This post concerns the so-called a contrario argument under the SCM Agreement Illustrative List. The issue is a bit technical, so some background may be in order.
To give a brief overview, in the Brazil - Aircraft dispute, Brazil made the following argument in relation to the consideration of its aircraft subsidy programs, pursuant to the first paragraph of Item (k) of the Illustrative List of Export Subsidies (Annex I of the SCM Agreement). According to Brazil, under the first paragraph of Item (k), the payment by governments "of all or part of the costs incurred by exporters or financial institutions in obtaining credits" constitutes an export subsidy "in so far as they are used to secure a material advantage in the field of export credit terms." By contrast, Brazil contended, payments of this type do not constitute an export subsidy where the listed conditions are not met, for example, where the payments are not "used to secure a material advantage in the field of export credit terms." This became know as the a contrario argument, because when the subsidies satisfy the conditions they are export subsidies, but, a contrario, when they do not satisfy the conditions, they are not export subsidies.
When the Appellate Body first came upon the issue in the appeal of the Brazil - Aircraft panel report, it avoided addressing it. However, in the Article 21.5 proceeding in that case, it seemed to imply that it accepted the a contrario argument, stating:
If Brazil had demonstrated that the payments made under the revised PROEX were not "used to secure a material advantage in the field of export credit terms", and that such payments were "payments" by Brazil of "all or part of the costs incurred by exporters or financial institutions in obtaining credits", then we would have been prepared to find that the payments made under the revised PROEX are justified under item (k) of the Illustrative List.
(See para. 80) However, the language used was somewhat vague on this point, so it was not completely certain what the Appellate Body's view was. Several subsequent panels made clear that they did not accept the a contrario argument, under the first paragraph of Item (k) or in similar situations in other Illustrative List items.
To confuse things even more, some Illustrative List items explicitly provide that certain subsidies are not prohibited. For example, the second paragraph of item (k) says: "... if a Member is a party to an international undertaking on official export credits to which at least twelve original Members to this Agreement are parties as of 1 January 1979 (or a successor undertaking which has been adopted by those original Members), or if in practice a Member applies the interest rates provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited by this Agreement." For such provisions, no a contrario argument is needed. If a measure satisfies these terms, it is not an export subsidy.
Fast forward now to the recent draft Rules text. In that text, there is a proposed new footnote 5 which seems to me to be intended to rule out an a contrario interpretation of the Illustrative List items. The current Footnote 5 says the following:
Measures referred to in Annex I as not constituting export subsidies shall not be prohibited under this or any other provision of this Agreement.
This Footnote refers to the explicit provisions that indicate that certain subsidies are not export subsidies, such as the second paragraph of Item (k) (noted above). In the draft text, however, the proposed new Footnote 5 states:
The
Mmeasures referred to in Annex I as export subsidies shall be deemed to fall within paragraph (a). The legal status of any measure not referred to in Annex I as an export subsidy shall be determined on the basis of paragraph (a), and Annex I shall not be used to establish by negative implication that a measure does not constitute an export subsidy within the meaning of that paragraph; provided, however, that measures explicitly referred to in Annex I as not constituting prohibited export subsidies shall not be prohibited under this or any other provision of this Agreement. This footnote is without prejudice to the operation of footnote 1.
My reading of this text is that the drafters are trying to eliminate the a contrario argument. In particular, the statement that "Annex I shall not be used to establish by negative implication that a measure does not constitute an export subsidy within the meaning of that paragraph" seems to accomplish this.
Putting aside the substance of whether allowing the a contrario argument is a good idea on policy grounds, I think that clarification of this point is very useful. As things stand now, we have a vague Appellate Body statement out there suggesting that it might accept the a contrario argument, but all subsequent panels that have addressed the issue have rejected the argument. This is not an ideal state of affairs, as there is a great deal of uncertainty as to what the law is.
Any comments on whether I've understood this correctly are welcome. That's what it looks like to me, but this is all based on my reading of the text. I haven't talked to anyone who negotiated this, so I don't know for sure what they had in mind.
