I. INTRODUCTION

A. COMPLAINT OF CANADA

1.1 On 19 May 2000, Canada requested consultations with the United States pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("the DSU"), Article XXII of the General Agreement on Tariffs and Trade 1994 and Article 30 of the Agreement on Subsidies and Countervailing Measures ("the SCM Agreement"), concerning US measures that treat a restraint on exports of a product as a subsidy to other products made using or incorporating the restricted product if the domestic price of the restricted product is affected by the restraint¹ .

1.2 On 15 June 2000, Canada and the United States held the requested consultations with a view to reaching a mutually satisfactory resolution of the matter, but the consultations failed to settle the dispute.

1.3 On 24 July 2000, Canada requested the establishment of a panel to examine the matter².

B. ESTABLISHMENT AND COMPOSITION OF THE PANEL

1.4 At its meeting of 11 September 2000, the Dispute Settlement Body ("the DSB") established a Panel pursuant to the request made by Canada in document WT/DS194/2.³

1.5 At that meeting, the parties to the dispute also agreed that the Panel should have standard terms of reference as follows:

"To examine, in the light of the relevant provisions of the covered agreements cited by Canada in document WT/DS194/2, the matter referred to the DSB by Canada in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.6 On 23 October 2000, the parties agreed to the following composition of the Panel:

1.7	Chairman:	Mr. Michael Cartland
	Members:	Mr. Scott Gallacher
		Mr. Richard Plender

1.8 Australia, the European Communities, and India have reserved their rights to participate in the panel proceedings as third parties⁴ .

C. PANEL PROCEEDINGS

1.9 The Panel met with the parties on 18 January 2001 and on 21 February 2001. The Panel met with third parties on 18 January 2001.

1.10 On 27 April 2001, the Panel provided its interim report to the parties. See Section VII, infra.

II. FACTUAL ASPECTS

2.1 This dispute concerns the treatment of export restraints under US countervailing duty ("CVD") law. In its request for establishment of a Panel, Canada alleges that the measures at issue include Section 771(5) of the Tariff Act of 1930 (19 U.S.C. � 1677(5)), as amended by the Uruguay Round Agreements Act ("URAA"), as interpreted by the Statement of Administrative Action ("SAA") accompanying the URAA (H.R. 5110, H.R. Doc. 316, Vol. 1, 103d Congress, 2nd Session, 656, at 925 926 (1994)) and the Explanation of the Final Rules ("the Preamble"), US Department of Commerce, Countervailing Duties, Final Rule (63 Federal Register 65,348 at 65,349-51 (25 Nov. 1998)), and US practice thereunder.

A. SECTION 771(5) OF THE TARIFF ACT OF 1930 AS AMENDED BY THE URUGUAY ROUND AGREEMENTS ACT

2.2 Section 251 of the URAA amends Section 771(5) of the Tariff Act of 1930 so as to implement the definition of "subsidy" in Article 1.1 of the SCM Agreement. There is no disagreement between the parties that the definition of "subsidy" in Section 771(5) as amended essentially reproduces the definition in Article 1.1 of the SCM Agreement. The parties also agree that Section 771(5) does not specifically address export restraints.

B. THE STATEMENT OF ADMINISTRATIVE ACTION

2.3 When the URAA was submitted to the US Congress for passage, it was accompanied by the SAA. Congress approved the SAA at the same time that it passed the URAA. According to the URAA, the SAA constitutes "an authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements and [the URAA] in any judicial proceeding in which a question arises concerning such interpretation or application".⁵

2.4 The SAA by its own terms:

"represents an authoritative expression by the Administration regarding the interpretation and application of the Uruguay Round agreements, both for purposes of US international obligations and domestic law. It is the expectation of the Congress that future Administrations will observe and apply the interpretations and commitments set out in this Statement".⁶

2.5 The portion of the SAA that Canada challenges as relevant to the treatment of export restraints under the statute is its discussion of Section 771(5)(B)(iii). This section addresses the situation where a government "entrusts or directs a private entity to make a financial contribution". In this context the SAA states, inter alia:

"One of the definitional elements of a subsidy under the Subsidies Agreement is the provision by a government or any public body of a "financial contribution" as defined by the Agreement, including the provision of goods or services. Moreover, the Subsidies Agreement specifically states that the term "financial contribution" includes situations where the government entrusts or directs a private body to provide a subsidy. (It is the Administrations view that the term "private body" is not necessarily limited to a single entity, but can include a group of entities or persons.) Additionally, Article VI of the GATT 1994 continues to refer to subsidies provided "directly or indirectly" by a government. Accordingly, the Administration intends that the "entrusts or directs" standard shall be interpreted broadly. The Administration plans to continue its policy of not permitting the indirect provision of a subsidy to become a loophole when unfairly traded imports enter the United States and injure a U.S. industry.

