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

359 Brazil also recalls that the US data for MY 2002 does not contain any information concerning the amount of direct and counter-cyclical payments made on peanut base (Exhibit US-112). Thus, the missing peanut contract payments for MY 2002 are also missing in the calculation of the amount of direct and counter-cyclical payments that constitute support to upland cotton. It follows that these figures are understated by an amount unknown to Brazil.

360 The amount of market loss assistance payments has been calculated by applying the ratio of allocated PFC payments (as calculated) to upland cotton PFC payments as provided in Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 6) to the amount of upland cotton market loss assistance payments as provided by the same source.

361 The figures in this table are reproduced from Brazil’s 9 September 2003 Further Submission, Table 1. MY 2002 data is taken from the updated figures presented by Brazil in its 22 December 2003 Answers, para. 8.

362 Again, Brazil notes that this allocation is not required under Part III of the SCM Agreement and GATT Article XVI:3. Both provisions deal with the effect of subsidies, and not their amount or subsidization rate.

363 US 20 January 2004 Letter to the Panel, p.4.

364 See also Brazil’s 28 January 2004 Comments on Question 256.

365 WT/DS76/2.

366 Appellate Body Report, Japan-Agricultural Products, WT/DS76/AB/R, note 79.

367 Appellate Body Report, Japan-Agricultural Products, WT/DS76/AB/R, para. 130.

368 This is a claim in the alternative because, as Brazil has argued, it is the United States burden of proof to establish that it enjoys peace clause protection. See e.g. Brazil’s 24 June 2003 First Submission, paras. 110-121; Brazil’s 22 July 2003 Oral Statement, paras. 5-11; Brazil’s 11 August 2003 Answers to Questions, paras. 48-51; Brazil’s 22 August 2003 Comments, paras 42-45.

369 The market loss assistance payments were based on various appropriations bills.

370 Brazil has argued that the exact amounts of the subsidies are not legally relevant (contrary to the US arguments) but rather that the “effects” of the subsidies are what is at issue in claims under Article 6.3 of the SCM Agreement.

371 See Section 10 above.

372 12 January 2004 Communication from the Panel, p. 1.

373 Appellate Body Report, EC – Hormones, WT/DS26/AB/R, para. 156 (emphasis added).

374 Panel Report, EC – Sardines, WT/DS231/R, paras. 7.142-145 ( “…Peru’s requests for findings were actually just summations of its arguments and not claims.”); Appellate Body Report, Korea – Dairy Safeguards, WT/DS98/AB/R, paras. 139-140 (“…EC reliance on the OAI report during the rebuttal stage of the panel proceeding to be a new argument rather than a new claim, and therefore, did not exclude it.”); Panel Report, Australia – Salmon, WT/DS18/R, paras. 8.24-8.25 (Panel considered that “this ‘new claim’ to be a new argument, not a new claim.”).

375 Appellate Body Report, Japan-Agricultural Products, WT/DS76/AB/R, para 130 (Appellate Body, after ruling the Panel erred noted that “The United States did not even argue that the ‘determination of sorption levels’ is an alternative measure which meets the three elements under Article 5.6”).

376 US 20 January 2004 Letter to the Panel, p. 4.

377 12 January 2004 Communication from the Panel, p. 1.

378 See Brazil’s 28 January comment on Question 256.

379 Westcott, P., Young, C.E., and Price, M., USDA, ERS, The 2002 Farm Act, Provisions and Implications for Commodity Markets, Economic Research Service, November 2002. (See Exhibit BRA-42)

380 USDA, ERS, Decoupled Payments: Household Income Transfers in Contemporary US Agriculture, M.E. Burfisher and J. Hopkins, Eds. USDA ERS AER Number 822. February 2003. (See Exhibit US-53)

381 As we pointed out in our Comments Concerning Brazil’s Econometric Model of 22 December 2003, similar results are obtained by FAPRI (less than 0.3 per cent impact on cotton acreage). In contrast, Dr. Sumner’s model produces results suggesting cotton acreage impacts as high as 15.9% - that is, more than 50 times larger than what the FAPRI model would indicate.

382 Dr. Sumner has argued that base updating provisions of the 2002 Farm Bill effectively relink direct payments to production, but as we have shown in Dr. Glauber’s presentation at the Second Panel Meeting in December 2004, the economics argue the opposite and the empirical evidence suggests that concerns that producers are planting cotton in expectation of future base updating are unfounded.

383 Anderson, C.G. “Consider "Hedging" Strategies to Enhance Income Beyond Farm Programme Payments” Texas A&M University, Extension Economics, October 2002 (See Exhibit US-54)

384 Brazil’s Further Rebuttal Submission, para. 23.

385 We note that these numbers are similar to the Environmental Working Group data that show that 73.6 per cent of total contract payments in marketing year 2002 were on farms that also received marketing loan payments.

