3. Subsidy A is paid to all domestic producers of product X, and the grant of that subsidy is not tied in any way to a determination of dumping on the part of exporters/foreign producers of product X. Subsidy B is paid to all domestic producers of product X, subject to a finding of dumping on the part of importers/exporters/foreign producers of product X. For the purpose of this question, please assume that subsidy A would not constitute a specific action "against" dumping (but indicate if you disagree). (a) Should subsidy B be treated as a specific action "against" dumping? (b) Why? (c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not? (d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

(a) The answer is a qualified �yes�, although the fact situation presented by the panel is not complete.

(b) According to the Appellate Body in the United States - 1916 Act case, specific action against dumping is action taken in response to situations presenting the constituent elements of dumping. Based on the limited scenario set out in the question, Subsidy B appears to be a specific action against dumping as it would not exist other than in the presence of the constituent elements of dumping and against or in response to dumping. This appears to be a payment made to �offset� dumping other than in ways permitted by Article VI of GATT 1994. Therefore, it is a specific action against dumping that does not accord with the restrictions stated in Articles 18.1 and 32.1 of the Agreements.

(c) A difference in form may, and in most cases does, indicate a difference in function and, especially, legal consequence. For example, a subsidy paid to the producers of an exported product is not necessarily a prohibited export subsidy; the same subsidy, paid to the same producer in respect of the same export product would be illegal if it were made legally contingent upon export performance.

In this instance, Subsidy A is not related to dumping; it is a simple grant of money subject to the general disciplines of the SCM Agreement. Subsidy B is, however, contingent upon a finding of dumping. There would be a strong presumption that subsidy B has the effect of countering or offsetting dumping as such, in the sense that it would make it more difficult for goods found to have been dumped to compete against domestic like products. However, the Anti-dumping Agreement permits only three actions to �counter� dumping � that is, to make it more difficult for the dumped goods to compete in the domestic market by presumably raising the price of the dumped good. Subsidy B, which presumably lowers the price of the domestic like product, is not a permitted action.

(d) Where dumped imports are also subject to an anti-dumping duty, then those import products would face two actions against them. This would place them at a particular competitive disadvantage to domestic goods that receive subsidy B. This is especially true if the producers of dumped imports are funding subsidy B.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1449 There are two parts to Canada�s answer.

4.1450 First, as Canada noted in its First Written Submission and its First Oral Statement, the payment has the potential to change the competitive relationship between eligible domestic producers and all other domestic producers, particularly those that are not eligible for offset payments. This is why Canada has also raised a claim under Articles 5.4 and 11.4 of the Agreements. The competitive disadvantage of not receiving a payment creates incentives for companies to indicate support for petitions for investigations and during investigations or face subsidised competition from other producers who are eligible. Those competitors will be eligible to receive subsidies every year the Order is in place. Therefore, the impact continues for years.

4.1451 Second, it is also correct that foreign producers not subject to the relevant anti-dumping order would be affected by the Byrd Amendment offset payments. Canada has not denied that the Byrd Amendment is a subsidy or that WTO Members have an independent right of action under Parts II, III, and V of the SCM Agreement. Nevertheless, whatever be the collateral impact of Byrd Amendment offset payments, they operate to, and have the principal impact of, �condemning� dumping and �neutralising� subsidies. They were devised for these purposes. They operate against dumping and subsidies, and as these offset payments are not permitted actions under Article VI of GATT 1994, they are prohibited under Articles 18.1 and 32.1 of the Agreements.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1452 At issue in this dispute is not what the producers do with Byrd Amendment offset payments, but what the obligations of the United States are in respect of actions it may take against dumping or a subsidy.

4.1453 Accordingly, what a producer actually does with the payments it receives is not relevant to whether the United States has structured the payments in such a way that they constitute �specific action against dumping.�

4.1454 Article VI:2 of GATT 1994 indicates that an action is �against� dumping where it offsets, counteracts, or prevents dumping. Therefore, if money is paid to domestic producers for costs incurred related to a product under an order, during the time the order is in place � that is, costs that arise because dumping continues and dumped goods are entering into the commerce of the United States � then the fact those costs are being reimbursed (i.e. offset) to those specific domestic producers is all that is necessary to constitute action �against� dumping. The reimbursement of the costs and the subsidy to domestic producers is in addition to the payment of duties and threaten imports with decreased competitive position.

4.1455 In this respect Canada recalls the disciplines of the SCM Agreement generally and, especially, the presumptions underlying those disciplines. For example, under Part V of the SCM Agreement, countervailing measures may be imposed on �subsidised� goods where the subsidies are specific and where �material injury� is caused by the goods in question. Article 15.1, in particular, provides that a determination of injury must be made based on an �objective examination� of the volume of the subsidised imports and the consequent impact on domestic producers. In other words, Article 15 presumes that a subsidised good enjoys a competitive advantage, regardless of what the recipients of the subsidy might actually have done with the subsidy in question. More important, this presumption is not rebuttable: a subsidised producer does not escape discipline under Part V if it proves that it spent the subsidies in question on holidays for its employees, rather than on bolstering the competitiveness of its exported product.

4.1456 Therefore, subsidies paid to a domestic industry must be presumed to increase the competitiveness of the domestic like product; and to the extent that this is done with the object and effect of �condemning� dumping and �neutralising� subsidies, it is a specific action not permitted by Articles 18.1 and 32.1 of the Agreements.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1457 Canada is of the view that nothing in the text of Articles 18.1 and 32.1 provides for such a distinction; nothing in the context or object and purpose of these Articles would direct the Panel to read into the Articles words and concepts that are not there.

4.1458 In any event, as a matter of fact the CDSOA is not an �untied� subsidy. The Byrd Amendment requires the payment of �tied� subsidies in two ways. First, the subsidies are paid only where there are dumped or subsidised goods in the market. The offset payments are therefore �tied� to the presence in the market of such goods, to an amount equal to the duties imposed on, collected from, the importation of such goods. Second, the offset payments reimburse certain costs directly tied to the production of the domestic like product to domestic producers who participated in an investigation. In Canada�s respectful submission, the distinction between future accounting for subsidies paid, and reimbursement of specific actual expenditure is one without a difference.

4.1459 As well, Byrd Amendment offset payments do indeed have a direct, automatic and negative impact on �entities engaged in dumping.� Payments must be made where duties have been collected and a domestic producer meets the criteria set in the Byrd Amendment. This action has a direct impact on importers of dumped goods in that money is given directly to competitors for expenses related to the production of the domestic like product.

4.1460 Finally, the panels in the United States � 1916 Act case noted that a relevant question to determine whether an action is specific action against dumping under Article 18.1 is whether the objective reason for the imposition of a measure is dumping or something else, such as an increase in imports for a safeguard action. In noting that certain actions such as safeguards are not �specific action� the Japan Panel stated that, �even though those measures may be legally applied to address dumping, the basis for their imposition would not objectively be �dumping�, but its causes or effects.� [D]umping could not be considered as the objective reason for the imposition of the measures ��.²⁴⁰

4.1461 The Byrd Amendment does not operate but for the continued existence of dumped or subsidised products within the US after an order is imposed. The continued existence of dumping and subsidisation are the �objective reason for the imposition of the measure.� That �affected domestic producers� and �qualifying expenditures� exist to receive a payment only reinforce the conclusion that there is continued existence of dumping and subsidies that must be offset.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1462 The United States argues that the SCM Agreement does not limit the right of a Member to use subsidies as measures to counteract dumping and subsidisation. Canada disagrees.

4.1463 The WTO Agreement restricts a Member�s right to counter-subsidise. Where a counter-subsidy amounts to an export contingent or an import substitution subsidy, it is prohibited by Article 3. Where such a subsidy falls within the terms of Articles III:2 or III:4 of GATT 1994 and but not of Article III:8, it is prohibited by that Article. And where a counter-subsidy is action taken in respect to the constituent elements of dumping or a subsidy, it is subject to the prohibition set out in Article 18.1 and 32.1 of the Agreements. A Member may not avoid that prohibition by taking an action in the form of a counter-subsidy, where a counter-subsidy meets the requirements of these Articles. Footnote 35 to Article 10 of the SCM Agreement specifically limits actions that may be taken against subsidies to countermeasures authorised under that Agreement, duties, provisional duties and undertaking agreements.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1464 Canada asserts that a measure is �against dumping� if it counters the practice of dumping.

4.1465 Article 18.1 refers to �specific action against dumping.� In context, and in the light of the findings of the Appellate Body in respect of Article 18.1, this is action that in some way counters or �condemns� dumping � action that does or is capable of adversely affecting the practice of dumping as such so that either the practice is discontinued, or its effects in the market are neutralised. In other words, such specific actions are, in a market context, measures that make dumping a costly activity or practice.

4.1466 Anti-dumping duties have the potential of raising the price of a dumped good in the domestic market and therefore making it less competitive. Price undertakings simply raise the price of a dumped good and �equalise� the conditions of competition of that good in the domestic market. The Anti-dumping Agreement permits both of these �specific actions� (and provisional measures). It prohibits all other measures that make dumping a costly activity or practice. These may include (the list is not exhaustive):

• fines or imprisonment for the importer;
   

• product sales prohibitions or labelling requirements aimed at dumped goods (�This is a dumped product�);
   

• internal taxes aimed at dumped goods;
   

• internal sales or marketing regulations governing dumped goods (�We sell dumped goods� signs posted in shop windows);
   

• fines or imprisonment for consumers of dumped goods; or
   

• other measures that make the dumped good less competitive in the domestic market, such as subsidies to competitors specifically tied to dumping or the dumped good in question.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1467 Canada considers that Articles 18.1 and 32.1 of the Agreements provide that specific action against dumping or a subsidy must be in accordance with GATT 1994. The Appellate Body interpreted the phrase �specific action against� as �action taken in response to situations presenting the constituent elements of dumping�. It interpreted �against� to mean �in response to�; the Appellate Body used these terms as synonyms.

