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UNITED STATES - MEASURES TREATING
(Continuation)
5.46 In the view of the United States, definitions of the word "directs" include
"cause to move in or take a specified direction; turn towards a specified
destination or target" or "to give authoritative instructions to; to ordain,
order (a person) to do (a thing) to be done; order the performance of."
Additional definitions of "directs" include "to regulate the course of", and "to
cause (something or someone) to move on a particular course; to guide (something
or someone); to govern; to instruct (something or someone) with authority".
5.47 The United States asserts that it cannot be said that no export restraint
is capable of satisfying any of these definitions. At a minimum, an export
restraint easily can be said to "regulate the activities of" or "cause" a
private body to carry out one of the enumerated functions of subparagraph (iv),
and thus provide a financial contribution.
5.48 For example, the United States argues, assume that in order to promote the
production and export of more value-added products, the government of Shangri-La
decides to support its pineapple juice industry. It begins to purchase all the
pineapples from its growers and to re-sell those pineapples to its pineapple
juice industry at less than the government's purchase price. For the United
States, it is clear that a subsidy exists in such a case because the government
has provided a financial contribution to the pineapple juice industry by
providing it with a good (pineapples) for less than adequate remuneration.
5.49 Now further assume, argues the United States, that instead of purchasing
the pineapples itself, the government has sufficient control over the pineapple
growers so that it can direct them to sell their pineapples to the domestic
pineapple juice industry. Here, it is the pineapple growers, and not the
government, that provides the good within the meaning of subparagraph (iii).
Such a situation is , in the US view, exactly the type of situation to which
Article 1.1(a)(1)(iv) is addressed. If the goods are provided for less than
adequate remuneration, a subsidy exists.
5.50 However, the United States asserts, the direction by the government of
Shangri-La to the pineapple growers to sell their pineapples to the domestic
pineapple juice industry could be effectuated through a variety of means. The
government of Shangri-La could decree that growers sell only to the domestic
juice industry. According to the United States, the exact same result could be
achieved if, in the normal course, there were large volumes of pineapple exports
and the government of Shangri-La put a stop to such activity by prohibiting the
export of pineapples. According to the United States, the government, by
directing the growers not to export, would be forcing them to sell the
pineapples they otherwise would have exported to the domestic users of
pineapples.
5.51 According to the United States, if an increased supply of the product in
the domestic market causes the price for that product to be lowered, that is the
same result as if the government had ordered the growers to sell for less than
market price. Thus, ordering the hypothetical pineapple growers not to export
can be the functional equivalent of ordering the growers to sell their products
to the juice industry for less than adequate remuneration. In the US view, both
types of functions fall squarely within subparagraph (iv).58
5.52 The United States notes that Canada argues that an export restraint does
not constitute a direction to provide goods because an "export restraint does
not commission or charge or authoritatively instruct producers of the restrained
good to do anything; rather, it limits their ability to export." The United
States further notes that the Panel is not restricted to the definitions chosen
by Canada.59
5.53 For the United States, Canada's distinction between a prohibitive
restriction and an affirmative obligation is simply an elevation of form over
substance. The two are functionally equivalent - where a producer is faced with
two options, a prohibition on one option is an affirmative direction to perform
the other. The United States maintains that an export ban clearly directs
producers not to export, thereby directing them to seek the only other
purchasers available to them for the sale of their goods.
5.54 The United States continues that with respect to "private body", neither
the word nor the concept of an "organized" body is contained in the SCM
Agreement (regardless of what language version is reviewed), nor should that
term be read into the Agreement.60
5.55 For the United States, the word "body" has multiple meanings. For example,
"body" may refer to the singular, e.g., "an individual, a person," or the
plural, e.g., "an aggregate of individuals." The United States notes that even
Canada offers the alternate definition of "a group of persons or things." Thus,
in the case of an export restraint, a government may be viewed as directing each
individual producer or producers as a group not to export, or to export only
under certain limited conditions.
