2. Factual Background

4.10 The United States asserts that with respect to Section 771(5), Canada does not identify any way that Section 771(5) itself fails to conform to US WTO obligations or needs to be amended. Further, according to the United States, the SAA, which is a type of legislative history, does not require the DOC to treat such measures as countervailable subsidies. The SAA permits the DOC to treat an export restraint as a subsidy when justified by the terms of the statute (and the SCM Agreement), but only if the DOC determines that doing so would satisfy the requirements of the new subsidy definition. With respect to the Preamble, the United States argues that the passages that Canada cites indicate that the DOC simply was of the view that Section 771(5)(B)(iii) of the Tariff Act did not preclude the DOC from treating export restraints as subsidies in appropriate circumstances. The DOC never stated that Section 771(5)(B)(iii) mandated that the DOC treat export restraints as subsidies. Moreover, the DOC did not promulgate a regulation on "indirect subsidies" in general, or export restraints in particular, and the DOC's statements were made in the context of explaining why it was not promulgating a regulation regarding "indirect subsidies". With respect to practice, the United States argues that Live Cattle is the only US countervailing duty ("CVD") investigation since the implementation of the URAA even to consider whether something which arguably could be categorized as similar to an export restraint programme might constitute a countervailable subsidy, and the DOC found no subsidy. According to the United States, the other two cases cited by Canada involved both a different type of financial contribution than any export restraint case (loans vs. goods) and a different type of government action (government direction of credit vs. government restrictions on exports).

3. Legal Argument

(a) Assuming for Purposes of Argument that Canada's Interpretation of Article 1 of the SCM Agreement Is Correct, Section 771(5) Does Not Violate US WTO Obligations Because Section 771(5) Does Not Mandate that the DOC Treat Export Restraints as Subsidies

4.11 The United States notes that the Appellate Body has explained, "the concept of mandatory as distinguished from discretionary legislation was developed by a number of GATT panels as a threshold consideration in determining when legislation as such - rather than a specific application of that legislation - was inconsistent with a Contracting Party's GATT 1947 obligations".¹⁵ This doctrine has continued under the WTO system, as panels and the Appellate Body have continued to apply the mandatory/discretionary distinction in considering whether a Member's legislation is WTO-inconsistent. For example, in Canada Aircraft, the panel applied the mandatory/discretionary distinction in rejecting several Brazilian claims of prohibited subsidies under the SCM Agreement. Similarly, the panel in US 301 applied the mandatory/discretionary distinction, stating that its decision "does not imply a reversal of the classical test in the pre-existing jurisprudence that only legislation mandating a WTO inconsistency or precluding WTO consistency, could, as such, violate WTO provisions. Indeed that is the very test we shall apply in our analysis." The United States notes that most recently, in the 1916 Act case, the Appellate Body set forth the traditional formulation of the mandatory/discretionary doctrine. The Appellate Body engaged in a lengthy discussion of the doctrine and its correct application, ultimately finding that the panel had applied the doctrine correctly.

4.12 According to the United States, the text of Section 771(5) requires the DOC to treat export restraints as subsidies only if they might meet all of the statute's requirements, which are in effect the same as those of the SCM Agreement. Therefore, even assuming (wrongly) for purposes of argument that Article 1.1 of the SCM Agreement precludes ever treating an export restraint as a subsidy, nothing in the text of Section 771(5) mandates that the DOC treat an export restraint as a subsidy. This conclusion does not change if one interprets Section 771(5)(B)(iii) in light of the SAA. Although the SAA is an authoritative expression by the United States concerning the interpretation of the URAA, pages 925-926 of the SAA state merely that the DOC may impose countervailing duties regarding export restraints only if such restraints meet all of the requirements for countervailability under the statute and the SCM Agreement.

4.13 Turning to the Preamble, the United States asserts that nothing in the Preamble requires the DOC to treat export restraints as subsidies. At most, the Preamble expresses the DOC's view that Section 771(5)(B)(iii) "would permit" it to treat export restraints as subsidies. Even if the Preamble stated that Section 771(5)(B)(iii) required the DOC to treat export restraints as subsidies, such a statement would not be binding upon the DOC as a matter of US law. Moreover, the DOC did not promulgate a regulation on the topic of indirect subsidies in general, or export restraints in particular. Thus, the Preamble cannot even be used as an interpretive tool, because there is no regulation to interpret. At most, that United States argues, the Preamble is a non-binding statement by the DOC regarding its views at the time concerning the scope of Section 771(5)(B)(iii).

