5.44 The United States notes that under Article 1.1(a)(1)(iv), five elements are required for an indirect subsidy. An export restraint is capable of satisfying each of these elements. 5.45 The United States argues that with respect to "entrusts or directs", "entrust" is defined in relevant part as "invest with a trust; give (a person, etc.) responsibility for a task." Thus, if a government gives a "private body" responsibility to carry out what might otherwise be a governmental subsidy function of the type listed in subparagraphs (i)-(iii) of Article 1.1(a)(1), there would be a financial contribution within the meaning of Article 1.1(a)(1).

5.46 In the view of the United States, definitions of the word "directs" include "cause to move in or take a specified direction; turn towards a specified destination or target" or "to give authoritative instructions to; to ordain, order (a person) to do (a thing) to be done; order the performance of." Additional definitions of "directs" include "to regulate the course of", and "to cause (something or someone) to move on a particular course; to guide (something or someone); to govern; to instruct (something or someone) with authority".

5.47 The United States asserts that it cannot be said that no export restraint is capable of satisfying any of these definitions. At a minimum, an export restraint easily can be said to "regulate the activities of" or "cause" a private body to carry out one of the enumerated functions of subparagraph (iv), and thus provide a financial contribution.

5.48 For example, the United States argues, assume that in order to promote the production and export of more value-added products, the government of Shangri-La decides to support its pineapple juice industry. It begins to purchase all the pineapples from its growers and to re-sell those pineapples to its pineapple juice industry at less than the government's purchase price. For the United States, it is clear that a subsidy exists in such a case because the government has provided a financial contribution to the pineapple juice industry by providing it with a good (pineapples) for less than adequate remuneration.

5.49 Now further assume, argues the United States, that instead of purchasing the pineapples itself, the government has sufficient control over the pineapple growers so that it can direct them to sell their pineapples to the domestic pineapple juice industry. Here, it is the pineapple growers, and not the government, that provides the good within the meaning of subparagraph (iii). Such a situation is , in the US view, exactly the type of situation to which Article 1.1(a)(1)(iv) is addressed. If the goods are provided for less than adequate remuneration, a subsidy exists.

5.50 However, the United States asserts, the direction by the government of Shangri-La to the pineapple growers to sell their pineapples to the domestic pineapple juice industry could be effectuated through a variety of means. The government of Shangri-La could decree that growers sell only to the domestic juice industry. According to the United States, the exact same result could be achieved if, in the normal course, there were large volumes of pineapple exports and the government of Shangri-La put a stop to such activity by prohibiting the export of pineapples. According to the United States, the government, by directing the growers not to export, would be forcing them to sell the pineapples they otherwise would have exported to the domestic users of pineapples.

5.51 According to the United States, if an increased supply of the product in the domestic market causes the price for that product to be lowered, that is the same result as if the government had ordered the growers to sell for less than market price. Thus, ordering the hypothetical pineapple growers not to export can be the functional equivalent of ordering the growers to sell their products to the juice industry for less than adequate remuneration. In the US view, both types of functions fall squarely within subparagraph (iv).⁵⁸

5.52 The United States notes that Canada argues that an export restraint does not constitute a direction to provide goods because 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." The United States further notes that the Panel is not restricted to the definitions chosen by Canada.⁵⁹

5.53 For the United States, Canada's distinction between a prohibitive restriction and an affirmative obligation is simply an elevation of form over substance. The two are functionally equivalent - where a producer is faced with two options, a prohibition on one option is an affirmative direction to perform the other. The United States maintains that an export ban clearly directs producers not to export, thereby directing them to seek the only other purchasers available to them for the sale of their goods.

5.54 The United States continues that with respect to "private body", neither the word nor the concept of an "organized" body is contained in the SCM Agreement (regardless of what language version is reviewed), nor should that term be read into the Agreement.⁶⁰

5.55 For the United States, the word "body" has multiple meanings. For example, "body" may refer to the singular, e.g., "an individual, a person," or the plural, e.g., "an aggregate of individuals." The United States notes that even Canada offers the alternate definition of "a group of persons or things." Thus, in the case of an export restraint, a government may be viewed as directing each individual producer or producers as a group not to export, or to export only under certain limited conditions.

5.56 For the United States, Canada's argument that "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'" is obviously mistaken. The very dictionary upon which Canada itself relies states that a "body" is defined to include: "an assemblage of units characterized by some common attribute and thus regarded as a whole; a collective mass (of persons or of things)."

