27 January 1994

30. Furthermore, Brazil argued that while the Administrative Orders No. 297 and No. 569 were brief and could have been more explicit, the Agreement did not specify exactly which details should be spelled out in the public notice. The texts of such notices were intended, as was the usual procedure in similar cases in Brazil, to be a summary of the findings contained in the records of the investigation. This was due to domestic legislation that imposed an administrative constraint that, inter alia, public notices on import taxes should be as brief as possible and contain only indicative considerations. ¹³ Illustrative guidance for this purpose was provided by an example given in the "Manual de Redacao da Presidencia da Republic", which had been extended to notices on countervailing duties (the relevant portion of this Manual with the example was submitted by Brazil to the Panel). Therefore, the Brazilian authorities were particularly careful to mention in each public notice the same "label" reference to the record of the investigation, which for this case was No. 10768.007731/91-23, because they considered that this reference provided due transparency, making the information available in a pragmatic manner and providing the opportunity to all interested parties to make representations. ¹⁴ The Brazilian authorities responsible for the publication of notices pertaining to the investigation under review by this Panel also considered such practices to be in conformity with Resolution 1227, which had been examined by the Subsidies Committee and established that the notices should contain "a summary of the reasons justifying the initiation". ¹⁵ The Brazilian authorities were aware that analogous practice was also followed by other signatories. This practice was fully consistent with Brazil's obligations under the Agreement, and in no circumstances could it be interpreted as non-compliance with Articles 2:1, 2:3, 5:1 and 6.

31. The EEC argued that it was only the public notice pursuant to Articles 2:3 and 2:15, not the unpublished administrative record per se, which was relevant for review by the Panel of the statements of reasons that justified the countervailing duties. The one sentence reference to Case No. 10768.007731/91-23 in the Administrative Orders did not mean that those Orders had complied with the requirements of the Agreement. According to the EEC, Brazil had failed to explain in detail how Articles 2:1, 2:3, 5:1 and 6 of the Agreement had been complied with by the one sentence reference to Case No. 10768.007731/91-23. Moreover, the EEC did not know what case was referred to by this case number because the findings of that case were never communicated to it or made public.

32. The EEC disputed Brazil's argument that the panel reports cited by the EEC did not support the argument that all the relevant information for a panel review had to be in the public notice and not produced later. To substantiate its point, the EEC cited the following portions of the reports of some previous panels: paragraph 227 of the report by the panel on "Korea - Polyacetal Resins" stated that "[t]he Panel considered that a proper review of the KTC's determination against the requirement of positive evidence under Article 3:1 [of the Anti-Dumping Code] meant that it should examine whether the factual basis of the findings articulated in the determination was discernible from the text of the determination and reasonably supported those findings"; paragraph 260 of the report of the panel on "United States - Salmon" stated that "[a] review of whether in a given case this [i.e. positive evidence] requirement was met involved an examination of the stated factual basis of the findings made by the investigating authorities in order to determine whether the authorities correctly identified the appropriate facts, and whether the stated factual basis reasonably supported the findings of the authorities" (emphasis added by the EEC); paragraph 335 of the report of the panel on "United States - Softwood Lumber" had stated that "[t]he Panel considered that in reviewing the action of the United States authorities in respect of determining the existence of sufficient evidence to initiate, the Panel was not to conduct a de novo review of the evidence relied upon by the United States authorities or otherwise to substitute its judgement as to the sufficiency of the particular evidence considered by the United States authorities. Rather ... [it] required consideration of whether a reasonable, unprejudiced person could have found, based upon the evidence relied upon by the United States at the time of initiation, that sufficient evidence existed of subsidy, injury and causal link to justify initiation of the investigation". On the basis of these panel reports, the EEC also argued that the party taking action could not, when challenged, claim that the other party did not co-operate and thus "facts available" were used. This too had to be stated in the public notice.

33. Further, the EEC argued that Brazil was not correct in arguing that the EEC had not sought the evidence in this case from Brazil. The EEC had requested factual information in writing with regard to the provisional and definitive duties on 30 April, 6 May and 31 August 1992, i.e. information that Brazil now claimed was available "on the record", but had received no serious reply. The EEC also requested information at three separate meetings (25 May, 23 June and 5 October 1992), but instead of giving information, Brazil simply requested more data relating to subsidies and exports to third countries other than Brazil, which it seemed to have omitted from the questionnaire (for details on this point, see Section IV.4(c)). The EEC also said that Brazil declined to give the EEC full access to the "record" on 25 May 1992, explaining that there were a lot of documents and that the EEC should first make a selection. The EEC argued that obviously it was difficult to make such a selection without seeing the files first.

