thefinal
determination, along withtheOrdinance published intheDiario Official, andmustbeconsidered in
thePanel'sreview ofBrazil 'sdetermination.
92. ThePhilippines challenged Brazil 'sreliance onDTIC Opinion 006/95. ThePhilippines noted
thatthisopinion wasnotmentioned intheOrdinance, although DTIC Opinion 004/95, dated
18July1995, was. Moreover, thePhilippines asserted thatitwasunaware oftheexistence ofDTIC
Opinion 006/95 untilitreceived Brazil 'sfirstsubmission, despite having requested thatBrazil provide
itwithacopyofanyinternal memorandum relied uponinthedetermination. InthePhilippines 'view,
DTIC Opinion 006/95 wasatmostaportion oftheadministrative record thatcould notbeconsidered
asabasis fortheOrdinance 'sfindings unless dulyidentified intheOrdinance itself. Inthisregard,
thePhilippines referred tothePanel report inMilk Powder, paras. 286-87, 291,312:
"Theadministrative record ofaninvestigation didnotconstitute astatement ofreasons
butwassimply acollection ofdocuments containing factsandarguments. ...Itwas
incumbent upontheinvestigating authorities toprovide areasoned opinion explaining
howsuchfactsandarguments hadledtotheirfinding. ...[T]otakeintoaccount ...
considerations [beyond theOrder imposing measures] would betantamount toallowing
aParty tomodify andrationalize itsdetermination expostfacto".
93. ThePhilippines alsoreferred tothereport ofthePanel inPolyacetal Resins, paras. 251-54
and284,where thePanel didnotconsider dataina"staff report" because itwasnotmentioned or
discussed in,andthuswasdeemed notrelied onby,thepublic statement ofreasons forthedetermination.
InthePhilippines 'view, DTIC Opinion 006/95 merely contained recommendations, andwasnot
mentioned ordiscussed intheOrdinance, which should identify andexplain anyadopted
recommendations.
94. ThePhilippines considered Brazil 'sargument thatDTIC Opinion 006/95 waspartofthepublic
statement ofreasons, because itwasaformal statement thatwasavailable totheinterested parties,
tobewithout merit. Inthisregard, thePhilippines referred tothereport ofthePanel inMilkPowder,
which stated "That [theinvestigated country] might havehadaccess totherecord containing thefacts
considered bytheBrazilian authorities wasirrelevant in...respect" tothe"lack ofexplanation ofthe
reasons" forBrazil 'sfindings. MilkPowder, para. 294.Moreover, thePhilippines alleged thatBrazil
hadprecluded thePhilippines 'access toDTIC Opinion 006/95 bynotmentioning itintheOrdinance,
andhadfailed toprovide thePhilippines withacopydespite thefactthatthePhilippines hadrequested
acopyofanyinternal memorandum thatformed thebasisofthedetermination intheOrdinance. The
Philippines acknowledged thatitsrequest wasmade before theissuance oftheOrdinance, butconsidered
thatthisdidnotjustify Brazil 'sfailure toprovide itwithacopyaftertheOrdinance hadbeenissued.
ThePhilippines noted thattherequest fromthePhilippine exporter whodidreceive acopyofDTIC
Opinion 006/95 wasalsoreceived byBrazil before theissuance oftheOrdinance. Moreover, the
Philippines hadcontinued toseekclarification fromBrazil concerning theOrdinance, including aletter
dated 27October 1995, more thantwomonths afterissuance oftheOrdinance, containing questions
concerning Brazil 'sdetermination. However, Brazil hadnottaken thatopportunity toprovide the
Philippines withacopy ofDTIC Opinion 006/95, andhadnotevenresponded tothePhilippines '
questions. Thus, inthePhilippines 'view, Brazil itself hadobstructed boththepublicity andthe
34Brazil acknowledged thatthePhilippine government didrequest anymemorandum thatformed thebasis
ofthefinaldetermination inaletter submitted afewdaysbefore thefinaldecision wasmade. Under Brazilian
practice DTIC Opinions arenotfinalandpartoftherecord untilthefinaldetermination ismade, soBrazil did
notsupply itatthattime.WT/DS22/R
Page25
accessibility ofDTIC Opinion 006/95, andtherefore could notrelyonitinsupport ofitsdetermination
assetforth intheOrdinance.
95. Brazil responded thatthecitedprevious panels 'analyses regarding whatdocuments toconsider
werebased onprocedural requirements oftheTokyo Round Codes, notofArticle VI.Article VIof
GATT 1994 didnotrequire anypublic notice ofthereasons orbases forthedecision. Intheview
ofBrazil, therefore, itwasirrelevant under Article VIwhether thedocuments werepublicly available.
Aslongasthose documents wereofficial, contemporaneous statements ofthereason andbases ofthe
decision, theyshould beconsidered bythisPanel.
5. Translation ofDTIC Opinion 006/95
96. On12June1996, thesecond dayofthePanel'sfirstmeeting withtheparties, Brazil provided
thePanel withatwo-page document setting forth corrections toitstranslations ofInterministerial
Ordinance No.11andDTIC Opinion 006/95. Brazil indicated thattheinitial translation didnotproperly
reflect theoriginal Portuguese-language determinations.
97. ThePhilippines objected totheconsideration bythePanel ofthecorrected translations ofthe
twotexts. ThePhilippines considered thatthere weresubstantive differences between theinitial and
corrected translations. ThePhilippines argued thatitlacked theresources tocheck thecorrected
translation, thattodosowould delay thedispute settlement process, andthattoaccept thecorrected
translations atthislatedatewould beunfair tothePhilippines.
98. Atthemeeting, thePanel tooknoteofthecorrected translations submitted byBrazil. Itinformed
thePhilippinesthatifitbelievedthecorrectedtranslationinaccuratelyreflectedtheoriginaldetermination
itshould soinform thePanel, andthePanel would make anysuchruling asmight berequired. The
Panel indicated thatifthePhilippines considered thatitneeded more timeasaresult ofthesubmission
ofthecorrected translations, thePanel would grant suchadditional time.
99. ThePhilippines subsequently submitted aletter objecting tothe"acceptance" bythePanel of
thecorrected translations. ThePhilippines objected toBrazil 'sfailure toprovide advance warning
ofthepending corrections, andinferred thatthecorrections weresubmitted inresponse toarguments
made during theoralpresentation ofthePhilippines andthirdparties and/or toaddress some ofthe
concerns expressed bythePanel initsquestions toBrazil. ThePhilippines indicated thatitlacked
theresources toengage aprofessional translator, butpointed outthreeinstances inwhich itconsidered
thatBrazil hadgonebeyond translation corrections tochange thesubstance ofthedocuments inquestion.
B. Failure toConsult
100. ThePhilippinesobservedthatthedutytoaccordsympatheticconsiderationtoandaffordadequate
opportunityforconsultationsregardinganyrepresentationsmadebyanotherMemberconcerningmeasures
affecting theoperation ofanyoftheWTO Agreements wasoneofthemost important procedural
obligations oftheMembers oftheWTO, citing Article 4:1oftheDSU.
101. ThePhilippines maintained thatthereasons citedbyBrazil foritsrefusal toconsult, thatthe
Philippines didnotinvoke theapplicable law,andshould invoke itsrights under theTokyo Round
SCM Code instead, were arguments which Brazil could haveadvanced intheconsultations, butdid
notjustify arefusal toconsult. Theobligation toconsult would bemeaningless ifWTO Members
could refuse toconsult when theydidnotconsider thelegalclaims oftheWTO Member requesting
consultations tobejustified. Moreover, agreeing toconsult under theGATT 1994 would innoway
haveprejudged Brazil ’sposition ontheapplicable lawinthepresent Panel proceedings sinceArticle 4:6
oftheDSUmakes explicit that“consultations shallbe...without prejudice totherights ofanyMemberWT/DS22/R
Page26
inanyfurther proceeding". ThePhilippines asserted that,under international lawandinGATT practice,
itisrecognized thatalegalfinding maybesought forthepurpose ofobtaining satisfaction oraguarantee
ofnon-repetition. Therefore thePhilippines submitted thatafinding onthisissue wasnecessary to
strengthen theconsultative process ingeneral and,inparticular, toreduce thelikelihood ofBrazil 's
resort tosimilar arguments toavoid consultations inthefuture.
102. Brazil disputed thePhilippines 'contention thatit"refused" toconsult. Brazil noted thatit
hadoffered toconsult under theTokyo Round SCM Code three times. Inaddition, Brazil submitted
alistoftheinformal consultations thatwere held, noting thatthese consultations were considered
"informal" attherequest ofthePhilippines.
C. Subsidy Issues
1. Reliance onBestInformation Available
103. Brazil argued thatthePhilippines consistently failed tomeetitsobligation tosupply necessary
informationwithintheapplicabletimeperiods,despitenumerousextensions,andBrazilthereforeproperly
based itssubsidy decision onthebestinformation available. Moreover, Brazil asserted thatinmaking
itsdetermination itinfactrelied mainly oninformation thePhilippines didsubmit. Brazil maintained
thatArticle VIofGATT 1994 doesnotcontain anyadministrative provision specifically addressing
information gathering. Logically, however, itmust contemplate aninvestigation intotheexistence
andnature ofthesubsidies prior toimposition ofacountervailing duty, since itrequires afinding of
subsidizationandinjury.Anysuchinvestigationpresumesthecooperationofthepartybeinginvestigated
inproviding thenecessary information toenable theinvestigating authorities tomake those
determinations. Brazil argued thatthisinterpretation issupported bypastpractice withrespect to
Article VIofGATT 1947, which contained identical language. Brazil referred totheSecond Report
oftheGroup ofExperts, which addressed thisissue:
"Paragraph 3ofArticle VIstipulated thatnocountervailing dutycould becollected
beyond the'estimated 'amount ofthebounty orofthesubsidy granted. Inorder to
arrive atthisestimate, themajority oftheGroup considered itnormal, andatleast
desirable, thatthecountry which became aware oftheexistence ofasubsidy andwhich
ascertained theinjury which thesubsidy caused, should enter intodirect contact with
thegovernment oftheexporting country. Itwasalsodesirable thatthelatter country
should giveinformation requested without delay. Thiswould afterallbeinitsown
interest inthatitwould avoid theimposition ofacountervailing dutyonitsexports
ataratewhich, failing thisinformation might befixed attoohighalevel".35
InBrazil 'sview, thelastsentence ofthissection contemplates theuseofthebestinformation available.
Brazil alsonoted thatArticle 2:9oftheTokyo Round SCM Code specifically permits theuseofbest
information available:
"Incases inwhich anyinterested party orsignatory refuses access to,orotherwise
doesnotprovide necessary information within areasonable period orsignificantly
impedes theinvestigation, preliminary andfinalfindings, affirmative ornegative, may
bemade onthebasis ofthefactsavailable".
35L/1141 (adopted 27May1960), BISD 9S/194, para. 35.Brazil didnotconcede thatanyprecedent from
GATT 1947 wasbinding ontheWTO. Nor, inBrazil 'sview, doessuchprecedent fallwithin thescope ofany
source ofmaterial fortreaty interpretation recognized bytheVienna Convention. Nevertheless, Brazil argued
thatinfacing anewissue, pastpractice orinterpretation ofsimilar language might helpguide considerations.WT/DS22/R
Page27
Brazil noted thatitdiscussed theTokyo Round SCM Code because theobligations ofthatCode were
theobligations inforce onBrazil during theinvestigation.
104. Brazil argued thatthePhilippines failed tosubmit requested information thatwould haveenabled
Brazil todetermine, onaprogramme-specific basis, theperunitlevelofsubsidization. Among the
information notprovided wasinformation astotheannual disbursements oftheprogrammes (including
howmany growers benefitted), theactual costsofadministering theprogrammes, anyspecific eligibility
criteria, andother requested information.
105. ThePhilippines asserted thatitwastheonlycountry thatfullycooperated withBrazil during
theinvestigation, making good faith efforts tosubmit extensive information inmeetings and
documentation. ThePhilippines observed that,because ithadalways believed therewerenosubsidies
onPhilippine coconut fruit, ithadsimply responded toBrazil 'squestions without unduly trying to
discern Brazil 'spossible purposes forasking those questions ortofacilitate purported subsidy
calculations.
106. ThePhilippines considered thatBrazil 'sreliance onbestinformation available infactreflected
thatBrazil hadnotfullyconsidered thePhilippines 'responses, andhadonlyselectively relied onthose
responses. Inthisregard, thePhilippines noted thatBrazil hadrelied onthe"Cost Worksheet" provided
bythePhilippines toconstruct theperhectare production costofhybrid coconut trees, butignored
theperhectare fruityieldreflected inthatsame worksheet incalculating theperfruitproduction cost.
InthePhilippines 'view, there wereseveral clear instances when Brazil simply disregarded relevant
Philippine responses. ThePhilippines alsoargued thatBrazil hadimproperly treated some ofthe
information provided bythePhilippines asunsupported assertions. Forexample, Brazil considered
asevidence oflevyallocations alistthatshowed howrecords oftheMarcos regime accounted for
thelevyfunds, butdeemed unsupported assertions thecontents ofthebookwritten byaknowledgeable
coconut industry official discussing theunreliability ofthatlist.36Indeed, thePhilippines asserted that
Brazil neither mentioned norevaluated thebook, 20Million Farmers areVictims ofLevy Racket,
anddidnotevenacknowledge thatthePhilippines submitted material assailing thereliability ofthe
list.InthePhilippines 'view, thisrepresented animproper one-sided treatment ofthePhilippines '
submissions.
107. Moreover, thePhilippines argued, referring tothereport ofthePanel inSalmon, that,before
aninvestigating country canresort totheuseofbestinformation available, "thefirstquestion tobe
asked [is]whether theinformation requested ...wasofthetypethatwould make itpossible tocalculate
theamount ofasubsidy ...ifthisinformation hadbeenrequested, andhadnotbeenprovided, then
subsidy findings could bemade ‘onthebasisofthefactsavailable '".37InthePhilippines view, Brazil
never asked thetypes ofquestions required for,interalia,thedownstream subsidy analysis called for
bythePanel report inPork. Thequestionnaire issued byBrazil sought information pertaining to
programmes fortheupstream product, coconut fruit. Thus, inthePhilippines 'view, Brazil hadno
basisforusing bestinformation available inregard totheconsideration ofsubsidies tothedownstream
product, desiccated coconut.
108. Brazilnotedthat,withrespecttothevariousprogrammesinvestigated,thefollowinginformation
wasrequested andnotprovided: theofficial reports oftheofficials responsible foradministering the
programme, "administrative norms andregulations, duly-updated, documents thatprove theactual
36Inthisregard, thePhilippines noted Brazil 'scurrent legislation, Decree No.1751 (19December 1995),
which, although notineffect during theinvestigation, recognizes theadmissibility ofsecondary evidence, which
issubject toBrazil 'sverification butcanbedisregarded onlyiffound tobefalse ormisleading.
37Salmon, para. 250.WT/DS22/R
Page28
coverage oftheprogrammes covered bylegislation, commercial conditions ofthebenefits conceded,
andbusinesses inquestions andourcultivators ofcoconuts benefitted intheperiod ofinvestigation,"
supporting documentation toconfirm theinformation provided inresponse tothefirstquestionnaire,
theactual expenditures fortheprogramme during theperiod ofinvestigation, detailed information
requested about eachcomponent oftheprogramme, forexample thenumber offarmers benefitted by
the"intercropping," thenumber ofhectares occupied bynurseries, andtheactual costsofthenurseries.
Inresponse toaquestion fromthePanel, Brazil specified thatithadrequested copies ofofficial reports
relative toeachoftheprogrammes; thesource foranydataprovided; theofficial annual reports of
thegovernment entities incharge oftheprogrammes cited; foreachidentified programme, the
commercial conditions ofthebenefits conceded, businesses covered bytheprogrammes, andcultivators
ofcoconuts thatbenefitted intheperiod ofinvestigation; information needed toquantify subsidies
received during theperiod ofinvestigation, forexample, withrespect tothePresidential Decree
No.582/74 programme, theamount received byeachfarmer, howmany farmers benefitted fromloans
under theprogramme, theinterest ratesatwhich theloans were granted, percentages ofborrowers
foreachinterest rate,loanamortization conditions, whether thefarmers get(orcould get)private loans
intheabsence oftheprogramme, andifso,atwhatinterest rateandamortization conditions. Brazil
recognized thatthePhilippines provided information during theinvestigation, butmaintained thatthe
Philippines didnotprovide sufficient information toenable Brazil tomake itsdetermination without
reliance onbestinformation available. Brazil reiterated thatithadrelied where possible onthe
information provided bythePhilippines.
2. Existence ofSubsidies
109. ThePhilippinesmaintainedthat,ofthesevenPhilippineprogrammesBrazilassertedlyconcluded
involved subsidies, fiveinvolve theredistribution tothecoconut farmers ofalevypreviously collected
fromthem,onecomprisedalandreformprogrammethatgenerallyappliedtolandlessPhilippinecitizens;
andthelastconsisted ofinvestment incentives forwhich traditional coconut products werenoteligible,
butwhich theOrdinance speculated might beavailable tosuchproducts inthefuture. InthePhilippines '
view, these programmes cannot becharacterized assubsidies.
110. ThePhilippines tooktheposition thatindustry programmes funded bydirect collections from
theirbeneficiaries arenotsubsidies, referring totheInterpretative Notes toArticle XVI:3 ofbothGATT
1947 andGATT 1994, which stateinpartthatprice stabilization schemes canbecharacterized as
subsidies onlyif"wholly orpartly financed outofgovernment funds inaddition tofunds collected
fromproducers inrespect oftheproduct concerned". Accordingly, thefivegroups ofreplanting and
livelihood programmes involving redistribution tofarmers ofalevycollected from them from 1973
to1982werenotsubsidies.ThePhilippinesarguedthatBrazildidnotdenythatlevy-fundedprogrammes
arenotsubsidies, butinstead hadsurmised thatprogrammes after1984musthavebeenfunded bythe
Philippine Government because alistofallocations ofthose funds purported toshow thatthefunds
hadalready beencompletely redistributed asof1984. However, thePhilippines maintained thatBrazil
hadignored evidence showing thatonlyasmall portion ofthelevyfunds wereactually redistributed
tothefarmers.38Moreover, thePhilippines argued thattheprior misuse ofthelevyfunds hadboth
factualandlegalimplicationsforpurposesofdeterminingwhetherthePhilippinereplantingandlivelihood
programmes werelevy-funded. Asafactual matter, anylevyfunds thatwerediverted fromthecoconut
industry cannot, inthePhilippines 'view, bedeemed tohavesubsidized those programmes. Asalegal
matter, thePhilippines wasoftheviewthatanycoconut industry programmes afterFebruary 1986,
thedeparture offormer Philippine President Ferdinand E.Marcos, could bepursued inconjunction
38ThePhilippines argued thatBrazil neither mentioned noraddressed thebook submitted bythePhilippines
entitled, 20Million Farmers areVictims ofLevy Racket (1992), byretired Brigadier General Virgilio M.David,
whowasPhilippine Deputy Military Supervisor oftheCoconut Industry from 1974-77, andiscurrently the
Administrator ofthePhilippine agency, thePhilippine Coconut Authority, thatprincipally oversees theindustry.WT/DS22/R
Page29
withthePhilippine Government 'sefforts torecover thelevyfunds andtorectify theirprior misuse.39
Inparticular, thePhilippines believed itwasproper fortheGovernment tofinance post-February 1986
programmes withlevyfunds thattheGovernment hadsofartraced, suchasthose intheUnited Coconut
Planters Bank, orrecovered, withsome limited advances, especially forrehabilitation programmes
thatalleviate theplight offarmers afternatural calamities. Thus, inthePhilippines 'view, there was
nofactual andlegalbasis forcharacterizing thelevyredistribution programmes assubsidies.
111. ThePhilippines alsomaintained thattheAgrarian Reform Programme, which wasofgeneral
application toallpoorPhilippine farmers, andwasnotspecific tococonut lands, which werenoteven
included intheprogramme until1988, wasnotasubsidy. Inresponse toaquestion from thePanel
whether thePhilippines considered thatasubsidy mustbespecific inorder tobecountervailable under
Article VIofGATT 1994, thePhilippines responded intheaffirmative, thatithadbeenthepractice
incountervailing cases bysome GATT Contracting Parties evenbefore Article VIofGATT 1994,
butsuchaspecificityrequirementwasnowexpresslyarticulatedonlyinArticle2oftheSCMAgreement.
112. ThePhilippines further contended thatBrazil hadnotfound thattheprogramme 'scompensation
scheme wasconcessionary tothefarmers. ThePhilippine position wasthattheAgrarian Reform
Programme could notbeconsidered asubsidy sinceallthefarmers hadtopayforthelands distributed.
ThePhilippines noted inthisregard thattheOrdinance stated nobasis fordetermining theexistence
ofasubsidy, andinstead focused onthepurported lackofinformation about thelandareacovered
bytheprogramme forpurposes ofcalculating theamount ofthealleged subsidy. Brazil had
acknowledged thatthePhilippines hadprovided information about landvaluation andpayment forms,
buthadmade noexplicit determination thatthelandreform programme 'scompensation scheme had
thefeatures ofasubsidy. Consequently, inthePhilippines 'view, Brazil hadnothadanybasis for
addressing thetotallandareacovered bytheprogramme. ThePhilippines asserted thatifthe
compensation scheme wasnotfound unduly concessionary, itcould notbedeemed asubsidy, andit
didnotmatter howmuch coconut landwasincluded intheprogramme. ThePhilippines alsochallenged
Brazil 'scharacterization ofdataonthetotallandareacovered bytheprogramme as"non-official,"
andtherefore insufficient toenable calculation oftheamount ofthesubsidy. ThePhilippines noted
thatthesource ofthedatawasthePhilippine Coconut Authority, thegovernment agency principally
incharge ofthecoconut industry. ThePhilippines argued thatBrazil should have accepted this
information,andifithad,itwouldhavefoundtheprogramme'seffectsoncoconutlandstooinsubstantial
even ifthere hadbeen adetermination thattheprogramme 'scompensation scheme wasunduly
concessionary.
113. Finally, thePhilippines asserted thatBrazil erred intreating asanactual subsidy thepotential
grant offuture investment incentives under theOmnibus Investment Code ofthePhilippines, despite
recognizing thatcoconut products were noteligible forsuch benefits. Article VI:6(a) allows
countervailing duties tooffset onlysubsidies thathaveactually been"bestowed", while grants under
theOmnibus Investment Code wereonlypotential. Moreover, theinvestment incentives wereinfact
available onlytoproducts thatwere"new" inthesense ofbeing qualitatively different fromthenon-
eligible traditional coconut products, which included desiccated coconut.
114. BrazilmaintainedthattheinformationsubmittedbythePhilippineswasinsufficienttodemonstrate
thattheinvestigated programmes werenotcountervailable subsidies. Brazil argued that,evenassuming
39InthisregardthePhilippinesrequestedtheunderstandingofthePanelinregardtothePhilippines'restrained
discussion offactual andlegalissues about theinvolvement ofthefamily andclose associates ofthelatePresident
Marcos intheimproper diversion ofthelevyfunds. These issues were currently under litigation inPhilippine
courts, which aretheappropriate foraforresolving those issues. Consequently, inthisdispute thePhilippines
limited itself topointing outBrazil 'sfailure togivethese matters dueconsideration; thePhilippines didnotseek
thePanel 'sdefinitive resolution ofissues pending before Philippine courts.WT/DS22/R
Page30
arguendo thatprogrammes aimed atincreasing coconut production funded byalevyonthecoconut
producers themselves didnotconstitute subsides, documents submitted bythePhilippine government
inthecountervailing dutyproceeding contradicted theclaim thattheprogrammes werelevy-funded.
According tothedocumentation provided bythePhilippines concerning thecollection anddisbursement
ofthecoconut levy,which terminated inAugust 1982, theamount collected wasfullydisbursed between
August 1973andJune1984. Withtheexception ofPresidential Decree 582,alltheprogrammes under
investigation wereinitiated afterJune1984. Brazil asserted thatthePhilippines never explained how
thislevycould havefinanced anyprogramme during theperiod ofinvestigation (1993-1994), much
lessprogrammes initiated after1984, when itwasfullydisbursed byJune1984. Inaddition, Brazil
argued thatother information provided bythePhilippines alsocontradicted thestatements thatall
programmes were financed bythelevy. Forexample, theinformation provided bythePhilippines
indicated that,fortheFarm Assistance andLivelihood Project, P88.7million ofthetotalP113.6
million wasfunded bygovernment sources other thanthelevy. Given these contradictions thatwere
never explained, Brazil considered thatitwasfullyjustified initsfinding thattheprogrammes atissue
were notfinanced bythelevy, especially inlightofthefactthatthelevycollections hadbeenfully
disbursed byJune1984.
115. Brazil considered extraordinary thePhilippines 'argument thatBrazil should nothaverelied
onthesubmitted document showing thatthelevyfunds were fullydisbursed byJune1984 because
theaccounting initwasfalseandusedtohidethemisappropriation ofthese funds bytheMarcos
government. InBrazil 'sview, thisargument suggested thatBrazil hadviolated itsobligations because
itreliedoninformationsubmittedbythegovernmentoftheexportingcountry.Moreover,Brazilasserted
thatthiswastheonlydocument submitted thatprovided anyevidence, beyond unsupported assertions,
onhowthefunds wereallocated. Finally, evenassuming thePhilippines wascorrect thattheMarcos
regimehadmisappropriatedthefundsanddidnotpassthemontothecoconutgrowers,Brazilmaintained
thatthisdidnotexplain how, under thecurrent government, levyfunds thathadalready been
misappropriated by1984 could bedisbursed tothegrowers inthe1990's.InBrazil 'sview, the
Philippines 'lineofreasoning supported Brazil 'sfinding thattheprogrammes werenotfunded bythe
coconut levy.
116. With respect totheAgrarian Reform Programme, Brazil asserted thatithadconsidered this
programme toconfer asubsidy because theinformation provided bythePhilippines inresponse to
Brazil 'squestions wasinadequate todetermine whether ornotasubsidy existed. Brazil hadnoted
thatthePhilippines hadprovided dataastotheassessment andforms ofpayment, butasserted that
thePhilippines hadnotsubmitted official orsubstantiated information ontheacreage covered andon
theexpenses andobjectives reached. Brazil maintained thatarespondent which didnotsupply that
information could nothaveexpected anosubsidy determination. Brazil noted thattherecord indicated
thatpersons buying landunder theprogramme could obtain government loans topayforthepurchase
at6percentinterest, andthattherefore those loans werenotatcommercial interest rates. Moreover,
Brazil maintained thatthePhilippines hadnotpresented anyofficial information onthecosts ofthe
programmes, onthetotalamount loaned out,orontheacreage covered. Therefore, Brazil hadbeen
unable todetermine from theinformation provided thattheadministrators oftheprogramme were
covering theircostsforadministering theprogramme. Brazil stated thatallthisinformation hadbeen
requested, andthattherefore, onthebasis ofbestinformation available Brazil hadfound thatthis
programme provided asubsidy butwasunable todetermine onaprogramme-specific basistheeffect
oramount ofthesubsidy.
117. Inresponse toaquestion bythePanel, Brazil stated thatitdidnotconsider thattheOmnibus
Investment Code provided asubsidy toeither thecoconut growers ortheproducers/exporters of
desiccated coconut.WT/DS22/R
Page31
118. ThePhilippines asserted thatBrazil 'sstatement castserious doubt onthefairness andreliability
oftheOrdinance asapublic statement ofBrazil 'ssubsidy determinations. InthePhilippines 'view,
theOrdinance clearly states thatBrazil hadidentified asetofPhilippine programmes thatwere not
subject toaction, andconsidered theother programmes, including theOmnibus Investment Code, to
havegranted subsidies. ThePhilippines maintained that,ifasBrazil nowasserted, nosubsidy finding
could beinferred fromtheOrdinance 'sdiscussion oftheOmnibus Investment Code, thentheOrdinance
should haveexplicitly identified theOmnibus Investment Code withtheother programmes notsubject
toaction. Instead, theOmnibus Investment Code waslisted together withtheother programmes Brazil
hadfound granted subsidies andthusactionable.
3. Downstream subsidy analysis
(a) ThePork Panel
119. ThePhilippines contended that,evenifthePhilippine programmes weredeemed toconstitute
subsidies ontheproduction ofcoconut fruit, Brazil hadnolegalandfactual basis forimputing those
subsidiestotheproductionofdesiccatedcoconut.Tojustifyacountervailingdutyondesiccatedcoconut,
Brazil wasrequired todetermine theexistence andextent ofasubsidy ondesiccated coconut, andcould
notsimply impute thesubsidies forcoconut fruittodesiccated coconut. Article VI:3ofGATT 1994
prohibits theamount ofacountervailing dutyfromexceeding theamount ofthecorresponding subsidy
allegedly bestowed directly orindirectly ontheproduction oftheproduct thatistheobject ofthe
countervailing investigation. ThePorkPanel hadconsidered theimposition bytheUnited States of
acountervailing dutyonimports ofporkbased onthesubsidies provided toproducers ofliveswine.
ThePanel, inconsidering theUnited States 'analysis oftheamount ofthesubsidy onpork, found the
United States 'decision, which imputed thesubsidy onliveswine topork, based ontheclose inter-
relationship between thetwoproducts, tobeinconsistent withArticle VIofGATT 1947, since
Article VI:3mandated thatacountervailing dutybebased onasubsidy tothespecific product under
investigation.40ThePanel ruled thatasubsidy determination mustbepredicated onanexamination
ofallrelevant facts41,andwhere thealleged subsidies areprovided toaseparate industry producing
theupstream product, operating atarm'slength fromtheindustry producing thedownstream product
subject totheinvestigation, theinvestigating authorities must ataminimum perform ananalysis of
theprice effect offactors relating totheprice paidfortheupstream product byproducers ofthe
downstream product.42Based onthePanel decision inPork, thePhilippines argued thatanysubsidies
oncoconut fruitproduction could notsimply beimputed totheproduction ofdesiccated coconut, because
these aretwodifferent products thatbelong totwodifferent industries. ThePhilippines maintained
thatBrazil failed todoanyanalysis ofthespecific effects oftheprogrammes atissue ondesiccated
coconut.
120. ThePhilippines asserted thatBrazil acknowledged thatcoconut fruitisanupstream product,
whereas desiccated coconut isadownstream product, andthatthetwoproducts were produced by
separate industries operating atarms'length. InthePhilippines 'view, Brazil 'scountervailing duty
ondesiccated coconut wasthussubject totherequirements established bythePanel inPork. The
Philippines readPorktorequire, inthissituation, thattheinvestigating authorities conduct a"price
effect" analysis thatexamines, ataminimum, whether thealleged subsidies totherawmaterial led
40Pork, paras. 4.6and4.8.
41Pork, para. 4.8. ThePanel noted thatsuch "practices" were "reflected inPartIofthe[Tokyo Round]
SCM Code". Id.Thus, thePhilippines argued thatthepertinent principles articulated byPork would apply
totheinstant matter even ifitwere considered under thatCode.
42Pork, paras. 4.9and4.10.WT/DS22/R
Page32
toadecrease inthelevelofprices forthatrawmaterial paidbytheprocessed product 'sproducers
below theleveltheywould havehadtopayfortherawmaterial from other commercially available
sources ofsupply. ThePhilippines alsoconsidered thatPork required twofurther relevant factors
tobeconsidered: (a)whether therawmaterial wasinternationally traded, since itislesslikely that
subsidies willcause thedomestic price ofsuchmaterial todecline bythefullamount ofthesubsidies
iftheproducers oftherawmaterial canexport atinternational prices; and(b)theperunitcostof
producing theadditional output oftherawmaterial thatthesubsidies mayhavecaused, sincetheextent
towhich suchadditional output affects theprice fortherawmaterial willdepend inpartonthecost
ofproducing theoutput.
121. ThePhilippines maintained thatBrazil didnotconduct anexamination ofanyofthefactors
setforthinPork, norofanyother factors showing apriceeffect ofthealleged subsidies ondesiccated
coconut. Inthisregard, thePhilippines noted thatother relevant considerations could affect the
international market. Forinstance, international market conditions could depress theprice ofthe
downstream product soastointurndepress theprice oftheupstream product evenintheabsence
ofsubsidies. ThePhilippines argued thataninvestigation ofsubsidies ondownstream products would
havetoconsider suchfactors inorder toavoid attributing suchprice depression tosubsidies onthe
upstream product inacasewhere international market conditions appeared toactinconjunction with
thesubsidies toaffect theprice oftheupstream product intheexporting country.
122. ThePhilippinesarguedthat,becauseitwasimproperforBraziltohavedirectlyimputedsubsidies
oncoconut fruittodesiccated coconut production, Brazil hadnobasis forresorting toa"constructed
value" methodology tocalculate theamount ofthecoconut fruitsubsidy. ThePhilippines argued that,
inaccordance withArticle VI:1(b)(ii) ofGATT 1994, aconstructed value methodology cansometimes
beallowed inananti-dumping context where acountry "hasacomplete orsubstantially complete
monopoly ofitstradeandwhere alldomestic prices arefixedbytheState".43However, thePhilippines
maintainedthatthisapproachwaswhollyinapplicableintheinvestigationathand.First,themethodology
wasenvisioned forananti-dumping investigation andmade little sense inacountervailing duty
investigation. Second, Brazil made noeffort toestablish thepredicate forthemethod 'sapplication;
Brazil didnotexamine, andmade nofindings on,whether thePhilippines hadacomplete orsubstantially
complete monopoly ofthetrade indesiccated coconut orwhether alldomestic prices arefixed bythe
State. Infact,thePhilippines noted thattheevidence wastothecontrary, asthePhilippine domestic
price fordesiccated coconut isgoverned bytheinternational price fortheproduct, andthere wasno
government intervention inmarket pricing. Thus, thePhilippines contended thatBrazil 'sconstructed
value methodology hadnolegal basis inGATT 1994 andwasinvalid asabasis forimposing
countervailing duties under Article VIofGATT 1994.
123. ThePhilippines alsoargued thattheconstructed value approach violated Article VI:3ofGATT
1994 because itlacked anymechanism foradjusting thepurported subsidy amount toensure its
proportionality tothenumber andextent ofthealleged upstream subsidies. Suchaconstructed value
calculation would yield thesame subsidy amount nomatter howmany oftheprogrammes were
considered tobesubsidies, andregardless ofthefunding levels ofsuchprogrammes. Ostensibly, the
subsidy amount would remain unchanged evenifonlyoneoutoftheseven programme categories were
deemed tobeasubsidy, andevenifthefunding levels ofalltheprogrammes weremuch lower. In
thePhilippines 'view, thismethodological inflexibility rendered theconstructed value approach
inconsistent withArticle VI:3ofGATT 1994, under which theamount ofasubsidy mustbedetermined
rationally, notindiscriminately.
43Note 2toArticle VI:1(b)(ii) ofGATT 1994. ThePhilippines noted thatsame limitation applied under
thecorresponding provision inGATT 1947, andArticle 15:1andArticle 15:2(b) oftheTokyo Round SCM Code.WT/DS22/R
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124. Brazil tooktheposition thatitscalculation ofthelevelofsubsidization ondesiccated coconut
wasfullyconsistent withitsobligations under either Article VI:3ofGATT 1994ortheTokyo Round
SCMCode.BrazilnotedthatneitherArticleVInortheTokyoRoundSCMCodecontainedanyguidance
onthemethod ofcalculation oftheamount ofthesubsidy. Brazil contended that,aslongasitsapproach
reasonably calculated thesubsidy bestowed ontheexported product, itwasconsistent withArticle VI:3.