4.14 With respect to Canada's claims concerning US "practice", the United States maintains that no DOC determination has ever found that any export restraint meets the standard of Section 771(5)(B)(iii); but even if one had, this would not mandate that the DOC interpret the statute in this fashion. It is a well-established principle of US administrative law that an administrative agency, such as the DOC, is not obliged to follow its own precedents, provided that it explains why it departs from them. Thus, even if the DOC had made a determination under Section 771(5) in a prior CVD proceeding that an export restraint constituted a subsidy (which it has not), the DOC would not be bound by that determination in a future CVD proceeding involving an export restraint. The key consideration under US law is that DOC determinations be consistent with the statute and the regulations.

4.15 Moreover, the United States asserts, written submissions made by Canada in the course of the DOC's rulemaking proceeding demonstrate that Canada has agreed with the above assessment. Canada has stated that Section 771(5) of the Tariff Act "adopts a definition of 'subsidy' that is substantively the same as that of the [SCM] Agreement", and that the DOC "can easily, and should, interpret the URAA consistent with US GATT obligations, which require that regulatory measures be excluded from the definition of subsidy." (emphasis added). Canada also has stated that it "appreciate[d] that the Department may wish to preserve its flexibility and discretion with respect to the application of the concepts of 'indirect subsidies' . . . and has decided therefore not to propose regulations addressing these issues at this time". (emphasis added).

4.16 In other words, according to the United States, until it decided to commence this dispute Canada was of the view that Section 771(5) did not require the DOC to treat export restraints as subsidies. Similarly, until it decided to commence this dispute, Canada was of the view that by declining to promulgate a regulation on the topic, the DOC had preserved "its flexibility and discretion" with respect to the treatment of export restraints. Now, the United States argues, Canada is suddenly claiming that in its rulemaking proceeding the DOC somehow bound itself to treat export restraints as subsidies. For the United States, not only do Canada's prior statements to the DOC constitute an admission against interest for purposes of this dispute, but Canada's drastic reversal of positions speaks volumes about the strength (and purposes) of its case.

(b) Canada's Claims Concerning "US Practice" Under Section 771(5) Should be Dismissed

4.17 The United States asserts that what Canada refers to as "practice" consists of nothing more than individual applications of the US CVD law. While these applications themselves might individually constitute measures, they do not, through numbers, mutate into a separate and distinct "measure" that can be called "practice." Rather, Canada's alleged "practice" simply consists of specific determinations in specific CVD proceedings (or in some cases only "thoughts" expressed in specific CVD proceedings) that are not within the Panel's terms of reference and that Canada says it is not challenging. In the view of the United States, the sort of "practice" alleged by Canada does not constitute a measure within the meaning of the DSU.

4.18 However, even if "practice" could be considered as a measure, the United States argues that Canada's claims regarding US "practice" still would not be properly before this Panel. Because Canada did not identify US "practice" in its consultation request, the United States and Canada did not actually consult with respect to US "practice", and Canada's panel request did not adequately identify US "practice", Canada's claims fail to conform to Articles 4.7 and 6.2 of the DSU and must be rejected for that reason. Moreover, to the extent that Canada's First Written Submission finally identifies the three types of "practice" about which it is complaining, none of the three types can violate US WTO obligations: (1) pre-WTO CVD determinations cannot violate the WTO or SCM Agreements; (2) there is no existing US "practice" of treating export restraints as subsidies that violates the WTO or SCM Agreements; and (3) hypothetical future US practice under Section 771(5) is not properly before the Panel because it is not a measure, and because only the Ministerial Conference and the General Council have the power to issue authoritative interpretations of the SCM Agreement.

4.19 Nor, according to the United States, would rulings on possible future practice be wise. As previously noted by the panel in European Communities - Audio Tapes, para. 365, "[I]t would [not] be appropriate to reach findings on a 'practice' in abstracto when it had determined that the actions taken in a particular investigation were not inconsistent with the Agreement and that the 'practice' was not pursuant to mandatory legislation." More fundamentally, the "future practice" of a Member simply cannot be regarded as a "measure" subject to dispute settlement, because it is purely speculative. For that reason, the DSU applies only to measures "taken", not to measures "that may possibly be taken in the future".

4.20 For the United States, an additional reason why Canada's claims regarding DOC "practice" are not properly before the Panel is that those claims were not made in conformity with Articles 4.7 and 6.2 of the DSU. In its request for consultations, Canada identified the SAA and the Preamble as the challenged measures, effectively alleging that these measures, as such, violated various US WTO obligations. Canada did not allege that any actual application of these measures in a specific US CVD proceeding violated US WTO obligations. Likewise, at the consultations which took place on 15 June 2000, the parties did not discuss any actual application of the SAA, the Preamble, or Section 771(5) in a particular US CVD proceeding.

