Comments of the united states on the answers of brazil to further questions from the panel to the parties following the second panel meeting
Brazil Has Established, in the Alternative, the Amount of Contract Payments for Purposes of its SCM Serious Prejudice Claims
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- 9. The United States Improperly Seeks to Limit the Scope of the Non-Green Box Support Measures to be Examined for Determining the Amount of Support for Purposes of the Peace Clause
- 10. The United States Arguments Concerning Various Issues Related to the Amount of Support “Decided” in MY 1992 Compared to the Amount Supported in MY 1999-2002 are without Merit
- 11. The United States Comments Regarding the Appellate Body’s Japan – Agricultural Products Decision Are Misplaced
- Annexes A: Calculations of the “Support To” Upland Cotton Using Various Methodologies and Annex B: Peace Clause Comparisons Annex A
- 1. Upland Cotton Contract Payments Only
- Upland Cotton Contract Payments to Farms Producing Upland Cotton and Holding Upland Cotton Base
- Total Upland Cotton Contract Payment Amounts on Farms Producing Upland Cotton and Holding Upland Cotton Base 817
- Results of Brazil’s 14/16 th Methodology
- Adjustment Factor to Be Applied to Upland Cotton Contract Payments to Farms Producing Upland Cotton and Holding Upland Cotton Base
- Cotton-to-Cotton Methodology
8. Brazil Has Established, in the Alternative, the Amount of Contract Payments for Purposes of its SCM Serious Prejudice Claims 77. The United States 11 February 2004 Comments continue the US argument that there is an explicit allocation requirement in Part III of the SCM Agreement “for determining the ‘subsidization’ of a product set out in Annex IV.”784 The US Comments also argue that “Brazil has expressly disavowed any allocation methodology for purposes of its serious prejudice claims on decoupled income support payments [and has] failed to make a prima facie case on these claims.”785 Both assertions are incorrect. 78. Brazil has argued that Part III of the SCM Agreement does not require detailing the precise amount of the subsidies or a subsidization rate.786 But it has presented evidence and argument, in the alternative, regarding the size and subsidization rate of the subsidies it has challenged.787 For the four contract payments, the subsidy quantities are those amounts generated for the purposes of the “peace clause” analysis. The amount of a subsidy for purposes of establishing “support to a specific commodity” for purposes of Article 13(b)(ii) is the same amount for Brazil’s serious prejudice claims. This conclusion is supported by the fact that the phrase “domestic support” in the Agreement on Agriculture is the same as “subsidy” in the SCM Agreement (assuming the elements of a subsidy for the “support” have been established). Thus, Brazil has offered the contract payment quantities (as well as the other subsidies) established in the peace clause phase of the proceedings as the “amount of subsidization,” to the extent this is required, in the serious prejudice phase of the proceedings. 9. The United States Improperly Seeks to Limit the Scope of the Non-Green Box Support Measures to be Examined for Determining the Amount of Support for Purposes of the Peace Clause 79. The United States’ 11 February 2004 Comments argue that the Panel cannot examine any evidence of payments received by upland cotton producers growing upland cotton on non-upland cotton base acreage, because Brazil’s request for the establishment of a panel (“Brazil’s panel request”) violates DSU Article 6.2.788 There is no factual or legal merit to these arguments. 80. First, the Panel’s obligation is to conduct an objective assessment of the facts and arguments before it. The issue of the amount of contract payments is a key issue that is part of the broader question of the amount of support to upland cotton under Article 13(b)(ii) of the Agreement on Agriculture. This broader issue is ultimately the key legal question and it is clearly within the Panel’s terms of reference. Determining the amount of support requires an objective assessment by the Panel as to the amount of non-green box support to producers and users of upland cotton in MY 1992 and MY 1999-2002. It requires the Panel to include all support to upland cotton from the evidence before it – regardless of whether Brazil’s panel request is broad enough to encompass all of the same subsidies for the purpose of its serious prejudice claims. For example, the fact that the Panel has ruled that certain cottonseed payments are not within its terms of reference for purposes of Brazil’s serious prejudice claims does not mean that these same subsidies cannot be counted as “support to upland cotton” for the purposes of the peace clause. The amount of these payments is within the Panel’s terms of reference in order to resolve the peace clause issues, because they are “support to” upland cotton. Indeed, identical payments made in MY 1999 have been notified by the United States as “product-specific” upland cotton support.789 81. Second, with respect to the new US Article 6.2 assertion, Brazil notes that the US comments acknowledge that Brazil’s panel request is broad enough to cover the contract payments received by upland cotton producers.790 But the United States now claims the request is too broad claiming it “provides virtually no information that would allow identification of the specific measure at issue”.791 This argument is both untimely792 and contradicted by Brazil’s request. 