Article 1 Definition of a Subsidy 1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government") ...
(b) a benefit is thereby conferred.
The European Communities' "pass-through" claim appears to be based on the definition of a subsidy in Article 1.1 and, in particular, on the element of "benefit" in subparagraph (b) of that provision. The European Communities' argument is that Mexico did not conduct a pass-through analysis, that it should have done so in the circumstances of this investigation, and that this failure was inconsistent with the "benefit" requirement of Article 1.1, because "the element of the definition of subsidy with which the notion of pass through is most closely linked is that of 'benefit'".187 The European Communities also cites Article 14 in the context of "benefit", stating that this provision addresses the calculation of benefit in terms of benefit to the recipient, and establishes that such calculation must be based on "commercial realities", which are the basis for the notion of pass-through.188
The European Communities declined to elaborate further its legal arguments regarding how, precisely, Articles 1 and 14 in themselves require a pass-through analysis, in spite of our specific invitations at both the first and second meetings with the Panel to do so.189 In particular, we asked the European Communities to provide a legal analysis of the provisions it cited and to explain its legal arguments in detail, on the basis of the texts of those provisions, the Vienna Convention, and past case law, as to precisely how the obligation to conduct a pass-through analysis lies in Articles 1 and 14. The European Communities responded that the requirement is implicit, not explicit, and that the Vienna Convention is of limited use in respect of implicit requirements.190 Concerning past cases, the European Communities stated that the claims in the US - Softwood Lumber IV dispute were based on other provisions than Articles 1 and 14 because that was how the complaining party chose to frame its claims in that case, and that the claim in US- Canadian Pork was necessarily based on the GATT 1947 (given that the case predated the SCM Agreement). The European Communities cited US – Countervailing Measures on Certain EC Products, acknowledging that it concerned a different fact situation, but stating that it was relevant nevertheless because it stands for the proposition that the benefit must be conferred on the producer of the product concerned, and a violation of Article 14 was found in that case.191
Turning to the analysis of Article 1.1 specifically, we note that as a general rule under the SCM Agreement, if a measure under investigation in a countervailing duty investigation involves a financial contribution in the sense of Article 1.1(a)(1), but no benefit is conferred thereby in the sense of Article 1.1(b), then no subsidy exists, and no countervailing duty can be applied in respect of that measure. In such a circumstance, the investigated measure would not constitute a subsidy, and application of a countervailing duty would be inconsistent with Article 1.1 of the SCM Agreement.192
However, in this case, the European Communities is not arguing that a benefit was not provided, and that therefore a subsidy did not exist within the meaning of Article 1.1. Indeed, in its submissions before us, the European Communities maintains that this is not its argument.193 Rather, its allegation is that Mexico did not properly calculate the amount of the benefit from the subsidy that was directly attached to the exporters of olive oil.
As Article 1.1 contains a definition of the term "subsidy" for the purposes of the SCM Agreement, the issue in the cases interpreting that provision has been whether or not a "benefit" existed, and therefore whether or not there was a subsidy. We do not see in Article 1.1 any language specifically relating to how the amount of the benefit is to be calculated in a countervail investigation.194
We find, therefore, that Article 1.1(b) in itself does not establish a requirement to calculate precisely the amount of the benefit accruing to a particular recipient in a countervail investigation. We find support for our view in the findings of the Appellate Body in US – Countervailing Measures on Certain EC Products that under Article 1.1(b), a benefit might be received by different recipients, that the recipient of the benefit might be different from the recipient of the financial contribution, and that a subsidy can be bestowed directly or indirectly, and in respect of production, manufacture or export of a product.195 In other words, it is not necessary to identify the particular recipient or recipients of the benefit and the particular manner in which a subsidy is bestowed in order to determine that a benefit has been conferred, and that therefore a subsidy exists, within the meaning of Article 1.1(b).
On the basis of the foregoing analysis, we conclude that Article 1.1 of the SCM Agreement does not contain a requirement as to how the amount of the benefit must be calculated for the purposes of imposing countervailing duties. We therefore find that the European Communities has not established that Mexico acted inconsistently with its obligations under Article 1.1 of the SCM Agreement by failing to conduct a pass-through analysis in the olive oil investigation.
Claim of the European Communities pursuant to Article 14 of the SCM Agreement
We now turn to the European Communities' claim under Article 14 of the SCM Agreement. This claim, as set forth in the Request for Establishment of a Panel, is that Economía "fail[ed] to apply the method used [to calculate the benefit conferred on the recipient] to each particular case in a transparent way which is adequately explained, in violation of Article 14 of the SCM Agreement." During the course of the dispute, the European Communities elaborated on the basis for this claim. In respect of the issue of pass-through, the European Communities states, inter alia, that the claim is that "Economía failed to explain how it calculated the benefit conferred on the recipient, contrary to the obligation in Article 14", but that "in accordance with the practice of WTO dispute bodies where an allegation of substantive infringement is coupled with one of failing to explain or publicize the point in question, the EC has concentrated on the substantive infringement, which is the failure to examine the issue of pass-through when calculating the amount (if any) by which the imported olive oil is subsidized."196 From this we understand that the European Communities' argument is that because Economía failed to conduct a pass-through analysis where one was required, its explanation of how it calculated the amount of subsidization of the investigated product was not reasoned and adequate.