Comments of the united states on the answers of brazil to further questions from the panel to the parties following the second panel meeting

719 Brazil’s 27 October 2003 Answers to Question 125(c), paras. 15-25; Brazil’s 22 August 2003 Rebuttal Submission, paras. 39-44, and 30-31.

720 Brazil’s 27 October 2003 Answers to Question 125(c), paras. 15-25; Brazil’s 22 August 2003 Rebuttal Submission, paras. 39-44, and 30-31.

721 Brazil’s 22 August 2003 Rebuttal Submission, paras. 24-25; Brazil’s 9 September Further Submission, paras. 46, 55.

722 See e.g. Brazil’s 22 July 2003 Oral Statement, paras 52-53, 58-60; Brazil’s 24 June 2003 First Submission, para. 1; Brazil’s 18 November 2003 Further Rebuttal Submission, para. 25, 70, 102.

723 US 11 February 2004 Comments, para. 8.

724 The United States argues that its methodology can only be used in connection with Part III of the SCM Agreement, not the Agreement on Agriculture. (See e.g. US 11 February 2004 Comments, paras. 2, 86).

725 Nor does Annex IV, as discussed in Section 4 below.

726 Brazil also claims that the export credit guarantee programmes constitute export subsidies under the terms of Articles 1.1. and 3.1(a) of the SCM Agreement.

727 Arbitrator Report, EC – Bananas (US), WT/DS27/ARB; Arbitrator Report, EC – Bananas (Ecuador), WT/DS27/ARB; Arbitrator Report, EC – Hormones (US, Canada), WT/DS26/ARB and WT/DS48/ARB; Arbitrator Report, Brazil – Aircraft, WT/DS46/ARB; Arbitrator Report, US – FSC, WT/DS108/ARB; Arbitrator Report, Canada – Aircraft II, WT/DS222/ARB.

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

729 See Section 3, supra. The fact that the great majority of upland cotton is planted on upland cotton base (86.34 per cent in MY 1999, 82.05 per cent in MY 2000, 80.10 percent in MY 2001 and 96.17 per cent in MY 2002) lends considerable support for this conclusion. These amounts are calculated as the share of upland cotton production planted on farms holding upland cotton base (up to the amount of upland cotton base) of total upland cotton plantings. MY 1999-2001 data are taken from category “1” farms and total upland cotton planting from the rPFCsum.xls file provided by the United States on 28 January 2004. Data for MY 2002 is taken from “Enrolled in Cotton PFC and planted cotton” farms and total upland cotton plantings from the rDCPsum.xls file provided by the United States on 28 January 2004.

730 See US 11 February 2004 Comments, paras. 15-17. This section also responds to the US comments that Brazil has not established a prima facie case of the amount of the contract payment subsidies for the purpose of its serious prejudice claims.

731 Brazil recalls that even the revised US summary data produced on 28 January 2004 suffers from aggregation problems and falls short of enabling the Panel and Brazil to account for soybean market loss assistance and peanut direct and counter-cyclical payments in its allocations. See Section 3 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data.

732 US 28 January 2004 Letter to the Panel and accompanying CD-Rom.

733 See US 28 January Letter to the Panel.

734 US 11 February 2004 Comments, paras. 47-51. See also US 28 January 2004 Comments, paras. 34-52, 208.

735 Calculated as the share of upland cotton production planted on farms holding upland cotton base (up to the amount of upland cotton base) of total upland cotton plantings. MY 1999-2001 data are taken from category “1” farms and total upland cotton planting from the rPFCsum.xls file provided by the United States on 28 January 2004. Data for MY 2002 is taken from “Enrolled in Cotton PFC and planted cotton” farms and total upland cotton plantings from the rDCPsum.xls file provided by the United States on 28 January 2004.

736 This is because only in MY 2002 was less acreage planted to upland cotton than the total amount of upland cotton base acreage held by farms producing upland cotton and holding upland cotton base. In MY 1999-2001, the amount of upland cotton acreage slightly exceeded the amount of upland cotton base. This phenomenon is the effect of the base update allowed for under the 2002 FSRI Act.

