(c) The drawing of adverse inferences from the refusal of a party to provide information requested by the Panel

197. We have concluded that a panel has broad legal authority to request information from a Member that is a party to a dispute, and that a party so requested has a legal duty to provide such information. The question remains: if that Member refuses to provide that information, does the panel have the authority to draw adverse inferences from that refusal?
198. We approach this question by noting once more that the mandate of a panel under the DSU requires it to determine the facts of the dispute with which it is seised, and to evaluate or characterize those facts in terms of their consistency or inconsistency with a particular provision of the SCM Agreement or another covered agreement. The DSU does not purport to state in what detailed circumstances inferences, adverse or otherwise, may be drawn by panels from infinitely varying combinations of facts. Yet, in all cases, in carrying out their mandate and seeking to achieve the "objective assessment of the facts" required by Article 11 of the DSU, panels routinely draw inferences from the facts placed on the record. The inferences drawn may be inferences of fact: that is, from fact A and fact B, it is reasonable to infer the existence of fact C. Or the inferences derived may be inferences of law: for example, the ensemble of facts found to exist warrants the characterization of a "subsidy" or a "subsidy contingent � in fact � upon export performance". The facts must, of course, rationally support the inferences made, but inferences may be drawn whether or not the facts already on the record deserve the qualification of a prima facie case. The drawing of inferences is, in other words, an inherent and unavoidable aspect of a panel's basic task of finding and characterizing the facts making up a dispute. In contrast, the burden of proof is a procedural concept which speaks to the fair and orderly management and disposition of a dispute. The burden of proof is distinct from, and is not to be confused with, the drawing of inferences from facts.
199. The facts before the Panel on the issue of the EDC's debt financing may be summarized in the following terms: Brazil submitted certain evidence about the EDC's financing of the ASA transaction. ¹²⁵ Canada refused to provide Brazil with information on the EDC's financing activities that Brazil requested during consultations. The Panel then requested Canada to submit transaction-specific information on the terms and conditions of the EDC's financing of the ASA transaction. Canada refused to provide the information requested by the Panel. There appears to us to be no objective reason to consider that the information requested and withheld did not exist or was not pertinent to Brazil's claim. We consider it safe to assume that the information requested by the Panel was in the possession of Canada because Canada did not indicate otherwise to the Panel. The information requested by the Panel was not publicly available. As we have explained, Canada's justifications for its refusal to provide information requested by the Panel were not accepted by the Panel. ¹²⁶ On this basis, Brazil urges that the Panel erred in law by not drawing the inference that the information withheld by Canada was, in its nature or tenor, adverse to Canada and supportive of Brazil's claim that the EDC's debt financing, at least in that particular transaction, amounted to a prohibited export subsidy under Article 3.1(a) of the SCM Agreement.
200. We note, preliminarily, that the "adverse inference" that Brazil believes the Panel should have drawn is not appropriately regarded as a punitive inference in the sense of a "punishment" or "penalty" for Canada's withholding of information. It is merely an inference which in certain circumstances could be logically or reasonably derived by a panel from the facts before it.
201. We note also the fact that Article 4 of the SCM Agreement, which is applicable in respect of proceedings relating to alleged prohibited export subsidies, does not specifically address the matter of drawing adverse inferences from a Member's refusal to provide information. We take special note, however, of the fact that Annex V of the SCM Agreement, which deals with procedures for developing information about "serious prejudice" in cases involving actionable subsidies under Part III of the same Agreement, does address, in impressive detail, the drawing of adverse inferences under certain circumstances. ¹²⁷ Annex V of the SCM Agreement reads, in pertinent part:

1. Every Member shall cooperate in the development of evidence to be examined by a panel in procedures under paragraphs 4 through 6 of Article 7.

�

6. If the subsidizing and/or third-country Member fail to cooperate in the information-gathering process, the complaining Member will present its case of serious prejudice, based on evidence available to it, together with facts and circumstances of the non-cooperation of the subsidizing and/or third-country Member. Where information is unavailable due to non-cooperation by the subsidizing and/or third-country Member, the panel may complete the record as necessary relying on best information otherwise available.

7. In making its determination, the panel should draw adverse inferences from instances of non- cooperation by any party involved in the information-gathering process.

8. In making a determination to use either best information available or adverse inferences, the panel shall consider the advice of the DSB representative nominated under paragraph 4 as to the reasonableness of any requests for information and the efforts made by parties to comply with these requests in a cooperative and timely manner.

