5.209 The United States asserts that Canada's final argument in support of its position that the ordinary meaning of "entrusts or directs" should be ignored is its "slippery slope" or "doomsday" argument.⁹⁵ In the US view, part of Canada's tactic is to focus on select words chosen from the US submissions, such as "functional equivalence" and "conceptual similarity", and characterize them as "unbounded concepts."⁹⁶ The United States submits that in so doing, however, Canada's arguments go way beyond export restraints to encompass all indirect subsidies.

5.210 In any event, for the United States there is absolutely no factual support for Canada's doomsday predictions. Most telling, in the ten years since Leather from Argentina and in the six years since the WTO Agreement entered into force, doomsday has not arrived. Indeed, the United States asserts, Canada cannot even find a real life case on which to base its claim. In fact, with respect to export restraints, the United States has not even had occasion under post-WTO law to evaluate whether any particular export restraint gave rise to a financial contribution. Indeed, the United States argues, if one goes even further back and looks at pre-WTO determinations, one finds that in Lumber III, the DOC found that the export restraints in three of the four provinces examined did not satisfy the standard that the DOC employed at the time; the standard that Canada and the EC falsely claim is the standard under current law.

5.211 For the United States, the most significant point about the "slippery slope" argument, however, is that the "entrusts or directs" standard - which is an element both of US law and subparagraph (iv) - requires a causal connection. The United States argues that some export restraints may satisfy this standard, others may not. Even for those export restraints that might satisfy this standard, the requirements of benefit and specificity will operate so as to weed out certain export restraints and other types of indirect government measures from the category of actionable subsidies.⁹⁷

(b) "Private Body"

5.212 The United States asserts that it previously has demonstrated that dictionary definitions in multiple languages thoroughly undermine Canada's peculiar interpretation of "private body",⁹⁸ and further argues that even the EC does not support Canada's invented requirement for an "organized collectivity."⁹⁹

(c) To Carry Out One or More of the Type of Functions Illustrated in (i) to (iii) Which Would Normally Be Vested in the Government and that in No Real Sense Differs from Practices Normally Followed by Governments

5.213 With respect to the final elements of subparagraph (iv), the United States argues, Canada offers no explanation as to why an export restraint is incapable of satisfying these elements.¹⁰⁰ Instead, it simply asserts that these elements cannot be satisfied, and offers no explanation of what these elements mean.

5.214 The United States notes that these elements are discussed in greater detail in its answers to the Panel's questions. The United States recalls its position that "normally vested in" and "normally followed by governments" refer to the functions of taxation and subsidization, and asserts that support for this position is found in the only reference on point, the 1960 Article XVI:5 Report, which refers to the "functions of taxation and subsidization."

(d) Object and Purpose

5.215 The United States argues that Canada and the EC both object to the US reliance on the object and purpose of the SCM Agreement, falsely suggesting that the United States has relied on object and purpose to the exclusion of the text.¹⁰¹ According to the United States, both are wrong.

5.216 In the view of the United States, the US submissions speak for themselves, and demonstrate that the United States has not ignored the text, but instead has demonstrated that the text supports the US position. However, the United States argues, consistent with customary principles of public international law, as reflected in Article 31 of the Vienna Convention on the Law of Treaties, object and purpose form part of a single rule of treaty interpretation. For the United States, in this case in particular, object and purpose are informative on how the text should be interpreted.

5.217 To the United States, what is particularly telling is its view that neither Canada nor the EC can plausibly dispute that the object and purpose of the SCM Agreement - regardless of what weight is attached to it - support the US position. The United States recalls its previous statement that the primary object and purpose of the SCM Agreement is to impose disciplines on certain government measures that distort international trade.¹⁰²

5.218 The United States objects that Canada seeks to characterize the US position as "one-dimensional" by referring to a single paragraph from the Statement Made by the Delegation of Canada at a Meeting Held on 28-29 June 1988, CAN-106, in which Canada noted that there need to be limits on the use of countervailing measures.¹⁰³ While the United States acknowledges that the SCM Agreement also regulates the use of countervailing measures, it is clear that this is not its primary purpose. Indeed, the United States submits, virtually the entirety of CAN-106 speaks to the need to discipline the use of subsidies as trade-distorting measures. The United States urges the Panel to read CAN-106 in its entirety. The United States notes that even when speaking of disciplines on countervailing measures, Canada makes it clear that great care must be taken to avoid creating a loophole.