5.56 For the United States, Canada's argument that "a common characteristic, -
e.g., gold miners, persons under 21, farmers or doctors - does not transform the
universe of such individuals into a 'private body'" is obviously mistaken. The
very dictionary upon which Canada itself relies states that a "body" is defined
to include: "an assemblage of units characterized by some common attribute and
thus regarded as a whole; a collective mass (of persons or of things)."
5.57 The United States argues that under Canada's view, an association of steel
producers would constitute a private body (presumably, because it is
"organized"), but the individual steel producers belonging to the association
would not, despite the fact that each individual steel producer is itself a
corporate body. Consistent with the text and object and purpose of the SCM
Agreement, the United States maintains, no rational distinction can be drawn
between the association and its corporate members. Nor is there a difference
between banks and credit unions (which Canada concedes are private bodies) and
any other supplier of a good or service.
5.58 According to the United States, as long as there is some entity that could
constitute a private body even under Canada's narrow definition (e.g., an
organized association of producers) that could be entrusted or directed by
virtue of an export restraint to provide a good or service, the "private body"
element of subparagraph (iv) must be regarded as capable of being satisfied by
an export restraint.
5.59 The United States notes that the third element of subparagraph (iv) refers
back to the previous three subparagraphs, by stating that the private body must
be entrusted or directed "to carry out one or more of the type of functions
illustrated in (i) to (iii) above." The United States states that the ordinary
meaning of "carry out" is to "perform, conduct to completion, put into
practice." Thus, in the case of an export restraint, if a "private body"
performs the function entrusted or directed to it by the government, this
element is satisfied.
5.60 For the United States, conceptually, an export restraint qualifies under
subparagraph (iii) of Article 1.1(a)(1) regarding the provision of goods or
services. In the case of an export restraint, the United States argues, the
government would be directing a private body (producers of a good) to provide
the restricted good to the domestic industry that uses the good by restricting
the producers' ability to sell elsewhere.
5.61 The United States notes that Canada argues that each type of government
action in subparagraphs (i)-(iii) "involves a transfer of economic (i.e.,
financial) resources from a government to producers of goods or services" and
that an export restraint is not such a transfer of financial resources. For the
United States, this argument is simply another iteration of Canada's long-held
(and rejected) position that a subsidy (whether direct or indirect) can exist
only where there is some net cost to the government.
5.62 The United States further notes that Canada also argues that the "producers
of a good supply that good in the domestic market to the extent they wish to do
so, and whether or not there is an export restraint." For the United States,
this is simply not true. While producers of a good will certainly continue to
supply goods to the domestic market where an export restraint is in place
(because they have no other choice), they are not supplying the domestic market
"to the extent they wish to do so."
5.63 The United States recalls that the final element of subparagraph (iv)
requires that the function at issue "would normally be vested in the government
and the practice, in no real sense, differs from practices normally followed by
governments." In the US view, Canada offers no explanation at all as to why an
export restraint never could be capable of satisfying this element. Instead,
Canada merely falls back on its erroneous arguments relating to the first three
elements, and asserts (incorrectly) that because an export restraint never could
satisfy all of the first three elements, the last element necessarily is not
satisfied.
5.64 The United States maintains that putting aside Canada's failure to argue
the point, the text does not elaborate on this element. However, for the United
States, a report of a GATT panel is instructive as to the likely intended
meaning of these phrases, referring specifically to the government "functions of
taxation and subsidization." The United States argues that Canada acknowledges
that whether a practice differs, in any real sense, from practices normally
followed by governments depends on the circumstances relating to the government
and the financial contribution in question.
5.65 For the United States, the important point is that where a government is
involved in the provision of a good or service and, instead of providing that
good or service directly, it entrusts or directs a private body to provide the
good or service to domestic purchasers, by way of an export restraint or
otherwise, there could be a financial contribution within the meaning of
subparagraph (iv). More importantly, the United States argues, it is clear that
subparagraph (iv) refers to functions "normally" performed by governments in the
context of providing a subsidy; any other meaning would leave subparagraph (iv)
utterly empty.
