To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS126/2, the matter referred to the DSB by the United States in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements. (WT/DS126/4)
Chairperson: H. E. Carmen Luz Guarda
Members: Mr. Jean-François Bellis
Mr. Wieslaw Karsz
(a) that Australia produce, by 30 November 1998, authentic copies of certain documents11 for review by the Panel and the United States;
(b) "rejecting Australia's argument that any further proceedings before this Panel should be terminated";
(c) "that the United States has met its obligations under Article 4.2 of the Subsidies Agreement"; and
(d) "rejecting Australia's argument that the Panel should disregard those facts and argument not explicitly set forth in the consultation request".
(a) that "the establishment of the Panel was inconsistent with the DSU and that as a consequence the Panel should terminate its work";
(b) that "in WT/DS126/1 the United States did not meet its disclosure obligations under Article 4 of the Subsidies Agreement and that consequently the establishment of the Panel and the basis for the United States case before the Panel are irremediably flawed. Australia asks that, as a consequence, the Panel terminate the proceedings, or rule immediately that the United States has not demonstrated its claims before the Panel"; and
(c) "If the Panel does not agree to the requests in subparagraphs [(a) and (b)] above, then Australia asks that the Panel rule that, as a result of the failure of the United States to fulfil its disclosure obligations under Article 4 of the Subsidies Agreement, all facts and arguments not explicitly spelled out in the request for the Panel (WT/DS126/1) will be disregarded for the purpose of the proceedings of the Panel. Of this evidence, Australia asks in addition that information acquired in the context of consultations under WT/DS106/1 be ruled to be confidential to that process [footnote omitted] and not admissible before this Panel, including Exhibit 2 of the United States First Submission."
(a) "the Loan does not fall under Article 3.1(a) of the Subsidies Agreement";
(b) "the two first payments under the Grant contract do not fall under Article 3.1(a) of the Subsidies Agreement"; or
(c) "if the Panel decides to consider subsequent payments or the Grant contract itself, none of the payments or the Grant contract itself falls under Article 3.1(a) of the Subsidies Agreement".
(a) "consistent with Article 19.2 of the DSU, the Panel make no recommendation or suggestion regarding the way in which Australia should bring itself into conformity"; and
(b) "consistent with Article 4.12 of the Subsidies Agreement, recommend that Australia have at least 7.5 months for implementation from the adoption of the Panel or Appellate Body report, i.e. at least half of that provided as a benchmark period in Article 21.3(c) of the DSU, but that this issue be addressed by the Panel and the parties after the circulation of the Interim Report setting out the Panel’s draft findings on the nature of the measures before the Panel".
(a) "Any document which provides the grant from the Australian government to Howe, and any related documents;
(b) The loan contract between the Australian government and Howe, and any documents related to that contract;
(c) The report prepared by the accounting firm commissioned by the Australian government and used in devising the replacement package;
(d) Financial statements of Howe (or related corporate entities) for the period 1989 to present;
(e) Internal business plans or strategic plans of Howe (or related corporate entities) for the period 1995 to present;
(f) Any correspondence between the Australian government and Howe (or corporate entities related to Howe), or vice versa, regarding the replacement subsidy package;
(g) Annual reports of Howe (or related corporate entities) for the period 1989 to present; and
(h) Any analysis or forecast of the Australian automotive leather market in the custody or control of the Australian government, Howe, or any entity related to Howe."
All parties engaged in dispute settlement under the DSU must be fully forthcoming from the very beginning both as to the claims involved in a dispute and as to the facts relating to those claims. Claims must be stated clearly. Facts must be disclosed freely. This must be so in consultations as well as in the more formal setting of panel proceedings. In fact, the demands of due process that are implicit in the DSU make this especially necessary during consultations. For the claims that are made and the facts that are established during consultations do much to shape the substance and the scope of subsequent panel proceedings. If, in the aftermath of consultations, any party believes that all the pertinent facts relating to a claim are, for any reason, not before the panel, then that party should ask the panel in that case to engage in additional fact-finding.12
"… we note that Australia has already submitted redacted versions of the loan and grant contracts. In addition, among the questions from the Panel to the parties are certain requests for information and documents which we have concluded are relevant to our consideration of the issues in this dispute, and therefore have asked Australia to submit."