5.219 The United States also emphasizes that in its view neither Canada nor the EC disputes the object and purpose of subparagraph (iv), which is to prevent governments from doing indirectly what they cannot do directly. For the United States, if the Panel, in the absence of any facts, were to categorically exclude export restraints from the definition of Article 1.1, the object and purpose of subparagraph (iv) would be undermined.

5.220 Finally, the United States argues, Canada claims that the SCM Agreement's method of designating practices as either prohibited, actionable, or non-actionable supports its view that export restraints should be excluded from the definition of Article 1.1.¹⁰⁴ According to the United States, if anything the opposite is true. If export restraints were categorically excluded from Article 1.1, they essentially would be rendered non-actionable, and the Panel effectively would be rewriting the SCM Agreement. In the US view, the drafters of the SCM Agreement presumably provided a definition of "subsidy" so that each particular government measure (not each category of measure) could be evaluated on the basis of its own facts and circumstances.

5. Conclusion

5.221 Based on the foregoing, the United States renews its request that the Panel dismiss Canada's complaint by making the preliminary rulings described in paragraph 125 of the US Request. Should the Panel decline to dismiss Canada's complaint, the United States renews its request that the Panel make the findings described in paragraph 87 of the US First Submission.

G. SECOND ORAL STATEMENT OF CANADA

1. Introduction And The United States' Continued Efforts To Define "Subsidy" As "Countervailable Benefit"

5.222 Canada asserts that it has demonstrated that the measures in question treat an export restraint as a financial contribution and that an export restraint is not a financial contribution under Article 1.1(a)(1) of the SCM Agreement. Canada submits that the US response has been that; first, the measures do not "require" the US to treat an export restraint as a financial contribution, but leave it to Commerce to determine on a case-by-case basis; and that second, export restraints can constitute a financial contribution if there is merely a "causal relationship" between an export restraint and a provision of the good to domestic users. These positions, according to Canada, rewrite both US law and the SCM Agreement.

5.223 With regard to its first argument, Canada states, the United States relies primarily on assertions that the measures leave Commerce sufficient flexibility in any case to decide that an export restraint is not a financial contribution. To Canada, this alleged flexibility is illusory as the measures have already determined that an export restraint will satisfy the financial contribution requirement.

5.224 Canada submits that while the United States argues that the measures are open to interpretation on a case by case basis the US repeatedly states that it cannot say how any export restraint would be treated under US countervailing duty law, and has failed to provide this Panel with a single example of an export restraint that it would not consider to be a financial contribution. In Canada's view, every instance of alleged flexibility turns out to be an example in which an export restraint was not considered to be a subsidy because there was no benefit, or there was no export restraint in the first place.

5.225 Canada notes that the second part of the US argument rests on a claim that subparagraph (iv) is satisfied if there is a causal relationship between a government action and the provision of a good. In Canada's view, the US analysis is not sustainable under the ordinary meaning of the language of subparagraph (iv) in its context and in light of the object and purpose of the Agreement. There is simply no way to explain why subparagraph (iv) is written as it is if it were intended to mean what the US claims.

5.226 To the extent the measures contain any element of discretion, Canada asserts, it is not of a nature that enables the United States to invoke the mandatory/discretionary distinction as a defence. Such treatment of export restraints is inconsistent with subparagraph (iv), because an export restraint does not fall within the plain meaning of that provision. For Canada, the US claims to the contrary reflect the continuing effort by the United States to maintain the open-ended definition of "subsidy" that it tried, but failed, to obtain during the negotiation of the SCM Agreement.

5.227 In Canada's view, this dispute reveals a fundamental difference of opinion as to the government actions that fall under the definition of "financial contribution" in Article 1.1. On the one hand, Canada and the European Communities have advanced a position that relies on the ordinary meaning of the language in its context, and provides certainty and predictability to the operation of the SCM Agreement. The United States has advanced an interpretation of "financial contribution" that is so broad that any government action that causes a benefit will be considered a "financial contribution", thus, in effect, reading the "financial contribution" element out of the Agreement. For Canada, this expands its scope to such an extent that the certainty and predictability achieved by the negotiators is lost.

