World Trade

Organization

Brazil - Export Financing Programme for Aircraft

AB - 1999-1

Report of the Appellate Body

114. The European Communities submits that Articles 14 and 18.2 of the DSU regulate the question of confidentiality in dispute settlement proceedings. If information is designated as confidential by a party to a dispute, Article 18.2 requires the other parties to take all necessary precautions according to their own administrative traditions and structures. The "bad faith" of other Members cannot be presumed. The proper place to resolve problems posed by the treatment of confidential information is in the current review of the DSU by WTO Members.

(d) United States

115. The United States argues that the need for additional procedures for protecting business confidential information is extremely important, "because it goes to the viability of WTO dispute settlement as a vehicle for preserving the rights and obligations of Members". In the view of the United States, "basic considerations of due process, as well as the need to preserve rights and obligations of Members, require the Appellate Body to apply such procedures". As a consequence, the United States has no objection to the joint request made by Brazil and Canada.

116. The United States makes three general arguments in support of the use of additional procedures for protecting business confidential information in WTO dispute settlement proceedings. First, the United States argues that nothing in the DSU precludes panels or the Appellate Body from adopting additional procedures for protecting business confidential information. On the contrary, Article 12.1 of the DSU explicitly allows panels to deviate from the working procedures set out in Appendix 3 of the DSU. The United States believes that the Appellate Body has authority comparable to that of panels to adopt such procedures as a result of Article 17.9 of the DSU and Article16(1) of the Working Procedures.

117. Second, the United States argues that the application of procedures for protecting business confidential information promotes important objectives because Members' rights and obligations under the covered agreements can only be preserved if due process is accorded to both the complaining party and the responding party. The United States maintains that the demands of due process are not satisfied, however, if the absence of such procedures precludes a Member from properly making its case.

118. Third, the United States maintains, contrary to the position taken by the European Communities, that a Member's national laws do not provide a basis for depriving another Member of its rights under the WTO Agreement. Thus, the United States asserts, the claim by the European Communities that its officials would be unable, under their staff regulations, to accept the undertakings proposed "should not be allowed".

2. Ruling and Reasons

119. In our preliminary ruling of 11 June 1999, we concluded that it is not necessary, under all the circumstances of this case, to adopt additional procedures to protect business confidential information in these appellate proceedings. Our ruling was as follows:

Pursuant to Article 17.9 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), the Appellate Body has the authority to draw up its own Working Procedures. Under Rule 16.1 of our Working Procedures for Appellate Review, a Division of the Appellate Body may adopt additional procedures for the orderly conduct of a particular appeal, provided that any such additional procedures are not inconsistent with the DSU, the other covered agreements and the Working Procedures for Appellate Review. We have concluded, however, that it is not necessary, under all the circumstances of this case, to adopt additional procedures to protect "business confidential information" during these appellate proceedings.

We note that, with respect to "business confidential information" submitted to the Panel that remains currently in the possession of the participants, Article XII of the Panel Procedures Governing Business Confidential Information required the parties, "[a]t the conclusion of the Panel", to "return any printed or binary-encoded Business Confidential information in their possession to the party that submitted such Business Confidential (sic)" and to "destroy all tapes and transcripts of the Panel hearings that contain Business Confidential information, unless the parties mutually agree otherwise." It thus appears that each participant has an obligation, under the Panel Procedures, to return any Business Confidential information submitted by the other participant. The WTO Secretariat, assisting the Panel, was required, by the Panel Procedures, to "transmit any printed or binary-encoded Business Confidential information, plus all tapes and transcripts of the panel hearings that contain Business Confidential Information, to the Appellate Body as part of the record of the Panel proceedings." That information will be kept in a secure, locked cabinet in the Appellate Body Secretariat.

We also note that all Members are obliged, by the provisions of the DSU, to treat these proceedings of the Appellate Body, including written submissions and other documents filed by the participants and the third participants, as confidential. We are confident that the participants and the third participants in this appeal will fully respect their obligations under the DSU, recognizing that a Member's obligation to maintain the confidentiality of these proceedings extends also to the individuals whom that Member selects to act as its representatives, counsel and consultants.

Accordingly, we decline the request of Brazil and Canada. The reasons for this ruling will be set out more fully in the Appellate Body Report in this appeal.

120. We have no further reasons to add to the first two paragraphs of our ruling above. The following is an elaboration of the reasons in the third paragraph of our ruling. Our ruling applies only to the request for additional procedures to protect "business confidential information" in these appellate proceedings, and it, therefore, has no effect on the BCI Procedures adopted by the Panel. Neither the Panel's decision to adopt BCI Procedures, nor the content of those Procedures, has been appealed.