4.1468 The Vienna Convention requires that a treaty is interpreted in good faith, in accordance with the ordinary meaning of its terms in the light of its context and object and purpose. Accordingly, the Appellate Body could not have intended its interpretation of the word �against� to mean �beneficially in response to.� The Appellate Body�s interpretation makes no sense if it were to be divorced from the specific treaty language it was interpreting in the context in which that treaty language was found.

4.1469 Accordingly, action that benefits dumping or imports or those engaged in dumping is not specific action �against� dumping.

(c) Questions to Canada

10. At para. 11 of its second oral statement, Canada states that the 1916 Act was an action "in response to (against, countering, condemning, offsetting)" a practice. What is the basis for equating the term "in response to" with the terms "countering", "condemning", and "offsetting"?

4.1470 In Canada's view, Article 18.1 of the Anti-dumping Agreement provides that specific action against dumping must be in accordance with GATT 1994. The Appellate Body, as noted in the previous question, found that specific action against dumping is action taken �in response to� situations presenting the constituent elements of dumping. This is the basis for equating �in response to� to �against�.

4.1471 Further, Article VI of GATT 1994 indicates that action that offsets or prevents dumping is action against the practice of dumping. Article VI:2 indicates that Members may apply a duty to offset or prevent dumping. To offset something is to counteract it. The dictionary defines �offset� as �[a] counterbalance to or compensation for something else; a consideration or amount diminishing or neutralizing the effect of a contrary one; a set-off.�²⁴¹ Further, GATT Article VI:1 provides that Members recognize that dumping is to be �condemned� if it causes or threatens injury.

(d) Questions to the United States

11. Are there any conditions governing what affected producers must do with payments under the CDSOA for qualifying expenditures? For example, may those payments be used to improve the competitive position of the affected producer in respect of a product totally unrelated to the product subject to the anti-dumping order?

4.1472 According to Canada, at issue here is whether the Act and the payments under it fall within the scope of Articles 18.1 and 32.1 of the Agreements. This is determined by whether the Act calls for action in response to (or �against�) situations presenting the constituent elements of dumping or subsidies. What producers do with the payments once they receive them does not bear upon that issue.

4.1473 The Act provides for payments to reimburse costs incurred because of a continued presence of dumped and subsidised imports in the US market after a duty is imposed. This money is paid to domestic producers to offset the costs they incurred for the production of the like-domestic product that is injured because of dumping or subsidisation. This makes it action against dumping or subsidies. Money is fungible; it can be used for any purpose. Producers are being reimbursed for costs already incurred due to dumping and subsidisation; this critical point establishes that the payments amount to �specific action against dumping� or a subsidy.

4.1474 The restrictions on the costs that may be reimbursed further support this conclusion. A certification for reimbursement must enumerate the category under which an expense falls and the amount claimed. The expense must relate to the production of the like-domestic good to that subject to the order and be incurred after the order is imposed and before it terminates. The relevant categories of �qualifying expenditures� are capital operational expenditures:

(a) manufacturing facilities
(b) equipment
(c) research and development
(d) personnel training
(e) acquisition and technology
(f) health care benefits to employees paid for by the employer
(g) pension benefits to employees paid for by the employer
(h) environmental equipment, training or technology
(i) acquisition of raw materials and other inputs
(j) working capital or other funds needed to maintain production

12. Is there any requirement that qualifying expenditure must be incurred by affected producers in relation to their competition with dumped imports specifically, rather than their competition with imported and domestic products more generally?

4. Chile

(a) Questions to all complaining parties

3. Subsidy A is paid to all domestic producers of product X, and the grant of that subsidy is not tied in any way to a determination of dumping on the part of exporters/foreign producers of product X. Subsidy B is paid to all domestic producers of product X, subject to a finding of dumping on the part of importers/exporters/foreign producers of product X. For the purpose of this question, please assume that subsidy A would not constitute a specific action "against" dumping (but indicate if you disagree).

(a) Should subsidy B be treated as a specific action "against" dumping?

(b) Why?

4.1476 Chile does not understand the usefulness of this question since it does not address the issue raised by Chile and the complainants. The hypothesis presented by the Panel is not even related to the characteristics of the CDSOA since the question is based in a programme that benefits all domestic producers, a substantial difference with the CDSOA. Having said that and for the purpose of the hypothesis, Subsidy B should be treated as a specific action "against" dumping because the condition that triggers the payment of the subsidy is the finding of dumping, i.e., a situation that has the constituent elements of dumping. Hence, the subsidy is an action taken specifically against dumping.

(c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not?

4.1477 Chile is of the view that the term "impact" is very broad and ambiguous. Nevertheless an action against dumping is per se a specific action not because of its impact but because it is taken in response to a situation that presents the constituents elements of dumping. The potential or actual impact of an action or measure is not within the legal elements that have to be considered in order to qualify it as a specific action against dumping. Neither GATT Article VI as interpreted by ADA Article neither 18.1 nor the 1916 Act case incorporate the notion of impact of a subsidy as part of the definition of �specific action against dumping�.

(d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1478 Again, Chile does not understand the scope and meaning of this question and how it is related with the question raised by the complainants in this dispute, since it is based on the hypothetical case not even closely similar to the CDSOA, given that one of the distinguishable elements in the latter is not present in the hypothesis presented by the Panel, i.e. that offsets are distributed only to "affected" producers

4.1479 But for academic purposes Chile will answer the Panel's question with a no, not particularly. The competitive advantages between domestic producers and dumped imports could be affected or influenced by a great number of factors. For example, the amount of the subsidy, the presence of other subsidies, the cost of production, the social�economic conditions, the eligibility requirements of domestic producers to benefit from the subsidy, the qualifying expenditures covered by the subsidy, etc. In other words, this impact has to be analysed on a case-by-case basis and having all the relevant factors at hand.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1480 Assuming that the question refers to producers of the same product, and as Chile said in its second oral statement²⁴² the offset payment will obviously change the competitive relationship between the domestic producer that receives the payment and all other producers, both domestics and foreigners (subject or not to the relevant anti-dumping order).

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1481 Chile considers that whether or not the affected producers are restricted to use the offset payments exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, what constitutes the CDSOA a �specific action against dumping� is that it is an action taken in response to a situation that presents the constituent elements of dumping.

4.1482 The main element to consider if the CDSOA is a �specific action against dumping� is not the use the affected producers may give to the offset payments. If it weren't only restricted "to bolster their competitive position..." it would still be a "specific action against dumping". The WTO commitments are made by governments and not by their private sectors. The question that must be raised is why those producers are eligible for these payments. As Chile stated in February, "It is not the spending of the money, in and of itself,(�) It is the manner in which the United States spends that money that constitutes a violation of the various provisions cited by the complainants."²⁴³ It is the fact that only with a positive finding in a dumping investigation (i.e., when dumping, injury and causality have been proved) the offset payments are triggered. Whether domestic producers use this money to go on holidays or to bolster their competitive position is not an issue for purposes of considering the CDSOA a �specific action against dumping�.

4.1483 Moreover, as Chile has stated earlier, money is fungible, so whether the beneficiaries use the money for what is provided or intended to, is something very difficult to prove escaping from the scope of the investigating authorities. If it were, it means that for future investigations, complaining parties will be in an obligation to present evidence that payments made by governments were in fact used in alleviating or improving the competitive position of domestic industry, otherwise, it would not be neither a subsidy nor a �specific action against dumping�.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1484 Before answering the question, Chile would like to point out that as stated by the Panel, these questions do not prejudge the Panel�s findings. In that sense, Chile understands that in this question in particular the Panel is not making a finding that action under the CDSOA has not an automatic, direct, negative impact on entities engaged in dumping. If that were the case, Chile certainly does not agree with that conclusion.

4.1485 For the purpose of Article 18.1 of the AD Agreement, both measures are specific actions against dumping because both are an "action that is taken in response to situations presenting the constituent elements of "dumping" ".²⁴⁴ The Appellate Body in the 1916 Act case did not incorporate adjectives as "automatic" or "direct" for a measure to be considered a "specific action". The only requisite was - at a minimum - that the action is taken  when the constituent elements of "dumping" are present.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1486 Chile would like to point out that there seems to be an error with the numbering of the paragraphs between the oral statement the US rendered at the Second Substantive Meeting with the Panel and the electronic version the US sent to the Secretary and the parties. Therefore, Chile would like to know which version of the US submission the Panel is making reference to in its question, before commenting on it.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1487 Chile is of the view that the question about the qualification of a measure as a �specific action against dumping� should be analysed on a normative or prescriptive basis rather than a descriptive one. If a measure is taken in response to a situation that has the constituent elements of dumping, this measure shall comply with the obligations and legal standards set forth in Article VI of GATT 1994 as interpreted by the ADA. Hence, the measure must only consist in one relief adopting one of the three forms of relieves allowed by this normative frame. Under this normative frame, the adverse bearing of a measure taken in response to dumping is a factual issue not part of what has to be assessed in order to consider the measure a specific action against dumping.

4.1488 In addition, there seems to be confusion between the expected results from an action and their effects. Country A may design a measure against dumping (or whatever) and expect some results. Whether these results are finally reached is other problem. In the case under consideration by the Panel, CDSOA stands as a second specific response to dumping, because, besides the anti-dumping measure adopted, the domestic producers will receive an offset payment given the same reason. This means that dumping is being tackled by two ways.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1489 Chile sees no logic in this question for purposes of what is at stake in this dispute. Furthermore, Chile sees no logic in an action in response to dumping intended to benefit dumping, dumped imports or those engaged in dumping.

4.1490 In its answers to the questions raised by the Panel on 26 February, Chile addressed this point. In that opportunity, and on the basis of paragraph 122 of the Appellate Body report on 1916 Act, Chile stated that "nothing in that report allows to conclude that a measure in response to dumping (or subsidy) it is not a measure against dumping." Chile added that its interpretation was that the Appellate Body was plainly using the concept of "in response to" as a way to explain what "action against" should be understood to mean. So in that sense the finding suggests that "specific action against dumping" is not a subset of action "in response to" dumping. Thus, even if the response could have positive effects, it will be an action against dumping.

4.1491 The key issue here is that an action is specific against dumping because it is adopted in response to a situation that has the constituent element of dumping, whether or not it is finally "of benefit to dumping, dumped imports, or those engaged in dumping".

