VI. "Contingent In Fact Upon Export Performance"

162. The Panel held that a subsidy is "contingent � in fact � upon export performance" under Article 3.1(a) of the SCM Agreement if there is a relationship of conditionality or dependence "between the grant of the subsidy and the 'anticipated exportation or export earnings'". ⁸⁸ The Panel stated that it could:

� examine most effectively whether there exists the requisite conditionality between the grant of TPC assistance to the Canadian regional aircraft industry and anticipated exportation or export earnings, by determining whether the facts demonstrate that such TPC assistance would not have been granted to the regional aircraft industry but for anticipated exportation or export earnings. ⁸⁹ (emphasis in original)

With respect to demonstrating de facto export contingency, the Panel held that:

� it is clear from the ordinary meaning of footnote 4 that any fact could be relevant, provided it "demonstrates" (either individually or in conjunction with other facts) whether or not a subsidy would have been granted but for anticipated exportation or export earnings. We consider that this is true of the export-orientation of the recipient, or of the reason for the grant of the subsidy, just as it is true of a host of other facts potentially surrounding the grant of the subsidy in question. In any given case, the relative importance of each fact can only be determined in the context of that case, and not on the basis of generalities. ⁹⁰ (emphasis in original)

The Panel also opined that:

� the closer a subsidy brings a product to sale on the export market, the greater the possibility that the facts may demonstrate that the subsidy would not have been granted but for anticipated exportation or export earnings. Conversely, the further removed a subsidy is from sales on the export market, the less the possibility that the facts may demonstrate that the subsidy would not have been granted but for anticipated exportation or export earnings. ⁹¹

163. On this basis, and after examination of the facts before it, the Panel found that "TPC assistance to the Canadian regional aircraft industry is 'contingent�in fact�upon export performance' within the meaning of Article 3.1(a) of the SCM Agreement." ⁹²
164. Canada appeals the Panel's finding that TPC assistance is "contingent � in fact � upon export performance". Canada argues, inter alia, that a subsidy is "contingent � in fact � upon export performance" when "the facts and circumstances are such that the recipient will reasonably know that there is a requirement to export � ." ⁹³ Canada maintains that the Panel made the export orientation of the Canadian regional aircraft industry the "effective test" of de facto export contingency. ⁹⁴ Canada also argues that the Panel erred in concluding that "the closer a subsidy brings a product to sale on the export market, the greater the possibility that the facts may demonstrate that the subsidy would not have been granted but for anticipated exportation or export earnings." ⁹⁵ Canada contends further that the Panel "confus[ed]" considerations taken into account by TPC with conditions based on export performance. ⁹⁶ Finally, Canada maintains that the Panel erred because it gave "no indication that � the operation of the TPC programme as a whole" had been considered. ⁹⁷ For its part, Brazil agrees fully with the Panel's interpretation and application of the expression "contingent � in fact � upon export performance".
165. Article 3.1 of the SCM Agreement provides, in pertinent part:

Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited:

(a) subsidies contingent, in law or in fact⁴, whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I �

____________________
⁴ This standard is met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy within the meaning of this provision.

Article 3.2 adds that "[a] Member shall neither grant nor maintain subsidies referred to in paragraph 1."