737 For details of the calculations, see Annex A.1.

738 Brazil notes that the US summary data requested by the Panel on 3 February 2004 (part (b) of the Panel’s Request for Information under DSU Article 13) would not result in aggregation problems tainting the results, nor would farm-specific data withheld by the United States and requested by Brazil on 3 December 2003 and by the Panel on 8 December 2003, 12 January 2004 and 3 February 2004 (part (a) of the Panel’s Request for Information under DSU Article 13).

739 See Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55.

740 See Section 9 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data.

741 Calculations based on this data continue to suffer from aggregation problems and the missing information on soybean contract payments and peanut direct and counter-cyclical payments to farms producing upland cotton. (See Section 3 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data).

742 For details of the calculations, see Annex A.2.

743 For details of the calculations, see Annex A.3.

744 Calculations based on this data continue to suffer from aggregation problems and the missing information on soybean contract payments and peanut direct and counter-cyclical payments to farms producing upland cotton. (See Section 3 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data).

745 For details of the calculations, see Annex A.4.

746 Only under methodology (4) in MY 2000 is the support provided in that marketing year below the support decided in MY 1992.

747 The table below reproduces the table at paragraph 73 of Brazil’s 22 August 2003 Rebuttal Submission as updated by paragraph 8 of Brazil’s 22 December 2003 Answers to Questions and paragraphs 12-14 of the US 22 December 2004 Answers to Questions. Step 2 and marketing loan payments have been updated in light of the US answer to Question 196. See US 22 December 2004 Answers to Questions, para. 12.

748 “Other Payments” have been included in the marketing loan figures.

749 Besides conclusively demonstrating that the US non-green box domestic support measures are not exempt from action by virtue of Article 13(b)(ii) of the Agreement on Agriculture, the table above, as well as the tables in Annex B, indicate the amount of subsidization of upland cotton by contract payments. Thus, should the Panel consider that an allocation methodology is warranted under Part III of the SCM Agreement, the record provides the factual basis for a finding that Brazil has met its burden of proof and established a prima facie case of the amount of subsidization.

750 Brazil’s 20 January 2004 Answers to Additional Questions, para. 43-55 and Brazil’s 28 January 2004 Comments and Requests Regarding US Data, Section 9.

751 See inter alia US 11 February 2004 Comments, paras. 37. See also US 28 January 2004 Comments, paras. 217, 219, 222-223.

752 US 11 February 2004 Comments, paras. 37-42.

753 US 11 February 2004 Comments, para. 37.

754 US 11 February 2004 Comments, para. 38-42.

755 The United States has not criticized Brazil’s allocation of one payments on one contract payment base acres to one planted acre of cotton and the other contract payment crops. In other word, the United States accepts that the one-to-one allocation between planted and base acres.

756 See Annex A.2, Tables 2.9, 2.21 and 2.21.

757 See Annex A.2, Tables 2.9, 2.20 and 2.21.

758 The United States has not criticized Brazil’s allocation of one payments on one contract payment base acres to one planted acre of cotton and the other contract payment crops. In other word, the United States accepts that the one-to-one allocation between planted and base acres.

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

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

761 US 11 January 2004 Comments, paras. 40.

762 Brazil notes that part of the phenomenon also results from reduced upland cotton plantings.

763 US 11 January 2004 Comments, para. 42.

764 US 11 January 2004 Comments, para. 42.

765 See Brazil’s 28 January 2004 Comments and Requests Regarding US Data, para. 13-15.

766 As the party asserting this fact, the United States bears the burden of proving it. See e.g. Appellate Body Report, Japan – Apples, WT/DS245/AB/R, para. 157 (“It is important to distinguish, on the one hand, the principle that the complainant must establish a prima facie case of inconsistency with a provision of a covered agreement from, on the other hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”).

767 See also US 11 January 2004 Comments, paras. 46-50.

768 Otherwise, all figures seem to reflect Brazil’s calculations.

769 US 11 January 2004 Comments, paras. 46, 55 and note 50.

770 Brazil has addressed the US argument that off-farm income may be responsible for closing the gap between upland cotton market revenue and production costs in paragraph 28 of its 2 December 2003 Oral Statement.