5.57 The United States argues that under Canada's view, an association of steel producers would constitute a private body (presumably, because it is "organized"), but the individual steel producers belonging to the association would not, despite the fact that each individual steel producer is itself a corporate body. Consistent with the text and object and purpose of the SCM Agreement, the United States maintains, no rational distinction can be drawn between the association and its corporate members. Nor is there a difference between banks and credit unions (which Canada concedes are private bodies) and any other supplier of a good or service.

5.58 According to the United States, as long as there is some entity that could constitute a private body even under Canada's narrow definition (e.g., an organized association of producers) that could be entrusted or directed by virtue of an export restraint to provide a good or service, the "private body" element of subparagraph (iv) must be regarded as capable of being satisfied by an export restraint.

5.59 The United States notes that the third element of subparagraph (iv) refers back to the previous three subparagraphs, by stating that the private body must be entrusted or directed "to carry out one or more of the type of functions illustrated in (i) to (iii) above." The United States states that the ordinary meaning of "carry out" is to "perform, conduct to completion, put into practice." Thus, in the case of an export restraint, if a "private body" performs the function entrusted or directed to it by the government, this element is satisfied.

5.60 For the United States, conceptually, an export restraint qualifies under subparagraph (iii) of Article 1.1(a)(1) regarding the provision of goods or services. In the case of an export restraint, the United States argues, the government would be directing a private body (producers of a good) to provide the restricted good to the domestic industry that uses the good by restricting the producers' ability to sell elsewhere.

5.61 The United States notes that Canada argues that each type of government action in subparagraphs (i)-(iii) "involves a transfer of economic (i.e., financial) resources from a government to producers of goods or services" and that an export restraint is not such a transfer of financial resources. For the United States, this argument is simply another iteration of Canada's long-held (and rejected) position that a subsidy (whether direct or indirect) can exist only where there is some net cost to the government.

5.62 The United States further notes that Canada also argues that the "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." For the United States, this is simply not true. While producers of a good will certainly continue to supply goods to the domestic market where an export restraint is in place (because they have no other choice), they are not supplying the domestic market "to the extent they wish to do so."

5.63 The United States recalls that the final element of subparagraph (iv) requires that the function at issue "would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments." In the US view, Canada offers no explanation at all as to why an export restraint never could be capable of satisfying this element. Instead, Canada merely falls back on its erroneous arguments relating to the first three elements, and asserts (incorrectly) that because an export restraint never could satisfy all of the first three elements, the last element necessarily is not satisfied.

5.64 The United States maintains that putting aside Canada's failure to argue the point, the text does not elaborate on this element. However, for the United States, a report of a GATT panel is instructive as to the likely intended meaning of these phrases, referring specifically to the government "functions of taxation and subsidization." The United States argues that Canada acknowledges that whether a practice differs, in any real sense, from practices normally followed by governments depends on the circumstances relating to the government and the financial contribution in question.

5.65 For the United States, the important point is that where a government is involved in the provision of a good or service and, instead of providing that good or service directly, it entrusts or directs a private body to provide the good or service to domestic purchasers, by way of an export restraint or otherwise, there could be a financial contribution within the meaning of subparagraph (iv). More importantly, the United States argues, it is clear that subparagraph (iv) refers to functions "normally" performed by governments in the context of providing a subsidy; any other meaning would leave subparagraph (iv) utterly empty.

5.66 Finally, in the view of the United States, an export restraint is capable of providing a benefit. The United States asserts that whether a particular export restraint confers a benefit is a factual question that can only be determined on a case-by-case basis, applying the standard set forth in Article 14(d) of the SCM Agreement regarding the provision of goods or services. Although, the United States argues, Canada appears to concede the possibility that an export restraint can confer a benefit, it nonetheless argues that "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 the provision of a good, and hence a financial contribution." With respect to this "slippery slope" argument, the United States indicates, the simple answer is that as a factual matter, it is unlikely that all such measures could be found to confer a financial contribution, within the meaning of subparagraph (iv), that results in a benefit, within the meaning of Article 1.1(b). Indeed, the United States notes, in Live Cattle from Canada, the DOC determined that the measure in question did not confer a benefit, and, thus, did not constitute a subsidy.