9. Nothing in the information-gathering process shall limit the ability of the panel to seek such additional information it deems essential to a proper resolution to the dispute, and which was not adequately sought or developed during that process. However, ordinarily the panel should not request additional information to complete the record where the information would support a particular party's position and the absence of that information in the record is the result of unreasonable non-cooperation by that party in the information-gathering process. (emphases added)

202. There is no logical reason why the Members of the WTO would, in conceiving and concluding the SCM Agreement, have granted panels the authority to draw inferences in cases involving actionable subsidies that may be illegal if they have certain trade effects, but not in cases that involve prohibited export subsidies for which the adverse effects are presumed. To the contrary, the appropriate inference is that the authority to draw adverse inferences from a Member's refusal to provide information belongs a fortiori also to panels examining claims of prohibited export subsidies. Indeed, that authority seems to us an ordinary aspect of the task of all panels to determine the relevant facts of any dispute involving any covered agreement: a view supported by the general practice and usage of international tribunals. ¹²⁸
203. Clearly, in our view, the Panel had the legal authority and the discretion to draw inferences from the facts before it � including the fact that Canada had refused to provide information sought by the Panel. ¹²⁹ The Panel acknowledged that it had the authority to draw such inferences, but it declined nonetheless to draw the "inference that EDC debt financing in the Canadian regional aircraft sector confers a 'benefit'." The Panel stated that it did not believe "there is sufficient basis" for such an inference. ¹³⁰ Brazil poses the issue: did the Panel err in law or abuse its discretion by declining to make that inference?
204. In confronting this issue, we note that the Panel's statement seems less than completely clear. Did the Panel, in fact, decline to take account of Canada's refusal to provide information and refuse to infer that the information withheld would support Brazil's claim? Or was the Panel saying that all the facts before it, including Canada's withholding of information, did not reasonably warrant a finding that the EDC's debt financing in the Canadian regional aircraft sector confers a "benefit" and amounts to a prohibited subsidy? This appears to us to be precisely the type of situation in which a panel should examine very closely indeed whether the full ensemble of the facts on the record reasonably permits the inference urged by one of the parties to be drawn, because a party's refusal to collaborate has the potential to undermine the functioning of the dispute settlement system. The continued viability of that system depends, in substantial measure, on the willingness of panels to take all steps open to them to induce the parties to the dispute to comply with their duty to provide information deemed necessary for dispute settlement. In particular, a panel should be willing expressly to remind parties � during the course of dispute settlement proceedings � that a refusal to provide information requested by the panel may lead to inferences being drawn about the inculpatory character of the information withheld.
205. If we had been deciding the issue that confronted the Panel, we might well have concluded that the facts of record ¹³¹ did warrant the inference that the information Canada withheld on the ASA transaction ¹³² included information prejudicial to Canada's denial that the EDC had conferred a "benefit" and granted a prohibited export subsidy. Yet, we do not believe that the record provides a sufficient basis for us to hold that the Panel erred in law, or abused its discretionary authority, in concluding that Brazil had not done enough to compel the Panel to make the inferences requested by Brazil. For this reason, we let the Panel's finding of not proven remain, and we decline Brazil's appeal on this issue.
206. By this finding, we do not intend to suggest that Brazil is precluded from pursuing another dispute settlement complaint against Canada, under the provisions of the SCM Agreement and the DSU, concerning the consistency of certain of the EDC's financing measures with the provisions of the SCM Agreement. In that respect, we note that Brazil may request information from Canada, under Article 25.8 of the SCM Agreement. In the event of such a request, Article 25.9 of the SCM Agreement requires Canada to provide information sufficient to enable Brazil to assess the "compliance" of those measures with the SCM Agreement.