5.66 Finally, in the view of the United States, an export restraint is capable
of providing a benefit. The United States asserts that whether a particular
export restraint confers a benefit is a factual question that can only be
determined on a case-by-case basis, applying the standard set forth in Article
14(d) of the SCM Agreement regarding the provision of goods or services.
Although, the United States argues, Canada appears to concede the possibility
that an export restraint can confer a benefit, it nonetheless argues that "if an
export restraint is considered to be the provision of a good because it might
result in greater domestic availability of a product, then any measure that
might induce or encourage domestic producers to increase the supply of a product
would have to be considered the provision of a good, and hence a financial
contribution." With respect to this "slippery slope" argument, the United States
indicates, the simple answer is that as a factual matter, it is unlikely that
all such measures could be found to confer a financial contribution, within the
meaning of subparagraph (iv), that results in a benefit, within the meaning of
Article 1.1(b). Indeed, the United States notes, in Live Cattle from Canada, the
DOC determined that the measure in question did not confer a benefit, and, thus,
did not constitute a subsidy.
5.67 In addition, the United States recalls, only those government measures that
are specific within the meaning of Article 1.2 of the SCM Agreement are
actionable. Thus, for the United States, it is clear that not all government
measures that increase the supply of a product would constitute countervailable
subsidies. Indeed, history has shown that there have been very few CVD
investigations, if any, that have involved general government "regulatory"
regimes. In the US view, the absence of such cases undermines Canada's plea for
a narrow definition of subparagraph (iv) based on an alleged flood of
litigation.
The Context of Subparagraph (iv) Supports the Proposition that an Export
Restraint Can Constitute a Subsidy
5.68 The United States argues that indirect subsidies also are covered by item
(d) of the Illustrative List of Export Subsidies, and that item (d) is highly
pertinent to the interpretation of Article 1.1, because each type of subsidy
described in the Illustrative List must satisfy the requirements of Article 1.1.
Thus, for the United States, the language of subparagraph (iv) must be
sufficiently broad so as to encompass "government-mandated schemes" under item
(d). At a minimum, the United States argues, it is not hard to think of export
restraints as a "government-mandated scheme" designed to benefit users of the
restricted product.
5.69 In Canada - Dairy, the United States asserts, the panel considered item (d)
for purposes of deciding whether Canada's dual-pricing scheme could constitute
an export subsidy not listed in Article 9.1 of the Agreement on Agriculture. The
panel concluded that the scheme was a "government-mandated scheme" of the type
described in item (d). According to the panel:
[I]n the event milk were not directly provided by Canada's governments or their
agencies under Classes 5(d) and (e), in our view, it is at least indirectly
provided through government-mandated schemes. For there to be such schemes we do
not consider it necessary, as argued by Canada, that the federal or provincial
governments specifically direct a certain outcome or course of action to be
achieved or taken by the CDC, the provincial marketing boards or the CMSMC.
(emphasis added).
5.70 For the United States, this finding by the panel is highly relevant to this
case, because Canada has argued that an export restraint can never constitute a
subsidy because "[a]n export restraint does not commission or charge or
authoritatively instruct producers of the restrained good to do anything ... ."
However, in the US view, the Canada - Dairy panel flatly rejected such a
standard, finding instead that in order for an indirect subsidy to exist, it is
not necessary that "governments specifically direct a certain outcome or course
of action to be achieved or taken ... ."
(iv) Nothing in the Negotiating History of the SCM Agreement Precludes the
Possibility that an Export Restraint Could Constitute a Subsidy
5.71 The United States maintains that Canada has brought up the negotiating
history of the SCM Agreement in a vain attempt to overcome the conclusion to
which the text, context, and object and purpose inexorably lead. For the United
States, nothing in the negotiating history establishes that export restraints
can never constitute subsidies.
5.72 The United States recalls that Canada asserts that during the Uruguay Round
negotiations, "the United States itself recognised that the SCM Agreement
definition of subsidy . . . did not encompass export restraints." According to
Canada, this is evident from US proposals relating to industrial targeting
practices.61
5.73 According to the United States, the negotiating history reveals that, while
the United States would have preferred that the SCM Agreement explicitly address
"industrial targeting," the United States did not ever take the position that
the term "subsidy" could never encompass export restraints. More importantly for
the United States, the results of the negotiations reveal no explicit "carve
out" or exception for export restraints.