166. In confronting this issue, we start our interpretive task once more by examining the ordinary meaning of the treaty text. In our view, the key word in Article 3.1(a) is "contingent". As the Panel observed, the ordinary connotation of "contingent" is "conditional" or "dependent for its existence on something else". ⁹⁸ This common understanding of the word "contingent" is borne out by the text of Article 3.1(a), which makes an explicit link between "contingency" and "conditionality" in stating that export contingency can be the sole or "one of several other conditions".
167. Article 3.1(a) prohibits any subsidy that is contingent upon export performance, whether that subsidy is contingent "in law or in fact". The Uruguay Round negotiators have, through the prohibition against export subsidies that are contingent in fact upon export performance, sought to prevent circumvention of the prohibition against subsidies contingent in law upon export performance. ⁹⁹ In our view, the legal standard expressed by the word "contingent" is the same for both de jure or de facto contingency. There is a difference, however, in what evidence may be employed to prove that a subsidy is export contingent. De jure export contingency is demonstrated on the basis of the words of the relevant legislation, regulation or other legal instrument. Proving de facto export contingency is a much more difficult task. There is no single legal document which will demonstrate, on its face, that a subsidy is "contingent �in fact � upon export performance". Instead, the existence of this relationship of contingency, between the subsidy and export performance, must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy, none of which on its own is likely to be decisive in any given case.
168. Recognizing the difficulties inherent in demonstrating de facto export contingency, the Uruguay Round negotiators provided a standard, in footnote 4 of the SCM Agreement, for determining when a subsidy is "contingent � in fact � upon export performance". Footnote 4 reads:

This standard is met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy within the meaning of this provision. (emphasis added)