Brazil agreed withthereport ofthePork Panel thata"price effects" testwasareasonable method
ofdetermining whether asubsidy toanupstream product wasbestowed ontheexported downstream
product, observing inaddition thatthere maybeother reasonable methods butitwasunnecessary to
consider them inthiscase.
125. Brazil agreed thatthesituation inthiscasewassimilar tothesituation inthePorkcase. Brazil
haddetermined thatcoconut fruitanddesiccated coconut areseparate products andthatthecoconut
fruitistherawmaterial forthedesiccated coconut. ThePhilippines hadsubmitted information that
showed thatcoconut fruitproduction anddesiccated coconut production aretwoseparate industries
thatoperate atarm'slength. Thus, thesituation inthiscasecomported withtherequirements setout
inPorkthatwhere separate industries areoperating atarm'slength thedownstream industry cannot
beconsidered subsidized unless thesubsidy bestowed onthecoconut fruit(theupstream product) has
hadaprice effect onthedesiccated coconut (thedownstream product). Brazil maintained thatinthis
case, aprice effects testwasareasonable method available forBrazil tomeasure thesubsidies that
were indirectly bestowed ondesiccated coconut, since thePhilippines didnotprovide much ofthe
informationBrazilhadrequested.HadthePhilippinesprovidedtheinformationrequested,Brazilasserted
thatitcould havedetermined theprogramme-specific subsidies provided tococonuts andthenconducted
amoredetailed analysis, based onrespondent 'sinformation, todetermine howmuch oftheprogramme-
specific subsidies oncoconuts flowed downstream totheproduction ofdesiccated coconut.
126. Brazil asserted thatitsanalysis wasconsistent withtheapproach advocated bythePorkPanel.
Brazil asserted thatinorder todetermine thepriceeffect, ithadusedaconstructed unsubsidized price
forcoconut fruitandcalculated anunsubsidized price fordesiccated coconut. Brazil thencompared
thisprice forunsubsidized desiccated coconut toasubsidized price fordesiccated coconut, calculated
using theprice inthePhilippines ofthesubsidized fruit. Thedifference between thesubsidized and
unsubsidized prices fordesiccated coconut determined theprice effect ofthesubsidies andmeasured
thesubsidies indirectly bestowed ondesiccated coconut. Onlyafterfinding thatthere weresubsidies
totheupstream product, coconut fruit, thatwerepassed through tothedownstream producers inthe
formofreduced input prices, didBrazil lookatwhether these indirect subsidies benefitted desiccated
coconut production. Brazil determined thattheydidandthatthesubsidy wasbestowed ontheimported
product intheformofreduced prices. Brazil asserted thatithadconsidered allrelevant facts, within
theconstraints ofananalysis based onthebestinformation available.
127. Brazil argued thatitsconstruction ofanunsubsidized pricewasreasonable andlogical. Brazil
asserted thatthePhilippines arguments concerning theuseof"constructed value" inthedumping context
werecompletely irrelevant tothisdispute. Brazil maintained thatithadnotconducted a"constructed
value" analysis, butrather hadattempted tomeasure theprice effect ofthesubsidies using thebest
information available inlightofthePhilippines 'failure toprovide necessary information.
(b) Commercial availability issue
128. ThePhilippinesassertedthatthePorkPaneltreatedconsiderationofothercommerciallyavailable
sources ofsupply asameans ofdetermining whether factors other thanthealleged upstream subsidies
mayhaveaffected thepriceatwhich upstream producers soldtherawmaterial todownstream producers.
InthePhilippines 'view, unless suchother factors wereconsidered, there could benoreliable finding
thatthepriceoftherawmaterial wasdetermined solely orprincipally bythealleged upstream subsidies.
ThePhilippines noted other relevant considerations pertaining totheconditions ofinternational marketWT/DS22/R
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demand andcompetition that,while notenumerated inPork, could beconsidered. Forexample,
international conditions could depress theprice ofthedownstream product inawaythatinturnalso
depressed therawmaterial 'sprice intheexporting country evenifthere were nosubsidies.
129. Inthisregard, thePhilippines referred tothePanel decision inCanada -Countervailing duties
onGrain Corn from theUnited States, SCM/140 (adopted 26March 1992) ("Grain Corn"), BISD
39S/411, para.5.2.7. ThePhilippines argued that,although Grain Corninvolved prices intheimporting
country, itillustrated thepossible effects ofinternational conditions ondomestic prices:
"Clearly, ifthere isageneral anddramatic decline inworld market prices forgrain
corn, thiswillaffect Canadian producers. Itwillaffect Canadian producers evenif
Canada doesnotimport anygrain cornfromtheUnited States, evenifitimports grain
cornfromthirdcountries, evenifitiscompletely self-sufficient ingraincornor,indeed,
evenifitisanetexporter ofgrain corn, asitwasinsome cropyears. ...Ineachcase,
theCanadian price forcornwould stillbedirectly impacted --inamaterial way--
bytheworld price decline...".
Grain Corn, para.5.2.9. Justasitcould affect domestic prices inanimporting country, thePhilippines
argued thataninternational price decline could alsodepress domestic prices inanexporting country.
130. ThePhilippines alsoargued that,where alleged subsidies andinternational conditions appeared
tobeconcurrent causes oflowdomestic prices inanexporting country, theinvestigating country bore
thefurther burden ofcarefully analysing theinternational conditions soastoavoid attributing toalleged
upstream subsidies anyprice depression, ordegrees ofanysuchprice depression, actually caused by
international conditions. ThePhilippines maintained thatiftheinternational conditions would, by
themselves, havebeensufficient todepress rawmaterial prices, e.g.,bydepressing theprices ofthe
downstream product derived therefrom, evenintheabsence ofupstream subsidies, thenthedepression
oftherawmaterial price cannot bedeemed abenefit "bestowed" bytheupstream subsidies.
131. ThePhilippines maintained thatBrazil 'sprice effect analysis entailed anapriori disregard of
allfactors other thanthealleged upstream subsidies. Inother words, Brazil 'scomparison between
thesubsidized fruitprice andtheconstructed unsubsidized fruitprice yielded aprice differential that
Brazil simply treated astheprice effect, uninfluenced byanyother factors. Thus, inthePhilippines '
view, Brazil hadruledoutbydefinition therelevance ofotherfactors initspriceeffect analysis, contrary
totheguidance ofPork.
132. Brazil asserted thatthePorkPanel'suseofthephrase "other commercially available sources
ofsupply" indicated onepossible means toassess whattheprice ofthesubsidized upstream product,
inthiscase,thefruit, would havebeenintheabsence ofthesubsidies, butthatthiswasnotnecessarily
theonlymeans available. Brazil maintained thatithadconsidered international trading intheproduct.
However, because thefivelargest world suppliers ofcoconuts wereunder investigation forsubsidies,
Brazil didnotconsider theinternational price toreflect anunsubsidized price. Thus, thatPhilippine
coconut producers could sellintheinternational market didnotmean theywould beabletosellat
ahigher, unsubsidized price. Moreover, Brazil argued thatthePhilippines hadprovided noinformation
oncoconut prices incountries thatdidnotsubsidize coconut fruitproduction, andthatevenifan
international price existed, there might notbecommercially viable access totheupstream product by
theproducer ofthedownstream product. Thus, Brazil hadconsidered theconstructed price asthe
most reliable unsubsidized coconut price forcomparison purposes.
133. InBrazil 'sview, thephrase "other commercially available sources ofsupply" inthePorkPanel
report wasintended toallow flexibility todetermine theappropriate analysis onacase-by-case basis.
Brazil asserted thatsuchflexibility wasimperative incases, suchasthisone,where there wasnoWT/DS22/R
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unsubsidized commercially available source fortheupstream product. Brazil noted thatthere were
anumber ofreasons nottoconsider international prices inthiscase. First, Brazil determined inits
investigation thatthefivelargest producers ofcoconuts weresubsidizing theircoconut production.44
ThePhilippines provided noinformation about coconut fruitprices incountries notfound tosubsidize
coconut fruitproduction. Thus, ifthemajor suppliers ofcoconut fruitreceived subsidies, the
international pricewould show theeffects ofthose subsidies. Brazil asserted thatsubsidies toaproduct
inonecountry canaffect theworld market priceforaproduct inatleastthree different possible ways.
Ifsubsidies arebestowed onaproduct byCountry Xaresubstantial andCountry Xisanexporter of
thatproduct, thesubsidized prices can,andwould beexpected to,lower theworld market price for
thatproduct. Ifsubsidies arebestowed onaproduct byCountry X,which accounts forasignificant
portion oftheworld production ofthatproduct, thesubsidized prices canlower theworld market price
forthatproduct. Ifsubsidies arebestowed onaproduct byanumber ofcountries whose production
oftheproduct accounts forasignificant portion oftheworld production, thesubsidized prices can
lower theworld market price forthatproduct. Brazil argued thatthethirdpossibility wasthecase
during theBrazilian investigation ofdesiccated coconut from thePhilippines. Brazil alsonoted that
aninternational pricemustbeadjusted toinclude import duties andother expenses.45Finally, although
aninternational pricemayexist, theremaynotbecommercially viable access totheinternational product
becauseofimportrestrictions,unreliablesuppliers,shipmentdelays,qualitydifferences,orotherreasons.
Thus, inthiscase, Brazil haddetermined torely,forcomparison purposes, onaconstructed price
forthePhilippines, based oncostinformation provided bythePhilippines, asthemost reliable
unsubsidized coconut price.
134. Brazil alsoargued that,todetermine thecompetitive benefit orpriceeffect thatthesubsidization
oftheinput product (coconut fruit) hasontheprice ofthedownstream product (desiccated coconut)
theprice ofthesubsidized input must becompared totheprice ofanunsubsidized input. Inother
words, theinvestigating country mustdetermine whatitwould havecostaproducer topurchase the
input product intheabsence ofsubsidies. Without suchabenchmark, nodetermination ofaprice
effect orcompetitive benefit canbemade. Theissueofsubsidies wasrelevant totheissue oftheuse
ofaninternational price benchmark. Arespondent would always argue thatalower subsidized
benchmark price should beusedforcomparison purposes because thatwould lower anysubsidy rate
determined bytheinvestigating country. Ontheother hand, theinvestigating country 'sproducers
would behurtbytheuseofalower subsidized benchmark price especially ifthelower benchmark
priceerroneously resulted inafinding ofnopass-through ofthesubsidies. Moreover, oncethesubsidies
were eliminated, theinternational prices would risetotheunsubsidized price andthisunsubsidized
international price could onceagain beusedasanunsubsidized benchmark.
135. ThePhilippines considered asexpostfacto Brazil 'sassertion thatitconsidered international
trading, butdidnotconsider theinternational price toreflect anunsubsidized price because thefive
largest world suppliers ofcoconuts wereunder investigation. ThePhilippines noted thatBrazil did
notcitetoeither theOrdinance ortoDTIC Opinion 006/95 inproffering thisexplanation, andurged
thePanel todisregard it.ThePhilippines alsoobserved that,intheory, subsidies toaproduct inone
country could conceivably affect theworld market forthatproduct, andtheinternational pricethereof.
However, asubsidy determination could notbebased onsuchamere theoretical possibility. Rather,
theinvestigating authorities must establish theexistence ofallfactors thatcould possibly affect the
44Brazil stated thatitwasthepractice ofother countries conducting anupstream subsidy analysis torefuse
tousepotentially subsidized prices asabenchmark against which tocompare theprice inquestion todetermine
whether thesubsidy waspassed-through. See,e.g., Final Affirmative Countervailing Duty Determination on
Steel Wheels From Brazil, 54Federal Register 15523 (U.S. Department ofCommerce 18April 1989).
45BrazilarguedthatthefactthatBraziliancoconutpriceswereabovethepricepaidbythePhilippineprocessors
wasoneindication thattheprices available tothose processors were affected bysubsidies.WT/DS22/R
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world market fortheproduct under investigation. ThePhilippines asserted thattheOrdinance did
notcontain anassessment, letalone adetermination, regarding theexistence ofsuchfactors. Thus,
Brazil 'ssubsidy determination wasflawed byitsdisregard ofinternational pricing factors, andBrazil 's
belated rationalizations forsuchdisregard must berejected asbothexpostfacto andwithout merit.
136. Moreover,thePhilippinescontendedthatBrazil'sexplanationwaswithoutmerit.ThePhilippines
contended thatthemere involvement ofseveral ofthelargest suppliers ofcoconut products inthe
investigation didnothaveanyautomatic effect, either upward ordownward, ontheinternational price
atwhich coconut producers could selltheirproduct. InthePhilippines 'view, Brazil should have
investigated andanalyzed theactual price effects ofother international trading factors, rather thana
priori ruling outthepossibility ofanyprice effects.46Inaddition, thePhilippines argued thatBrazil
didnotevenassert thatitconsidered theother relevant factor identified inPork, theperunitcostof
producing theadditional output ofrawmaterial thatthesubsidies mayhavecaused.
137. Brazil alsomaintained that,inacomparison oftheactual price ofcoconuts totheconstructed
unsubsidized price ofcoconuts, thedifference necessarily reflected theprice effect ofthesubsidies
ontherawmaterial. Brazil argued thatitdidnotpresume afullpass-through ofthesubsidies on
coconutstodesiccatedcoconut.Theextentofthepass-throughcalculatedconsistedonlyofthedifference
between thesubsidized andtheconstructed unsubsidized price ofcoconut fruit. Totheextent that
theactual subsidized price didnotreflect thefullamount ofthesubsidies bestowed oncoconut
production, those subsidies were notconsidered tobepassed through tothecoconut processors.47
138. ThePhilippines asserted thatBrazil 'sdetermination wasundercut byevidence presented by
thePhilippines showing thatPhilippine coconut farmers sellcoconut fruittoproducers ofproducts
other thandesiccated coconut, suchascoconut oil,copra, fattychemicals andfoodnuts, andthat
desiccated coconut represents onlyasmall percentage ofPhilippine exports ofcoconut products, as
coconut exports aredominated bycoconut oil.ThePhilippines considered thatthePork Panel had
rejectedanimputedsubsidyanalysisevenwhenthedownstreamproduct(pork)"constitute[d]theprimary
product" oftheupstream product (swine)48,andasserted thattherewasevenlesslegalorfactual support
fortheuseofsuchananalysis inthiscase,because desiccated coconut isnoteventhe"primary product"
ofcoconut fruitinthePhilippines.
139. Likewise, thePhilippines asserted thatBrazil 'sdetermination wasundermined byevidence
showing thattheexport priceofPhilippine coconut products otherthancoconut oil,including desiccated
coconut, andthePhilippine domestic priceofcoconut fruit"husked nuts", therawmaterial fordesiccated
coconut, closely tracked theinternational price ofcoconut oil,which inturnfollowed thepricetrends
intheworldwide market foroilsandfats,where Philippine coconut oilhasonlya5percentshare.
ThePhilippines argued thatBrazil hadwrongly ignored information onthedependence ofcoconut
prices onworld supply anddemand forcoconut oil.ThePhilippines maintained thatthisevidence,
the"CoconutIndustryKit-Seriesof1993",preparedbyacoconutindustryassociationbeforetheinitiation
ofBrazil'sinvestigation,andthedocumentpreparedbythePhilippines'NationalEconomicDevelopment
Authority, aformal paper forthe1994Proceedings oftheWorld Conference onLauric Oils,hadbeen
submitted during theinvestigation, andwasnotgenerated specifically inresponse toBrazil 's
46Inthisregard,thePhilippinesarguedthat,sinceBrazil'squestionnairesdidnotrequestinformationconcerning
relevant facts about international trading, Brazil hadnobasis forrelying onbestinformation available.
47Asanexample, Brazil asserted thatiftheactual subsidized price ofcoconuts were 25pesos, thecalculated
"unsubsidized price" were 40pesos, andthesubsidies equalled 20pesos, Brazil would have considered only
15pesos ofthesubsidy tobepassed through tothePhilippine coconut processors.
48Pork, paras. 2.8.a, 4.9,and4.10.WT/DS22/R
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questionnaires. Thus, Brazil hadnobasis forcompletely ignoring these documents. Moreover, the
Philippines noted thatthese documents werenotaddressed byBrazil ineither theOrdinance orDTIC
Opinion 006/95, andthusBrazil 'sexplanation fordisregarding themwasanexpostfactorationalization
thatthePanel should notconsider.
140. ThePhilippines alsoargued thatBrazil improperly disregarded theformal testimony ofahigh
ranking Philippine government official during the13June1995 meeting, atwhich heexplained the
relationship between theprice ofhusked nutsandtheinternational price ofsoybean oil.Inthe
Philippines 'sview, evenoralevidence, aslongassubsequently reduced intowriting, isadmissible
incountervailing investigations.
141. Brazil contended thatthePhilippines 'claim thatthesubsidies could havenopriceeffect because
thepriceofcoconuts isdependent onthepriceofcoconut oilwasnotsupported byevidence submitted
inthecourse oftheinvestigation. Therefore, Brazil hadnobasistoconclude thatcoconut prices were
unaffected bythesubsidies. Inthisregard, Brazil objected tothePhilippines 'submission tothePanel
ofinformation ontherelationship between soybean andcoconut oilprices49thathadnotbeensubmitted
during theinvestigation.
142. ThePhilippines maintained thatBrazil hadsetartificially highevidentiary hurdles onthe
international trade issue inanattempt toobscure thefactthatithadfailed toaddress thatissue atall
initsdetermination. Inthisregard, thePhilippines asserted thatthegraphs andtables itsubmitted
tothePanel wereintended onlytofurther exemplify thetypeofinformation thatBrazil should have
sought andexamined aspartofthe"other factors" analysis required byPork.
143. Brazil argued thatitdidconsider theinformation provided bythePhilippines about theprice
relationship between thevarious oilsanddesiccated coconut, butconcluded thattheinformation did
notsupport thePhilippines 'claim. Forexample, Brazil asserted thatthedatainthe"Coconut Industry
Kit"referred tobythePhilippines didnotdemonstrate acorrelation inprices ofcoconut fruitandoil.
Moreover, Brazil argued thatsome oftheinformation wasuncorroborated statements bythePhilippine
government, which Brazil wasnotobliged torelyupon. Brazil alsomaintained thatitwasnotclear
thatinformation ontherelationship between theprice ofcoconuts andtheprice ofcoconut oilwas
relevant. Brazil posited that,ifsubsidies werenecessary tokeepthecoconut producers inoperation
giventhelowpriceofcoconutoil,thisstillmeantthatthecoconutproducersbenefittedfromthesubsidies
andthatdownstream purchasers benefitted fromthelower prices thatcould becharged because ofthe
subsidies, asserting that,ifprices dropbelow aprofitable levelintheabsence ofsubsidies, thesupply
ofcoconut willdecline andtheusersofcoconuts willhavetopayincreasingly higher prices forcoconuts
inthefactofdwindling supply. Moreover, Brazil considered therelevance ofthefactthatthere are
many competing usesforcoconuts unclear. Brazil posited thatitcould mean thatdesiccated coconut
processors didnothavethemarket power toforceapass-through ofthesubsidy orsome portion thereof
tothemselves alone. Itdidnotmean thattheinterplay ofallsupply anddemand factors didnotresult
inatleastsome portion ofthesubsidy being passed through toallconsumers ofcoconuts, including
thedesiccated coconut processors.
144. InthePhilippines 'sview, Brazil hadadopted thetypeofimputation analysis thatwasrejected
bythePanel inPork. InPork, theissuewasthepropriety oftheUnited States 'imputation ofupstream
subsidies (whose actual value wasunchallenged) tothedownstream product using aconversion factor
based ontheratioofthehogcarcass totheweight ofthelivehog. Inthiscase, thePhilippines argued
thatBrazil constructed thevalue oftheupstream subsidies, andthenimproperly imputed those subsidies
todesiccated coconut using aconversion factor of7.5coconuts perkilogram ofdesiccated coconut.
49Attachments 1and2tothefirstsubmission ofthePhilippines.WT/DS22/R
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Although Brazil sought todistinguish itsmethodology fromanimputation approach, claiming thatby
constructing the"unsubsidized" costandprice ofcoconut fruitithadmeasured theprice effect ofthe
subsidies oncoconuts andlimited theextent ofthepass-through tothedifference between thesubsidized
andtheunsubsidized priceofthecoconuts, inthePhilippines 'view, thismethodology stillconstituted
thesortofupstream-downstream imputation rejected bythePanel inPork, because Brazil failed to
consider other factors, aside from theeffect ofupstream subsidies ontherawmaterial 'sprice, to
complete thedownstream price effect analysis.
145. Brazil considered thatthePhilippines appeared toallege thatthe"improper imputation
methodology" inPorkwastheuseofaconversion factor. InBrazil 'sview, theconversion factor was
nottheproblem inthePorkcalculation, theproblem wasthattheUnited States merely applied asubsidy
toswine directly toporkproduction without determining whether thatsubsidy passed through. Brazil
asserted thatitwasobvious that,ifthesubsidy ispassed through toadownstream product, aconversion
factor willhavetobeusedtoconvert theupstream product intothedownstream product. Brazil noted
thatpresumably thePhilippines intended toargue thatthemethodology found improper inPorkwas
theonesteppass-through without analysis, which inPorkwasdonebytaking thesubsidy toswine
andmultiplying bytheconversion factor toarrive atthesubsidy forpork. However, Brazil maintained
thatitdidnotconduct suchaonesteppass-through without analysis. Brazil firstconsidered theprice
difference between subsidized andunsubsidized coconuts todetermine whether therewasapriceeffect
from thesubsidies. Then, finding thatthere wasaprice effect, Brazil compared thecosts/prices of
desiccated coconut based onsubsidized coconut costswiththecosts/prices ofdesiccated coconut based
onunsubsidized coconut costs todetermine theeffect ofthesubsidy ontheexported product. To
determine thecostofproducing onekilogram ofdesiccated coconut, itwasnecessary todetermine
howmuch coconut goesintoonekilogram ofdesiccated coconut, requiring aconversion factor.
4. Calculation issues
146. ThePhilippines asserted thateven ifBrazil 's"constructed value" approach were deemed
appropriate,thePanelshouldrulethatBrazil'scalculationwaserroneousandlackedadequateexplanation.
ThePhilippines described thestepsfollowed byBrazil initsconstructed value calculations asfollows:
(1)based ona1993Philippine "Cost Worksheet" forhybrid coconut fruit, Brazil calculated theannual
perhectare production costbyassuming thateachtreewould beproductive inthe8thyearafterplanting,
thatannual costs would befullyamortized within 15years from the8thyearata12percentannual
rate,andthatthesame12percentratecould beusedtodiscount theannual cost,toarrive atapresent
value ofUS$821.41 perhectare; (2)while recognizing thattheprevailing variety ofcoconut treein
thePhilippines wastalltrees, Brazil treated theperhectare production costs ofhybrid andtalltrees
asequal, citing aBrazilian study showing adifference oflessthanthree percent. Brazil divided the
perhectare production costofnewhybrid coconut trees(US$ 821.41 perhectare) bytheperhectare
annual fruityield ofoldtallcoconut trees(3,910 peryear), added an8percentprofit margin and
US$0.015 forfreight cost, toarrive ataconstructed unsubsidized price ofUS$0.242 perfruit.
(3)Brazil thenapplied aconversion ratioof7.5nutsperkilogram ofdesiccated coconut, andadded
an8percentprofit margin, toarrive ataconstructed unsubsidized price fordesiccated coconut of
US$2.348 perkilogram. (4)Based onthe"coconut fruitpriceeffectively paid" byaPhilippine exporter,
US$0.051, andpresumably alsousing atleastthe7.5nutsperkilogram conversion ratio, Brazil arrived
atasubsidized price fordesiccated coconut ofUS$0.800 perkilogram. (5)Brazil thendeducted
thesubsidized price ofdesiccated coconut (US$ 0.800 perkilogram) from theunsubsidized price of
desiccated coconut (US$ 2.348 perkilogram) toarrive atasubsidy amount ofUS$1.548 perkilogram.
(6)Finally, Brazil divided thesubsidy amount fordesiccated coconut (US$ 1.548 perkilogram) by
the"average weighted CIFexport price" ofdesiccated coconut exported toBrazil (US$ 1.274 per
kilogram), thereby deriving a121.5 percentcountervailing duty.WT/DS22/R
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147. Brazil asserted thatthere wereseveral problems withthePhilippines 'description ofBrazil 's
calculation. Brazil objected tothePhilippines 'insinuations thatithadoverstated theconstructed fruit
price. Brazil noted thattheOrdinance described howBrazil calculated theprice, andthatDTIC Opinion
006/95 provided theexact figures andamore detailed description which showed theexact numbers
involved toresult intheUS$2.348 figure. Theprocessing costthatthePhilippines questioned was
provided byaPhilippine exporter. Moreover, Brazil noted thatinquestioning thecalculations ofthe
price forthesubsidized desiccated coconut, thePhilippines failed toaccount fortheprocessing costs
usedbyBrazil.
(a) Constructed price
148. InthePhilippines 'view, Brazil 'scalculation wasdefective inseveral respects. First, itwas
inherently inconsistent tousetheactual production costofallegedly subsidized hybrid coconut trees
toderive anunsubsidized price. Totheextent thattheBrazilian countervailing dutypurported tohave
beenimposed onexisting Philippine subsidies, andsubsidies typically reduce production cost,then
theactual production costofhybrid coconut treesmusthavepresumably beenreduced bythealleged
Philippine subsidies. Byusing theactual production costtoconstruct aprice thatishigher thanan
actual price paidbyaPhilippine exporter, thedecision suggested some variant ofadumping charge -
thatis,thatthePhilippines exported desiccated coconut atapricethatwaslower thanitwould otherwise
havebeenhadtheactual production costofcoconut fruitbeenpassed onintheprice todesiccated
coconut producers, andexports ofdesiccated coconut.
149. ThePhilippines contended thatBrazil hadeither (a)considered theactual production costof
hybrid treesunaffected bythealleged subsidies, inwhich event thecountervailing investigation should
haveended without finding anysubsidy; or(b)considered theproduction costreduced bythealleged
subsidies, inwhich caseitwas,inthePhilippines 'view, incomprehensible howasubsidy-reduced
production costcould bethebasisforconstructing anunsubsidized fruitprice thatwaslower thanthe
actual fruitprice. ThePhilippines maintained thatBrazil hadresorted toaninappropriate anti-dumping
methodology inthiscountervailing dutyinvestigation, resulting infigures thatweremeaningless and
could notsupport theimposition ofcountervailing duties.
150. BrazilassertedthatitreliedonthecostinformationsubmittedbythePhilippines,whichcontained
estimated costs. Brazil assumed those costs wereestimated rather thanactual because theyreflected
production costsabsent thesubsidies. Brazil noted thatitcould havechosen torelyonBrazilian prices,
rather thanseeking toconstruct aPhilippine price, which would haveresulted inamuch higher rate
ofsubsidy being found, sinceBrazilian coconut prices werehigher thanthecostinformation submitted
bythePhilippines.
151. ThePhilippines asserted thatBrazil hadpresented nocredible reason forconsidering thatthe
Philippines 'estimate ofthecostforhybrid trees, relied onintheconstruction oftheperhectare
production costofcoconut fruit, represented unsubsidized costs. ThePhilippines hadbeenasked for,
andhadprovided, estimates about theactual costandprice ofcoconut fruit. Brazil 'sassertion that
itcould haverelied onBrazilian coconut prices inconstructing thecostofproduction ofPhilippine
coconut fruitwasunjustified, inthePhilippines view, andwasanexpostfactorationalization thatwas
notmentioned inBrazil 'sdetermination. Inanyevent, thePhilippines argued thatBrazil conceded
thatitsproduction costswereunusually highbyinternational standards, andthose costswould therefore
nothavebeenanappropriate basis forcalculating Philippine production costs.WT/DS22/R
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(b) Costs andyields ofhybrid andtalltrees
152. ThePhilippines argued thatBrazil didnothaveanadequate basis fortreating theperhectare
production costs ofhybrid andtallPhilippine coconut treesas"equal". Moreover, eveniftheper
hectare production costofhybrid andtalltreesweredeemed tobeequal, Brazil hadnobasisfortreating
theperfruitproduction costasequal bydisregarding thecontrast inproduction costs ofnewandold
trees, andtheactual difference intheaverage annual fruityields ofthetwotypes oftrees. The
Philippines contended thatBrazil 'scalculation wasdistorted bytheuseoftheperhectare production
costofnewhybrid trees, while using theperhectare fruityield ofoldorsenile talltreeswhich had
much lower fruityields, involved practically nomaintenance costs, andcomprised theoverwhelming
majority ofcoconut treesinthePhilippines. ThePhilippines further asserted thatBrazil ignored the
difference infruityields when itdivided theperhectare production costofhybrid treesbythelower
perhectare fruityield oftalltrees(3,910), instead ofdividing thatperhectare costbythehigher per
hectare fruityield ofhybrid trees(15,000), despite thefactthatthelatter yield wasmentioned inthe
"Cost Worksheet" from which Brazil derived theactual production costofhybrid trees. Inthe
Philippines'view,thismixingoffiguresfornewhybridandoldtalltreesreflectedanunfairmanipulation
ofdata. Thus, thecalculation mustbedeemed inconsistent withArticle VI:3ofGATT 1994, which
requires arational andreliable determination oftheamount ofanalleged subsidy.
153. Brazil responded tothePhilippines 'objections totheinformation andassumptions underlying
thecalculation bynoting that,withrespect to"Step 1"ofthecalculation, Brazil did,infact,relyon
information supplied bythePhilippines, the"Cost Worksheet -Coconut Production; CostofPlanting
andMaintenance perHectare ofCoconut" thatdescribed thestages, timing, andcosts ofproducing
coconuts. Theassumption thatthetreeswould beproductive intheir8thyearandwould beproductive
over15years (foramortization purposes) wasderived from information supplied bythepetitioners
andusedasbestinformation. Regarding theconsideration ofcosts forhybrid treeswhen thebulk
ofthePhilippine treesweretalltrees, Brazil noted thatthecostinformation provided bythePhilippines
contained estimated costs foronefarmproducing hybrid treesononeacreofland. Thus, theonly
information thePhilippines supplied oncosts wasforhybrid, nottall,trees. Nevertheless, Brazil
attempted tocheck whether suchinformation reasonably reflected costs throughout thePhilippines,
byconsidering acomparison ofcostsdonebytheBrazilian Institute forAgricultural Research comparing
thecostsofthetwotypes oftrees. Based onthatcomparison, Brazil calculated alessthan3percent
difference incostsbetween thetwotreetypes. Regarding theconsideration ofproduction costofnew
treeswhen mostofthePhilippine treeswereold,Brazil asserted thatithadagain based itscalculation
oninformation supplied bythePhilippines. Brazil calculated theaverage yield inthePhilippines by
dividing thetotalnumber oftreesbytotalproduction assupplied bythePhilippines inresponse to
thesupplemental questionnaire. Brazil noted thatthePhilippine government hadnotsubmitted any
information onprofit thatcould beusedinthecalculation, butonePhilippine exporter hadsubmitted
information thatindicated aprofit significantly higher than8percent. Therefore, inBrazil 'sview,
theuseofan8percentprofit figure wasmore favourable tothePhilippines thanother record evidence
would havebeen.
154. ThePhilippines argued thatBrazil hadnotidentified anyfactor which would indicate thatthe
Philippine andBrazilian crops werecomparable, soastojustify treatment oftheproduction costs of
Philippine hybrid andtalltrees asthesame based onanalleged 3percentdifference between the
production costsoftwoBrazilian crops, which thePhilippines asserted wereinanyevent unspecified.
Likewise, Brazil hadfailed toexplain whyitssubsidy calculation divided theperhectare production
costofhybrid treesbytheperhectare fruityield oftalltrees(i.e., 3,910) despite thefactthatthe
substantially higher perhectare fruityield ofhybrid trees(i.e., 15,000) wasstated intheverycost
worksheet Brazil usedtocalculate perhectare production cost. Thisglaring error, byitself, inthe
Philippines 'viewrendered Brazil 'ssubsidy calculation fundamentally indeterminate andthusunreliable.WT/DS22/R
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155. Brazil maintained thatithadusedtheaverage yield ofalltreesinthePhilippines, notonly
theyield fortalltrees, andmoreover, thattheyield figure wasbased ontheinformation supplied by
thePhilippines. Brazil alsonoted thatthePhilippines never supplied anyproduction costinformation
fortalltrees.
156. ThePhilippines argued thatitwasmisleading forBrazil tostatethatthePhilippines supplied
information onlyoncosts forhybrid, nottall,trees. Brazil 'squestionnaires hadinquired about
production coststhatincluded original planting expenses. Because onlyhybrid treeswerebeing freshly
planted inthePhilippines, andallthereplanting programmes examined byBrazil involved hybrid trees,
thePhilippines,inresponsetoBrazil'squestions,providedtheproductioncostofhybridtrees.However,
thePhilippines explained thatthose types ofcosts wereneither currently norrecently incurred bythe
talltrees, which were40years oldorolder. Thus, itwasimproper forBrazil toimpute toextremely
oldtalltreestheoriginal replanting andothercostsofnewhybrid trees. Indeed, during theinvestigation
thePhilippines hadstressed thattalltreesshould notbedeemed benefited byreplanting programmes
thatonlyinvolved hybrid trees. Moreover, because hybrid treesconstituted onlyatinyminority of
Philippine coconut trees, itwould bemanifestly unreasonable toassume thatPhilippine exporters of
desiccated coconut obtained theirrawmaterial solely ormostly from hybrid trees. ThePhilippines
suggested thatBrazil should havelimited itssubsidy calculation totheportion ofthePhilippine coconut
treepopulation affected byalleged upstream subsidies --hybrid trees. Since theonlydataBrazil had
concerning aPhilippine exporter showed thattheexporter purchased onlytheoutput oftallcoconut
trees, Brazil hadnobasisforconcluding thatPhilippine exports weretheproduct ofcoconut fruitfrom
subsidized hybrid trees.
D. Injury Issues
1. LikeProduct
157. ThePhilippines contended that,inorder toimpose acountervailing dutyunder Article VIof
GATT 1994, Brazil mustshow through positive evidence thatthealleged subsidization caused material
injury totherelevant "domestic industry", which isinturndetermined bythedefinition ofthe"like
product". However, inthePhilippines 'view, thedefinition ofthe"like product" inBrazil 's
determination wasambiguous andcontradictory. ThePhilippines asserted thattheOrdinance variously
defined thedomestic "like product" toinclude: (1)alldesiccated coconut, whether destined forthe
industrial market (where itisprocessed asarawmaterial) orfortheretail market (where itisconsumed
asafinished product); (2)onlydesiccated coconut destined forindustrial use;(3)onlydesiccated coconut
destined forindustrial use,andcoconut fruit; and(4)alldesiccated coconut destined fortheindustrial
andretail markets, andcoconut fruit. Asaconsequence ofthisfailure todefine thelikeproduct clearly
andconsistently,thePhilippinesarguedthatthescopeoftherelevantdomesticindustryvariedthroughout
theOrdinance, specifically inthesections analysing apparent consumption, capacity andemployment,
industrial demand, andunitcost/price. Byalternately narrowing andbroadening therange ofdata
tobeconsidered, theshifting definition ofthedomestic industry made theevaluation ofthealleged
injury unclear.