5.67 In addition, the United States recalls, only those government measures that are specific within the meaning of Article 1.2 of the SCM Agreement are actionable. Thus, for the United States, it is clear that not all government measures that increase the supply of a product would constitute countervailable subsidies. Indeed, history has shown that there have been very few CVD investigations, if any, that have involved general government "regulatory" regimes. In the US view, the absence of such cases undermines Canada's plea for a narrow definition of subparagraph (iv) based on an alleged flood of litigation.

The Context of Subparagraph (iv) Supports the Proposition that an Export Restraint Can Constitute a Subsidy

5.68 The United States argues that indirect subsidies also are covered by item (d) of the Illustrative List of Export Subsidies, and that item (d) is highly pertinent to the interpretation of Article 1.1, because each type of subsidy described in the Illustrative List must satisfy the requirements of Article 1.1. Thus, for the United States, the language of subparagraph (iv) must be sufficiently broad so as to encompass "government-mandated schemes" under item (d). At a minimum, the United States argues, it is not hard to think of export restraints as a "government-mandated scheme" designed to benefit users of the restricted product.

5.69 In Canada - Dairy, the United States asserts, the panel considered item (d) for purposes of deciding whether Canada's dual-pricing scheme could constitute an export subsidy not listed in Article 9.1 of the Agreement on Agriculture. The panel concluded that the scheme was a "government-mandated scheme" of the type described in item (d). According to the panel:

[I]n the event milk were not directly provided by Canada's governments or their agencies under Classes 5(d) and (e), in our view, it is at least indirectly provided through government-mandated schemes. For there to be such schemes we do not consider it necessary, as argued by Canada, that the federal or provincial governments specifically direct a certain outcome or course of action to be achieved or taken by the CDC, the provincial marketing boards or the CMSMC. (emphasis added).

5.70 For the United States, this finding by the panel is highly relevant to this case, because Canada has argued that an export restraint can never constitute a subsidy because "[a]n export restraint does not commission or charge or authoritatively instruct producers of the restrained good to do anything ... ." However, in the US view, the Canada - Dairy panel flatly rejected such a standard, finding instead that in order for an indirect subsidy to exist, it is not necessary that "governments specifically direct a certain outcome or course of action to be achieved or taken ... ."

(iv) Nothing in the Negotiating History of the SCM Agreement Precludes the Possibility that an Export Restraint Could Constitute a Subsidy

5.71 The United States maintains that Canada has brought up the negotiating history of the SCM Agreement in a vain attempt to overcome the conclusion to which the text, context, and object and purpose inexorably lead. For the United States, nothing in the negotiating history establishes that export restraints can never constitute subsidies.

5.72 The United States recalls that Canada asserts that during the Uruguay Round negotiations, "the United States itself recognised that the SCM Agreement definition of subsidy . . . did not encompass export restraints." According to Canada, this is evident from US proposals relating to industrial targeting practices.⁶¹

5.73 According to the United States, the negotiating history reveals that, while the United States would have preferred that the SCM Agreement explicitly address "industrial targeting," the United States did not ever take the position that the term "subsidy" could never encompass export restraints. More importantly for the United States, the results of the negotiations reveal no explicit "carve out" or exception for export restraints.

5.74 The United States recalls that in order to facilitate work, the Secretariat prepared a list of problems that had arisen in the operation of the relevant GATT 1947 agreements. The Secretariat noted that the Group of Experts on the Calculation of the Amount of a Subsidy had been discussing criteria to determine when certain practices might constitute countervailable subsidies and how the amount of the subsidy should be measured. The Secretariat listed four types of subsidies discussed by the Group - one of which was "export restrictions." Clearly, the United States argues, someone in the Group of Experts thought that export restrictions were capable of constituting subsidies.

5.75 The United States recalls that in March 1987, it tabled its first proposal on Subsidies and Countervailing Measures, the relevant portion consisting of two paragraphs, the first of which reads:

Industry targeting consists of a government plan or scheme of coordinated measures to assist specific export-oriented industries. While some targeting measures are clearly covered by subsidies disciplines, the application of the Code to other measures is unclear. As a result, there has been extensive debate in the Subsidies Code Committee over whether government "targeting" practices fall within the internationally-accepted definition of a subsidy. To date, however, there has been no agreement as to whether industrial policy-type measures that result in the indirect channelling of resources to a specific industry or sector constitute countervailable subsidies or should be addressed under some other provision of GATT. (emphasis added).