169. Footnote 4 makes it clear that de facto export contingency must be demonstrated by the facts. We agree with the Panel that what facts should be taken into account in a particular case will depend on the circumstances of that case. We also agree with the Panel that there can be no general rule as to what facts or what kinds of facts must be taken into account. We note that satisfaction of the standard for determining de facto export contingency set out in footnote 4 requires proof of three different substantive elements: first, the "granting of a subsidy"; second, "is � tied to �"; and, third, "actual or anticipated exportation or export earnings". (emphasis added) We will examine each of these elements in turn.
170. The first element of the standard for determining de facto export contingency is the "granting of a subsidy". In our view, the initial inquiry must be on whether the granting authority imposed a condition based on export performance in providing the subsidy. In the words of Article 3.2 and footnote 4, the prohibition is on the "granting of a subsidy", and not on receiving it. The treaty obligation is imposed on the granting Member, and not on the recipient. Consequently, we do not agree with Canada that an analysis of "contingent � in fact � upon export performance" should focus on the reasonable knowledge of the recipient. ¹⁰⁰
171. The second substantive element in footnote 4 is "tied to". The ordinary meaning of "tied to" confirms the linkage of "contingency" with "conditionality" in Article 3.1(a). Among the many meanings of the verb "tie", we believe that, in this instance, because the word "tie" is immediately followed by the word "to" in footnote 4, the relevant ordinary meaning of "tie" must be to "limit or restrict as to � conditions". ¹⁰¹ This element of the standard set forth in footnote 4, therefore, emphasizes that a relationship of conditionality or dependence must be demonstrated. The second substantive element is at the very heart of the legal standard in footnote 4 and cannot be overlooked. In any given case, the facts must "demonstrate" that the granting of a subsidy is tied to or contingent upon actual or anticipated exports. ¹⁰² It does not suffice to demonstrate solely that a government granting a subsidy anticipated that exports would result. The prohibition in Article 3.1(a) applies to subsidies that are contingent upon export performance.
172. We turn now to the third substantive element provided in footnote 4. The dictionary meaning of the word "anticipated" is "expected". ¹⁰³ The use of this word, however, does not transform the standard for "contingent � in fact" into a standard merely for ascertaining "expectations" of exports on the part of the granting authority. Whether exports were anticipated or "expected" is to be gleaned from an examination of objective evidence. This examination is quite separate from, and should not be confused with, the examination of whether a subsidy is "tied to" actual or anticipated exports. A subsidy may well be granted in the knowledge, or with the anticipation, that exports will result. Yet, that alone is not sufficient, because that alone is not proof that the granting of the subsidy is tied to the anticipation of exportation.
173. There is a logical relationship between the second sentence of footnote 4 and the "tied to" requirement set forth in the first sentence of that footnote. The second sentence of footnote 4 precludes a panel from making a finding of de facto export contingency for the sole reason that the subsidy is "granted to enterprises which export". In our view, merely knowing that a recipient's sales are export-oriented does not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated exports. The second sentence of footnote 4 is, therefore, a specific expression of the requirement in the first sentence to demonstrate the "tied to" requirement. We agree with the Panel that, under the second sentence of footnote 4, the export orientation of a recipient may be taken into account as a relevant fact, provided that it is one of several facts which are considered and is not the only fact supporting a finding.
174. Canada argues that the Panel erred in stating that "the closer a subsidy brings a product to sale on the export market, the greater the possibility that the facts may demonstrate that the subsidy" ¹⁰⁴ is "contingent � in fact � upon export performance". (emphasis added) We recall that the Panel added that "the further removed a subsidy is from sales on the export market, the less the possibility that the facts may demonstrate that the subsidy" ¹⁰⁵ is "contingent � in fact � upon export performance". (emphasis added) By these statements, the Panel appears to us to apply what could be read to be a legal presumption. While we agree that this nearness-to-the-export-market factor may, in certain circumstances, be a relevant fact, we do not believe that it should be regarded as a legal presumption. It is, for instance, no "less � possible" that the facts, taken together, may demonstrate that a pre-production subsidy for research and development is "contingent � in fact � upon export performance". If a panel takes this factor into account, it should treat it with considerable caution. In our opinion, the mere presence or absence of this factor in any given case does not give rise to a presumption that a subsidy is or is not de facto contingent upon export performance. The legal standard to be applied remains the same: it is necessary to establish each of the three substantive elements in footnote 4.
175. Having examined the legal standard set forth in footnote 4 for determining de facto export contingency under Article 3.1(a), we turn next to the Panel's application of that legal standard to the facts relating to assistance provided by TPC to the Canadian regional aircraft industry. The Panel set out in some detail the various facts that it took into account in concluding that TPC assistance was "contingent � in fact � upon export performance". ¹⁰⁶ Indeed, the Panel took into account sixteen different factual elements, which covered a variety of matters, including: TPC's statement of its overall objectives; types of information called for in applications for TPC funding; the considerations, or eligibility criteria, employed by TPC in deciding whether to grant assistance; factors to be identified by TPC officials in making recommendations about applications for funding; TPC's record of funding in the export field, generally, and in the aerospace and defence sector, in particular; the nearness-to-the-export-market of the projects funded; the importance of projected export sales by applicants to TPC's funding decisions; and the export orientation of the firms or the industry supported.
176. From our scrutiny of the Panel Report, we are unable to agree with Canada that the Panel made the export orientation of the regional aircraft industry the "effective test". In keeping with the standard set forth in footnote 4, the fact of the Canadian industry's export orientation seems to us not to have been given undue emphasis by the Panel. Rather, this fact was simply one of a number of facts that, when considered together, the Panel found demonstrated that the granting of subsidies by TPC was "tied to" actual or anticipated exports.
177. We recall our finding that the Panel could be understood as having treated the nearness-to-the-export-market factor as giving rise to a legal presumption in determining whether TPC assistance was "contingent � in fact � upon export performance". ¹⁰⁷ However, we also have said that this factor may, in certain circumstances, be a relevant factor in making such a determination. In our view, in the circumstances of this case, the Panel did not err in taking this nearness-to-the-export-market factor into consideration, together with all the other facts that the Panel considered. Moreover, in our view and in light of all the facts the Panel considered, the Panel would, in all probability, have concluded that TPC assistance to the Canadian regional export industry was "contingent � in fact � upon export performance", even if it had not taken this factor into account.
178. Canada also asserts that the Panel "confused" considerations � that is, the eligibility criteria set out in the TPC Handbook that TPC took into account in making its funding decisions � with conditions based on export performance. ¹⁰⁸ We do not agree. The Panel did not find that the TPC eligibility criteria were conditions, but, rather, it found that those criteria helped to demonstrate the existence of de facto contingency upon export performance. ¹⁰⁹ We consider it perfectly possible that such considerations, especially when taken together with other facts, could demonstrate that a subsidy is "contingent � in fact � upon export performance". ¹¹⁰ Indeed, in many cases, the eligibility criteria used by a granting authority, and their application in practice, may provide particularly good evidence of whether the granting of a subsidy is "contingent � in fact � upon export performance".
179. We note, finally, that the Panel took into account a number of facts related to the TPC programme as a whole. ¹¹¹ Therefore, we do not agree with Canada's assertion that "[t]here is no indication that the Panel considered the operation of the TPC programme as a whole". ¹¹² Moreover, the fact that some of TPC's contributions, in some industry sectors, are not contingent upon export performance, does not necessarily mean that the same is true for all of TPC's contributions. It is enough to show that one or some of TPC's contributions do constitute subsidies "contingent ... in fact � upon export performance".
180. For all these reasons, we uphold the Panel's legal finding that "TPC assistance to the Canadian regional aircraft industry is 'contingent�in fact�upon export performance' within the meaning of Article 3.1(a) of the SCM Agreement." ¹¹³