158. Insupport ofthiscontention, thePhilippines noted thattheOrdinance atonepoint referred
toalleged injury suffered bycoconut fruitproducers whowere supposedly unable toparticipate in
a19percentincrease inindustrial demand fordesiccated coconut, andelsewhere stated thatthecoconut
fruitproducers themselves cutdown thesupply offruittodesiccated coconut producers because an
alternative market offered higher prices forthefruit. Thus, thePhilippines questioned whether Brazil
hadconsidered coconut fruitproduction partofthedomestic industry. Inaddition, thePhilippines
contended thattheunclear definitions ofthelikeproduct andthedomestic industry undermined the
reliability ofthedataandanalysis regarding material injury andcausation setforthintheOrdinance.WT/DS22/R
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159. Brazil tookissuewiththePhilippines 'position thatithadfailed tomake acleardetermination
oflikeproduct.50Brazil asserted thatithadclearly determined thatthelikeproduct wasdomestically
produced desiccated coconut, andthatthelikeproduct wasnotsubdivided based onthemarket inwhich
desiccated coconut wassold. Brazil alsomaintained thatithadclearly determined thatthedomestic
industry consisted ofthedomestic producers ofthelikeproduct, desiccated coconut, withtheexclusion
ofonedomestic producer, found tobeasignificant importer ofthesubject product. Brazil hadincluded
allother domestic producers inthedefinition ofdomestic industry, twoofwhom (theco-petitioners)
accounted foronaverage 49percentofthenational production (and52percentoftheproduction
ofthedomestic industry) during theperiod oftheinjury investigation. Brazil noted that,inits
consideration ofinjury, itusedinformation fromtheco-petitioners, theonlyproducers torespond to
itsquestionnaires, where information fortheentire domestic industry wasnotavailable.
160. Brazil asserted thatArticle VIdoesnotrefertotheconcept oflikeproduct inthecontext of
countervailing duties orinjury, orspecifically address thedefinition ofdomestic industry. Nevertheless,
Brazil agreed thatArticle VIrequires adetermination oflikeproduct inorder todefine thedomestic
industry. Brazil suggested thatguidance astothemeaning ofthetermlikeproduct inrelation to
Article VIofGATT 1947 canbefound intheFirstReport oftheGroup ofExperts:
"theGroup agreed thatthistermshould beinterpreted asaproduct which isidentical
inphysical characteristics subject, however, tosuchvariations inpresentations which
areduetotheneedtoadapt theproduct tospecial conditions inthemarket ofthe
importing country".51
Inaddition, Brazil referred totheTokyo Round SCM Code, which defines theterm"like product"
tomean "aproduct which isidentical, i.e.,alikeinallrespects totheproduct under consideration or
intheabsence ofsuch product, another product which although notalike inallrespects, has
characteristics closely resembling those oftheproduct under consideration". Under bothArticle VI
andtheTokyo Round SCM Code, therefore, Brazil argued thatlikeproduct isdefined onthebasis
ofphysical characteristics. InBrazil 'sview, thePhilippines misread theOrdinance inclaiming that
Brazilhaddefinedlikeproductfourdifferentways.TheportionoftheOrdinancecitedbythePhilippines
tosupport thisclaim, Brazil argued, wastheanalysis ofphysical characteristics andtheconditions
ofcompetition Brazil hadrelied upon inorder todefine thelikeproduct.
161. Inexamining theissueoflikeproduct, Brazil asserted thatithadfound thatthedomestic product
wasnotalikeinallrespects totheimported product. There weredifferences intheamounts ofsugar
andfatcontained intheproducts andinthesizeanddryness oftheflakes between thetwo.Nevertheless,
bothweresimilar inthattheyweredried, grated coconut withphysical characteristics thatpermitted
overlapping uses. Therefore, Brazil determined thattheproduct most "like" theimported product
interms ofphysical characteristics wasthedomestic desiccated coconut, butalsoconcluded that
competition between imported desiccated coconut andBrazilian coconut wasasignificant condition
oftheBrazilian market thathadtobeconsidered intheinjury determination. Brazil noted thatinits
discussion ofthelikeproduct intheOrdinance, itemB,para. 4wastheonlyplace inwhich itstated
whatproduct was"similar" or"like" theimported product. InBrazil 'sview, thisconfirmed itsposition
thatItemBdiscussed theanalysis oflikeproduct infourparagraphs butonlyprovided onedefinition
oflikeproduct, andthatdefinition oflikeproduct wasbased onphysical characteristics asrequired
byArticle VI--totheextent thatArticle VIcould beinterpreted asestablishing a"like product"
requirement.
50Brazil reiterated itsposition thattheinjury arguments, including thelikeproduct arguments raised bythe
Philippines, were beyond thescope ofthePanel 'sterms ofreference.
51L/978 (adopted 13May 1959), BISD 8S/145, para. 12.WT/DS22/R
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162. ThePhilippines argued thattheambivalence ofBrazil 'slikeproduct determination was
demonstratedbywhatittermedBrazil'sapparentconfusionabouttheeffectofconsideringonlydesiccated
coconut forretail saleinevaluating apparent consumption datathatincluded non-competing desiccated
coconut forretail sale. InthePhilippines 'view, theOrdinance states thatthiswould make theshare
ofimports more accentuated, while Brazil argued initsfirstsubmission thattheshare ofimports was
understatedbythiscomparison.ThePhilippinesarguedthatBrazilhadalsoarguedinitsfirstsubmission
thatthelikeproduct included desiccated coconut forboththeretailandnon-retail markets, butcontinued
todescribe thedataonapparent consumption asoverstated duetotheinclusion ofdesiccated coconut
forretail sale.InthePhilippines 'viewtheinclusion ofdesiccated coconut forretail saleintheapparent
consumptiondatawouldsimplymakethedatafitthedefinitionoflikeproductifthelikeproductincluded
desiccated coconut forbothretail andnon-retail sale.
2. Material Injury
163. ThePhilippines referred toseveral factors, acknowledged intheOrdinance, which initsview
undermined thefinding ofmaterial injury. ThePhilippines noted that,afteran8percentdecrease
in1991, thedomestic price ofBrazilian desiccated coconut increased by23percentin1992-93, and
by5percentin1993-94. Inaddition, theoperating profits oftheBrazilian co-petitioners averaged
25percentforthe1991 to1994 period. Oneco-petitioner 'sgross margin wasconstant from 1990
to1993, indicating thatitssaleswerenotaffected byprice pressures anditsoperating margins were
alsoreasonably stable. Theother co-petitioner 'soperating margins werealsostable. Theproduction
oftheco-petitioners increased by30percentfrom 1991-94, andoneco-petitioner expanded its
production capacity.
164. InthePhilippines 'view, suchincreases inproduction, stability inprofits andoperating margins,
andsubstantial price increases belied theexistence ofanymaterial injury, andinstead indicated that
theco-petitioners themselves hadbeenthriving. Moreover, given thattheco-petitioners wereactually
abletoincrease theirproduction significantly from1991-94, thePhilippines considered itobvious that
imports ofdesiccated coconut fromthePhilippines didnotcause theco-petitioners toreduce theirprior
level ofproduction. Rather, thePhilippines considered thattheco-petitioners were apparently
complaining thatthelower-priced imports allegedly limited theirability toincrease theirproduction
atprojected rates. However, theOrdinance didnotidentify anydatasupporting suchprojected increases,
anddidnotevenprovide figures fortheanticipated increase inproduction rates. Asaresult, there
wasnothing onrecord toshow thattheco-petitioners 'growth andprofit projections werereasonable
andrealistic, rather thanmerely speculative. ThePhilippines asserted thatthese growth projections
seemed tobebased oninformation unreliable onitsface. Theco-petitioners 'dataoninstalled capacity
wereaggregated fordesiccated coconut andother products (such ascoconut fruitandcoconut milk).
Consequently, itwaspossible thatanyallegedly unsatisfactory growth inproduction wasattributable
tothose other products, nottodesiccated coconut.
165. Brazil maintained thatitlooked atrelevant factors thatindicated thatthedomestic industry
wasinjured. Brazil found thatnational production (including production bytheimporting company)
fellby45percentintheperiod 1989 to1994, while production ofthedomestic industry (excluding
production bytheimporting company) declined by31percentduring theperiod 1991to1994. There
wasadecrease incapacity utilization throughout theperiod. Thelevelofemployment intheindustry
declined 13percentbetween 1991 and1994. Finally, thedomestic industry 'sshare ofapparent
consumption dropped from 63.9percentin1991 to37.7percentin1994. Brazil alsoargued that
thefactthattheproduction ofthetwoco-petitioners increased during thatperiod didnotindicate no
injury tothedomestic industry. Injury wastotheindustry asawhole nottoindividual producers.
Therefore, thefactthatoneoftheco-petitioners obtained agreater share ofadeclining national
production didnotindicate alackofinjury tothedomestic industry asawhole.WT/DS22/R
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166. Thus, Brazil argued, there wassubstantial evidence thatthedomestic industry wasinjured.
Brazil noted thattherequirement ofanobjective examination ofpositive evidence wasfound in
Article 6:1oftheTokyo Round SCM Code butnotinArticle VIofGATT 1994. Brazil argued that
itnonetheless considered allrelevant economic factors, someofwhich indicated injury, suchasdeclining
production, employment, andcapacity utilization, others ofwhich, suchasoperating results, didnot.
Thatnotallindicators werenegative didnotdetract fromitsfinding. Brazil argued thatprevious Panel
decisions recognized thatafinding ofinjury maybebased onanobjective examination ofpositive
evidence evenwhere notallfactors arenegative.52InBrazil 'sview, thePhilippines 'arguments sought
tohavethePanel substitute itsjudgement forthatoftheinvestigating authorities astowhich factors
weremore important indicators ofinjury inthiscase, which Brazil asserted wasbeyond theauthority
ofthePanel.
167. ThePhilippines argued thatitwasmisleading forBrazil torelyontheemployment trends and
capacity utilization dataofthetwoco-petitioners alone asbeing thoseoftheindustry. More importantly,
inthePhilippines 'view, Brazil didnotexplain howsuchdatacould beareliable basis fordrawing
anyconclusions about thedesiccated coconut industry, when Brazil conceded intheOrdinance that
thedatacould notbedisaggregated byproduct. InthePhilippines 'view, thedatawereindeterminate,
andtherefore could notsupport conclusions about capacity utilization andemployment levels inthe
desiccated coconut industry.
3. Causation
168. ThePhilippines considered that,evenifthedomestic industry weredeemed tohavesuffered
some material injury, Brazil hadfailed toshow thatsuchinjury wascaused bythealleged subsidies
ondesiccated coconut imports from thePhilippines. ThePhilippines asserted that, pursuant to
Article VI:6(a) ofGATT 1994, analleged injury mustbe"theeffect ofthe...subsid[y]" inorder to
justify anycountervailing action, andBrazil wastherefore required toanalyze theallegedly subsidized
imports 'volume, price effect andimpact onthedomestic market. ThePhilippines argued thatBrazil
relied ondatareferring todifferent timeperiods fordifferent aspects ofitsanalysis, inconsistent data,
andrandom presentation ofprices, quantities andratios, which leftitsanalysis unclear andunsupported.
169. Brazil argued thattheconsideration ofthevolume, price effect, andimpact onthedomestic
market, wasarequirement oftheTokyo Round SCM Code, notArticle VI,which didnotcontain
anyguidanceontheelementsofaninjurydetermination.Nonetheless,Brazilassertedthatithadproperly
considered those factors inmaking itsdetermination.
170. Brazil alsomaintained thatitdidnotrelyondatafordifferent periods initsevaluation ofinjury,
asarguedbythePhilippines.Brazilacknowledgedthatdataregardinglongerperiods,from1989through
1994, werealsoconsidered where available, butasserted thatdatafortheperiod ofinvestigation, 1991
through 1994, wereconsidered inallcases. Theonlyexception waswhere Brazil looked attheimports
authorized inthefirstmonths of1995, which Brazil asserted wasareasonable examination aimed at
using themost uptodatedatapossible.
(a) Volume
171. ThePhilippines argued thatBrazil 'sevaluation ofthevolume ofimports wasunclear. For
instance, thePhilippines noted thattheOrdinance referred toan89.93 percentincrease inimports
ofall"coconut products" from1991-94, butdidnotindicate whatpartofthatincrease wasdesiccated
52Inthisregard, Brazil referred tothereports ofthePanels inCotton Yarn, para. 524,Audiocassettes, para.
422, andSalmon, para. 305.WT/DS22/R
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coconut (asdistinguished from other types ofcoconut products), anddidnotbreak down desiccated
coconut imports bycountry, bymonth, orbyyear. InthePhilippines 'view, itwasimpossible to
determine from thisdatatheproportion ofthetotalincrease inimports accounted forbydesiccated
coconut, andtheproportion accounted forbyimports ofdesiccated coconut from theinvestigated
countries, asdistinguished from those notunder investigation. While theOrdinance stated thatthe
investigated countries accounted for80percentofimports from 1989-94, inthePhilippines 'view,
thispercentage wasmeaningless because theOrdinance failed toestablish theshare ofthetotalincrease
incoconut product imports accounted forbydesiccated coconut imports. Moreover, thePhilippines
asserted thatitwasimproper tousea1989-94 timeframe incalculating theinvestigated countries '
share indesiccated coconut imports, anda1991-94 timeframe incalculating theincrease oftotalcoconut
imports, because thedifference intimeperiods precluded anyaccurate comparison.
172. Similarly, thePhilippines contended, theOrdinance failed todistinguish desiccated coconut
from other coconut products intheanalysis ofapparent consumption. ThePhilippines asserted that
Brazil haddetermined thatthelikeproduct waslimited todesiccated coconut destined fortheindustrial
market, excluding desiccated coconut forretail sale,buttheOrdinance acknowledged thatdataon
apparent consumption were overstated bytheinclusion ofdesiccated coconut forretail sale,noting
thatitwasnotpossible toobtain production databymarket destination. InthePhilippines 'view, it
wasthusimpossible todetermine whether thelikeproduct, desiccated coconut forindustrial sale,had
anincreasing ordecreasing share inapparent consumption. Asaresult, evenifimport share indomestic
consumption increased inabsolute terms, itwasnotpossible todetermine whether import share also
increased relative tothedomestic likeproduct. Thisindeterminate information onapparent consumption
thusobscured anycausal relationship between theshare ofimports andtheshare ofthedomestic like
product inapparent consumption. Moreover, thePhilippines noted that,ifthelikeproduct excluded
desiccated coconut forretail sale,thenimports forretailsaleshould havebeenexcluded fromtheimport
volume data. However, theOrdinance didnotidentify theproportion oftotalimports accounted for
byimports forretail sale. Ontheother hand, ifthelikeproduct included alldesiccated coconut,
regardless ofthemarket inwhich itwassold,thentheapparent consumption datawerenotoverstated.
173. Brazil asserted that,indetermining theeffects ofimports, ithadcumulated theimports from
thefivecountriesunderinvestigation,andfoundthatimportsofthesubjectproductincreasedsubstantially
during theperiod ofinvestigation. Brazil asserted thatDTIC Opinion 006/95 made clearthattheonly
products considered intheanalysis were desiccated coconut andcoconut milk, theproducts subject
totheinvestigation. Moreover, Table 10inDTIC Opinion 006/95 showed boththatcumulated imports
ofdesiccatedcoconut,andtheimportsfromthePhilippinesalone,increasedsignificantly.TheOrdinance
alsoindicated, based onimport licenses granted fortheperiod January through May1995, thatimports
werelikely toincrease. Thus, Brazil argued thatthedatashowed bothanincrease during theperiod
ofinvestigation andintheimminent future ofimports inabsolute terms. Brazil asserted thatithad
found thatthecountries accounting formostoftheincrease inimports ofdesiccated coconut werethe
Philippines, theIvory Coast, SriLanka, andIndonesia (allsubject toinvestigation) which together
accounted for81.2percentofthetotalimports from 1989 to1995. Brazil alsoargued thatthe
information showed thatimports increased significantly inrelative terms. Brazil hadfound thatapparent
consumption overall increased 17percentintheperiod 1991through 1994, while imports represented
35.8percentoftheconsumption in1991 and53.8percentin1994. Thus, Brazil argued thatthe
information supported itsdetermination thattheincrease insubject imports inbothabsolute andrelative
terms wassignificant.
(b) Price
174. ThePhilippines argued thatBrazil 'sconsideration ofprice datawasfundamentally flawed by
itsfailure toexamine actual import anddomestic prices. Instead ofconsidering actual import prices
overadefined timeperiod, thePhilippines asserted thatBrazil hadrelied onasingle average priceWT/DS22/R
Page46
forimports fromeachcountry, calculated fromCIFimport prices, without reference toanytimeperiod.
Referring toDTIC Opinion 004/95, thePhilippines argued thatthere wasnobreakdown ofprices by
month andbyyear, thattheonlytimeframe mentioned wastheperiod fromMay1993toApril 1994,
andthat,withtheexception ofthedataforSriLanka, theCIFprices citedintheOrdinance differed
from those reported inDTIC Opinion 004/95.
175. ThePhilippines observed thatBrazil hadconstructed domestic desiccated coconut prices based
ontheaverage coconut fruitprice, aconversion ratiooffruittoprocessed product, amarkup for
additional processing costs, anda15percentprofit rate,virtually twice asmuch asthe8percent
rateusedtoconstruct theunsubsidized Philippine price inthesubsidy analysis, resulting indomestic
prices thatinthePhilippines 'viewwereartificially higher thanimport prices. ThePhilippines argued
thattherewasnojustification fortheuseofaconstructed domestic priceinlieuofactual prices. Because
acountervailing dutycould bevalidly imposed onlyiftheinvestigated imports directly competed with
thedomestic product, theimposition ofadutyimplies thattherewasinfactsuchcompetition, inwhich
casetheactual selling prices ofboththeimports andthedomestic product intheBrazilian market should
havebeenavailable. Yet,suchprices werenotobtained, andthefailure todosowasnotexplained.
InthePhilippines 'view, itwasnotpossible todetermine anypricetrends orpricecomparisons between
imported anddomestic prices intheabsence ofactual prices.
176. ThePhilippines alsoasserted thatthepriceandimport volume dataavailable actually indicated
thatthere wasnodepression ofdomestic prices. InthePhilippines 'view, iflower priced imports had
beenaffecting domestic prices, therewould havebeenaninverse relationship between domestic price
levels andimport volume, asdomestic producers would havehadtocutprices toprevent theirmarket
share frombeing eroded bycheaper imports. However, onthecontrary, thePhilippines asserted that
domestic prices andimport quantities moved inthesame general direction -bothdomestic prices and
import volume decreased in1991, andineachofthenexttwoyears. Thus, according tothePhilippines,
thedataindicated thatdesiccated coconut imports didnotdepress domestic desiccated coconut prices.
177. Brazilarguedthattheinformationsupporteditsconclusionthattherehadbeenpriceundercutting
bythecumulated imports, varying from70percentforthePhilippines to104percentforIndonesia.
Inorder todetermine thepriceundercutting, Brazil hadrelied onaconstructed domestic priceinmaking
thecomparison. Brazil argued thatithadconstructed thedomestic prices because therewerenodomestic
prices unaffected bythesubsidized imports, because thevolume ofsubsidized imports wassuchthat
thedomestic price could notremain unaffected, andbecause theimported product wasatadifferent
stageofproduction fromtheBrazilian desiccated coconut. Brazil asserted thatifthepurpose ofanalysing
theprices wastodetermine theeffect thesubsidies hadonthedomestic prices, itwasreasonable to
attempt todetermine whattheprice would beabsent those subsidies. Constructing aprice based on
thecostofproduction plusthenormal profit, was,inBrazil 'sview, areasonable approach tomeasuring
thateffect.
178. Therefore, Brazilian prices werenotcomparable without adjustment. Brazil argued thatthe
Philippines 'complaint thatthemargin ofprofit usedtoconstruct Brazilian prices was15percentwhile
an8percentprofit margin wasusedtoconstruct Philippine prices wasafalsecomplaint. Brazil asserted
thatthe15percentmarginreflectedcommercialrealityinBrazil.Moreover,sinceBrazilnevercompared
theunsubsidized Philippine pricecalculated forthesubsidy analysis withtheconstructed domestic price,
thePhilippine price thatBrazil constructed forpurposes ofdetermining thelevelofsubsidization had
noeffectontheinjurydetermination.BrazilassertedthattheBraziliandomesticpricewasthencompared
totheactual CIFprices oftheimports, adjusted toreflect thesameleveloftradeastheBrazilian prices.
Brazil asserted thatitcalculated theimport price byadjusting CIFprices fromimport documents for
freight andother expenses associated withbringing theproduct totheBrazilian market. Thisresulted,
inBrazil 'sview, inanappropriate comparison atthesame leveloftrade.WT/DS22/R
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179. Brazil asserted thatithadalsofound thataverage domestic prices haddecreased inthefirst
twoyears oftheperiod oftheinjury investigation, thenincreased inthelaterpartoftheperiod of
theinjury investigation. However, Brazil asserted thatitdetermined thatsuchincreases wereaccounted
forbytheinitiation oftheinvestigation andtheimplementation ofthePlanReal, acurrency stabilization
planthatledtosignificant price increases. Therefore, Brazil concluded thatthese increases didnot
indicate alackofprice effect bytheimports. Inaddition, Brazil asserted thattheprice information
hadbeenaccorded lesssignificance initsdetermination thanother factors.
180. Brazil asserted that,asindicated intheOrdinance, ithadplaced themostimportance onthe
volumeofimports,thedeclineinproduction,andtheincreasingshareofapparentconsumptionaccounted
forbytheimports, inreaching itsdetermination thatthesubsidized imports caused injury. InBrazil 's
view, thisanalysis wasconsistent withtherequirements ofbothArticle VIofGATT 1994 andthe
Tokyo Round SCM Code. Brazil again noted thatArticle VIprovided noguidance astowhatfactors
toconsider indetermining injury, andasserted thattherefore, aconsideration ofreasonable factors
wassufficient tomeettherequirements ofArticle VI.Brazil argued thatitsanalysis considered all
relevant economic factors inmaking thedetermination.
181. ThePhilippines asserted thatBrazil 'sproffered explanations underlying itsconsideration of
constructed prices inevaluating price effects should bedisregarded bythePanel because theywere
expostfacto rationalizations. Inaddition, thePhilippines asserted thatBrazil 'sexplanations werein
anyevent flawed. First, byassuming thattherewerenoBrazilian prices unaffected bythesubsidized
imports, Brazil began itsprice effect analysis having already assumed suchaprice effect. Second,
Brazil 'sproffered explanation thatprices hadtobeconstructed because thedomestic andimported
products were atdifferent stages ofproduction, andwere thusnotcomparable without adjustment,
waswithoutmerit,giventhatBrazil'sformulaforconstructingthedomesticpricecontainednoadjustment
fordiffering stages ofproduction. Inaddition, thePhilippines argued thatBrazil hadfailed toexplain
orjustify itscalculation ofasingle average import price percountry. ThePhilippines hadpointed
outthedifference between virtually alltheCIFprices referred tointheOrdinance andthose referred
toinDTIC Opinion 004/95. Brazil 'sargument thatDTIC Opinion 006/95 wastheappropriate reference
didnotaddress thisconcern, sinceDTIC Opinion 006/95 referred tothesamesetofimport documents
asDTIC Opinion 004/95. However, inDTIC Opinion 006/95, different CIFprices werederived from
thosedocuments, without anyexplanation. Thus, inthePhilippines 'view, Brazil 'scalculation ofimport
prices washighly suspect, andtherefore theevaluation ofprice effects wasnotbased onpositive
evidence.
182. BrazilnotedthatthedatacontainedinDTICOpinion004/95wasnotnecessarilyfinalinformation
usedasabasisforthedetermination intheinvestigation anddiffered fromthedatacontained inDTIC
Opinion 006/95. Brazil noted that,asstated inthefinalOrdinance, afterthemeeting withtheTechnical
Consultative Counsel atwhich DTIC Opinion 004/95 wasdiscussed, itwasdecided tocollect additional
injury information.
183. ThePhilippines alsoargued thatevenDTIC Opinion 006/95 doesnotstateanydetermination
concerningthecauseofpriceincreases,butmerelynotesthatpriceincreases"mayhave"beenoccasioned
bythetwofactors referred tobyBrazil. InthePhilippines 'view, thiswasinsufficient toconstitute
afinding onthequestion. Moreover, Brazil 'sargument failed toexplain howpriceincreases in1993-94
could beaccounted forbythecountervailing investigation initiated on21June1994.
(c) Impact ofImports andOther Factors
184. IntheviewofthePhilippines,thefindingofcausationultimatelyhingedonthemerejuxtaposition
ofthefollowing twofactors: thedecrease ofthemarket share ofthedomestic producers ofdesiccated
coconut, which inturnsupposedly decreased domestic production duetothelesser demand, andtheWT/DS22/R
Page48
increaseinimportvolumeandinimportparticipationindomesticconsumption.However,thePhilippines
arguedthattherewasnoreliableevidencethatdesiccatedcoconutimportscausedthedifficultiesallegedly
experienced bytheBrazilian desiccated coconut producers. Instead, thePhilippines argued thatthe
evidence onrecord indicated thattheproblems ofthedomestic producers werecaused byother factors
wholly peculiar toBrazil 'scoconut industry.
185. ThePhilippines argued that,contrary totherequirements ofArticle VIofGATT 1994, Brazil
hadignored those other factors, andhadmerely listed them without assessing theirimpact ormaking
anyfindingstoensurethattheiradverseeffectsonthedomesticindustrywerenotblamedontheallegedly
subsidized imports. Among thefactors Brazil assertedly disregarded were Brazil 'sunusually high
domestic rawmaterial andproduction costs. Inthisregard, thePhilippines citedDTIC Opinion 004/95,
referring toBrazil 'sunusually highproduction cost. ThePhilippines maintained thattheco-petitioners
hadadmittedthathighcostsandsocialbenefitsmadeBrazil'sproductioncosthigherthanthatofimported
products. ThePhilippines asserted that,inlightoftheadmissions oftheco-petitioners regarding the
significance ofhighdomestic production costs, thefailure toevaluate theextent towhich those costs
caused thealleged injury wasimproper. Moreover, thePhilippines argued thecostofcoconut fruit
became prohibitive forproducers ofdesiccated coconut when analternative market, the"innatura"
market, offered coconut fruitprices higher thandesiccated coconut producers. Yet,thePhilippines
asserted thatBrazil hadfailed toassess howtheseprohibitive rawmaterial costsaffected domestic prices
during theperiod under investigation.
186. ThePhilippines asserted thattheOrdinance listed several othernon-import factors thatadversely
affected theproduction ofcoconut fruit,andasaresult, theproduction ofdesiccated coconut. However,
Brazil hadnotexplained whyanyoneorcombination ofthose other factors could nothavecaused
thealleged decrease intheproduction ofcoconut fruitanddesiccated coconut. Among theother factors
thePhilippines asserted Brazil hadadmitted affected thecoconut industry were: (1)aconsiderable
number offarmers hadopted tochange from giant orhybrid treestodwarf trees; (2)many farmers
hadconverted theirfarms tonon-coconut crops suchassugarcane, especially inBrazil 'sNortheastern
region, where Brazil 'scoconut fruitproduction wasmostheavily concentrated; (3)allcoconut farmers
chose nottoreplant senile trees, whose percentage ofallofBrazil 'scoconut treeswasnotidentified;
(4)farmers soldcoconut lands tonon-coconut industries thatwere widely expanding inBrazil 's
Northeastern region; (5)thehighprices offered bythe"innatura" market tofruitproducers caused
adecrease intheofferoffruittotheprocessors ofdesiccated coconut; and(6)adrought lasted for
years during theperiod under review. InthePhilippines 'view, thedrought alone could account for
much ofthedecrease indesiccated coconut production duetotheresulting fruitshortage, which in
turncaused, rather thanwascaused by,acorresponding increase inimports toremedy thatshortage.
187. Brazil argued thatArticle VIdoesnotrequire anexamination ofother factors indetermining
whether thereisacausal connection between theinjury andthesubsidized imports. Under Article VI,
itwassufficient thatthesubsidized imports werefound tocause injury. However, Article 6:4ofthe
Tokyo Round SCM Code doesrequire theconsideration ofother factors, andBrazil asserted thatit
hadexamined other factors thatmight becausing injury butfound thattheimported product was
nevertheless causing material injury tothedomestic industry. Referring tothePanel report inSalmon,
Brazil argued thatpastpanel practice indicated thattheconsideration ofother factors neednotbe
extensive. Brazil found that,asstated during theinvestigation, given theimportance oftherawmaterial
inthetotalcostoffabrication ofthedesiccated coconut andtheeffect ofthesubsidies ontheimported
desiccated coconut, thesubsidized imports werebythemselves thecause oftheinjury tothedomestic
industry.
188. ThePhilippines argued thatBrazil erred intaking theposition thatArticle VIdoesnotrequire
anexamination ofother factors indetermining whether thereisacausal connection between theinjury
andthesubsidized imports. ThePhilippines questioned howinvestigating authorities could besureWT/DS22/R
Page49
thattheinjury wascaused bysubsidized imports, rather thanbyother factors, other thanbyconsidering
thelatter. Referring tothePanel report inGrain Corn, thePhilippines argued thatitwasnotenough
foraninvestigating country tohave"acknowledged theexistence offactors otherthansubsidized imports
having aneffect" onthedomestic industry, ifthatcountry "made noeffort toensure thattheinjuries
caused byother factors were notattributed tothesubsidized imports".53ThePhilippines alsotook
issuewithBrazil 'sstatement thattheanalysis ofother factors neednotbeextensive, arguing thatwhile
thepublic summary ofthatanalysis could bebrief, theanalysis itselfshould beextensive. Moreover,
thePhilippines asserted, theexplanation oftheanalysis should bemore extensive iftheinvestigation
showed thatthere weresignificant other factors present thatcould havecaused injury tothedomestic
industry. Amere listing ofthe"other factors" wasinsufficient, inlightofthePanel report inGrain
Corn. Forexample, thePhilippines asserted thatthedrought andtheavailability ofanalternative market
forcoconut fruit, the"innatura" market, could verywellaccount forallthree elements which Brazil
claimed supported itsdetermination, thevolume ofimports, declines indomestic production, andthe
increasing share ofapparent consumption accounted forbytheimports. Indeed, information onthe
record indicated acorrelation between import volume anddrought-induced fruitshortages.
E. Agreement onAgriculture
189. Even assuming thattheinvestigated programmes constituted subsidies ontheproduction of
coconut fruit, thePhilippines asserted thattheywerenotcountervailable because theyfullycomplied
withthedevelopingcountryanddeminimisexemptionsunderArticle6oftheAgreementonAgriculture.
190. ThePhilippines referred toArticle 6.2oftheAgreement onAgriculture asrecognizing that
"government measures ofassistance, whether direct orindirect, toencourage agricultural andrural
development areanintegral partofthedevelopment programmes ofdeveloping countries ...",and
that
"investment subsidies which aregenerally available toagriculture indeveloping country
Membersandagriculturalinputsubsidiesgenerallyavailabletolow-incomeorresource-
poorproducers indeveloping country Members shallbeexempt fromdomestic support
reduction commitments ...".
ThePhilippines maintained that,asevidenced intheinformation furnished toBrazil, thePhilippine
programmes, which inthePhilippines 'viewinvolve investment subsidies, e.g,replanting, andinput
subsidies,e.g,fertilizersandaffordableinterestrates,compliedwithArticle6.Theseformsofassistance
weregenerally available, totheextent funds permitted, totheagricultural sector, including themost
disadvantaged sectors suchascoconut farming. ThePhilippines argued thatinrecognition ofthespecial
needs ofdeveloping countries, these programmes areexempt fromanyreduction commitments inthe
Agreement onAgriculture.
191. ThePhilippines alsoasserted thatthedeminimis provision ofArticle 6.4oftheAgreement
onAgriculture further exempts fromreduction commitments evenPhilippine support measures which
donotmeetthecriteria inArticle 6.2. Article 6.4oftheAgreement onAgriculture provides:
"(a) Amember shallnotberequired toinclude inthecalculation ofitsCurrent
Total AMS andshallnotberequired toreduce:
(i) product-specific domestic support which would otherwise be
required tobeincluded inaMember 'scalculations ...where
53Grain Corn, para. 5.2.8.WT/DS22/R
Page50
suchsupport doesnotexceed 5percentof...totalvalue of
production ofabasic agricultural product during therelevant
year; and
(ii) non-product-specific domestic support ...where suchsupport
doesnotexceed 5percentofthevalue ofthatMember 'stotal
agricultural production.
(b) Fordeveloping country Members, thedeminimis percentage under this
paragraph shallbe10percent".
ThePhilippines argued thatBrazil failed toestimate theamount ofthealleged subsidy andtoshow
thatthePhilippines provided domestic support upto,ornear, thecorresponding deminimis amount.
192. Thus, thePhilippines argued, since thePhilippine programmes complied withArticle 6ofthe
Agreement onAgriculture, Brazil could notimpose countervailing measures onimports ofPhilippine
desiccated coconut without demonstrating thatsuchimports caused material injury totherelevant
Brazilian industry. However, thePhilippines maintained thatBrazil hadfailed todemonstrate that
thedomestic industry suffered material injury, orthatanyinjury thatallegedly occurred could be
attributedtoPhilippinedesiccatedcoconutimports,andnottoothercauses.Thus,Brazil'scountervailing
dutyonPhilippine imports ofdesiccated coconuts wasinconsistent withBrazil 'sobligations under the
Agreement onAgriculture.
193. Brazil asserted thatthelimitations onactionability provided forinArticle 13oftheAgreement
onAgriculture didnotapply inthiscase. First, thecountervailing duties imposed byBrazil werenot
subject tothelimitations ofArticle 13,which applies tocountervailing duties covered bothbyArticle
VIofGATT 1994andbyPartVoftheAgreement onSubsidies andCountervailing Measures. Brazil
asserted thatthePhilippines hadconceded thattheSCM Agreement didnotapply tothisdispute by
virtue ofArticle 32.3. Therefore, Brazil argued thattheAgreement onAgriculture similarly didnot
apply, andthecountervailing duties inthiscasewerenotsubject toanyofthelimitations onactionability
provided inArticle 13.
194. Brazil alsomaintained thatthePhilippines 'arguments thatitssubsidy programmes werenot
countervailable because theycomplied withdeveloping country anddeminimis exemptions under
Article 6oftheAgreement onAgriculture weresuperfluous. Brazil asserted thatthePhilippines had
recognized thattheAgreement onAgriculture merely required thatBrazil make afinding ofmaterial
injury totherelevant Brazilian industry before imposing countervailing duties ontheseproducts. Brazil
readthePhilippines 'argument toclaim thatitsprogrammes werecovered byArticle 13(b)(i), which
requires Brazil tomake aninjury finding.54Thus evenifthePhilippines werecorrect inarguing that
theAgreement onAgriculture isapplicable, andthatthePhilippine programmes complied withthat
Agreement, Brazil hadmade therequisite injury finding, consistent withtherequirements ofthe
Agreement onAgriculture.
195. Brazil alsocontended that,evenassuming, arguendo ,thatArticle 13(b)(i) wereapplicable in
thiscase, thePhilippines hadfailed todemonstrate thatitsprogrammes mettherequirements ofthat
provision. Because Article 13oftheAgreement onAgriculture isanexception totheSCM Agreement,
inBrazil 'sviewthePhilippines boretheburden ofdemonstrating thatitsprogrammes qualified for
54InBrazil 'sview, thePhilippines wasnotarguing thatthePhilippine programmes werenon-actionable under
Article13(a)Agreemen tonAgriculture,asmeetingtherequirementsofAnnexIIoftheAgreemen tonAgriculture,
theso-called "green box".WT/DS22/R
Page51
thatexception. Brazil considered thatthePhilippines 'argument, thatitsprogrammes fellwithin
Article 13(b) because theyprovide domestic support within deminimis levels andinconformity with
Article 6,wasinsufficient. InBrazil 'sview, thePhilippines provided nospecific evidence thatits
programmes complied withtherequirements ofArticle 6.2.55Brazil asserted that,lacking anyspecific
factual support, theconclusory statements ofthePhilippines failed tomeet thePhilippines 'burden
ofdemonstrating compliance withArticle 6.2.Moreover, theconclusory statements themselves failed
tostatetherequired conclusions: thePhilippines didnotstatethatthesubsidies weregenerally available
to"low-income orresource-poor producers," butthattheyweregenerally available totheagricultural
sector, "including themost disadvantaged sectors suchascoconut farming".56InBrazil 'sviewthis
made clear thattheprogrammes were notlimited to"low-income orresource-poor producers".