VIII. EDC Debt Financing

207. With respect to the EDC's debt financing activities, the Panel found that "there is no prima facie case that EDC debt financing confers a 'benefit', and therefore constitutes a 'subsidy', within the meaning of Article 1 of the SCM Agreement." ¹³³ In reaching this finding, the Panel reviewed evidence presented by Brazil in the form of certain statements made by officials of the EDC, ¹³⁴ evidence on the EDC's "financial performance" and, in particular, its net interest margin, ¹³⁵ and evidence on the EDC's financing of the ASA transaction. ¹³⁶
208. Brazil argues that, in making this finding, the Panel erred in its "legal characterization" of the facts. ¹³⁷ In its appeal, Brazil relies on three pieces of evidence that it believes demonstrate that the "financial contribution" in the form of the EDC's debt financing "confers" a "benefit" and is, therefore, a "subsidy" within the meaning of Article 1.1 of the SCM Agreement: first, the EDC's provision of a 16.5-year lease period for the financing of the ASA transaction; second, a statement by the former President of the EDC, Mr. Paul Labb�, that the EDC's debt financing provides Canadian exporters with an "edge"; ¹³⁸ and, third, a statement by Canada in the course of the Panel proceedings that the EDC "does not always offer the most attractive financing package". ¹³⁹
209. With respect to the ASA transaction, Brazil argues that the 16.5-year lease period constitutes a "benefit" since this lease-period exceeds the maximum 10-year lease period that governments participating in the OECD Arrangement are authorized to offer. ¹⁴⁰ Canada contends that Brazil did not make this argument to the Panel and that, as a result, this argument "cannot give rise to an 'issue of law covered in the panel report'." ¹⁴¹
210. During the oral hearing, we asked Brazil to identify where, in its arguments before the Panel, it had argued that the 16.5-year financing term was a "benefit" on the ground that it exceeded the terms of the OECD Arrangement. In a written response to our question, Brazil pointed, on the one hand, to statements it made to the Panel concerning the 16.5-year length of the ASA financing period and the allegedly "concessionary rates" ¹⁴² offered by the EDC to ASA and, on the other hand, to arguments Brazil made to the Panel about the OECD Arrangement in the context of the EDC's equity financing. ¹⁴³ Having examined those statements and arguments, we conclude that Brazil has not identified any submission to the Panel, oral or written, in which it brought these two distinct elements together to argue that a 16.5-year lease period is a "benefit" because it exceeds the terms of the OECD Arrangement. Therefore, we find that this argument was not made to the Panel and that the Panel made no finding relating to it. It was raised for the first time in this appeal.
211. In our view, this new argument raised by Brazil is beyond the scope of appellate review. Article 17.6 of the DSU provides that "[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel." In principle, new arguments are not per se excluded from the scope of appellate review, simply because they are new. However, for us to rule on Brazil's new argument, we would have to solicit, receive and review new facts that were not before the Panel, and were not considered by it. In our view, Article 17.6 of the DSU manifestly precludes us from engaging in any such enterprise. We note, furthermore, that, if complaining parties were allowed to raise new arguments of this nature on appeal, that could also undermine the due process rights of responding parties, which would not have had the opportunity to rebut such allegations by submitting evidence in response. ¹⁴⁴
212. The statement made by the former President of the EDC to which Brazil refers was the following:

EDC�s financing support gives Canadian exporters an edge when they bid on overseas projects. . . . Trade deals increasingly depend on complex and tightly negotiated financing arrangements where a few basis points in interest rates can make or break the deal. Exporters are having to bid not just on the basis of quality and price, but also on the basis of the financing package supporting the sale. (emphasis added)

213. The Panel observed that, in view of Canada's explanation of this statement, "the relevant 'edge' is the ability of the EDC's officials to assemble better structured financial packages on the basis of their knowledge and expertise." ¹⁴⁵ In light of Canada's explanation, the Panel took the view that there was a "possibility for divergent contextual interpretations" of this statement and inferred that it "provides no firm guidance as to whether the EDC provides exporters with an 'edge' through subsidization." ¹⁴⁶ The Panel's inference from this evidence does not appear to us to be either illogical or unreasonable, and Brazil has not demonstrated that the Panel's conclusion is tainted by any error of law. Thus, we are not persuaded by Brazil's argument based on this statement.
214. The third fact on which Brazil relies in appealing this issue is Canada's statement, made in its second written submission to the Panel, that the EDC "does not always offer the most attractive financing package available to regional aircraft customers." This statement was not the subject of any factual or legal findings by the Panel. Brazil does not argue that the Panel erred in failing to make a finding relying on this statement. Rather, Brazil argues that this statement helps to show that the EDC's debt financing constitutes a "benefit".
215. Brazil has failed to demonstrate that the Panel erred in law in its consideration of this statement. We note that the Panel asked Canada for clarification as to the meaning of the statement, ¹⁴⁷ and Canada's response to the Panel indicates that this statement appears consistent with the EDC doing no more than acting as a commercial financing body. ¹⁴⁸ We are unable, therefore, to hold that the Panel has erred in law in failing to rely on this statement.
216. For these reasons, we conclude that Brazil's arguments on appeal do not demonstrate that the Panel committed an error of law in finding that "there is no prima facie case that the EDC's debt financing confers a 'benefit', and therefore constitutes a 'subsidy', within the meaning of Article 1 of the SCM Agreement." ¹⁴⁹

