WTO Says US 'Pass-Through' Analysis of Ag Subsidies in CVD Case Still Violates GATT

A World Trade Organization dispute panel on Feb. 20 found a U.S. attempt to revisit part of its countervailing duty laws as they pertain to subsidies on agricultural products violated the nation's WTO commitments. The panel said the U.S. failed to implement the findings of a previous dispute panel ruling, which said these same laws cut against the General Agreement on Tariffs and Trade in relation to a subsidy finding on ripe olives from Spain.

In 2021, the original dispute settlement panel took issue with the Commerce Department's finding that subsidies granted to upstream raw olive growers in Spain could be attributed to three Spanish downstream ripe olive producers.

The panel said Section 771B of the Trade Act of 1930, which governed the agency's finding, violated the GATT because it requires Commerce to presume the entire benefit of a subsidy provided to a raw agricultural input producer passes through to the downstream processed agricultural product based only on the consideration of the two factual circumstances described in the provision (see 2111190028).

Section 771B specifically says that (1) where demand for the prior stage product is substantially dependent on the latter stage product and (2) the processing adds only limited value to the raw commodity, subsidies given to either producers or processors of the product "shall" be deemed to be given to the manufacturer, producer or exporter of the product.

Commerce returned to the WTO with a fuller explanation of its law in an attempt to dissuade the trade body from its finding. The agency said it disagreed with the panel's conclusion that the word "shall" bars Commerce from considering factors other than the two mentioned in the law, saying the agency considered myriad other factors in coming to its conclusion. Commerce claimed its interpretation of the statute allows it to consider "all relevant facts and circumstances" to conduct a pass-through analysis consistent with the GATT and SCM Agreement.

The panel rejected this explanation, finding that the problem wasn't with the amount of information Commerce considers but rather that the statute compels the agency to make a pass-through subsidy finding based on only the two enumerated factors in the provision. The "inflexible requirement" to find "the existence of pass-through in situations where the two factual circumstances" are found "persists irrespective of other information" that Commerce may consider, the panel said.

This would be true even when "consideration and analysis of those other factors might suggest that pass-through is not likely," the panel noted. The U.S. overlooked that the statute's inflexible nature beyond those two conditions renders all other information "inutile for the purpose of establishing pass-through" in accordance with the GATT and SCM Agreement.

The panel also rejected the U.S. claim that Commerce has "broad discretion" to analyze "the extent to which pass-through occurs," or that it may find that less than 100% pass-through occurs where Section 771B's two factors are found to exist. The ruling said the agency has applied the same benefit calculation and found the entire amount of subsidies allocated to raw olives production passed through to ripe olive processors "without any assessment of factors other than the two" enumerated factors.

Although the ruling went against the U.S., the panel established that the U.S. could hypothetically achieve compliance by "re-interpreting, re-evaluating and re-examining a domestic law found to be" inconsistent with WTO obligations. The ruling rejected the EU's claim that Commerce's explanation was an attempt to relitigate the issue.