4.21 Nonetheless, the United States argues, in its panel request Canada for the first time in this dispute raised US practice under Section 771(5) as a challenged measure. In the view of the United States, Articles 4.7 and 6.2 of the DSU preclude Canada from challenging a measure which was neither identified in its consultation request nor the subject of consultations.

4.22 The United States recalls that in Brazil - Aircraft, the Appellate Body was faced with a situation where Brazil sought to dismiss Canada's complaint because the regulatory instruments identified in Canada's consultation request - and on which Canada and Brazil consulted - were no longer in effect by the time the panel was established. This was due to the fact that the regulatory instruments in question had a short lifespan, and were constantly expiring and being re-enacted under a new name.

4.23 According to the United States, the Appellate Body rejected Brazil's argument on the basis that the regulatory instruments that came into affect after consultations were held did not change the essence of the export subsidies complained about by Canada. In so doing, however, the Appellate Body reaffirmed the important role that consultations play in the dispute settlement process. According to the Appellate Body, "Articles 4 and 6 of the DSU . . . set forth a process by which a complaining party must request consultations, and consultations must be held, before a matter may be referred to the DSB for the establishment of a panel." (emphasis added). The Appellate Body found that Articles 4 and 6 of the DSU do not "require a precise and exact identity between the specific measures that were the subject of consultations and the specific measures identified in the request for the establishment of a panel." (emphasis in original). Implicit in this statement, however, is the notion that there must be some identity between the subject of the consultations and the specific measures identified in the panel request. If there is not, then the panel request is defective as a matter of law.

4.24 With respect to Section 771(5), the United States does not object to its inclusion in Canada's panel request, even though it was not identified in Canada's consultation request. In the consultation request and at the consultations, Canada made clear its intent to challenge US law, as such. The consultations clarified which measure Canada had to identify if it was to properly make such a challenge.

4.25 However, the United States indicates, at no time during the consultations phase did Canada indicate that it intended to challenge US law, as applied. In the view of the United States, there is no identity between a law, as such, and a law, as applied. For that reason, the Panel should find that Canada has failed to comply with Articles 4.7 and 6.2 of the DSU, and should dismiss Canada's claims with respect to US practice under Section 771(5).

4.26 For the United States, Canada's panel request also fails to meet the requirements of Article 6.2 of the DSU, because the request fails to "identify the specific measures at issue ... ." Specifically, by simply making a vague reference to "US practice thereunder" - "thereunder" being a reference to Section 771(5) - Canada has failed to adequately identify the particular applications of Section 771(5) about which it is complaining.

4.27 The United States argues that not until its First Written Submission did Canada describe any examples of US practice that it wished to make the subject of this action (although it could easily have done so in consultations), and even now it is by no means clear exactly what Canada considers to be "practice" or whether it has other as-yet-unmentioned "practice" in mind. The United States asserts that it has been prejudiced by these failures, and these failures make the requisite consultation process an empty one (thereby undermining the overall dispute settlement process).

4.28 Finally, the United States emphasizes that subsequent to the entry into force of the WTO Agreement, the DOC has never had any practice that "treats a restraint on exports of a product as a subsidy to producers of other products". Live Cattle from Canada cannot be a "measure[] that treat[s] a restraint on exports of a product as a subsidy" of the sort alleged in Canada's requests either for a consultation or for a panel, because in that case the DOC found that the Canadian measure at issue was not a subsidy because it did not provide a benefit. Nor did the DOC make a finding that any export restraint constituted a "financial contribution", the sort of measure addressed in Canada's First Written Submission.

4.29 Moreover, in the view of the United States, the two Korean steel cases cited by Canada involved measures (government direction of credit) that are completely different from an export restraint. Accordingly, none of the examples of "practice" Canada has identified even in its First Written Submission constitute the sort of measures it has said that it challenges.

4.30 For the United States, Canada's vague and amorphous request for a panel to address actions that have not yet been and may never be taken emphasizes the problems associated with trying to address practice purely in the abstract. Canada's consistent failure to identify the precise "measures" and "practice" it wishes to place at issue highlights the fact that its real complaint involves a measure - US imposition of countervailing duties on Canadian lumber imports - that does not exist. The United States acknowledges that it is certainly possible that the DOC will one day find that some type of export restriction program in Canada or its provinces amounts to entrusting or directing, either alone or in combination with other restrictions, a private "body" to sell an input good to a particular producer or producers, and meets the other requirements for a countervailable subsidy, but states that it is also possible that the DOC will not make such a finding if and when it is faced with the issue. Yet for both practical and juridical reasons, in the opinion of the United States the Panel would be ill-advised to speculate on either what types of restrictions might exist or how the DOC would treat them. Accordingly, the Panel should decline to rule on Canada's complaint and dismiss it.