121. With respect to appellate proceedings, in particular, the provisions of the DSU impose an obligation of confidentiality which applies to WTO Members generally as well as to Appellate Body Members and staff. In this respect, Article 17.10 of the DSU states, without qualification, that "[t]he proceedings of the Appellate Body shall be confidential." (emphasis added) The word "proceeding" has been defined as follows:

In a general sense, the form and manner of conducting juridical business before a court or judicial officer. Regular and orderly progress in form of law, including all possible steps in an action from its commencement to the execution of judgment.[35] (emphasis added)

More broadly, the word "proceedings" has been defined as "the business transacted by a court".[36] In its ordinary meaning, we take "proceedings" to include, in an appellate proceeding, any written submissions, legal memoranda, written responses to questions, and oral statements by the participants and the third participants; the conduct of the oral hearing before the Appellate Body, including any transcripts or tapes of that hearing; and the deliberations, the exchange of views and internal workings of the Appellate Body.

122. Article 18.2 of the DSU also contains rules protecting the confidentiality of written submissions and information submitted to the Appellate Body:

Written submissions to the panel or the Appellate Body shall be treated as confidential, but shall be made available to the parties to the dispute. Nothing in this Understanding shall preclude a party to a dispute from disclosing statements of its own positions to the public. Members shall treat as confidential information submitted by another Member to the panel or the Appellate Body which that Member has designated as confidential. A party to a dispute shall also, upon request of a Member, provide a non-confidential summary of the information contained in its written submissions that could be disclosed to the public. (emphasis added)

123. In our view, the provisions of Articles 17.10 and 18.2 apply to all Members of the WTO, and oblige them to maintain the confidentiality of any submissions or information submitted, or received, in an Appellate Body proceeding. Moreover, those provisions oblige Members to ensure that such confidentiality is fully respected by any person that a Member selects to act as its representative, counsel or consultant. In this respect, we note, with approval, the following statement made by the panel in Indonesia– Automobiles:

We would like to emphasize that all members of parties' delegations -- whether or not they are government employees -- are present as representatives of their governments, and as such are subject to the provisions of the DSU and of the standard working procedures, including Articles 18.1 and 18.2 of the DSU and paragraphs 2 and 3 of those procedures. In particular, parties are required to treat as confidential all submissions to the Panel and all information so designated by other Members; and, in addition, the Panel meets in closed session. Accordingly, we expect that all delegations will fully respect those obligations and will treat these proceedings with the utmost circumspection and discretion.[37] (emphasis added)

124. Finally, we wish to recall that Members of the Appellate Body and its staff are covered by Article VII:1 of the Rules of Conduct,[38] which provides:

Each covered person shall at all times maintain the confidentiality of dispute settlement deliberations and proceedings together with any information identified by a party as confidential. (emphasis added)

125. For these reasons, we do not consider that it is necessary, under all the circumstances of this case, to adopt additional procedures for the protection of business confidential information in these appellate proceedings. We, therefore, decline the request of Brazil and Canada.

126. The following issues are raised in this appeal:

(a) whether the Panel erred in finding that certain regulatory instruments specified in the request for the establishment of a panel, but not discussed in the consultations, were properly before the Panel;

(b) whether the Panel erred in finding that in a dispute involving a claim of violation of Article 3.1(a) of the SCM Agreement by a developing country Member, the complaining party has the burden of proving that the developing country Member in question has not acted in conformity with the provisions of Article 27.4 of that Agreement;

(c) whether the Panel erred in interpreting and applying the phrase "shall not increase the level of its export subsidies" under Article 27.4 of the SCM Agreement, in particular, in finding that:

i) the "proper point of reference" for the purpose of determining whether a Member has increased the level of its export subsidies is actual expenditures, rather than budgeted amounts;

ii) the export subsidies for regional aircraft under PROEX should be considered to be "granted" when the NTN-I bonds are issued, rather than when the letter of commitment is issued; and

iii) it is appropriate in this case to use constant dollars, rather than nominal dollars, in assessing whether Brazil has increased the level of its export subsidies;

(d) whether the Panel erred in finding that Brazil had failed to demonstrate that the export subsidies for regional aircraft under PROEX are not "used to secure a material advantage in the field of export credit terms" under item (k) of the Illustrative List;

(e) whether the Panel erred in recommending that Brazil withdraw its subsidies within 90 days; and

(f) if we find that the export subsidies for regional aircraft under PROEX are "granted" at the time of issuance of a letter of commitment, whether the subsequent issuance of NTN-I bonds is consistent with Brazil's obligation not to "maintain" prohibited export subsidies under Article 3.2 of the SCM Agreement.