5.74 The United States recalls that in order to facilitate work, the Secretariat
prepared a list of problems that had arisen in the operation of the relevant
GATT 1947 agreements. The Secretariat noted that the Group of Experts on the
Calculation of the Amount of a Subsidy had been discussing criteria to determine
when certain practices might constitute countervailable subsidies and how the
amount of the subsidy should be measured. The Secretariat listed four types of
subsidies discussed by the Group - one of which was "export restrictions."
Clearly, the United States argues, someone in the Group of Experts thought that
export restrictions were capable of constituting subsidies.
5.75 The United States recalls that in March 1987, it tabled its first proposal
on Subsidies and Countervailing Measures, the relevant portion consisting of two
paragraphs, the first of which reads:
Industry targeting consists of a government plan or scheme of coordinated
measures to assist specific export-oriented industries. While some targeting
measures are clearly covered by subsidies disciplines, the application of the
Code to other measures is unclear. As a result, there has been extensive debate
in the Subsidies Code Committee over whether government "targeting" practices
fall within the internationally-accepted definition of a subsidy. To date,
however, there has been no agreement as to whether industrial policy-type
measures that result in the indirect channelling of resources to a specific
industry or sector constitute countervailable subsidies or should be addressed
under some other provision of GATT. (emphasis added).
According to the United States, this paragraph sets out the common understanding
that there was no agreement as to whether government targeting practices
constituted countervailable subsidies, as well as the US position that certain
components of "targeting" were already covered by subsidies disciplines.
5.76 The United States recalls that the second paragraph of its March 1987
proposal reads as follows:
The United States believes that the Uruguay Round negotiations should clarify
what remedies are available for the trade distortions and economic damage
associated with targeting and other industrial policy measures that affect
trade. The United States is concerned that the international trade rules do not
adequately address the trade damage that can result from industrial targeting
programs.
5.77 In the view of the United States, Canada is asking the Panel to selectively
read this paragraph to mean that the United States conceded that export
restraints are not encompassed under the definition of subsidy. However, in the
view of the United States, the full text of the US statement does not support
Canada's interpretation. Rather, the United States' desire to clarify that
targeting and certain other industrial policy measures are subject to
international trading rules and disciplines simply reflects the fact that there
was no agreement on this issue. Other documents quoted by Canada prove this
point, according to the United States.
5.78 The United States asserts that Canada reproduces three quotations from the
Secretariat's Notes on the June 1990 meeting as alleged proof that the United
States "plainly understood that an export restraint fell outside the ambit of
the definition of subsidy." The United States argues that the most relevant
quotation, however, states as follows:
[The United States ] found that among the policies most frequently used were the
following: protection of the home market, promotion or toleration of cartels,
discriminatory or preferential government procurement practices, direction of
capital (government to private) to certain enterprises, export restrictions, and
manipulation of the user market to reduce the risk associated with product
development and commercialization.
5.79 The United States notes that Canada argues that the inclusion of "export
restrictions" in this discussion of "industrial targeting" makes it "plain" that
export restraints were not regarded as subsidies. In fact, the United States
asserts, it made clear that some of the actions encompassed by industrial
targeting were, standing alone, subsidies. Indeed, the United States argues, the
document Canada quotes includes in the list of possible elements of "industrial
targeting" "discriminatory or preferential government procurement practices"
(e.g., the purchase of goods by a government for more than adequate
remuneration) and the "direction of capital (government or private) to certain
enterprises." Clearly for the United States, like export restraints, these can
be actionable subsidies under Article 1.1, even though the United States
categorized them as possible elements of "industrial targeting."