82. Brazil’s request complied fully with DSU Article 6.2 by identifying the specific measures at issue. Brazil’s request (1) identified by name the specific laws providing for contract payments, i.e., the 1996 FAIR Act, the 2002 FSRI Act, and the 1998-2001 appropriation acts for market loss assistance payments, (2) identified by name the specific payments, i.e., PFC, market loss assistance, direct and counter-cyclical payments, which were required to be paid from those laws, (3) identified by name the specific recipients of those payments, i.e., upland cotton producers, and (4) identified the specific time period when those payments were made, i.e., MY 1999-2007. Yet, the United States would read into DSU Article 6.2 a requirement to go to a further level of detail and identify the sub-category (i.e., payments on non-upland cotton and on upland cotton base acreage) of the specific measures that were identified (contract payments to upland cotton producers). This would impose an unprecedented and unjustified level of detail in a panel request that is not required by DSU Article 6.2. 83. In sum, it is undisputed that Brazil’s panel request covered all types of contract payments to upland cotton producers, not just those based on upland cotton base acreage. Thus all types of contract payment provided to upland cotton producers, as properly allocated, are support to upland cotton that are well-within the Panel’s terms of reference. 84. Finally, the United States now claims that its due process rights were somehow violated because Brazil did not present its methodology for allocating contract payments when it filed its first submission on 24 June 2004.793 This is simply not credible. Brazil did not realize until early November 2003 that the United States had inaccurately denied for almost one year that it did not have specific information that would allow the computation of the amount of contract payments received by upland cotton producers planting upland cotton.794 Without farm-specific data, there is no basis to develop, let alone apply, Brazil’s methodology. Brazil could only develop a methodology to apply to actual data when it received the EWG data in mid-November, and when it then sought farm-specific data from the United States.795 This methodology then would be applied to actual data, and replace Brazil’s 14/16th methodology. Thus, it is disingenuous in the extreme for the United States to claim now796 that Brazil should have presented its methodology on 24 June 2003. Any delay in the United States receiving notice of Brazil’s methodology is due directly to the regrettable pattern of US misrepresentations in this dispute beginning in December 2002.797 In any event, the United States’ due process rights have hardly been violated, since they have had more than sufficient opportunity to comment on Brazil’s methodology.798 Unfortunately, Brazil cannot say the same, since it has not been able to apply its methodology because the United States has not produced farm specific data requested by the Panel on several occasions. 10. The United States Arguments Concerning Various Issues Related to the Amount of Support “Decided” in MY 1992 Compared to the Amount Supported in MY 1999-2002 are without Merit 85. Brazil briefly responds to several arguments that the US level of support decided in MY 1999-2002 was less than that decided in MY 1992. The United States first argues that because it could not know in MY 1992 what its exact expenditures would be, it is inappropriate to use a budgetary outlay methodology for calculating the amount of support to upland cotton.799 Brazil will not repeat all of its arguments concerning the meaning of “decided” and “support provided”.800 However, the United States cannot deny that when it passed the implementing Uruguay Round legislation and Congress approved the SAA in late 1994, it was well aware of all, or the vast majority of, the budgetary support for upland cotton provided in MY 1992. Had the United States been concerned about the certainty of its peace clause “protection”, it would not have been difficult for Congress, in the 1996 FAIR Act or even the 2002 FSRI Act, to include a “circuit breaker” provision directing the USDA Secretary to stop funding of any upland cotton budgetary outlays in excess of the 1992 levels. Such a provision would have allowed the United States to ensure that it remained protected by the peace clause throughout the implementation period.801 86. Furthermore, the United States asserts that under any methodology of calculating “support to upland cotton”, it provided support in MY 1999-2002 below the level of support decided in MY ^1992.802 The United States performs this legal magic by (1) making $4.7 billion in contract payments803, including a billion dollars of CCP upland cotton payments in MY 2002 alone, simply disappear, (2) assuming that $5.5 billion804 in marketing loan payments were never made by applying a price-gap support methodology it never actually used or notified,805 and (3) imposing its “statute of limitations” calculation to end MY 2002 payments on 18 March 2002.806 Brazil has addressed all of these creative attempts to cover-up billions of dollars in support payments and will not repeat them here. 11. The United States Comments Regarding the Appellate Body’s Japan – Agricultural Products Decision Are Misplaced 87. Brazil has studied the US comments regarding Japan – Agricultural Products807 carefully and believes Brazil’s initial analysis of the decision largely addresses the points raised in the US comments.808 The United States continues to incorrectly interpret Japan – Agricultural Products by confusing “claims” with “arguments”. The United States argues in paragraph 33 of its 11 February 2004 Comments that because Brazil allegedly has not argued that Annex IV is the proper methodology, the Panel cannot request information from the United States relevant to the application of that methodology.809 But Japan – Agricultural Products stands for the proposition that a Panel cannot make a “claim” for a party, i.e., a legal claim that would be required to be set out in a request for the establishment of a panel. It does not stand for the proposition that a panel is prevented from requesting information from a party that would be relevant to determine the merits of arguments made by that same party. 