Moreover, Brazil argued thatthePhilippines 'statement thattheprogrammes weregenerally available,
whether totheagricultural sector ortolow-income orresource-poor producers, wasinaccurate. Most
oftheinvestigated programmes wereavailable onlytothose growing coconuts, andothers (e.g., the
Agrarian Reform Programme) wereavailable onlyforalimited number ofproducts. Other low-income
andresource-poor producers didnotreceive thesubsidies inquestion. Thus, Brazil asserted thatthe
subsidies didnotfullyconform totherequirements ofArticle 6.2.
196. Brazil alsoargued thatthePhilippines hadfailed todemonstrate thatitssubsidies were de
minimis .Instead, thePhilippines hadsimply asserted thatBrazil hadfailed toshow thatthePhilippine
programmes exceeded deminimis levels. Brazil considered thatthePhilippines mistakenly assumed
thattheburden wasonBrazil todemonstrate thatthePhilippines didnotqualify fortheexception.
InBrazil 'sview, thePhilippine argument highlighted thefundamental flawoftheposition thattheterms
oftheAgriculture Agreement applied toBrazilian activity thatpre-dated theAgreement, byrequiring
Brazil tohaveapplied theterms ofanagreement thatwasnoteveninforceatthetimethatBrazil initiated
theinvestigation thatresulted intheimposition ofduties.
V. ARGUMENTS PRESENTED BYTHIRD PARTIES
A. Canada
197. Canada argued that,notwithstanding Article 32.3oftheSCM Agreement, Articles I,II,and
VIofGATT 1994 wereapplicable toexisting countervailing measures, evenifthose measures were
firstenacted orimposed before theentry intoforce oftheWTO. InCanada 'sview, therewasnothing
retroactive inrequiring WTO Members tocontinue tomaintain onlythose tariffandnon-tariff measures
thatwere consistent withtheirGATT 1994 obligations. Moreover, theinapplicability oftheSCM
Agreement toaninvestigation didnotprevent theapplication ofArticle VIofGATT 1994toexisting
countervailing measures imposed asaresult ofsuchinvestigations. InCanada 'sview, thepossible
applicability oftheTokyo Round SCM Code, andthepotential inapplicability oftheSCM Agreement,
were notgermane tothequestion ofwhether theBrazilian measure inquestion could bejustified as
acountervailing dutyunder Article VI.
198. Canada argued thattheobligations ofArticles IandIIofGATT 1994applied toallmeasures
ofaWTO Member, including measures thatwereinitiated orimposed before theentry intoforce of
theWTO forthatMember. Accordingly, theexceptions tothose Articles, inparticular Article VI
55Brazil asserted thatthePhilippines hadnotprovided thisinformation during theinvestigation, either.
56Brazil noted thatthisargument contradicted thePhilippines 'claim thatthesubsidies tothecoconut growers
were funded bythecoconut levy. Iftheprogrammes were generally available totheagricultural sector, there
would benopossibility thatalevyonthecoconut producers entirely funded theprogrammes.WT/DS22/R
Page52
ofGATT 1994, wereequally available toaMember complained against tojustify ameasure, provided
thatitmetthecriteria setoutinArticle VI.
199. Canada noted thatunder theGATT 1947, Contracting Parties enjoyed theprotection of
Articles VIandXVIofGATT 1947, andthebenefits ofGATT 1947 dispute settlement, while the
signatories totheTokyo Round SCM Code hadadditional rights andobligations thattheycould enforce
under thedispute settlement mechanism ofthatCode. Contracting Parties which werealsosignatories
totheTokyo Round SCM Code hadthechoice ofproceeding under theCode ortheGATT, andthe
choiceofforumdependedonthenatureoftheassertedinconsistency,thenatureofapplicableobligations,
andtheremedies available.
200. WiththeentryintoforceoftheWTO Agreements, thevarious Agreements thathavesuperseded
theTokyo Round Codes areintegral totheWTO andapply toallMembers, withtheDSBasthesingle
forum forenforcement ofrights andobligations under anyoftheAgreements. However, thefactthat
aWTO Agreement, inthiscasetheSCM Agreement, maynotbeapplicable tothespecific circumstances
ofacasedidnotpreclude theapplication ofGATT 1994, inthiscaseArticle VI,tothesame
circumstances. InCanada 'sview, thetextofArticle 32.2oftheSCM Agreement expressly limited
theapplication ofthatAgreement only, andnottheapplication ofArticle VIofGATT 1994. Moreover,
there wasnothing inGATT 1994 itself thatlimited itsapplication tomeasures orpractices imposed
orenacted aftertheentry intoforce oftheWTO fortheMembers concerned. Canada maintained that
nothing intheSCM Agreement orGATT 1994 prevented theapplication ofGATT 1994 obligations
toexisting measures. InCanada 'sview, thePanel hasjurisdiction toexamine allexisting measures
forconsistency withobligations thathavenotbeenexpressly excluded from itsjurisdiction. The
inapplicability oftheSCM Agreement ortheapplicability oftheTokyo Round SCM Code should not
preclude apanel fromreviewing theexisting measures ofaMember forconsistency withthatMember 's
on-going GATT 1994 obligations. Thefactthatenactment orimposition ofameasure antedated the
entryintoforceoftheWTO should notpreclude review ofthemeasure ascurrently applied inaccordance
withWTO norms duetoconcerns overretroactivity orthelegaldistinctiveness ofGATT 1994 and
GATT 1947.
201. Canada alsoargued thattheexistence ofpotential recourse totheTokyo Round SCM Committee
fordispute settlement under theTokyo Round SCM Code wasnotdispositive oftheissue -the
availability ofoneforum andlegal instrument didnotforeclose theavailability ofother foraor
instruments toWTO Members, andinparticular didnotforeclose reliance onbasic GATT obligations
byWTO Members. Similarly, thepossibility ofdomestic review proceedings inBrazil wasnot
dispositive oftheissue. Nothing intheTokyo Round SCM Code, theSCM Agreement, orGATT
1994 required thePhilippines tochallenge existing measures through domestic review mechanisms
totheexclusion oftheWTO dispute settlement process.
202. Canada alsoagreed thatBrazil 'sfailure toconsult withthePhilippines constituted aviolation
ofBrazil 'sobligations under Article 4.3oftheDSU. InCanada 'sview, whatever Brazil 'sviewof
theappropriate terms ofconsultations, therefusal toconsult without firstestablishing those terms
constituted arefusal toconsult inviolation ofBrazil 'sobligations. Entering intoconsultations where
arequest ismade wasabasic procedural obligation ofevery WTO Member. Brazil should have
presented itssubstantive orprocedural objections tothePhilippines during consultations, andatthe
meetings oftheDSB, andultimately toapanel, rather thanfrustrating theconsultative process.
B. European Communities
203. Onthequestion ofthelawapplicable tothisdispute, theECtooktheposition thatthePhilippines
hadbrought itscomplaint tothewrong forum under thewrong law.TheECargued thattheprinciple
ofnon-retroactivity oftreaty obligations, embodied inArticle 28oftheVienna Convention, precludedWT/DS22/R
Page53
theapplication ofArticle VIofGATT 1994totheBrazilian countervailing measures inquestion. This
interpretation was,intheEC'sview, consistent withthetransitional provisions ofArticle 32.3ofthe
SCM Agreement, aswellastheTokyo Round SCM Committee 'sDecision onConsequences of
Termination. IntheEC'sview, theprinciple ofnon-retroactivity required thatthedetermination made
byBrazil bechallenged onlyunder theprovisions ofthelawinforce between theparties atthetime
theapplication wasfiled, i.e.,GATT 1947andtheTokyo Round SCM Code. TheECnoted thatthe
Philippines continued tohaverecourse todispute settlement under theTokyo Round SCM Code, and
inaddition, ifitconsidered thecollection ofcountervailing duties after1January 1995 inconsistent
withGATT 1994, itcould seekareview under Brazilian law,which review would beconducted in
accordance withtheSCM Agreement andGATT 1994. Finally, theECargued thatArticle 13ofthe
Agriculture Agreement applies onlywithrespect toinvestigations covered bybothArticle VIofGATT
1994andtheSCM Agreement. Pursuant toArticle 32.3oftheSCM Agreement, thatAgreement did
notapply totheBrazilian countervailing duty. Consequently, regardless ofthePanel'sdecision whether
Article VIapplied tothisdispute, Article 13oftheAgreement onAgriculture didnotapply, andthe
Philippines 'claim relating tothatprovision should bedeemed inadmissible. TheECalsosupported
theBrazilian request forapreliminary ruling onthequestion oftheadmissibility ofthePhilippines '
claims, particularly since Brazil 'sobjections covered alltheclaims raised bythePhilippines.
204. TheECrejected thePhilippines 'argument thatArticle 30.3oftheVienna Convention required
theapplication ofGATT 1994tothisdispute. TheECargued thatthere wasnoconflict between the
Tokyo Round SCM Code andGATT 1994withrespect totheBrazilian investigation, since Article VI
ofGATT 1994 didnotapply tothatinvestigation. Consequently, there wasnoneedtoresort to
Article 30.3todetermine theapplicable law,astherewasnoconflict between successive treaties dealing
withthesame subject matter.
205. TheECsupported Brazil 'sview thatArticle 28oftheVienna Convention precluded the
application ofArticle VIofGATT 1994tothisdispute, since theinvestigation wasinitiated pursuant
toanapplication made prior totheentry intoforce oftheWTO Agreements, including theSCM
Agreement. IntheEC'sview, theoperative actinthiscasewastheapplication forcountervailing
duty, filedin1994. Theinvestigation, andtheresulting duties, allflowed from thatact,andmust
allbejudged inlightofthelawineffect atthetimeofthatact.TheECnoted thattheWTO Agreement
didnotcontain anyexpress provision requiring theretroactive application ofArticle VIofGATT 1994,
norwasthere anyother basis onwhich suchanintention could beestablished. Tothecontrary, the
terms oftheSCM Agreement, andthedecisions oftheTokyo Round SCM Committee supported the
conclusion thatnoretroactive application wasintended.
206. TheECalsonoted that,unlike theTokyo Round SCM Code andGATT 1947, which were
distinct agreements withtheirowndispute settlement procedures anddiffering membership, Article VI
ofGATT 1994 andtheSCM Agreement arepartofthesame agreement, theWTO Agreement, bind
allMembers, andarecovered bythesame dispute settlement arrangements. TheECasserted that
thetitleandwording ofArticle 10oftheSCM Agreement evidence theintention oftheparties that
Article VIofGATT 1994 should apply onlyinconjunction withthemore detailed rules contained
intheSCM Agreement. Moreover, theECasserted thatthissameintention isreflected inArticle 32.1
oftheSCM Agreement, andwasfurther confirmed bythelanguage ofArticle 13oftheAgreement
onAgriculture. Article 13oftheAgreement onAgriculture exempted from theimposition of
countervailing duties those countervailing duties covered byArticle VIofGATT andPartVofthe
SCM Agreement. TheECargued thatthisindicated thatthedrafters oftheWTO Agreement didnot
envisage theautonomous application ofArticle VIofGATT 1994. TheECmaintained that,hadsuch
aneventuality beencontemplated, itwould havebeenanomalous nottoextend theexemption tothe
imposition ofcountervailing duties which arecovered onlybyArticle VIofGATT 1994.WT/DS22/R
Page54
207. TheECdistinguished between theapplication, investigation, andimposition ofduties, and
thecontinued collection ofduties. TheECargued thatthecollection ofcountervailing duties on
individual shipments could becharacterized asasituation arising outofaprevious act.Assuch, the
lawapplicable tocontinuing collection ofduties wasthatineffect atthetimeduties were actually
collected. Thus, forduties collected aftertheentry intoforce oftheWTO, Article VIofGATT 1994
would apply. IntheEC'sview, however, inthatcase, theonlyobligation oftheimporting country
would betoopen, uponrequest, areview ofthemeasures, inlightofthenewrequirements ofArticle VI
ofGATT1994,whichreviewwouldbeconductedundertheSCMAgreement.TheECcitedthedecision
ofthePanel inNon-Rubber Footwear insupport ofitsview, arguing thatthesituation inthatcase
involved asimilar issue, andthePanel inthatcaseconcluded thatalthough thedeterminations underlying
theduties could notbeinvalidated, thecollection ofduties pursuant tothose determinations wassubject
tothenewrequirements oftheTokyo Round SCM Code. However, thePanel hadfurther concluded
thattheimporting country 'sobligations inthisregard weresatisfied ifarighttorequest areview of
thedetermination wasafforded.
208. Regarding theissueofthescope oftheterms ofreference, inresponse toaquestion fromthe
Panel, theECargued thataprecise statement ofclaims intherequest forestablishment ofapanel was
essential tosafeguard thedefense rights oftherespondent aswellastherightofthirdparties tointervene
inthedispute. Moreover, aprecise definition ofclaims wasnecessary toensure thattheparties had
beengiven anopportunity toreach asatisfactory solution ofthematter during theconsultation stage.
TheECconsidered thatthePanel reports referred tobyBrazil onthismatter provided acorrect view
ofwhatconstitutes aclaim, andofthedegree ofspecificity required foraclaim tobeconsidered by
apanel. TheECalsoargued thattheprinciples developed bythese Panels hadbeenconfirmed by
Article 6.2oftheDSU. TheECconsidered that,inaccordance withtheterms ofArticle 6.2ofthe
DSU andtheprinciples derived fromprevious Panel reports, therequest forestablishment ofapanel
should include, withrespect toeachparticular claim, atleastthefollowing elements: (a)theinfringing
measure, (b)theobligation under theWTO Agreement which thecomplainant considered tohavebeen
violated, and(c)abriefexplanation ofthewayinwhich themeasure infringed thelegalobligations.
Withrespect toelement (b),theECmaintained thatasimple reference tooneoftheWTO Agreements
without further specification wasclearly insufficient, andareference toaparticular Article might be
insufficient iftheArticle laiddown more thanoneobligation. With respect toelement (c),theEC
stated thattheexplanation wastobedistinguished fromthearguments, i.e.thelegalorfactual reasoning
advanced tosupport, clarify, orexplain theclaim. TheECnoted inthisregard thataclaim might
besupported byoneormore arguments, andthesame argument might support oneormore claims.
Furthermore, theECmaintained thattheclaims should bespecifically identified assuchintherequest
forestablishment ofapanel. TheECasserted thatpractice under theDSU, while stillverylimited,
confirmed theseprinciples, referring inthisregard tothereport ofthePanel inReformulated Gasoline,
para.6.19, andtheinterim report issued totheparties inJapan -Taxes onalcoholic beverages, WT/DS8,
10,11,para. 6.
C. Indonesia
209. Indonesia supported thePhilippines 'position thatthecountervailing dutyimposed byBrazil
wasinconsistent withArticles VI:3and6(a)ofGATT 1994 andtheAgreement onAgriculture. In
Indonesia 'sview, thePhilippine programmes, although theycould becategorised assubsidies, were
notcountervailable,astheywerefullyincompliancewithdevelopingcountries'rightsandthedeminimis
exception ofArticle 6oftheAgriculture Agreement. Indonesia argued thatsinceBrazil 'sdetermination
wasmade inAugust 1995, theAgreement onAgriculture wasapplicable. Indonesia alsoargued that
Brazilerredinrelyingonthebestinformationavailable,andfailedtotakeaccountofrelevantinformation
submitted bythePhilippines.WT/DS22/R
Page55
D. SriLanka
210. SriLanka tooktheviewthatthecountervailing dutyinquestion, asapplied bothtoimports
ofdesiccated coconut from thePhilippines, andtoimports ofdesiccated coconut andcoconut milk
powder from SriLanka, wasinconsistent withtheprovisions ofGATT 1994 andtheAgreement on
Agriculture. SriLanka asserted that,inimposing thatduty, Brazil hadviolated Articles IandIIof
GATT 1994. InSriLanka 'sview, thecountervailing dutycould notbejustified under Article VIof
GATT 1994. SriLanka asserted thattheSriLankan programmes investigated byBrazil were not
subsidies, since theywerepaidforbyamandatory levyonexports ofcoconut products. Inaddition,
thePhilippine domestic support measures found byBrazil toconstitute subsidies, liketheSriLankan
domestic support measures alsofound byBrazil toconstitute subsidies, fellintothe"green box"category
ofnon-actionable subsidies under Article 13oftheAgreement onAgriculture.
E. United States
211. TheUnited States tooktheposition thatthePhilippines wasentitled toinvoke Article VIof
GATT 1994. IntheUnited States 'view, Brazil improperly relied onthefactthatitcommenced its
countervailing dutyinvestigation onimports ofdesiccated coconuts before 1January 1995 toargue
thatGATT 1994doesnotapply tothatinvestigation. However, when Brazil became aWTO Member,
itassumed theobligation nottolevycountervailing duties afterthatdateinamanner inconsistent with
Article VIofGATT 1994. Brazil accepted thisobligation notwithstanding itsalready-initiated
countervailing dutyinvestigation ondesiccated coconut. TheUnited States asserted that,should Brazil
failtorespect itsobligation tolevycountervailing duties inamanner consistent withArticle VIof
GATT 1994, andlevyduties inamanner inconsistent withitsschedule oftariff concessions, itwould
impair itstariffbindings inviolation ofArticle IIofGATT 1994, which italsoaccepted when itbecame
aWTO Member. IntheUnited States 'view, forpurposes ofdetermining Brazil ’sobligations under
Article VIofGATT 1994, itwasirrelevant when Brazil hadcommenced itscountervailing duty
investigation. TheUnited States argued thatwhile theSCM Agreement didnotapply tothisdispute,
thatsituation didnotaffect theapplication ofArticle VIofGATT 1994. TheUnited States, inresponse
toaquestion from thePanel, indicated thattheprovisions ofArticle 10oftheSCM Agreement did
notaffect itsanalysis oftheissueofapplicable law.TheUnited States asserted thatArticle 10,requiring
thatcountervailing duties beimposed pursuant totheprovisions ofArticle VIofGATT 1994 andthe
SCM Agreement, wasapplicable onlyinthecaseofinvestigations initiated pursuant toapplications
made after1January 1995, which wasnotthecasehere.
212. TheUnited States argued thattheapplication ofArticle VIofGATT 1994inthiscasedidnot
represent theimposition ofanewtreaty obligation inrespect ofpastacts,factsorsituations inviolation
ofArticle 28oftheVienna Convention. Theactofimposing acountervailing dutywastheact,fact
orsituation thatisrelevant. Thatact--theimposition ofthecountervailing duty--occurred after
1January 1995. Assuch, Brazil wasobligated toimpose duties inaccordance withitscommitments
under GATT 1994.
213. TheUnited States contended that, ifGATT 1994 were notinterpreted inthisfashion,
unacceptable, andunintended, results would ensue. Forexample, Members oftheWTO which had
notbeensignatories totheTokyo Round SCM Code would havenobasisuponwhich toenforce their
rights iftheywere denied aninjury testinacountervailing dutyinvestigation commenced before
1January 1995. GATT 1994wastheapplicable provision insuchinstances anditsstand-alone character
mustbepreserved.TheUnitedStatesobservedthatBrazilitselfhadbroughtdisputesunderGATT1994,
forinstance against theUnited States concerning regulations onconventional andreformulated gasoline.
214. TheUnited States alsotooktheposition that,should thePanel findthatthePhilippines was
within itsrights tobring thisdispute under GATT 1994, thePanel mustconduct itsexamination ofWT/DS22/R
Page56
thismatter inlight oftheprovisions ofArticle VIofGATT 1994, without reference tothe
SCMAgreementortheTokyoRoundSCMCode.TheUnitedStatesobservedthatthetermsofreference
forthisdispute referred totherelevant provisions inGATT 1994andtheAgreement onAgriculture,
aswellasthePhilippines ’request forestablishment ofapanel, Brazil ’scommunication totheDSB
andtherecord ofdiscussions atthemeeting oftheDSBon21February 1996. Article 7.2oftheDSU
states that“[p]anels shalladdress therelevant provisions inanycovered agreement oragreements cited
bytheparties tothedispute. ”Thus, theonlytradeagreements which thePanel isfreetouseasguidance
indetermining thelegalrights andobligations oftheparties inthiscasearethose which arecovered
agreements andarecited bytheparties. Since theTokyo Round SCM Code isnota“covered
agreement ”listed inAppendix 1oftheDSU, theUnited States argued thatthePanel hasnoauthority
toapplytheTokyoRoundSCMCode.Further,theSCMAgreementwasequallyunavailableasguidance
forthePanel.Byitsownterms,Article32.3,theSCMAgreementappliedonlytoinvestigationsinitiated
pursuant toapplications made after1January 1995. Given theDSU mandate inArticles 3.2and19.2
thatpanels“cannotaddtoordiminishtherightsandobligationsprovidedforinthecoveredagreements,”
itwasimportant thatthePanel notconsider agreements thatwereneither covered agreements norcited
bytheparties. Todosowould affect therights andobligations oftheparties incontravention ofthe
terms ofArticle 3.2and19.2.
215. TheUnited States asserted thatthePhilippines 'firstsubmission referred, without directly citing,
toconcepts which mirror those contained intheTokyo Round SCM Code and/or theSCM Agreement,
buttowhich Article VIofGATT 1994 makes noreference. TheUnited States argued thatifthe
Philippines cannot relyontheseAgreements directly, itmaynotincorporate theirprinciples byindirect
reference.
216. Insupport ofitsposition, theUnited States referred tothereport ofthePanel intheOilseeds
case. ThatPanel found thatitcould onlymake findings inrespect ofGATT 1947andcould notinterpret
theTokyo Round SCM Code:
"The Panel wasestablished tomake findings ‘inthelight oftherelevant GATT
provisions ’;ittherefore doesnothavethemandate topropose interpretations ofthe
provisionsoftheSubsidiesCodewhichtheCommunityinvokestojustifyitsposition".57
217. TheUnited States identified specific passages inthePhilippines ’firstsubmission which referred
toconcepts intheTokyo Round SCM Code and/or theSCM Agreement, which were notfound in
Article VIofGATT 1994, andasserted thatwithregard tothese arguments, thePanel should take
caretoinsure thatitsexamination didnotextend beyond theconcepts asenvisaged under Article VI
ofGATT 1994toanassessment oftheelaborations ofconcepts ineither theTokyo Round SCM Code
ortheSCM Agreement. ThePanel should, intheUnited States 'view, takea“clean slate”approach
totheconcepts inArticle VIofGATT 1994anddetermine onthebasisoftheinformation atitsdisposal
whether Brazil ’sconduct ofthisinvestigation wasincompliance withthestandards ofArticle VIof
GATT 1994ornot.Itwasimperative thatthePanel refrain fromcreating newrights andobligations
thatarenotincluded inthetextofArticle VIorthatcannot befairly saidtoflowdirectly from it.
Todootherwise would affect thebalance oftheparties ’rights andobligations under GATT 1994,
contrary toDSU Articles 3.2and19.2.
218. TheUnited States alsoargued thatthere were twofundamental flaws inBrazil 'sinjury
determination, which made itinconsistent withArticle VIofGATT 1994, without reading intothat
Article therefined standards provided intheTokyo Round SCM Code ortheSCM Agreement. First,
Article VI:6(a) requires acausal nexus between thesubsidized imports andmaterial injury. However,
57Oilseeds, para. 154.WT/DS22/R
Page57
intheUnited States 'view, Brazil 'sinjury determination didnotdiscuss whysuchacausal nexus might
exist. Thiswasnotaquestion oftheadequacy oftheanalysis; theBrazilian determination effectively
hadnoanalysis ofcausation. Thisabsence ofcausal analysis wasinconsistent withArticle VI.
219. Second,ArticleVI:6(a)referstomaterialinjuryto"an"establisheddomesticindustry.However,
theUnited States asserted thattheinjury determination inthiscasedidnotuseaconsistent definition
ofdomestic industry foritsconclusions concerning material injury. Thefailure tobaseconclusions
concerning material injury onaconsistent industry definition, withnoplausible reasons forthis
inconsistency, wasimpermissible inthelightoftherequirement inArticle VItoassess material injury
to"an"established domestic industry.
220. TheUnited States alsoargued thatthePanel should reject thePhilippines 'request forspecific
andretroactive remedies, i.e.,thatBrazil revoke itscountervailing dutyondesiccated coconut exports
from thePhilippines andreimburse anyduties collected. IntheUnited States 'view, suchspecific
and,inthecaseofreimbursement retroactive remedies wereinconsistent withestablished GATT practice
andtheDSU. Instead, theUnited States argued thatthePanel should make ageneral recommendation,
consistent withtheDSUandestablished GATT practice, thatBrazil bring itscountervailing dutyorder
intoconformity withArticle VIofGATT 1994.58IntheUnited States 'view, GATT rulesandremedy
recommendations aredesigned toprotect expectations onthecompetitive relationship between imported
anddomestic products, rather thanexpectations onexport volumes.
221. TheUnited States alsoargued thattheonlysupport forgranting specific andretroactive remedies
layinthreepre-WTOadoptedpanelreportsinvolvinganti-dumpingandcountervailingduties.However,
theUnited States argued, acareful analysis oftheDSU demonstrated that,insofar asremedies are
concerned, thedrafters oftheDSU didnotintend thatanti-dumping andcountervailing dutydisputes
betreated anydifferently thanother types ofdisputes. Inaddition, eveniftheDSUwerenotdispositive
onthisissue, thePanel should notaccord thethree adopted panel reports anyweight, because (1)the
reports themselves weredevoid ofanyjustification fortreating anti-dumping andcountervailing disputes
differently thanother types ofdisputes, and(2)areview ofthehistory ofunadopted anti-dumping
andcountervailing dutypanel reports indicated thattherewasnoconsensus under thepre-WTO regime
thatspecific andretroactive remedies were everappropriate.
222. Regarding theissueofthescope oftheterms ofreference, inresponse toaquestion fromthe
Panel, theUnited States stated thatthePanel wasrequired toexamine "thematter" before it,which
intheUnited States 'viewreferred tothesubject matter ofthedispute asdescribed intherequest for
establishment ofapanel. Referring toArticle 6.2oftheDSU, theUnited States asserted that,while
thecomplaining party mustidentify themeasures atissue, itneednotputthecontents ofitsfirstpanel
submission intoitsrequest forestablishment ofapanel, andneedonlyprovide asummary ofthelegal
basis sufficient topresent theproblem clearly. IntheUnited States 'view, itfollowed thatparticular
legal claims didnotneedtobeidentified withspecificity, forinstance byarticle oftheagreement
concerned. However, itwasnecessary toidentify thelegalbasis fortherequest forestablishment of
apanel sufficiently toprovide fairnotice tothedefending party andpotential third parties. The
United States asserted thatthedegree ofspecificity needed could bestbejudged inthecontext ofthe
particular case, guided bytherequirement ofprovision offairnotice. TheUnited States maintained
thatanexact description ofissues wasnotrequired under previous dispute settlement procedures, and
toextent itmayhavebeen, thispractice hadbeenoverruled bytheterms ofArticle 6.2oftheDSU.
58TheUnitedStatesnoted,withrespecttothePhilippines'claimthatBrazil’sfailuretorevokethecountervailing
dutyondesiccated coconut andtoreimburse anyduties paidwasinconsistent withBrazil ’sobligations under
Article VI:3and6(a)oftheGATT 1994, thatitagreed withBrazil ’sstatement andsimilarly didnotunderstand
howfailure torevoke andreimburse, intheabsence ofafinding thattheimposition wasinconsistent withBrazil ’s
obligations, could possibly constitute aviolation initsownright.WT/DS22/R
Page58
TheUnited States indicated thatguidance ontheprinciple itputforward could betaken fromthereports
ofthePanels inthetwoSalmon disputes.
223. IntheUnited States 'view, theresolution ofthequestion whether specific issues werewithin
thetermsofreferencerequiredexaminationoftheprecisetermscontainedintherequestforestablishment
ofapanel. Referring specifically totheinstant dispute, theUnited States argued that,since thelegal
basis ofthecomplaint referred exclusively tospecific articles ofGATT 1994, itwould notseem to
beappropriately within theterms ofreference ofthePanel tonowexpand thelegalbasisofthecomplaint
toentirely newprovisions ortonewmeasures, sincetheDSBwould nothavebeenonnotice. However,
iftheclaims indispute merely involve particular arguments regarding thematter referred tointhe
request forestablishment ofapanel, andthose arguments werebased onthelegalbasis stated inthat
request, thenthePanel could consider those arguments consistent withtheterms ofreference.
224. TheUnited States tooknoposition withrespect totheapplicability oftheAgreement on
Agriculture inthisdispute.
VI. FINDINGS
A. Applicable Law
225. Thefirstissue confronting thisPanel istodetermine whether thelegal obligations cited by
thePhilippines areapplicable tothedisputed measure. ThePhilippines alleges thattheimposition
byBrazil ofacountervailing dutyondesiccated coconut from thePhilippines wasinconsistent with
Articles I,IIandVIofGATT 1994andArticle 13oftheAgreement onAgriculture. Brazil contends
thatunder customary principles ofinternational lawandtheterms oftheWTO Agreement itself, neither
GATT 1994 northeAgreement onAgriculture apply tothisdispute, astheinvestigation leading to
theimposition ofthemeasure wasinitiated pursuant toanapplication received priortothedateofentry
intoforceoftheWTO Agreement. Accordingly, thisPanel isrequired toaddress, asathreshold matter,
whether Articles I,II,andVIofGATT 1994 andArticle 13oftheAgreement onAgriculture are
applicable tothisdispute. Itshould beemphasized thatbecause thisissuerelates totheentry intoforce
ofthenewWTO regime, thequestion ofapplicable lawfacing thisPanel willcease toberelevant as
thistypeofdispute becomes rarer andeventually disappears altogether.
1. Applicability ofGATT 1994
226. Within theWTO system, theuseofcountervailing measures isgoverned principally by
GATT 1994 andtheWTO Agreement onSubsidies andCountervailing Measures ("the SCM
Agreement"). Although thePhilippines doesnotinvoke theSCM Agreement inthiscaseand,ofcourse,
isnotrequired todoso,itsapplicability orotherwise tothisdispute ishighly relevant tothebroader
issueofapplicable law.Ifweweretoconclude thattheSCM Agreement didnotconstitute applicable
lawinthisdispute, inthesense thatneither theparties northisPanel could invoke itinconstruing
therights andobligations indispute, wewould bepresented withtheissuewhether Article VIofGATT
1994 andArticle 13oftheAgreement onAgriculture could apply ontheirown, independently ofthe
SCM Agreement. If,inturn, wewere tofindthatArticle VIofGATT 1994 andArticle 13ofthe
Agreement onAgriculture could notapply ontheir own, thenthenon-applicability oftheSCM
Agreement would render Article VIofGATT 1994 andArticle 13oftheAgreement onAgriculture
inapplicable aswell. Inthiscase, thePhilippines 'claims under these provisions could notsucceed.
227. ThisPanel should make clearthatifweweretofindthat,because ofthenon-applicability of
theSCM Agreement, Article VIofGATT 1994 andArticle 13oftheAgreement onAgriculture do
notapply tothisdispute, thiswould notmean thattheSCM Agreement supersedes Article VIofGATTWT/DS22/R
Page59
1994asthebasis fortheregulation bytheWTO Agreement ofcountervailing measures. Itisevident
thatbothArticle VIofGATT 1994 andtheSCM Agreement haveforce, effect, andpurpose within
theWTO Agreement. ThatGATT 1994 hasnotbeensuperseded byother Multilateral Agreements
onTrade inGoods ("MTN Agreements") isdemonstrated byageneral interpretive notetoAnnex 1A
oftheWTO Agreement.59Thefactthatcertain important provisions ofArticle VIofGATT 1994
areneither replicated norelaborated intheSCM Agreement further demonstrates thispoint.60Thus,
thequestion forconsideration isnotwhether theSCM Agreement supersedes Article VIofGATT 1994.
Rather, itiswhether Article VIcreates ruleswhich areseparate anddistinct fromthose oftheSCM
Agreement, andwhich canbeapplied without reference tothatAgreement, orwhether Article VIof
GATT 1994 andtheSCM Agreement represent aninseparable package ofrights anddisciplines that
must beconsidered inconjunction.
(a) Applicability oftheSCM Agreement
228. Article 32.3isatransition rulewhich defines withprecision thetemporal application ofthe
SCM Agreement. Article 32:3provides that:
"Subject toparagraph 4,theprovisions ofthisAgreement shallapply toinvestigations,
andreviews ofexisting measures, initiated pursuant toapplications which havebeen
made onorafterthedateofentry intoforce foraMember oftheWTO Agreement".
TheWTO Agreement entered intoforce forBrazil on1January 1995. Although thedefinitive
countervailing dutyondesiccated coconut fromthePhilippines wasimposed on18August 1995, the
investigationleadingtotheimpositionofthedutywasinitiatedon21June1994pursuanttoanapplication
made on17January 1994, prior tothedateofentry intoforce oftheWTO Agreement forBrazil.
Thus, inaccordance withtheordinary meaning ofArticle 32.3, theSCM Agreement doesnotconstitute
applicable lawforthepurpose ofthedispute before us.
229. Wedonotfindpersuasive arguments thatArticle 32.3oftheSCM Agreement, byreferring
to"investigations," limits theapplication ofthatAgreement onlywithrespect tothe"procedural" aspects
ofinvestigations. ThetextofArticle 32.3itself doesnotindicate thatthatprovision applies onlyto
"procedural" asopposed to"substantive" aspects ofaninvestigation. Rather, itprovides thatan
investigation initiated pursuant toanapplication made onorafterthedateofentry intoforce shallbe
conducted inaccordance withtheprovisions oftheSCM Agreement initsentirety --procedural and
substantive. Moreover, anyeffort todistinguish between the"substantive" and"procedural" obligations
oftheSCM Agreement would generate considerable confusion anddispute, asthedistinction between
thetwotypes ofobligations inpractice could prove extremely difficult. Weshare theview ofthe
Philippines thatoneobject andpurpose ofArticle 32.3istoprevent WTO Members from having to
redoinvestigations begun before theentry intoforce oftheWTO Agreement inaccordance withthe
59Thegeneral interpretive notetoAnnex 1Aprovides that,"[i]ntheevent ofaconflict between aprovision
oftheGeneral Agreement onTariffs andTrade 1994 andaprovision ofanother agreement inAnnex 1Aofthe
Agreement Establishing theWorld Trade Organization ...theprovision oftheother agreement shallprevail to
theextent oftheconflict". Such aninterpretive notewould beunnecessary iftheMTN agreements superseded
GATT 1994.