5.80 In the US view, Canada also misrepresents positions taken in litigation
during the pendency of the Uruguay Round. Using partial quotations from DOC CVD
determinations made at the time, according to the United States, Canada asserts
that the United States conceded that export restraints cannot constitute a
financial contribution. In the view of the United States, these determinations
obviously do not constitute part of the negotiating history of the SCM
Agreement, and are therefore irrelevant. However, the United States asserts,
Canada's misrepresentations are so blatant that they require clarification.
5.81 The United States asserts that in the Softwood Lumber case, Canada argued
that an export restraint did not constitute a subsidy because an export
restraint did not constitute a financial contribution, in the sense of a
transfer of resources from the government to the recipient. According to the
United States, it was clear that the dicta Canada has cited was based on
Canada's characterization of the meaning of "financial contribution." Consistent
with its Uruguay Round negotiating position at the time, Canada equated a
"financial contribution" with a cost to the government. This becomes clear, the
United States argues, when one considers the full quotation from the DOC
determination, which Canada quotes only partially.
5.82 In a final attempt to bolster its argument, the United States asserts,
Canada cites statements by US industries concerning the results of the Uruguay
Round negotiations. Notwithstanding the fact that many of these parties
expressed concern only that export restraints "might" cease to be countervailable, in the view of the United States, US industries' assessments
cannot be considered part of the negotiating history. Moreover, even if certain
US industries (erroneously) thought that the Article 1.1 definition might
preclude treating export restraints as subsidies, other US industries clearly
did not take that view.
5.83 Thus, for the United States the only thing the negotiating history
demonstrates is that the United States unsuccessfully sought to include language
on targeting practices in the SCM Agreement. However, at no time did the United
States concede that export restraints could never constitute subsidies standing
alone, and the SCM Agreement contains no explicit exception for export
restraints; i.e., no indication that export restraints can never, under any
circumstances, constitute a subsidy. Yet, the United States argues, that is what
Canada would have the Panel conclude, and the Panel should decline to do so.
3. Conclusion
5.84 In the view of the United States, Canada fails to demonstrate that never,
under any set of circumstances, can an export restraint constitute a subsidy
under Article 1.1 of the SCM Agreement. The United States asserts that to the
contrary, the United States has demonstrated that on the basis of standard
principles of treaty interpretation, subparagraph (iv) of Article 1.1(a)(1) -
the provision cited by Canada - can accommodate export restraints. As a result,
the United States argues, Canada has failed to satisfy its burden of proof.
C. FIRST ORAL STATEMENT OF CANADA
1. The US Request For Preliminary Rulings
5.85 Canada refers to its Response to the US Request (See Section IV.B,
infra).
2. The Definition Of "Subsidy" In The SCM Agreement
5.86 Canada argues that in its first written submission, the United States
misinterprets the SCM Agreement definition of "subsidy" in several respects,
beginning with assertions about economics and a flawed version of the object and
purpose of the SCM Agreement. According to Canada, while the United States
purports to apply the requirements of the Vienna Convention, its approach seeks
to bend the ordinary meaning of the words in order to enable the United States
to continue to act against practices that might confer a benefit.
5.87 Canada states that as the Appellate Body made clear in Canada - Aircraft,
however, the interpretative task begins with "examining the ordinary meaning of
the text". Canada agrees, and begins with the text of Article 1.1(a)(1).
5.88 Canada asserts that the United States agrees with it that Article 1.1 of
the SCM Agreement defines the universe of what constitutes a "subsidy." Thus,
Canada states, both countries concur that the existence of a "subsidy" within
the meaning of Article 1.1 of the SCM Agreement is a prerequisite to the
imposition of countervailing measures. Where Canada and the United States
differ, according to Canada, is the extent of the "universe" of government
actions encompassed within the definition of "financial contribution" in Article
1.1(a)(1) of the Agreement.
5.89 Canada states that in keeping with the approach to treaty interpretation
set forth in the Vienna Convention it believes that a government regulatory
measure that restrains exports is not within the ordinary meaning of the terms
of Article 1.1 (a)(1)(iv). In restraining exports, Canada states, a government
does not "entrust or direct" a "private body" to make a financial contribution
enumerated in subparagraphs (i) through (iii), or meet the other requirements of
subparagraph (iv). Each of these failings is sufficient to render the US
measures inconsistent with the SCM and WTO Agreements.