88. Further, the United States’ entire premise in relying on Japan – Agricultural Products is wrong. In its 28 January 2004 Comments and Requests Regarding US Data, Brazil has made an “argument,” in the alternative, regarding a methodology proposed by the United States. The Panel’s 3 February 2004 request for information on non-contract acreage crops grown by upland cotton producers was entirely consistent with the United States’ suggestion of the US Annex IV methodology and with Brazil’s attempt in its 28 January 2004 comments to apply the US Annex IV methodology. The United States responded to Brazil’s argument on 11 February 2004. There is no doubt that receipt of the non-contract acreage crops grown on cotton farms would allow a more precise tabulation of the amount of payments using the Annex IV methodology. Thus, the Panel’s various requests are fully consistent with the holding by the Appellate Body in Japan – Agricultural Products that a “panel is entitled to seek information … to help it understand and evaluate the evidence submitted and the arguments made by the parties.”810 Annexes A: Calculations of the “Support To” Upland Cotton Using Various Methodologies and Annex B: Peace Clause Comparisons Annex A Calculation of Contract Payment Support to Upland Cotton 1. In this Annex, Brazil sets forth the details of its calculation of contract payments that constitute support to upland cotton, within the meaning of Article 13 of the Agreement on Agriculture. All of Brazil’s calculations are based on the revised US summary files produced on 28 January 2004 and other USDA documents provided as exhibits to the Panel. Brazil explains its calculations either in the narrative of this annex or in the footnotes accompanying the tables. 1. Upland Cotton Contract Payments Only 2. The calculations in this section are based on the presumption that only upland cotton contract payments would be relevant for calculating support to upland cotton. As Brazil has explained in the main text of these comments, Brazil strongly opposes the US arguments that all non-upland cotton contract payments have to be excluded from the calculation of support to upland cotton. All contract payments, including those made on non-upland cotton base acreage, are properly within the Panel’s terms of reference. Further, the Panel needs to include all contract payments, including those made on non-upland cotton base acreage, in its objective evaluation of the applicability of the peace clause exemption. Nevertheless, Brazil provides below the necessary calculations for allocating only upland cotton contract payments as “support to” upland cotton. 3. These calculations are performed in two different manners: First, the total amount of upland cotton contract payments to farms actually producing upland cotton is calculated. Second, the amount of upland cotton contract payments to farms actually producing upland cotton is adjusted pursuant to the amount of upland cotton actually produced by farms holding upland cotton base. Under this approach, only upland cotton payments for upland cotton base acres that are actually planted to upland cotton would be considered support to upland cotton. Since plantings of upland cotton on farms also holding upland cotton base exceed the upland cotton base acreage in MY 1999-2001,811 the adjustment only affects MY 2002 figures.812 4. The first step is performed by multiplying the amount of upland cotton payments units on farms producing upland cotton and holding upland cotton base813 (as reported by the United States in its 28 January 2004 summary files) by the applicable payment rate for upland cotton in each of the marketing years 1999-2002. Table 1.1
5. The table below summarizes the total amount of upland cotton contract payments received by farms producing upland cotton and holding upland cotton base. Table 1.2
6. For purposes of comparison, Brazil reproduces the results of its “14/16th” methodology, as presented to the Panel at paragraphs 8 of Brazil’s 22 December 2003 Answers to Questions and Brazil’s 9 September Further Submission. Table 1.3
7. As the Panel can see, the results of this methodology are not considerably different from the results of Brazil’s 14/16th methodology. 8. In a second step, Brazil adjusts the above calculated subsidy amount pursuant to the amount of upland cotton actually planted on farms holding upland cotton base. These calculations are possible distorted due to the aggregation problems discussed in Brazil’s 20 January 2004 Comments and Requests Regarding US Data.819 The adjustment factor is calculated as the ratio of upland cotton planted acreage to upland cotton base acreage (capped a 1). Table 1.4
9. The table below includes the amount of contract payments that would constitute “support to” upland cotton, if only payments for upland cotton base acreage that is actually planted to upland cotton were considered. Table 1.5
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