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UNITED STATES - MEASURES TREATING
(Continuation) 4.52
Finally, Canada argues, there also is no validity to the assertion that Commerce
itself has never recognized the binding nature of the Preamble. To the contrary,
in its countervailing duty determinations, Commerce uniformly treats the
Preamble to the countervailing duty regulations as an integral part of
Commerce's regulations and equivalent in legal authority to other sections of
the regulations. Indeed, Canada states, Commerce commonly refers to the
regulatory language included in the Preamble as simply "the regulations" and
relies on the Preamble as legal authority for its interpretations. This was made
evident in the Korean Steel cases.
4.53 Canada notes the United States argument that its practice of treating
export restraints as "financial contributions" is not appropriately a "measure".
Canada asserts that the United States claims that because pre-WTO determinations
cannot violate WTO obligations they are irrelevant to "practice" and "there is
no existing US 'practice' of treating export restraints as subsidies that
violates the WTO or SCM Agreements"; and that Canada is seeking a ruling on a
"hypothetical future US practice". The United States is wrong on both counts.
4.54 For Canada it is clear that there is an existing US administrative practice
of treating export restraints as meeting the "financial contribution"
requirement of Article 1.1(a)(1)(iv) of the SCM Agreement, which is defined, in
large part, by the United States' statements in the SAA regarding its pre-WTO
practice of countervailing export restraints. While Canada agrees that this pre-WTO
practice should have become irrelevant after the SCM Agreement came into force,
the SAA expressly provides that US practice in those cases is to continue under
the SCM Agreement and the revised US countervailing duty law.
4.55 Canada asserts that this reliance on pre-WTO cases including Leather and
Lumber to describe its continuing practice of treating export restraints as
financial contributions is repeatedly confirmed in the Regulations. There can,
therefore, be no doubt that Commerce's pre-WTO practice is its post-WTO
practice.
4.56 In Canada's view, the US attempt to dismiss its post-WTO practice as
irrelevant is equally invalid. The Korean Stainless Steel cases discussed by
Canada confirm the Commerce Department's absolute adherence to the view that the
"clear and unambiguous language of the SAA is that Congress intended the
specific types of indirect subsidies found to be countervailable" in past cases,
including Softwood Lumber, "to continue to be covered by the [Tariff
Act of 1930], as amended by the URAA." For Canada, those cases also confirm the
Commerce Department's view that its Regulations, like the SAA, foreclose any
discretionary consideration of "financial contribution" in the case of "indirect
subsidies".
4.57 Nor, argues Canada, can the United States escape an "existing practice" by
claiming that its discussion of financial contribution in Live Cattle was "at
most dicta". Canada acknowledges that in Live Cattle, Commerce did not find the
Canadian Wheat Board's "control" of exports to be a countervailable subsidy
because it found no benefit. But, Canada asserts, Commerce's initiation of the
case, based only on allegations of an export restraint and a price effect, like
its pronouncements on "financial contribution" and "private body" in its final
determination, are manifestations of its continuing practice of considering an
export restraint to be a "financial contribution." In short, the determination
made clear that Commerce did not countervail the alleged export restraint not
because it did not view an export restraint as a financial contribution but
rather only because it did not find a benefit.
4.58 More fundamentally for Canada, the "practice" at issue is not individual
determinations in countervailing duty cases as the United States suggests.
Canada contends that it does not seek a ruling overturning the determinations in
particular past cases. Rather, as is recognised under WTO jurisprudence,
references to specific cases is an acceptable means of establishing an
interpretation under domestic law. Canada's challenge to US practice is
particularly crucial to US compliance with a DSB ruling if Canada prevails in
this dispute. Canada believes that there is ample evidence from other WTO
proceedings that the United States may take the position that a change in
administrative practice is not a necessary element of compliance, even where
Panel and Appellate Body reports have plainly found the existing practice to be
in violation of WTO agreements It is in this light that Canada challenges US
practice with respect to export restraints, and seeks relief that expressly
addresses US practice.