(a) "the report prepared by the accounting firm commissioned by the Australian government and used in devising the compensation arrangements to Howe;
(b) any correspondence between the Australian government and Howe (or corporate entities related to Howe) regarding the compensation arrangements to Howe and any documents relating to payments made under the grant contract which would indicate precisely what facts were taken into account in determining that Howe was in compliance with the performance criteria of the grant contract in order to make the grant payments to date, including the report for the year ending 30 June 1997 showing performance against the performance targets and the report for the year ending 30 June 1998 showing performance against the performance targets;
(c) in the schedule of the grant contract, the numbers relating to performance targets (these could be indicated in indexed form, or as a range), the headings for categories of capital expenditure and the numbers for capital expenditure (these could be indicated in indexed form, or as a range);
(d) any documents indicating the legal basis for the grant(s) and the loan in Australian law (for example, budget documentation); and
(e) any records or reports of discussions in the Australian Parliament relating to the grant(s) and the loan."
"As part of the development of this compensation arrangements, the then Department of Industry Science and Tourism (DIST) engaged the firm of KPMG, Chartered Accountants, to assess the financial viability of Howe as a result of the removal of automotive leather from the ICS and EFS schemes. Under the terms of the engagement KPMG was required to examine certain information provided by Howe Leather and report to the Government of Australia. The report was to be strictly confidential between the Government of Australia and KPMG. In fact, KPMG agreed to undertake the engagement on the pre-understanding that "our report is solely... for the information of the Australian Government and is not to be used for any other purpose or distributed to any other party". (emphasis supplied by Australia)
The Government of Australia often engages firms to carry out such reviews as part of its industry policy development. It is critical that these reports be completely candid and this means that confidentiality must be absolute. It is only to be expected in this case that the Government would require an independent assessment of the viability of the company."
(a) "the report prepared by the accounting firm commissioned by the Australian government and used in devising the compensation arrangements to Howe; and
(b) in the schedule of the grant contract, the numbers relating to performance targets (these could be indicated in indexed form, or as a range), the headings for categories of capital expenditure and the numbers for capital expenditure (these could be indicated in indexed form, or as a range)."
"The United States bases this request for consultations on evidence indicating that the A$25 million loan and grants of up to A$30 million are in fact tied to Howe's actual or anticipated exportation or export earnings. In particular, this evidence indicates that:
- the grants and loan provide benefits to Howe, a company with a troubled financial history that has received GOA export subsidies in the past and that has relied on these subsidies to expand the exportation of its products;
- the grants and loan were provided to compensate Howe for the GOA's decision to excise automotive leather from two de jure export subsidy programme - the Textiles, Clothing and Footwear Import Credit Scheme (TCF) and the Export Facilitation Scheme for Automotive Products (EFS);
- the grants and loan have the same purpose and effect as the TCF and EFS programme - that is, to allow Howe to continue to expand the exportation of its products;
- the vast majority of Howe Leather's sales are exports, and this fact was well understood by the GOA when it agreed to provide the grants and loan to Howe;
- the Australian market is unable to absorb Howe's current production of automotive leather and thus cannot absorb a significant increase in that production - leaving exports as the only way Howe can utilize its increased production capacity and meet the aggressive production requirements upon which the grants and/or loan are conditioned; and
- the grants and loan provided to Howe, Australia's only exporter of automotive leather, differ from other subsidies given by the GOA and may well be unique.
This evidence consists of numerous statements and representations made by the GOA, Howe and Howe's affiliated and/or parent companies that have appeared in the media, official GOA publications and GOA communications with the United States Government. This evidence also consists of financial statements of Howe and its affiliated and/or parent companies; documents relating to the markets for automotive leather and automobiles in Australia; and other relevant information and materials concerning Howe, GOA export subsidy programs and the Australian market for automotive leather and automobiles, including statements of experts on automotive leather and automobiles, and statements of members of the automotive leather and automobiles industries."
All parties engaged in dispute settlement under the DSU must be fully forthcoming from the very beginning both as to the claims involved in a dispute and as to the facts relating to those claims. Claims must be stated clearly. Facts must be disclosed freely. This must be so in consultations as well as in the more formal setting of panel proceedings. In fact, the demands of due process that are implicit in the DSU make this especially necessary during consultations. For the claims that are made and the facts that are established during consultations do much to shape the substance and the scope of subsequent panel proceedings.41
In our view, the wording of Article 4.6 of the DSU makes it clear that offers made in the context of consultations are, in case a mutually agreed solution is not reached, of no legal consequence to the later stages of dispute settlement, as far as the rights of the parties to the dispute are concerned. Consequently, we will not base our findings on such information.46
The United States argues that Article 4.6 of the DSU does not provide a basis for panels to mete out sanctions and exclude relevant factual evidence. It simply calls for panels to disregard offers of settlement, and not to treat such offers as admissions of guilt.