IX. EDC Equity Financing of CRJ Capital

217. Brazil contests the Panel's finding that "there is no factual basis on which to establish a prima facie case that the EDC has made equity infusions into CRJ Capital that have facilitated CRJ Capital's ability to lease or sell Canadian regional aircraft at a reduced price." ¹⁵⁰ Brazil argues that the evidence on the Panel record establishes that this investment confers a "benefit", and, therefore, constitutes a "subsidy". In making this argument, Brazil relies on CRJ Capital's "total capital" ¹⁵¹ structure and certain statements made by Mr. Richard Dixon, an official of Industry Canada, to the effect that CRJ Capital offers borrowers with a double-B credit rating lending rates that are ordinarily available only to borrowers with a double-A credit rating. ¹⁵²
218. Brazil asserts before us, as it did before the Panel, that CRJ Capital's "total capital" structure permits CRJ Capital to provide financing of regional aircraft at lower-than-market rates. However, we see no facts in the Panel record to support this assertion. Indeed, in these appeal proceedings, Canada contested Brazil's description of CRJ Capital's capital structure, which is an essential aspect of Brazil's argument. ¹⁵³ Moreover, in our view, Mr. Dixon's statements are not sufficient, on their own, to establish a finding that CRJ Capital offered preferential financing, let alone that it was the EDC's equity investment that permitted CRJ Capital to provide such financing. We note, for instance, that there is no evidence in the Panel record of any transaction in which CRJ Capital actually offered financing terms of the type described by Mr. Dixon.
219. We, therefore, find that Brazil's arguments on appeal do not demonstrate that the Panel erred in law by finding that "there is no factual basis on which to establish a prima facie case that the EDC has made equity infusions into CRJ Capital that have facilitated CRJ Capital's ability to lease or sell Canadian regional aircraft at a reduced price." ¹⁵⁴

X. Findings and Conclusions

220. For the reasons set out in this Report, the Appellate Body:

(a) upholds the Panel's interpretation of the term "benefit" in Article 1.1(b) of the SCM Agreement;

(b) upholds the Panel's interpretation and application of the expression "contingent � in fact � upon export performance" and the Panel's 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"; ¹⁵⁵

(c) concludes that the Panel did not err in law or abuse its discretion by declining to draw inferences from Canada's refusal to provide information requested by the Panel about certain debt financing activities of the EDC;

(d) upholds the finding of the Panel that Brazil had not established a prima facie case that the debt financing activities of the EDC in support of the Canadian regional aircraft industry confer a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement; and

(e) upholds the finding of the Panel that Brazil had not established a prima facie case that the equity investment by the EDC in CRJ Capital confers a "benefit" within the meaning of Article 1.1(b) of the SCM Agreement.

221. The Appellate Body recommends that the DSB request that Canada bring its export subsidies found in the Panel Report, as upheld by our Report, to be inconsistent with Canada's obligations under Articles 3.1(a) and 3.2 of the SCM Agreement into conformity with its obligations under that Agreement. Specifically, we recall that the Panel recommended that "Canada shall withdraw the subsidies identified in sub-paragraphs (b) and (f) of [paragraph 10.1 of the Panel Report] within 90 days." ¹⁵⁶

¹²⁵ The evidence presented to the Panel on the ASA transaction consisted of a Form 10-Q, filed by ASA Holdings, Inc., with the US Securities and Exchange Commission for the quarterly period ended 31 March 1997 (file No. 333-13071) and the 1997 Annual Report of ASA Holdings, Inc. (see Panel Report, para. 6.56, footnotes 200 and 201).

¹²⁶ We agree with the Panel that Canada's justifications were not legally acceptable (see paras. 192 and 196 of this Report).

¹²⁷ The provisions of Annex V of the SCM Agreement are identified in Appendix 2 of the DSU as "special or additional rules and procedures".

¹²⁸ See, for instance, The Corfu Channel Case, 1949, ICJ 4, p. 18, where the International Court of Justice stated that " � the victim of a breach of international law is often unable to furnish direct proof of facts giving rise to responsibility. Such a State should be allowed a more liberal recourse to inferences of fact and circumstantial evidence. This indirect evidence is admitted in all systems of law, and its use is recognized by international decisions."; Case Concerning Military and Paramilitary Activities In and Against Nicaragua, 1986 ICJ 14, pp. 82-86, paras. 152, 154-156, where on the basis of the facts before it, the International Court of Justice found that it could "reasonably infer" that certain aid had been provided from Nicaraguan territory; the International Court of Justice also made use of inferences to conclude that the scale of this aid ceased to be significant after the early months of 1981; Case Concerning The Barcelona Traction, Light and Power Company, Limited, 1970 ICJ 3, p. 215, para. 97. Judge Jessup, in his separate opinion, opined that "� if a party fails to produce on demand a relevant document which is in its possession, there may be an inference that the document 'if brought, would have exposed facts unfavourable to the party �'". The Mexican-United States General Claims Commissions stated, in William A. Parker (U.S.A.) v. United Mexican States (Reports of International Arbitral Awards, Vol. IV, 35, p. 39), that "[i]n any case where evidence which would probably influence its decision is peculiarly within the knowledge of the claimant or of the respondent Government, the failure to produce it, unexplained, may be taken into account by the Commission in reaching a decision." See also D.V. Sandifer, Evidence Before International Tribunals, Revised Edition, (University Press of Virginia, 1975), p. 153.