5.228 Canada submits that the fundamental approach of the United States is aptly summarized in paragraph 2 of its second written submission, where the United States asserts that export restraints "are regarded as 'subsidies' in the normal economic sense of the term," which means that export restraints must be capable of being subject to countervailing duties. According to Canada, this logic echoes the failed US effort in the Uruguay Round to define "subsidy" as any government action that led to a "benefit". In Canada's view, arriving at the definition of a subsidy was one of the most important achievements of the Round, an achievement that the position of the United States seeks to ignore. The United States begins with a subsidy in the so-called "vernacular" and works backwards to conclude that an export restraint must be a subsidy under the Agreement. Canada asserts that the United States, in the context of export restraints, in effect implemented the agreement it tried to negotiate instead of the one agreed to.

2. The Measures At Issue Require The United States To Treat An Export Restraint As A "Financial Contribution"

5.229 Canada notes that the United States argues that the SAA, the Preamble and Commerce practice are not measures at all and, even if they were, what they direct regarding export restraints is of no real effect as they do not require any particular action of Commerce. For Canada, these measures clearly are measures under GATT and WTO law. If they have no import, Canada submits, then the United States has made great efforts to creating meaningless interpretations of its statute. In Canada's view these are not empty measures. They authoritatively direct Commerce to treat an export restraint as a financial contribution.

5.230 Canada submits that the United States attempts to keep the measures in clinical isolation from each other, but nevertheless itself recommends that the panel look to how the measures "relate to each other, under [its] domestic law." For Canada, this approach is grounded both in common sense and in WTO case law. The Panel in United States - Section 301 noted that statutory and non-statutory elements of a Member's domestic law are "often inseparable and should not be read independently from each other when evaluating the overall conformity of the law with WTO obligations."

5.231 Canada notes that the SAA is an "authoritative expression" of the US Administration's and Congress's views regarding the "interpretation and application" of the WTO Agreements and is to be regarded as such in US judicial proceedings. Canada submits that it gives Commerce explicit direction as to how it is to treat export restraints. This is made abundantly clear by the statement in the SAA 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 countervailed in the past" (i.e. the export restraints in Leather and in Lumber). Canada argues that this statement does not read "may encompass" or "could encompass". Despite this clarity, and the clear direction in the SAA that the "entrusts or directs" standard be interpreted broadly, Canada argues, the United States insists that the SAA does not provide direction to Commerce on how the statute is to be interpreted. In Canada's view, the United States downplays the significance of the SAA because of what it terms Commerce's "freedom" to make up its own mind.

5.232 Canada notes that the United States asserts that "all that the SAA 'authoritatively' says is that Commerce must follow the standard set forth in Section 771(5)", and that the SAA expresses no position on indirect subsidies. For Canada, the US view seems to be that the entire discussion in the SAA on what Article 1.1(a)(1)(iv) of the SCM Agreement and Section 771(5)(B)(iii) encompass should be read as Congress refraining from pre-judging the consideration of export restraints. Canada submits that this assertion is belied by the very purpose of the SAA as an affirmative, authoritative expression as to how the legislation is to be interpreted and applied.

5.233 Canada argues that the United States further downplays the text of the SAA by characterizing statements made in the Korea Stainless Steel cases as simply the expression of "[Commerce's] non-binding opinion that the results under the new standard in subparagraph (iv) may not differ significantly from the results that would have obtained under [Commerce's] pre-WTO standard." Canada submits that what Commerce actually said, however, was that "the clear and unambiguous language of the SAA is that Congress intended the specific types of indirect subsidies found to be countervailable" in the cited pre-WTO cases are to continue to be countervailable under the new law. For Canada, this is a clear and unambiguous statement of Commerce's position, made in direct response to the argument that loans by private foreign banks could not constitute financial contributions.

5.234 In Canada's view, to say that Congress simply left the issue to be decided by Commerce cannot be reconciled with the clear statements contained in the SAA and confirmed in other legislative history such as the Senate Joint Report on the URAA¹⁰⁵ and more recently in Congressional statements concerning Canadian softwood lumber only two weeks ago.¹⁰⁶

5.235 Canada argues that the US description of the Preamble as reflecting Commerce's "tentative opinions" is at odds with what the Preamble says. For Canada, nothing in the Preamble suggests that the views expressed in it are in any way "tentative" or preliminary, and Commerce's past reliance on it in the Korea Stainless Steel cases makes clear that Commerce has not treated the Preamble as "tentative". In Canada's view, this US argument is also belied by US court cases and the United States' use of a preamble in WTO dispute settlement proceedings. There is nothing "tentative" in Commerce's conclusion that the standard under the URAA is no narrower than the standard under pre-WTO law and its reliance on the SAA discussion of pre-WTO case law regarding export restraints to make this statement. Canada argues that the Preamble cannot be considered "tentative" when it clearly states that Commerce will enforce the "entrust or directs" provision vigorously and that Commerce agrees with "those commenters who urged the Department to confirm that the current standard is no narrower than the prior U.S. standard for finding an indirect subsidy as described in�[Lumber]."