771 US 18 November 2003 Further Rebuttal Submission, paras. 111, 137. Brazil is further puzzled by the fact that the United States argues for inclusion of off-farm income over which contract payments have to be allocated. In its 18 November 2003 Further Rebuttal Submission, the United States argued that off-farm income (such as social security benefits) could be support to upland cotton (para. 111). It follows that the United States would argue that social security benefits support the production of upland cotton, while contract payments support social security benefits.

772 Exhibit Bra-16 (“Characteristics and Production Costs of US Cotton Farms”, USDA, October 2001, Appendix Tables 1-4 p. 23-26).

773 US 11 February 2004 Comments, para. 52 note 59.

774 US 11 February 2004 Comments, para. 52 and accompanying table.

775 This is because the upland cotton value is correct, whereas all the values of all other crops are overstated, reducing the share of the upland cotton value of total crop production on the farm.

776 The United States also asserts, at paragraph 53 of its 11 February 2004 Comments, that Brazil should have used state-by-state data in the determination of the value of sales from non-contract payment crops. Brazil is puzzled by this US argument, as it was the United States that withheld the farm-specific data, including data that would have enabled Brazil to use state-by-state figures on non-contract payment crop plantings for the calculation of the value of non-contract payment crop plantings. The US summary data simply does not allow for a proper weighting of any state-by-state values of non-contract payments crop plantings, if such data were indeed available. Similarly, the US reference to farming in Alaska is irrelevant. Any value of production in that state would not meaningful affect aggregates for the United States. In fact, it would be the US burden to produce data that would allow for the application of its proposed methodology. As the party asserting a fact, the United States bears the burden of proving it. See e.g. Appellate Body Report, Japan – Apples, WT/DS245/AB/R, para. 157 (“It is important to distinguish, on the one hand, the principle that the complainant must establish a prima facie case of inconsistency with a provision of a covered agreement from, on the other hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”).

777 US 11 January 2004 Comments, para. 54.

778 See Section 6 above. See also Brazil’s 28 January 2004 Comments and Requests Regarding US Data, paras. 92. Brazil’s 20 January 2004 Answers to Questions, para. 73.

779 3 February 2004 Communication from the Panel.

780 US 11 February 2004 Comments, paras. 56, 60; See also US 28 January 2004 Comments, para. 22.

781 Brazil’s 28 January 2004 Comments, paras. 192-214.

782 For instance, Brazil has used yields on harvested acres for all non-upland cotton planted acres, thereby significantly overstating the value of the non-upland cotton production and understating the amount of support allocated to upland cotton. In fact, Brazil’s calculations are conservative.

783 US 11 February 2004 Comments, paras. 58-59.

784 US 11 February 2004 Comments, paras. 20.

785 US 11 February 2004 Comments, paras. 22-24.

786 See e.g., Brazil’s 11 February 2004 Comments on US Answers to Questions Posed by the Panel Following the Second Substantive Meeting of the Panel, paras. 196-197, 216; Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 97-107; Brazil’s 2 December 2003 Oral Statement, paras 3-5.

787 See e.g., Brazil’s 11 February 2004 Comments on US Answers to Questions Posed by the Panel Following the Second Substantive Meeting of the Panel, para.216; Brazil’s 2 December 2003 Oral Statement , para. 5; Brazil’s 9 September 2003 Further Submission, Table 1 (setting out the amount and rate of subsidization of each of the four contract payment subsidies based on the 14/16^th Methodology).

788 US 11 February 2004 Data Comments, paras. 47-50.

789 See Exhibit Bra-47 (G/AG/N/USA/43, p. 20).

790 US 11 February 2004 Comments, para. 48.

791 US 11 February 2004 Comments, para. 48.

792 Brazil notes that the United States did not make this assertion even at the Panel meeting of 2-3 December 2004 even though Brazil’s 18 November 2003 Further Rebuttal Submission unequivocally stated that non-upland cotton contract payments were included when calculating the amount of contract support payments. For example, in Brazil’s 18 November 2003 Further Rebuttal Submission, Brazil stated in paragraph 16 in presenting the EWG data that “the best evidence that would permit the Panel to calculate the most precise amount of support to upland cotton from these contract payments is (sic) amount of upland cotton (and other) contract acreage that is planted to upland cotton”. The footnote to this statement indicated that “these payments include all contract payments for upland cotton base acreage and payments for other crop base acreage that are received by US producers of upland cotton.” (emphasis added).

