8.50 We note that, although there is disagreement between the parties as to the meaning of the phrase "one or more of the type of functions illustrated in (i)-(iii) above", this disagreement is not about whether the physical action at issue would or would not be provision of goods, a function explicitly identified in subparagraph (iii). Both parties recognise, as we also do, that an export restraint could result in a private body or bodies "provid[ing] goods". In this sense, an export restraint could satisfy this element of subparagraph (iv).

8.51 Instead, the parties' disagreement as to the meaning of this phrase has to do with whether the word "type" in this phrase means, as the United States argues, that subparagraph (iv) encompasses a "wide spectrum of potentially actionable government mechanisms", inter alia, export restraints. In particular, the United States argues that the word "type" means "the general form, structure, or character distinguishing a particular group or class of thing", and on this basis argues that the inclusion of this word suggests that functions of the same general form, structure, or character as those illustrated in subparagraphs (i)-(iii) would likewise constitute the indirect provision of a financial contribution. Canada considers that the phrase "one or more of the type of functions illustrated in (i) to (iii)" refers only to any one of the functions listed in subparagraphs (i)-(iii), and that an export restraint, a direction not to export, is not the same "type" of function as an affirmative direction to provide goods domestically.

8.52 The argument of the United States concerning the word "type" is unclear. As noted above, there is no disagreement between the parties, nor do we disagree, that the physical function at issue in the context of an export restraint would be provision of goods. The word "type" does not need to be interpreted broadly to arrive at this conclusion. On the other hand, if what the United States is arguing here is that an export restraint, itself a government function, can be seen pursuant to subparagraph (iv) as the same "type of function" as one of the government functions identified in subparagraphs (i)-(iii), we do not see how such an argument would fit within the framework of subparagraph (iv). That is, subparagraph (iv) has to do with the entrustment or direction by a government to a private body of one of the government "functions" identified in subparagraphs (i)-(iii). We do not see how the use of the word "type" before the word "function" in subparagraph (iv) would transform the meaning and operation of that subparagraph such that it would encompass functions performed by a government other than those identified in subparagraphs (i)-(iii).

8.53 Thus, we find no support in the text of the Agreement for the US reading of the word "type". Rather, in our view, the phrase "type of functions" refers to the physical functions identified in subparagraphs (i)-(iii). In this regard, we believe that the intention of subparagraph (iv) is to avoid circumvention of subparagraphs (i)-(iii) by a government simply by acting through a private body. Thus, ultimately, the scope of the actions (the physical functions) covered by subparagraph (iv) must be the same as those covered by subparagraphs (i)-(iii). That is, the difference between subparagraphs (i)-(iii) on the one hand, and subparagraph (iv) on the other, has to do with the identity of the actor, and not with the nature of the action. The phrase "type of functions" ensures that this is the case, that is, that Article 1 covers the types of functions identified in subparagraphs (i)-(iii) whether those functions are performed by the government itself or are delegated to a private body by the government.

8.54 As for the specific word "type", we see this as referring to the fact that each of subparagraphs (i)-(iii) constitutes by itself a general "type of functions" that encompasses one or more categories of behaviour. The subsequent phrase "illustrated in (i) to (iii) above" confirms this. In particular, subparagraphs (i)-(iii) each refer to multiple government actions and provide examples thereof. Subparagraph (i), for instance, refers to three general categories (direct transfers of funds; potential direct transfers of funds; and potential direct transfers of liabilities) of the "type of function" of transfers of funds and liabilities.

8.55 We therefore find that the phrase "type of functions" refers to the physical functions encompassed by subparagraphs (i)-(iii), and does not expand the scope of subparagraph (iv) beyond these, to encompass other kinds of "government mechanisms".

(iv) "Which would normally be vested in the government" and "the practice, in no real sense, differs from practices normally followed by governments"

8.56 Canada argues that an export restraint, because it does not constitute government-entrusted or government-directed provision of goods, also would not fulfill the "normally vested" and "in no real sense differs" language in Article 1.1(a)(1)(iv). For Canada, this language also establishes legal requirements that must be met for there to be a financial contribution under this provision. That is, according to Canada, in the case where the government entrusts or directs a private body to carry out one of the functions listed in subparagraphs (i)-(iii), the function must be one that would normally be vested in the government, and must not differ in any real sense from practices normally followed by governments. In Canada's view, the drafting of this text indicates that these conditions are requirements, specifically of a habitual practice by a government of engaging in one of the functions enumerated. Canada observes that the limiting effect of these conditions is consistent with the purpose of subparagraph (iv) to ensure that a government cannot avoid otherwise applicable subsidy disciplines by using a private sector surrogate to make financial contributions that the government normally would have made directly. Thus, Canada's argument suggests that the scope of the actions covered by subparagraph (iv) is narrower than the scope of the actions covered by subparagraphs (i)-(iii).