386 The Economic Research Service study cited by Dr. Sumner (Young et al. 2001) only examines the effects of crop insurance subsidies on acreage. The authors assume that yields are unaffected when they simulate production effects. Recent studies by Smith and Goodwin (1996), Babcock and Hennessy (1996) and Goodwin and Smith (2003) suggest that farms with more insurance tend to use less inputs like fertilizer and pesticides and vice versa. This demonstrates a potential moral hazard problem with crop insurance that suggests that crop insurance participation may have a negative effect on yields. Lower yields may well offset the marginal effects on crop area.

387 See US Answers to Questions of the Panel to the Parties following the Second Meeting of the Panel, 22 December 2004, para. 74.

388 Brazil’s Further Submission, Annex I, para. 18.

389 See US Answers to Questions of the Panel to the Parties following the Second Meeting of the Panel, 22 December 2004, para. 58.

390 US Further Rebuttal Submission, paras. 164-65.

391 Exhibit US-90.

392 Cotton: World Markets and Trade, Foreign Agricultural Service, USDA. January 2004, Table 8, pg. 20.

393 World Agricultural Supply and Demand Estimates, USDA, WAOB, WASDE-406, 11 January 2004.

394 See para. 58, Brazil's Comments on US Model Critique, 20 January 2004.

395 See para. 3, Brazil's Comments on US Model Critique, 20 January 2004.

396 "For more detail on these equations and the discussion of the incentives provided, please refer to my written description of the model in Annex I. My Annex I statement discusses in detail the analysis of the production enhancing impacts of the US supply side subsidies." Oral Statement of Dr. Sumner, 7 October 2003, paragraph 11. The United States read these and other statements, and the failure of Brazil to deliver its Annex I analysis, as indication that Brazil meant what it said in Annex I. The US was unaware that the document in which Dr. Sumner "discusses in detail the analysis" was, in fact, a "simple heuristic discussion." That revelation is no doubt a surprise to the Panel, as well.

397 Oral Statement of Dr. Sumner, 7 October 2003, paragraph 20. A similar comment was made at least twice in Annex I.

398 See para. 71, Brazil's Comments on US Model Critique, 20 January 2004.

399 See para. 24 and subsequent paragraphs in Brazil’s 20 January submission.

400 In paragraph 3 of Annex I, Dr. Sumner states that he used "the international model and parameters used in two recent publications from [CARD]." He goes on to state that the "approach used here is standard and has been applied by the USDA Economic Research Service in their analysis of the FSRI Act of 2002.," citing the Westcott study. However, one of the two studies referenced in footnote 4 did not use the CARD International Cotton Model; it used FAPRI's full international model. Similarly, the study referenced in footnote 5 also used FAPRI's full international model. It is clear by reviewing paragraphs 3-11 of Annex I (particularly footnote 10) and Dr. Sumner's Oral Statement of 7 October 2003, that Brazil's documents manifestly led the Panel to believe it was using a broad, multi-commodity international model in its analysis. Only later did Brazil clearly admit it did not use such a model and that all competing crops were not included in its international analysis.

401 See para. 42, Brazil's Comments on US Model Critique, 20 January 2004.

402 The United States notes also that with each discovered discrepancy, Brazil has supposedly rerun its analysis to demonstrate that none of its misstatements has had any appreciable affect on the Sumner model results and asserts this demonstrates the "robustness" of the Sumner model. As noted in the introductory statements to this submission, every economic result ascribed to a FAPRI-type analysis by Brazil contains the same flawed assumptions originally introduced by Dr. Sumner, apart from the few corrections Brazil has made. It is no surprise that each rerun of the same basic construct would reveal the same basic results.

403 See Letter dated October 31, 2003 from Dr. Bruce Babcock to Dr. Dan Sumner, submitted to the Panel by Brazil on 5 November 2003.

404 Other than citing congressional testimony offered by the National Cotton Council, a US trade association that operates on behalf of the US cotton industry.

405 See Brazil’s 22 December 2003 Answers to Questions, para. 167.

406 See US 28 January 2004 Comments, paras. 175-177.

407 http://www.nybot.com (click on cotton and then futures). As of 10 February 2004, the futures price for the March 2004 contract had fallen to 64.96 cents from a high of 86 cents in October 2003.

408 Panel Report, US – FSC, WT/DS108/R, para. 8.8.

409 Panel Report, US – FSC, WT/DS108/R, para. 8.8.

410 Panel Report, US – FSC, WT/DS108/R, para. 8.8.

411 Arbitrator Report, EC – Hormones, WT/DS26/15, para. 26. See also Arbitrator Report, US – Section 110, WT/DS160/12, para. 31.

