5.11 Accordingly, Canada states, the advent of the definition of subsidy in the SCM Agreement, requiring a "financial contribution" and the consequent conferral of a "benefit" necessarily required amendment of the US countervailing duty law. The United States undertook to implement the definition of subsidy in the URAA by amending Section 771(5) of the Act. For Canada, although that section, as amended, does not specifically address export restraints, it is the statutory underpinning for the other measures that taken together with the statute commit the United States to treat export restraints as "financial contributions".³⁵

5.12 Canada states that the SAA accompanying the URAA sets forth the authoritative interpretation of the URAA and the US Administration's obligations in implementing it.³⁶ Nearly all of the SAA provisions on "financial contribution" focus on what the SAA refers to as "indirect subsidies" and the Administration's intention that Section 771(5)(B)(iii) - where a government "entrusts or directs a private entity to make a financial contribution" - be broadly interpreted to encompass practices like those Commerce countervailed under the pre-WTO countervailing duty law. In particular, according to Canada, the SAA directs Commerce to continue to find the circumstances of Leather and Lumber countervailable. It is therefore an express and controlling direction to Commerce to apply Section 771(5) to achieve the same result, with regard to export restraints, as under pre-WTO Commerce practice.³⁷

5.13 Canada notes that Commerce issued the Regulations implementing the URAA's amendments to US countervailing duty law in 1998, and argues that the Regulations elaborate on the SAA's interpretation that an export restraint satisfies the standards of the "entrusts or directs" provision in Article 1.1(a)(1)(iv) of the SCM Agreement and Section 771(5)(B)(iii) of the statute. First, they confirm that the post-URAA "standard for finding an indirect subsidy" is unchanged from pre-WTO practice. Second, they interpret the "entrusts or directs" standard as being met where a government "causes" a private person (or group of unaffiliated private persons) to provide a benefit. Finally, they declare export restraints to constitute a government's entrustment or direction to a private entity to provide goods - hence a "financial contribution" - that is countervailable if it "leads" to lower domestic prices for the restrained good. For Canada, the Regulations thus make clear that Commerce will find the entrusts or directs standard under Section 771(5)(B)(iii) to be met, and therefore will find an export restraint to be a countervailable subsidy, where Commerce concludes that the producers of the restrained product are providing it to downstream users for what Commerce views as "less than adequate remuneration", i.e. whenever Commerce finds that a "benefit" has been conferred.³⁸

5.14 Canada asserts that like the SAA and the Regulations, US practice pursuant to those measures treats an export restraint as meeting the standard of Section 771(5)(B)(iii) of the Act, as a matter of US law.³⁹

3. Legal Argument

(a) To Be A Countervailable Subsidy, A Practice Must Satisfy The Definition Of "Financial Contribution"

5.15 Canada notes that under the SCM Agreement countervailing duties may only be imposed against "subsidies".⁴⁰ For Canada, the US measures are inconsistent with US obligations under the SCM Agreement because export restraints are not "subsidies" within the meaning of Article 1.1 of the Agreement.

5.16 Canada states that the definition of "subsidy" in Article 1.1 applies by its own terms for all purposes under the SCM Agreement. It thus applies in determining whether a countervailing duty may be imposed under Article 10 of the Agreement, whether the evidence is adequate for initiating a countervailing duty investigation under Article 11, and whether a provisional or final countervailing duty may be imposed under Articles 17 or 19. Further, Article 32.1 of the Agreement provides that "[n]o specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement" (emphasis added). Hence to be countervailable a practice must satisfy the definition of "subsidy" in Article 1.1. No provision of the WTO Agreements permits imposition of countervailing duties in circumstances or against practices that do not meet the definition of "subsidy" in the SCM Agreement.

5.17 Canada asserts that the definition of subsidy in Article 1 of the SCM Agreement has two discrete elements: (1) that there be "a financial contribution by a government or any public body"; and (2) that "a benefit is thereby conferred". As the Appellate Body declared in Brazil - Export Financing Programme for Aircraft, "financial contribution" and its conferral of a benefit are "separate legal elements in Article 1.1 � which together determine whether a subsidy exists"⁴¹ [emphasis in the original]. Moreover, for Canada, the terms of the Agreement make clear that the nature of the government action is conclusive as to whether there is a "financial contribution" under Article 1.1(a)(1). If a government has not acted in a manner enumerated in Article 1.1(a)(1), then a "financial contribution" does not exist and there can be no "subsidy".

5.18 That particular kinds of government actions are prerequisites to the existence of a "subsidy" is confirmed for Canada by the negotiating history of the SCM Agreement. According to Canada, the United States proposed defining the term "subsidy" as any government action that confers a benefit, thus avoiding the need to show a financial contribution.⁴² That US proposal, however, which reflected pre-WTO US law by focusing solely on the existence of a "benefit" and placing no limitation on the nature of the government action required, was rejected, in favour of the language of Article 1.1(a)(1). Canada asserts that the US position that the SCM Agreement changed nothing from pre-WTO US law is therefore untenable.