4.59 Canada states that the United States claims that neither Section 771(5),
the SAA, the Preamble, nor any DOC "practice" requires US authorities to treat
export restraints as subsidies, and on this basis, that the alleged measures, as
such, do not violate US obligations under any of the provisions cited by Canada
in its request for a panel. For Canada, however, this argument is based on a
mischaracterization of Canada's complaint. Canada does not contend that the US
measures require the United States to treat export restraints as subsidies.
Rather, Canada's position is that the measures require the United States to
determine that an export restraint satisfies the "financial contribution"
element of the definition of 'subsidy" and therefore that an export restraint is
countervailable if Commerce finds that it confers a "benefit". In Canada's view,
this is inconsistent with the definition of Article 1.1 of the SCM Agreement
because an export restraint does not come within any of the government actions
set out in Article 1.1, including, in particular, the requirements of
subparagraph 1.1(a)(1)(iv) of the Agreement.
4.60 Canada notes that in support of the US argument that the measures at issue
are not properly before this Panel because they are not "mandatory", the United
States cites various GATT and WTO jurisprudence. This review culminates in a US
claim that Canada's complaint should be dismissed as a procedural matter on this
basis. However, Canada argues, because this issue does not go to a procedural
matter, it is not properly the subject of a preliminary ruling.
4.61 More importantly for Canada, these cases are not relevant to this Panel's
jurisdiction to hear the "matter" brought before it by Canada. Under the GATT
cases cited by the United States, the mandatory or discretionary nature of a
measure is an issue that addresses whether a measure as such violates the GATT
provisions invoked, not whether a panel has jurisdiction to hear a particular
matter. In Canada's view, this was made clear by the Appellate Body in United
States - Anti-Dumping Act of 1916.
4.62 Canada further states that in a variation on that US argument, the United
States asserts that Canada is seeking an advisory opinion under the SCM
Agreement and in doing so is asking the Panel to usurp the authority of the
Ministerial Conference and General Council under Article IX:2 of the WTO
Agreement. For Canada, in advancing these arguments the United States relies on
dicta regarding "judicial economy". Canada points out that this dicta addresses
whether a panel should decline to address certain issues that are not necessary
to resolve the issue before it, not whether the dispute should have been
considered originally.
4.63 Canada asks the Panel to find that the measures at issue violate existing
provisions in the SCM and WTO Agreements in that they require the United States
to treat an export restraint as a "financial contribution". If export restraints
do not come within the scope of the definition of "financial contribution" in
the SCM Agreement, then the treatment of export restraints under US
countervailing duty law is necessarily inconsistent with both the SCM Agreement
and the WTO Agreement. Canada contends that it is entitled to a determination of
this issue so that benefits accruing to it under these Agreements are not, and
cannot, be impaired by the application of a WTO inconsistent approach. As such
this dispute is properly before this Panel.
4.64 Canada recalls that at paragraphs 58-69 of the US Request, the United
States refers to a number of GATT and WTO cases in which a panel declined to
find a measure as such to be inconsistent with GATT or WTO rules because the
country maintaining the measure was able to establish that, even though the
measure could be applied inconsistently with international obligations, the
measure did not mandate a violation.
4.65 Canada argues, however, that the United States neglects to mention that in
all of these cases, either the panel first made a finding as to the obligations
in question, or there was essentially no dispute about those obligations. Put
differently, where there was a dispute as to the nature of the obligation at
issue, panels first determined the meaning of the obligation before considering
whether the measure violated that obligation. In Canada's view, none of these
cases supports the US Request.18
4.66 Canada notes that in this dispute, the United States and Canada vigorously
dispute the requirements of the WTO rules invoked by Canada. The United States
openly acknowledges that it does not agree with Canada's interpretation, and the
US measures and the US submissions make it quite clear that under US
countervailing duty law, an export restraint is considered to be a "financial
contribution." In Canada's view, these differences can be addressed only after a
full hearing of the substance of Canada's case before this Panel.