4.1492 Article 18.1 of the ADA, the ADA in itself and Article VI of GATT 1994 represent the express and written intention of all WTO Members to address and regulate the treatment of dumping by measures taken against it (�in opposition to�). This means that even though dumping is not in itself prohibited under the WTO, under some circumstances, under certain conditions and following certain procedures, Members are allowed to adopt some trade remedies against it. That is why the Panel or the Appellate Body in the 1916 Act case never were in a position nor intended to consider if a measure taken in response to dumping was a specific measure against it when it benefited dumping, dumped imports, or those engaged in dumping.

5. European Communities, India, Indonesia and Thailand

(a) Questions to the European Communities

1. The EC asserts that CDSOA offset payments would still constitute "specific action against dumping" even if they were "financed directly from the US Treasury, and in an amount unrelated to the amount of collected anti-dumping � duties" (replies to Panel questions, para. 11). Does this mean that the CDSOA offset payments would still constitute "specific action against dumping" even if they were unrelated to the imposition of an anti-dumping order?

4.1493 The offset payments would constitute �specific action against dumping� as long as they were made in response to a finding of dumping, regardless of whether, in addition to the offset payments, the US authorities imposed anti-dumping duties on the basis of that finding.

2. The EC asserts that CDSOA offset payments constitute "specific action against dumping" because "they are paid only to producers affected by dumping and subsidization" (replies to Panel questions, para. 5). How does the nature of the recipient determine whether or not offset payments are "against" dumping?

4.1494 The remark cited by the Panel does not address the meaning of the term �against� as such. The point made by the EC was that the offset payments constitute action taken �in response to a situation presenting the constituent elements of dumping� (and, therefore, �specific action against dumping�) because they are paid exclusively to the �affected domestic producers�, the existence of which presupposes a finding of dumping. This was explained in further detail in the EC�s Reply to Question 2.

(b) Questions to all complaining parties

3. Subsidy A is paid to all domestic producers of product X, and the grant of that subsidy is not tied in any way to a determination of dumping on the part of exporters/foreign producers of product X. Subsidy B is paid to all domestic producers of product X, subject to a finding of dumping on the part of importers/exporters/foreign producers of product X. For the purpose of this question, please assume that subsidy A would not constitute a specific action "against" dumping (but indicate if you disagree). (a) Should subsidy B be treated as a specific action "against" dumping? (b) Why? (c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not? (d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1495 The EC, India, Indonesia and Thailand agree that Subsidy A is not �specific action against dumping� because it is not taken �in response to a situation presenting the constituent elements of dumping�. The EC, India, Indonesia and Thailand further agree that Subsidy B should be treated as a specific action �against� dumping, because it is a �response to a situation presenting the constituent elements of dumping�.

4.1496 The difference between the impact of Subsidies A and B is the following: While both can have an adverse �impact� on dumped imports, Subsidy A, unlike Subsidy B, does nothing to prevent or stop dumping as such. Because Subsidy A is not a response to dumping, foreign producers cannot prevent its granting by refraining from dumping. Thus, Subsidy A has no dissuasive effect against dumping. To the contrary, Subsidy A may encourage foreign exporters to engage in dumping in order to match the subsidised prices of the domestic producers.

4.1497 In contrast, Subsidy B, like the offset payments, is a �penalty� for dumping, which may, as such, dissuade foreign producers from engaging in dumping or induce them to stop dumping. This effect of Subsidy B is not addressed under Part III of the SCM Agreement, because it does not result from the subsidy as such, but from the condition for its granting.

4.1498 The following example illustrates further the difference between Subsidy A and Subsidy B. If an importer of dumped goods is sentenced to prison for customs fraud committed in connection with the importation of those goods the penalty has the same �impact� upon that importer, and consequently upon the imported goods, as one of the actions at issue in 1916 Act. Yet, it is not �specific action against dumping� because, being a response to customs fraud and not to dumping, it does nothing to prevent or stop dumping as such.

4.1499 This example evidences that what distinguishes a �specific action against dumping� from other actions with an adverse �impact� upon dumped imports (or upon �entities engaged in dumping�) is the fact that it is taken in response to dumping, rather than the nature or the extent of such �impact� or the precise way in which it is brought about.

4.1500 Finally, as will be explained in its reply to question 4, the EC agrees that Subsidy B would provide domestic producers of product X with a greater competitive advantage over dumped imports in particular.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1501 As a �collateral� effect, the CDSOA may change also the competitive relationship between the �affected� producers and non-dumped imports/�non-affected� producers. However, because the CDSOA is a response to �dumping�, rather than to �imports� or to �domestic competition�, its effects upon dumped imports are qualitatively different.

4.1502 First, the very existence of the CDSOA has a deterring effect on dumping. The mere possibility that the offsets payments will harm their exports may dissuade foreign exporters from engaging in dumping. This dissuasive effect is additional to that of the ordinary US anti-dumping laws. In contrast, the CDSOA has no dissuasive effect with respect to non-dumped imports or with respect to sales by the domestic producers because it is not a response to those practices. The exporters of non-dumped goods and the non-affected domestic producers can do nothing and, therefore, will do nothing to prevent the payment of the offsets.

4.1503 Second, once the offset payments have been made, an exporter of non-dumped products, or a non-affected domestic producer, may respond by lowering their prices, thereby cancelling the effects of the offset payments. In contrast, if the exporters of dumped goods did the same, that would increase their dumping margin, which would lead to higher anti-dumping duties and, consequently, to bigger offset payments, thereby increasing, rather than reducing the price advantage of the �affected� domestic producers.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1504 As explained below in the reply to Question 11, the offset payments are tied to the production of products subject to anti-dumping orders and, therefore, must be assumed to benefit only those products in accordance with standard principles for the attribution of subsidies. Indeed, the CDSOA itself is premised on that assumption.

4.1505 On the other hand, the EC, India, Indonesia and Thailand doubt that, in practice, the affected producers may �bolster their competitive position� vis-�-vis dumped imports of the subject products without, at the same time, bolstering also their competitive position vis-�-vis non-dumped imports and other domestic sales of like products. At any rate, that would not preclude the offset payments from being �specific action against dumping�. The Panel�s question assumes that �specific action against dumping� means �action that can have an adverse impact on dumped imports exclusively�. For the reasons explained below, the EC, India, Indonesia and Thailand do not agree with that proposition.

4.1506 As made clear by the Appellate Body, a �specific action against dumping� is an action taken in response to dumping. Of course, if such action is to be effective in order to prevent or offset dumping (unlike, for example, flying the flag at half mast), it must be capable of having some sort of adverse impact on the dumped imports (or on the �entities engaged in dumping�). But, as explained above, what distinguishes a �specific action against dumping� is the fact that it is taken in response to dumping, rather than the extent of such adverse impact.

4.1507 The offset payments are not paid in response to domestic competition or in response to non-dumped imports, but only and exclusively in response to dumping. For that reason, they constitute �specific action against dumping�.

4.1508 Furthermore, the fact that the offset payments can have a �collateral� adverse impact on other imports or on non-affected domestic producers does not detract from the fact that, at the same time, they have also an adverse impact on dumped imports. Thus, the CDSOA is not just a �specific action against dumping�, but also one which can be effective in order to prevent or offset dumping.

4.1509 At any rate, as shown above, the effects of the CDSOA with respect to dumping are qualitatively different from its effects with respect to non-dumped imports/sales by �non-affected� domestic producers. Thus, even if it were correct that �specific action against dumping� means �action that can have an adverse impact exclusively on dumped imports�, the CDSOA would still be �specific action against dumping� to the extent of that difference.

4.1510 In particular, the CDSOA has a dissuasive effect �exclusively� against dumping. The fact that the offset payments may have also an incidental adverse impact on non-dumped imports/non-affected domestic producers does not negate such �exclusive� effect. Nor, even less, does the theoretical possibility that, against the US Congress� own expectations, the offsets may be used to cross-subsidise other products.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1511 The EC, India, Indonesia and Thailand argue that it is obvious that the �actions� provided under the 1916 Anti-dumping Act do not operate �against� dumping in the same way as the offset payments do. But this does not preclude the offset payments from being also �specific action against dumping�.

4.1512 The offset payments can have also a �negative impact� on �entities engaged in dumping�. The only difference between the offset payments and the actions at issue in the 1916 Act is that the latter applied �directly� to the importers.

4.1513 However, there is nothing in the 1916 Act panel reports or in the Appellate Body report which suggests that the notion of �specific action against dumping� should be restricted to those types of measures which apply �directly� to �entities engaged in dumping�.

4.1514 To the contrary, the panels in 1916 Act concluded that �the type of measures imposed under the 1916 Act is not relevant to determining whether the 1916 Act falls within the scope of Article VI� and that �whether or not Article VI applies does not depend on whether a Member addresses dumping through the imposition of duties or through the imposition of other remedies � [T]he application of Article VI depends on whether the practice that triggers the imposition of the measures is dumping.�

4.1515 The Appellate Body agreed with the panels and ruled that �specific action against dumping� means �action that is taken in response to a situation presenting the constituent elements of dumping�. Furthermore, the Appellate Body observed that �specific action against dumping could take a wide variety of forms�.

4.1516 In sum, what distinguishes a �specific action against dumping� from other actions with an �adverse impact� on dumped imports is that it is taken in response to dumping, rather than the nature or extent of such impact or the precise way in which it is brought about.

4.1517 Furthermore, in the context of the SCM Agreement, the view that �specific action against a subsidy� includes only action that applies �directly� to subsidised imports (or entities engaged in subsidization) would lead to manifestly absurd results. The �countermeasures� provided for in Articles 4 and 7 of the SCM Agreement may take a wide variety of forms, including both measures which would qualify as �specific action against a subsidy� according to the US interpretation (e.g. a duty on imports which benefit from export subsidies or which cause �adverse effects� of the type described in Article 5.1 a)) and measures which have only an indirect impact on the subsidising Government (e.g. a duty on imports of a different product). Thus, on the US interpretation, Article 32.1 would have to be read as providing that some �countermeasures� (those which apply directly to imports of subsidised goods) have to be taken �in accordance� with Parts II or III of the SCM Agreement, while other countermeasures (those which do not apply �directly� to imports of subsidised goods) would not. Clearly, such distinction would make no sense.