8.57 We note that the United States, for its part, argues that the functions identified in subparagraphs (i)-(iii) are "normal" government functions in the context of government provision of subsidies.¹⁴⁹ The United States submits that the "normally vested" and "in no real sense differs" language originated in the 1960 report of the Panel on Review Pursuant to Article XVI:5, in which similar language was used in respect of producer-funded levies that were deemed not to differ, in any real sense, from government practices of taxation and subsidisation (That Panel referred to the government taking part "either by making payments into a common fund or entrusting to a private body the functions of taxation and subsidisation with the result that the practice would in no real sense differ from those normally followed by governments"¹⁵⁰). Thus, for the United States, these last elements of Article 1.1(a)(1)(iv) mean that the functions in question are those where the government would be engaged in taxation and/or subsidisation, which in the US view could include the instituting of an export restraint.

8.58 We view the US argument as suggesting that the scope of the actions covered by subparagraph (iv) is broader than the scope of the actions covered by subparagraphs (i)-(iii). In particular, by arguing that for the "normally vested" and "in no real sense differs" language to be satisfied, the government must be engaging in "subsidisation", the United States' reasoning seems to be circular, in that it appears to import the concept of benefit into the concept of financial contribution.¹⁵¹ We believe that, under such an approach, any government market intervention that involved a reallocation of resources which created a benefit would be viewed as involving "subsidisation" in the broad sense used by the United States, and thus as satisfying the financial contribution requirement. In other words, under this approach, subparagraph (iv) would treat as financial contributions government actions that created "benefits" even when those actions were not among the functions encompassed by subparagraphs (i)-(iii).

8.59 While we have serious doubts regarding both of the parties' arguments as to the implications for the scope of subparagraph (iv) of the "normally vested" and "in no real sense differs", we do not consider that making a finding regarding the precise meaning of this language is necessary to resolve this dispute. In particular, these arguments do not directly address the basic question raised by Canada's argument that an export restraint, because it does not constitute government entrustment or direction of the provision of goods, for that reason would not satisfy the "normally vested" and "in no real sense differs" language. We note that for an export restraint never to be able to satisfy these textual elements, logically it would have to be the case that no government ever provided goods in the sense of subparagraph (iii) (something that Canada clearly does not argue), as only then could it be said that provision of goods would never be "normally vested" in a government. Thus, we do not see how Canada's argument, that the "normally vested" and "in no real sense differs" language narrows the circumstances in which there would be government entrustment or direction of the provision of goods, would rule out the possibility that an export restraint could potentially constitute such a provision of goods.

(e) Object and purpose

8.60 We recall that, under Article 31 of the Vienna Convention, the terms of a treaty must be read in light of the treaty's object and purpose.

8.61 The United States cites the statement of the panel in Brazil - Aircraft that "the object and purpose of the SCM Agreement is to impose multilateral disciplines on subsidies which distort international trade". It further cites the statement of the panel in Canada - Aircraft that "the object and purpose of the SCM Agreement could more appropriately be summarised as the establishment of multilateral disciplines 'on the premise that some forms of government intervention distort international trade, [or] have the potential to distort [international trade]'".¹⁵² The United States argues that "[b]y emphasising the need to address government interventions that distort international trade - regardless of whether or not a government has incurred a cost - the panel [in Canada - Aircraft] confirmed that the curtailment of market-distorting government interventions is the central purpose of the SCM Agreement". The United States further submits that "the object and purpose of the SCM Agreement must inform the interpretation of the textual provisions at issue . . . [T]he meaning of these provisions should not be improperly narrowed to exclude measures commonly understood to be subsidies that distort trade, where the text would not exclude them and where doing so would frustrate the object and purpose of the Agreement".¹⁵³

8.62 We agree with the statements both of the Panel in Brazil - Aircraft and of that in Canada - Aircraft as to the object and purpose of the SCM Agreement in disciplining certain forms of government action. It does not follow from those statements, however, that every government intervention that might in economic theory be deemed a subsidy with the potential to distort trade is a subsidy within the meaning of the SCM Agreement. Such an approach would mean that the "financial contribution" requirement would effectively be replaced by a requirement that the government action in question be commonly understood to be a subsidy that distorts trade. The legal meaning of the term "subsidy" must, however, be derived from an analysis of the text and context of Article 1 of the SCM Agreement.

8.63 Moreover, we do not see any contradiction between the said object and purpose of the SCM Agreement and the fact that certain measures that might be commonly understood to be subsidies that distort trade might in fact be excluded from the scope of the Agreement. Indeed, while the object and purpose of the Agreement clearly is to discipline subsidies that distort trade, this object and purpose can only be in respect of "subsidies" as defined in the Agreement. This definition, which incorporates the notions of "financial contribution", "benefit", and "specificity", was drafted with the express purpose of ensuring that not every government intervention in the market would fall within the coverage of the Agreement (See Section VIII.B.3(f) on negotiating history, infra).