5.19 Moreover, Canada argues, the definition of "financial contribution" in Article 1.1(a)(1) is exclusive and exhaustive as demonstrated by the ordinary meaning of the terms in their context and confirmed by the negotiating history. The list of types of "financial contributions" in subparagraphs (i) to (iv) of Article 1.1(a)(1) is introduced by "i.e. where," meaning "that is." This restricting term makes clear that the list is exhaustive, not illustrative. By contrast, Canada states, where the SCM Agreement negotiators intended a list to be illustrative, they used expressions such as "e.g." instead. Successive, drafts of the Agreement text confirm this, showing an early shift from illustrative ("such as where") language to the definitive "i.e. where" that appears in the final text.⁴³

(b) The Treatment Of Export Restraints As An "Indirect Subsidy" Is Inconsistent With The Express Terms Of The SCM Agreement

5.20 Canada notes that Article 1.1(a)(1) of the SCM Agreement sets out four categories of government action that can constitute a "financial contribution." The first three are where a government or public body (i) makes a direct or potential direct transfer of funds, such as grants, loans, or loan guarantees; (ii) foregoes or does not collect government revenue otherwise due, such as tax credits; and (iii) provides goods or services (other than general infrastructure) or purchases goods. Notably, Canada states, each of these types of government action involves a transfer of economic (i.e. financial) resources from a government to producers of goods or services. Canada argues that an export restraint, by contrast, does not constitute such a transfer of financial resources by a government and does not fall within any of these three categories. It is not a direct transfer of funds, the foregoing of government revenue, or a provision of goods.

5.21 Canada states that the fourth category, in Article 1.1(a)(1)(iv), provides for an indirect financial contribution. In Canada's view, to meet the terms of that provision, five elements must be satisfied: (a) a government must entrust or direct; (b) a private body; (c) to carry out one or more of the types of functions listed in subparagraphs (i) through (iii); (d) which would normally be vested in a government; and (e) the practice must, in no real sense, differ from practices normally followed by governments. For a practice to qualify under Article 1.1(a)(iv), it must satisfy each of these elements. For Canada, however, an export restraint satisfies none of them. The United States' assertion that an export restraint falls within Article 1.1(a)(1)(iv) as a government entrustment or direction to a private body to provide goods to domestic users of the restrained product is therefore profoundly mistaken.

5.22 First, Canada argues, an export restraint does not "entrust or direct" anyone to do anything affirmative. In their plain meaning, the words "entrusts or directs" connote an affirmative action to order or commission someone to do something. The New Shorter Oxford English Dictionary defines the term "entrust" as meaning to "invest with a trust; give (a person, etc.) the responsibility for a task �".⁴⁴ "Entrust" thus carries a strong connotation of agency. The ordinary meaning of the term "direct" is "to give authoritative instructions to; to ordain, order or appoint (a person) to do (a thing) to be done; order the performance of".⁴⁵

5.23 For Canada, these meanings are reinforced by the terms that immediately follow "entrusts or directs", namely "to carry out". The ordinary meaning of "to carry out" is to "conduct to completion, put into practice"⁴⁶ or "to put into execution".⁴⁷ When read together, "entrusts or directs � to carry out" suggests the communication of a duty or instruction that is to be discharged or executed. According to Canada, an export restraint does not commission or charge or authoritatively instruct producers of the restrained good to do anything; rather it limits their ability to export.

5.24 Second, Canada asserts, an export restraint does not entrust or direct a "private body" (or, as used in US law but with the same meaning, a "private entity") because the universe of private producers of a good are not a "private body".

5.25 Rather, the ordinary meaning of "body' is "a group of persons or things: � a group of individuals organised for some purpose � ."⁴⁸ The term "private body" thus connotes for Canada an organised private group or collective entity that has a separate and independent existence." Put differently, the fact that individuals may be described by a common characteristic - e.g. gold miners, persons under 21, farmers or doctors - does not transform the universe of such individuals into a "private body". Consequently, under the plain language of Article 1.1(a)(1)(iv), as unorganised individual producers, the hide producers and loggers of Leather and Lumber were not "private bodies" in Canada's view.

5.26 Third, Canada argues, an export restraint does not entrust or direct a private body to "carry out the provision of goods", but rather by definition limits the ability to export. It involves no transfer of financial resources by a government to producers of goods. Indeed, as noted above, Commerce itself expressly did not consider the export restraints in Leather or Lumber to constitute the provision of goods.⁴⁹ Producers of a good supply that good in the domestic market to the extent they wish to do so, and whether or not there is an export restraint.