4.1518 Presumably, the US response to the above would be that the provisions of the GATT 1994 referred to in Article 32.1 are exclusively those of Article VI. As explained elsewhere, that view is incorrect: the SCM Agreement is also an interpretation of Article XVI. But, assuming arguendo that it were not, the US interpretation of �specific action against a subsidy� as action that applies �directly� to subsidised imports would lead to an even more absurd result. It would mean, for example, that if a Member wanted to take countermeasures against a prohibited export subsidy in the form of import duties on the subsidised products it would have to comply first with the substantive and procedural requirements of Part V of the SCM Agreement.

4.1519 The only logical interpretation of Article 32.1 is that �countermeasures� are always �specific action against a subsidy� and must be taken �in accordance with� Article XVI, as interpreted by Parts II and III.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1520 The EC, India, Indonesia and Thailand consider that the US concerns are exaggerated. The mere fact of granting a subsidy to a company that competes with a foreign producer, which happens to have received a subsidy first would not constitute a �specific action against a subsidy�. For that, it would be necessary that the subsidy could be characterised as action that "may be taken only when the constituent elements of a subsidy are present�. In other words, it would have to be shown that the granting of the subsidy was contingent upon a previous finding of foreign subsidization. The Complainants are not aware that other WTO Members �engage regularly� in such kind of �conditional� counter-subsidization.

4.1521 Footnote 35 of the SCM Agreement does not refer to dispute settlement action under Article 32.1 as a permitted form of relief because such action is not �specific action against a subsidy�. Rather, it is an action against a �specific action against a subsidy� prohibited by Article 32.1, which prohibited action may take �a wide variety of forms�, including that of a subsidy.

4.1522 The action taken by the EC, India, Indonesia and Thailand against the CDSOA is not a response to a subsidy qua subsidy. The EC, India, Indonesia and Thailand do not claim that the CDSOA is prohibited by Article 32.1 because it is a subsidy, but because it is a specific action against a subsidy. Indeed, the Complainants have not even claimed that the CDSOA is a subsidy. A finding that the CDSOA violates Article 32.1 is not dependent upon a finding that it constitutes a �subsidy� within the meaning of Article 1 of the SCM Agreement. In sum, the relief, which the EC, India, Indonesia and Thailand seek to obtain in this case is not relief from a subsidy but rather from a violation of Article 32.1.

4.1523 It may be added that, by the same token, footnote 35 does not mention dispute settlement action based upon Article III:2 of the GATT as a permitted form of relief. And yet it is well established that the fact that a discriminatory tax constitutes a subsidy for the purposes of the SCM Agreement does not exclude the application of Article III:2.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1524 As mentioned above, the EC, India, Indonesia and Thailand would agree that, to be effective, a �specific action against dumping� must be capable of having some adverse impact upon the dumped imports (or upon the �entities engaged in dumping�). The offset payments can have such an adverse impact upon dumped imports.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1525 The EC, India, Indonesia and Thailand refer to their reply to Question 8.

(c) Questions to the United States

11. Are there any conditions governing what affected producers must do with payments under the CDSOA for qualifying expenditures? For example, may those payments be used to improve the competitive position of the affected producer in respect of a product totally unrelated to the product subject to the anti-dumping order?

4.1526 The CDSOA does not say what the affected producers must do with the offset payments, because the conditions for receiving the offset payments are already sufficient to ensure that they achieve their stated purpose (i.e. to offset continued dumping or subsidization).

4.1527 Contrary to what is stated in Question 6, the offset payments are not �untied� subsidies. They are clearly tied to the production of the products, which are the subject of an anti-dumping or a countervailing duty order:

• first, the offset payments are paid exclusively to the producers of subject products. A company which does not manufacture the product covered by the order concerned during a fiscal year is not entitled to the distribution of the duties collected during that year pursuant to that order.
   

• second, the offset payments are paid for, and in proportion to, certain types of �qualifying expenses� incurred after the issuance of the anti-dumping or countervailing duty order with respect to the production of the same product which is the subject of the order in question.

4.1528 Thus, the offset payments operate as a reimbursement of certain expenses incurred by the affected producers with respect to the production of subject products. As such, the offset payments lower the production cost of the subject products and must be assumed to be passed through into lower prices for those products.

4.1529 This is not just the EC, India, Indonesia and Thailand's assumption. The CDSOA is premised upon the same assumption. If the offset payment were not used for the benefit of the subject products, the CDSOA could not achieve its stated purpose to offset continued dumping and subsidization.

4.1530 Furthermore, the assumption that the subsidies that are tied to the production of a given product are used for the benefit of that product is a sound and generally accepted one. The same assumption is made in paragraph 3 of Annex IV of the SCM Agreement as well as by most, if not all the countervailing-duty authorities around the world.

4.1531 For instance, the countervailing duty regulations of the United States provide that �if a subsidy is tied to the production or sale of a particular product, the Secretary will attribute the subsidy only to that product.�

4.1532 In the view of the US authorities, whether a subsidy is tied to a given product requires a case-by-case judgement. Nevertheless, those authorities have indicated that, because money is fungible, in deciding whether a subsidy is �tied� they will take into account the purpose of the subsidy at the time when it is granted, rather than how it is actually used.

4.1533 In the case at hand, both the stated purpose of the CDSOA and the purpose revealed by its design and structure (and in particular by the two above mentioned conditions) is to benefit the subject products.

4.1534 Of course, since money is fungible, there is a theoretical possibility that the offset payments may be used to cross-subsidise a different product. But that risk is inherent in any product-tied production subsidy. There are no �conditions� which can exclude completely such possibility, short of controlling the price of the subsidised products.

4.1535 That theoretical possibility, nevertheless, does not detract from the indisputable fact that the granting of the offset payments is tied to the anticipation that they will be used for the benefit of the subject products. Quite simply, the US Congress would not have passed the CDSOA if it had expected that the offset payments would not be used for offsetting dumping or subsidization.

4.1536 Nor does the theoretical possibility that the offsets may be diverted to other uses deprive the CDSOA from its dissuading effects vis-�-vis foreign exporters of the subject products, which are based on their rational expectations as to how the affected domestic producers are likely to use the offsets. Indeed, if the US Congress expects that the offset payments will be used to offset dumping and subsidization, it is questionable whether it would be wise for the foreign exporters to take a different view.

6. Japan

(a) Questions to the European Communities

1. The EC asserts that CDSOA offset payments would still constitute "specific action against dumping" even if they were "financed directly from the US Treasury, and in an amount unrelated to the amount of collected anti-dumping � duties" (replies to Panel questions, para. 11). Does this mean that the CDSOA offset payments would still constitute "specific action against dumping" even if they were unrelated to the imposition of an anti-dumping order?

4.1537 Japan shares the position of the EC. The source of the funds, in and of itself, is not the determinative factor of whether the CDSOA offset payments constitute �specific action against dumping.� Regardless of the source of the funds, the payments constitute �specific action against dumping� because they are made only when the constituent elements of dumping have been established and are made to counteract dumping. The CDSOA offset payments would still constitute �spec� if they were conditioned on the presence of the constituent elements of dumping and taken in response to situations presenting those constituent elements, even if the source of funds for the offset payments were unrelated to the imposition of an anti-dumping order. (See Japan�s second submission and Question 3 below for further discussion of the issue of �specific action against dumping�).

2. The EC asserts that CDSOA offset payments constitute "specific action against dumping" because "they are paid only to producers affected by dumping and subsidization" (replies to Panel questions, para. 5). How does the nature of the recipient determine whether or not offset payments are "against" dumping?

4.1538 Japan shares the position of the EC. The recipient of the CDSOA offset payments is one of the crucial factors when determining whether the offset payment constitutes a �specific action against dumping.�

4.1539 The CDSOA offset payment is a countermeasure against dumping. The offset payment is made only when the investigating authority determines that US domestic producers are injured by dumped imports. The CDSOA offset payments are made for the �qualifying expenditure�, i.e., production costs of like products, to compensate these costs. The CDSOA offset payments thus operate to counteract dumping. The payment under the CDSOA therefore is a specific action against dumping.

4.1540 The Panel should not be confused by the misleading explanations of the United States that the CDSOA sets forth no condition on how recipients use the payment so it would be used for whatever they want.

(b) Questions to all complaining parties

3. Subsidy A is paid to all domestic producers of product X, and the grant of that subsidy is not tied in any way to a determination of dumping on the part of exporters/foreign producers of product X. Subsidy B is paid to all domestic producers of product X, subject to a finding of dumping on the part of importers/exporters/foreign producers of product X. For the purpose of this question, please assume that subsidy A would not constitute a specific action "against" dumping (but indicate if you disagree). (a) Should subsidy B be treated as a specific action "against" dumping? (b) Why? (c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not? (d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1541 Japan understands that �product X� in subsidy A is not considered as being dumped, since the granting of subsidy A is not tied in any way to the determination of dumping.

(a) Yes.

(b) Because subsidy B is made: (i) �subject to a finding of dumping� of imported product X; and, (ii) to domestic producers of product X. A subsidy that is �subject to a finding of dumping� is conditioned and premised on the presence of the constituent elements of dumping. Thus, subsidy B is a �specific action against dumping.�

The Appellate Body found in the 1916 Act case that �specific actions against dumping� are those actions �taken in response to situations presenting the constituent elements of dumping.�²⁴⁵ The interpretation of �specific action against dumping�, i.e., actions �taken in response to situations presenting the constituent elements of dumping� encompasses two elements: (i) the action is conditioned upon situations presenting the constituent elements of dumping; and, (ii) the action is taken to counteract²⁴⁶ dumping.

Subsidy B satisfies these two elements. In comparison, subsidy A would not constitute a specific action against dumping because the grant of subsidy A is not conditioned on the presence of �constituent elements of dumping.�

(c) The fact that subsidy A is not a specific action against dumping, whereas subsidy B is such an action, does not depend on impact, if by impact is meant the effect on the recipient. The difference is not in the effect but in the criteria for eligibility, i.e. whether an action is conditioned upon the situations presenting constituent elements of dumping. To receive subsidy A, a recipient does not have to establish the constituent elements of dumping; to receive subsidy B, it must do so.