(a) the chapeau of Article 3.1 of the SCM Agreement refers to: "the following subsidies";
(b) footnote 4 of the SCM Agreement refers to "the granting of a subsidy" and "[t]he mere fact that a subsidy is granted";
(c) footnote 5 of the SCM Agreement refers to: "[m]easures referred to"; and
(d) Article 4 of the SCM Agreement continually refers to individual subsidy programmes, e.g.: "a prohibited subsidy" in paragraphs 1, 5 and 7; "the subsidy" in paragraphs 2, 3, and 7; and "the measure in question" in paragraph 5.
To fall within the terms of Article 6.2, it seems clear that a ‘measure’ not explicitly described in a panel request must have a clear relationship to a ‘measure’ that is specifically described therein, so that it can be said to be "included" in the specified ‘measure.’49
(a) The Five Year Holiday on Principal and Interest Payments Confers a "Benefit"
(b) The Loan Provided Howe with Credit Terms More Favorable Than Those Howe Could Have Obtained Commercially
(c) The Loan Is Not Adequately Secured
3.1 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 I5;
4This 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.
5Measures referred to in Annex I as not constituting export subsidies shall not be prohibited under this or any other provision of this Agreement.
The prohibition of export subsidies in Article 9 of the Subsidies Code should be reformulated in order to define clearly its scope. This prohibition must apply to all export subsidies, that is, all government interventions which confer, through a charge on the public account (in the form of direct financial outlays or revenue foregone, such as tax relief and debt forgiveness), a benefit on a firm or an industry contingent upon export performance.
In addition, since experience has shown that government practices may be easily manipulated or modified in order to avoid this prohibition, it is apparent that a prohibition only of those subsidies which are de jure(that is, expressly) made contingent upon export performance is open to circumvention.
The prohibition, in the present discipline also applies to subsidies de facto contingent upon export. This, however, makes it necessary to provide for clearer guidance in identifying de facto export subsidies … De facto export subsidies are those where facts which were known -- or should clearly have been known -- to the government when granting the subsidy demonstrate that the subsidy, without having been made expressly contingent upon export performance, was indeed intended to increase exports.88
This standard is met whenever the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in practice tied to actual or anticipated exportation or export earnings. (emphasis supplied by Australia)
We agree with the practice under the GATT 1947 of determining whether imported and domestic products are "like" on a case-by-case basis….
… In applying the criteria cited in Border Tax Adjustments to the facts of any particular case, and in considering other criteria that may also be relevant in certain cases, panels can only apply their best judgement in determining whether in fact products are "like". This will always involve an unavoidable element of individual, discretionary judgement.94
… we believe that an examination in any case of whether dissimilar taxation has been applied so as to afford protection requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products. We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products.
Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure. The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case. Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case.95
(a) the administrators of a scheme have the authority to determine the amount of subsidy being provided to an individual firm and do so on the basis of exports rather than some other criteria such as investment or production; or
(b) the administrators of a scheme have the authority to discriminate amongst firms in the same industry by not paying the subsidy unless concrete export targets are met.
[o]ne of the corollaries of the "general rule of interpretation" in the Vienna Convention is that interpretation must give meaning and effect to all the terms of the treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.105
Australia submits that the "in fact" test in Article 3.1(a) of the SCM Agreement is not there to deal with all cases where exports are causing injury. Rather it is there to deal with the situation of "in law or in fact" as Australia has described it. Members have Part III of the SCM Agreement to seek multilateral remedy in other cases.