4.67 For Canada, not only is the United States incorrect in its efforts to rely
upon the mandatory/discretionary distinction in requesting a preliminary ruling,
it also has mischaracterized the "mandatory" nature of the SAA and Preamble. In
response to Canada's description of how the SAA requires the United States to
treat export restraints as "financial contributions", the United States focuses
on the proviso in the SAA that states that the types of indirect subsidies
identified in the SAA will continue to be countervailable "provided that"
Commerce is satisfied that the standard of Section 771(5)(B)(iii) has been met.
Canada asserts that the proviso must, however, be read in context and that the
context curtails any Commerce discretion.
4.68 Canada notes that the proviso is preceded by three paragraphs containing
key directives on the interpretation of Section 771(5)(B)(iii). The first
paragraph of the SAA passage on "indirect subsidies" declares that the "entrusts
or directs" language of 771(5)(B)(iii) "shall be interpreted broadly" to
"continue [the Administration's] policy of not permitting the indirect provision
of a subsidy to become a loophole" in countervailing duty enforcement.19 The
second paragraph recites pre-WTO Commerce practice, specifically including the
countervailing of export restraints in Leather and Lumber, and concludes that
Commerce found a countervailable subsidy "where the government took or imposed
(through statutory, regulatory, or administrative action) a formal, enforceable
measure which directly led to a discernible benefit � .".
4.69 Canada continues that the third, and crucial, paragraph, by characterizing
the export restraints of Leather and Lumber as "cases where the government acts
through a private party", declares that those export restraints meet the
entrusts or directs standard of 771(5)(B)(iii), and states that in such cases,
the amended law is to be "administered on a case-by-case basis consistent with"
the pre-WTO practice described in the preceding paragraph. In Canada's view
removing any remaining doubt about the interpretation of Section 771(5)(B)(iii)
is the statement in this paragraph of the SAA of the "Administration's view that
Article 1.1(a)(1)(iv) of the Subsidies Agreement and Section 771(5)(B)(iii)
encompass indirect subsidy practices like those which Commerce has countervailed
in the past, and that these types of indirect subsidies will continue to be
countervailable� (emphasis added). Canada asserts that therefore the SAA gives
Commerce explicit direction as to the determination it should make under the
proviso with regard to export restraints.
4.70 In a similar vein, Canada argues, the US Request asserts that the Preamble
does not require Commerce "to treat export restraints as subsidies"20 (thus once
again misstating the issue as "subsidy" rather than "financial contribution"),
but essentially limits its argument to claiming that "at most, the Preamble
expresses the DOC's view that Section 771(5)(B)(iii) 'would permit' it to treat
export restraints as subsidies."21 As in the case of the SAA, when viewed in
context, the "would permit" language does not mean what the United States
suggests, in Canada's view. The language comes at the end of a paragraph that
confirms that "if the Department were to investigate situations and facts
similar to those examined in Lumber and Leather in the future, the new statute
would permit the Department to reach the same result."22 Canada states that US
countervailing duty law itself is mandatory in the sense that when Commerce
finds a financial contribution, benefit, and specificity, it must find a
countervailable subsidy. Because, according to Canada, the SAA and Preamble have
already determined that an export restraint meets the financial contribution
requirement, the scope of any discretion under the "would permit" language is
limited to Commerce's analysis of benefit and specificity.
3. The Sufficiency Of The Consultations On US Practice
4.71 Canada recalls that the United States submits that Canada's "claims"
regarding US practice are not properly before the Panel based on allegations
that: (1) Canada did not include US practice as a "measure" in its request for
consultations; (2) the parties did not actually consult on US practice; and (3)
Canada's Panel Request fails to adequately identify the "US 'practice' in
question."