5.27 For Canada, under the United States' interpretation, a vast array of government regulatory measures that do not meet the requirements of Article 1 of the SCM Agreement and were never meant to be covered by it would become subject to the Agreement. If an export restraint is considered to be the provision of a good because it might result in greater domestic availability of a product, then any measure that might induce or encourage domestic producers to increase the supply of a product would have to be considered to be the provision of a good, and hence a financial contribution. In Canada's view, this reflects an unthinkable expansion of the definition of "subsidy" in the SCM Agreement that would undermine the bargain reached by the negotiators during the Uruguay Round and eliminate the security and predictability that was achieved with the successful negotiation of the Agreement.

5.28 Canada states that the fourth and fifth elements of Article 1.1(a)(1)(iv) require that the "function" in subparagraphs (i) through (iii) that a government "entrusts or directs a private body to carry out" be one that "would normally be vested in the government", and that "the practice, in no real sense, differs from practices normally followed by governments". Canada argues that these elements are legal prerequisites to a financial contribution within Article 1.1(a)(1)(iv) that are, by definition, not met if, as in the case of export restraints, no function enumerated in subparagraphs (i) through (iii) is involved. But as significantly for Canada, these elements add important context demonstrating that Article 1.1(a)(1)(iv) is not a catch-all for governmental regulatory actions that in some sense may result in economic benefits. Rather, it is intended to ensure that a government cannot avoid otherwise applicable subsidies disciplines by entrusting or directing a private surrogate to make one of the types of financial contribution delineated in Article 1.1(a)(i), (ii) or (iii) that the government normally would have made directly. In Canada's view, an export restraint is plainly not a measure of that kind.

5.29 Finally, Canada maintains, the negotiating history confirms that export restraints are not within the definition of subsidy in the SCM Agreement. During the Uruguay Round negotiations, the United States itself recognised that the definition of "subsidy" that became Article 1.1(a) of the SCM Agreement did not encompass export restraints. This is evident from US proposals tabled in the Subsidies Negotiating Group, in which the United States sought disciplines on so-called "industrial targeting" practices, including export restraints, in addition to subsidies defined in Article 1.1.

5.30 Canada further states that in its proposals, the United States considered an export restraint to be a targeting "policy tool", and considered such "policy tools" to be separate and distinct from a "subsidy". Thus, in Canada's view, the United States plainly understood that an export restraint fell outside the ambit of the definition of subsidy, and effectively acknowledged this in the Negotiating Group.⁵⁰ Moreover, these US efforts to bring export restraints within the coverage of the SCM Agreement failed, as was widely recognised by private US interests in their assessments of the Uruguay Round negotiations.⁵¹

5.31 Canada argues that although the United States clearly failed in its attempt to have the language of the SCM Agreement accommodate previous US law, the United States nevertheless declined to alter the treatment accorded to export restraints under US law when purporting to implement the new obligations of the Uruguay Round. While the United States amended the statutory language of its countervailing duty law, it used the device of the SAA and the Regulations to assure that the statutory language would be interpreted and implemented according to pre-WTO US law, and contrary to the requirements of the SCM Agreement.

(c) The US Measures Also Violate The United States' Obligation To Bring Its Law Into Conformity With The WTO Agreements

5.32 Canada argues that for the same reasons as discussed above, the treatment of export restraints under US law is also inconsistent with the United States' obligations under Article XVI:4 of the WTO Agreement and Article 32.5 of the SCM Agreement.

5.33 By their terms, Canada states, the obligations set out in these Articles are unqualified. They reflect the fact that a law, regulation or administrative procedure that violates a WTO obligation creates uncertainty and adversely effects the competitive opportunities for goods or services of other Members. The fact that US law provides for the application of countervailing duties to practices that are not subsidies within the meaning of Article 1.1 of the SCM Agreement means that the United States has failed to ensure the conformity of its laws, regulations and administrative procedures with its obligations under the SCM Agreement. Thus the United States should also be found in violation of its obligations under Articles XVI:4 of the WTO Agreement and Article 32.5 of the SCM Agreement.

B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES

1. Introduction

5.34 In the view of the United States, for the Panel to find in Canada's favor, the Panel must conclude that there is no imaginable set of circumstances in which an export restraint could operate as a subsidy. The United States considers that Canada presents little, if any, description of particular export restraints that exist in the real world. It is possible, in the US view, for an export restraint to meet all of the definitional elements of an indirect subsidy set forth in Article 1.1(a)(1)(iv). Therefore, Canada's extraordinary request for an authoritative interpretation by the Panel of the SCM Agreement must fail as a matter of substance.

2. Legal Argument

(a) Canada Bears the Burden of Proof

5.35 The United States argues that in this case, the burden of proof faced by Canada is formidable. Canada has taken upon itself the burden of proving the negative; that there is not and never will be an export restraint that could be regarded as a subsidy under Article 1.1. Canada has attempted to surmount this difficult burden of proof by virtually avoiding discussion of any actual export restraint measures that may exist in the world today, effectively asking the Panel to make an authoritative interpretation in the absence of any facts.