"In the past, the Department of Commerce (Commerce) has countervailed a variety of programs where the government has provided a benefit through private parties. (See, e.g., Certain Softwood Lumber Products from Canada, Leather from Argentina, Lamb from New Zealand, Oil Country Tubular Goods from Korea, Carbon Steel Wire Rod from Spain, and Certain Steel Products from Korea). The specific manner in which the government acted through the private party to provide the benefit varied widely in the above cases. Commerce has found a countervailable subsidy to exist where the government took or imposed (through statutory, regulatory or administrative action) a formal, enforceable measure which directly led to a discernible benefit being provided to the industry under investigation.

"In cases where the government acts through a private party, such as in Certain Softwood Lumber Products from Canada and Leather from Argentina (which involved export restraints that led directly to a discernible lowering of input costs), the Administration intends that the law continue to be administered on a case-by-case basis consistent with the preceding paragraph. It is the Administration's view 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 has countervailed in the past, and that these types of indirect subsidies will continue to be countervailable, provided that Commerce is satisfied that the standard under Section 771(5)(B)(iii) has been met."⁷

2.6 Canada contends, and the United States disagrees, that the SAA requires the US Department of Commerce ("the DOC") to treat export restraints as financial contributions.

C. THE "PREAMBLE" TO THE US COUNTERVAILING DUTY REGULATIONS

2.7 In 1998, the DOC issued Regulations implementing the URAA's amendments to the US countervailing duty law.⁸ The Regulations were accompanied by an "Explanation of the Final Rules", otherwise known as the "Preamble". In part, the Preamble contains the responses of the Department of Commerce to comments submitted on the proposed regulations during the public comment process. The parties agree that there is no specific Regulation addressing export restraints. They also agree that the portions of the Preamble that are relevant to the question of export restraints are found in the explanations of Sections 351.102 and 351.501 of the Regulations.

2.8 The Preamble, in respect of Section 351.102 states, inter alia:

"As the extensive comments on this issue indicate, the phrase 'entrusts or directs' could encompass a broad range of meanings. As such, we do not believe it is appropriate to develop a precise definition of the phrase for purposes of these regulations. Rather, we believe that we should follow the guidance provided in the SAA to examine indirect subsidies on a case-by-case basis. We will, however, enforce this provision vigorously.

"We agree 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 Certain Steel Products from Korea � and Certain Softwood Lumber Products from Canada � . Also, we believe that the phrase 'entrusts or directs' subsumes many elements of the definitions proposed by commenters. With respect to the suggestion that we include an illustrative list of situations that would fall under the 'entrusts or directs' standard, we do not believe this is necessary. The SAA at 926 lists a number of cases where the Department has found indirect subsidies in the past, and these cases serve to provide examples of situations where we believe the statute would permit the Department to reach the same result. Similarly, regarding the request that we define the phrase 'private entity' to include groups of entities or persons, the SAA is clear that groups are included (see SAA at 926). Therefore, we have not promulgated a regulation with this definition".⁹

2.9 The Preamble, in respect of Section 351.501 states, inter alia:

"Regarding the issue of whether indirect subsidies can arise through the provision of goods and services, we believe this is clearly answered by the Act. Section 771(5)(D)(iii) states that financial contributions include the provision of goods or services. Hence, if a private entity is entrusted or directed to provide a good or service to producers of the merchandise under investigation, a financial contribution exists. With regard to export restraints, while they may be imposed to limit parties' ability to export, they can also, in certain circumstances, lead those parties to provide the restrained good to domestic purchasers for less than adequate remuneration. This was recognized by Commerce in Certain Softwood Lumber Products from Canada �("Lumber") and Leather from Argentina � ("Leather"). Further, as indicated by the SAA (at 926), and as we confirm in these Final Regulations, if the Department were to investigate situations and facts similar to those examined in Lumber and Leather in the future, the new statute would permit the Department to reach the same result".¹⁰

2.10 Canada contends, and the United States disagrees, that the Preamble requires the DOC to treat export restraints as financial contributions.

