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UNITED STATES - MEASURES TREATING
(Continuation)
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:
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. |
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