To continue with Drawing Adverse Inferences from Certain Facts

⁸⁸ Panel Report, para. 9.331.

⁸⁹ Ibid., para. 9.332.

⁹⁰ Ibid., para. 9.337.

⁹¹ Ibid., para. 9.339.

⁹² Panel Report, para. 9.347.

⁹³ Canada's appellant's submission, para. 30.

⁹⁴ Ibid., para. 61.

⁹⁵ Panel Report, para. 9.339.

⁹⁶ Canada's appellant's submission, para. 59.

⁹⁷ Ibid., para. 77.

⁹⁸ The New Shorter Oxford English Dictionary, (Clarendon Press, 1993), Vol. I, p. 494; The Concise Oxford English Dictionary, (Clarendon Press, 1995), p. 289. See also Webster's Third New International Dictionary, (William Benton, 1966), Vol. I, p. 493. See Panel Report, para. 9.331.

⁹⁹ See the submission of the European Communities during the negotiations of the SCM Agreement, entitled "Elements of the Negotiating Framework" (MTN.GNG/NG10/W/31), which was cited before us para. 40 of the United States' third participant's submission.

¹⁰⁰ In finding that the knowledge of the recipient is not part of the legal standard of de facto export contingency, we do not suggest that relevant objective evidence relating to the recipient can never be considered by a panel.

¹⁰¹ The New Shorter Oxford English Dictionary, (Clarendon Press, 1993), Vol. II, p. 3307. See also The Concise Oxford English Dictionary, (Clarendon Press, 1995), p. 1457.

¹⁰² We note that the Panel considered that the most effective means of demonstrating whether a subsidy is contingent in fact upon export performance is to examine whether the subsidy would have been granted but for the anticipated exportation or export earnings (Panel Report, para. 9.332). While we consider that the Panel did not err in its overall approach to de facto export contingency, we, and panels as well, must interpret and apply the language actually used in the treaty (see, for instance, Appellate Body Report, India � Patents, supra, footnote 35, para. 45).

¹⁰³ The New Shorter Oxford English Dictionary, (Clarendon Press, 1993), Vol. I, p. 88, states that a colloquial meaning for "anticipate" is "expect". The Concise Oxford English Dictionary, (Clarendon Press, 1995), p. 53, identifies "expect" as a disputed meaning of "anticipate".

¹⁰⁴ Panel Report, para. 9.339.

¹⁰⁵ Ibid., para. 9.339.

¹⁰⁶ Panel Report, para. 9.340.

¹⁰⁷ Supra, para. 174.

¹⁰⁸ Canada's appellant's submission, para. 59.

¹⁰⁹ See Panel Report, paras. 9.340 and 9.341.

¹¹⁰ We note that none of the considerations or eligibility criteria, by itself, amounts to an export condition because, if that were so, there would be a case of de jure export contingency.

¹¹¹ The facts identified in the eighth, ninth, eleventh and thirteenth points of para. 9.340 of the Panel Report all relate to the TPC programme as a whole.

¹¹² Canada's appellant's submission, para. 77.

¹¹³ Panel Report, para. 9.347.