¹²⁹ We have summarized certain of the pertinent facts that were before the Panel in para. 199 of this Report.

¹³⁰ Panel Report, para. 9.181.

¹³¹ Certain of these facts are summarized at para. 199 of this Report.

¹³² Brazil appealed the Panel's failure to draw adverse inferences from a refusal by Canada, in only one instance, to provide information requested by the Panel, that is, its refusal to provide information on the terms and conditions of the ASA transaction. However, we note that Canada also withheld, for various reasons, such as the protection of information claimed to be "business confidential" and "Cabinet" and "Ministerial" privilege, other information requested by the Panel under Article 13.1 of the DSU (the Panel records Canada's repeated refusals to provide full information to the Panel at paras. 9.188, 9.218, 9.242, 9.272, 9.293, 9.294, 9.299, 9.303, 9.313 and 9.327 of the Panel Report). We observe that the Panel "regretted" that Canada chose not to provide the Panel with certain of the information requested under Article 13.1 of the DSU (see Panel Report, paras. 9.244 and 9.314, footnote 621) and that the Panel did not accept Canada's reasons for withholding that information (see Panel Report, paras. 9.66-9.69 and 9.347, footnote 633).

¹³³ Panel Report, para. 9.182.

¹³⁴ Ibid., paras. 9.162 � 9.165.

¹³⁵ Ibid., paras. 9.166 � 9.174.

¹³⁶ Ibid., paras. 9.175 � 9.182.

¹³⁷ Brazil's appellant's submission, para. 9.

¹³⁸ This statement is quoted in full at para. 6.57 of the Panel Report.

¹³⁹ Canada's second written submission to the Panel, para. 63, footnote 48.

¹⁴⁰ OECD Arrangement, Annex III, Part 2, chapter V, para. 21(a).

¹⁴¹ Canada's appellee's submission, para. 10, quoting Article 17.6 of the DSU.

¹⁴² Brazil's first written submission to the Panel, para. 6.4.

¹⁴³ Brazil's reply, by letter of 15 June 1999, to our question posed at the oral hearing. Brazil referred to: its first written submission to the Panel, paras. 4.4 and 6.4; Brazil's reply to Question 11 of the Questions Posed by the Panel at the first Panel meeting with the parties; Brazil's comments of 8 January 1999 on Canada's replies to Questions 6, 10 and 28 of the Questions Posed by the Panel at the second Panel meeting with the parties; Brazil also referred to Canada's first written submission to the Panel, paras. 73, 74, 160 and 161; Canada's reply to Question 28 of the Questions Posed by the Panel at the second Panel meeting with the parties; and Canada's statement of its oral submission to the Panel at the first Panel meeting with the parties, para. 5.

¹⁴⁴ In that respect, we observe that Canada cites four transactions in the field of aircraft financing which it believes demonstrate that "a financing term for regional jet aircraft of greater than 10 years � as a matter of fact, up to 18 years � is entirely within the bounds of commercial practice." Canada's appellee's submission, para. 64.

¹⁴⁵ Panel Report, para. 9.163.

¹⁴⁶ Ibid.

¹⁴⁷ Question 10 of the Questions, dated 10 December 1998, posed by the Panel to Canada at the second Panel meeting with the parties.

¹⁴⁸ Canada's reply, of 21 December 1998, to Question 10 of the Questions posed by the Panel at the second Panel meeting with the parties.

¹⁴⁹ Panel Report, para. 9.182.

¹⁵⁰ Panel Report, para. 9.200.

¹⁵¹ Brazil's appellant's submission, para. 92.

¹⁵² This statement is quoted at para. 6.136 of the Panel Report.

¹⁵³ Statement by Canada at the oral hearing.

¹⁵⁴ Panel Report, para. 9.200.

¹⁵⁵ Panel Report, para. 9.347.

¹⁵⁶ Ibid., para. 10.4.