412 Arbitrator Report, US – Section 110, WT/DS160/12, para. 32; Arbitrator Report, Korea – Alcoholic Beverages, WT/DS75/16, para. 42.

413 Arbitrator Report, US – Section 110, WT/DS160/12, para. 32.

414 Arbitrator Report, US – Section 110, WT/DS160/12, para. 38; Arbitrator Report, US – 1916 Act, WT/DS136/11, para. 43; Arbitrator Report, US – Byrd Amendment, WT/DS217/14, para. 32.

415 Arbitrator Report, US – Section 110, WT/DS160/12, para. 38.

416 Arbitrator Report, US – 1916 Act, WT/DS136/11, para. 43.

417 Arbitrator Report, US – 1916 Act, WT/DS136/11, para. 45.

418 Arbitrator Report, US – Hot-Rolled Steel, WT/184/13, para. 40. Brazil notes that this case also involved changes to the regulations that could only be adopted after the underlying statute had been changed by Congress. Therefore, the arbitrator considered a period of more than 10 months to be “reasonable.”

419 The period of 90 days is also consistent with the specification of earlier panels that “without delay” generally means 90 days. See Brazil’s 22 December 2003 Answers to Questions, para. 167. See Panel Report, Brazil – Aircraft, WT/DS46/R, para. 8.5; Panel Report, Canada – Aircraft, WT/DS70/R, para. 10.4; Panel Report, US – FSC, WT/DS108/R, paras. 8.7-8.8; Panel Report, Australia – Leather, WT/DS126/R, paras. 10.6-10.7, Panel Report, Canada – Automotive Industry, WT/DS139/R and WT/DS142/R, paras. 11.6-11.7, and Panel Report, Canada – Aircraft II, WT/DS222/R, para. 8.4.

420 See most recently: US 28 January 2004 Comments, para. 177. See also US 11 July 2003 First Submission, para. 189 and US 11 August Answers to Questions, paras. 229-230.

421 We discuss below an exception to this principle for farms owned by corporations other than closely held corporations.

422 It would be odd, to say the least, to say that such planted acreage information would be protected for crop insurance purposes but then releaseable by some other avenue.

423 This sort of weighing process was the basis of the decision in Washington Post Company v. United States Department of Agriculture, 943 F.Supp. 31 (D.D.C. 1996). There, the court found some privacy interest in payment information, but found that interest to be both minimal and outweighed by a “substantial” public interest in identifying “fraud and conflict of interest”. 943 F. Supp. at 37.

424 A description of the file contents for the “PFCby.txt” file was submitted as Exhibit US-109.

425 We note that Exhibit US-111 set out a description of the file contents (by field number and heading) for the “DCPby.txt” file. Any marking of a CD-ROM delivered on 23 December 2003, as “Exhibit US-111” was therefore in error.

426 A description of the file contents for the “PFCplac.txt” file was submitted as Exhibit US-110.

427 We note that Exhibit US-112 set out a description of the file contents for the “DCPplac.txt” file. Therefore, any marking of a CD-ROM delivered on 23 December 2003, as “Exhibit US-112” was in error. We apologize for any confusion that may have been caused.

428 See US Letter to Panel of 18 December 2003; US Letter to Panel of 20 January 2004; US Answers to Questions 259(a), (b), (c) from the Panel (11 February 2004).

429 Brazil’s Comments on US 22 December Answers (28 January 2004), para. 135.

430 Brazil’s Comments and Requests Regarding Data Provided by the United States on 18/19 December 2003 and the US Refusal to Provide Non-Scrambled Data on 20 January 2004 (28 January 2004) (“Brazil’s Data Comments”).

431 Agreement on Subsidies and Countervailing Measures, Annex IV, paras. 2-3 (“Subsidies Agreement”).

432 Brazil’s Data Comments, para. 73. Brazil also argues: “As the record demonstrates, none of four types of contract payments is truly ‘decoupled,’ given the production of programme crops by the farms holding contract payment base. To the contrary, they are intended to and, in fact, do provide support for the production of programme crops.” Id. Brazil has in fact provided no evidence of such “intent” nor could it since the opposite is true. These programmes are intended to be decoupled. Moreover, under the Peace Clause, the “intent” of a payment is irrelevant; it is also irrelevant what a recipient decides to do with a payment. Rather, the issue is whether the payment as “decided” is “support to a specific commodity” or “support provided in favour of agricultural producers in general”.

433 US Comments on Brazil’s Answers to Panel Questions Following the Second Panel Meeting, paras. 209-217 (28 January 2004) (“US January 28 Comments”).