5.236 Canada submits that in the light of the administrative framework under which US agencies promulgate regulations, the purported distinction between the Preamble and the remainder of the regulation is without basis. Likewise, in Canada's view, there is no basis to the claim that under US law, Commerce's Preamble to its final regulations must be published in the CFR in order to have legal effect.

5.237 Canada submits that the United States is incorrect in arguing that there is no US practice relevant to the treatment of export restraints. Relevant US practice includes pre-WTO practice which is expressly incorporated in US law through the SAA and Preamble and post-WTO practice of the Commerce (e.g., Live Cattle and the Korea Stainless Steel cases) which evidence its commitment to apply "a standard no narrower than the prior US standard for finding an indirect subsidy". The Korea Stainless Steel cases left no doubt, according to Canada, that Commerce practice with respect to indirect subsidies, including export restraints, follows the dictates of the SAA and Preamble, and claims no scope for departure from the standard set out in the SAA and Preamble.

5.238 Canada argues that the Live Cattle case is further evidence of Commerce's view that an export restraint satisfies the "financial contribution" requirement of Section 771(5)(B)(iii). Canada notes that in the Initiation Memorandum, Commerce specifically stated that the petitioner had provided "evidence that the CWB controls exports"; that the petitioner claimed the CWB was limiting the amount [of feed barley] exported to the United States"; and that the petitioner had offered "empirical evidence that the CWB restrains exports to the United States". In Canada's view, Commerce's decision to initiate an investigation of this allegation on the basis of this evidence means it necessarily concluded that CWB's "control" over barley exports, if proved to exist, would meet the standard for a financial contribution under Section 771(5)(B)(iii). Further, in its final determination, Canada notes, Commerce stated its view that in the context of export restraints "the provision of a good, whether provided directly or indirectly, for less than adequate remuneration constitutes a financial contribution."

5.239 For Canada, if there is any element of discretion in the measures, it is not of a nature that would allow the United States to invoke the mandatory/discretionary distinction as a defence. The discretion the United States claims to exist in the SAA and Preamble has been curtailed such that Commerce is committed to apply US law inconsistently with the SCM and WTO Agreements. To effectively invoke this defence, according to Canada, the United States would have to demonstrate that Commerce has the discretion to disregard the SAA and Preamble and determine that an export restraint is not a financial contribution. All of the evidence is, however, to the contrary in Canada's view.

3. Export Restraints Do Not Come Within Article 1.1 (A)(1)(Iv) Of The SCM Agreement Because They Do Not "Entrust" Or "Direct" A Private Body To Provide Goods

5.240 Canada notes that the definition of "subsidy" in Article 1.1 of the SCM Agreement is the fundamental basis upon which all actions under the SCM Agreement are premised. A measure that implements the definition inconsistent with the Agreement nullifies and impairs the rights of other WTO Members. In Canada's view, a proper interpretation of subparagraph (iv) of Article 1.1 results in a conclusion that its terms do not encompass export restraints. The need to show benefit and specificity cannot justify nullifying the financial contribution element.

5.241 According to Canada, the United States ignores the word "entrusts", thus ignoring that "entrusts" provides context for the meaning of the word "directs." While not synonymous with "entrust", Canada argues, the word "direct" shares the same essential quality of a governmental communication to a private body. The United States, however, effectively replaces the word "directs" with "causes" in subparagraph (iv). For Canada, "direct" does not mean "cause." The mere fact that something occurred does not mean that the government directed someone to do that thing.

5.242 Moreover, Canada states, the SCM Agreement drafters knew how to use "cause" or "causal relationships", as they did in Article 15.5, but chose for subparagraph (iv) the more limiting terms "entrusts or directs". Canada argues that the United States dismisses the multiple uses of the concept of "causes" in the Agreement, stating that words have interchangeable or overlapping meanings. It relies on EC -Bananas, but in that case, Canada argues, the comparison was of similar language in two related agreements, not of different terms within the same agreement. In Canada's view, while different agreements may use different formulations to express similar concepts, within an agreement it is reasonable to conclude that use of a different term evidences an intent to express a different concept.

