From the June 1 DSB meeting, here are the views of Brazil, Canada and Australia -- three Members who have been involved in export subsidy cases -- on the Appellate Body's new export contingency standard, as set out in EC - Aircraft:
Brazil
15. Turning to export subsidies, and in particular to the issue of de facto export contingency, Brazil wished to highlight some of its concerns with the interpretation developed by the Appellate Body and its application to the facts of this dispute. Footnote 4 of the SCM Agreement provided that a subsidy was in fact contingent on export performance when the granting of the subsidy was in fact "tied to (...) anticipated exportation or export earnings". The Appellate Body had stated in turn that, when the relationship of conditionality between the granting of a subsidy and anticipated exportation was not expressly or by necessary implication provided in the law, the "factual equivalent" of such conditionality could be established by recourse to the following test: "is the granting of the subsidy geared to induce the promotion of future export performance by the recipient?" The Appellate Body had explained that the standard for de facto export contingency would be met when the subsidy was granted "so as to provide an incentive to the recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy".
16. The Appellate Body had explained that the assessment could be based on a comparison between, "on the one hand, the ratio of anticipated export and domestic sales that would come about in consequence of the granting of the subsidy and, on the other hand, the situation in the absence of the subsidy. The situation in the absence of the subsidy may be understood on the basis of historical sales of the same product by the recipient (...) before the subsidy was granted. In the event that there are no historical data untainted by the subsidy, or the subsidized product is a new product (...), the comparison could be made with the performance that a profit-maximizing firm would hypothetically be expected to achieve in the export and domestic markets in the absence of the subsidy. (...) The granting of the subsidy will not be tied to anticipated exportation if, all other things being equal, the anticipated ratio of export sales to domestic sales is not greater than the existing ratio". In Brazil's view, there were a number of problems with those statements. Brazil noted that, according to the standard formulated by the Appellate Body in this dispute, in order to demonstrate that the granting of a subsidy was in fact "tied to" anticipated exportation, it was not sufficient to establish a "tie" between the granting of the subsidy and expected exports. Rather, one would have to demonstrate that the subsidy provided an incentive to export, and more than that, an incentive to export in a way "that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy". That, however, could be an unwarranted requirement, and one that was likely to lead to incongruous results. The text of the SCM Agreement did not only prohibit subsidies "contingent upon the substitution of domestic sales by export sales", as seemed to have been the new test introduced by the Appellate Body. Nor was there any basis in the text of the SCM Agreement or in the jurisprudence developed by the Appellate Body for imposing a different legal standard for de facto export contingency.
17. It was not clear whether the findings of the Panel and the Appellate Body in the "Canada - Aircraft" dispute, for instance, would stand in light of the test now set out by the Appellate Body. The evidence in that dispute had revealed that "funding in the regional aircraft sector is expressly designed and structured to generate sales of particular products, and that the Canadian government expressly takes into account, and attaches considerable importance to, the proportion of those sales that will be for export, when making TPC contributions in the regional aircraft sector". The Panel had not sought to elucidate what would be the proportion of exports to domestic sales that would come about as a result of the subsidy, nor what that proportion would have been had the subsidy not been granted. Those proportions might well not have been different, in which case the original TPC, which had been found to be an export subsidy in that dispute, would not have been an export subsidy according to the standard articulated by the Appellate Body in this dispute. Furthermore, this new standard appeared to imply that, by definition, subsidies provided to enterprises that only exported could never be found to be in fact contingent on export performance, no matter how much factual evidence a complainant amassed to challenge those measures. That was because the ratio of domestic to export sales would always be the same, zero, with or without the subsidy because the firm only exported. Thus, even where a subsidy worked in such a way that its provision was conditioned, for example, on a showing of growing export sales, thus being by any reasonable standard "contingent on export performance", such a demonstration would not meet the Appellate Body's new test for de facto export contingency.
Canada
Canada welcomed the Appellate Body's adoption of a rigorous test to demonstrate de facto prohibited export subsidization under Article 3.1(a) of the SCM Agreement. Under that test, a subsidy was export contingent if the granting of the subsidy was geared to induce the promotion of future export performance by the recipient. In Canada's view, such a test appropriately shifted the focus of the export contingency analysis away from an examination of the granting authority's motivation for providing the subsidy, which was the approach adopted by the Panel, to an examination of whether the subsidy provided the recipient with an incentive to favour exports.
Australia
Australia had a keen interest in the interpretation of Article 3.1(a) and footnote 4 of the SCM Agreement, which pertained to export subsidies. The interpretation of Article 3.1(a) and footnote 4 must avoid any potential discrimination against small or export-dependent economies, the firms of which may have a higher export orientation than firms operating in economies with large domestic markets. Where a firm had a high export orientation because of the market conditions it was operating under, and this was particularly likely for small and export-dependent economies, that "export propensity" should not contribute to a finding of export contingency. Export subsidies were prohibited because of their potential to directly distort international trade. It was, therefore, imperative that Members, when designing public programmes, were clearly aware of the rules that determined whether a particular programme would amount to an export subsidy. In its findings, the Appellate Body had developed the test for determining export contingency, and thus the test for determining whether a particular subsidy amounted to a prohibited export subsidy. The Appellate Body stated that the following question should be asked: "Is the granting of the subsidy geared to induce the promotion of future export performance by the recipient?" Australia hoped that this test, expanding as it did on the guidance provided by the Appellate Body in the "Canada - Aircraft" dispute, would assist Members and panels in their consideration of whether the granting of a subsidy was, in fact, "tied to" anticipated exportation and, further, that the application of this test would not discriminate against small or export-dependent economies.
Presumably each of these countries has been thinking about how the Appellate Body's new standard would affect their interests, both in defending their own measures and in challenging the measures of other Members.