34. Brazil argued that except for the text from the panel report "Korea - Polyacetal Resins" (which, as explained earlier by Brazil, did not apply to the situation under review by this Panel), none of the passages cited by the EEC from the panel reports included the phrase that arguments and facts relied upon by the investigating authorities should be "stated in the public notice". Brazil asked the EEC to indicate where the text quoted from these panel reports contained the phrase "stated in the public notice".

35. Further, Brazil said that though panel reports were not to be ignored, they did not provide precedential value and although they were a secondary source of interpretation they did not bind future panels. Brazil argued that the record of the investigation in this case contained all elements relevant to the case, including those showing that the conditions set forth in Articles 5:1 and 6:1 to 6:4 were adequately met. The record had ample reference to factors considered during the investigation, such as existence of export subsidy, decline in the EEC's export price to Brazil, and the impact on the domestic industry. The causality had been obvious to the investigating authorities. Public access to the files of this case had been assured from the beginning of the investigation to any Party which requested it in writing.

36. The EEC explained that the text that had been quoted was from paragraph 260 of the report of the panel on "United States - Salmon". This paragraph stated that "[a] review of whether in a given case this requirement was met involved an examination of the stated factual basis of the findings made by the investigating authorities in order to determine whether the authorities had correctly identified the appropriate facts, and whether the stated factual basis reasonably supported the findings of the authorities".

37. In response, Brazil reiterated the comments made earlier about the relevance of the panel reports to support the point made by the EEC, and argued that these panel reports did not support the EEC point specially because the words "stated in the public notice" were not contained in those reports.

2. Arguments Regarding the Importance of Procedural Requirements Under the Agreement

38. In response to several legal claims raised by the EEC, Brazil argued that the EEC was hiding behind procedural arguments to evade the treatment of the real issues. Brazil said that while it was aware that the Panel had been established to address specific issues under specific terms of reference, it would be wrong for the Panel to disregard entirely some of the decisive features of the context in which this case was being conducted. This dispute involved one of the rare instances of a developing country imposing countervailing duties on imports from a developed country. It arose in the context of major changes in Brazil as the Government, despite many difficulties and social costs, had introduced market mechanisms through sweeping liberalization which involved drastic cuts in tariffs, virtual elimination of non-tariff barriers, and no subsidies being granted. Brazil had incurred the concomitant costs in the hope that the policy would lead to strong and stable growth in the productive capability of the dairy sector, but its hopes were frustrated by the subsidized exports from the EEC. The record showed that Brazil had acted responsibly in the investigation. The purpose of the duties was to countervail the notoriously unfair subsidization practised by the EEC in the agricultural sector. It was unfortunate that inexperience caused procedural errors, but it was fortunate that no actual harm or unfairness was caused to anyone by these errors. They should thus not be made the vehicle of undoing the countervailing measures that indisputably were necessary for Brazil to introduce an effective market mechanism in its dairy sector. Thus, Brazil asked the Panel to consider those elements which Brazil considered to be fully relevant for the fair examination of this case.

39. Brazil said that it had been careful and cautious in taking action to implement its rights under the Agreement due to its little experience in imposing countervailing duties. This was shown by the delay of a year before the petition in this case was accepted. The investigating authorities had acted only when the relevant evidence was overwhelming. The focus was on the entire set of issues, and not on procedure. The EEC on the other hand was focusing on procedural aspects and not on the important questions which included the EEC's subsidies on milk powder, the resulting increase in Brazilian imports of that subsidized milk powder, the increased market share of those subsidized imports gained at the expense of Brazilian producers, the lower prices received by Brazilian producers for the diminished quantities they sold, the resulting material injury to the Brazilian producers demonstrated by their smaller market share and lower prices for their product, and the necessity of imposing countervailing duties to remedy this material injury. The Panel was required to look at the entire set of issues and not just the procedures. Procedures were important, but they were not the major relevant aspect of this case. The relevant aspect was the milk and milk powder industries in a developing country which were denied their opportunity to benefit from the decontrol of the dairy sector by massive imports of subsidized milk powder unloaded in its market by the world's largest economic entity whose agricultural workers earned many times the income of those in Brazil. Brazil argued that it had demonstrated, and the record of the investigation had established, that the imports of subsidized milk powder from the EEC resulted in material injury to the Brazilian industry. The evidence overwhelmingly justified the imposition of countervailing duties against imports of milk powder from the EEC. The Panel had to consider the clear and specific information that substantiated Brazil's point of view on this point, in particular the information on the payment of subsidies by the EEC, growth in the volume of subsidized imports from the EEC, share of the EEC in total imports of milk powder, the share of these imports in the domestic market and consumption, losses to domestic producers, investment in the domestic industry and other aspects regarding the condition of the Brazilian dairy industry.