60Forexample, theSCM Agreement doesnotreplicate orelaborate onArticle VI:5ofGATT 1994, which
proscribes theimposition ofbothananti-dumping andacountervailing dutytocompensate forthesame situation
ofdumping andexport subsidization, nordoesitaddress theissue ofcountervailing action onbehalf ofathird
country asprovided forinArticle VI:6(b) and(c)ofGATT 1994. IftheSCM Agreement were considered to
supersede Article VIofGATT 1994 altogether withrespect tocountervailing measures, these provisions would
loseallforce andeffect. Such aresult could nothave been intended.WT/DS22/R
Page60
newandmore detailed procedural provisions oftheSCM Agreement. Inourview, however, this
consideration isequally applicable tothesubstantive provisions oftheSCM Agreement, which differ
insignificant respects from those oftheTokyo Round Agreement onInterpretation andApplication
ofArticles VI,XVIandXXIII oftheGeneral Agreement onTariffs andTrade ("the Tokyo Round
SCM Code"). Throughout thecourse ofaninvestigation, bothprocedural andsubstantive decisions
mustbemade, andifaninvestigation weretobecome subject tonewanddifferent rulesatsome point
during theinvestigation theinvestigating authorities would berequired toreturn tothebeginning and
tore-examine decisions already taken.61Accordingly, weconsider thattheconcept of"investigation"
asexpressed inArticle 32.3includes bothprocedural andsubstantive aspects ofaninvestigation and
theimposition ofacountervailing measure pursuant thereto.
230. Wefindequally unpersuasive theargument that,while Article 32.3might preclude application
oftheSCM Agreement totheimposition ofacountervailing dutyresulting fromaninvestigation initiated
pursuant toanapplication made before thedateofentry intoforce oftheWTO Agreement, itdoes
notpreclude theapplication oftheSCM Agreement tothecontinued collection ofduties afterthatdate.
Article 32.3defines comprehensively thesituations inwhich theSCM Agreement applies tomeasures
which were imposed pursuant toinvestigations notsubject tothatAgreement. Specifically, the
SCM Agreement applies to"reviews ofexisting measures" initiated pursuant toapplications made on
orafterthedateofentry intoforceoftheWTO Agreement. Itisthusthrough themechanism ofreviews
provided forintheSCM Agreement, andonlythrough thatmechanism, thattheAgreement becomes
effective withrespect tomeasures imposed pursuant toinvestigations towhich theSCM Agreement
doesnotapply. If,asthePhilippines argues, apanel could examine inthelightoftheSCM Agreement
thecontinued collection ofadutyevenwhere itsimposition wasnotsubject totheSCM Agreement,
andif,asthePhilippines argues, thatexamination ofthecollection ofthedutyextended tothebasis
onwhich thedutywasimposed, thenineffect thedeterminations onwhich those duties werebased
would besubject tostandards thatdidnotapply --andwhich, inthecaseofdeterminations made before
theWTO Agreement wassigned, didnotyetevenexist--atthetimethedeterminations weremade.
Inourview, suchaninterpretation would becontrary totheobject andpurpose ofArticle 32.3and
would render thatArticle anullity.
231. Inconclusion, wefindthattheSCM Agreement doesnotconstitute applicable lawforthe
purposes ofthisdispute.
(b) Separability ofArticle VIofGATT 1994andtheSCM Agreement
232. Having concluded thattheSCM Agreement doesnotconstitute applicable lawforthepurposes
ofthisdispute, wenextexamine theimplications ofthisconclusion forthePhilippines 'claims under
GATT 1994. Thequestion presented iswhether Article VIofGATT 1994 canapply toadispute in
circumstances where, pursuant toArticle 32.3, theSCM Agreement doesnotapply. Inother words,
weareconfronted withtheissue whether theprovisions ofArticle VIofGATT 1994 relating to
countervailing duties aresusceptible ofapplication andinterpretation independently oftheSCM
Agreement. Iftheanswer tothisquestion isyes,thenArticle VIofGATT 1994 represents thelaw
applicable tothisdispute. If,bycontrast, weconclude that, inrelation todisputes concerning
countervailing measures, Article VIofGATT 1994isinseparable fromtheSCM Agreement andcannot
beinterpreted andapplied independently ofthatAgreement then, pursuant toArticle 32.3, theSCM
Agreement, andanyother provisions thatdepend onit,donotapply, andwecannot consider the
Philippines 'claims under Article VIofGATT 1994 inthisdispute.
61Asanexample, thedetermination ofthedomestic industry must bemade atanearly stage asaprerequisite
tosubsequent steps intheinvestigation. TheSCM Agreement contains provisions relating tothisdefinition that
arenotpartoftheTokyo Round SCM Code. IftheSCM Agreement applied toongoing investigations, aWTO
Member would berequired tore-examine itsdomestic industry determination inlightofthese newprovisions.WT/DS22/R
Page61
233. Asafirststep,wewillreview whether thetextual provisions defining therelationship between
Article VIofGATT 1994andtheSCM Agreement, intheirordinary meaning, shedlightonthisissue.
Wewillthereafter consider whether aninterpretation whereby Article VIofGATT 1994 applies
independently insituations where theSCM Agreement doesnotapply would besupported bya
consideration oftheobject andpurpose oftherelevant provisions. After examining precedents under
GATT 1947potentially relevant totheissueoftheindependent application ofArticle VIofGATT 1994,
wewillconsider whether there areanyconsequences ofaconclusion thatArticle VIofGATT 1994
cannot apply independent oftheSCM Agreement which would castdoubt onthisinterpretation.
(i) Textual analysis
234. ThereferenceinArticle32.3oftheSCMAgreementto"thisAgreement"initsordinarymeaning
would appear tobeareference totheSCM Agreement, thereby suggesting thatwhile theSCM
Agreement doesnotapply toinvestigations andreviews initiated pursuant toapplications made before
thedateofentry intoforce oftheAgreement foraMember, Article VIofGATT 1994 would
nevertheless continue tobeapplicable inthese circumstances. However, astrict application ofthe
term"thisAgreement" asusedelsewhere intheSCM Agreement could produce manifestly unreasonable
results. Forexample, Article 1.1oftheSCM Agreement contains adefinition of"subsidy" and
Article 16.1oftheSCM Agreement contains adefinition of"domestic industry" bothofwhich are
"forthepurposes ofthisAgreement". However, theterms "subsidy" and"domestic industry" are
usedbothinArticle VIofGATT 1994andtheSCM Agreement. Iftheterm"thisAgreement" were
interpreted strictu sensu tomean theSCM Agreement, thenthedefinitions ofthese keyterms inthe
SCM Agreement would beinapplicable tothesame terms asusedinArticle VIofGATT 1994. Such
aresult could nothavebeenintended.
235. Inanyevent, while Article 32.3oftheSCM Agreement might, taken onitsown,mostnaturally
beconstrued togovern thetemporal application oftheSCM Agreement andnotArticle VIof
GATT 1994, itmight have another meaning when taken initscontext. If,forexample, itwere
understood from other provisions oftheWTO Agreement thatArticle VIofGATT 1994 could not
beapplied independently oftheSCM Agreement, themerefactthatArticle 32.3oftheSCM Agreement
refers onlyto"thisAgreement" could not,inandofitself, sever thatlinkage. Ifitwereestablished,
byreference toother language elsewhere intheWTO Agreement, thatthere isaninseparable link
between Article VIofGATT 1994andtheSCM Agreement, thentheordinary meaning ofArticle 32.3,
readinconjunction withother relevant provisions, would bethattheSCM Agreement, andanyother
provision oftheWTO Agreement thatdepended onit,would notapply iftheterms ofArticle 32.3
werenotmet.Underthisconstruction,theterm"thisAgreement"inArticle32.3oftheSCMAgreement
would begthequestion rather thananswer it.
236. Inlightofthese considerations, weconsider thattheusebythedrafters oftheterm"this
Agreement" doesnotprovide decisive guidance regarding theimplications ofArticle 32.3forthe
applicability ofArticle VIofGATT 1994 tothisdispute.62
62Interestingly, theTokyo Round SCM Code contains anotethat,ifreproduced intheSCM Agreement,
might wellhave been decisive onthispoint. Note 2tothePreamble oftheCode states that:
"WhereverinthisAgreemen tthereisreferenceto"thetermsofthisAgreemen t"orthe"articles"
or"provisions ofthisAgreement" itshall betaken tomean, asthecontext requires, the
provisions oftheGeneral Agreement asinterpreted andapplied bythisAgreement".
ThePanel isuncertain whythisprovision wasnotreproduced intheSCM Agreement. However, onepossible
explanation isthatsuchaprovision wasconsidered unnecessary inthelightoftheintegrated nature oftheWTO
(continued...)WT/DS22/R
Page62
237. Another provision relevant totherelationship between Article VIofGATT 1994 andthe
SCM Agreement isArticle 10oftheSCM Agreement, which provides asfollows:
"Application ofArticle VIofGATT 199435
Members shalltakeallnecessary stepstoensure thattheimposition ofacountervailing
duty36onanyproduct oftheterritory ofanyMember imported intotheterritory of
another Member isinaccordance withtheprovisions ofArticle VIofGATT 1994
andtheterms ofthisAgreement. Countervailing duties mayonlybeimposed pursuant
toinvestigations initiated37andconducted inaccordance withtheprovisions ofthis
Agreement andtheAgreement onAgriculture.
___________________36Theterm"countervailing duty" shallbeunderstood tomean aspecial dutylevied
forthepurpose ofoffsetting anysubsidy bestowed directly orindirectly upon the
manufacture, production orexport ofanymerchandise, asprovided forinparagraph 3
ofArticle VIofGATT 1994". (footnotes 35and37omitted).
Inourview, Article 10means that,incases where theSCM Agreement applies, bothArticle VIof
GATT 1994andtheSCM Agreement areapplicable andanycountervailing measure mustcomply with
both. Thisisclearfromthelanguage stating thatcountervailing duties mustbeimposed inaccordance
withtheprovisions ofArticle VIandtheSCM Agreement. Article 10further requires that,incases
where theSCM Agreement applies, countervailing dutyinvestigations mustbeconducted inaccordance
withthatAgreement. Itcould beargued thatArticle 10onlyapplies incaseswhere theSCM Agreement
applies, andtherefore doesnotexpressly address theapplicability ofArticle VIofGATT 1994 in
situations where, pursuant toArticle 32.3, theSCM Agreement doesnotapply. Onthisreading,
Article 10would beneutral, providing littleguidance ontheissueofseparability. However, thetitle
ofArticle 10indicates thatthatArticle informs regarding howArticle VIofGATT 1994istobeapplied.
Article 10thussuggests thatArticle VIandtheSCM Agreement represent aninter-related package
ofrights andobligations relating tocountervailing measures.
238. Another provision relevant totherelationship ofArticle VIofGATT 1994 andthe
SCM Agreement isArticle 32.1oftheSCM Agreement, which provides that:
"Nospecific action against asubsidy ofanother Member canbetaken except in
accordance withtheprovisions ofGATT 1994, asinterpreted bythisAgreement.56"
(footnote 56omitted).
Article 32.1, likeArticle 10,makes itveryclear thatincases where theSCM Agreement applies,
Article VIofGATT 1994 cannot beinvoked asthebasis fortheimposition ofacountervailing duty
without reference totheSCM Agreement. Aswithrespect toArticle 10,itcould beargued that
Article32.1onlyapplieswheretheSCMAgreementappliespursuanttoArticle32.3,andthatittherefore
doesnotinstruct astowhether Article VIofGATT 1994 applies where theSCM Agreement does
not.Itissignificant, however, thatArticle 32.1refers totheSCM Agreement asinterpreting Article VI
ofGATT 1994. Article VIofGATT 1994setsforthaseries ofcoreconcepts central toWTO regulation
ofcountervailing measures (e.g., subsidy, material injury, domestic industry). These concepts are,
however, expressed inonlythemost general terms, andarethussusceptible ofawide range of
interpretations. Inourview, theTokyo Round SCM Code anditssuccessor theSCM Agreement were
62(...continued)
Agreement, andtheprovisions regulating therelationship ofGATT 1994 andtheMTN agreements. Inanyevent,
wedonotconsider thattheexclusion ofthisprovision from theSCM Agreement sheds much lightonthequestion
before us.WT/DS22/R
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developed inparttolendgreater precision andpredictability totherights andobligations under
Article VI.Article 32.1makes clearthatwhere theSCM Agreement applies themeaning ofArticle VI
ofGATT 1994 cannot beestablished without reference totheprovisions oftheSCM Agreement. It
isapparent from Article 32.1thatArticle VIofGATT 1994 might haveadifferent meaning ifread
inisolation thanifreadinconjunction withtheSCM Agreement. Thedrafters clearly foresaw the
possibility ofconflict between GATT 1994 andtheMTN agreements, asevidenced bythegeneral
interpretive notetoAnnex 1A. Ifthere could beconflicts between GATT 1994 andtheMTN
agreements, there could alsobeconflicts between GATT 1994 taken inisolation andGATT 1994
interpreted inconjunction withanMTN agreement.
239. Weconsidered whether thepotential fortwodifferent meanings ofArticle VIofGATT 1994
could beeliminated byinsisting thatitshould always beinterpreted inthelightoftheSCM Agreement
oranother suchinterpretive device. Werejected suchapossibility.
240. Theclearnon-applicability oftheSCM tothisdispute means thatifweweretoconclude that
Article VIofGATT 1994 mayapply onitsown, wewould beobliged tointerpret itasiftheSCM
Agreement didnotexist. Inthewords ofonethirdparty, itwould beourdutytotakea"clean-slate"
approach totheinterpretation ofArticle VIofGATT 1994, avoiding concepts which could notfairly
bedeemed toflowdirectly from aproper, self-contained Article VIanalysis. Itwould belegally
improper toseektoreconcile anyemergent differences between Article VIapplied onitsownand
Article VIasitwould beunderstood inconjunction withtheSCM Agreement byreverting totheSCM
Agreement, notasapplicable lawbutasaninterpretive aid--eventhough thelatter Agreement by
itsownterms doesnotapply tothisdispute. Such anapproach would becontrary totheordinary
meaning ofArticle 32.3oftheSCM Agreement. Itwould notbeappropriate forthisPanel toincorporate
therequirements oftheSCM Agreement indirectly where theSCM Agreement doesnotapply directly.
If,then, weinterpret therelevant provisions oftheWTO Agreement aspermitting theapplication of
Article VIofGATT 1994 onitsown, there would bearealandaltogether serious possibility that
Article VIofGATT 1994would beimbued withonemeaning where applied independently, andwith
adifferent, andpotentially conflicting, meaning where applied inconjunction withtheSCM Agreement
asrequired byArticle 32.1.63
(ii) Object andPurpose
241. What istherelevance ofthispossibility tothequestion ofinterpretation before us?An
interpretationwhichallowsthispossibilitystrikesusascontrarytooneofthecentralobjectsandpurposes
oftheWTOAgreement.Thisaddsconsiderableweighttotheinterpretationwhichregardstheprovisions
concerning countervailing measures inArticle VIofGATT 1994 andtheSCM Agreement asan
inseparable whole.
242. Inourview, oneofthecentral objects andpurposes oftheWTO Agreement, asreflected in
thePreamble tothatAgreement, isto"develop anintegrated, more viable anddurable multilateral
trading system encompassing theGeneral Agreement onTariffs andTrade, theresults ofpast
liberalization efforts, andalloftheresults oftheUruguay Round ofMultilateral Trade Negotiations...".
Thisisoneofthereasons thattheWTO Agreement isasingle undertaking, accepted byallMembers.
Unlike thepre-WTO regime, where contracting parties toGATT 1947 could electwhether ornotto
adhere totheTokyo Round SCM Code, suchoption hasbeenremoved inthepresent regime. The
integrated nature oftheWTO system isreflected inArticle II.2,which states that"[t]he agreements
andassociated legalinstruments included inAnnexes 1,2and3...areintegral partsofthisAgreement,
binding onallMembers". Essential tothisintegration isthecreation ofasingle Dispute Settlement
63Specific examples arediscussed inthecontext ofarelated argument inparagraphs 248-252.WT/DS22/R
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BodygovernedbyasingleUnderstandingonRulesandProceduresConcerningtheSettlementofDisputes
("the DSU"). Apanel established pursuant totheDSU mayunder Article 7.1examine anycovered
agreement(s) citedbytheparties tothedispute. Thisintegrated dispute settlement system avoids the
problemoflegalandproceduralfragmentationthatcharacterizedthepre-WTOdisputesettlementsystem,
andallows apanel tointerpret provisions ofcovered agreements inthelightoftheWTO Agreement
asawhole. Torevert toasituation where Article VIofGATT 1994 could havedifferent meanings
depending uponwhether ornotitwasapplied inconjunction withtheSCM Agreement would perpetuate
inpartthelegalfragmentation thattheintegrated WTO system wasintended toavoid.
243. Torepeat, thisconsideration regarding theobject andpurpose oftheWTO Agreement argues
strongly infavour oftheconclusion thatArticle VIofGATT 1994 cannot beapplied toadispute
regarding countervailing measures where theSCM Agreement isnotapplicable.
244. Thisconclusion isfurther strengthened byadditional consequences which would result from
aninterpretation thatArticle VIofGATT 1994 could apply indisputes suchasthisonewhere the
SCM Agreement doesnot.Asexplained below, asignatory totheTokyo Round SCM Code could
finditselfsubject toobligations under Article VIofGATT 1994applied alone which aremore onerous
thanthose towhich itwassubject pursuant toArticle VIofGATT 1947 applied inconjunction with
theTokyo Round SCM Code andwhich arealsomore onerous thanthose towhich itwillbesubject
atsuchtimeastheSCM Agreement applies. Thiswould represent aresult which isbothmanifestly
absurd andunreasonable.
245. ThePhilippines andcertain thirdparties appear toassume thatArticle VIofGATT 1994and
itspredecessor inGATT 1947represent asetofcoreobligations relating tocountervailing measures,
andthattheSCMAgreementandTokyoRoundSCMCodemerelyaddfurthersubstantiveandprocedural
obligations inaddition tothese coreobligations. Itfollows from thisassumption that,since Brazil
isrequired under Article VIofGATT 1947andtheTokyo Round SCM Code tocomply withtherelevant
provisions ofArticle VIofGATT 1947, andsince thetextofArticle VIofGATT 1994 isidentical
tothatofArticle VIofGATT 1947, Brazil 'smaterial obligations under thetwoArticles areidentical.
Inaddition, ifthisassumption iscorrect, application ofArticle VIofGATT 1994 incircumstances
where theSCM Agreement doesnotapply would notplace anyobligations onBrazil beyond those
withwhich itwilleventually havetocomply atsuchtimeasArticle VIofGATT 1994inconjunction
withtheSCM Agreement applies. Thus, while theneedforatransition ruleregulating theapplication
ofthenewanddifferent provisions oftheSCM Agreement isclear, therewasnoreason forthedrafters
oftheWTO Agreement toapply thattransition ruletoArticle VIofGATT 1994.
246. ThisPanel considers, however, thatthisviewoftherelationship between Article VIandthe
respective SCM Agreements iserroneous. Article VIofGATT 1947andtheTokyo Round SCM Code
represent, asamong Code signatories, apackage ofrights andobligations regarding theuseof
countervailing measures, andArticle VIofGATT 1994andtheSCM Agreement represent anewand
differentpackageofrightsandobligations,asamongWTOMembers,regardingtheuseofcountervailing
duties. Thus, Article VIandtherespective SCM Agreements impose obligations onapotential user
ofcountervailing duties, intheformofconditions thathavetobefulfilled inorder toimpose aduty,
buttheyalsoconfer theright toimpose acountervailing dutywhen those conditions aresatisfied.
TheSCM Agreements donotmerely impose additional substantive andprocedural obligations ona
potential userofcountervailing measures. Rather, theSCM Agreements andArticle VItogether define,
clarify andinsome cases modify thewhole package ofrights andobligations ofapotential userof
countervailing measures.
247. Itistherefore notcorrect toview Article VIofGATT 1947 andArticle VIofGATT 1994
asrepresenting acoreofidentical rights andobligations. Tothecontrary, Article VIofGATT 1947
inconjunction withtheTokyo Round SCM Code, Article VIofGATT 1994inisolation, andArticle VIWT/DS22/R
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ofGATT 1994 inconjunction withtheSCM Agreement, eachrepresent apotentially differing setof
rights andobligations. Further, itisbynomeans clear thatameasure imposed consistently with
Article VIandtheTokyo Round SCM Code ortheSCM Agreement would befound tobeconsistent
withArticle VIofGATT 1994 inisolation. Thus, ifweweretofindthatArticle VIofGATT 1994
applies incaseswhere neither theTokyo Round SCM Code northeSCM Agreement apply, aMember 's
actions could potentially befound tobeinconsistent withArticle VIofGATT 1994eventhough those
actions were consistent withArticle VIofGATT 1947 inconjunction withtheTokyo Round SCM
Code and/or would havebeenconsistent withArticle VIofGATT 1994inconjunction withtheSCM
Agreement, hadthelatter agreement applied.
248. Afewexamples mayassist todemonstrate thispoint. Inthedispute under consideration, Brazil
initsdetermination stated thatthePhilippine government hadsubmitted insufficient dataregarding
theexistence andamount ofsubsidies tococonut fruitandtheirpass-through todesiccated coconut
producers, andthatithadtherefore arrived atalevelofsubsidization fordesiccated coconut producers
onthebasis ofthedataavailable. Thereport byBrazil 'sinvestigating authority recommending the
imposition oftheduties explicitly referred toArticle 2.9oftheTokyo Round SCM Code asits
justification forresort tothedataavailable. Article 2.9states that:
"Incases inwhich anyinterested party orsignatory refuses access to,orotherwise
doesnotprovide, necessary information within areasonable period orsignificantly
impedes theinvestigation, preliminary orfinalfindings12,affirmative ornegative, may
bemade onthebasis ofthefactsavailable". (footnote 12omitted).
Initssubmissions tothePanel, Brazil relies onitsrighttouseofbestinformation available injustifying
itsdetermination. Insupport oftheproposition thattheuseofbestinformation available ispermitted
byArticle VIofGATT 1994, Brazil citestolanguage intheSecond Report oftheGroup ofExperts
onAnti-Dumping andCountervailing Duties64,and(contrary toassertions elsewhere thattheTokyo
Round SCM Code cannot beusedtointerpret Article VIofGATT 1994) toArticle 2.9oftheTokyo
Round SCM Code. While thePhilippines doesnotchallenge thepractice ofresorting tobestinformation
available perse,itdoescontend, relying inpartonpanel reports decided under Article 2.9oftheTokyo
Round SCM Code, thattheuseofbestinformation available inthiscasewasimproper.
249. Article VIofGATT 1947doesnotspecifically provide fortheuseofbestinformation available.
Bycontrast, Article 2.9oftheTokyo Round SCM Code authorizes theuseofbestinformation available,
andanumber ofpanel reports pursuant totheTokyo Round SCM Code haveapplied thatprovision.
Article 12.7oftheSCM Agreement contains language which isvirtually identical toArticle 2.9.This
Panel doesnotexpress anyviewastowhether andtowhatextent, haditreached theissue, itwould
havefound thattheuseofbestinformation available isimplicitly authorized byArticle VIofGATT
1994. Itisclear, however, thatthePanel could inprinciple havereached adifferent conclusion on
thatquestion fromthatwhich itwould havereached haditapplied either theTokyo Round SCM Code
ortheSCM Agreement. Under these circumstances, Brazil could havebeeninthesituation where
itsactions werefound tobeinconsistent withArticle VIofGATT 1994inisolation, eventhough those
actions were consistent withArticle VIofGATT 1947 inconjunction withtheTokyo Round SCM
Code andwould havebeenconsistent withArticle VIofGATT 1994 inconjunction withtheSCM
Agreement hadthelatter agreement applied. ThePanel considers thataninterpretation oftheWTO
Agreement thatcould leadtosucharesult would bemanifestly unreasonable.
250. Asecond example relates tothenature oftheexamination ofcausation ofinjury. Article VI:6(a)
ofGATT 1994 provides (asdiditsGATT 1947 predecessor) that:
64L/1141 (adopted 27May 1960), BISD 9S/1994.WT/DS22/R
Page66
"Nocontracting party shall levyanyanti-dumping orcountervailing dutyonthe
importation ofanyproduct oftheterritory ofanother contracting party unless it
determines thattheeffect ofthedumping orsubsidization, asthecasemaybe,issuch
astocause orthreaten material injury toanestablished domestic industry, orissuch
astoretard materially theestablishment ofadomestic industry".
Article 6.1oftheTokyo Round SCM Code provides that"adetermination ofinjury17forthepurposes
ofArticle VIoftheGeneral Agreement" (footnote 17omitted) shallinvolve anobjective examination
ofthevolume andpriceeffects ofimports. Article 6.4oftheTokyo Round SCM Code further provides
that"[i]tmust bedemonstrated thatthesubsidized imports are,through theeffects19ofthesubsidy,
causing injury within themeaning ofthisAgreement". Note 19defines those effects tobe"[a]s set
forthinparagraphs 2and3ofthisArticle"; paragraphs 2and3,inturn,refertothevolume andprice
effects of"subsidized imports". TheSCM Agreement contains language virtually identical tothatof
theTokyo Round SCM Code. Onthebasis ofnote19,aTokyo Round Panel determined thatthe
analysis ofcausation required byArticle VIinconjunction withtheTokyo Round SCM Code relates
toinjury caused by"subsidized imports" rather thanby"subsidization" itself. United States -Imposition
ofCountervailing Duties onImports ofFresh andChilled Atlantic Salmon from Norway, SCM/153
(adopted 24April 1994), paras. 328-337.
251. Thequestion whether anassessment ofcausation ofinjury should relate toinjury caused by
subsidization ortoinjury caused bysubsidized imports isamethodological issue withsignificant
implications. Theissue isnotbefore usandwetherefore arenotexpressing anyviewastohowthis
question would properly beresolved under Article VIofGATT 1994inisolation, Article VIofGATT
1947 inconjunction withtheTokyo Round SCM Code, orArticle VIofGATT 1994 inconjunction
withtheSCM Agreement. However, theconclusions oftheSalmon Panel arebased onlanguage in
theTokyo Round SCM Code which doesnotappear inArticle VIitself. Thus, itisevident tothe
Panel thatArticle VIofGATT 1994 inisolation could beinterpreted differently from Article VIin
conjunction witheither theTokyo Round SCM Code ortheSCM Agreement. Further, theapplication
ofArticle VIofGATT 1994 inisolation withrespect tothisissue could result inobligations onan
investigating country which aremore stringent thanthose imposed byArticle VIinconjunction with
either theTokyo Round SCM Code ortheSCM Agreement.
252. There arenumerous additional examples ofprovisions oftheTokyo Round SCM Code and/or
theSCM Agreement which define orclarify, andpotentially modify, themeaning ofArticle VI.In
many suchcases, itisbynomeans inevitable thattheobligations imposed byArticle VIinisolation
would belessthanthose imposed byArticle VIinconjunction witheither theTokyo Round SCM Code
ortheSCM Agreement. Forexample, boththeTokyo Round SCM Code andtheSCM Agreement
authorize aninvestigating authority toexclude from thedomestic industry when assessing material
injury domestic producers which arealsoimporters orwhich arerelated toimporters. Nosuchexplicit
authorization exists inArticle VIofGATT 1994. Similarly, theSCM Agreement explicitly authorizes
thecumulative assessment oftheeffects ofsubsidized imports frommorethanonecountry where certain
criteria aresatisfied. Bycontrast, neither Article VIofGATT 1947, Article VIofGATT 1994 nor
theTokyo Round SCM Code explicitly authorize cumulation. Indeed, theissue ofcumulation under
GATT 1947 andtheTokyo Round SCM Code wasamatter ofcontroversy among signatories tothat
Code.
253. Inlightoftheforegoing analysis, itisclearthattheapplication ofArticle VIofGATT 1994
inisolation could impose onaWTO Member foracertain period oftimeobligations which insome
respects might bemore onerous thanthose towhich itwould besubject oncetheSCM Agreement
became applicable. Thisaggravates theproblem ofdiffering andinconsistent interpretations identified
inparagraphs 238to240above. However, theimplications ofthisanalysis extend further. When
Brazil initiated itscountervailing dutyinvestigation inthiscase,theWTO Agreement hadnotyetenteredWT/DS22/R
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intoforce andBrazil could legitimately haveexpected tobeabletoproceed, andtohaveitsactions
adjudicated, onthebasisofArticle VIofGATT 1947inconjunction withtheTokyo Round SCM Code.
Brazil would further havebeenaware thattheSCM Agreement would notapply totheinvestigation
pursuant toArticle 32.3ofthatAgreement. IfthePanel weretodetermine thatArticle VIofGATT
1994wasindependently applicable todisputes initiated under theTokyo Round SCM Code, thePanel
would notonlybeopening ariskofconflicting interpretations ofArticle VIofGATT 1994butwould
beholding WTO Members toapackage ofrights andobligations thatwerepotentially more onerous
thanthose towhich theywere subject under Article VIinconjunction withtheTokyo Round SCM
Code when theyinitiated theinvestigation.
254. WenotethePhilippines 'apparent viewthatArticle VIofGATT 1994 canbeinterpreted in
lightoftheTokyo Round SCM Code andpractice thereunder. Itcould beargued that,ifthiswere
thecase,therewould benoriskthatArticle VIofGATT 1994, inisolation, would befound toimpose
obligations beyond those imposed byArticle VIofGATT 1947inconjunction withtheTokyo Round
SCM Code. Wedonotaccept thisview. First, thiswould require stretching theconcept of
"interpretation inlightoftheTokyo Round SCM Code" toofar.Even ifArticle VIofGATT 1994
could beinterpreted inlightoftheTokyo Round SCM Code, there could stillbedifferences between
Article VIofGATT 1994 byitself andthepackage ofrights andobligations contained inArticle VI
ofGATT 1994andtheTokyo Round SCM Code taken inconjunction thatnointerpretation ofArticle VI
ofGATT 1994 could gloss over.
255. Inanyevent, wedonotconsider thatitwould beappropriate tointerpret Article VIofGATT
1994 inlightoftheTokyo Round SCM Code. Article 31:3(a) oftheVienna Convention ontheLaw
ofTreaties ("the Vienna Convention"), which isgenerally heldtoreflect customary principles of
international lawregarding treaty interpretation, provides that"anysubsequent agreement between
theparties toatreaty regarding itsinterpretation ortheapplication ofitsprovisions" maybetaken
intoaccount when interpreting atreaty. TheTokyo Round SCM Code mayconstitute suchasubsequent
agreement among Tokyo Round SCM Code signatories regarding theinterpretation ofArticle VIof
GATT 1947. However, Article II:4oftheWTO Agreement provides thattheGATT 1994is"legally
distinct" from theGATT 1947. While GATT 1994 consists of,inter alia,"decisions ofthe
CONTRACTING PARTIES toGATT 1947," theTokyo Round SCM Code isnota"decision" ofthe
CONTRACTING PARTIES. Thus, theTokyo Round SCM Code doesnotrepresent asubsequent
agreement regarding interpretation ofArticle VIofGATT 1994. ForthePanel toconclude tothe
contrary would ineffect convert thatCode intoa"covered agreement" under Appendix 1oftheDSU.
Ifsuchanapproach werefollowed, WTO Members thatwereTokyo Round Code signatories would
findthattheirCode obligations were nowenforceable under theWTO dispute settlement system.
256. Article XVI:1 oftheWTO Agreement provides that,"[e]xcept asotherwise provided under
thisAgreement ortheMultilateral Trade Agreements, theWTO shallbeguided bythedecisions,
procedures andcustomary practices followed bytheCONTRACTING PARTIES toGATT 1947and
thebodies established intheframework ofGATT 1947". Werecognize thatthePork Panel had
indicated, inpassing, thattheTokyo Round SCM Code represents "practice" under Article VIofGATT
1947. Article 31.3(b) oftheVienna Convention provides thatthere maybetaken intoaccount, when
interpreting atreaty, "[a]ny subsequent practice intheapplication ofthetreaty which establishes the
agreement oftheparties regarding itsinterpretation". Article 31.3clearly distinguishes between the
useofsubsequent agreements andofsubsequent practice asinterpretive tools. TheTokyo Round SCM
Code is,inourview, intheformer category andcannot itself reasonably bedeemed torepresent
"customary practice" oftheGATT 1947CONTRACTING PARTIES. Inanyevent, while thepractice
ofCode signatories might beofsome interpretive value inestablishing theiragreement regarding the
interpretation oftheTokyo Round SCM Code (andarguably through Article XVI:1 oftheWTO
Agreement ininterpreting provisions ofthatCode thatwere carried overintothesuccessor SCM
Agreement), itisclearly notrelevant totheinterpretation ofArticle VIofGATT 1994 itself; rather,WT/DS22/R
Page68
onlypractice under Article VIofGATT 1947 islegally relevant totheinterpretation ofArticle VI
ofGATT 1994.
257. Inconclusion, consideration oftherelevant textual provisions oftheSCM Agreement intheir
context andinthelightofboththeirownobject andpurpose, andoneofthecentral objects andpurposes
oftheWTO Agreement asawhole, strongly supports theconclusion thattheproper interpretation
oftheSCM Agreement would notallow Article VIofGATT 1994toapply independently insituations
inwhich theSCM Agreement doesnotapply.
(iii) GATT precedents
258. Itwasargued before usthatthePork Panel65constitutes precedent forresolving oneofthe
keyquestions regarding applicable law--theseparability orotherwise ofArticle VIofGATT 1994
andtheSCM Agreement. ThatPanel concerned adispute between twosignatories totheTokyo Round
SCM Code. Nevertheless, thePanel wasestablished pursuant toArticle XXIII ofGATT 1947 and
seemed toproceed onthebasis ofArticle VIofGATT 1947 asthelawapplicable tothedispute in
question. Itcould thusbeargued onthisbasis thatpastpractice indicated thatArticle VIofGATT
1947could beapplied independently oftheTokyo Round SCM Code. Given thatseveral oftherelevant
provisions oftheTokyo Round SCM Code aresimilar tothose intheSCM Agreement,66itcould be
further argued thatasimilar result should bereached inadispute intheWTO under GATT 1994.
Here toowearemindful ofArticle XVI:1 oftheWTO Agreement, which provides that,"[e]xcept
asotherwise provided under thisAgreement ortheMultilateral Trade Agreements, theWTO shall
beguided bythedecisions, procedures andcustomary practices followed bytheCONTRACTING
PARTIES toGATT 1947 andthebodies established intheframework ofGATT 1947". Moreover,
whilstpanelreportsdonotconstituteformalprecedentthatsubsequentpanelsmustfollow,whererelevant
theyconstitute useful andpersuasive guidance. Aftercareful consideration, however, wehaveconcluded
thatthecircumstances ofthePorkPanel areofverylimited relevance totheissue ofapplicable law
before us.
65United States -Countervailing Duties onFresh, Chilled andFrozen Pork from Canada (adopted 11July
1991), BISD 38S/30.
66Article 1oftheTokyo Round SCM Code isvirtually identical tothefirstsentence ofArticle 10ofthe
SCM Agreement (quoted inpara. 237above), providing asfollows:
"Application ofArticle VIoftheGeneral Agreement3
Signatories shalltakeallnecessary steps toensure thattheimposition ofacountervailing duty4
onanyproduct oftheterritory ofanysignatory imported intotheterritory ofanother signatory
isinaccordance withtheprovisions ofArticle VIoftheGeneral Agreement andtheterms of
thisAgreement.
___________________
4Theterm "countervailing duty" shall beunderstood tomean aspecial dutylevied forthe
purposeofoff-settinganybountyorsubsidybestoweddirectlyorindirectlyuponthemanufacture,
production orexport ofanymerchandise, asprovided forinparagraph 3ofArticle VIofthe
General Agreement". (footnote 3omitted).