D. "PRACTICE" OF THE US DEPARTMENT OF COMMERCE

2.11 According to Canada, as a matter of law, US "practice" under the statute, the SAA and the Preamble treats export restraints as meeting the standard of Section 771(5)(B)(iii) of the statute. Canada cites three post-WTO cases (Live Cattle from Canada ("Cattle"), Stainless Steel Sheet and Strip in Coils from the Republic of Korea ("Stainless Steel Sheet and Strip") and Stainless Steel Plate in Coils from the Republic of Korea ("Stainless Steel Plate") in support of this argument. Canada further argues that "practice" is not an individual determination in a countervailing duty case (although a determination normally will reflect "practice") but rather is an institutional commitment to follow declared interpretations and methodologies that is reflected in cumulative determinations. As such, Canada argues, "practice" is related to precedent, in that an interpretation or methodology will often be developed in a single case or group of cases, and becomes the "practice" followed in subsequent cases. Canada maintains that, as a matter of US law, the DOC is bound by prior precedents absent a reasoned explanation justifying the departure therefrom.

2.12 The United States disagrees that any post-WTO US "practice" exists in respect of the treatment of export restraints in countervailing duty investigations. The United States states, and Canada does not dispute, that there has been no post-WTO case in which the DOC has found an export restraint to be a subsidy. The United States argues that as a matter of US law, case precedent is not binding on Commerce. Concerning Canada's argument that "practice" is an institutional commitment to follow declared interpretations and methodologies, the United States denies that such a purported commitment exists, and further states that even if such a commitment existed, it would not be binding on Commerce as a matter of US law.

2.13 Thus, the parties disagree over both the existence and the legal significance of what Canada refers to as US "practice".

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. CANADA

3.1 Canada submits that the US "measures" at issue are inconsistent with the SCM Agreement and the WTO Agreement. According to Canada, these "measures" commit the United States to treat an export restraint as meeting the definition of "financial contribution" under Article 1.1 of the SCM Agreement if, in the view of the US investigating authorities, the export restraint has the effect of increasing the supply of the restricted good. Therefore, if the downstream product incorporating the restrained input product is subject to a US countervailing duty investigation, according to Canada the United States would consider that the definitional requirement of financial contribution is satisfied (and, if the export restraint lowers the price of the restrained good, that the definitional requirement of "benefit" is satisfied). Canada argues that such treatment of export restraints as financial contributions violates the SCM Agreement and, for the same reasons, Canada alleges, the US law also violates the WTO Agreement and the SCM Agreement.

3.2 As discussed in the preceding section, the US "measures" that Canada challenges, because it considers that they require this treatment of export restraints, are:

(i) Section 771(5) of the Tariff Act of 1930¹¹ ("Tariff Act"), as amended by the Uruguay Round Agreements Act, which is the provision of US countervailing duty law that defines the term "countervailable subsidy";

(ii) portions of the Statement of Administrative Action¹² accompanying the URAA interpreting Section 771(5) with respect to export restraints;

(iii) portions of the US Department of Commerce Regulations¹³ (in particular the "Preamble" thereto) interpreting and implementing Section 771(5) and the SAA with respect to export restraints; and

(iv) the ongoing practice of the DOC of treating an export restraint as a "financial contribution" within the meaning of Article 1.1 of the SCM Agreement.

3.3 Canada indicates that the definition of "subsidy" in Article 1.1 of the SCM Agreement requires that there be a "financial contribution" (or income or price support) that confers a "benefit". In the view of Canada, the measures at issue, taken together:

(i) are inconsistent with Article 1.1 of the SCM Agreement and, because they require the imposition of countervailing duties against practices that are not subsidies within the meaning of Article 1.1, are inconsistent with Article 10 (as well as Articles 11, 17, and 19, as they relate to the requirements of Article 10) and 32.1 of the SCM Agreement; and

(ii) for the same reasons, also violate obligations of the United States under both Article XVI:4 of the WTO Agreement and Article 32.5 of the SCM Agreement to ensure conformity of its laws, regulations, and administrative procedures with its obligations under the WTO agreements.

3.4 Canada therefore requests that the Panel make the following recommendation to the DSB:

- That the United States bring its "measures" into conformity with the SCM Agreement and the WTO Agreement, including by ceasing to treat export restraints as "financial contributions".

B. UNITED STATES

3.5 The United States requests that the Panel find:

(i) that none of the measures identified by Canada (either in its request for a panel or in its First Written Submission) are inconsistent with Articles 1.1, 10, 11, 17, 19, or 32.1 of the SCM Agreement; and

(ii) that the United States has not failed to ensure that its laws, regulations, and administrative procedures are in conformity with its obligations under Article 32.5 of the SCM Agreement and Article XVI:4 of the WTO Agreement.