(c) The Panel Should Dismiss Canada's Claims Concerning the SAA and the Preamble Because Neither Document Was Identified as a Measure in Canada's Panel Request and Because Neither Document Constitutes a "Measure" Within the Meaning of Article 6.2 of the DSU

4.31 The United States notes that in its panel request, Canada identified the challenged measures as: (1) Section 771(5) (as interpreted by the SAA and the Preamble), and (2) US practice thereunder. If Canada had intended to challenge the SAA and the Preamble as separate measures, the "as interpreted by" phrase would have been unnecessary.

4.32 However, the United States continues, in its First Written Submission, Canada expanded its case to include the SAA and the Preamble as separate "measures". According to the United States, Canada cannot do so, because it is well-established that a Panel's terms of reference are fixed by the panel request, and a complainant cannot add new measures thereafter.

4.33 For the United States, Canada's behaviour is particularly egregious in light of the fact that at the first DSB meeting to consider Canada's panel request, the United States indicated that it interpreted the request as involving two measures - Section 771(5) and US practice thereunder. Canada never took issue with this interpretation. Indeed, at the second DSB meeting, the only point on which Canada took issue with the United States concerned the US objection to Canada's inclusion of "practice" in its panel request.

4.34 Finally, the United States argues, even if Canada's panel request could be construed as having separately identified the SAA and the Preamble as things it wished to challenge, those documents do not constitute measures within the meaning of Article 6.2 of the DSU. According to the United States, neither document, in itself, has any independent legal effect under US law, and neither document authorizes nor requires any action by the US Government. In the view of the United States, documents of this nature cannot constitute a measure within the meaning of Article 6.2.

B. RESPONSE OF CANADA

4.35 Canada considers that each of the US requests for preliminary rulings is unfounded and consequently requests that the Panel deny the preliminary rulings sought by the United States. Canada argues that, in an effort to substantiate its request, the United States mischaracterizes Canada's claim and the nature and effect of the measures under US law, as well as the relevance of the WTO case law cited by the United States in the context of a request for a preliminary ruling.

1. The Matter Raised By Canada's Panel Request Is Properly Before This Panel

4.36 Canada notes that in the US Request for Preliminary Rulings ("the US Request"), the United States has challenged in a variety of ways whether the matter raised by Canada's panel request is properly before this Panel and reflects an actual dispute. Canada submits that its Panel Request sets out both specific measures and legal claims, well within the requirements established by the Appellate Body in Guatemala - Anti-Dumping Investigation Regarding Portland Cement From Mexico,¹⁶ that reflect the real controversy that exists between Canada and the United States with respect to the treatment of export restraints under US countervailing duty law.

4.37 Canada recalls that in Guatemala - Cement, the Appellate Body concluded that the "matter" referred to the DSB consists of two elements: the specific measures at issue and the legal basis of the complaint (or the claims). According to Canada, its panel request sets out four measures as constituting the relevant aspects of US countervailing duty law that, when taken together, are inconsistent with the provisions of the SCM Agreement and the WTO Agreement identified by Canada. For Canada, these government actions all clearly satisfy the standard for a "measure" set out in Guatemala - Cement.

4.38 Canada asserts that its legal claims also are set out in its panel request and that these claims, which echo Canada's request for consultations, unquestionably put the United States on notice, and have done so since the very beginning of this dispute, that Canada is of the view that the treatment of export restraints under US countervailing duty law is inconsistent with the various identified provisions of the SCM Agreement and WTO Agreement.

4.39 Canada argues that the United States attempts to isolate the constituent parts of US countervailing duty law into separate pieces in order to claim that each, by itself, is meaningless. In particular, the United States, while not objecting to Section 771(5) of the Tariff Act of 1930 as a "measure", claims that it is the only measure, and that whether the statutory language of Section 771(5) itself mandates the treatment of export restraints as subsidies is dispositive of this proceeding. It also claims that the SAA and Preamble have no "legal effect independent from the statute or regulations",¹⁷ and that there is no US "practice" with respect to export restraints.

4.40 For Canada, the US characterization of the basis for Canada's complaint and its attempt at parsing the measures so as render each measure meaningless in its own right is not supported by WTO jurisprudence. As Canada discusses in its First Written Submission (see infra), the Panel in United States - Sections 301 - 310 of the Trade Act of 1974 noted that a national law may be "multi-layered," including statutory and other institutional and administrative elements that are "often inseparable and should not be read independently from each other when evaluating the overall conformity of the law with WTO obligations."