40. Brazil acknowledged that there may have been some misjudgement on the part of the Brazilian authorities as to some procedural matters, particularly relating to the amount of information from the record that should have been included in the public notice. Brazil agreed that the procedures employed in this case could be improved, and argued that if there had been a minor degree of misjudgement regarding the amount of information that should be included in the public notice, that should be an ancillary and not an essential element. Steps were being taken by Brazil to ensure that, in replacement of short and summarized notes which only highlighted the major factors, the public notice in future would spell out more detail on the findings and conclusions on all issues of fact and law considered material by the investigating authorities and that procedures would always comply with the letter, as well as the spirit, of the Agreement. ¹⁶

41. In this context, Brazil also drew the Panel's attention to the remedy recommended by the panel on "Korea - Polyacetal Resins". That panel had recommended that Korea "bring its measures ... into conformity with its obligations under the Agreement." Such a measure was not even necessary in this case because Brazil was already changing its procedures to ensure that future determinations conformed to the letter as well as to the spirit of the publication requirements of the Agreement. But these procedural issues were secondary. The uncontradicted evidence in this case overwhelmingly supported the conclusions of the Brazilian authorities. Possible procedural errors that could not and did not cause harm or unfairness in actual fact should not be used to excuse the material injury caused by the subsidized imports from the EEC.

42. Brazil argued that the procedures employed in this case had in fact fully complied with the spirit of the procedural requirements of the Agreement, and if there was error, it was harmless error, not prejudicial error. Thus, this error should not detract from the substance of the matter because there could be no offence without prejudice. Moreover, the EEC had not as yet suggested how it or anyone else was in fact prejudiced by the procedures followed. The EEC had not mentioned arguments that could have been advanced or facts that might have been adduced, had different procedures been followed by Brazil.

43. Furthermore, Brazil argued that procedure was not valuable for its own sake, but to assure the substantial rights of signatories, and the procedural provisions had to be interpreted in relation to their purpose. The purpose of procedural requirements in the Agreement was not to place procedural obstacles in the way of signatories. Procedures were necessary to ensure fairness, and Brazil had been eminently fair to all parties in this investigation. The EEC had not been harmed by the information not being provided in the public notice. Brazil had sought to consult with the EEC before formally initiating the investigation, and had repeatedly expressed its willingness to consult throughout the proceedings. The public notice of the proceedings served to fulfil the legal requirement of notice to all interested parties, and as a practical matter also served to bring the investigation to the attention of Brazilian importers. These importers could and did make their views known. Also, the exporters were made aware of the proceedings through their contacts with their importing clients. The EEC was also well aware of the investigation and of its right and of opportunity to make representations and present data and information to the investigating authorities. Brazil had assured full access to the files kept not only in Brasilia but also at the headquarters in Rio de Janiero. However, no official request was ever received for the documents. The EEC officials who contacted the Brazilian authorities, according to the letters presented at the time, were not authorised to consult but only to collect documents which, by their nature, were not amenable to reproduction. Moreover, during the two sessions of consultations, the EEC representatives did not seem interested in actually obtaining the information. If the EEC had wished to know what was in record of the investigation, it would have obtained the relevant information if it had engaged in meaningful consultations. The EEC did not wish to see the information because it was aware that the evidence was overwhelming in favour of imposition of duties, and hence it was now focusing on procedure. The EEC had not been prejudiced by Brazil's failure to include detail in Administrative Order No. 569 but by its own failure to participate in the investigative process that culminated in that Order.

44. The EEC said that it attached as much importance to procedures as it did to the substantive provisions of the Agreement. Substantive rights under the Agreement could not be effectively guaranteed if minimum procedural requirements were not respected. In this case, Brazil had clearly violated the procedural requirements, thereby depriving the EEC of its rights under the Agreement.

