What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

espa�ol - fran�ais - portugu�s
Search

WORLD TRADE
ORGANIZATION

WT/DS194/R
29 June 2001
(01-3175)
 
  Original: English

UNITED STATES - MEASURES TREATING
EXPORTS RESTRAINTS AS SUBSIDIES



Report of the Panel

(Continuation)



8.70 The negotiating history also confirms our understanding of the meaning of the term "financial contribution" as set forth in subparagraphs (i)-(iv). The participants advocating the introduction of a "financial contribution" requirement expressed a range of views during the negotiations concerning the precise meaning of the term "financial contribution", from limiting it to a "charge on the public account" or a "cost to government" to encompassing government transfers including those effected through non-governmental agents.165

8.71 The broader proposed definition closely reflects a view expressed, prior to the commencement of the Uruguay Round negotiations, by the Group of Experts on the Calculation of the Amount of a Subsidy (a body operating under the Tokyo Round Committee on Subsidies and Countervailing Measures). This view was quoted at length in one of the first papers prepared by the Secretariat at the request of the Negotiating Group - a summary of, inter alia, the existing status of the discussion of the GATT rules on countervailing measures and subsidies. The paper quotes the Group of Experts as follows:

"It is suggested that there can be no subsidy in the absence of a financial contribution by government, or in other words that a subsidy presupposes such a contribution. Such an approach would seem to be useful to the extent that it underlines that there is a necessary link between a subsidy and the taxation function of government, exercised either directly or delegated to other, private bodies as suggested by a panel report based on a review of Article XVI, set out in BISD 9th Supplement. Paragraph 12 of the report examines the issue of subsidies by a non-government levy. While the panel felt that no hard and fast rule could be set down in view of the many forms action of this kind could take, it nonetheless clearly stated that 'there was no doubt that there was an obligation to notify all schemes of levy/subsidy affecting imports or exports in which the government took a part either by making payments into a common fund or by entrusting to a private body the functions of taxation and subsidisation with the result that the practice would be in no real sense different from those normally followed by governments'. There may be similar situations in which a government chooses to direct a private body to carry out certain functions related to the sovereign right of governments to collect revenues and expend them. An examination of the possible subsidy practices enumerated in Article 11.3 of the Code further illustrates the various forms government financial contributions can take. There are practices which involve a direct transfer of funds (e. g., grants and loans); those involving potential direct transfers, or liabilities (e. g., loan guarantees); and those involving revenue foregone or not collected (fiscal incentives such as investment tax credits to specified industries). Such practices would seem to be simply specific examples of the general principle suggested by the Panel report in BISD, 9th Supplement, that subsidies exist where the government exercises its authority to impose tax and expend revenue, whether directly or through delegation of its taxing and [sic] authority."166

8.72 We find particularly significant in the statement of the Group of Experts how nearly identical its characterisation of the "forms" of government financial contribution is to the text of SCM Article 1.1(a)(i)-(iii). We also find very significant the Group of Experts' interpretation that the 1960 Panel's reference to "practice . . . in no real sense different from those normally followed by governments" was a general reference to the delegation to private parties of the particular government functions of taxation and expenditure of revenue, and not a reference to government market interventions in the general sense, or the effects thereof. Our interpretation, discussed at length above, of the meaning of subparagraphs (i)-(iv) is fully consistent with, and thus is confirmed by, their negotiating history.

(iii) Summary

8.73 In short, the negotiating history confirms that the introduction of the two-part definition of subsidy, consisting of "financial contribution" and "benefit", was intended specifically to prevent the countervailing of benefits from any sort of (formal, enforceable) government measures, by restricting to a finite list the kinds of government measures that would, if they conferred benefits, constitute subsidies. The negotiating history confirms that items (i)-(iii) of that list limit these kinds of measures to the transfer of economic resources from a government to a private entity. Under subparagraphs (i)-(iii), the government acting on its own behalf is effecting that transfer by directly providing something of value - either money, goods, or services - to a private entity.167 Subparagraph (iv) ensures that the same kinds of government transfers of economic resources, when undertaken through explicit delegation of those functions to a private entity, do not thereby escape disciplines.