V. Consultations

127. Brazil argues on appeal that certain regulatory instruments relating to PROEX were not properly before the Panel because those instruments came into effect in 1997 and 1998 – after consultations were held between Canada and Brazil.[39] Canada maintains that these instruments were properly before the Panel because Canada's request for consultations[40], dated 18 June 1996, and its request for the establishment of a panel[41], dated 10 July 1998, referred to the same "matter", that is, to "PROEX and prohibited subsidies granted thereunder."[42] Furthermore, according to Canada, "the programme has remained unchanged in its essence."[43]

128. On this preliminary objection by Brazil, the Panel made the following ruling:

Applying this analysis to the case at hand, we recall that Brazil and Canada consulted "regarding certain export subsidies granted under the Brazilian Programa de Financiamento ás Exportações (PROEX) to foreign purchasers of Brazil's EMBRAER aircraft", and that the request for establishment of a panel relates to "export subsidies under PROEX". We consider that the consultations and request for establishment relate to what is fundamentally the same "dispute", because they involve essentially the same practice, i.e., the payment of export subsidies under PROEX. Under these circumstances, and notwithstanding the fact that both the authorizing legal instrument and certain other legal instruments relating to the administration of the PROEX interest equalization regime changed or were only introduced subsequent to the last consultations, we cannot say that Canada has failed to comply with the requirements of Article 4.7 of the DSU.[44]

129. In its request for consultations of 18 June 1996, Canada described the specific measures at issue as "certain export subsidies granted under the Brazilian Programa de Financiamento às Exportações (PROEX) to foreign purchasers of Brazil's Embraer aircraft".[45] In its request for the establishment of a panel, Canada identified the specific measures at issue as follows:

On 18 June 1996, the Government of Canada requested consultations with the Government of Brazil concerning certain export subsidies granted under the Programa de Financiamento às Exportações (PROEX) to foreign purchasers of Brazil's Embraer aircraft.

…

The Brazilian measures in question include Provisional Measure 1700-15 replacing Provisional Measure 1629-13 and Law 8187 establishing PROEX; Law no. 8249/91; Decree no. 2414 of December8, 1997; Resolutions of the National Monetary Council nos. 2490/98, 2452/97; 2381/97, 2380/97, 2224/95; Circular DIRIN 5; Resolution No. 50 of the Federal Senate of June 13, 1993; MICT Orders 28/98, 23/98, 7/98, 121/97, 83/97, 53/97, 34/97, 33/97 and MF/MICT Order 314/95; and Central Bank Circular no. 2601. These measures provide for the payment of export subsidies through interest rate equalization and export financing programmes under PROEX.[46] (emphasis added)

130. We note that Brazil and Canada consulted about "certain export subsidies granted under the Brazilian Programa de Financiamento às Exportações (PROEX) to foreign purchasers of Brazil's Embraer aircraft"[47], and that the request for the establishment of a panel also relates to "the payment of export subsidies through interest rate equalization and export financing programmes under PROEX."[48] We have been advised by Brazil that the regulatory instruments that came into effect in 1997 and 1998, after the consultations had taken place, and that relate to the administration of PROEX, did not change the essence of that regime.[49]

131. In our view, Articles 4 and 6 of the DSU, as well as paragraphs 1 to 4 of Article4 of the SCM Agreement, set forth a process by which a complaining party must request consultations, and consultations must be held, before a matter may be referred to the DSB for the establishment of a panel. Under Article 4.3 of the SCM Agreement, moreover, the purpose of consultations is "to clarify the facts of the situation and to arrive at a mutually agreed solution."

132. We do not believe, however, that Articles 4 and 6 of the DSU, or paragraphs 1 to 4 of Article 4 of the SCM Agreement, require a precise and exact identity between the specific measures that were the subject of consultations and the specific measures identified in the request for the establishment of a panel. As stated by the Panel, "[o]ne purpose of consultations, as set forth in Article 4.3 of the SCM Agreement, is to 'clarify the facts of the situation', and it can be expected that information obtained during the course of consultations may enable the complainant to focus the scope of the matter with respect to which it seeks establishment of a panel."[50] We are confident that the specific measures at issue in this case are the Brazilian export subsidies for regional aircraft under PROEX. Consultations were held by the parties on these subsidies, and it is these same subsidies that were referred to the DSB for the establishment of a panel. We emphasize that the regulatory instruments that came into effect in 1997 and 1998 did not change the essence of the export subsidies for regional aircraft under PROEX.

133. For these reasons, we conclude that the export subsidies for regional aircraft under PROEX, including the regulatory instruments that came into effect after consultations were held between Canada and Brazil, were properly before the Panel.

134. Canada appeals the Panel's finding that, in a case involving a claim of violation of Article 3.1 (a) against a developing country Member, the complaining party has the burden of demonstrating that the developing country Member in question has not complied with at least one of the elements of Article 27.4.