5.90 Regarding the "entrusts or directs" element, Canada notes that the United
States concentrates its arguments on the concept of "directs" rather than
"entrusts", thus apparently recognizing that a restraint on a producer's ability
to export cannot be seen as investing a producer with a trust or responsibility
to carry out a governmental function.
5.91 Remarkably to Canada, however, the United States claims that the term
"directs" means "causes". Not only do these words commonly mean very different
things, Canada counters, but "causes" is taken completely out of context from
dictionary definitions offered by the United States and an export restraint
plainly does not meet those definitions. For example, if "direct" is defined to
mean "cause to take a specified direction", an export restraint would not
qualify as a "direction" under Article 1.1(a)(1)(iv), because the "specified
direction" would need to be "to carry out one or more of the type of functions
illustrated in [subparagraphs] (i) to (iii)." Yet Canada maintains, the
"specified direction" in the case of an export restraint is not to provide
goods, but rather is "to not export." The same is true if "directs" is defined
as "to cause (something or someone) to move on a particular course". In the case
of an export restraint, the "particular course" is " to not export", Canada
states; it is not to make a financial contribution by providing goods.
5.92 In short, Canada argues, the ordinary meaning of "directs" is to "give
authoritative instructions to" or "order a person to do a thing", and even the
dictionary definitions supplied by the United States cannot be stretched to
transform the plain meaning of "directs" into "causes". Canada argues that the
drafters were obviously familiar with the concept of causation, and that it must
be assumed that if they had contemplated using that concept in subparagraph (iv)
of the definition of "financial contribution", they would have used that word.
5.93 For Canada, the US approach would lead to absurd and unpredictable results,
and would expand the SCM Agreement definition of "subsidy" beyond recognition by
subjecting the exercise of regulatory authority by governments to countervailing
measures. For example, considering the situation where a government restricts
imports of steel, or increases its steel tariffs within its WTO tariff bindings,
under the US approach if this led to an increase in domestic steel prices, the
government would have "caused" private parties (steel purchasers) to provide
funds to steel producers that otherwise would not have been provided, and
therefore would have provided a financial contribution. But according to Canada
this was clearly not intended.
5.94 In Canada's view, the US approach to the term "private body" is
similarly aimed at diminishing, rather than giving effect to, the ordinary
meaning of the terms of the treaty, and for that reason is equally flawed. The
United States insists that "private body" can mean, among other things, a vast
number of unassociated individual persons, in effect asserting, for example,
that "all persons under 21" can be a "private body", but doing so by reference
to dictionary definitions that refer to "an assemblage" or a "collective".
Canada argues that the United States offers no suggestion why the drafters used
the term "private body" if, as the US urges, they meant "private person or
persons". Finally, according to Canada, the US approach does not articulate any
principle that would distinguish between private actors in terms of which
situations involve a "body" and which do not. Thus, taken together with the US
interpretation of "direct" to mean "cause", the US view would in Canada's view
mean that any government action that affects the marketplace (that is,
individual buyers and sellers) would "entrust or direct a private body." Had
that been the drafters' intent, Canada maintains, they could surely have so
stated.
59
According to the United States, Canada's Special Import Measures Act,
S.C. 1984, c. 25, s.2, finds an indirect subsidy to exist where: "The
government permits or directs a non-governmental body to do any thing
referred to in any of paragraphs (a) to (c) ... ." Thus, Canada is urging on
the Panel a standard that it does not apply for purposes of its own CVD law.
60
The United States states that the Spanish version of the SCM Agreement refers to
an "entitad privada", which translated into English is a "private entity."
Canada relies on the French version of the SCM Agreement which uses the phrase "organisme
priv�" and argues that that term means "an organised group." However, the term
"organisme" translated into English is defined as an "organisation" or a "body."
61
The United States notes in this regard that the term "industrial targeting"
referred to a government plan or scheme of coordinated measures to assist
specific export-oriented industries.
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