(d) Subsidy B is an action against dumping beyond those actions permitted by the Agreement (provisional measures, final measures, and undertakings) to counteract dumping. The question is whether subsidy B counteracts dumping. Whether subsidy B confers an advantage to domestic producers over non-dumped imports, if any, in addition to an advantage over dumped imports, does not affect the conclusion that subsidy B addresses and counteracts dumping.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1542 While CDSOA payments are made to compensate for �qualifying expenditures�, the financial advantage they grant may affect all imports, not just dumped imports. Of course, the payment is conditioned on the presence of dumping, and it is explicitly aimed at dumping. The fact that the CDSOA�s offset payments may have an impact on non-dumped imports, however, does not negate the fact that the offset payments counteract dumping and are therefore a specific action against dumping.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1543 The offset payment under CDSOA is a specific action against dumping, regardless and independently of how the domestic producer chooses to use the proceeds of the offset payment. How an affected domestic producer happens to use the proceeds of an offset payment is no more relevant than how a recipient uses the proceeds of a subsidy conditioned on export. A finding of prohibited export subsidy is not conditioned on how the recipient chooses to use the subsidy. Since money is fungible, both could use the proceeds for anything � advertising expenditures, for example. In each instance, the legally relevant facts are the criteria established by a Member government to establish eligibility for the payment, not what a private party does with the payment after it is received.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1544 No. Japan considers that in both instances, specific action, beyond that permitted by the Agreement, is being taken against dumping. If the specific action is not permitted, it does not matter what form it takes or on which element a Member takes the action.

4.1545 The CDSOA operates to counteract dumping by giving advantages to domestic producers. There is no basis in the text of relevant agreements or in the reports of the Appellate Body or the Panel to limit �specific action against dumping� to direct burden on importers or exporters.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1546 In paragraphs 44, 45 and 46 the United States argues that, in making CDSOA payments in response to subsidies, it is merely engaged in permitted �counter-subsidization�. The United States failed to substantiate its claim that �Members regularly engage in counter-subsidization.�²⁴⁷ Japan is not aware of any Member taking counter-subsidization against another Member�s subsidy, except for the CDSOA. The United States alleges that Canada�s subsidy last year would be �in response to and on exactly the same subsidized terms as those given by Brazil.�²⁴⁸ The United States, however, produced no evidence or a citation of the allegedly quoted case to support its claim.

4.1547 Nothing in the WTO covered agreements or any Panel or Appellate Body report indicates that WTO Members may or do �regularly engage in counter-subsidization� when faced with a subsidy from another Member, as the United States claims. The United States asserts, incorrectly, that the CDSOA offset payment is �a specific action taken in response to a subsidy� which is permissible under the SCM Agreement. There are no provisions that permit Members to take a counter-subsidy in response to a subsidy by another Member. Further, footnote 35 to Article 10 and Article 32.1 of ASCM Agreement limits a �specific action against subsidy� within the meaning of the SCM Agreement. There is a world of difference between a Member pursuing its legal rights to challenge other Members� violation to WTO agreements and a Member taking an action prohibited by the SCM Agreement. In fact, by the United States� logic, no Member would ever be able to challenge the legality of a subsidy.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1548 Yes. In Japan's view, a measure is �against� dumping when it counteracts dumping. The payments authorized by the CDSOA are explicitly directed against dumping and are made only when the constituent elements of dumping are present. Please see also Japan's replies to Questions 2, 3 and 6 above for further discussions.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1549 The Appellate Body�s interpretation was made in the context of Article VI of GATT 1994. It states, ��[a]n anti-dumping measure� must, according to Article 1 of the Anti-Dumping Agreement, be consistent with Article VI of the GATT 1994 and the provisions of the Anti-Dumping Agreement.�²⁴⁹ The term �in response to� must be understood in this context.

4.1550 Whether an action is taken �in response to� situations presenting the constituent elements of dumping (i.e., a �specific action against dumping�) depends on two factors: the action is conditioned upon situations presenting the constituent elements of dumping; and, the action is taken to counteract dumping. The EC Panel in the 1916 Act case also found that Article VI:2 provides that only measures in the form of anti-dumping duties may be applied to counteract dumping as such. In interpreting these provisions, the Appellate Body also used the term �counteract.�

(c) Questions to Canada

10. At para. 11 of its second oral statement, Canada states that the 1916 Act was an action "in response to (against, countering, condemning, offsetting)" a practice. What is the basis for equating the term "in response to" with the terms "countering", "condemning", and "offsetting"?

4.1551 Article VI:1 of the GATT 1994 provides that dumping may be �condemned.� Article VI:2 provides that to �offset� or prevent dumping, anti-dumping duties may be levied. In interpreting these provisions, the Appellate Body used the term �counteract.� Canada�s use of �countering,� �condemning,� and �offsetting� is a reasonable attempt to verbalize the relevant concept.

(d) United States

11. Are there any conditions governing what affected producers must do with payments under the CDSOA for qualifying expenditures? For example, may those payments be used to improve the competitive position of the affected producer in respect of a product totally unrelated to the product subject to the anti-dumping order?

4.1552 As discussed in Question 5 above, how the proceeds of the CDSOA offset payment are used by the domestic producer is irrelevant to the determination of whether the offset payments are specific actions against dumping or a subsidy. What matters is the fact that the payments are made only when the constituent elements of dumping have been established.

12. Is there any requirement that qualifying expenditure must be incurred by affected producers in relation to their competition with dumped imports specifically, rather than their competition with imported and domestic products more generally?

4.1553 The CDSOA offset payments are made:

(i) upon imposition of an anti-dumping or countervailing duty on the imported like products;

(ii) to domestic producers of like products; and

(iii) for �qualified expenditures� of like products.

4.1554 As discussed in Question 2 above, the CDSOA offset payment can be made only where the investigating authority has determined that domestic producers are injured by dumped imports. The CDSOA requires domestic producers to remain in production of the like product adversely affected by dumping, in order to receive the payment. These circumstances are evidence that the CDSOA offset payments are designed and in fact counteract dumping. It is irrelevant whether the domestic like products compete, in addition, with non-dumped imports.

13. Regarding para. 65 of the US oral statement at the second meeting, what proportion of affirmative preliminary determinations become negative final determinations upon completion of the investigation?

4.1555 The United States Department of Commerce publishes its annual numbers of initiations, affirmative preliminary determinations, affirmative final determinations, and anti-dumping and countervailing duty order at http://ia.ita.doc.gov/stats/iastats1.html. Japan provides a summary of such data for the Panel�s consideration (anti-dumping and countervailing investigations combined).
 

	Cases	Over Initiation	Over Prelim
Initiations (1995 to 2000)250	214	100%	N/A
Affirmative DOC Prelim (1996 to 2001)	211	98.6%	100%
Affirmative DOC Final (1996 to 2001)	187	87.4%	88.6%
Duty Orders (1996 to 2001)	115	53.7%	54.5%

4.1556 The above data indicates that 11.2 per cent of investigations ended up with price undertaking (i.e., suspension agreements in US statutory parlance). In total, 64.9 per cent of investigations resulted in either anti-dumping/countervailing duty orders or price undertakings.

7. Korea

(a) Questions to all complaining parties

3. Subsidy A is paid to all domestic producers of product X, and the grant of that subsidy is not tied in any way to a determination of dumping on the part of exporters/foreign producers of product X. Subsidy B is paid to all domestic producers of product X, subject to a finding of dumping on the part of importers/exporters/foreign producers of product X. For the purpose of this question, please assume that subsidy A would not constitute a specific action "against" dumping (but indicate if you disagree). (a) Should subsidy B be treated as a specific action "against" dumping? (b) Why? (c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not? (d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1557 Korea replies as follows:

(a) Yes, Subsidy B should be treated as a specific action �against� dumping.

(b) The Appellate Body stated in US � Anti-Dumping Act of 1916 that �specific action against dumping� of exports must, at a minimum, encompass action that may be taken only when the constituent elements of �dumping� are present. (emphasis in the original, AB report on US � Anti-Dumping Act of 1916, para 122) The fact that Subsidy B is provided �subject to a finding of dumping� suggests that Subsidy B is an action that may be taken only when the constituent elements of �dumping� are present, and thus is a specific action against dumping.

Furthermore, the allocation of funds provided under the CDSOA acts against (in opposition to) dumping, because it further strengthens the competitive position of domestic producers on top of the remedy that has been already provided in the form of anti-dumping duties.

(c) It is not because of the �difference in impact� that Subsidy B is a specific action against dumping, while Subsidy A is not. In contrast to Subsidy B, Subsidy A does not depend upon a finding of the constituent elements of dumping. Therefore, it is not �in response to� dumping as required by the Appellate Body at paragraph 122 of the report in United States�Anti-Dumping Act of 1916..

(d) It is possible to make a distinction between the impact of allocated duties upon dumped imports and their impact on non-dumped products. In case of dumped products, the terms of competition have been disturbed due to dumping. Thus, the impact of allocated duties is to restore the disturbed terms of competition in addition to the remedy provided in the form of anti-dumping duties. In case of non-dumped products, the impact is to disrupt the terms of competition that existed between domestic and non-dumped imports before the allocation of duties.

4.1558 Korea submits that the above distinction, however, is not pertinent, if the issue at hand is the definition of �specific action against dumping�. What is pertinent is that allocation of duties to petitioning domestic producers acts against (in opposition to) dumping, by strengthening their competitive position vis-�-vis dumping exporters, in addition to the anti-dumping duties imposed upon those exporters. The impact of the same Subsidy B upon non-subject exporters is simply incidental.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1559 Korea is of the view that it would change the competitive relationship with all producers, including foreign producers not subject to the order (if any) and domestic producers that failed to support the petition (if any). Indeed, the latter aspect � the change vis-�-vis other domestic producers � is the basis of Complainants� demonstration that the Byrd Amendment violates AD Agreement and SCM Agreement provisions on standing determinations. This is because the Byrd Amendment compels all domestic producers to support petitions so as not to suffer a competitive disadvantage.