135. The Panel found as follows:

Where, as here, it is agreed that the Member in question is a developing country Member within the meaning of Article 27.2 (b), it is for the Member alleging a violation of Article 3.1 (a) of the SCM Agreement to demonstrate that the substantive obligation in that provision -- the prohibition on export subsidies -- applies to the developing country Member complained against. That is, it is for the complaining Member to demonstrate that the developing country Member in question is not in compliance with at least one of the elements laid out in Article 27.4.[51]

136. Canada asserts that Article 27.4 is in the nature of a conditional exception or an affirmative defense for a developing country Member, and that, therefore, the burden of proof rests with the respondent developing country Member – in this case, Brazil.[52] Brazil, on the other hand, maintains that Article 27 is a transitional provision that contains a set of special and differential rights and obligations for developing country Members, and that, therefore, the complaining party – here, Canada – has the burden of proving that the developing country Member is not in compliance with Article 27.4.[53]

137. In United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India, we stated that "the burden of proof rests upon the party … who asserts the affirmative of a particular claim or defense."[54] (emphasis added) There, we also noted that "Articles XX and XI: (2)(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves. They are in the nature of affirmative defenses."[55] We have also stated previously that the simple characterization of a provision of an agreement as an "exception" to a specific obligation does not, in itself, determine which party has the burden of proof. In EC Measures Concerning Meat and Meat Products (Hormones), we stated:

The general rule in a dispute settlement proceeding requiring a complaining party to establish a prima facie case of inconsistency with a provision of the SPS Agreement before the burden of showing consistency with that provision is taken on by the defending party, is not avoided by simply describing that same provision as an "exception".[56]

138. Article 3.1(a) of the SCM Agreement, states, in relevant part:

3.1 … the following subsidies, within the meaning of Article 1, shall be prohibited:

(a) subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I;

…

Article 27.2 (b) of the SCM Agreement provides as follows:

27.2 The prohibition of paragraph 1(a) of Article 3 shall not apply to:

(b) other developing country Members for a period of eight years from the date of entry into force of the WTO Agreement, subject to compliance with the provisions in paragraph 4.

(emphasis added)

Article 27.4 of the SCM Agreement reads, in relevant part:

27.4 Any developing country Member referred to in paragraph 2 (b) shall phase out its export subsidies within the eight-year period, preferably in a progressive manner. However, a developing country Member shall not increase the level of its export subsidies⁵⁵, and shall eliminate them within a period shorter than that provided for in this paragraph when the use of such export subsidies is inconsistent with its development needs.

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55 For a developing country Member not granting export subsidies as of the date of entry into force of the WTO Agreement, this paragraph shall apply on the basis of the level of export subsidies granted in 1986.

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139. The ordinary meaning of the text of Article 27.2 (b) is clear. For a period of eight years after the date of entry into force of the WTO Agreement, the prohibition on export subsidies in paragraph 1 (a) of Article 3 of the SCM Agreement does not apply to developing country Members described in Article 27.2 (b) – as long as they comply with the provisions of Article 27.4. With respect to the application of the prohibition of export subsidies in Article 3.1 (a) of the SCM Agreement, paragraphs 2 and 4 of Article 27 contain a carefully negotiated balance of rights and obligations for developing country Members. During the transitional period from 1 January 1995 to 1 January 2003, certain developing country Members are entitled to the non-application of Article 3.1 (a), provided that they comply with the specific obligations set forth in Article 27.4. Put another way, when a developing country Member complies with the conditions in Article 27.4, a claim of violation of Article 3.1 (a) cannot be entertained during the transitional period, because the export subsidy prohibition in Article 3 simply does not apply to that developing country Member.

140. The title of Article 27 is "Special and Differential Treatment of Developing Country Members". Paragraph 1 of that Article provides that "Members recognize that subsidies may play an important role in economic development programmes of developing country Members." Both from its title and from its terms, it is clear that Article 27 is intended to provide special and differential treatment for developing country Members, under certain specified conditions. In our view, too, paragraph 4 of Article 27 provides certain obligations that developing country Members must fulfill if they are to benefit from this special and differential treatment during the transitional period. On reading paragraphs 2 (b) and 4 of Article 27 together, it is clear that the conditions set forth in paragraph 4 are positive obligations for developing country Members, not affirmative defenses. If a developing country Member complies with the obligations in Article 27.4, the prohibition on export subsidies in Article 3.1 (a) simply does not apply. However, if that developing country Member does not comply with those obligations, Article 3.1 (a) does apply.

141. For these reasons, we agree with the Panel that the burden is on the complaining party (incasu Canada) to demonstrate that the developing country Member (incasu Brazil) is not in compliance with at least one of the elements set forth in Article 27.4. If such non-compliance is demonstrated, then, and only then, does the prohibition of Article 3.1(a) apply to that developing country Member.