8.74 We recall our conclusion that subparagraph (iv), to fulfil this clearly-intended function as an anti-circumvention mechanism, cannot change (and in particular cannot expand beyond those actions identified in subparagraphs (i)-(iii)) the nature of the kinds of actions that can be considered financial contributions. If it did so, by allowing to be treated as financial contributions, on the basis of their effects on private entities, government measures such as export restraints that do not constitute government-entrusted or government-directed transfers of economic resources, the door would be reopened to the countervailing of benefits regardless of the nature of the government action that gave rise to them. This would effectively render the "financial contribution" requirement meaningless, a result that would be at odds not only with the principles of effective treaty interpretation as discussed at length in the preceding sections, but also with the negotiating history of this requirement.

(g) Conclusion

8.75 For the foregoing reasons, we conclude that an export restraint as defined in this dispute cannot constitute government-entrusted or government-directed provision of goods in the sense of subparagraph (iv) and hence does not constitute a financial contribution in the sense of Article 1.1(a) of the SCM Agreement. In other words, we reject the US approach that, because, or to the extent that, an export restraint causes an increased domestic supply of the restrained good, it is the same as if a government had expressly entrusted or directed a private body to provide the good domestically. The remaining textual elements of subparagraph (iv) support this conclusion. This conclusion is also confirmed by the negotiating history of the term "financial contribution". Accordingly, we find that the treatment of export restraints as financial contributions is inconsistent with Article 1.1(a) of the SCM Agreement.

8.76 We reiterate that we have interpreted the provisions of the SCM Agreement as they relate to an export restraint as defined by Canada for the purposes of this dispute, i. e., a border measure that takes the form of a government law or regulation which expressly limits the quantity of exports or places explicit conditions on the circumstances under which exports are permitted, or that takes the form of a government-imposed fee or tax on exports of the product calculated to limit the quantity of exports. It is these essential characteristics - which we refer to as an "export restraint" - that delineate the scope of our rulings on Canada's claims. We do not make any judgement as to the WTO-consistency of any other measures that Members might label export restraints or that fall outside the bounds of the definition put forward by Canada. (See Section VIII.B.3(a), supra.)

4. Whether US law requires the treatment of export restraints as financial contributions

(a) Application of the mandatory vs. discretionary distinction

8.77 We turn now to the question of the treatment under US CVD law of export restraints. In particular, we recall our statement that in considering this treatment, we will apply the classical test. That is, having found that the treatment of export restraints as financial contributions is inconsistent with Article 1 of the SCM Agreement, we now consider whether US law requires such treatment of export restraints. Should US law require the treatment of export restraints as financial contributions, whether in some or all cases, given our finding that such treatment would constitute a violation of the SCM Agreement, the United States would be in violation of its WTO obligations.

8.78 We note that the same principle was applied by the Appellate Body in Argentina - Textiles and Apparel. In that case, the Appellate Body agreed with the Panel (and the United States) that the imposition of a specific rate of duty violated an ad valorem duty binding even though in some circumstances the specific rate of duty would be at or below the level of ad valorem binding. In the view of the Appellate Body, where the specific rate of duty exceeded the ad valorem binding, the law was in violation of Article II.168 In other words, it was found that a measure is inconsistent with WTO rules if that measure mandates action inconsistent with WTO rules in particular circumstances, even if in other circumstances the action might not be inconsistent with WTO rules. Therefore, given our finding that treating export restraints (as defined by Canada) as financial contributions would in all cases violate the SCM Agreement, we must examine what, if anything, the US legislation requires in respect of the treatment of export restraints in CVD investigations.

8.79 We recall that the Appellate Body confirmed in 1916 Act that "the relevant discretion, for purposes of distinguishing between mandatory and discretionary legislation, is a discretion vested in the executive branch of government"169. We shall therefore examine whether the measures identified by Canada require the US DOC to treat export restraints as financial contributions in CVD investigations.