(f) Negotiating History

8.64 The Appellate Body states, in Japan - Alcoholic Beverages, that "[t]here can be no doubt that Article 32 of the Vienna Convention, dealing with the role of supplementary means of interpretation, has also attained the same status [as Article 31, of a rule of customary or general international law]"¹⁵⁴ . Article 32 of the Vienna Convention reads as follows:

ARTICLE 32

Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) Leaves the meaning ambiguous or obscure; or

(b) Leads to a result which is manifestly absurd or unreasonable.

Pursuant to Article 32 of the Vienna Convention, negotiating history can thus be invoked as a supplementary means of interpretation, to confirm a conclusion reached on the basis of a textual and contextual analysis of a treaty. We therefore consider it useful to review the negotiating history of SCM Article 1 generally and its "financial contribution" requirement in particular.

(i) Negotiating history of the inclusion of the "financial contribution" requirement

8.65 The negotiating history of Article 1 confirms our interpretation of the term "financial contribution". This negotiating history demonstrates, in the first place, that the requirement of a financial contribution from the outset was intended by its proponents precisely to ensure that not all government measures that conferred benefits could be deemed to be subsidies. This point was extensively discussed during the negotiations, with many participants consistently maintaining that only government actions constituting financial contributions should be subject to the multilateral rules on subsidies and countervailing measures.¹⁵⁵

8.66 Prior to the Uruguay Round, the multilateral subsidy and countervailing measures disciplines were contained in Article XVI and VI, respectively, of GATT 1947, and the Tokyo Round Subsidies Code. None of these provisions contained a definition of "subsidy". Rather, they simply referred to the term "subsidy". In spite of the existence of multilateral disciplines on the provision of subsidies, there was in practice very little GATT dispute settlement pursuant to these disciplines, and little attention in that context to the meaning of the term "subsidy". There was, by contrast, relatively frequent recourse to countervailing measures by a certain group of countries (including the United States), with each country that used such measures implementing its own definition of subsidy under its domestic procedures.

8.67 The United States in particular developed a definition which treated as countervailable subsidies "formal, enforceable" government measures "which directly led to a discernible benefit being provided"¹⁵⁶. In other words, the United States' pre-WTO approach was to define as countervailable subsidies benefits arising from government action, regardless of the nature of that action.¹⁵⁷ This approach was controversial with other GATT contracting parties, who considered that not every sort of government measure that conferred a benefit could be considered to be a potential subsidy.¹⁵⁸ During the Uruguay Round, numerous participants in the Negotiating Group on Subsidies and Countervailing Measures ("the Negotiating Group") stressed the need to develop a definition of the term "subsidy", because of the problems caused by the lack of a uniform definition, particularly in the context of countervailing actions.¹⁵⁹ This point of view was expressed from the outset, as is evident from the first (September 1987) version of a checklist of issues for negotiations which was compiled by the Secretariat from submissions of the participants, an example of which was the following statement: "There is a need to review the Code with a view to adopting criteria for the determination of countervailable subsidies (government's expenses, grantee's benefits, or specificity). This revision would also aim at defining the difference between subsidies and various trade distorting measures."¹⁶⁰

8.68 During the discussions in the Negotiating Group which led to the definition of "subsidy" that was eventually included in the text of Article 1, the basic difference between defining subsidy solely on the basis of the existence of a "benefit" conferred by any government action (the position taken by the United States¹⁶¹), on the one hand, and requiring a "government financial contribution" as a means of limiting the universe of government actions that could be considered a subsidy (the position taken by essentially all other participants), on the other, was articulated with some precision. Canada, for example, stated that "while virtually any government action could be construed as having possible effects on production and trade, there need to be some outside limits on the scope of government activity that can be considered to be a subsidy and subject to countervail"¹⁶². Canada further stated that:

"GATT practice and disciplines on subsidies reflect a general view that subsidies exist where the price mechanism is affected by the exercise of government authority to impose tax and to expend revenue, whether directly or through delegation of authority. Current rules apply to practices which involve a direct transfer of funds, potential direct transfers or liabilities, and foregone revenue.

. . .