Similarly,Article19.1oftheTokyoRoundSCMCodeisvirtuallyidenticaltoArticle32.1oftheSCMAgreemen t
(quoted inpara. 238above), providing asfollows:
"Nospecific action against asubsidy ofanother signatory canbetaken except inaccordance
withtheprovisions oftheGeneral Agreement, asinterpreted bythisAgreement.38"(footnote
38omitted).WT/DS22/R
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259. InthePorkPanel thecomplainant chose astheforum inwhich topursue dispute settlement
apanel established pursuant toArticle XXIII ofGATT 1947rather thanpursuant toArticle 18ofthe
TokyoRoundSCMCode.Article18.1oftheTokyoRoundSCMCodeprovidesthatapanelestablished
thereunder "shall present totheCommittee itsfindings concerning therights andobligations ofthe
signatories party tothedispute under therelevant provisions oftheGeneral Agreement asinterpreted
andapplied bythisAgreement". Thus, thedispute inPorkcould havebeenreferred toapanel under
theTokyo Round SCM Code. However, thepropriety ofArticle XXIII dispute settlement asaforum
forthatdispute wasnotraised bytheparties, perhaps because theissues inquestion focused onconcepts
inArticle VIwhich werenotfurther elaborated intheTokyo Round SCM Code. Inother words, the
central contentious issue before uswasneither argued before thePorkPanel norformed partofits
deliberations andfindings. Little weight canbegiven tothePanel'sfailure toconsider theissue sua
sponte .Inanyevent, itisdoubtful whether, given thefragmented nature ofdispute settlement inthe
GATT system, apanel established under Article XXIII ofGATT 1947 would havehadtheauthority
under itsterms ofreference todetermine, inthelightofprovisions oftheTokyo Round SCM Code,
thatGATT Article XXIII wasnottheproper basis onwhich topursue anapplication.67
260. Even iftheissue ofthechoice ofGATT Article XXIII dispute settlement hadbeenargued,
andifapanel established pursuant toArticle XXIII hadconsidered anddecided thatArticle VIofGATT
1947could beinvoked independently oftheTokyo Round SCM Code, thisdecision would beoflimited
precedential effect forapanel established under theWTO. Itisobvious thatunder theGATT system,
Article VIofGATT 1947 would perforce apply onitsownwithrespect torelations, andpotential
disputes, between Contracting Parties where oneorbothofthoseContracting Parties wasnotasignatory
totheTokyo Round SCM Code. Thepre-WTO system was,afterall,characterized byafragmentation
bothasregards applicable lawanddispute resolution foraandprocedure. Wehave, asnoted, taken
theviewthatoneofthecentral objects andpurposes oftheWTO Agreement istoeliminate, asfar
aspossible, thatfragmentation through thecreation ofanintegrated WTO system. Thus, therelevant
provisions oftheSCM Agreement being examined bythisPanel mustbeinterpreted inanaltogether
newanddifferent legalcontext thanthecomparable provisions oftheTokyo Round SCM Code.
261. Consequently, thedecision ofthePorkPanel, made indifferent circumstances under adifferent
regime ofobligations, doesnotpersuade usthatweshould reach adifferent interpretation oftherelevant
textual provisions oftheWTO Agreement totheonewehavereached.
(iv) Transition totheWTO System andtheconsequences ofafinding
ofnon-separability
262. Wewishnowtoexamine some ofthealleged consequences ofaninterpretation oftheWTO
Agreement under which wewould findthatArticle VIofGATT 1994 doesnotconstitute applicable
lawinthecircumstances ofthisdispute andthecontention thatsuchconsequences must castdoubt
onsuchaninterpretation. Oneconsequence, itisargued, would betodenyaccess toWTO dispute
settlement withrespect toadutyimposed asaresult ofadetermination made aftertheentry intoforce
oftheWTO Agreement ifthatdetermination wastheresult ofaninvestigation initiated pursuant to
anapplication made before theentry intoforce oftheWTO Agreement. Surely, itisargued, ifthe
actofdetermination tookplace afterthedateofentry intoforce oftheWTO Agreement itshould be
subject totheWTO regime. Theother consequence, itisclaimed, would bethatsome WTO Members
could beleftwithout aforum topursue theirrights under either theGATT orWTO systems withrespect
67Asprovided intheMontreal Improvements totheGATT Dispute Settlement Rules andProcedures, L/6489,
dated 13April 1989, theterms ofreference ofthePork Panel were toexamine thematter "inthelight ofthe
relevant GATT provisions".WT/DS22/R
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tocountervailing measures imposed asaresult ofinvestigations initiated pursuant toapplications made
before thedateofentry intoforce oftheWTO Agreement.
263. Inexamining thesealleged consequences andtheirpossible significance itisimportant torecall
thattheissue ofapplicable lawarises because oftheparticular temporal aspects ofthisdispute. The
WTO Agreement entered intoforce forBrazil on1January 1995. Theinvestigation resulting inthe
imposition oftheduty wasinitiated on21June 1994, pursuant toanapplication made on
17January 1994, priortothedateofentry intoforceoftheWTO Agreement forBrazil. Thedefinitive
countervailing duty ondesiccated coconut from thePhilippines wasimposed, however, on
18August 1995 aftertheAgreement entered intoforce forBrazil.
264. Thetransition intoanewlegalregime, especially inrelation todisputes suchasthisonewhich
straddle thedateofentry intoforce, frequently raises delicate legal issues. Transitional provisions
typically trytobalance theobjective ofaswiftentry intoforce ofthenewagreement withtheobjective
ofsafeguarding pre-existing andlegitimate expectations surviving fromitspredecessor. Inselecting
atransitional regime States willbalance these oftconflicting objectives. They may, atoneextreme,
apply thenewregime fullytoallmeasures existing atthedateofentry intoforce ofthenewagreement.
They may, attheother extreme, “grandfather ”allmeasures existing atthedateofentry intoforce
ofthenewagreement. They maychoose some “in-between ”regime. Thepractice ofStates varies
fromagreement toagreement and,often, evenwithin thesameagreement, parties mayagree onmultiple
transitional regimes fordifferent subject matters. Delicate anddifficult asthese legalissues are,their
importance abates sinceintime, asthenewAgreement comes fullyintoforcethetransitional problems
disappear.
265. Thetransition intotheWTO system isclearly characterized byamultiple approach tothe
problem. Insome areasoftheAgreement, WTO substantive requirements became operative anddispute
resolution became available fromthedateofitsentryintoforceeveninrelation topre-existing measures.
E.g., United States -Standards forReformulated andConventional Gasoline, WT/DS2/R
(29January 1996), WT/DS2/AB/R (22April 1996) (both adopted 20May1996). With respect to
countervailing measures, immediate andfullapplicability oftheWTO Agreement would mean that
allexisting measures, eventhose based oninvestigations anddeterminations completed before theWTO
Agreement entered intoforce, could beimmediately open tochallenge inWTO dispute settlement
proceedings, without theimporting Member evenhaving hadanopportunity toassess theconsistency
ofsuchexisting measures withthenewregime. Attheother endofthespectrum, fullgrandfathering
would permanently immunize existing measures fromscrutiny under thenewregime, evenwithrespect
toreviews ofthosemeasures. Itis,however, abundantly clearthatinrelation tocountervailing measures
neither ofthesetwoextremes wasadopted. TheMembers oftheWTO constructed amoredifferentiated
andgradual transitional regime foritsentry intoforce. Perhaps thiswasbecause, unlike ameasure
whose consistency withthenewregime canbeevaluated without consideration oftheprocess leading
toitsadoption, inthecaseofcountervailing duties, procedural andsubstantive requirements are
inextricably intertwined, andinassessing theconsistency ofacountervailing dutywiththenewregime,
theprocess leading toitsimposition mustalsobeconsidered. Thecontours ofthisregime result from
boththetemporal provisions oftheSCM Agreement andvarious instruments concerning thetermination
ofGATT 1947 andtheTokyo Round SCM Code.
266. Wenowreturn tothetwoalleged consequences ofafinding thatArticle VIofGATT 1994
doesnotconstitute applicable lawtothistypeofdispute. Oneresult, itisargued, would betodeny
access toWTO dispute settlement withrespect toadutyimposed pursuant toadetermination made
after theentry intoforce oftheWTO Agreement ifthatdetermination wastheendstage ofan
investigation following anapplication made before theentryintoforceoftheWTO. Surely, itisargued,
iftheactofdetermination tookplace aftertheentry intoforce oftheWTO itshould besubject tothat
regime. Theother result, itisclaimed, would bethatsome WTO Members could beleftwithout aWT/DS22/R
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forum topursue theirrights under either theGATT orWTO systems withrespect tocountervailing
measures imposed pursuant toinvestigations initiated inresponse toapplications made before thedate
ofentry intoforce oftheWTO Agreement. These results, itcould beargued, aresomanifestly absurd
andunreasonable astoundermine theplausibility ofaninterpretation which would holdthatArticle VI
ofGATT 1994 doesnotconstitute applicable lawtoadispute suchastheonebefore us.
267. After careful consideration thisPanel doesnotaccept thisproposition forthefollowing principal
reasons, which areelaborated further below.
268. Inthefirstplace itrestsonasimple misconception ofthetrueeffect ofafinding thatArticle VI
ofGATT 1994, standing alone, doesnotconstitute applicable lawtoadispute ofthetypebefore us.
TheWTO substantive provisions anddispute resolution procedure arenot,infact,fullydenied ineither
situation. They are,instead, phased inbythetransitional provisions intheWTO. Under theWTO
countervailing regime (Article VIofGATT 1994andtheSCM Agreement) Members mayseekareview
ofduties imposed pursuant toadetermination made aftertheentry intoforce oftheWTO Agreement.
Such areview, ifconducted, mustcomply withtheWTO regime eveniftheduties resulted from an
investigation initiated pursuant toanapplication made before thedateofentry intoforce oftheWTO
Agreement. Further, under a“sunset ”provision, allmeasures aretobebrought under theWTO regime,
automatically, nolaterthanfiveyears aftertheentry intoforce oftheWTO Agreement orthedate
ofimposition ofthemeasure, whichever islater.68Likewise, noWTO Members could belefttotally
without aforum tovindicate theirrights withrespect tocountervailing measures imposed pursuant
toinvestigations initiated asaresult ofapplications made before thedateofentry intoforce ofthe
WTO Agreement. They toowould havesimilar WTO rights through these reviews.
269. Wereadily acknowledge thattherights andremedies under thisphase-in regime areinseveral
respects lessextensive andlesseffective thanwould bethecasehadtheAgreement provided fora
more accelerated transitional regime (saytwoyears instead offiveyears), ornotransitional regime
atall,inthefieldofcountervailing measures. Butitissurely notforustocomment onthechoices
made bytheframers oftheWTO inthisregard except asitbears onourinterpretation oftheWTO
Agreement inrelation tothenon-applicability ofArticle VIandtheSCM Agreement todisputes of
thetypebefore us.Even ifaninterpretation which excluded Article VIwould mean, quod non,that
some measures would betotally immunized fromthenewregime, thiswould notconstitute inourview,
given thewidevariety inState practice regarding transitional regimes, aresult somanifestly absurd
orunreasonable astothrow doubt onsuchaninterpretation, ifitwereotherwise strongly supported,
asisthecasehere, bythetextitself initscontext andinthelightoftheobject andpurpose ofthe
Agreement. Thatnomeasure orMember is,infact,totally deprived ofWTO rights andremedies
clearly removes anydoubt inthisrespect.
270. Thisisfurther confirmed ifoneexamines thealleged consequences inthecontext oftheoverall
transition regime totheWTO, which alsocomprises remedies under special arrangements made in
relation totheprevious regime. Thiscould nothaveadirect bearing onthematter ofinterpretation
before us.But,aswillemerge, thesequence ofnegotiating andconcluding these special arrangements
lendssomeindirectsupporttothisconclusion.Itwillalsoemergethatinsomerespectsanyshortcomings
thatMembers mayhaveinrelation tomeasures resulting from investigations initiated pursuant to
applications made under GATT 1947 andtheTokyo Round SCM Code, donotariseasaresult of
68Inmany cases, theWTO willbecome effective forexisting measures through asunset review lessthan
fiveyears afterthedateofentry intoforce oftheWTO Agreement. Specifically, forMembers which maintained
asunset provision before thedateofentry intoforce oftheWTO Agreement, Article 32.4oftheSCM Agreement
provides thatasunset review pursuant toWTO norms must beconducted notlaterthanfiveyears afterthedate
ofimposition ofthemeasure, even ifthemeasure wasimposed before thedateofentry intoforce oftheWTO
Agreement.WT/DS22/R
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thetransition rulesgoverning theapplication ofWTO rulestocountervailing measures assuch. Rather,
anylossofexisting rights arises outofthetermination ofGATT 1947 andtheTokyo Round SCM
Code. AtthetimetheWTO Agreement wassigned, nounderstanding hadbeenreached regarding
ifandwhen GATT 1947andtheTokyo Round SCM Code would beterminated. Thus, wearehesitant,
ininterpreting theWTO Agreement, togivegreat weight totheeffect ofdecisions thathadnotyet
beentaken atthetimetheWTO Agreement wassigned.
271. Transitional issues, including howandwhen toterminate theGATT 1947andtheTokyo Round
Codes, were thesubject ofdecisions taken bythePreparatory Committee fortheWorld Trade
Organization ("thePreparatory Committee"), theCONTRACTING PARTIES toGATT 1947andthe
Tokyo Round SCM Committee aftertheWTO Agreement wassigned butbefore itsdateofentry into
force. Onesuchdecision, adopted bytheTokyo Round SCM Committee attheinvitation ofthe
Preparatory Committee, recognizes that,ifsignatories withdrew fromtheTokyo Round Code orthe
Code were terminated immediately, certain countervailing measures might besubject neither tothe
Tokyo Round SCM Code nortotheSCM Agreement. Inorder toresolve thissituation, theDecision
provides that,intheevent ofwithdrawal from ortermination oftheTokyo Round Subsidies Code,
theCode nevertheless willcontinue toapply withrespect toanycountervailing dutyinvestigation or
review which isnotsubject toapplication oftheSCM Agreement pursuant totheterms ofArticle 32.3
ofthatAgreement. TheDecision, which istoremain ineffect fortwoyears from thedateofentry
intoforce oftheWTO Agreement, alsoprovides thattheTokyo Round SCM Committee willremain
inoperation forthepurpose ofdealing withanydispute arising outofsuchaninvestigation orreview.
Finally, signatories undertake tomake bestefforts toexpedite totheextent possible suchinvestigations
andreviews andprocedures forthesettlement ofdisputes soastopermit Committee consideration
ofanysuchdispute within theperiod ofvalidity oftheDecision.69Article 2.14oftheTokyo Round
SCM Code provides thatinvestigations shall, except inexceptional circumstances, beconcluded within
oneyearofinitiation. Thus, itappears that,evenwhere theinitiation ofaninvestigation occurred
afterthedateofentry intoforce oftheWTO Agreement, pursuant toanapplication filedbefore that
date,thisDecisiongenerallywouldallowasignatoryanadequateopportunitytopursuedisputesettlement
under theTokyo Round SCM Code withrespect toanyinvestigation orreview notcovered bythe
SCM Agreement.
272. ThePhilippines andBrazil arebothsignatories oftheTokyo Round SCM Code, andthe
Philippines could thushaveinvoked thedispute settlement provisions ofthatCode. Wedonotmean
tosuggest bythisobservation thatthisDecision initself forecloses thePhilippines from pursuing a
claim under Article VIofGATT 1994. Theavailability ofArticle VIofGATT 1994 asapplicable
lawinthisdispute isamatter tobedetermined onthebasis oftheWTO Agreement, rather thanon
thebasis ofasubsequent decision bythesignatories oftheTokyo Round SCM Code taken atthe
invitation ofthePreparatory Committee. However, theinvitation bythePreparatory Committee to
theTokyo Round SCM Committee totakethisdecision appears torepresent anacknowledgement that
Article 32.3might leave WTO Members without aremedy withrespect tocertain countervailing
measures, andprovides atleastapartial resolution tothatsituation.
273. ThePhilippines argues, andweacknowledge, thattheforegoing Decision doesnotapply to
allcountervailingmeasuresnotsubjecttotheSCMAgreementpursuanttoArticle32.3oftheAgreement.
Specifically, where oneoftheparties toadispute involving countervailing measures isnotasignatory
totheTokyo Round SCM Code, relations between theparties aregoverned onlybyGATT 1947.
These parties cannot ofcourse relyonthetransition mechanism created bytheTokyo Round SCM
Committee. Wenote,however, thatatransitional decision oftheCONTRACTING PARTIES toGATT
69SeeDecision onConsequences ofWithdrawal from orTermination oftheAgreement onInterpretation
andApplicationofArticlesVI,XVIandXXIIIoftheGeneralAgreemen tonTariffsandTrade,SCM/187(adopted
8December 1994).WT/DS22/R
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1947resolved inpartthedilemma confronting theseparties. Pursuant totheDecision ontheTransitional
Co-Existence oftheGATT 1947 andtheWTO Agreement, L/7583 (adopted 8December 1994), the
GATT 1947continued inforce foroneyearafterthedateofentry intoforce oftheWTO Agreement.
TheDecision further provided that,inthelightofunforseen circumstances, theCONTRACTING
PARTIEScoulddecidetopostponethedateofterminationofGATT1947bynomorethanoneadditional
year. Asaresult, Contracting Parties toGATT 1947which desired topursue dispute settlement with
respect toacountervailing measure towhich neither theTokyo Round SCM Code norArticle VIof
GATT 1994inconjunction withtheSCM Agreement applied hadanadditional yearinwhich toinvoke
GATT 1947 dispute settlement.
274. ThePanel isaware thatArticle 32.3oftheSCM Agreement, inconjunction withthetransition
decisions discussed above, doesnotcreate aseamless transition from theGATT 1947 totheWTO
system.UnderArticle32.3oftheSCMAgreement,countervailingdutyinvestigationsthatwereongoing
orwithrespect towhich aninitiation decision hadnotyetbeenmade asofthedateofentry intoforce
oftheWTO Agreement arenotsubject toArticle VIofGATT 1994 inconjunction withtheSCM
Agreement. Weareaware ofseveral suchcountervailing dutyinvestigations, aswellasofanumber
ofanti-dumping investigations thataresimilarly situated asaresult ofArticle 18.3oftheWTO
Agreement onImplementation ofArticle VIofGATT 1994 (theAnti-Dumping Agreement), which
isthecounterpart inthatAgreement toArticle 32.3oftheSCM Agreement. However, theSub-
Committee onInstitutional, Procedural andLegal Matters ofthePreparatory Committee fortheWorld
Trade Organization considered atwo-year period ofco-existence between theGATT 1947 andthe
WTO Agreement. HadthePreparatory Committee ultimately recommended suchadecision tothe
CONTRACTING PARTIES totheGATT 1947, thispotential gapincoverage would notexist. Thus,
thegapincoverage identified bythePhilippines results fromtheterms onwhich theGATT 1947was
terminated, rather thanfromArticle 32.3oftheSCM Agreement. Therefore, littleinterpretive emphasis
canbeplaced ontheexistence ofsuchagapwhen interpreting theWTO Agreement.
275. Inanyevent, theSCM Agreement byitsownterms enters intoeffect withrespect toexisting
measures overtime. Inthisrespect, wenotethatreviews ofexisting measures initiated pursuant to
requests made afterthedateofentry intoforce oftheWTO Agreement aresubject totheSCM
Agreement. Article 21.2oftheAgreement provides that:
"Theauthorities shallreview theneedforthecontinued imposition oftheduty, where
warranted, ontheirowninitiative or,provided thatareasonable period oftimehas
elapsed sincetheimposition ofthedefinitive countervailing duty, uponrequest byany
interested partywhich submits positive information substantiating theneedforareview.
Interested parties shallhavetheright torequest theauthorities toexamine whether
thecontinued imposition ofthedutyisnecessary tooffset subsidization, whether the
injury would belikely tocontinue orrecur ifthedutywereremoved orvaried, orboth.
If,asaresult ofthereview under thisparagraph, theauthorities determine thatthe
countervailing dutyisnolonger warranted, itshallbeterminated immediately".
276. Wefurther notethatthere isanouter limittothenon-applicability ofArticle VIofGATT
1994inconjunction withtheSCM Agreement intheformofasunset clause. Article 21.3oftheSCM
Agreement provides that:
"anydefinitive countervailing dutyshallbeterminated onadatenotlaterthanfive
years fromitsimposition (orfromthedateofthemostrecent review under paragraph
2ifthatreview hascovered bothsubsidization andinjury, orunder thisparagraph),
unless theauthorities determine, inareview initiated before thatdateontheirown
initiative orupon adulysubstantiated request made byoronbehalf ofthedomestic
industry within areasonable period oftimeprior tothatdate, thattheexpiry oftheWT/DS22/R
Page74
dutywould belikely toleadtocontinuation orrecurrence ofsubsidization andinjury.52"
(footnote 52omitted).
Article 32.4oftheSCM Agreement specifies themanner inwhich thisprovision willenter intoforce
under theAgreement 'stransitional regime:
"Forthepurposes ofparagraph 3ofArticle 21,existing countervailing measures shall
bedeemed tobeimposed onadatenotlaterthanthedateofentry intoforce fora
Member oftheWTO Agreement, except incases inwhich thedomestic legislation
ofaMember inforce atthatdatealready included aclause ofthetypeprovided for
inthatparagraph".
277. Werecognizethattheseprovisionsregardingreviewarenotcomparableineffecttotheimmediate
application oftheWTO Agreement toallcountervailing measures. Theeffect ofreviews regarding
thecontinued needforimposition ofcountervailing measures willlikely beprospective and,depending
onthedateofimpositionofthemeasureandthecircumstancessubsequenttoitsimposition,theexporting
country Member mayormaynotbeentitled toanimmediate review. Nevertheless, itisclearfrom
thisprovisionthatmeasurestowhichtheWTOAgreementisnotimmediatelyapplicablewillnevertheless
bebrought under WTO disciplines overtimepursuant toreviews under Article 21.2oftheSCM
Agreement. Further, evenmeasures maintained andimposed under thepre-WTO regime, andnot
subject toareview under Article 21.2oftheSCM Agreement, willultimately bebrought under WTO
disciplines under thissunset provision.70
278. From theforegoing analysis, itisapparent thattheWTO Agreement, inconjunction withthe
arrangements forthetermination ofGATT 1947andtheTokyo Round SCM Code, create atransitional
regime under which WTO disciplines andWTO dispute resolution become applicable tocountervailing
measures inadetermined, phased-in manner. Inotherwords, measures thatarenotimmediately subject
totheWTO regime are,foralimited period oftime, insulated fromscrutiny under thatregime, although
theymaybesubject toscrutiny under theoldregime. Theprincipal features ofthetransition tothe
WTO regime areasfollows:
Anycountervailing measure imposed asaresult ofanapplication made onorafterthedate
ofentry intoforce oftheWTO Agreement foraMember isimmediately subject toWTO rules,
andWTO dispute settlement, asisanyreview ofameasure initiated asaresult ofanapplication
made onorafterthedateofentry intoforce oftheWTO Agreement foraMember.
Withrespect tomeasures imposed asaresult ofinvestigations initiated pursuant toapplications
made before thedateofentry intoforce oftheWTO Agreement:
Between Members which weresignatories totheTokyo Round SCM Code access to
dispute settlement under thatCode remains available fortwoyears aftertheentry into
force oftheWTO Agreement. Ifdispute resolution under theCode isnotsought, or
70Wenotethatthere arevirtually identical provisions intheAnti-Dumping Agreement governing reviews
oftheneed forcontinued imposition ofduties andsunset. Wefurther notethatArticle 9oftheAnti-Dumping
Agreement requires thatMembers have either aprospective orretrospective dutyassessment system. Atleast
oneMember with aretrospective duty assessment system applies WTO norms tosuch retrospective duty
assessments. Insuchcases, theprovisions oftheAnti-Dumping Agreement would apply tothecollections of
allduties fortheperiod covered bytheretrospective dutyassessment, which mayinclude duties forperiods prior
totheentry intoforce oftheWTO Agreement. Because theissue isnotbefore us,thisPanel expresses noopinion
astowhether thisisarequirement oftheAnti-Dumping Agreement, norastowhether adutyassessment system
isrequired bytheSCM Agreement.WT/DS22/R
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intheunusual casewhere thetwo-year period isinsufficient, WTO dispute resolution
willbecome available following reviews initiated pursuant toapplications made on
oraftertheentry intoforce oftheWTO Agreement. Attheouter limits, obligatory
sunset reviews willbring measures under WTO disciplines andWTO dispute resolution
willbecome available.
Fordisputes among Members oneorbothofwhich werenotsignatories totheTokyo
Round SCM Code, dispute resolution under GATT 1947 wasavailable foroneyear
aftertheentryintoforceoftheWTO Agreement. Otherwise, theWTO regime becomes
effective forsuchdisputes through reviews, theoperation ofthesunset clause, and
theeventual availability ofWTO dispute resolution inthesame manner asforTokyo
Round SCM Code signatories.
Itisnotforustocomment onthechoices made bytheparties insetting uptheregime fortransition
totheWTO regime inthefieldofcountervailing measures --savetomention thatanytransitional regime
involves compromises. There is,inourview, nothing inthisconstruction thatissounreasonable as
toundermine thisPanel'sconclusion, based onourinterpretation oftherelevant textual provisions,
thatArticle VIofGATT 1994isnotindependently applicable toadispute towhich theSCM Agreement
isnotapplicable.
279. Ithasbeenargued thatitwould beinconsistent withtheobject andpurpose oftheWTO
Agreement tointerpret thatAgreement inamanner thatdenies aMember access toWTO dispute
settlement withrespect toacountervailing dutyimposed after theentry intoforce oftheWTO
Agreement. Theimposition ofthatduty, itisargued, constitutes anindependent actwhich, since it
takes place aftertheentry intoforce oftheWTO Agreement, should besubject toitsstrictures. The
problem inthiscaseisthatthecircumstances underlying Brazil 'simposition ofacountervailing duty
onimports ofdesiccated coconut arepartofaprocess which straddled thedateofentry intoforce of
theWTO Agreement. Itisanaccepted principle ofcustomary international law,reflected inArticle 28
oftheVienna Convention, thatrights andobligations under anewtreaty donotapply retroactively.
Howtoapply thatprinciple totheparticular caseofacountervailing measure based onaprocess begun
before, butcompleted after, thedateofentry intoforce oftheWTO Agreement, isamatter ofgreat
legal delicacy. Wenotethattheparties tothedispute andcertain third parties presented extensive
arguments regarding theapplication inthiscaseoftheprinciple reflected inArticle 28oftheVienna
Convention. Butitshould benoted thattheprinciple setforthinArticle 28applies "[u]nless adifferent
intention appears from thetreaty orisotherwise established...". Inthiscase, thePanel hasreached
itsconclusions onthebasisoftheintention ofthedrafters asevidenced inthetextoftheWTO Agreement
itself. Accordingly, wehavenotaddressed theparties 'arguments regarding customary principles of
international law,nordoweexpress anyview regarding theapplication ofsuchprinciples inother
contexts under theWTO Agreement. Inourview, theSCM Agreement recognizes theprinciple of
non-retroactivity, andtaking intoaccount thecomplexities ofapplying thisgeneral principle inthe
context ofcountervailing duties, resolves thedifficult question oftheoperation ofthegeneral principle
inthisspecific context through transition ruleswhich spellouttheprecise temporal application ofthe
SCM Agreement, asdescribed above. Byvirtue ofourconclusion thatArticle VIofGATT 1994does
notapply where theSCM Agreement doesnotapply, thesame resolution ofthisproblem would apply
toArticle VIofGATT 1994. Inourview, thisresult isneither manifestly absurd norunreasonable.
Indeed, weconsider ittobefullyconsistent withthepurpose identified inthePreamble oftheWTO
Agreement todevelop anintegrated multilateral trading system. Evenifthetextallowed anyinterpretive
leeway onthisissue, which inourviewitdoesnot,anypossible advantages ofaninterpretation which
allowed immediate recourse toWTO dispute resolution under Article VIalone withrespect toany
countervailing dutyimposed afterthedateofentry intoforceoftheWTO Agreement isfaroutweighed
byalltheproblems anddifficulties flowing from suchaninterpretation, which, asdiscussed above,
would leadtomanifestly absurd andunreasonable results.WT/DS22/R
Page76
280. Werecognize thatArticles I,IIandVIofGATT 1994 areinterrelated, andthatArticle VI
allows measures which might otherwise beinconsistent withArticles IandIIofGATT 1994.71Clearly,
thefactthattheWTO Agreement creates atransition regime inwhich Article VIofGATT 1994 and
theSCMAgreementbecomeeffectiveinaphasedmannerwithrespecttocertaincountervailingmeasures
doesnotmeanthat,untilthoseprovisionsbecomeeffective,suchmeasuresareinconsistentwithArticlesI
andIIofGATT 1994. Itcould nothavebeentheintention ofthedrafters increating agradual, phased-in
entry intoforce ofArticle VIandtheSCM Agreement torender allmeasures subject tothephase-in
immediately invalid. Tothecontrary, asexplained above, thisPanel concluded thattheeffect ofthis
transition regime istoinsulate countervailing measures imposed asaresult ofaninvestigation initiated
pursuant toanapplication made before thedateofentryintoforceoftheWTO Agreement foraMember
untilsuchtimeasthemeasures aresubject toareview towhich Article VIofGATT 1994 andthe
SCM Agreement apply. Needless tosay,thisresult hasnobearing ontheforce andeffect ofArticles I
andIIofGATT 1994 withrespect tomeasures other thanthose countervailing measures subject to
thetransition rulesetforth inArticle 32.3oftheSCM Agreement.
281. Inlightoftheprovisions oftheWTO Agreement, interpreted intheircontext andinlightof
theirobject andpurpose, asdiscussed above, thisPanel concludes thatArticle VIofGATT 1994does
notconstitute applicable lawforthepurposes ofthisdispute. Asaresult, thePhilippines 'claims under
Articles IandII,which derive fromtheirclaims ofinconsistency withArticle VIofGATT 1994, cannot
succeed.
2. Applicability oftheAgreement onAgriculture
282. ThisPanel nowturns tothequestion oftheapplicability oftheAgreement onAgriculture to
disputes suchasthisone,which involve countervailing measures imposed asaresult ofinvestigations
initiated pursuant toapplications made before thedateofentry intoforce oftheWTO Agreement for
aMember. ThePhilippines claimed that,eveniftheprogrammes atissue inBrazil 'sinvestigation
constitute subsidies oncoconut fruit, theprogrammes fullycomply withthedeveloping country and
deminimis exemptions from domestic support commitments under Article 6oftheAgreement on
Agriculture. Thus under Article 13(b)(i) ofthatAgreement theprogrammes areexempt from the
imposition ofcountervailing duties unless adetermination ofinjury orthreat thereof ismade in
accordance withArticle VIofGATT 1994 andPartVoftheSCM Agreement. Brazil contends that
Article 13oftheAgreement onAgriculture onlyapplies tocountervailing duties subject bothtothe
Article VIofGATT 1994 andtheSCM Agreement, andthatthisisnotthecasehere.
283. Article 13oftheAgreement onAgriculture provides that:
"During theimplementation period, notwithstanding theprovisions ofGATT 1994
andtheAgreementonSubsidiesandCountervailingMeasures(referredtointhisArticle
asthe"Subsidies Agreement"):
...
71Reflective ofthisrelationship isArticle II:2(b), which provides that"[n]othing inthisArticle shallprevent
anycontracting party from imposing atanytime ontheimportation ofanyproduct ...anyanti-dumping or
countervailing dutyapplied consistently withtheprovisions ofArticle VI*" (note omitted). Wenotethatthe
application ofthisprovision requires ajudgement regarding whether acountervailing dutyis"applied consistently
withArticle VI". Here themeasures areneither "consistent" nor"inconsistent" withArticle VIofGATT 1994;
rather, theyaresimply notsubject tothatArticle, andanyassessment oftheirconsistency should beperformed
byreference toArticle VIofGATT 1947 and,withrespect toTokyo Round SCM Code signatories, alsowith
reference tothatCode.WT/DS22/R
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(b) domestic support measures thatconform fullytotheprovisions ofArticle 6
ofthisAgreement including direct payments thatconform totherequirements
ofparagraph 5thereof, asreflected ineachMember 'sschedule, aswellas
domestic support within deminimis levels andinconformity withparagraph 2
ofArticle 6,shallbe:
(i) exempt from theimposition ofcountervailing duties unless a
determination ofinjury orthreat thereof ismade inaccordance with
Article VIofGATT 1994andPartVoftheSubsidies Agreement, and
duerestraint shall beshown ininitiating anycountervailing duty
investigations...".
Note 4toArticle 13provides that:
"'Countervailingduties'wherereferredtointhisArticlearethosecoveredbyArticleVI
ofGATT 1994 andPartVoftheAgreement onSubsidies andCountervailing
Measures".
284. Wehavepreviously concluded thatneither Article VIofGATT 1994inisolation, norArticle VI
ofGATT 1994inconjunction withtheSCM Agreement, apply tothemeasures atissueinthisdispute.
Countervailing duties aresubject toArticle 13oftheAgreement onAgriculture onlyiftheyare"covered
byArticle VIofGATT 1994andPartVoftheAgreement onSubsidies andCountervailing Measures".
Thus, weconclude thatArticle 13oftheAgreement onAgriculture doesnotapply tothisdispute.
285. Wefurther notethatArticle 13oftheAgreement onAgriculture reinforces ourconclusions
regarding thenon-applicability ofArticle VIofGATT 1994 tothisdispute. First, itappears from
thetextofArticle 13(specifically, totheconsistent references toArticle VIofGATT 1994 andthe
SCM Agreement) thatthedrafters expected thatArticle VIofGATT 1994 andtheSCM Agreement
would operate onlyinconjunction. Thus, Article 13demonstrates thattheWTO Agreement establishes
anintegrated package ofrights andobligations relating totheuseofcountervailing measures. These
rights andobligations arefound inArticle VIofGATT 1994, theSCM Agreement, andtheAgreement
onAgriculture. Wedonotconsider thatthispackage ofrights andobligations would operate asintended
ifportions ofthepackage were found toapply toacountervailing measure when other portions did
not.
B. Failure toConsult
286. ThePhilippinesrequestsafindingthatBrazil'srefusaltoholdconsultationsunderArticleXXIII:1
ofGATT 1994 inthismatter isinconsistent withitsobligations under thatArticle andArticles 4.1,
4.2and4.3oftheDSU. Brazil inresponse argues thatthePhilippines hasfailed tostateaclaim in
thisregard, andthattherefore thisissue isnotwithin thePanel'sterms ofreference.
287. ThePhilippine 'srequest concerns amatter which thisPanel views withtheutmost seriousness.
Compliance withthefundamental obligation ofWTO Members toenter intoconsultations where a
request ismade under theDSU isvitaltotheoperation ofthedispute settlement system. Article 4.2
oftheDSUprovides that"Each Member undertakes toaccord sympathetic consideration toandafford
adequateopportunityforconsultationregardinganyrepresentationsmadebyanotherMemberconcerning
measures affecting theoperation ofanycovered agreement taken within theterritory oftheformer3".
Moreover, pursuant toArticle 4.6oftheDSU, consultations are"without prejudice totherights of
anyMember inanyfurther proceedings". Inourview, these provisions make clear thatMembers '
dutytoconsult isabsolute, andisnotsusceptible totheprior imposition ofanyterms andconditions
byaMember.WT/DS22/R
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288. ThisPanel isbound toexamine onlythose claims which fallwithin thescope ofourterms
ofreference. Inthiscase,theparties agreed tospecial terms ofreference, directing thePanel toexamine
the"matter" referred totheDSBforsettlement bythePhilippines intherequest forestablishment of
apanel, taking intoaccount Brazil 'ssubmission indocument WT/DS22/3 andtherecord ofdiscussions
atthemeeting oftheDSBon21February 1996.