45. Moreover, the EEC said that at least from the EEC's arguments relating to the definitive duties (see Section IV.4), it was clear that substantive provisions of the Agreement concerning the determination of material injury were also at stake. Also, it was not correct that the EEC had not sought to get the evidence in this case from Brazil. The EEC had done so through its letters of 30 April, 6 May and 31 August 1992, and in the consultation meetings.

46. The EEC disagreed with Brazil's claim that Brazil had been "fair to all parties in this investigation" and that the EEC had not suggested "how it was in fact prejudiced by the procedures followed" in this case. The EEC argued that accepting the Brazilian position that the EEC was not prejudiced by Brazil's failure to include detail in Administrative Order No. 569 but by its own failure to participate in the investigation process that culminated in that Order, would be contrary to the letter and purpose of the Agreement and would render meaningless the provisions of Article 2:15, 5:1 and 6 of the Agreement. Brazil had offered consultations before the initiation of the investigation, and then hurriedly opened the investigation and imposed provisional duties (see Section IV.3 for details). The EEC received formal notification of the initiation of the investigation (along with the questionnaire) after the imposition of the provisional duties. There was no notification of the opening of the investigation, of the results of Brazil's preliminary investigation, of the imposition of the provisional measure, and no explanation of the need for Brazil to proceed with such speed to impose the countervailing duties. Also, though required by Articles 2:15 and 5:1 of the Agreement, the Administrative Order No. 297 did not provide the factual and legal reasons for the action. The provisional duties equal to the full amount of the subsidy found to exist by Brazil were imposed, without any legal justification. Thus, it was clearly inaccurate to claim that the EEC had not suffered any prejudice by the procedures followed by Brazil. Had the EEC been timely informed of the opening of the investigation and of all the legal steps Brazil had taken thereafter, it would have acted differently to safeguard the legitimate rights of its exporters under the Agreement.

3. Provisional Countervailing Duties

47. The EEC claimed that the imposition of provisional countervailing duties by Brazil on imports of milk powder and certain types of milk originating in the EEC violated Article 5:1 of the Agreement, which provided that

In support of this claim, the EEC presented three main arguments:

The EEC also claimed that since Article 1 of the Agreement required that countervailing duties be imposed in accordance with the provisions of Article VI of the General Agreement and with the Agreement, Brazil had acted inconsistently with Article 1 of the Agreement.

48. Brazil argued that it had acted in conformity with the Agreement. The provisional duties were imposed on the basis of an adequate investigation, the interested parties had been effectively notified of the investigation, and there was ample evidence to justify the imposition of provisional countervailing duties which were deemed to be necessary to prevent injury to domestic industry during the period of investigation.

(a) Alleged lack of a preliminary investigation

49. The EEC said that the text of Article 5:1 of the Agreement required a "preliminary affirmative finding" on the existence of a subsidy and of sufficient evidence of injury before provisional measures could be taken. Such a preliminary affirmative finding could not be made without some "preliminary investigation". The investigating authorities could not just base themselves on the complaint. They had to make an affirmative finding which must be independent of the complaint, and for that they needed to give adequate opportunity to parties concerned to provide evidence and to make their views known.

50. The EEC argued that the principle of effective treaty interpretation required that the phrase "preliminary affirmative finding" be read in context and be interpreted consistently with the other provisions of the Agreement. Article 5:1 explicitly made reference to Article 2:1 (a) to (c) of the Agreement, and Article 2:1 laid down in relevant part that provisional or definitive duties "may only be imposed pursuant to investigations initiated and conducted in accordance with the provisions of this Article" (emphasis added by the EEC). The ordinary meaning to be given to this phrase was that an investigation was a condition precedent to the imposition of provisional or definitive countervailing duties. This had also been acknowledged in the recent report by the panel on "United States - Salmon"". ¹⁷

51. The EEC further argued that there were several provisions in the Agreement that clearly indicated that some time had to elapse and some substantive and procedural steps needed to be observed from the date of initiating the investigation until a preliminary affirmative finding could be made. Thus, Article 2:3 required that the decision to initiate the investigation be notified, and Article 2:5 provided that the investigating authorities shall afford all interested parties a reasonable opportunity to see all relevant information and to present in writing or orally their views. Article 2:9 provided that preliminary and final findings, whether affirmative or negative, may be made on the basis of facts available to the investigating authorities only when the interested party refuses access to, or otherwise does not provide necessary information within a reasonable period of time or significantly impedes the investigation. Article 2:15 required that a public notice be given of any preliminary or final finding, whether affirmative or negative, and of the revocation of a finding. For an affirmative finding, each such notice had to set forth the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities, and the reasons and basis thereof.