5.243 According to Canada, the dictionary meanings relating to authoritative instructions are appropriate in this case as they correspond with the wording in subparagraph (iv). The Concise Oxford Dictionary is precise in this regard. For "direct" when followed by "to + infinitive", it gives as a meaning "give a formal order or command to". Canada notes that in subparagraph (iv), the word "directs" is followed by the infinitive "to carry out".

5.244 Canada states that an export restraint does not entrust or direct a private body to provide goods to anyone, and that the United States itself views an export restraint "�as limiting the opportunities available to the producer of the restrained good." According to Canada, an export restraint will limit the export of goods but this is not the same as directing someone to provide those goods. Canada asserts that the United States concedes that a producer always has choices but discounts such choices as a matter of commercial reality, which is Canada's own point. In particular, absent a measure that truly directs a producer to provide goods to someone, that producer will exercise the choice that is in its best interest.

5.245 According to Canada, if the position of the United States were correct, then any government action that in some way caused lower prices would become a financial contribution as there would be some causal relationship between it and the behaviour of private market operators. In Canada's view, had this been the intention of the drafters of the SCM Agreement, they could have accomplished it by simply defining a subsidy as any government action that causes a benefit and is specific. Canada states that the need to show benefit and specificity cannot justify nullifying the financial contribution element.

5.246 Canada states that the United States argues that the fact that producers have choices is consistent with the position that an export restraint is a direction to provide goods, and that the United States reaches this conclusion through a reductio ad absurdum proposition that even where a producer truly is ordered to provide goods, the producer would have the option of breaking the law. Canada notes that the United States argues (and Canada agrees) that this is not a real choice. The choices Canada described were economic and, moreover, legal choices available to the producer.

5.247 According to Canada, the United States misconstrues the portion of subparagraph (iv) referring to "� one or more of the type of functions illustrated in (i) to (iii) �", by saying that this phrase must be read to include functions of the same "general character" as those in those subparagraphs despite the fact that the provision directly links the functions in subparagraph (iv) with the functions set out in subparagraphs (i)-(iii). Canada states that the United States also reads "illustrated" as connoting undefined functions sharing general characteristics of the functions in those subparagraphs. That is, rather than "illustrated" meaning "making clear or evident by way of example", it is broadened to include functions outside of those subparagraphs. In Canada's view, the effect is to impose disciplines on a range of private actions that are not subject to discipline when performed by governments, an untenable result.

95 See, e.g. Canada's Oral Statement, para. 25 ("The U.S. view would mean that any government action that affects the marketplace (that is, individual buyers and sellers) would 'entrust or direct a private body.'").

96 Id., para. 27.

97 According to the United States, the EC makes a sort of "reverse slippery slope" argument when it claims that export restraints can be addressed under Article XI of GATT 1994.  As a legal matter, according to the United States, this argument is clearly wrong and inconsistent with prior EC positions.  The United States notes that in Indonesia - Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Report of the Panel adopted 23 July 1998, paras. 14.29-14.36, the panel agreed with the position of the United States, Japan and the EC that a measure could be actionable under both the SCM Agreement and Article III of GATT 1994.  In particular, the panel noted the existence of footnote 56 to Article 32.1 of the SCM Agreement, which recognizes that actions against subsidies remain possible under other provisions of GATT 1994.  Id., para. 14.36, note 659.  For the United States, as a factual matter this argument is clearly wrong, because not all export restraints will violate Article XI, and even those that do may be subject to one or more exceptions under Article XX of GATT 1994.

98 US First Submission , paras. 40-44.

99 EC Submission , para. 28.

100 See , Canada's First Submission, para. 93; and Canada's Oral Statement, para. 28.

101 The United States asserts that the EC's accusation is particularly troubling, given that in its submissions, the EC did not even conduct a textual analysis of Article 1.1 in general, or subparagraph (iv) in particular.

102 US First Submission, paras. 13-20; US  Answers to Questions 18-19 (Second Set).

103 Canada's Oral Statement , para. 34.

104 Id ., para. 36.

105 Uruguay Round Agreements Act: Joint Report of the Comm.. on Finance,Comm. on Agriculture, Nutrition, and Forestry, Comm. on Governmental Affairs, United States Senate, 103d Cong., S. Rep. 103-412 at 91 (1994).  (Exhibit CAN-134)

106 147 Congressional Record S1158 (daily ed. 7 February 2001) (statement of Sen. Snowe).  (Exhibit CAN-135)

Continuation: Section 5.248