4.72 Canada states that the United States attempts to support its position by
quoting selectively from the Appellate Body report in Brazil - Export Financing Programme for Aircraft as standing for the principle that without identity
between the subject of the consultations and the specific measures identified in
the panel request, the panel request is defective as a matter of law".23
Notwithstanding the erroneous assertion by the US as to absence of identity
between the subject of the consultations and the specific measures identified in
the panel request, Canada finds it instructive to set out more fully what the
Appellate Body actually said in the report relied on by the United States:
"We do not believe, however, that Articles 4 and 6 of the DSU � require a
precise and exact identity between the specific measures that were the subject
of consultations and the specific measures identified in the request for the
establishment of a panel.�As stated by the Panel, "[o]ne purpose of
consultations � is to 'clarify the facts of the situation', and it can be
expected that information obtained during the course of consultations may enable
the complainant to focus the scope of the matter with respect to which it seeks
establishment of a panel."
4.73 Canada states that apart from not requiring a precise and exact identity
between the specific measures that were the subject of consultations and the
specific measures identified in the request for the establishment of a panel,
panels have also been directed to look to whether the "essence" of the matters
consulted on are the same as the measures identified in a panel request. In
Canada's view, there can be no doubt that this is the case in the present case.
4.74 Turning to what occurred during consultations, prior to the meeting on 15
June 2000, Canada indicates that it notified the United States that among other
things to be dealt with at the meeting:
"We also will wish to inquire as to the sources of United States � practice, if
any, that are relevant to the Department of Commerce's treatment of an alleged
export restraint under U.S. countervailing duty law in addition to the Uruguay
Round Agreements Act (URAA), the Statement of Administrative Action accompanying
the URAA and the Department of Commerce's (DOC) Explanation of its Final Rule."24
(emphasis added)
4.75 According to Canada, this question was repeated at the consultations. Thus
the United States was well aware that Canada was concerned about US practice
regarding the treatment of export restraints. Moreover Canada states, the pre-WTO
Commerce determinations identified by Canada at the DSB meeting of September 11,
2000 are, as discussed above, plainly relevant to post-WTO practice, given that
the SAA and Preamble expressly give those cases continuing relevance.
4.76 Canada further submits that it is not challenging specific applications of
Commerce's practice, but rather the practice itself. In Canada's view, the
United States was in no way "prevented � from knowing the legal basis of the
complaint,"25 given that from the beginning of this dispute Canada has never
deviated from taking issue with the treatment of export restraints under US
countervailing duty law.
4. The Sufficiency Of Canada's Panel Request
4.77 Canada notes the US argument that with respect to the SAA and Preamble,
Canada's Panel Request is deficient because (1) the SAA and Preamble are not
identified as "measures" and (2) neither is a "measure." Canada asserts that it
has already demonstrated above that the SAA and Preamble are "measures".
4.78 Canada states in addition that contrary to the position of the United
States, the sentence in Canada's Panel Request identifying the measures at issue
sets out four measures, not two. Canada states that this is clear in Canada's
First Written Submission, when after repeating the relevant sentence from the
Panel Request in paragraph 3, it breaks out the four measures in paragraph 13 as
part of explaining how Canada's description of these measures will occur in the
submission. The four measures are easily identified in this paragraph.
4.79 Canada maintains that the manner in which it has set out the measures in
this case is almost identical to the manner in which the measures in EC -
Bananas were set out. In that case, the Appellate Body considered it sufficient
identification of the measures to reference the "regime for the importation,
sale and distribution of bananas established by Regulation 404/93 (O.J. L 47 of
25 February 1993, p. 1), and subsequent EC legislation, regulations and
administrative measures, including those reflecting the provisions of the
Framework Agreement on bananas, which implement, supplement and amend that
regime".26
4.80 Canada maintains that it has gone even further in this case in notifying,
through its Panel Request, the specific measures with which it takes issue,
which Request Canada has already shown to meet the requirements of Article 6.2
of the DSU. Further, it is clear to Canada from both the US Request and the US
First Written Submission that the United States has not been prejudiced, because
it has been able to respond fully to Canada's claims. In addition, Canada argues
that its Panel Request clearly satisfies the standard set out in Korea -
Definitive Safeguard Measure on Imports of Certain Dairy Products.27
5. Conclusion
4.81 For the foregoing reasons, Canada requests this Panel to reject the efforts
of the United States in the US Request to distract this Panel from its true
task: resolving the dispute between Canada and the United States regarding the
treatment of export restraints under US countervailing duty law. Therefore,
Canada requests that this Panel find that the claims made in the US Request are
without foundation.