4.1560 Having said that, it should be pointed out once again that the impact upon non-subject foreign producers and non-supporting domestic producers is not pertinent, if the issue at hand is the definition of �specific action against dumping�. What is pertinent is that allocation of duties to petitioning domestic producers acts against (in opposition to) dumping, by strengthening their competitive position vis-�-vis dumping exporters, in addition to the anti-dumping duties imposed upon those exporters.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1561 Korea considers that the CDSOA duties can be disbursed only on the basis of �qualifying expenditures� that have been identified by petitioning domestic industries. Thus, the CDSOA operates to compensate the petitioning domestic industries to the extent of �qualifying expenditures�. �Qualifying expenditures� are costs for the industries, and having the costs met with the CDSOA disbursed fund strengthens the competitive position of petitioning industries.

4.1562 If industries use the disbursed duties for purposes other than the �qualifying expenditures�, it does not detract from the fact that the duties were disbursed and contributed to strengthening the conditions of competition, because funds are fungible and it is not relevant if the specific funds allocated were used in defraying costs falling under the qualifying expenses or not.

4.1563 The lack of restrictions on how the Byrd Amendment payments are used is thus irrelevant to this proceeding. It is the provision of offset payments itself that is a specific action against dumping.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1564 Korea believes one can draw this distinction, but it is irrelevant. The rule to be applied is �against,� which, at paragraph 122 of 1916 Act, was interpreted by the Appellate Body as �in response to.� Moreover, the language of Article 18.1 is �against dumping,� not �against entities engaged in dumping.� Thus, an analysis of the text of the relevant provisions and prior Appellate Body statements demonstrates that this is a �distinction without a difference.�

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1565 Korea posits that the US argument at paragraphs 44-46 is absurd and does nothing other than to highlight the weakness of the US position in general. The US refuses, again, to focus on the fact that Complainants� interpretation of �specific action against� presumes � because such is the case here with the Byrd Amendment � that a finding that the constituent elements of subsidization (or dumping) has been made before the action is taken. Moreover, the US mischaracterizes Korea�s complaint. Korea is arguing not that the Byrd Amendment is an impermissible subsidy (which it likely is), but that the Byrd Amendment is an impermissible specific action against dumping or a subsidy. Thus, the outrageous US statement at paragraph 46 that Complainants� own argument condemns this case � which, in any case, is designed simply to insulate the Byrd Amendment from WTO disciplines � is without merit.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1566 In its first submission to the Panel, the US argued that the ordinary meaning of �against� is �in contact with� and argued, on the basis of such a flawed meaning of �against� that only the actions applying to imported goods or importers are specific actions against dumping. (US First Submission, para 94) As Korea has argued in the first substantive meeting with the Panel, �in contact with� is not an ordinary meaning of �against�(Korea�s Oral Statement, para 6), and any assertion of the US based upon such a meaning cannot hold.

4.1567 Secondly, the relevant provision reads �action against dumping� , not �action against imports or exporters�. This is another reason, why, in Korea�s view, the US is wrong to assert that specific action against dumping should be limited to action affecting imports or importers per se.

4.1568 Having said that, in Korea�s view, the Byrd Amendment does not fall within the hypothetical � it does have an �adverse bearing� or �adverse impact� on the �importer, exporter or foreign producer.� It impacts them adversely by strengthening their primary competitors in the US market: the �affected� domestic US producers.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1569 The Appellate Body�s ruling, as contained in para 122 of its report in US -Anti-Dumping Act of 1916 , provides a good guidance to assess the meaning of �action against dumping�. During the panel proceedings, Korea, and other complaining parties, complemented the guideline with another argument, based upon the ordinary meaning of �against� as it appears in Article 18.1 of the ADA and Article 32.1 of the SCMA.

4.1570 The ordinary meaning of �against� is �in opposition to�. From the two elements of dumping as identified by the panels in US -1916 Act, dumping is the introduction into commerce of products at less than the normal value. When the authorities find such dumping, there are several different measures they can take �in opposition to� such dumping. One is to impose extra burden upon the imports. Another is to provide support to the affected domestic industry, which compete with the imports. Both measures act �in opposition to� dumping.

4.1571 With respect to the Panel�s question, action beneficial to dumping is not an action in opposition to dumping, from the explanation in the above paragraph, and thus is not action against dumping.

4.1572 A further comment in this connection is that the interpretation of �against� as �in opposition to�, argued by the complaining parties on the basis of the ordinary meaning of �against�, is closely in line with the interpretation of �against� as �in response to�, an interpretation provided by the Appellate Body in US-1916 Act. It is because it is not realistic to think that any government would take action beneficial to dumping. Thus, it was not necessary on the part of the Appellate Body to elaborate that �against� should be interpreted as �in opposition to� as well as �in response to�.

8. Mexico

(a) Questions to all complaining parties

4.1573 Yes.

(b) Why?

4.1574 It should constitute a specific action �against� dumping to the extent that it is an action that is taken in response to situations presenting the constituent elements of dumping. In Anti-dumping Act of 1916, the Appellate Body determined that �specific action against dumping of exports must, at a minimum, encompass action that may be taken only when the constituent elements of dumping are present. The conferral of Subsidy B appears to be an action that is directly caused by a finding of the existence of dumping and that can only be taken in circumstances where there is a finding of dumping. As such, it should be treated as a specific action �against� dumping.

(c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not?

4.1575 As discussed at paragraphs 16 to 23 of Mexico�s written rebuttal submission, there is no requirement to analyze the �impact� of a measure in order to determine whether it constitutes a �specific action against� dumping within the meaning of Article 18.1 of the Anti-dumping Agreement

4.1576 In the hypothetical described in the question, it is unclear whether the �impact� of subsidies A and B would be different. The two subsidies differ in that one is linked to dumping while the other is not. However, there is no indication of the nature of the linkages between subsidy B and the dumping. These linkages are essential to assessing the impact of subsidy B compared to subsidy A.

4.1577 Although there is a linkage between subsidy B and dumping, that linkage is not well defined as it is in the case of the subsidies conferred under the CDSOA. For example, there is no indication that the amount of the subsidy exactly matches the amount of anti-dumping duties collected, that eligibility would be restricted to petitioners and supporters in an anti-dumping investigation (i.e., direct competitors with importers and exporters of dumped products), and that the eligible expenses that are offset by the subsidies must relate to the production of the subject products.

4.1578 Accordingly, in contrast to the subsidies provided under the CDSOA, there is not enough evidence to determine whether subsidy B would systematically result in a greater competitive burden on imported products (and on the importer or exporters of such products) relative to like US products that benefit from the subsidies. In the absence of such clear linkages, the impact that subsidy B may have cannot be compared to the impact of subsidy A. Nor can it be compared to the situation before this Panel.

(d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1579 In the hypothetical the specific linkages between Subsidy B and dumped imports are undefined. Accordingly, it is difficult to assess the degree of competitive advantage for domestic producers over dumped imports in particular.

4.1580 In the case of the subsidies conferred by the CDSOA, there are clearer and more direct linkages between the subsidies, the recipients of the subsidies and the dumped imports. Dumped imports are systematically placed at a competitive disadvantage vis-�-vis the products of the recipients because: the funds that are distributed are created by the existence of dumping, the amount of the funds is equal to the amount of such dumping (i.e., anti-dumping duties); the funds are distributed to petitioners or those in support of the petition that led to the duties (i.e., to those producers who benefit most from the imposition of the duties); the industry was determined to have been materially injured as a result of the dumped imports; and the funds are distributed as offsets to expenses related to the production of products that are �like� those to be found dumped.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1581 Mexico is of the view that the payments under the CDSOA could also change the competitive relationship between the domestic producer that receives the offset payments and all other competing producers, foreign or domestic. The competitive relationship is �tilted� in favour of the products produced by the recipients of the CDSOA.

4.1582 The fact that the relative competitive relationship could also be affected vis-�-vis undumped imports and domestic products does not mean that the CDSOA is not a specific action against dumping or subsidies. The CDSOA and the subsidies it confers amounts to a specific action against dumping or subsidies because of the clear linkages between the subsidies and the dumped/ subsidised imports as described in Mexico�s response to Question 3(d), above. The fact that the subsidies may also have an effect on relative competitive relationships with other products does not change this fact. It is well recognized that measures may have multiple attributes or effects. One or more of these may violate WTO disciplines while others may not. The fact that certain attributes or effects may not give rise to WTO inconsistencies does not remedy WTO inconsistencies created by the others.

4.1583 In the case of the CDSOA and the subsidies it confers, its primary attributes and effects amount to an impermissible action against dumping and subsidies under Article 18.1 of the Antidumping Agreement and Article 32.1 of the SCM Agreement. It also nullifies or impairs benefits accruing to Mexico under Articles II and VI of the GATT 1994 and, thereby, violates Article 5(b) of the SCM Agreement.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1584 According to Mexico, all relevant facts and circumstances, whether relating to the creation and provision of the subsidies or eligibility to the subsidies, must be assessed in determining whether the CDSOA and its subsidies amount to a �specific action against dumping�.

4.1585 The fact that the eligible expenses that are offset by the CDSOA payments must be related to the production of products that are �like� those subject to the relevant order or finding is an important factual element. This element explicitly links the payments to products that directly compete with those subject to the order or finding.