52. In support of its argument that no investigation had taken place in this case, the EEC pointed out that Brazil had not informed nor requested information from the parties concerned. The Order imposing the provisional duties was adopted more than a month before the relevant questionnaire had even been sent to the EEC and the exporters concerned and before they had any meaningful and reasonable opportunity to provide information and to make their views known, as required by Article 2:5, and Article 3:2 and footnote thereto of the Agreement.

53. The EEC argued that the first time that Brazil officially informed the EEC of the initiation of the investigation was through the note accompanying the questionnaire; Brazil had also not informed the exporters of the products concerned in the EEC about the investigation till then. Moreover, Brazil had not informed the EEC about the imposition of the provisional duties, which was a violation of Article 2:15.

54. The EEC also claimed that it had not been given a reasonable opportunity for consultations because the provisional duties were imposed less than one month after the public notice of initiation of investigation was given. Moreover, the questionnaire relating to this investigation was sent to the EEC and its exporters more than a month after the provisional duties were imposed.

55. The EEC further argued that in the present case, the public notice of the initiation of the investigation (published on 16 March 1992) was extremely brief and did not adduce any sufficient evidence to show that the conditions (a) to (c) of Article 2:1 were respected. Equally brief and unsubstantiated was the Administrative Order No. 297 of 8 April 1992 which imposed provisional measures. This Order also clearly fell far short of the requirements laid down in Article 2:15 because it provided no reasons nor give the basis of all issues of fact and law that were considered material by the investigating authorities.

56. Therefore, the EEC concluded that the Brazilian authorities based their affirmative preliminary finding exclusively on the facts and allegations contained in the petition, without themselves conducting any preliminary investigation. This approach constituted a clear violation of Article 5:1 of the Agreement. Moreover, even if the Brazilian authorities could argue that the complaint included "sufficient evidence" to satisfy the conditions of Articles 2:1 and 5:1 of the Agreement, the burden of proof was on the Brazilian authorities to show that the conditions of Articles 2:1 and 5:1 were fulfilled. ¹⁸ A simple reading of both Circular No. 83 (i.e. the notice of initiation) and Administrative Order No. 297 showed clearly that they did not contain the slightest evidence to show that the Brazilian authorities had carried out a preliminary investigation or that they had based themselves on facts other than those contained in the complaint. The result of this was that the EEC had been effectively deprived of its right of consultations during the period of investigation.

57. Brazil argued that it had not violated any of the provisions of the Agreement either in its letter or its spirit when imposing provisional duties. The provisional duties had been imposed on the basis of a thorough preliminary investigation carried out by competent investigating authorities in which elements presented in the petition were examined in the light of other information the investigating authorities gathered for several months before opening the investigation. This investigation aimed at verifying whether the conditions prescribed in Articles 2:1 and 5:1 of the Agreement were duly fulfilled in order to justify the opening of the investigation and the imposition of provisional duties. The investigation showed the existence of the requisite conditions for imposing provisional duties.

58. Regarding the EEC's argument that Brazil had denied it the opportunity to consult, Brazil argued that before initiating the investigation, it had offered consultations under Article 3:1 to the EEC on 27 February 1992 but received no response to its offer. With no apparent interest by the EEC in this case, Brazil was fully justified, consistent with Articles 2:10 and 3:3 of the Agreement, in "proceeding expeditiously" on the basis of the information in its possession. The EEC in turn had requested consultations with Brazil through a letter dated 30 April 1992, more than two months after Brazil's offer of consultations on 27 February 1992 and after the imposition of the provisional duties.

59. Brazil said that the request for initiation of an investigation in this case was first submitted on 12 March 1991, but the authorities did not act on it because the imports of milk powder had declined in 1990. Subsequently, the petitioners supplemented the information on 12 June, 8 July and 25 November 1991 and on 14 January 1992. Also, the Government of Brazil had maintained a continuing dialogue with representatives of the dairy industry throughout 1991 concerning the condition of the industry, the level of subsidized imports and the relationship between the two. It was a well known fact that the EEC provided significant and direct subsidies to its exporters of milk powder. As the year 1991 progressed, the subsidized imports from the EEC rose sharply from the 1990 levels, and the condition of the Brazilian industry deteriorated. Brazil was fully justified in initiating the investigation based on the information available from the domestic industry and from its own examination of the relevant data.