793 See US 16 February 2004 Letter to the Panel.

794 See Brazil’s 18 February 2004 Comments on US Answers to Questions, para. 26 (setting out the chronology of Brazil’s and the Panel’s requests for information).

795 See Brazil’s 18 November 2003 Further Rebuttal Submission, para 16.

796 The United States points to questions raised by Brazil in the Annex V procedures – questions the United States refused to answer. US 11 February 2004 Data Comments, para. 69. While Brazil focused some of its questions on upland cotton base acreage, it also focused on total market loss assistance and CCP payments to the US upland cotton industry and US upland cotton farmers in Questions 11.1 and 13.1. Exhibit Bra-49 (Questions for Purpose of Annex V Procedure). Similarly, Brazil’s questions 3.6 in the consultations focused on total amount of PFC and DP to “upland cotton” for marketing years 1992-2002, and question 11.1 asked for the “total amount of market loss assistance payments made to US upland cotton industry in marketing years 1998 through 2001”. Exhibit Bra-101 (Questions for Purposes of the Consultations). Obviously, Brazil is not precluded from seeking information or arguing that “support to upland cotton” also included payments to upland cotton producers on non-cotton base acreage. No party is required to cast in stone its arguments concerning a never-before interpreted WTO Agreement in responding to hundreds of questions, exhibits, and more than a thousand pages of arguments. Given the 10 months of briefing in this extraordinary panel proceeding – and the US refusal to provide requested information – it is disingenuous for the United States to claim that Brazil is prevented from further elaborating on its methodologies for allocating contract payments.

797 Given the refusal of the United States for the past sixteen months to produce information regarding contract payments, it is incredible for the United States to argue that Brazil “has provided virtually no information that would allow identification of the specific measures at issue”. US 11 February 2004 Comments, para. 48.

798 See US 11 February 2004 Comments, paras 35-43.

799 US 11 February 2004 Comments, para. 16.

800 Brazil’s 22 August 2003 Rebuttal Submission, paras. 68-87; Brazil’s 22 July 2003 Oral Statement, paras. 27-36.

801 Of course, the United States was not required to enact such a measure, because the “peace clause” does not create an obligation on Members to bring their laws into conformity, since it is in the nature of an affirmative defence.

802 US 11 February 2004 Comments, para. 17 and accompanying notes.

803 This figure is based on Brazil’s 14/16^th methodology, but all other methodologies performed in Annex A generate very similar amounts of support to upland cotton from the four contract payment programmes.

804 See Brazil’s 2 December 2003 Oral Statement, Section 5.2.

805 See US 22 August 2003 Rebuttal Submission, paras. 114-119. See Brazil’s response in its 27 August 2003 Comments, paras. 10-16 and Brazil’s 28 January 2004 Comments, paras. 29-36.

806 US 11 August 2003 Answer to Questions, para. 69, 133-134; US 22 August 2003 Rebuttal Submission, para. 115 note 145. See Brazil’s response in its 22 August 2003 Rebuttal Submission, paras. 88-96; 22 August 2003 Comments, para. 33; Brazil’s 2 December 2003 Oral Statement, paras. 7-10.

807 US 11 February 2004 Comments, paras 27-34.

808 Brazil’s 28 January 2004 Comments and Requests Regarding US Data, paras. 99-106.

809 US 11 February 2004 Comments, para. 33.

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

811 See rPFCsum.xls and rDPCsum.xls files provided by the United States on 28 January 2004.

812 Both approaches exclude any non-upland cotton contract payments received by farms that produce upland cotton and (1) hold upland cotton base, or (2) do not hold upland cotton base (but possible other base).

813 These farms are called “1” in the rPFCsum.xls file and “Enrolled in Cotton PFC and planted cotton” in the rDCPsum.xls file. Presumably the latter should be called “Enrolled in Cotton DCP and planted cotton.”

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