4.1586 However, it is not the sole factual element. Other relevant facts relate to the creation of the funds that are distributed (e.g. the creation of special accounts that are specific to each order or finding), the funding of the special accounts by the collection of anti-dumping and countervailing duties, and the restriction of eligible recipients to petitioners to the investigation that led to the order or finding and those in support of those petitioners. Together, these facts establish that, regardless of how the eligible recipients use the funds that they receive, the CDSOA and the offset payments amount to a specific action against dumping.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1587 Mexico argues that although the nature and characteristics of the CDSOA and the 1916 Act differ, for the purpose of Article 18.1 of the AD Agreement, both have an automatic direct, negative impact on entities engaged in dumping. In the case of the CDSOA, the anti-dumping duties that are collected when an entity engaged in dumping sells into the US market are passed on to the direct beneficiaries of the anti-dumping duties (i.e., the petitioners and those in support of the petition). In other words, the act of dumping results in the automatic conferral of a financial reward to a direct competitor. The circumstances in which the subsidies are conferred are relevant to understanding their direct effect. In all instances, the subsidies are being conferred to recipients that have been found to be injured or threatened by injury by reason of the subject dumped imports. The duties that fund the subsidies would not exist but for that injury or threat of injury. Moreover, the duties remain in place only so long as is necessary to counteract the effects of the dumping which is causing such injury. Thus, during the entire period over which the CDSOA subsidies are granted, the domestic industry will legally be in need of anti-dumping duty protection from the dumped imports. In such circumstances, the granting of subsidies generated by the payment of anti-dumping duties will necessarily enhance the competitive position of the recipients vis-�-vis the dumped imports.

4.1588 Mexico disagrees with the statement that actions under the CDSOA are �untied subsidies�. By law, the subsidies are contingent upon expenses being incurred in the production of the goods that are like those subject to the anti-dumping order or finding in question. Thus, they are legally tied to the production of like domestic products. It is irrelevant that the funds that are ultimately disbursed could be applied to other expenses. For example, the fact that funds conferred in the form of subsidies that are contingent upon export performance (Article 3.1 of the SCM Agreement) are ultimately expended on uses unrelated to the exports does not mean that the subsidies are no longer �export� subsidies. Cash (i.e., the funds) is fungible. What is relevant is the legal criteria for eligibility for the subsidy in question (i.e., contingency upon export performance or contingency upon incurring expenditures in the production of like domestic products).

4.1589 The nature of the direct negative impact is illustrated in the context of the nullification or impairment of benefits. As discussed at paragraphs 78 to 98 of Mexico�s rebuttal submission and in its response to question 29 from the Panel, the subsidies at issue in this dispute have a negative impact on imports because, upon granting, they automatically, consistently and repeatedly upset the relative conditions of competition legitimately expected by Mexico under GATT Articles II and VI. When anti-dumping and countervailing duties are in place, the conditions of competition between Mexican products and like United States products will no longer be defined, at most, by the relevant US tariff binding plus the maximum allowable anti-dumping or countervailing duties permitted under Article VI:2 and 3 of the GATT 1994. Rather, the conditions of competition will be further defined by the amount of the CDSOA subsidies. It is this additional upsetting of the expected competitive relationship that amounts to the direct negative impact.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1590 At paragraph 44 of its second oral statement, the United States argues that WTO Members regularly engage in counter-subsidization. In Mexico�s view, this argument is irrelevant to this dispute. Whether �counter-subsidization� is consistent with WTO obligations would have to be assessed on a case by case basis, in the light of facts and circumstances surrounding the conferral of the subsidies in question.

4.1591 At paragraphs 44 and 45, the United States appears to argue that this WTO dispute �constitutes a specific action taken in response to a subsidy, the CDSOA�. It appears to further argue that, if accepted by this Panel, the complainants� interpretation of Article 32.1 and footnote 35 of the SCM Agreement would prevent this WTO dispute from being brought forward.

4.1592 In Mexico�s view, the type of action referred to in Article 32.1 is action taken by a WTO Member in the context of a domestic measure. It is not meant to encompass action that is taken under the WTO dispute settlement procedures. Accordingly, whether this WTO dispute was initiated �in response to� a subsidy is irrelevant this Panel�s interpretation of Article 32.1.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1593 The Appellate Body in Anti-dumping Act of 1916 found that an action �against� dumping of exports is an action that is �taken in response to situations presenting the constituent elements of dumping�. It did not rule that a measure can only be �against� dumping if it has an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product. Thus, there is no requirement that punitive action must be taken against the imported product, the importer, the exporter, or foreign producer.

4.1594 In any event, Mexico believes that it is not necessary for the Panel to answer this question to resolve this dispute. As noted above in response to the previous questions and in Mexico�s written and oral submissions, the CDSOA and the subsidies it confers has a direct adverse effect on the imported product and the exporter of that product.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1595 According to Mexico, given the clear negative effect the CDSOA and its subsidies have on imports, it is not necessary to answer this question to resolve this dispute.

(b) Questions to the United States

12. Is there any requirement that qualifying expenditure must be incurred by affected producers in relation to their competition with dumped imports specifically, rather than their competition with imported and domestic products more generally?

4.1596 With respect to Questions 11 and 12 to the United States, Mexico re-iterates and elaborates upon the responses it gave at the second meeting with the Panel to related oral questions from the Panel:

• It does not matter what the cash disbursements are ultimately used for. They are legally contingent upon production expenses being incurred and, therefore, are �production subsidies�. As outlined at paragraph 81 of Mexico�s written rebuttal submission, such subsidies are assumed to have an adverse effect on negotiated concessions.

• The subsidies conferred under the CDSOA must be distinguished from a subsidy that is granted to a recipient without any conditions attached to it. In the case of the CDSOA, clear conditions�related to the incurring of expenses related to the production of the good subject to the order or finding upon which the subsidy is based�are attached to the subsidy. As noted in Mexico�s response to Question 6 of the Panel (above), it is irrelevant that the funds that are ultimately disbursed could be applied to other expenses. For example, the fact that funds conferred in the form of subsidies that are contingent upon export performance (Article 3.1 of the SCM Agreement) are ultimately expended on uses unrelated to the exports does not mean that the subsidies are no longer �export� subsidies. Cash (i.e., the funds) is fungible. What is relevant is the legal criteria for eligibility for the subsidy in question (i.e., contingency upon export performance or contingency upon incurring expenditures in the production of like domestic products).

• Money is fungible. It either directly or indirectly enhances competitiveness.

• A distinguishing characteristic of the CDSOA subsidies is that they are granted in the context of applied anti-dumping (or countervailing) duties. This context distinguishes the CDSOA subsidies from the type of subsidy illustrated in �Subsidy A� (Question 3 from the Panel) and must be taken into account in assessing the effect of the subsidies on the competitive position of the recipients. In all instances, the subsidies are being conferred to recipients that have been found to be injured or threatened by injury by reason of the subject dumped imports. The duties that fund the subsidies would not exist but for the dumping and the injury. Moreover, the duties remain in place only so long as is necessary to counteract the effects of the dumping and injury. Thus, during the entire period over which the CDSOA subsidies are granted, the domestic industry will legally be in need of anti-dumping duty protection from the dumped imports. In such circumstances, the granting of subsidies generated by the payment of anti-dumping duties will necessarily enhance the competitive position of the recipients vis-�-vis the dumped imports.

• Finally, in order for a recipient to continue to receive CDSOA subsidies, that recipient must continue to incur expenses related to the production of the good subject to the order or finding upon which the subsidy is based.

14. In your view, did the EEC � Oilseeds I case concern nullification or impairment caused by the "application" of a measure, as opposed to nullification or impairment caused by the measure per se? Please explain.

4.1597 Mexico considers that this question raises two issues. The first relates to whether a measure must be applied before nullification or impairment can be caused. The second relates to what is required to prove the existence of the nullification or impairment.

4.1598 As outlined in Mexico�s prior submissions, it agrees that a measure must be applied before nullification or impairment can be caused. With respect to Mexico�s challenge of the �granting� of subsidies under the CDSOA, the measure is �applied� when the subsidies are �granted�. Mexico is entitled to challenge the measure prior to its application by virtue of the doctrine governing legislation as such challenges. With respect to Mexico�s challenge of the �maintaining� of subsidies under the CDSOA, the maintenance of subsidies in the circumstances of this dispute amounts to the application of a measure.

4.1599 The US and Mexico appear to have divergent views on what is needed to prove that a measure causes nullification or impairment. Mexico�s view is that the GATT Panels in EEC � Oilseeds I & II examined the design, structure and architecture of the EEC oilseeds regime in order to conclude that the regime nullified or impaired the expected competitive relationship. The US seems to argue that additional evidence is required. Mexico disagrees. Nullification or impairment caused by a measure, particularly in the case of the CDSOA, can be demonstrated on the basis of the design, structure and architecture of a measure. By virtue of the design, structure and architecture of the CDSOA, upon granting the subsidies will per se cause nullification or impairment as described in Mexico�s prior written and oral submissions. In other words, such nullification or impairment is a certainty.

L. UNITED STATES' ANSWERS TO QUESTIONS FROM THE PANEL AFTER THE SECOND MEETING

(a) Questions to the United States

11. Are there any conditions governing what affected producers must do with payments under the CDSOA for qualifying expenditures? For example, may those payments be used to improve the competitive position of the affected producer in respect of a product totally unrelated to the product subject to the anti-dumping order?

4.1600 No. There are no conditions governing the use of the distributions under the CDSOA. In response to comments on the proposed regulations, the Customs Service stated that:

There is no statutory requirement as to how a disbursement to an affected domestic producer is to be spent, and, absent statutory authority, Customs may not impose such a requirement.²⁵¹

4.1601 Therefore, an affected domestic producer can use the money for any purpose, including gifts to charity, payment of creditors, additional compensation or early retirement packages for workers, new product development, new cafeterias, or to improve the competitive position in respect of a product totally unrelated to the product subject to the anti-dumping order.

12. Is there any requirement that qualifying expenditure must be incurred by affected producers in relation to their competition with dumped imports specifically, rather than their competition with imported and domestic products more generally?

4.1602 No, there is no requirement that qualifying expenditures must be incurred in relation to competition with dumped imports specifically. The qualifying expenditures are incurred in relation to competition with all producers of that product ‑ both domestic and foreign ‑ not just the producers of the dumped product.

13. Regarding para. 65 of the US oral statement at the second meeting, what proportion of affirmative preliminary determinations become negative final determinations upon completion of the investigation?

4.1603 In the United States, there are two agencies charged with conducting anti-dumping and countervailing duty investigations. The US Department of Commerce investigates whether imports are being dumped or subsidized, and the US International Trade Commission investigates whether those imports are causing material injury or threat thereof to the domestic industry or the establishment of a domestic industry is being materially retarded.