(b) The measures

8.80 We consider it unnecessary for the purposes of this case to accept the invitation of the United States, in its Request for Preliminary Rulings, to define what "measures" are susceptible to review under WTO dispute settlement. As the Appellate Body noted in Guatemala - Cement, in the practice established under the GATT 1947, a measure may be any act of a Member, or an omission or a failure to act on the part of a Member.170 In this context, the Appellate Body recalled the finding of the Panel in Japan - Semiconductors that measures could consist of both binding and non-binding acts, including non-binding administrative guidance by a government.171 We agree, and in particular find no reason or basis to rule in the abstract that a given type of instrument or action cannot be the subject of claims in WTO dispute settlement.

8.81 This of course does not mean, however, that all measures are capable by themselves of giving rise to violations of WTO obligations. It is this latter question, as it pertains to the measures at issue in this case, to which we now turn.

(c) The measures "separately" and "taken together"

8.82 Canada argues that each of the elements that it cites (the statute, the SAA, the Preamble, and US practice) individually constitutes a measure that is susceptible to dispute settlement, and that, "taken together" as well, these elements constitute a measure. Further, in the view of Canada, these measures individually and collectively require a particular treatment of export restraints. Canada's identification of the measures that it considers to be at issue therefore comprises two notions - that the cited elements are measures both individually and taken together, and that they operate both individually and taken together to require a particular treatment of export restraints.

8.83 The United States strongly disagrees. In addition to the preliminary objections it raises in respect of the status of the SAA, the Preamble, and US "practice" as "measures" (See Section IV.A, supra), the United States considers that "it is dangerous for the Panel to seek to analyse an ill-defined 'measure' as a 'package'". The United States argues:

"It is not clear why, under the reasoning of either Canada or the United States - Section 301 panel report, the documents in this dispute 'must' be analysed together. Canada contends that one or more of the documents in question, alone or together, somehow require the DOC to treat export restraints as subsidies. However, the proper analysis of such a claim cannot be undertaken based upon abstract notions of whether documents cited by a complaining party 'must be analysed together', but on the status of the cited documents, and how they relate to each other, under the responding Member's domestic law."172

8.84 In making our assessment of whether US law requires the DOC to treat export restraints as financial contributions in CVD investigations, we recall that Canada has alleged that each of the measures that it has identified (the statute, the SAA, the Preamble, and US practice) operates individually to require such treatment, as well as that these measures "taken together" require the same treatment. We will first analyse them separately, both in respect of the status and the effect of each under US domestic law, and in respect of whatever each says concerning export restraints.

8.85 In considering whether any or all of the measures individually can give rise to a violation of WTO obligations, the central question that must be answered is whether each measure operates in some concrete way in its own right. By this we mean that each measure would have to constitute an instrument with a functional life of its own, i. e., that it would have to do something concrete, independently of any other instruments, for it to be able to give rise independently to a violation of WTO obligations. To determine whether each measure is operational on its own, we consider the status of each under US law.

8.86 We also examine how, if at all, the measures operate "taken together". Canada's argument on this point is that:

"Section 771(5)(B)(iii) can be considered 'discretionary', in the limited sense that [the DOC], as the investigating authority, has to determine whether an export restraint, or any other practice subject to a [CVD] investigation, is a financial contribution. However, Section 771(5)(B)(iii) does not exist in isolation. Consistent with the reasoning of the Panel in United States - Section 301, Section 771(5)(B)(iii) is 'inseparable' from the SAA, Preamble, and US practice and, therefore, cannot be considered in isolation. Thus, the mandatory or discretionary nature of the measures at issue in this dispute must be considered in terms of all of the elements of US [CVD] law that bear on the treatment of export restraints."173

8.87 Given this statement, it appears to us that the primary focus of Canada's argument relates to considering the measures together, at least insofar as the allegedly mandatory nature of these measures is concerned. In particular, given Canada's statement that the statute itself can be considered "discretionary" at least in a limited sense, Canada appears to argue that it is only when the statute is looked at in conjunction with the other measures that are the subject of this dispute that the alleged mandatory treatment of export restraints is evident.

(i) The Statute

8.88 Under pre-WTO US law, as under the Tokyo Round Subsidies Code, there was no definition of "subsidy" as such; rather, US law contained an illustrative list of countervailable subsidies. The illustrative list made no reference to the concept of "financial contribution" (this concept did not exist under the Tokyo Round Subsidies Code), but rather described certain types of measures provided on advantageous terms. Under this legislation, the United States in several instances countervailed export restraints on the basis that they provided an advantage beyond what would be available in the market (i. e., a benefit).