"Enacted in 1988, the Textiles, Clothing and Footwear Development Authority Act established the Australian Textiles, Clothing and Footwear Development Authority, the stated object of which is "to promote the restructuring and revitalization of the [textile, clothing and footwear] industries so as to improve their efficiency and international competitiveness."109 To this end, the functions of the Authority are, inter alia, to "encourage and facilitate the development of plans aimed at increasing the international competitiveness of [Australian textile, clothing and footwear] producers by providing financial assistance to them for that purpose" and to develop "measures calculated to... increase the exports of TCF products produced in Australia...."110
Pursuant to this mandate, in 1991, the Australian government announced the creation of the [ICS] program, to be in effect from July 1, 1991, through June 30, 2000.111 Under the [ICS] program, exporters of eligible textile, clothing and footwear products can earn import credits that may be used to reduce the import duties payable on eligible textile, clothing and footwear items by an amount up to the value of the credits held.112 However, exporters are not required to use their credits as offsets against import duties. These credits may be transferred from one holder to another in exchange for a cash payment.113
Under the ICS program, the level of import credits that may be earned is explicitly conditioned upon export performance. Specifically, the value of import credits that can be earned is calculated as the F.O.B. value of an eligible export sale, multiplied by the Australian value-added content of the export sale (expressed as a percentage of sales volume).114 This total, in turn, is multiplied by a specified "Export Phasing Rate."115 Between 1991 and 1997, the Export Phasing Rate stood at.30 (ie, 30% of the F.O.B. value of the Australian value-added content of eligible textile, clothing and footwear exports). The Export Phasing Rate was recently reduced to.20.116 Expressed as a formula:
Import credit = Export sale (FOB A$) x Australian value-added expressed as a percentage of sales volume x Export phasing rate117 …
The Australian government designed the EFS program to encourage the export of passenger motor vehicles ("PMV") and PMV components from Australia.118 In its current form since 1991,119 the EFS program allows Australian manufacturers to earn A$1 of export credit for every dollar of eligible exports of covered automotive items.120 The value of exports eligible to earn exports credits is equal to the Australian value-added content of eligible exports, calculated as the F.O.B. sales price less the value of any imported components and raw materials.121
Export credits earned under this program can be used to obtain rebates on the duties payable on eligible imports of automotive vehicles and automotive components,122 or may be sold for cash to any importer of eligible goods who may similarly seek such rebates.123 The amount of import duty that can be rebated under this program is determined by a tariff reduction schedule that varies depending on the year in which the export credit is used. From a high of 37.5% of the tariff rate for export credits used in 1991, the schedule slowly scales back the amount of rebatable duty to 15% in the year 2000, the last scheduled year of the program.124 For instance, in 1996 a company could receive a rebate equal to 25% of the export credit earned. Thus, if an exporter received A$1,000,000 of export credits, he or his transferee could obtain a rebate of $250,000 for import duties paid during that year."
The Commission finds the [automotive] export facilitation scheme has been valuable to the industry. It has served its main purpose of introducing Australian products to world markets and will expire in 2000. The Commission will not recommend its continuation because its strategic value has been undermined by its vulnerability to challenge under the rules of the World Trade Organization.125
Coincidentally, the company’s lobbying effort climaxed on the day Air Force One with Clinton and his entourage on board touched down in Sydney.
On the same day, [Howe’s Managing Director] Heysen and a colleague flew to Canberra for a round of meetings with senior ministers and bureaucrats, beginning with officials of the Department of Industry, Science and Tourism.
A meeting followed with staff from the offices of [DIST Minister John] Moore and the Prime Minister attended by then DIST secretary Greg Taylor.
Then, to ensure all bases were covered, the opposition rooms were visited. Heysen met Simon Crean and Martin Ferguson, Industry and employment spokesmen respectively, and later in the day had an audience with [Deputy Prime Minister] Fischer.128
In our view, the wording of Article 4.6 of the DSU makes it clear that offers made in the context of consultations are, in case a mutually agreed solution is not reached, of no legal consequence to the later stages of dispute settlement, as far as the rights of the parties to the dispute are concerned. Consequently, we will not base our findings on such information.136 (emphasis supplied by the United States)
(a) EFS and ICS do not apply to automotive leather.
(b) Automotive leather was excised from EFS and ICS from 1 April 1997, before the request for consultations for this Panel.
(c) The nature and WTO status of EFS and ICS for automotive leather prior to 1 April 1997 are beyond the Panel’s terms of reference.
(d) The nature and WTO status of EFS and ICS for products other than automotive leather are beyond the Panel’s terms of reference.
(e) No GATT or WTO panel has found against EFS or ICS.
(f) Indeed, no GATT contracting party, no signatory to the Tokyo Round Subsidies Agreement, and no WTO Member has taken Australia to a Panel on EFS and ICS.
(g) In the absence of a panel report finding against these schemes, it would be highly inappropriate for this Panel to go outside its terms of reference to examine measures that are not before the Panel and indeed do not even apply to automotive leather. If the United States wants a ruling on the WTO status of the two schemes, then it is always open to it to take such a Panel. It is not for this Panel to do the United States work outside the Panel’s terms of reference.
by dint of effort we [the Australian government] have ensured that Howe Leather has been able to continue its export activity over the last 18 months.140
We are working constructively with Howe Leather to ensure that they receive fair compensation. I am determined that this strongly performing export company should not be unfairly disadvantaged by the agreement reached at Manila.141