60. Brazil argued that this was its first countervailing duty case, and the Government was reluctant to proceed until it possessed evidence that more than justified its action. When the investigation was initiated, Brazil was already in possession of reliable information justifying the conclusion that the EEC's subsidies to milk exports were causing material injury to the domestic industry. Therefore, at the date when provisional duties were imposed, Brazil had been effectively, if not formally, investigating the situation for more than a year. The available information showed that there was stagnation in the domestic industry. To support its contention that the imposition of provisional measure was justified, Brazil submitted to the Panel data on, inter alia, import volume and share of milk powder imports in the Brazilian market, domestic prices and domestic production of milk powder. Brazil said that it also had access to a report by the World Bank which had addressed the problems of the dairy sector in Brazil and had indicated that price controls and subsidized imports were the main reasons for the industry's stagnation. ¹⁹ Brazil said that the conclusions and recommendations of the section on "Stagnation in the Brazilian Milk Sector" in this report were taken into account in examining the question of the injury caused by imports of subsidized milk powder imports from the EEC. In that section, the World Bank had concluded that the Brazilian dairy sector had a comparative advantage in international terms, which had not been fully realized and the sector was experiencing stagnation mainly on account of price controls and the presence of relatively cheaper subsidized imports.

61. Brazil said that the gathering of information before initiation was one of the reasons which explained how the investigating authorities were able to reach a preliminary finding within a relatively short period of time after the opening of the investigation. This procedure was fully supported by Articles 2:10 and 3:3 of the Agreement.

62. Regarding notification under the Agreement, Brazil said that the public notices required under Article 2:3 and 2:15 of the Agreement were given by the means of Circular No. 83 of 18 March 1992, and the Administrative Orders No. 297 and 569 in the Official Journal of Brazil. This journal was the official publication of the Government of Brazil to make public its laws, norms, regulations and announcements. Its texts were legally binding in the sense that no one could claim lack of knowledge of what had been published in it. When the investigation was opened on 16 March 1992, Brazil published a public notice in the sense of Article 2:3 of the Agreement. This signalled the formal initiation of the investigation and all interested parties were effectively notified. In Brazil, representatives of all sectors of the domestic milk industry and trade, as well as of all sectors of Government with responsibilities in this area met regularly at committee or Chamber level, or informally, within the National Council of Agricultural Policy. Therefore, all members were fully aware of the initiation of the investigation in particular because this sector was characterized by intense interaction between well-established exporters and importers, which were concentrated in a relatively small number of trading companies. They had access to all non-confidential information on issues of fact and law and on the findings and conclusions reached by the investigating authorities. They were free to make whatever representation they wished to make, and some of them did make those representations including those who objected to the decision to initiate the investigation and impose provisional measures.

63. Brazil said that the Diplomatic Note No. 85 (dated 18 May 1992) sent by the Mission of Brazil to the Commission of the European Communities was the official communication as required by Article 2:3 of the Agreement. That the official notification of the opening of the investigation was made only on 18 May 1992 did not warrant a conclusion that the EEC was unaware of the investigation till then. The EEC could have referred to the letter of 27 February 1992 through which Brazil had offered consultations. Moreover, given the wide publicity received by the case in the Brazilian press when the petition was first presented in 1991, it would not be convincing if the EEC claimed that it knew nothing about this case. That the EEC was already aware of the opening of the investigation was evident from the fact that it had raised this matter at the regular meeting of the Committee on 28 April 1992.

64. Brazil contended that it had found difficulty in communicating with the exporters to a large extent due to lack of co-operation on the part of the EEC. At the time the investigation started, strictly speaking, there were no "exporters known to the investigating authorities". Though it was not difficult to identify the importers in the closely linked industry, the same did not apply in the case of identifying the exporters established abroad and whose operational network was not well-known by the Brazilian investigating authorities. That was one of the reasons why meaningful consultations would have been useful if held at the time when Brazil requested them. Moreover, the lack of clarity regarding the identification of the producer/exporter should not be reason for a signatory not to take action against notorious subsidization injurious to its industry.