Accordingly, building upon current rules, a basic condition for countervailability of a given measure should be the existence of a financial contribution by government."¹⁶³

8.69 Obviously, Article 1 as ultimately adopted incorporates the requirement of a financial contribution by a government or other public body as a necessary element of a subsidy. The submissions by participants to the negotiations suggest that the proponents' purpose behind including this element was to limit the kinds of government actions that could fall within the scope of the subsidy and countervailing measure rules. In other words, the definition ultimately agreed in the negotiations definitively rejected the approach espoused by the United States of defining subsidies as benefits resulting from any government action, by introducing the requirement that the government action in question constitute a "financial contribution" as set forth in an exhaustive list.¹⁶⁴

(ii) Negotiating history of the definition of "financial contribution"

149 Comment of the United States on question 12(a) from the Panel to Canada following the first meeting.

150 Review Pursuant to Article XVI:5, Report of the Panel, L/1160, adopted 24 May 1960 (BISD 9S/188), para. 12.

151 The United States indicates that "in stating that 'normal' government functions refer to government action in the context of providing subsidies, [it] was using the term 'subsidies' in the non-technical, vernacular sense, similar to the manner in which it was used in Review Pursuant to Article XVI:5" (Response to question 25 from the Panel following the first meeting, citation omitted).  We are not convinced, however, that this explanation eliminates the circularity of the US argument.

153 Response of the United States to question 18 from the Panel following the first meeting.

154 Japan � Taxes on Alcoholic Beverages ("Japan � Alcoholic Beverages"), Report of the Appellate Body, WT/DS8/AB/R-WT/DS10/AB/R-WT/DS11/AB/R, adopted 1 November 1996, p. 10.

155 See, e. g., Canada: "A basic condition for countervailability of a given measure should be the existence of a financial contribution by a government" (MTN.GNG/NG10/W/25); the European Communities: "Subsidies in international trade exist only when a financial charge has been incurred by a government or administrative authority on behalf of a beneficiary" (MTN.GNG/NG10/W/7); Egypt: "Only 'measures which constitute a charge on the public account or government budget such as grants, concessional loans, loan guarantees' constitute a subsidy" (MTN.GNG/NG10/W/14); India: "A financial contribution is a necessary prerequisite" (MTN.GNG/NG10/W/16); Japan: "A financial contribution by a government [should] be considered as an essential criterion for determining the existence of a subsidy" (GNG.NG10/W/8); the Nordic countries: "Countervailing action . . . [should] be made conditional upon a government practice which involves a net transfer of funds from public sources to the recipient" (GNG.NG10/W/30); Switzerland: "Actionable subsidies are all measures which result directly or indirectly in a net transfer of funds . . . from public sources to the recipient" (MTN.GNG/NG10/W/26).

156 SAA, p. 926.

157 See, e.g., the US DOC determination in the 1982 steel cases, set forth in SCM/36, 27 October 1982.  There, it is noted that the DOC, to determine whether respondents had received subsidies within the meaning of the US CVD law, sought to determine "whether or not respondents have received directly or indirectly an economic benefit".

158 For example, the European Communities, commenting on the quoted statement from the 1982 steel cases, stated in a paper to the Tokyo Round SCM Committee (G/SCM/35, item A.2), that "[w]hile [a] benefit is necessary for a determination of the existence of subsidy, it is not, however, the measure of the subsidy".  Rather, in the view of the European Communities, for a subsidy to exist, there needed to be a charge on the public account, from which a benefit flowed to an industry.

159 E. g., the European Communities: "The key issue upon which the resolution of all other open questions is predicated is the definition of a subsidy" (MTN.GNG/NG10/W/7); Canada: Unilateral interpretations due to lack of agreement on the concept of a subsidy "have caused uncertainty and trade conflicts" (MTN.GNG/NG10/W/22);  Egypt: "Serious problems have arisen . . . as inter alia [] there is no clear definition of what constitutes subsidies" (MTN.GNG/NG10/W14).

160 MTN.GNG/NG10/W/9, 7 September 1987, Section III.1 (emphasis added).

161 The United States proposed during the negotiations that "subsidy" be defined as "any government action or combination of actions which confers a benefit on the recipient firm(s)". MTN.GNG/NG10/W/29, "Elements of the Framework for Negotiations � Submission by the United States", 22 November 1989, Section II.2(a).

162 MTN.GNG/NG10/W/22, Statement made by Canada at the Negotiating Group meeting of 28-29 June 1988 (emphasis added).

163 MTN.GNG/NG10/W/25, Submission by Canada, 28 June 1989 (emphasis added).

164 The United States itself, as evidenced by its various submissions on "targeting", seems to have recognised that the requirement of financial contribution would exclude some forms of government measures that might provide benefits.  In particular, the United States, in a June 1988 submission stated that "most targeting practices fall outside even the most expansive international definitions of a 'subsidy' and, as a result, Article VI and XVI rights and remedies do not cover industrial targeting per se", and proposed that the Negotiating Group examine the targeting issue "with a view to determining whether some forms of government industrial policies aimed at promoting export-oriented industries have effects analogous to those of a subsidy and result in economic damage to the legitimate interests of other trading nations" (MTN.GNG/NG10/W20, emphasis added).

Continuation: Section 8.70