8.89 Following the Uruguay Round, the United States undertook to implement the WTO Agreement in the URAA and, in particular, to implement the definition of "subsidy" in Article 1.1 of the SCM Agreement by amending Section 771(5) of the Tariff Act. The term "subsidy" is defined in Section 771(5)(B) as follows:

"A subsidy is described in this paragraph in the case in which an authority -

(i) provides a financial contribution,

(ii) provides any form of income or price support, within the meaning of Article XVI of the GATT 1994, or

(iii) makes a payment to a funding mechanism to provide a financial contribution, or entrusts or directs a private entity to make a financial contribution, if providing the contribution would normally be vested in the government and the practice does not differ in substance from practices normally followed by governments,

to a person and a benefit is thereby conferred. For purposes of this paragraph and paragraphs (5A) and (5B), the term 'authority' means a government of a country or any public entity within the territory of a country."174

8.90 The term "financial contribution" in turn is defined in Section 771(5)(D) as:

"(i) the direct transfer of funds, such as grants, loans, and equity infusions, or the potential direct transfer of funds or liabilities, such as loan guarantees,

(ii) foregoing or not collecting revenue that is otherwise due, such as granting tax credits or deductions from taxable income,

(iii) providing goods or services, other than general infrastructure, or

(iv) purchasing goods."175

(a) Status in US domestic law

8.91 Section 771(5) is the provision of the basic US CVD statute that contains the definition of "subsidy" for the purpose of US CVD actions, and there is no disagreement between the parties that it thus is the basis for the DOC's identification of countervailable subsidies in CVD investigations. In particular, it is to this part of the statute that the DOC must look in establishing the existence of the definitional elements of a "subsidy" in order to assess whether a particular programme is countervailable. The DOC is legally bound to ensure that the criteria set out in the statute are satisfied. Given this, it is clear that the statute has an operational life in its own right. It is the operational basis for the DOC's activities in respect of countervailing measures.

(b) Content in respect of export restraints

8.92 This being said, however, Sections 771(5)(B) and (D) of the Tariff Act essentially mirror the language of Article 1.1 of the SCM Agreement, and do not explicitly address export restraints, or how they would be treated if alleged in a CVD investigation. The statute read in isolation therefore reveals nothing about the treatment of export restraints under US CVD law, and could not be said to require any particular treatment of export restraints in a CVD investigation. Indeed, as noted above, Canada itself acknowledges that "Section 771(5)(B)(iii) can be considered 'discretionary', in the limited sense that [the DOC], as the investigating authority, has to determine whether an export restraint, or any other practice subject to a CVD investigation, is a financial contribution".176 Noting, however, Canada's argument that the statute cannot be understood in isolation from the other measures at issue, we turn next to an examination of those measures.

(ii) The Statement of Administrative Action

(a) Status in US domestic law

8.93 We now consider the operational status of the SAA in US domestic law. As the United States explains, in general an SAA is typically required when the Executive Branch of the US Government submits legislation implementing a trade agreement to the US Congress that will be considered under so-called "fast-track" procedures. Because the URAA was submitted to Congress under "fast-track" procedures, an SAA was required. Specifically, the SAA was a requirement of the Omnibus Trade and Competitiveness Act of 1988, in which Congress granted Uruguay Round and other trade agreement negotiating authority to the President and provided for "fast-track" Congressional implementation of trade agreements. In accordance with that legislation, the SAA was agreed between the Administration and Congress in advance, and then submitted by the President to Congress for approval with the proposed URAA legislation.