65. Brazil further argued that although the exporters did not receive a formal notification (largely due to lack of co-operation by the EEC) it would not be correct to say that they did not know that an investigation was taking place in Brazil. They had the opportunity to make representations either directly or through their clients (the importers). The public notice about the opening of the investigation in this case provided interested parties the possibility to access non-confidential documentation in the case. Also representations, as well as the submission of data and other information, could have been made at any time before or after the receipt of the questionnaire. Information contained in the public notices as well as in the non-confidential documents of the Case could have been disputed had the interested parties shown interest in referring properly to the investigating authorities, i.e. as prescribed in the relevant Brazilian legislation (Resolution CPA 1227). Moreover, it was puzzling that the EEC was raising the relevance of the timing of the questionnaire because after receiving the questionnaire it had not addressed it properly (for details on this point, see Section IV.4(c)).

66. Brazil further argued that even if there was any delay in the notification of the opening of the investigation it could not be used as a basis for an argument of non-compliance with the provisions of Article 5:1. Article 2:10 justified quick action if it was deemed necessary by the investigating authorities, provided that preliminary affirmative finding was made. These conditions were met in this case. Also, official notifications to producers and importers about the provisional measures were formalized by means of letters dated 7 April 1992 from the investigating authorities. Brazil emphasized that the seriousness with which it took into full consideration its obligations towards the EEC as a signatory to the Agreement was shown by the fact that the duty imposed was lower than the maximum level allowed.

67. The EEC disputed Brazil's claim that the provisional countervailing duties in this case were less than the subsidy calculated, and argued that the duties imposed were equal to the subsidy calculated.

68. The EEC argued that Brazil's invocation of the alleged economic and trade bonds existing between exporters in the EEC and importers in Brazil did not provide a legal basis for not notifying the exporters, and was clearly in violation of the obligation imposed on Brazil in this case by Articles 2:3 and 2:15 of the Agreement. Brazil should have made a serious effort to identify the main exporters. The complainants should have provided this information, and had this been done, then the exporters could have been notified of the investigation in accordance with the Agreement. It was primarily Brazil's obligation (under Article 2:3) to inform the exporters about the opening of the investigation, and (under Article 2:15) about the imposition of the countervailing duties. In this context, the EEC also wondered why Brazil did not inform the EEC and the exporters about the investigation at the same time when it formally notified the domestic producers and importers on 7 April 1992, and instead informed them on 18 May 1992.

69. The EEC disagreed with Brazil's contention that Article 2:10 of the Agreement guaranteed the right to take provisional actions even in cases where the provisions of Article 2:3 and 2:9 were not respected by the investigating authorities. In the absence of the required notifications, Brazil's letter of 27 February 1992 alone could not enable Brazil to resort to the provisions of Article 2:9. Brazil opened the investigation only eleven days after the EEC received the letter offering consultations under Article 3:1 though the letter had provided to the EEC fifteen days to make its point of view known. The EEC had reasonably expected to be formally notified of the initiation of the investigation by Brazil. Despite the requirements of Articles 3:2 and 3:3, Brazil went ahead with its action without any further notification of the steps taken. By not undertaking the subsequent procedural steps required by Articles 2:3 and 2:15 of the Agreement, Brazil had led the EEC to believe that it did not intend to proceed further with the petition.

70. Regarding Brazil's point that the discussion in the Committee meeting revealed that the EEC was aware of the investigation, the EEC said that the minutes of the meeting showed that the EEC was at that time still trying to get information regarding the factual and legal basis of Brazil's action. The minutes of the meeting moreover showed that the Brazilian delegate had not provided the requisite information at the meeting. Rather, he had taken note of the points made and had asked for more time in order to provide full information on the points raised by the EEC.

71. Disputing Brazil's claim that the EEC had no interest in consultations in this case, the EEC argued that it had requested consultations under Article 3:2, i.e. after the initiation of the investigation, in order to get information on the basis on which Brazil had imposed the provisional duties, and later to get the relevant information with relation to the definitive duties. Moreover, the EEC also argued that it had not turned down the opportunity for consultations under Article 3:1 in this case. The EEC's delegation in Brasilia received Brazil's letter offering consultation on 5 March 1992; the EEC noted that this letter did not specifically mention Article 3:1. As mentioned earlier, the EEC's delegation in Brasilia was in the process of taking instructions when Brazil opened the countervailing duty investigation within eleven days from the day the letter was received despite Brazil having offered fifteen days from the date of the communication to respond. The EEC argued that it did not have an obligation to enter into consultations offered under Article 3:1 of the Agreement. However, in the letter through which Article 3:2 consultations were requested by the EEC, the EEC had also indicated that it was willing to continue Article 3:1 consultations.