289. Theparties disagreed concerning thestandard bywhich apanel should evaluate whether aclaim
iswithin theterms ofreference ofapanel under theprovisions oftheDSU. Article 6.2oftheDSU
requires thatarequest forestablishment ofapanel "shall indicate whether consultations were held,
identify thespecific measures atissueandprovide abriefsummary ofthelegalbasisofthecomplaint
sufficient topresent theproblem clearly". Inourview, ataminimum, itshould havebeenpossible,
based onareasonable reading ofthedocuments determining thescope oftheterms ofreference, to
conclude thatthisPanel would beasked tomake findings regarding Brazil 'sfailure toconsult.
290. Weexamined thePhilippines 'request forestablishment ofapanel, andtheadditional documents
thePanel wasdirected totakeintoaccount, inorder todetermine whether thePhilippines hadstated
aclaim regarding Brazil 'sfailure toconsult sufficiently tobring itwithin thescope ofthePanel'sterms
ofreference. ThePhilippines 'request forestablishment ofapanel clearly fulfils thefirstrequirement
ofArticle 6.2,byindicating thePhilippines 'viewthatconsultations werenotheldbecause Brazil refused
toconsult. Italsoidentifies thecountervailing measures imposed byBrazil, thePhilippines 'assertions
ofvarious violations withregard tothose measures, andrequested findings withrespect tothose
measures. However, there isnothing intherequest forestablishment ofapanel thatwould leadto
theconclusion thattherequested panel would beasked tomake anyfinding regarding Brazil 'sfailure
toconsult. Weconsider itself-evident thatBrazil 'ssubmission indocument WT/DS22/3 doesnot
stateaclaim onbehalf ofthePhilippines. Finally, while therecord ofthediscussions intheDSB
meeting of21February 1996 repeats thePhilippines 'viewthatconsultations were notheldbecause
Brazil refused toconsult, there isagain nothing inthatrecord thatwould leadtotheconclusion that
therequested panel would beasked tomake anyfinding regarding Brazil 'sfailure toconsult. Inour
view, itwould nothavebeenpossible, based onareasonable reading ofthedocuments determining
thescope ofthePanel'sterms ofreference inthisdispute, toconclude thatthePanel would beasked
tomake anyfinding regarding Brazil 'sfailure toconsult. Wetherefore conclude thatthePhilippines '
claim regarding Brazil 'sfailure toconsult isnotwithin ourterms ofreference.
C. Translation ofDTIC Opinion 006/95
291. On12June1996, thesecond dayofthePanel'sfirstmeeting withtheparties, Brazil submitted
atwo-page document setting forthcorrections toitstranslations ofInterministerial Ordinance No.11
andDTIC Opinion 006/95, indicating thattheinitial translation didnotproperly reflect theoriginal
Portuguese-language determinations. ThePhilippines objected toconsideration ofthecorrected
translations ofthetwotexts, asserting thatthere weresubstantive differences between theinitial and
corrected translations. ThePhilippines subsequently submitted aletter objecting tothe"acceptance"
ofthecorrected translations, objecting toBrazil 'sfailure toprovide advance warning ofthepending
corrections, andinferring thatthecorrections weremade inresponse toarguments made during the
oralpresentations ofthePhilippines andthirdparties and/or toaddress some oftheconcerns expressed
inourquestions toBrazil. ThePhilippines indicated threeinstances inwhich itconsidered thatBrazil
hadgonebeyond translation corrections tochange thesubstance ofthedocuments.
292. On17July1996, atthePanel'ssecond meeting withtheparties, weissued thefollowing ruling
concerning thisissue:WT/DS22/R
Page79
"The Panel takes noteofthePhilippine 'srequest thatthePanel 'notaccept '
thecorrected translation, andinparticular oftheobjections ofthePhilippines regarding
corrections 1,7and9toInterministerial Directive no.11.
"ThePanel considers thatitwould havebeenpreferable hadBrazil confirmed
theaccuracy ofitstranslations prior tosubmitting them tothePanel. However, for
thePanel todecline toaccept anylinguistic corrections onthegrounds theydiffered
fromtheinitial translation would prevent thePanel fromreviewing should itbecome
necessary thecountervailing dutyinlightoftheactual determination made byBrazil.
"ThePanelhasbeforeittheoriginalPortuguese-languagetextofInterministerial
Directive no.11andtranslations prepared bybothparties. ThePanel willrefer to
boththePhilippine andcorrected Brazilian translations should itberequired toconsider
thelanguage ofthatDirective. Should there beanymaterial difference between the
twotranslations withrespect torelevant language intheDirective, thePanel willif
andasrequired resolve anysuchdifference byreference totheoriginal Portuguese-
language Directive.
"ThePanel hasbefore ittheoriginal Portuguese-language textofDTIC Notice
06/95. Should thePanel berequired torefer toDTIC Notice no.06/95, andifthe
language considered wassubject tocorrection byBrazil, thePanel willconfirm the
accuracy ofthecorrected translation byreference tothePortuguese-language textof
theNotice. ThePhilippines mayinform thePanel ifitconsiders thatanyofthe
corrections inaccurately reflects theoriginal Portuguese-language Notice.
"ShouldthePhilippinesconsiderthatanymodificationtothePanel'sprocedures
isrequired toaccommodate these circumstances, thePanel isprepared toentertain
anyrequest forsuchamodification".
VII. CONCLUDING REMARKS
293. Thesubstantive questions raised bytheParties tothisdispute areamatter ofmajor concern
andwould merit serious consideration. However, because theissueofapplicable lawwasdispositive
inthisdispute, thisPanel didnotreach anyconclusion withrespect tothose substantive questions.
VIII. CONCLUSIONS
294. Inlightofthefindings above, thePanel makes thefollowing conclusions:
(a) Article VIofGATT 1994 doesnotconstitute applicable lawforthepurposes ofthis
dispute. Asaresult, thesubstance ofthePhilippines 'claims under thatArticle, andofitsclaims under
Articles IandIIofGATT 1994 which derive from theirclaims ofinconsistency withArticle VIof
GATT 1994, cannot beconsidered bythisPanel.
(b) TheAgreement onAgriculture doesnotconstitute applicable lawforthepurposes of
thisdispute. Asaresult, thesubstance ofthePhilippines 'claims under thatAgreement cannot be
considered bythisPanel.
(c) ThePhilippines 'claim regarding Brazil 'sfailure toconsult isnotwithin theterms of
reference ofthisPanel andtherefore itssubstance cannot beconsidered.WT/DS22/R
Page80
295. ThePanel, having concluded thatthesubstance ofthePhilippines 'claims arenotproperly
before it,recommends thattheDispute Settlement Body make sucharuling.WT/DS22/R
Page81
ANNEX 1WT/DS22/R
Page82
RESTRICTED
WORLD TRADE WT/DS22/3
29January 1996
ORGANIZATION(96-0276)
Original: English
BRAZIL -MEASURES AFFECTING DESICCATED COCONUT
Communication from Brazil
Thefollowing communication, dated 24January 1996, fromthePermanent Mission ofBrazil
totheChairman oftheDispute Settlement Body, iscirculated attherequest ofthatDelegation.
_______________
Ihavethehonour toconvey toyouherewith acopyofdocument SCM/193 ontheissue of
countervailingdutiesimposedbyBrazilonimportsofprocesseddesiccatedcoconutfromthePhilippines.
Thematter wasreferred toduring theTokyo Round Committee heldon31October 1995.
Asyouwilllearn fromthepaper, during thepastfewmonths Brazil andthePhilippines have
faced, besides substantive issues relating totheBrazilian measure, thequestion oftheapplicable law
under which consultations ought toberequested. Brazil understands, forthereasons indicated inthe
position paper, thattheTokyo Round Code onSubsidies andCountervailing Measures should bethe
onlylegalframework applicable tothedispute, whereas thePhilippines espouse theopposite view.
Inorder toclarify thematter andtoseektransparency onthesubject withalltheTokyo Round
Committee Members, theBrazilian Mission requested thatsaidposition paper becirculated, asa
Committee document, among Members oftheCommittee onSubsidies andCountervailing Measures
oftheAgreement onInterpretation andApplication ofArticles VI,XVIandXXIII oftheGeneral
Agreement onTariffs andTrade (theTokyo Round Committee onSubsidies andCountervailing
Measures) before 31January.
Considering that,attherequest ofthePhilippine Mission, theissue hasbeenincluded inthe
agenda forthenextmeeting oftheDispute Settlement Body tobeheldon31January, Ikindly request
thatthepresent letter anditsattached document SCM/193 becirculated asaWTO document under
aDSsymbol, toallWTO Members before theDSBmeeting.
Brazil understands thattheDSBisnottheappropriate forum forthediscussion onthedispute
withthePhilippines andwishes tocirculate document SCM/193 among WTO Members forinformation
purposes onlyandwithout prejudice toitsrights under theTokyo Round Code onSubsidies and
Countervailing Measures andtoitsposition ontheapplicable law.WT/DS22/R
Page 83
RESTRICTED
GENERAL AGREEMENT SCM/193
26 January 1996
ON TARIFFS AND TRADE Special Distribution
(96-0274)
Original: English Committee on Subsidies and Countervailing Measures
BRAZIL - IMPOSITION OF COUNTERVAILING DUTIES ON IMPORTS
OF PROCESSED DESICCATED COCONUT FROM THE PHILIPPINES
Communication from Brazil
The following communication, dated 24 January 1996, has been received from the Permanent
Mission of Brazil.
_______________
I have the honour to convey to you herewith a position paper prepared by Brazil on the issue
of countervailing duties imposed by Brazil on imports of processed desiccated coconut from the
Philippines. The matter was referred to during the Tokyo Round Committee held on 31 October 1995.
As you will learn from the paper, during the past few months Brazil and the Philippines have
faced, besides substantive issues relating to the Brazilian measure, the question of the applicable law
under which consultations ought to be requested. Brazil understands, for the reasons indicated in the
position paper, that the Tokyo Round Code on Subsidies and Countervailing Measures should be the
only legal framework applicable to the dispute, whereas the Philippines espouse the opposite view.
In order to clarify the matter and to seek transparency on the subject with all the Committee
Members, I kindly request that the said position paper be circulated, as a Committee document, among
Members of the Committee on Subsidies and Countervailing Measures of the Agreement on Interpretation
and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the
Tokyo Round Committee on Subsidies and Countervailing Measures) before 31 January.
_______________
The Permanent Mission of Brazil in Geneva hereby submits relevant information concerning
the adoption of countervailing duties on imports of desiccated coconut from the Philippines.
I. Summary of the Investigation and the Legal Framework
1. The Brazilian authorities initiated investigations on subsidies granted to coconut processors
in the Philippines and four other countries through Public Notice SECEX No. 40, dated 21 July 1994.WT/DS22/R
Page84
2. TheinvestigationswerebasedontheAgreementonInterpretationandApplicationofArticlesVI,
XVIandXXIII oftheGeneral Agreement onTariffs andTrade (theTokyo Round Agreement on
Subsidies andCountervailing Measures), towhich thePhilippines andBrazil areparties.
3. After preliminary findings, theBrazilian authorities imposed provisional countervailing duties
onimports ofPhilippine desiccated coconut through Public Notice No.113,dated 23March 1995.
Later, theBrazilian authorities concluded thatsubsidies actually existed andimposed definitive
countervailing measures onimports ofprocessed desiccated coconut fromthePhilippines through Public
Notice No.11,dated 10August 1995.
II. Discussions withthePhilippine Side
4. On10November 1995, thePermanent Representative ofthePhilippines inGeneva addressed
aletter totheChairman oftheCommittee onSubsidies andCountervailing Measures inwhich she
informed thatthe"Government oftheRepublic ofthePhilippines wishes toinitiate procedures under
Article 17oftheTokyo Round Agreement onSubsidies andCountervailing Measures ...". Brazil
replied on14November thatsince formal consultations under theTokyo Round Code hadnotbeen
requested norhadtaken place, itwould beimproper tojump totheconciliation process ofArticle 17.
Brazil alsoindicated thatitwasready tostartformal consultations upon request bythePhilippines.
5. On27November 1995, thePermanent Representative ofthePhilippines addressed aletter
tothePermanent Representative ofBrazil requesting formal consultations under Article XXIII:1 of
GATT 1994. TheBrazilian answer, dated 8December 1995 stated thatthePermanent Mission of
Brazil wasready forconsultations "aslongasitwasmutually understood thatthose consultations will
beundertaken exclusively under theCode onSubsidies andCountervailing Measures [...]resulting
from theTokyo Round, under which auspices coconut subsidies investigations were conducted and
countervailing duties imposed".
6. On13December 1995, thePhilippines replied thattheBrazilian answer constituted arefusal
oftheirrequest forconsultations under Article XXIII:1 ofGATT 1994.
7. On10January 1996, Brazil onceagain reiterated thecontents ofitsprevious letter dated
8December, inwhich itwasinformed thatBrazil was"prepared toenter intoconsultations withthe
Philippines onthematter ofcountervailing duties imposed byBrazil onimports ofdesiccated coconut
from thePhilippines. Since theinvestigation andtheimposition ofdefinitive countervailing duties
were heldunder theTokyo Round Code onthatspecific matter [...]. Brazil considers thatthelegal
framework forconsultations onthesubject isthesame Tokyo Round Code, which isstillinplace until
theendofthecurrent yearfordispute settlement purposes".
8. Brazil has,therefore, forthreetimes offered formal consultations tothePhilippines. Noreply
inthesense oftheacceptance ofthose offers everreached theBrazilian mission.
9. Inaletter dated 16January 1996theGovernment ofthePhilippines informed theGovernment
ofBrazil thattheyhaddecided torequest apanel.
III. Brazilian Arguments
10. TheBrazilian position onthismatter isasfollows:
(a) ThePhilippines stand infavour oftheapplication ofArticle VIofGATT 1994tothisdispute
isunacceptable toBrazil andraises relevant systemic issues ofinterest toallMembers ofthe
WTO;WT/DS22/R
Page 85
(b) The Brazilian investigation started in 1994, under the Tokyo Round Code on Subsidies and
Countervailing Measures;
(c) The Tokyo Round Code is in force until 31 December 1996 and may be invoked by the
Philippines;
(d) Furthermore, the scope of Article VI of GATT 1947 is legally distinct from that of Article VI
of GATT 1994. Article VI of GATT 1947, as interpreted by the Tokyo Round Agreements,
embodied a specific set of rights and obligations; Article VI of GATT 1994, as interpreted
by the Agreement on Subsidies and Countervailing Measures, embodies another specific set
of rights and obligations. To invoke Article VI of GATT 1994 implies the adoption of the
specific viewsof the WTO agreements as opposedtothoseof the Tokyoagreements. Therefore,
to invoke now Article VI of GATT 1994 to a dispute started under the Tokyo Round Code
would constitute an attempt to apply an inappropriate legal framework;
(e) Any attempt to frame the present case within the scope of the WTO agreements constitutes
an attempt to circumvent the application of the appropriate law;
(f) No formal consultations ever took place between the Brazilian and the Philippine Missions
in Geneva, in spite of reiterated Brazilian offers to do so.
VI. Conclusions
11. In summary, Brazil reiterates its disposition to consult with the Philippine Mission on the basis
of the relevant provisions of the Tokyo Round Code on Subsidies and Countervailing Measures.
12. Brazil considers this issue of particular interest to all WTO Members because in substantive
terms it goes well beyond the question of the adoption of a certain level of countervailing duties. In
fact, the central issue is the question of the application of the appropriate legal framework.WT/DS22/R
Page86
ANNEX 2WT/DS22/R
Page87
RESTRICTED
WORLD TRADE WT/DS22/5
8February 1996
ORGANIZATION(96-0478)
Original: English
BRAZIL -MEASURES AFFECTING DESICCATED COCONUT
Request fortheEstablishment ofaPanel bythePhilippines
Thefollowing communication, dated 5February 1996, from thePermanent Mission ofthe
PhilippinestotheChairmanoftheDisputeSettlementBody,iscirculatedattherequestofthatdelegation.
_______________
On27November 1995, theGovernment ofthePhilippines requested theGovernment ofBrazil
toenter intoconsultations pursuant toArticle XXIII:1 ofthe1994General Agreement onTariffs and
Trade (GATT 1994). Acopyofthisrequest wasnotified totheDispute Settlement Body (DSB) as
wellastotheCouncil onTrade inGoods, theCommittee onSubsidies andCountervailing Measures,
andtheCommittee onAgriculture, inaccordance with Article 4:4oftheDispute Settlement
Understanding.
ThePhilippinesrequestedconsultationsunderArticleXXIII:1becausebenefitsunderGATT1994
arebeing nullified andimpaired asaresult ofthe121.5 percentcountervailing dutyimposed on
Philippine exports ofprocessed desiccated coconut products, which isinconsistent withBrazil 's
obligations under Article VIofGATT 1994, inparticular withrespect toparagraphs 3and6(a).
Evenifassuming thedevelopment assistance extended tococonut farmers weretobeconsidered
subsidies, andthatthese werepassed onentirely tobenefit independent desiccated coconut processors,
theBrazilian measure would alsobeinconsistent withBrazil 'sobligations under Article 13ofthe
Agreement onAgriculture.
Additionally, thePhilippines isoftheviewthat:
1. Brazil didnotgivethePhilippines reasonable opportunity, throughout theinvestigation, to
clarify thefactual situation. Aspreviously stated bythePhilippine Government, there isno
subsidy granted todesiccated coconut processing. Development assistance wasprovided to
coconut farmers through alevycollected fromthem, andnotthrough thegovernment budget.
These were private funds ofthecoconut farmers.
2. Incalculatingtheamountofthesubsidyandthecountervailingduty,Brazilreliedon'information
available 'which excluded dataandinformation onthetypeofassistance programmes tothe
coconut producers thatwasprovided bythePhilippines.
./.WT/DS22/R
Page88
3. Brazil calculated theamount ofthealleged subsidy andcountervailing dutybytreating the
coconut fruitassubstitutable fordesiccated coconut when these twoproducts arenotlike
products. Moreover, Brazil isaproducer ofcoconuts anddesiccated coconut, bothofwhich
areavailable inthedomestic market ofBrazil, andshould therefore nothavetreated thecoconut
fruitasasubstitute fordesiccated coconut.
4. Ininvestigating theassistance programmes tothePhilippine coconut industry, Brazil failed
torecognizethattheseprogrammes,asimplementedbyadevelopingcountrylikethePhilippines,
should nothave been considered assubsidies perse.Moreover, asthePhilippines had
previously testified, thesource offunds fortheassistance programmes came from alevyon
coconut production, andnotfrom anygovernment budget.
Forthefurther information oftheDSB, weunderstand thatBrazil hasonlyrecently notified
theWTO oftheinstruments thatimposed theprovisional countervailing dutyof14.1percenton
28March 1995, andthedefinitive countervailing dutyof121.5 percenton21August 1995.
Initsresponse dated 8December 1995, Brazil stated thatitwasprepared toenter into
consultations withthePhilippines aslongasitwasmutually understood thatthose consultations would
beundertaken exclusively under the1979Agreement onInterpretation andApplication ofArticles VI,
XVI, andXXIII oftheGeneral Agreement onTariffs andTrade (or,Tokyo Round Code onSubsidies
andCountervailingMeasures),underwhichauspicesthecoconutsubsidiesinvestigationswereconducted
andthecountervailing duties imposed.
Inaletter dated 13December 1995, thePhilippines replied thatBrazil 'sresponse constituted
arefusal oftherequest forconsultations under Article XXIII:1, butthatithoped thatBrazil would
beabletoengage thePhilippines insuchconsultations within the30-day period provided inArticle 4:3
oftheDispute Settlement Understanding (DSU).
Unfortunately, Brazil hasfailed toenterintoconsultations withthePhilippines within theperiod
prescribed intheDSU.
TheGovernment ofthePhilippines requests theestablishment ofaPanel pursuant to
Article XXIII:2 ofGATT 1994 andArticles 4and6oftheDSU, andunder thestandard terms of
reference provided inArticle 7.1oftheDSU. ThePhilippines requests thatthePanel consider and
findthat:
1. Thecountervailing dutyimposed byBrazil isinconsistent withparagraphs 3and6(a)
ofArticle VIofGATT 1994.
2. Brazilshoulddesistfromfurtherimposingthecountervailingdutyondesiccatedcoconut
exports ofthePhilippines, andreimburse whatever duties were collected.
ThePhilippines submits thisrequest fortheestablishment ofaPanel forinscription intheagenda
ofthenextmeeting oftheDSBon21February 1996, andfurther requests thataspecial meeting of
theDSBbeconvened notlaterthan15daysafterthemeeting of21February.WT/DS22/R
Page89
ANNEX 3WT/DS22/R
Page 90
RESTRICTED
WORLD TRADE WT/DSB/M/11
19 March 1996
ORGANIZATION
(96-0987)
DISPUTE SETTLEMENT BODY
21 February 1996
MINUTES OF MEETING
Held in the Centre William Rappard
on 21 February 1996
Chairman: Mr. C. Lafer (Brazil)
Subjects discussed: Page
1. Brazil - Measures affecting desiccated coconut 1
- Request by the Philippines for the establishment of a panel 1
2. United States - Standards for reformulated and conventional gasoline 4
- Panel report 4
3. Turkey - Action on imports of textiles and clothing 6
- Statement by Hong Kong 6
4. United States - Restrictions on imports of cotton and man-made fibre underwear 9
- Statement by Costa Rica 9
5. Appellate Body - Working Procedures for Appellate Review 9
- Statement by the Chairman 9
1. Brazil - Measures affecting desiccated coconut
- Request by the Philippines for the establishment of a panel (WT/DS22/5)
The Chairman recalled that this matter had been proposed for inscription on the Agenda of
the DSB meeting on 31 January. Its consideration was, however, postponed to the next meeting of
the DSB. He then drew attention to the communication from the Philippines in document WT/DS22/5.
The representative of the Philippines said that since her country 's request for the establishment
of a panel was explained in WT/DS22/5 she wished only to point out that the 121.5 per centWT/DS22/R
Page91
countervailing dutyimposed byBrazil onPhilippine 'sexports ofdesiccated coconut wasinconsistent
withBrazil 'sobligations under Article VIofGATT 1994andother related covered agreements. The
measure nullified Philippine 'sbenefits under theGATT 1994. Inwashercountry 'sview thatan
investigation should nothavebeeninitiated byBrazil noracountervailing dutyhavebeenimposed.
Although several meetings hadbeenheldwithBrazil overthelastfewmonths onthismatter, ithad
notbeenpossible toarrive atamutually agreed solution. Therefore, thePhilippines requested that
apanel beestablished atthepresent meeting andhoped thatBrazil would beabletoagree tothisrequest.
Therepresentative ofBrazil recalled thathiscountry 'sarguments concerning thisdispute were
contained inWT/DS22/3. During thelastfewmonths, Brazil andthePhilippines hadbeendiscussing
thequestion ofapplicable law,i.e.,thelegalframework toexamine acountervailing measure imposed
byBrazil oncoconut imports from thePhilippines. Brazil firmly believed thatameasure should be
reviewed against thesamestandards which hadbeenusedforitsadoption. Thisprinciple wascontained
inArticle 32.3oftheUruguay Round Agreement onSubsidies andCountervailing Measures (SCM).
Members hadalsoagreed onthatprinciple inthetransitional arrangements negotiated in199472.
Overturning thisprinciple would notbeveryconstructive andmight cause serious problems forthe
WTO system. Members wereformally andmorally requested toabide bytherules which theyhad
established. Thisissue involved important standards suchasfairness, reasonableness andlegality.
Fairness, because allprocedures, decisions andpractices under acertain legal system ought tobe
examined. Reasonableness, since thePhilippines hadaneffective remedy fortheircomplaint inthe
Tokyo Round Subsidies Code which wasinplace fordispute settlement purposes untiltheendof1996.
Brazil wasnotagainst thereasonable rightofthePhilippines toseekredress towhatitperceived as
nullification andimpairment ofitsbenefits. Legality, because decisions hadbeen taken toavoid
"contamination" oftheWTO withGATT cases. InDecember 1994, Members haddecided thatthe
Tokyo Round Code would beextended untilDecember 1996inorder todealwithcases initiated under
thatCode, prior totheestablishment oftheWTO, andthattheSCM Agreement would notapply to
investigations initiated before 1January 1995. Brazil andthePhilippines were stilldiscussing this
matter. Brazil therefore considered thatitwaspremature toestablish apanel atthepresent meeting
andwished theDSBtorevert tothismatter atitsnextmeeting.
Therepresentative ofIndonesia, speaking onbehalf ofASEAN countries, saidthatASEAN
countries supported therequest fortheestablishment ofapanel. ThePhilippines hadonlyinvoked
itsrights under Article VIofGATT 1994 towhich Brazil wasalsobound. Ithadchosen neither to
invoke theTokyo Round Subsidies Code noritsrights under theSCM Agreement. Therefore, ASEAN
countries didnotsupport Brazil 'sviewthatthequestion oftheapplicable lawshould firstberesolved.
ThePhilippines hadcomplied withtheDSUrequirements andtheDSBwould havetoestablish apanel.
Indonesia andMalaysia hadalsobeenaffected bythesamemeasure taken byBrazil on21August 1995.
Theinvestigation initiated byBrazil ondesiccated coconut wasinconsistent withitsobligations under
Article VIofGATT 1994andtheWTO. Thishadresulted indefinitive countervailing duties of155.57
and196.5 percentforIndonesia andMalaysia respectively. Hereiterated thatBrazil hadneither
conducted theinvestigation transparently norhaditprovided areasonable opportunity forIndonesia
andMalaysia toclarify thefactual situation. Although asetofquestionnaires hadbeenanswered,
andsome statistical dataandvarious legal dispositions submitted, Brazil hadneglected totakethis
information intoaccount since itwasnotsupplied inPortuguese. Brazil 'sGovernment which should
havedetermined andcalculated thesubsidy margin onthebasisofinformation available, hadviolated
Article VIoftheGATT 1994. Malaysia andIndonesia reserved theirrighttoactively participate in
thepanel asthirdparties.
72PC/15-L/7586 andPC/16-L7587WT/DS22/R
Page92
Therepresentative ofSriLanka saidthathisdelegation supported thePhilippines 'request
fortheestablishment ofapanel. Hiscountry agreed withthePhilippines ontherationale forapanel
toexamine thecountervailing duties imposed byBrazil onexports ofdesiccated coconut from the
Philippines. SriLanka wasoneofthecountries which hadalsobeenseverely affected byBrazil 's
action ondesiccated coconut andcoconut milkpowder. Thecountervailing dutyimposed byBrazil
on21August 1995 onimports ofdesiccated coconut andcoconut milkpowder amounted to81.4per
centand175.8 percentrespectively. SriLanka considered Brazil 'saction asunjustifiable and
unreasonable because itviolated SriLanka 'srights under theGATT 1994. Consultations hadbeen
heldwithBrazil withaviewtoarriving atamutually acceptable solution, buttheoutcome ofthese
consultations hadnotbeenpositive. SriLanka would holdfurther consultations withBrazil untilall
prospects ofarriving atamutual settlement wereexhausted. SriLanka 'sexports ofdesiccated coconut
andcoconut milkpowder hadcome toahaltasaresult ofBrazil 'saction. Ashiscountry hadadirect
trade interest inthematter, itreserved itsthird-party rights.
Therepresentative ofthePhilippines thanked Brazil forelaborating onitsposition withrespect
totheapplication ofArticle VIofGATT 1994 contained inWT/DS22/3 andwished tomake the
following points. First, inpastGATT practice ithadbeenrecognized thatitwasuptothecomplainant
todecide whether itwanted toinvoke thegeneral GATT provisions --inthiscaseArticle VI--orthe
specific Tokyo Round Code provisions. There hadbeendisputes inthepastwhere parties hadinvoked
theirrights withrespect toArticle VIandnottheTokyo Round Codes. Second, thefactthatBrazil 's
investigation hadstarted in1994under theTokyo Round Subsidies Code didnotdeprive thePhilippines
oftheirrights under GATT 1994andtheDSU. ThePhilippines 'viewwasthatthetransitional provision
inArticle 32.3oftheSCM Agreement applied tothesaidAgreement itself anddidnotgovern the
application ofArticle VIofGATT 1994 which, since itsentry intoforce in1995, required Brazil to
implement countervailing measures onlyinconformity withArticle VI.Third, although theTokyo
Round Committee continued tobeinplace untiltheendof1996, thisdidnotpreclude thePhilippines
frominvokingitsrightsunderGATT1994.Moreover,theDecisionof8December1994onTransitional
Co-existence oftheTokyo Round Subsidies Code andtheWTO Agreement confirmed thepriority
ofWTO dispute settlement procedures overtheTokyo Round Subsidies Code. TheDecision of8
December 1994ontheconsequences oftermination of,orwithdrawal of,theTokyo Round Subsidies
Code governed onlythetransition fromtheTokyo Round Subsidies Code tothe1994SCM Agreement.
ThisDecision didnotprevent therightofMembers toinvoke Article VIofGATT 1994andtheDSU.
Fourth, Brazil hadstated thatArticle VIofGATT 1947, asinterpreted bytheTokyo Round Subsidies
Code, waslegally distinct fromArticle VIofGATT 1994, which inturnwasinterpreted bythe1994
SCM Agreement. Toinvoke Article VIofGATT 1994 "implied theadoption ofthespecific views
oftheWTO agreements asopposed tothose oftheTokyo Round Agreements."73ItwasthePhilippines '
position thatArticle VIofGATT 1994 andtheSCM Agreement weretwodistinct legalinstruments
andthePhilippines wassimply invoking itsrights under Article VIofGATT 1994. Brazil alsoalleged
thatinspiteofitsrepeated offers toconsult noformal consultations evertookplace. Consultations
hadnotbeenheldbecause Brazil refused toconsult. Shereiterated thaton27November 1995 the
Philippines hadrequested consultations under Article XXIII:1 ontheconsistency ofBrazil 'smeasure
withrespect toArticle VIofGATT 1994. On29November thePhilippines hadnotified theDSB,
theCouncil forTrade inGoods, theCommittee onSubsidies andCountervailing Measures andthe
Committee onAgriculture ofitsrequest. On8December, Brazil hadoffered toconsult onlyunder
theTokyo Round Subsidies Code. Inaletterdated 13December, thePhilippines hadstated thatBrazil 's
response of8December constituted arefusal toconsult under Article XXIII:1. Therefore thePhilippines
hoped thatBrazil would beabletoengage inArticle XXIII:1 consultations within the30-day period
provided forinArticle 4.3oftheDSU. On10January 1996Brazil hadresponded tothePhilippines '
letterof13December 1995andhadreiterated itsoffertoconsult onlyunder theTokyo Round Subsidies
Code. On15January thePhilippines hadinformed Brazil that,since Brazil maintained itsposition,
73SCM/193, p.3.WT/DS22/R
Page93
thePhilippines hadnoother recourse buttoinvoke Article XXIII:2 ofGATT 1994 andArticles 4.3,
6and7.1oftheDSU. Thus, on17January thePhilippines hadrequested theestablishment ofapanel.
ThePhilippines sought redress from theactions ofBrazil under Article VIofGATT 1994. Ithad
faithfully adhered totherequirements intheDSU, andnowrequested theestablishment ofapanel.
Since Brazil 'sdidnotagree withtheestablishment ofapanel atthepresent meeting thePhilippines
requested aDSBmeeting within 15daysinorder toconsider itsrequest fortheestablishment ofa
panel.
Therepresentative ofBrazil saidthathisdelegation noted allthestatements made atthepresent
meeting. Hereiterated thatthisissue involved suchimportant standards asfairness, reasonableness
andlegality ashehadstated inthestatement made earlier. Hestressed thatBrazil hadnever refused
toconsult.IthadonlyinsistedthatconsultationsshouldbeheldundertheTokyoRoundCodeprovisions.
Thequestion ofapplicable lawwascentral tothiscaseandifapanel wasestablished Brazil would
request apreliminary ruling onthequestion oftheapplicable law.
TheDSBtooknoteofthestatements andagreed toconvene itsnextmeeting on5March in
order torevert tothismatter.
2. United States -Standards forreformulated andconventional gasoline
- Panel report (WT/DS2/R)
TheChairman recalled thatatitsmeeting on10April 1995, theDSBhadestablished aPanel
toexamine thecomplaint byVenezuela. On31May1995theDSBhadestablished aPanel toexamine
thecomplaint concerning thesamematter byBrazil. Atthatmeeting, pursuant toArticle 9oftheDSU
inrespectofmultiplecomplaintstheDSBhaddecided,withtheagreementofallparties,thatforpractical
reasons thismatter beexamined bythepanel already established attherequest ofVenezuela on
10April 1995. ThePanel report, contained indocument WT/DS2/R andcirculated on29January
1996, wasnowbefore theDSBforadoption attherequest ofVenezuela.
Mr.Harbinson(HongKong),speakinginhispersonalcapacityonbehalfofMr.Wong,Chairman
ofthePanel, saidthatthePanel hadbeenestablished bytheDSBon10April 1995 attherequest of
Venezuela. ThePanel hadbeengiven standard terms ofreference, withMr.Joseph Wong asChairman
andMr.Crawford Falconer andMr.KimLuotonen aspanelists. Australia, Canada, theEuropean
Communities andNorway hadreserved theirrights toparticipate inthePanel proceedings asthird
parties. On31May1995, theDSBhadestablished aPanel onthesamematter attherequest ofBrazil.
Pursuant toArticle 9oftheDSU inrespect ofmultiple complainants theDSBhaddecided, withthe
agreement ofalltheparties, thatforpractical reasons thismatter beexamined bythePanel already
established attherequest ofVenezuela. ThePanel hadmetwiththeparties tothedispute from 10
to12July1995 andfrom13to15September 1995. Ithadalsometwiththeinterested thirdparties
on11July1995. ThePanel hadissued itsinterim report totheparties on11December 1995. Following
arequest made bytheUnited States pursuant toArticle 15.2oftheDSU, thePanel hadheldafurther
meeting withtheparties on3January 1996. ThePanel hadissued itsfinalreport totheparties to
thedispute on17January 1996. ThePanel hadexamined thefinal decision adopted on
15December 1993bytheUnited States Environmental Protection Agency, "Regulation ofFuels and
FuelAdditives: Standards forReformulated andConventional Gasoline" (theGasoline Rule). After
athorough analysis oftheunderlying factsandarguments oftheparties, andinthelightofthefindings
contained inthefinalreport, thePanel hadconcluded thatthebaseline establishment methods contained
intheGasoline Rulewerenotconsistent withArticle III:4oftheGeneral Agreement, andcould not
bejustified under paragraphs (b),(d)and(g)ofArticle XXoftheGeneral Agreement. ThePanel
hadtherefore recommended thattheDSBrequest theUnited States tobring themeasures inquestion
inconformity withitsobligations under theGeneral Agreement. Inconcluding, thePanel hadunderlinedWT/DS22/R
Page94
thatitwasnotitstasktoexamine generally thedesirability ornecessity oftheenvironmental objectives
oftheClean AirActortheGasoline Rule. Itsexamination wasconfined tothose aspects oftheGasoline
Rulethathadbeenraised bythecomplainants under specific provisions oftheGeneral Agreement.
Under theGeneral Agreement, Members werefreetosettheirownenvironmental objectives butthey
were bound toimplement these objectives through measures consistent withitsprovisions, notably
those ontherelative treatment ofdomestic andimported products.