4.41 Canada notes that the United States also argues that in WTO dispute settlement, the meaning of municipal law is a question of fact to be proven, and consists not only of the provisions themselves, but also the domestic legal principles governing their interpretation. The United States then suggests that a Member's views on the meaning of its own law is ordinarily worthy of some deference. Canada notes, however, that a Panel has an independent obligation to assess municipal law to determine whether the Member is in compliance with its WTO obligations. Canada notes that the law is well established in this regard, and points to the Appellate Body Report in India - Patent Protection for Pharmaceutical and Agricultural Chemical Products.

4.42 Canada notes that according to the United States, Section 771(5) largely tracks the language of Article 1.1(a)(1)(iv) of the SCM Agreement, and thus is not a violation of that Article. Moreover, the United States suggests that under US principles of statutory construction, Section 771(5) cannot be interpreted in a fashion that would violate Article 1.1(a)(1)(iv) of the Agreement, because under "the Charming Betsy doctrine", an ambiguous US statute is to be "construed, where possible, to be consistent with international obligations of the United States".

4.43 Canada agrees that the language of Section 771(5) could have been interpreted consistently with the definition of "subsidy" in Article 1.1 of the SCM Agreement, as Canada noted in its comments submitted to the DOC during its rulemaking proceeding in 1995. For Canada, however, this is not the question at issue. Rather, as the Appellate Body has noted (United States - 1916 Act), the issue is not how a statute theoretically might be interpreted, but how it is interpreted in light of both statutory and non-statutory elements.

4.44 As to its contention about the Charming Betsy, Canada argues, the United States omits to note other US judicial doctrines that render the Charming Betsy doctrine meaningless in this context. In this case, the United States has made plain in its submissions to the Panel that it interprets Article 1.1 of the SCM Agreement to permit it to countervail export restraints, and the Charming Betsy doctrine consequently will not lead it to adopt a different interpretation of its obligations.

4.45 In Canada's view, the United States also mischaracterizes the role and significance of the SAA. While conceding that by the terms of the statute the SAA is "an authoritative expression by the United States concerning the interpretation of the URAA", the US Request asserts that the SAA is merely "a type of legislative history". For Canada, this US argument is inherently contradictory and belied by both US court decisions and the treatment of the SAA by the United States itself.

4.46 First, Canada states, the SAA is not legislative history in any ordinary sense, for the reasons that it was required by statute, agreed between the US Administration and the US Congress in advance, submitted by the US President to the US Congress with the proposed URAA legislation, and approved by the Congress. The SAA has a function and significance in US law beyond that of ordinary legislative history.

4.47 Second, Canada argues, the very existence of the SAA and the declaration in the statute that it is an "authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements�" makes plain that the scope and meaning of the statute are to be determined by the SAA. This fact that has been repeatedly recognized by US courts.

4.48 Finally, Canada notes, the US attempt to downplay the significance of the SAA, treating it as merely "encouraging" certain interpretations is completely contradictory to its position and assurances set out in United States - Section 301. In that case, the United States declared that "[t]he SAA must, by law, be treated as the authoritative expression concerning the interpretation of the statute in any judicial proceeding." On this basis, Canada states, the Panel found in favour of the United States.

4.49 As regards the effect of the Preamble, Canada asserts that the US Request acknowledges that the DOC's statements concerning export restraints in its Notice of Final Rule "would have been binding" on the DOC if they had been made in a "regulation", but then claims that inclusion of those statements in the Preamble makes them "[a]t most � a non-binding statement by the DOC regarding its views at the time." The United States adds that it is not bound by the Preamble.

4.50 For Canada, the claim that a Preamble to Regulations has lesser legal status ignores the administrative framework under which US agencies promulgate regulations. The DOC regulations are issued in accordance with the Administrative Procedure Act (the APA), which requires that an agency incorporate a preamble in rules that they issue. Thus, the purported distinction between the Preamble and the remainder of the regulation that is urged by the United States is without basis. Moreover, Canada asserts, numerous US courts have recognized the Preamble as part and parcel of a regulation, and thus binding.

15 United States - Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, Report of the Appellate Body adopted 26 September 2000, para. 88 ("U.S. 1916 Act AB Report").

16 Guatemala - Anti-Dumping Investigation Regarding Portland Cement From Mexico, Report of the Appellate Body, WT/DS60/AB/R, 2 November 1998 at para. 75 (hereinafter Guatemala - Cement).

17 Id. at para. 8.

Continuation: Section 4.51