72. In response to a question by the Panel about the link between Articles 2 and 3 of the Agreement, the EEC said that Article 3:1 was intended primarily as a procedural safeguard for signatories whose products might be subject to a countervailing duty investigation. This provision ensured that signatories were offered, before the initiation of the investigation, a reasonable opportunity for consultations with regard to the evidence contained in the complaint. Therefore, failure to respond in time to an offer of pre-consultations under Article 3:1 could not be construed as evidence of non-co-operation during a countervailing duty investigation. By definition, these consultations must be offered before an investigation was initiated and were meant to provide an opportunity to discuss the question of evidence for initiation. Moreover, the co-operation or lack of it during an investigation was covered by Article 2, and was not linked to the consultation provisions of Article 3. The heading of Article 2 was "domestic procedures and related matters". The obligation under Article 2:5 to afford "reasonable opportunity" was an obligation vis-a-vis all interested signatories and all interested parties. The "reasonable opportunity", therefore, must be seen in the context of the domestic procedures of the investigating authorities. Conversely, Article 3:2 lay down a general obligation for consultations, whose purpose included clarification of the factual situation and to afford a reasonable opportunity to arrive at a mutually agreed solution. Although consultations under Article 3:2 were normally part of the investigation process, the text of Article 3:2 did not seem to preclude consultations outside such a process.

73. The EEC disputed that Brazil had conducted an investigation in this case, and argued that the information collected by Brazil before the investigation, including the report by the World Bank which addressed the Brazilian dairy sector, might have played a role in the decision to open the investigation. However, the investigation did not begin until 16 March 1992, and Brazil could not simply rely on information obtained prior to the opening of the investigation and dispense with a preliminary investigation before the imposition of provisional measures. Moreover, Brazil's extensive borrowing from a confidential World Bank report on the Brazilian economy was clear evidence of the fact that Brazil had failed itself to carry out a preliminary investigation, as required under Article 5:1 in conjunction with Article 2:1 of the Agreement. Also, under Article 2:5, such a preliminary investigation must involve giving adequate opportunity to the parties to provide evidence and to make their views known. However, Brazil did not do so before taking provisional measures. Brazil did not even officially inform the EEC of the initiation of the investigation before taking such measures. The EEC argued that the fact that the EEC was not able to take up the offer of consultations under Article 3:1 was no reason for Brazil to dispense with a preliminary investigation, in which the EEC and the exporters would have had an opportunity to defend themselves.

74. The EEC further argued that even if Brazil did collect information before initiating the investigation, such information (and the argument regarding reliance on Article 2:9) was not mentioned in the Administrative Order No. 297 which imposed the provisional duties. Brazil could not now make up this lack of evidence in Administrative Order No. 297 by providing new information and claiming that it had collected the information before the initiation of the case, nor use the new argument that it was obliged to rely on the best information available under Article 2:9 of the Agreement (for details on this point, see Section IV.1).

TO CONTINUE WITH IMPOSITION OF PROVISIONAL AND DEFINITIVE COUNTERVAILING DUTIES ON MILK POWDER AND CERTAIN TYPES OF MILK FROM THE EUROPEAN ECONOMIC COMMUNITY

¹³ This was Article 2 in the Brazilian legislation which was provided in document SCM/1/Add.26/Suppl.1 of 14 September 1987. This document contained a non-official translation of Resolution No. 00-1227 adopted by the Customs Policy Commission on 14 May 1987 (and had already been examined by the Committee).

¹⁴ Brazil said that the main report and some of the main documents (with cross-references to the documents kept elsewhere) were maintained by the Technical Department of Tariffs (or the "DTT") in Rio de Janeiro. The total volume of all documents and annexes relevant for the record comprised a total of seven volumes, or a little over one thousand pages.

¹⁵ Article 12, paragraph 1 and, mutatis mutandis, other provisions of the Resolution 1227.

¹⁶ Brazil stated that it had communicated to the Committee that it was revising the procedures on providing information in its public notices.

¹⁷ op. cit., paragraph 225.

¹⁸ In support of this point, the EEC referred to the report of the panel on "United States - Pork", op. cit., paragraph 4.4.

¹⁹ The World Bank (1991), "Brazil, Key Policy Issues in the Livestock Sector: Towards a Framework for Efficient and Sustainable Growth", Report Number 8570-BR.

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