(b) The SCM Agreement Does Not Preclude Treating an Export Restraint as a Subsidy

(i) As an Economic Matter, Export Restraints Are Recognized as Subsidies

5.36 The United States maintains that there is no question that economically, and in the vernacular, export restraints are regarded as subsidies. In discussing an export restraint imposed by Indonesia, the WTO Secretariat explained: "Restricting exports of the primary resource encourages downstream processing by providing, in effect, an input subsidy to processors." This view is widely shared among other international institutions. Numerous academic and policy studies also agree with this view. The United States notes that Canada argues that notwithstanding this general view, export restraints can never technically qualify as subsidies under Article 1.1 of the SCM Agreement.

(ii) Ruling Out the Possibility that Export Restraints Could Constitute Subsidies Would Be Inconsistent with the Object and Purpose of the SCM Agreement

5.37 The United States asserts that the elements of Article 31(1) of the Vienna Convention on the Law of Treaties constitute "one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order."⁵² A recent panel described the object and purpose of the SCM Agreement as follows: "In our view, the object and purpose of the SCM Agreement is to impose multilateral disciplines on subsidies which distort international trade." For the United States, this view is consistent with the generally held view of subsidies as distortions of international trade.

5.38 The United States asserts that this purpose is borne out by the text of the SCM Agreement itself. Indirect subsidies are encompassed by Article 1.1(a)(1)(iv). While these measures do not necessarily entail a cost to government, they are certainly "forms of government intervention [that] distort international trade." If cost to government were a required element, the United States argues, subparagraph (iv) would be meaningless.⁵³

5.39 For the United States, the ordinary meaning of subparagraph (iv) indicates that indirect subsidies are potentially actionable. There is no rational way for Canada to argue that indirect subsidies are actionable in appropriate circumstances, but that a particular type of indirect subsidy - export restraints - never can be. If the Panel were to declare that, regardless of the facts, this particular category of indirect subsidies is beyond the purview of the SCM Agreement, in the view of the United States the object and purpose of the SCM Agreement would be undermined by making circumvention of obligations by Members too easy. The Appellate Body previously has warned that this is an outcome to be avoided.⁵⁴

(iii) The Text and Context of Article 1.1 Indicate that an Export Restraint Can Constitute an Indirect Subsidy Within the Meaning of Subparagraph (iv)

Canada's Narrow Approach to the Interpretation of Article 1.1 Is Wrong

5.40 According to the United States, neither the text of Article 1.1 in general nor subparagraph (iv) in particular expressly excludes export restraints from the definition of "subsidy,"⁵⁵ and Article 1.1 and subparagraph (iv) should be given an expansive reading.⁵⁶ Canada, however, argues for a narrow interpretation of Article 1.1. Canada relies primarily upon the use of the phrase "i.e., where" to introduce the list of types of financial contributions in Article 1.1(a)(1).

5.41 The United States agrees that "i.e." is generally a limiting term. However, the phrase "i.e., where" is found in the chapeau of Article 1.1(a)(1). To the extent that the phrase is limiting, in the view of the United States it merely limits the categories of "financial contributions" to four. The phrase is not found within subparagraph (iv) itself. For the United States, while the phrase "i.e., where" establishes that the universe of subsidies is finite, it does not establish whether that finite universe is large or small.

5.42 According to the United States, the text of subparagraph (iv) suggests a universe that is not as confined as the one hypothesized by Canada. Subparagraph (iv) states that a financial contribution exists where: "a government . . . entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above" (emphasis added). In the US view, the word "type" means "the general form, structure or character distinguishing a particular group or class of things." Thus, the inclusion of the word "type" suggests that functions of the same general form, structure, or character as those illustrated in subparagraphs (i) through (iii) would likewise constitute the indirect provision of a financial contribution. Thus, the United States argues, the definition of an indirect financial contribution in subparagraph (iv) is not as limited as Canada would have the Panel believe.

5.43 In the US view, one of Canada's own arguments supports this conclusion. Canada contends that where the drafters intended a list to be illustrative, they used other terms - "e.g." or "such as". Canada refers to other subparagraphs of Article 1.1(a)(1). To the United States, this indicates that Canada recognizes that the phrase "i.e., where" in the introductory part of Article 1.1(a)(1) does not limit the subparagraphs of Article 1.1(a)(1) to only the items listed in those subparagraphs where the subparagraphs themselves contain language that is expansive rather than exhaustive. Because subparagraph (iv) likewise contains language that is expansive rather than limiting, the United States argues that subparagraph (iv) must be interpreted broadly.⁵⁷

The Text of Subparagraph (iv) Supports the Proposition That an Export Restraint Could Constitute a Subsidy