8.94 Congress approved the SAA in the URAA, and provided, in the URAA, that:

"The statement of administrative action approved by the Congress . . . shall be regarded as an authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements and this Act in any judicial proceeding in which a question arises concerning such interpretation or application."177

8.95 The SAA in turn refers to itself as an authoritative expression of the Administration's views regarding the interpretation of the Uruguay Round agreements and the United States' obligations in implementing them, including under domestic law, as agreed between the Administration and Congress:

"[T]his Statement represents an authoritative expression by the Administration concerning its views regarding the interpretation and application of the Uruguay Round agreements, both for purposes of US international obligations and domestic law. Furthermore, the Administration understands that it is the expectation of the Congress that future Administrations will observe and apply the interpretations and commitments set out in this Statement. Moreover, since this Statement will be approved by the Congress at the time it implements the Uruguay Round agreements, the interpretations of those agreements included in this Statement carry particular authority."178

8.96 Canada asserts that the statements in both the SAA itself and in the URAA make it clear that the SAA has a controlling and determinative legal status in the interpretation of the URAA in the United States. Canada's view, further, is that the SAA requires that export restraints be treated as subsidies, and that this requirement is binding on the DOC due to the language of the SAA and the URAA.

8.97 The United States acknowledges "the status of the SAA as an authoritative interpretive tool".179 It refers to the SAA as "a type of legislative history . . . [which,] [i]n the United States, is often considered for purposes of ascertaining the meaning of a statute . . . ".180 While the United States indicates that the SAA cannot change the meaning of, or override, the statute to which it relates, "[a]s a general proposition, [] in terms of legislative history, the SAA ranks supreme".181 The United States indicates that "it is not objecting to a consideration of the SAA and the Preamble as interpretive sources for ascertaining the meaning of Section 771(5) as a matter of US law . . . ".182 Rather, the United States argues, "in determining what US law means, it would be appropriate for the Panel to consider the SAA, just as a US court would"183.



165 These positions were summarised in a note by the Secretariat concerning the Negotiating Group's meeting of 26-27 September 1989:

"Another important criterion [for the definition of an actionable subsidy] for [certain] participants was that of the charge on the public account in the sense of a financial contribution by a government (or revenue foregone).  A view was expressed that this concept should cover not only direct but also indirect transfers of funds (e. g. transfer from a government through non-governmental agents) in order to prevent any circumvention . . ." (MTN.GNG/NG10/13, emphasis added).

166 MTN.GNG/NG10/W/4, "Subsidies and Countervailing Measures � Note by the Secretariat", 28 April 1987, Section 4.1.A (footnote omitted, emphasis added).

167 As we have emphasised elsewhere, the question of the terms on which this is done is irrelevant to the existence of a financial contribution, and constitutes instead the separate question of "benefit".  Nor, of course, do we mean to imply that a government transfer of economic resources, to be a financial contribution, would have to involve a cost to the government or a charge on the public account.  This is clear from the text of the SCM Agreement as well as the relevant negotiating history cited above, and has been confirmed as well in past disputes (notably Canada � Aircraft).

168 Argentina � Measures Affecting Imports of Footwear, Textiles, Apparel, and Other Items ("Argentina � Textiles and Apparel"), Report of the Appellate Body, WT/DS56/AB/R, adopted 22 April 1998, paras. 62-63.

169 1916 Act, Appellate Body Report, supra, footnote 107, para. 89 (emphasis in original).

170 Guatemala � Anti-Dumping Investigation Regarding Portland Cement from Mexico, Report of the Appellate Body, WT/DS60/AB/R, adopted 25 November 1998, footnote 47.

171 Id.

172 Comment of the United States on question 4 from the Panel to Canada at the first meeting.

173 Second Written Submission of Canada, para. 10.

174Tariff Act, Section 771(5), codified at 19 USC, Section 1677(5) (1994) (Annex A to First Written Submission of Canada � Exhibit CAN-1).

175 Id.

176 Second Written Submission of Canada, para. 10.

177 URAA, Section 102, codified at 19 USC, Section 3512(d) (1994) (Exhibit CAN-7).

178 SAA, p. 656 (Annex B to First Written Submission of Canada � Exhibit CAN-2).

179 Response of the United States to question 6(a) from the Panel at the first meeting.

180 Request by the United States for Preliminary Rulings, para. 36.

181Response of the United States to question 28 from the Panel following the first meeting.

182 Request by the United States for Preliminary Rulings, footnote 134.

183 Response of the United States to question 1 from the Panel following the second meeting, citing as well the Request by the United States for Preliminary Rulings, para. 124, footnote 134.


Continuation: Section 8.98