V. MAIN ARGUMENTS OF THE PARTIES
5.1 The main arguments, presented by the parties in their written submissions
and oral statements, are summarized below. Summaries of the parties' written
answers to written questions are attached at Annex A.
A. FIRST WRITTEN SUBMISSION OF CANADA
1. Introduction
5.2 Canada states that at issue in this dispute is the treatment of export
restraints under US countervailing duty law, which, in Canada's view, places the
United States in violation of its obligations under the Agreement on Subsidies
and Countervailing Measures (the SCM Agreement) and the Marrakesh Agreement
Establishing the World Trade Organisation (the WTO Agreement).
5.3 According to Canada, under US countervailing duty law, a government
regulatory action that limits exports of a good (an export restraint) is
considered to be a "financial contribution" within the meaning of Article 1.1
(a)(1) of the SCM Agreement. US law therefore treats an export restraint as a
"subsidy" if, in the view of US investigating authorities, the export restraint
has the effect of lowering the domestic price of the restricted good to
downstream users of that good. If those downstream users of the restrained input
product are subject to a US countervailing duty investigation, the alleged
"subsidy" is countervailable.
5.4 For Canada, this is inconsistent with Article 1.1 of the SCM Agreement. The
definition of "subsidy" in Article 1.1 requires that there be a "financial
contribution" (or an income or price support) that confers a "benefit". The
"financial contribution" element of the Agreement's definition of "subsidy" is
exhaustively defined in Article 1.1(a)(1) to encompass only particular
government actions - the direct transfer of funds, the foregoing of government
revenue, or the provision of goods or services or purchase of goods - that
transfer financial resources from a government, or at the direction of a
government, to a private producer. In Canada's view, an export restraint does
not fall within any of these categories.
5.5 More specifically, and contrary to US law, Canada argues, an export
restraint does not fall under Article 1.1(a)(1)(iv) of the Agreement. An export
restraint does not "entrust or direct" a "private body" to "carry out the
provision of goods" and does not meet the other requirements of Article
1.1(a)(1)(iv).
5.6 Canada asserts that the US measures that require this treatment of export
restraints are Section 771(5) of the Tariff Act of 1930,28 as amended by the
Uruguay Round Agreements Act, portions of the Statement of Administrative Action29
accompanying the URAA interpreting Section 771(5) with respect to export
restraints, portions of the Preamble to the US Department of Commerce Final
Countervailing Duty Regulations30 interpreting and implementing Section 771(5) and
the SAA with respect to export restraints, and Commerce's ongoing practice
thereunder.
5.7 For Canada, in addition to being inconsistent with Article 1.1 of the SCM
Agreement, these measures are inconsistent with Article 10 (as well as Articles
11, 17 and 19, as they relate to the requirements of Article 10) and 32.1 of the
SCM Agreement, because they require the imposition of countervailing duties
against practices that are not subsidies within the meaning of Article 1.1. For
the same reason, the measures violate obligations of the United States under
both Article XVI:4 of the WTO Agreement and Article 32.5 of the SCM Agreement to
ensure conformity of its laws, regulations and administrative procedures with
its obligations under the WTO Agreements.