4.1604 After an investigation is initiated, both agencies make preliminary and final determinations in the following order: (1) Commission preliminary determination, (2) Commerce preliminary determination, (3) Commerce final determination, (4) Commission final determination. If the Commission�s preliminary determination is negative, the investigation ends. If Commerce�s preliminary determination is negative, however, the investigation proceeds to the final phase. If Commerce�s final determination is negative, the investigation ends. If the Commission�s final determination is negative, the investigation ends²⁵²

4.1605 As the United States explained in its initial answer to this question, the United States does not regularly maintain information concerning all preliminary and final determinations in every anti-dumping and countervailing duty investigation in one database. The United States was able to provide the information in paragraph 65 because it was based on information available on the Commission�s website. In response to the panel�s question, however, the United States has reviewed statistics posted on the US Department of Commerce�s website as updated by Federal Register notices and estimates that, for investigations initiated between 1980 and 1999, which were not suspended or otherwise terminated (prior to a final determination), approximately 37 per cent of affirmative Commission preliminary determinations became negative final Commerce or Commission determinations.

14. In your view, did the EEC - Oilseeds I case concern nullification or impairment caused by the "application" of a measure, as opposed to nullification or impairment caused by the measure per se? Please explain.

4.1606 Yes. The United States considers that the application of the measure in that case, i.e., the provision of subsidies to EC oilseed producers, was on-going so it was not an issue there. In that case, the panel considered the US claim that an EC Regulation, which had been in effect for over 20 years, had nullified and impaired its Article II benefits in the sense of Article XXIII:1(b) �by the subsequent introduction of and substantial increases in producer and processor subsidies on Community oilseeds and protein animal feed components."²⁵³ The United States submitted voluminous pricing data covering over a 10 year period and import, production, and consumption data covering a 25 year period which showed that the EC Regulation benefited oilseed producers and actually upset the competitive position of US oilseed imports.²⁵⁴ The design and architecture of the measure itself was relevant to establishing causation, i.e., that it was the subsidies which caused the upset to the competitive relationship. Having carefully analyzed the price mechanism, the panel concluded that the product‑specific measure as applied would �protect Community producers completely from the movement of prices for imports and hence prevent the lowering of import duties from having any impact on the competitive relationship between domestic and imported oilseeds.� Paras. 147-148.

4.1607 The United States would also like to offer the following comments in response to the questions posed to the complaining parties:

(b) Questions to all complaining parties

(a) Should subsidy B be treated as a specific action "against" dumping?

(b) Why?

(c) If subsidy B should be treated as a specific action "against" dumping, what is the difference between the impact of subsidies A and B that means that subsidy B constitutes specific action "against" dumping, whereas subsidy A does not?

4.1608 (a),(b) & (c) Subsidy B is not a specific action against dumping for the same reason that subsidy A is not. Because Subsidy B does not apply to the imported good, or the importer/exporter/foreign producer, there is no basis to conclude that the subsidy is �against� dumping. This is made clear by the text of Article VI:1 of the General Agreement on Tariffs and Trade 1994 which defines dumping. Applying that definition to Article 18.1 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 makes clear that Article 18.1 applies to �specific action against exports (products) from another Member (a country) being introduced into the commerce of a Member (another country) at less than the normal value of the products.� For purposes of the analysis proffered by the complaining parties, the �impact� of the two subsidies is the same in terms of changing the conditions of competition between recipients of the subsidy and all other producers of the subsidy, and not just foreign producers that are dumping the product. Thus, if the Panel were to conclude that Subsidy B is a �specific action against dumping,� that would mean that subsidy A is also a �specific action against dumping.�

(d) Subsidy B would be expected to provide the domestic producers of product X with a competitive advantage over imported products generally. Does subsidy B provide those domestic producers with a greater competitive advantage over dumped imports in particular? Why?

4.1609 First, as explained below in response to questions 4 and 5, the United States does not agree that a subsidy necessarily improves the competitive position of a producer. In any event, Subsidy B would not provide a greater competitive advantage over dumped imports than the other products that did not receive the subsidy. It is important to recall that dumping over time is evidence of a competitive advantage. The imposition of an anti-dumping duty levels the playing field; it does not place the dumped product at a disadvantage. Thus, there is no basis to conclude that a domestic subsidy would give a greater competitive advantage relative to dumped products than other like products.

4. If an affected domestic producer receives an offset payment under the CDSOA, would that payment only change the competitive relationship between that domestic producer and foreign producers subject to the relevant anti-dumping order, or would it also change the competitive relationship between that domestic producer and all other producers, including other domestic producers not eligible for offset payments, and foreign producers not subject to the relevant anti-dumping order?

4.1610 According to the United States, there is no reason to believe that CDSOA payments will necessarily change the competitive relationship between producers. An affected domestic producer can use the money for any purpose, including gifts to charity, payment of creditors, additional compensation or early retirement packages for workers, new product development, or new cafeterias. CDSOA payments will not necessarily be used by domestic producers to improve their competitive position with respect to the product subject to relevant anti-dumping or countervailing duty orders. If it is concluded that CDSOA distributions change the competitive relationship between the domestic producer that received the distribution and the foreign producer engaged in dumping, it also must be concluded, as a matter of economics, that it changes the competitive relationship between that domestic producer and all other producers of that product.

5. If offset payments may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order, does this constitute the CDSOA as a "specific action against dumping"? If so, isn't it the action by the affected domestic producers (i.e., how they use the offset payments) that constitutes action "against" dumping, as opposed to the provision of offset payments that may be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order)?

4.1611 As explained in the answer to Question Number 11 to the United States, offset payments are made for qualifying expenditures which relate to a particular product. However, nothing in the CDSOA in any way limits how a recipient of funds can spend the money. Hence, there is no requirement for offset payments to �be used by affected domestic producers exclusively to bolster their competitive position vis-�-vis imports subject to the relevant anti-dumping order.� Recipients can use the money for any purpose and are not limited to using the funds on the domestic like product.

4.1612 In addition, the United States notes that it disagrees with the premise of this question that improving the competitive relationship of a domestic producer can be considered as acting � against� dumping. There is no basis to include a �conditions of competition� test or, �improving a competitive relationship� test in Articles 18.1 and 32.1 of the Antidumping and SCM Agreements, respectively. If improving the competitive position is found to be relevant, it is action by the affected domestic producer, a private party, and not the CDSOA because there is no requirement that affected domestic producers use the distributions to bolster their competitive position with regard to the products subject to the AD/CVD orders.

6. Is it possible to distinguish the CDSOA from the 1916 Act (for the purpose of Article 18.1 of the AD Agreement) because action under the latter (i.e., a court order imposing a fine or imprisonment) had an automatic, direct, negative impact on entities engaged in dumping, whereas action under the CDSOA (i.e, untied subsidies) does not? Please explain.

4.1613 Yes. The United States is of the view that the two measures are wholly different. The only connection between the CDSOA and dumping is the fact that the distributions are funded with AD/CVD duties. First, the CDSOA is not based upon the constituent elements of dumping. In contrast, the 1916 Act included the constituent elements of dumping as two of its essential elements. Second, the CDSOA does not apply to imported goods or the importer/exporter/foreign producer, and therefore, the effect on those entities and thus on dumping is a matter of speculation. In contrast, the 1916 Act imposed monetary penalties or imprisonment directly on the importer.²⁵⁵ A court order imposing a fine or imprisonment on an importer has an automatic, direct, negative impact on the entity engaged in dumping. In contrast, there is no automatic, direct, negative impact from CDSOA payments on entities engaged in dumping.

7. Please comment on paras 44, 45 and 46 of the US oral statement at the second substantive meeting.

4.1614 The US would like to note that the Canadian counter-subsidies in the aircraft dispute were found to be WTO‑inconsistent because they were found to be prohibited export subsidies under Article 3 of the SCM Agreement, not because they were �specific action against a subsidy.� In fact, that argument was not raised in that dispute. As the United States noted at the Panel meeting, complainants� argument that subsidies in response to a subsidy are �specific action against a subsidy� would create an additional category of �prohibited subsidy.� However complainants have been unable to find textual support for their argument, which would have far-reaching effects. Indeed the text of the SCM Agreement shows the opposite. There is nothing in Article 3 of the SCM Agreement to create such an additional category even though Article 3 lists the categories of prohibited subsidies, nor is there any indication that Article 32.1 was intended to be a �back door� means of creating such a category.

8. Can a measure be "against" dumping if it does not have an adverse bearing on either the imported product per se, or the importer, the exporter or foreign producer of that product? If so, how?

4.1615 No. In the view of the United States, the measure must not only have an adverse bearing on either the imported product, or the importer/exporter/foreign producer, but it must apply to one of them to be considered a �specific action against� dumping or a subsidy.

9. The complaining parties assert, on the basis of para. 122 of the Appellate Body report on 1916 Act, that action "in response to" dumping is necessarily action "against" dumping. If action taken "in response to" dumping is of benefit to dumping, dumped imports, or those engaged in dumping, would such action be "against" dumping?

4.1616 No. According to the United States, the Panel�s question points out the inherent weakness in the complaining parties� arguments. The complaining parties' suggested "response" test would include any action in any way responsive to dumping or subsidization. Such an interpretation is inconsistent with the ordinary meaning of the word �against� in the context of the Antidumping and SCM Agreements, as well as GATT Article VI. The complaining parties err in relying on the terminology used by the Appellate Body to describe obligations under Article 18.1 when the term �against� was not specifically considered. In that case, the question was not raised because the 1916 Act imposed civil or criminal liability directly on the importer based on pricing conduct that fell within the definition of dumping. In this case, the CDSOA is a payment programme which does not apply �against� the imported product or the entity responsible for it.

V. ARGUMENTS OF THE THIRD PARTIES

5.1 The arguments of the third parties, Argentina, Costa Rica, Hong Kong, China, Israel and Norway are set out in their submissions to the Panel and are attached to this Report as Annexes (see List of Annexes, page (v)). We note that Costa Rica did not make any submission to the Panel. Israel did not make an oral statement at the meeting of the Panel with the third parties.