Therepresentative ofVenezuela expressed hisdelegation 'sgratitude tothepanelists andthe
Secretariat fortheirmeticulous andwell-structured work. Hiscountry appreciated thetimeandefforts
devoted toreviewing andanalysing thefactsandthelegalarguments submitted bytheparties during
theproceedings, andtheefforts inthesearch forasatisfactory settlement ofthedispute. Parties to
thedispute hadbeengiven equitable opportunity toparticipate intheproceedings bothorally andin
writing. ThePanel'sconclusions followed thesame lineofreasoning asthatofother panels inGATT
history. Several aspects ofthePanel report deserved special mention. First, thereport recognized
explicitly thatnoruleorprovision oftheWTO Agreement prevented theUnited States from setting
itsownclean airstandards. Members hadsovereign authority insetting their ownenvironmental
objectives buttheywerebound toensure thatnational standards andregulations accorded treatment
toimported products which wasnolessfavourable thanthatgranted tolikedomestic products. Second,
thereport acknowledged whatVenezuela hadrepeatedly stated totheUnited States namely, thatthe
objectives oftheClean AirActaimed atimproving airquality werenotquestioned. Venezuela had
brought thematter tothePanel todemonstrate thatthose objectives could beachieved without
discriminating against imported gasoline andwere infullconformity withtheprinciple ofnational
treatment laiddown inArticle IIIoftheGeneral Agreement. Inthisconnection, thePanel upheld
Venezuela 'sargument thatthere wasnojustification forthediscriminatory aspects oftheGasoline
Regulation, sinceseveral alternative methods wereavailable totheUnited States tomeetenvironmental
objectives without distorting thecompetitive conditions between imported anddomestically-produced
gasoline. Farfromseeking privileges orspecial treatment, allthatVenezuela hadasked oftheUnited
StateswastreatmentforVenezuelangasolinewhichwasnotlessfavourablethanthetreatmentestablished
intheRegulation forthelikeproduct ofUSorigin. Therefore, thesettlement ofthisdispute bymeans
oftheWTO procedures, hadoccurred despite Venezuela 'swish.
From thebeginning oftheprocess ofelaboration oftheGasoline Regulation in1992until1994
hiscountry hadbeenproposing alternatives totheUnited States enabling toavoid alldiscrimination
against imported gasoline. Oneofthese alternatives wasanagreement between thetwocountries to
beapplied inconformity withthemost-favoured-nation principle. Unfortunately theUSCongress,
when enacting theGasoline Regulation, hadrefused funds forputting thatproposal intoeffect. Therefore
Venezuela haddecided tobring itscomplaint totheDSB. Thereafter, intheframework oftheWTO
dispute settlement proceedings, alternatives hadbeenpresented tothePanel which, aftersubjecting
themtoathorough andbalanced examination, hadagreed withVenezuela thattheywerefeasible both
practically andlegally. Some ofthemeasures werefullyconsistent withtheGeneral Agreement, while
others, which werelessclearly consistent, atleasthadthevirtue ofgenerating alesstrade restrictive
effect. Inthelightofthese considerations andinaccordance withArticle 16.4oftheDSU Venezuela
hadrequested thattheadoption ofthereport beincluded intheAgenda ofthepresent meeting. However,
theUnited States hadnotified itsintention toapply forareview bytheAppellate Body ofcertain legal
aspects ofthereport. While recognizing thattheUnited States hadtherighttoappeal, itsdecision
todosocould setapattern which might befollowed byMembers where panel reports wereunfavourable
tothem. Clearly, thiswould adversely affect thecredibility ofpanel reports.
Therepresentative oftheUnited States saidthatthePanel report hadbeeninscribed onthe
Agenda oftheDSBforconsideration atthepresent meeting. However since theUnited States had
notified itsdecision toappeal certain legalissues, Article 16oftheDSU prevented consideration of
thereport foradoption atthepresent meeting. TheDSBwasnottheappropriate forum todiscussWT/DS22/R
Page95
thelegal issues ofthereport thattheUnited States hadasked theAppellate Body toreview which
concerned thepanel'sconsideration ofArticle XXoftheGeneral Agreement. However, theUnited
States hadserious concerns about thepanel'streatment ofissues notcovered bythisappeal. Hewas
referring towhat theUnited States considered asignificant andinappropriate deviation from the
customary practice thatpanels hadfollowed inthepastunder theGATT 1947. Under pastpractice,
panels hadcarefully avoided discussing legalissues thatwereuncontested during thepanel proceedings,
orunnecessary tothepanel'sfindings inaparticular dispute. Since Article XVI:1 oftheWTO
Agreement affirmed thattheWTO shallbeguided bythecustomary practices ofthebodies established
intheframework oftheGATT 1947, itwastheUnited States 'expectation thatthispanel would follow
thatpractice. Regrettably, itdidnot.Inresponding totheclaim thattheUSmeasure inquestion was
inconsistent withArticle III:4oftheGATT 1994, theUnited States didnotcontest thatthemeasure
openly treated imports differently thanlikedomestic products, andthepanel acknowledged thisposition.
Nonetheless, thepanel proceeded todiscuss atlength theissue oflikeproducts withreference to
hypothetical situations notpresented, anditdidsoinamanner thatappeared tooffer opinions on
arguments andissues thathadarisen ormight ariseinthecontext ofdisputes other thanthisone.
Suchdiscussion wasinappropriate andshould serve asamodel forwhatfuture panels should notdo.
Article 11oftheDSU clearly setoutthelimited roleofpanels, which was"tomake anobjective
assessment ofthematter before it,including thefactsofthecase." Byopining onmatters thatwere
neither contested nornecessary toreach itsconclusions, thepanel exceeded these limits. TheGATT
1947 panel process gained theconfidence ofdelegations negotiating theDSU inpartbecause ofthe
conservative approach panels generally tookinconfining themselves strictly totheissues presented
forresolution. Thedeparture ofthispanel fromthatprinciple, anditsforay intounnecessary obiter
dicta,didnotsetagood example forthenewWTO system. TheUnited States expected thatfuture
panels would refrain from suchwandering intopolicy issues. Itsimply wasnotappropriate inthe
context ofdispute settlement.
Therepresentative ofBrazil wished toexpress itsgratitude tothepanelists, whohadput
tremendous efforts inunderstanding anddeciding thiscase,andtotheSecretariat whohadbeenefficient
andreliable asusual. Thedecision bytheUnited States toappeal didnot,inBrazil 'sopinion, diminish
themerits ofthisreport. Oneofthese merits wasthefinding thatdiscrimination could notbejustified
ifthedisciplines werenotrespected. Oneoftheother merits ofthereport wasthat,"under theGeneral
Agreement WTO Members arefreetosettheirownenvironmental objectives, buttheyarebound to
implement these objectives through measures consistent withitsprovisions, notably withthose onthe
relative treatment ofdomestic andimported products".74Since thebeginning ofthisdispute settlement
procedure, hisdelegation hadexpressed itsview thatthiswasnotanenvironmental case. Brazil
continued toholdthisview, andagreed withtheconclusions ofthepanel inthisrespect.
TheDSBtooknoteofthestatements andoftheUSdecision toappeal totheAppellate Body
thepanel report inDS2/R.
3. Turkey -Action onimports oftextiles andclothing
- Statement byHong Kong
TheChairman drew attention totherequest forconsultations byHong Kong contained in
WT/DS29/1.
Therepresentative ofHong Kong saidthathisauthorities fullyrespected therights ofMembers
toformcustoms unions orfree-trade areasinaccordance withtherelevant provisions ofthemultilateral
74DS2/R para. 7.1.WT/DS22/R
Page96
instruments which governed suchmatters. Nonetheless, Hong Kong wasverymuch concerned that
theimplementation ofcustoms unions orfree-trade areas should notadversely affect other Members.
Hewished toraiseHong Kong'sserious concern overaspecific issueassociated withtheimplementation
oftheCustoms Union between Turkey andtheEuropean Community. On1January 1996, quantitative
restrictions hadbeenimposed byTurkey ontheimport ofabroad range oftextile andclothing products
from Hong Kong andother sources i.e.atotaloftwenty-five suppliers. Theimposition ofthese
restrictions wasunilateral andwithout prior notification. Hong Kong hadwritten totheTurkish
authorities requesting details ofthemeasures taken andtheirjustification under theWTO Agreement.
Theresponse hadnotprovided satisfactory orcomplete answers tothequestions raised. Although
thevolume oftrade affected wasrelatively small, atstake were important points ofprinciple. The
quantitative restrictions violated Article XIoftheGATT 1994, which provided fortheir general
elimination, andArticle XIII, which required thatanysuchrestrictions beadministered inanon-
discriminatorymanner.TheserestrictionswerealsoinconsistentwithTurkey'sobligationunderArticle2
oftheAgreement onTextiles andClothing (ATC), which stipulated thatnewrestrictions shallnotbe
introduced except under therelevant provisions thereof orGATT 1994. Theobjective oftheATC
wastobring trade intextiles under theGATT disciplines overaperiod oftenyears. During the
transitional period, safeguards could onlybeinvoked ifserious damage, oractual threat thereof, could
bedemonstrated.Turkey'sactionhadnotmettheabove-mentionedcriteriaandthetransitionalsafeguard
provisions oftheATC hadnotbeeninvoked. IntheviewofHong Kong Article XXIV could notbe
interpreted tojustify theintroduction ofthequantitative restrictions byTurkey. Inaneffort toresolve
thisissue, Hong Kong hadrequested consultations with Turkey on12February 1996, under
Article XXII:1 oftheGATT 1994pursuant toArticle 4oftheDSU. Ithoped thatTurkey would fully
discharge itsobligations under theGATT andtheWTO andurged thattheaction taken byTurkey
berescinded. Inlightoftheoutcome ofthese consultations, itreserved itsrights totakethematter
further, should thisprove tobenecessary.
Therepresentative ofthePhilippines, speaking onbehalf ofcertain ASEAN countries, namely
Malaysia, thePhilippines andThailand which hadbeen affected bytheunilateral imposition of
quantitativerestrictionsbyTurkeyoncertaintextileandclothingproducts.AtthemeetingoftheCouncil
forTrade inGoods on29January, ASEAN countries hadregistered theirserious concern withthe
measure taken byTurkey andhadstated thattheyreserved theirrights topursue thematter under the
relevant WTO provisions, including GATT 1994andtheATC. LikeHong Kong, ASEAN countries
respected therights ofaMember toform customs unions orfree-trade areas inaccordance withthe
relevant multilateral tradeagreements. While theywelcomed theimplementation oftheCustoms Union
between Turkey andtheEuropean Community, theybelieved thatTurkey should haveensured that
theimplementation oftheagreement wasnotattheexpense ofother Members 'rights under relevant
WTO provisions. TheWTO wasarule-based institution andoneexpected reasonable compliance with
allthatwasagreed toandthatMembers would nottakeactions which would undermine thecredibility
oftheWTO. Attheconclusion oftheUruguay Round, Members hadcommitted themselves tobring
trade intextiles under thedisciplines ofGATT 1994 andtheATC. Malaysia, thePhilippines and
Thailand wished toreserve theirrights toparticipate inconsultations requested byHong Kong. They
would alsoprefer Turkey towithdraw thequantitative restrictions thatithadimposed.
Therepresentative ofIndia saidthathisdelegation wished tobeassociated withthestatement
made byHong Kong. India requested Turkey totakeintoaccount theserious concerns ofHong Kong
andtowithdraw thequantitative restrictions ithadimposed. Should thisnothappen, India wished
toreserve itsrights under theWTO Agreement and,inparallel, wished toexpress itsinterest tobe
joined inconsultations requested byHong Kong.
Therepresentative ofKorea shared theconcerns expressed byHong Kong. Asamatter of
principle, anumber ofquestions remained tobeanswered concerning thecompatibility ofthismeasure
withTurkey 'scommitments under theWTO Agreement. Hisauthorities were currently reviewingWT/DS22/R
Page97
thesubstantive effect theTurkish measure hadonKorea 'strade, aswellasthelegalimplications thereof.
Pending theresults ofthisreview, Korea reserved itsrights, including thatunder Article 4.11ofthe
DSU concerning therequest, tobejoined inconsultations.
Therepresentative ofPerusaidthathisdelegation echoed theviews expressed byHong Kong
andwished toreserve itsrights, including those under Article 4.11oftheDSU.
Therepresentative ofArgentina saidthathiscountry shared Hong Kong'sconcerns regarding
theconformityoftheunilateralmeasuresadoptedbyTurkeywhichalsoaffectedimportsfromArgentina.
Consultations were ongoing andArgentina wished toreserve itsrights onthismatter.
Therepresentative ofColombia saidthattheconcerns raised byHong Kong deserved careful
consideration. Colombia would befollowing theseconsultations veryclosely. Ithoped thatthismatter
could beresolved inthebestpossible manner.
Therepresentative ofBrazil saidthatitsexports oftextiles andclothing hadalsobeenaffected
bytheunilateral measure taken byTurkey. Brazil, therefore, wished toreserve itsrights onthisissue,
including those under Article 4.11oftheDSU.
Therepresentative ofPakistan saidthattheissue raised byHong Kong hadbeendiscussed
bytheCommittee onTrade andDevelopment (CTD) atitsmeeting on29January. Onthatoccasion,
Pakistan hadunderstood Turkey 'snatural disposition toforge closer relations withtheEuropean
Communities located incloseproximity ofthatmarket. Hiscountry however noted withdisappointment
thattheformation oftheCustoms Union hadresulted inraising discriminatory barriers against the
trade ofthird countries including Pakistan. Pakistan feltthatthisraised valid questions about the
compatibility ofsuchrestrictions withtherequirements oftherelevant provisions oftheGATT. Pakistan
noted Hong Kong'sstatement andwould follow withdeepinterest theconsultations requested byit.
Therepresentative ofTurkey saidthathiscountry hadaccepted toenter intobilateral
consultations withHong Kong inorder todiscuss thismatter which wascovered byArticle XXIV:8(a)
oftheGATT 1994. Turkey wasready tofixamutually agreed dateforconsultations withHong Kong.
Hisdelegation noted thestatements made atthepresent meeting andwould consider thepossible further
requests, taking intoaccount therelevant provisions oftheWTO Agreement.
TherepresentativeoftheEuropeanCommunitiesinformedtheDSBthattheCommunitieswished
tobejoined intheconsultations requested byHong Kong. Themeasures, asindicated byTurkey,
resulted from theimplementation oftreaty establishing theCustoms Union between Turkey andthe
European Community andwere, intheview oftheCommunities, consistent withtheprovisions of
theGeneral Agreement andinparticular were covered byArticle XXIV:8.
Therepresentative ofHong Kong saidthathisdelegation noted therequest oftheCommunities
tobejoined inconsultations inaccordance withArticle 4.11oftheDSU. Thelanguage ofArticle 4.11
wasclearinthatanyclaim ofsubstantial interest would befortheresponding party, inthiscaseTurkey,
toagree. Also, iftherequest tojoinconsultations wasdenied thentheMember requesting tojoin
consultations might proceed toinitiate theirownconsultations. Inthepresent case, anysuchrequest
tojoinconsultations wererequests tojoinHong Kong inconsultations withTurkey. Thepurpose of
suchrequests could notbetojoinTurkey inconsultations withHong Kong. Otherwise, thedecision
astowhether therequesting party should bejoined intheconsultations would beinthehands ofHong
Kong rather thanTurkey. Hong Kong hadnowish tobedifficult inthis,buthoped thatdue
consideration would begiven totheabove viewonthesystemic aspects ofthiscase. Hong Kong was
gladthatTurkey agreed tobilateral consultations. Hereferred toaletter fromtheTurkish authorities
indicating thatitwould notbeconvenient forthemtoconsult inGeneva intheweek beginning oftheWT/DS22/R
Page98
11March, which wasthedatesuggested byHong Kong. Hehoped thatinlightoftheinterest which
hadbeenexpressed byanumber ofdelegations, Turkey might reconsider thismatter because given
thenumber ofdelegations interested, andgiven thefactthatthisdispute wastaking place under
multilateral instruments, itwould befarmore convenient forconsultations totakeplace onneutral
ground.
TheDSBtooknoteofthestatements.
4. United States -Restrictions onimports ofcotton andman-made fibreunderwear
- Statement byCosta Rica
Therepresentative ofCosta Rica, speaking under "Other Business", recalled thatattheDSB
meeting on31January hisdelegation hadinformed theDSBthaton22December 1995 Costa Rica
hadrequested consultations withtheUnited States withregard totherestrictions onCosta Rica'sexports
ofcotton andman-made fibreunderwear (category 352/652). However, these consultations didnot
arrive atamutually satisfactory solution. Since the60-day period forconsultations hadalready expired,
Costa Ricawould soonrequest theestablishment ofapanel toexamine thismatter. Inorder forthe
panel tobeestablished asquickly aspossible, Costa Ricawished torequest thatameeting oftheDSB
beconvened forthispurpose asprovided forinfootnote 5ofArticle 6oftheDSU.
TheDSBtooknoteofthestatement.
5. Appellate Body -Working Procedures forAppellate Review
- Statement bytheChairman
TheChairman, speaking under "Other Business", recalled thattheAppellate Body'sWorking
Procedures forAppellate Review which came intoforce on15February, hadbeen circulated in
WT/AB/WP/1. On19February informal consultations hadbeenheldforthepurpose ofproviding
atechnical briefing ontheWorking Procedures during thecourse ofwhich questions andcomments
hadbeenmade byMembers. Thepackage circulated on15February contained boththeWorking
Procedures adopted bytheAppellate Body andacovering letter from theChairman oftheAppellate
Body totheDSB Chairman. Theletter addressed theissues raised byMembers which hadbeen
conveyed totheAppellate Body during theconsultations heldbytheoutgoing andincoming Chairmen
oftheDSBinaccordance withtheDecision ontheEstablishment oftheAppellate Body contained
inWT/DSB/1.ItalsoexplainedtheAppellateBody'sreasonsforitsconclusionsoncertainkeyelements
oftheWorking Procedures. Forexample, onissues ofestablishment ofdivisions, rotation and
collegiality.
Theconsultations thathehadheldonbehalf ofMembers withtheAppellate Body, pursuant
toArticle 17.9oftheDSU andtheDSBDecision ontheEstablishment oftheAppellate Body, had
theobjective ofmaking theAppellate Body aware oftheconcerns ofMembers. Itwasimportant to
familiarize theAppellate Body withthesensitivities oftheWTO andits"climate ofopinion". Article
17.9oftheDSU contemplated neither anegotiations process noraformal approval bytheDSBof
theAppellate Body'sworking procedures. Theconsultations contemplated intheDSU andtheDSB
Decision ontheEstablishment oftheAppellate Body wereinthenature ofanadvice -consilium -counsel
to,andforthebenefit of,theAppellate Body, butnotacommand -praeceptum -thatobliged the
Appellate Body. Aquinas -distinguished between praeceptum -command andconsilium -advice, by
saying thatpraeceptum implied necessity toobey, while consilium provided options forthose towhom
theywere given. TheWorking Procedures forAppellate Review were legally ineffect, asof15
February. Theycould bemodified through theamendment procedure setoutinRule32oftheWorkingWT/DS22/R
Page99
Procedures. Finally, hedrewtheattention ofMembers tothefactthattheAppellate Body haddecided
thattheWorking Procedures forAppellate Review would beissued asanunrestricted document.
Therepresentative ofMexico recalled thatinaccordance withArticle 17.9oftheDSU"working
procedures shallbedrawn upbytheAppellate Body inconsultation withtheChairman oftheDSB
andtheDirector-General, andcommunicated totheMembers fortheirinformation". Mexico hadhoped
thatitsconcerns, aswellasother Members 'concerns expressed during theinformal consultations,
would bereflected intheAppellate Body'sWorking Procedures. However, henoticed thatthiswas
notthecase. Hiscountry 'sconcerns pertained totheissues ofcollegiality andnationality ofAppellate
Body members which might affect theintegrity andcredibility ofthedispute settlement mechanism.
Inaccordance withRule4.3oftheWorking Procedures "thedivision responsible fordeciding each
appeal shallexchange views withtheother members before thedivision finalizes theappellate report
forcirculation toWTO Members". Inother words, theseven members oftheAppellate Body would
influence thefinaldecision through anexchange ofviews before theappellate report isfinalized.
However, Article 17.1oftheDSU provided that"theAppellate Body shallhearappeals from panel
cases. Itshallbecomposed ofseven persons, three ofwhom shallserve onanyonecase. Persons
serving ontheAppellate Body shallserve inrotation". Herecalled thatcollegiality wasanewconcept
alien totheissues negotiated intheUruguay Round. When Article 17oftheDSU wasnegotiated
theideawasthateachappellate review would becarried outonlybythree members oftheAppellate
Body. Ontheonehand, Article V:4(b)(i) oftheRules ofConduct stated thatpersons serving onthe
Standing Appellate Body who, through rotation, areselected toheartheappeal ofaparticular panel
case(i.e.thethree persons) shallreview thefactual portion ofthepanel report andcomplete theform
atAnnex 3.Ontheother hand, Rule9.1,oftheWorking Procedures oftheAppellate Body stated
thateachmember (i.e.eachoftheseven members) shalltakethesteps setoutinArticle V:4(b)(i) of
theRules ofConduct.
Mexico wasalsoconcerned thatRule 6.2oftheWorking Procedures provided forthe
"opportunity forallmembers toserve regardless oftheirnational origin". Herecalled thatGATT
practice, aswellasArticle 8.3oftheDSU wereclearthat"citizens ofMembers whose governments
areparties tothedispute orthirdparties...shall notserve onapanel concerned withthatdispute, unless
theparties tothedispute agree otherwise". Thiswasthebestwaytoavoid possible direct orindirect
conflict ofinterest. Hisauthorities didnotdoubt theimpartiality, honesty andmoral integrity ofthe
Appellate Body members. However, itwould beverydifficult forMexico, andperhaps forother
Members, toexplain tosome sectors ofitsnational public opinion, inparticular those whodisagree
withfreetrade, thatinalostdispute acitizen oftheother party wasamember oftheAppellate Body,
while noMexican citizen hadthesame possibility.
Hisdelegation hoped thatthemembers oftheAppellate Body would urgently reconsider the
needtomaintain theconcepts ofcollegiality andnationality. Mexico reserved itsrights under Article
17.1oftheDSU withregard tocollegiality. Itwould alsoseek, ifitconsidered appropriate, todefine
more precisely thenotion "direct orindirect conflict ofinterest" inArticle 17.3oftheDSU through
theRules ofConduct which were stillsubject tonegotiations.
Therepresentative ofEgypt welcomed thefactthattheAppellate Body finalized itsWorking
Procedures. Hisdelegation would havewished tohavebeenconsulted further intheprocess ofthe
preparationoftheWorkingProcedures.However,thecoveringletterfromtheChairmanoftheAppellate
Body explained thevarious issues which would haveraised some concerns. Egypt wasnotconcerned
overcollegiality orovernationality. Appellate Body members would bereceiving documents related
toallappeals. Inaccordance withRule4.3oftheWorking Procedures, thedivision deciding each
appeal shallexchange views --notconsult --withother members. Working Procedures required only
anexchange ofviews notthatdueconsideration begiven totheviews expressed. However, theseven
members would beoverburdened withwork since theywould havetowork asiftheywereinvolvedWT/DS22/R
Page100
ineachandevery case. They would havetostudy andreflect ondocuments circulated tothem and
induecourse exchange theirviews. Astothequestion ofnationality ofmembers, allprecautions had
already beentaken prior totheirselection. Although theRules ofConduct hadnotyetbeenadopted,
theAppellate Body should bebound bythesesamerulessincetherewerenotother suchrulesavailable.
Inconnection withRule8.1oftheWorking Procedures which indicated thattheRules ofConduct
fortheDSU hadonlybeenadopted onaprovisional basis, Egypt 'sposition wasthatthesame rules
would govern notonlytheAppellate Body butalsotheTextiles Monitoring Body. Incasethese rules
wereamended infuture, aggreater transparency should beobserved. While Members would notbe
involved innegotiating amendments, atleasttheirviews would bemade known totheAppellate Body
members.
Therepresentative ofIndia saidhiscountry hadalready raised some concerns withregard to
theWorking Procedures andtheletter fromtheChairman oftheAppellate Body during theinformal
consultations on19February. Atthepresent meeting hewished toshare some systemic concerns and
todraw attention tothesubstance oftheWorking Procedures. Herecognized thatnotallconcerns
could bedealtwithbytheAppellate Body andthatsome ofthem would havetobedealtwithbythe
DSB. Atthepresent meeting hewished onlytoenumerate those concerns sothatinthefuture Members
would beabletodealwiththem inamanner consistent withtheroles thattheDSU assigned tothe
DSBandtheAppellate Body.
Ontheissue ofcollegiality Members hadhaddifferent views regarding theextent towhich
thefourmembers notserving onadivision should influence thedecision ofthedivision. Inhisview
anyprocess which would enable thefourmembers notserving onthedivision tobeinvolved inthe
dispute wascontrary totheletter andspirit ofArticle 17.1oftheDSU. Healsomentioned thatthe
circumstances under which theconcept ofcollegiality wasbrought totheforefront could notbeignored.
Rule4.3oftheWorking Procedures wasnotinaccordance withArticle 17.1oftheDSU andthis
problem could notberesolved through Rule4.4which isclearly inconsistent withRule4.3.
With regard tothequestion ofnationality, there were some practical reasons which made it
difficult tohavearequirement thatamember oftheAppellate Body should stand aside inanappeal
involving thatmember 'scountry oforigin. Article 17.3oftheDSUstipulated thattheAppellate Body
members should notparticipate intheconsideration ofanydispute thatwould create adirect orindirect
conflict ofinterest. Itwasamootpointwhether thenationality ofamember created aconflict ofinterest.
While oneshould notattach nationality tagstotheAppellate Body members itwould havebeenbetter
forthecredibility ofthesystem ifamechanism hadbeendevised toenable anappellant orappellee
toconvey informally hisconcerns about anAppellate Body member whowasacitizen ofacountry
involved inthedispute. Disputes brought totheAppellate Body werebound toacquire highpolitical
visibility andmedia attention. Therefore, itwould notbewisetoignore perceptions. Although Rule
6.2oftheWorking Procedures specified theprinciple ofrotation, itsmechanics werenotspelled out.
TheDSBneeded tobeassured thatthemechanism forensuring rotation wasreliable.
Rules 8,9,10and11hadbeenadopted onaprovisional basisandRule8.1implied thatRules
ofConduct were notyetapproved bytheDSB. India wasconcerned thatcertain rules acquired
legitimacy evenbefore theywerebrought before theDSBandMembers hadtofindways ofensuring
thatthisdidnotrecur inthefuture. Henoted thatthere wassome dichotomy. TheAppellate Body
believed thatdealing withtheissue ofnationality inanyother waywould beunnecessary inviewof
thequalifications required formembership oftheAppellate Body andundesirable because itwould
castdoubts onthecapacity oftheAppellate Body members tobeindependent andimpartial. However,
theAppellate Body waswilling toaccept asituation where there would beachallenge onthebasis
offinancial orprofessional interests. Ifthequalifications oftheAppellate Body members andtheir
selection process hadensured independence andimpartiality indecision-making thenthere would be
notneedfortheAppellate Body members tohaveRules ofConduct.WT/DS22/R
Page101
Rule32.2oftheWorking Procedures stipulated thattheAppellate Body might amend itsrules
incompliance withArticle 17.9oftheDSU. Inaccordance withWT/DSB/1 theDSBChairman should
consult withtheMembers inorder toobtain theirviews prior toadvising theAppellate Body onthe
workingprocedures.ItwouldbeananomaloussituationiftheMemberswereconsultedbytheChairman
attheinitial stage ofpreparation oftheWorking Procedures butnotwhen theywould besubsequently
amended.
Healsohadasystemic concern withregard toRule15which implied thattheAppellate Body
could authorize amember tocontinue tobeamember afteritceased tobeamember. Thiswascontrary
toArticle 17.1oftheDSU which, inter alia,provided thatastanding Appellate Body shall be
established bytheDSBandthatitshallbecomposed ofseven persons. Rule15would leadtoasituation
where theAppellate Body could consist ofmore thanseven members oranAppellate Body member
continued aftertheexpiry ofhistermwithout theapproval oftheDSB. While thepractical needfor
theprovision contained inRule15wasunderstandable, hewould beseriously concerned ifamember
oftheAppellate Body could continue without concurrence orapproval bytheDSB. ThisRuleprovided
fornotification totheDSBinstead ofapproval andtherefore wasinviolation ofArticle 17.1ofthe
DSU. AstoRule29regarding failure toappear, itwasnotclearastohowtheviews ofaparticipant
whofailed tomake awritten submission andtoappear could beheard.
Healsonoted thattheletter oftheChairman oftheAppellate Body indicated thattheAppellate
Body hadheldconsultations withtheChairman oftheDSBinDecember 1995andJanuary andFebruary
1996. However, thefirstinformal consultations withtheMembers onthissubject hadbeenheldon
1February. Itwould havebeenappropriate anduseful ifinformal consultations onthissubject had
beeninitiated inDecember. TheAppellate Body members would havebeensensitized tovarious
concerns andissues prior todrawing upoftheirworking procedures. Ifconsultations hadbeenheld
intime Members would probably notfacethedifficulties atthepresent meeting. Herecalled that
theChairman oftheDSB, whenever provided aninput totheAppellate Body regarding working
procedures wasperforming anofficial dutyassigned tohimintheDSU. Itwould notbeunfair for
thecollectivity oftheDSBtoexpect thattheChairman would consult Members before providing an
input totheAppellate Body, evenifthere hadbeennodecision bytheDSBthattheChairman should
consultMembersbeforeadvisingtheAppellateBody.HewasgladthattheAppellateBodyhadexpressed
formally itsstrong commitment tothedispute settlement system asawhole. Countries involved in
theUruguay Round negotiations hadthevision andcourage tooptforastrengthened dispute settlement
system withtheAppellate Body attheapexofthatsystem. Members wereunlikely tobelesscommitted
totheintegrity ofthedispute settlement system asawhole thananybody else.
Therepresentative oftheUnited States thanked theChairman forholding theinformal meeting
on19February concerning theWorking Procedures forAppellate Review. Thetechnical briefing
provided atthatmeeting hadbeenveryuseful. Onthatoccasion theUnited States hadexpressed some
concerns, andinviewoftheChairman 'scommitment torelay those concerns totheAppellate Body,
hedidnotseetheneedtoreiterate thematthepresent meeting. However, hewished toregister some
oftheclarifications thatdelegations hadreceived concerning twoissues. First, theAppellate Body
Secretariat hadconfirmed thatthedecisions oftheAppellate Body might only"uphold, modify or
reverse" thelegalfindings orconclusions ofthepanel asprovided forinArticle 17.13 oftheDSU.
TheUnited States fullyunderstood thattheAppellate Body Secretariat didnotpresume tospeak for
theAppellate Body itself, butthishelped toclarify thereferences inRules 21and22to"thenature
ofthedecision orruling sought". Second, theproof ofservice requirement intheWorking Procedures
could leadtoaneedless waste ofpaper. Hiscountry noted thattheAppellate Body Secretariat had
confirmed thatproof ofservice might beprovided inamanner consistent withthecurrent practice
ofindicating onthedocument itself theparties towhom copies hadbeensent. Hefurther noted that
theWorking Procedures werefarfromperfect. Inparticular Rule29wasdisturbing initsimplications
forpossible sanctions against Members. However, itwould bebetter toliveforawhile withtheWT/DS22/R
Page102
problems thatthese rules presented rather thanhavetheAppellate Body entering intoaseries oftoo
frequent modifications ofthese newrules.
Therepresentative ofChile supported thestatements made byMexico andIndia withregard
tothequestion ofcollegiality. Rule4.3oftheWorking Procedures wentbeyond whatwasauthorized
under theDSU. Adivision consisting ofthree members wastodecide anappeal andunder no
circumstances wasanexchange ofviews withother members totakeplace. Anattempt hadbeenmade
toensure flexibility intimeperiods provided forinRules 18.1and29.However, thisshould notbe
turned tothedisadvantage oftheparties. Herecalled thattheDSU hadnotauthorized theAppellate
Body toestablish time-periods ortoconsider thefailure tosubmit awritten submission. While Chile
wasaware thattheWorking Procedures hadbeenestablished inaccordance withArticle 17.9ofthe
DSU. Itwished theAppellate Body totakeintoconsideration theconcerns expressed byMembers
inorder toensure fairness intheimplementation ofprocedural aspects oftheAppellate Body.
Therepresentative ofCanada saidthathercountry wasveryinterested intheAppellate Body's
Working Procedures andhadmade several suggestions withregard tosome important elements ofthese
procedures. TheWorking Procedures aspresently drafted incorporated worthy principles. However,
Canada identified some questions andconcerns withregard toafewaspects ofthese procedures. Her
country intended tofollow closely theapplication ofthese procedures. Itexpected thattheywould
beapplied inapractical andflexible manner andthatwithtimeCanada 'squestions would beanswered
anditsconcerns would turnouttobeunjustified. Herdelegation wascertain thattheAppellate Body
would alsobeclosely watching howthese procedures worked inpractice andwould bereceptive to
thecomments andconcerns which Members might express atalaterdateprior toanyreview ofthese
procedures bytheAppellate Body.
Therepresentative oftheEuropean Communities saidthat, likeother delegations, the
Communities clearly accepted thepremise onwhich thedebate inthisforum wastaking place. The
Working Procedures wereindeed nowoperational asindicated intheinformal meeting on19February
andMembers werenotinvolved atthisstage inanynegotiating process. However, theCommunities
hadanumber ofconcerns. Thepractical concern hadalready beenaddressed bytheUnited States
andtheCommunities shared theUnited States 'views. Hisdelegation wasconcerned inparticular with
thequestion oftheservice ofdocuments asrequired byRule18andwasgrateful fortheconfirmation
that,asfaraspossible, theexisting practice would continue. However, Rule18should beapplied
withadegree offlexibility which would indeed allow fortheuseoftechnology, thefaxmachine and
copying which would facilitate whatcould otherwise beaburdensome extraobligation. Thelegaland
judicial concern related toRule29;theCommunities hadaverygenuine concern that,infact,anew
lawhadbeencreated inthesense thatfailure tomake asubmission within aprescribed time-limit or
toappear inanoralhearing could havetheresult ofthedismissal oftheappeal. Thiswasaserious
issue which should bedrawn totheattention oftheAppellate Body. TheCommunity hoped that
judgement bydefault would betherareexception totheruleandthatthose concerns becommunicated
totheAppellate Body. Thelinguistic concern related totheFrench andSpanish language versions
ofthetext. TheCommunities would besubmitting some comments inwriting assoonastheywere
available. Hestressed thatthese comments didnotrelate tosubstance. Theobjective wasonlyto
ensure conformity asbetween onelanguage version andanother. Rule8.1oftheworking procedures
stipulated thatonaprovisional basis theAppellate Body would adopt onlythose rules which are
applicable toit.ButthetextoftheRules ofConduct wasclear inallcases astowhich rules were
applicable toit.Inother words aruleofmutatis mutandis could wellapply butonehadtobecertain
whatthemutandis element contained. Forexample, onpage17ofthedocument WT/AB/WP/1 would
thefootnote onthatpagefallintothecategory ofthemutandis ?TheCommunities would bewatching
theapplication oftherulesofprocedure inthelightofexperience andhopefully some oftheconcerns
would dissipate. They would begrateful ifthose concerns could beconveyed totheAppellate Body.
TheDSBtooknoteofthestatements.