2. Pre- And Post-WTO US Countervailing Duty Law And The US Measures
5.8 Canada notes that the imposition of countervailing duties by the United
States is governed by the US countervailing duty statute, contained in Subtitle
A of Title VII of the Tariff Act of 1930, ("the Act") as amended from time to
time. Section 701 of the Act sets forth the basic requirement that if the
administering authority determines that a countervailable subsidy is being
provided to merchandise under investigation, and the US International Trade
Commission finds that a domestic industry is materially injured by reason of
imports of that merchandise, there "shall be imposed upon such merchandise a
countervailing duty � ." Thus, Canada states, the imposition of a duty is
mandatory if the subsidy and injury elements of the statute are satisfied.
5.9 Canada further notes that the definition of "countervailable subsidy"
appears in Section 771(5) of the Act. Under pre-WTO US law, there was no
definition of "subsidy" as such, but rather an illustrative list of subsidies.
More generally, although some form of "government action" was usually the
predicate, a subsidy was defined as a "countervailable benefit" that was
specific to particular enterprises or industries.
5.10 Canada argues that until the 1990's, Commerce recognised that to
countervail border measures would lead to absurd results by bringing many
legitimate government practices within the ambit of the countervailing duty law,
and consistently determined that border measures (including export restraints)
were not countervailable subsidies under US law.31 Canada states that Commerce
departed radically from this position in two countervailing duty cases in the
early 1990's, Leather from Argentina32 (Leather) and Certain Softwood Lumber
Products from Canada33 (Lumber). According to Canada, Commerce concluded that the
hide embargo in Leather and log export restraints in Lumber were countervailable
domestic subsidies because they had a "direct and discernible effect" on
domestic prices that benefited downstream producers. Commerce expressly did not
consider the restraint in either case to be a "provision of goods,"34 and in
Lumber, rejected respondents' argument that the export restraints were not
countervailable because they involved no "financial contribution" on the ground
that neither the pre-WTO Subsidies Code nor US law required a "financial
contribution" for a subsidy to exist.
19 SAA at
925-926.(Annex B to Canada's First Written Submission � Exhibit CAN-2)
20 US Request at paras. 48,
80. 21
US Request at para. 80.
22 See Regulations at
65,351 (Annex C to Canada's First Written Submission - Exhibit CAN-3), Canada's
First Written Submission at para. 50.
23US Request at para. 110.
24 Letter from S. Marchi,
Canada's Ambassador and Permanent Representative to the Permanent Mission of
Canada to the World Trade Organization, to R. Hayes, US Ambassador to the
Permanent Mission of the United States to the World Trade Organization, dated 13
June 2000. (US Exhibit 6)
25 US Request at para. 115.
26 See European Communities
-- Regime for the Importation, Sale, and Distribution of Bananas, Request
for Establishment of a Panel by Ecuador, Guatemala, Honduras, Mexico, and the
United States, WT/DS27/6, 12 April 1996. (Exhibit CAN-94)
27 Korea � Definitive
Safeguard Measure on Imports of Certain Dairy Products, Report of the
Appellate Body, WT/DS98/AB/R, 14 December 1999 at para. 123.
28 Codified at
19 U.S.C. � 1677(5) (1994).
29 "Statement of
Administrative Action" in H.R. Doc. No. 103-316, Vol. 1, in particular at
925-926 (1994).
30 Countervailing Duties,
63 Fed. Reg. 65,348 at 65,349-65,351 (Dep't Commerce 25 Nov. 1998) (final rule).
31 See paragraphs 19 and 20 of
Canada's First Written Submission dated 27 November 2000 (Canada's First
Submission).
32 Leather from Argentina,
55 Fed. Reg. 40,212 (Department of Commerce 2 Oct. 1990) (final determination).
33 Certain Softwood Lumber
Products from Canada, 57 Fed. Reg. 22,570, 22,610 (Department of Commerce 28
May 1992) (final determination) (hereinafter Lumber).
34 See paragraph 24 of
Canada's First Submission.
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