434 US 28 January Comments, paras. 218-23.

435 US Comments on Brazil’s Rebuttal Submission, para. 23 (noting that definition of “in general” as “in a body; universally; without exception” was marked “obsolete” in New Shorter Oxford English Dictionary).

436 Brazil’s Data Comments, para. 73.

437 See US 28 January Comments, paras. 225-29.

438 Brazil’s Data Comments, para. 80.

439 Brazil’s Data Comments, para. 80 fn. 159.

440 Brazil’s Data Comments, para. 73.

441 In making this argument, Brazil ignores the fact that “support” does not mean “budgetary outlays”. In fact, Annex 3 recognizes that an “Aggregate Measurement of Support” for price-based support either shall or can be calculated using a price-gap methodology, which does not rely on budgetary outlays. See, e.g., Agreement on Agriculture, Annex 3, paragraph 8 (“Budgetary outlays made to maintain this gap, such as buying-in or storage costs, shall not be included in the AMS.”); id., para. 10.

442 See Brazil’s Comments on US Answers, para. 66 fn. 49 (August 22, 2003) (“Brazil acknowledges that the United States could not possibl[y] determine its expenditures as they would depend to a certain extent on market prices that were also influenced by factors outside the control of the US Government.”).

443 See, e.g., US Rebuttal Submission, paras. 110-30.

444 In marketing year 1992, 72.9 cents per pound; in marketing years 1999-2001, 51.92 cents per pound; in marketing year 2002: 52 cents per pound. US Rebuttal Submission, paras. 110-13.

445 In marketing year 1992, $1,079 million; in 1999, $717 million; in 2000, $484 million; in 2001, $264 million; and in marketing year 2002 (as of the date of panel establishment, March 18, 2003), $205 million. US Rebuttal Submission, paras. 114-17.

446 In marketing year 1992, 60.05 cents per pound; in marketing year 1999, 53.79 cents per pound; in marketing year 2000, 55.09 cents per pound; in marketing year 2001, 52.82 cents per pound; and in marketing year 2002, 56.32 cents per pound. US Rebuttal Submission, paras. 120-22. Removing the 1999 and 2002 marketing year cottonseed payments the Panel has determined to be not within its terms of reference results in support of 52.82 cents per pound in marketing year 1999 and 55.71 cents per pound in marketing year 2002.

447 US Comment to Brazil’s Answer to Question 258, paras. 209-17.

448 Brazil’s Data Comments, para. 85 n. 171.

449 The term “support” appears in Article 1.1(a)(2) of the Subsidies Agreement, which gives one definition of “subsidy” as “any form of income or price support in the sense of Article XVI of GATT 1994.”

450 WT/DS267/7, at 1.

451 Brazil’s Data Comments, para. 85 n. 168.

452 Brazil’s Data Comments, para. 85 n. 171.

453 Brazil’s Data Comments, para. 98 n. 199.

454 Subsidies Agreement, Annex IV, paras. 2-3 (for a subsidy not tied to the production or sale of a given product, the subsidized product is “the total value of the recipient firm’s sales”).

455 See Exhibit Bra-369; Brazil’s Data Comments, para. 3 (“The purpose of Brazil’s request for contract acreage and planted acreage for each farm producing upland cotton was . . . .”) (italics added).

456 Brazil’s Data Comments, para. 99.

457 See Exhibit BRA-369.

458 See Brazil’s Data Comments, para. 103-04.

459 WT/DS76/AB/R, para. 130.

460 WT/DS76/AB/R, para. 126.

461 Brazil’s Data Comments, para. 100.

462 Brazil’s Data Comments, para. 103.

463 See, e.g., WT/DS76/AB/R, para. 123 (“In this dispute, the United States claimed that the varietal testing requirement is more trade restrictive than required to achieve Japan’s appropriate level of protection and is, therefore, inconsistent with Article 5.6.”); Panel Report, Japan – Agricultural Products, WT/DS76/R, paras. 1.2, 4.178, 8.64.

464 WT/DS76/AB/R, para. 124 (“As noted above, the United States argued that ‘testing by product’ is an alternative measure which meets the three cumulative elements under Article 5.6.”); id., para. 125 (“We note that the Panel explicitly stated that the United States, as complaining party, did not specifically argue that the ‘determination of sorption levels’ met any of the three elements under Article 5.6”.).

465 WT/DS76/AB/R, para. 130.

466 See US Answer to Question 256 from the Panel, paras. 183-86 (22 December 2003).

467 WT/DS76/AB/R, para. 129 (italics added).

468 See, e.g., US Comments to Brazil’s Answer to Question 258 from the Panel, paras. 207-29 (28 January 2004).

469 See, e.g., Brazil’s First Written Submission, para. 51 (under direct payment program, the “amount of payment is not dependent upon current production” of any particular commodity).

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