IV. REQUEST OF THE UNITED STATES FOR PRELIMINARY RULINGS¹⁴

A. REQUEST OF THE UNITED STATES

4.1 The United States, in a Request for Preliminary Rulings submitted after Canada's first written submission and before the US first written submission, requests the Panel to dismiss Canada's complaint by making preliminary rulings as follows:

(a) That, as neither Section 771(5), the SAA, the Preamble, nor any DOC "practice" requires US authorities to treat export restraints as subsidies, these alleged measures, as such, do not violate US obligations under any of the provisions cited by Canada in its request for a panel;

(b) That US "practice" - whether past, present, or future - does not constitute a measure properly before this Panel;

(c) That, because Canada did not include US "practice" under Section 771(5) in its request for consultations, the parties did not actually consult on US "practice", and Canada's panel request fails to adequately identify the US "practice" in question, Canada's claims regarding US "practice" fail to conform to Articles 4.7 and 6.2 of the DSU, and are not properly before this Panel; and

(d) That, because Canada's panel request did not identify the SAA or the Preamble as measures, and because, in any event, neither the SAA nor the Preamble is a measure, Canada's inclusion of the SAA and the Preamble as separate measures in its First Written Submission fails to conform to Article 6.2 of the DSU, and Canada's claims regarding the SAA and the Preamble are not within the Panel's terms of reference.

4.2 In support of this request, the United States makes the following arguments.

1. Introduction

4.3 In the view of the United States, Canada is asking the Panel to rule in the abstract that never, under any set of circumstances present or future, can an export restraint be regarded as a subsidy program - or even a part of a subsidy program - for purposes of the SCM Agreement. Such a ruling would step beyond the bounds of any existing dispute, and thereby usurp the "exclusive authority" of the Ministerial Conference or the General Council to authoritatively interpret Article 1.

4.4 The United States raises what it views as four different, threshold issues related to its request for preliminary rulings. First, none of the "measures" Canada has identified mandate that US authorities treat export restraints as "subsidies", as Canada alleged in its request for a panel, or as "financial contributions." Thus, under the mandatory/discretionary doctrine, none of these "measures" violates US WTO obligations.

4.5 Second, there simply is no DOC "practice" of treating export restraints as subsidies under current US law. Even if such a "practice" existed, it could not be regarded as a measure.

4.6 Third, because Canada's request for a panel did not identify the SAA or the Preamble as distinct measures subject to dispute, they are not within the Panel's terms of reference. Moreover, because neither the SAA nor the Preamble has any legal effect independent of the statute or regulations, neither document constitutes a measure susceptible to dispute resolution.

4.7 Fourth, "practice" was not included in Canada's consultation request, and the United States and Canada did not actually consult on any alleged "practice". Moreover, at least until its First Written Submission, Canada failed to identify any particular "practice" about which it complained, and the "practice" it has now identified is not the sort of measure it originally described. Thus, Canada's claims regarding "practice" are not properly before the Panel.

4.8 The United States argues that Canada's request that this Panel rule on discretionary measures, and its insistence that the Panel force the United States to comply with a ruling regarding future United States actions or "practice" - actions that may never occur - raise serious institutional concerns regarding the fundamental structure of the WTO, as well as proper judicial method. If the Panel were to rule that future measures, if they should ever be adopted, also violate US WTO obligations, the Panel would be adopting a binding prospective interpretation of the SCM Agreement and stepping well beyond the boundaries of any existing dispute.

4.9 For the United States, the procedural defects in Canada's request for a panel mean that Canada's claims of WTO violations must fail, even if one were to assume that its interpretation of the SCM Agreement were correct, which it clearly is not. At a minimum, the flaws in Canada's pleadings indicate that the Panel must examine its claims with unusual care, and avoid overstepping its authority.

^{1 WT/DS194/1.}

2 WT/DS194/2.

3 See, WT/DSB/M/88 at paragraph 12.

4 WT/DS194/3.

5 Exhibit CAN-7 (19 U.S.C.� 3512(d) (1994)).

6 Exhibit CAN-2 (SAA at 656)

7 Exhibit CAN-2 (SAA at 926).

8 Exhibit CAN-3 (19 CFR Part 351, Countervailing Duties, Final Rule, 63 Fed. Reg. 65,348-65,418).

9 Id. at 65,349-65,350.

10 Id. at 65,351.

11 Annex A to First Written Submission of Canada - Exhibit CAN-1.

12 Annex B to First Written Submission of Canada - Exhibit CAN-2.

13 Annex C to First Written Submission of Canada - Exhibit CAN-3.

14 The Panel notes that the summaries of the parties' arguments set forth in Sections IV, V, and VI are based on executive summaries of the parties' submissions, provided by the parties pursuant to the working procedures established by the Panel.

Continuation: 2. Factual Background