According to the United States, this paragraph sets out the common understanding that there was no agreement as to whether government targeting practices constituted countervailable subsidies, as well as the US position that certain components of "targeting" were already covered by subsidies disciplines.

5.76 The United States recalls that the second paragraph of its March 1987 proposal reads as follows:

The United States believes that the Uruguay Round negotiations should clarify what remedies are available for the trade distortions and economic damage associated with targeting and other industrial policy measures that affect trade. The United States is concerned that the international trade rules do not adequately address the trade damage that can result from industrial targeting programs.

5.77 In the view of the United States, Canada is asking the Panel to selectively read this paragraph to mean that the United States conceded that export restraints are not encompassed under the definition of subsidy. However, in the view of the United States, the full text of the US statement does not support Canada's interpretation. Rather, the United States' desire to clarify that targeting and certain other industrial policy measures are subject to international trading rules and disciplines simply reflects the fact that there was no agreement on this issue. Other documents quoted by Canada prove this point, according to the United States.

5.78 The United States asserts that Canada reproduces three quotations from the Secretariat's Notes on the June 1990 meeting as alleged proof that the United States "plainly understood that an export restraint fell outside the ambit of the definition of subsidy." The United States argues that the most relevant quotation, however, states as follows:

[The United States ] found that among the policies most frequently used were the following: protection of the home market, promotion or toleration of cartels, discriminatory or preferential government procurement practices, direction of capital (government to private) to certain enterprises, export restrictions, and manipulation of the user market to reduce the risk associated with product development and commercialization.

5.79 The United States notes that Canada argues that the inclusion of "export restrictions" in this discussion of "industrial targeting" makes it "plain" that export restraints were not regarded as subsidies. In fact, the United States asserts, it made clear that some of the actions encompassed by industrial targeting were, standing alone, subsidies. Indeed, the United States argues, the document Canada quotes includes in the list of possible elements of "industrial targeting" "discriminatory or preferential government procurement practices" (e.g., the purchase of goods by a government for more than adequate remuneration) and the "direction of capital (government or private) to certain enterprises." Clearly for the United States, like export restraints, these can be actionable subsidies under Article 1.1, even though the United States categorized them as possible elements of "industrial targeting."

5.80 In the US view, Canada also misrepresents positions taken in litigation during the pendency of the Uruguay Round. Using partial quotations from DOC CVD determinations made at the time, according to the United States, Canada asserts that the United States conceded that export restraints cannot constitute a financial contribution. In the view of the United States, these determinations obviously do not constitute part of the negotiating history of the SCM Agreement, and are therefore irrelevant. However, the United States asserts, Canada's misrepresentations are so blatant that they require clarification.

5.81 The United States asserts that in the Softwood Lumber case, Canada argued that an export restraint did not constitute a subsidy because an export restraint did not constitute a financial contribution, in the sense of a transfer of resources from the government to the recipient. According to the United States, it was clear that the dicta Canada has cited was based on Canada's characterization of the meaning of "financial contribution." Consistent with its Uruguay Round negotiating position at the time, Canada equated a "financial contribution" with a cost to the government. This becomes clear, the United States argues, when one considers the full quotation from the DOC determination, which Canada quotes only partially.

5.82 In a final attempt to bolster its argument, the United States asserts, Canada cites statements by US industries concerning the results of the Uruguay Round negotiations. Notwithstanding the fact that many of these parties expressed concern only that export restraints "might" cease to be countervailable, in the view of the United States, US industries' assessments cannot be considered part of the negotiating history. Moreover, even if certain US industries (erroneously) thought that the Article 1.1 definition might preclude treating export restraints as subsidies, other US industries clearly did not take that view.

5.83 Thus, for the United States the only thing the negotiating history demonstrates is that the United States unsuccessfully sought to include language on targeting practices in the SCM Agreement. However, at no time did the United States concede that export restraints could never constitute subsidies standing alone, and the SCM Agreement contains no explicit exception for export restraints; i.e., no indication that export restraints can never, under any circumstances, constitute a subsidy. Yet, the United States argues, that is what Canada would have the Panel conclude, and the Panel should decline to do so.

3. Conclusion

5.84 In the view of the United States, Canada fails to demonstrate that never, under any set of circumstances, can an export restraint constitute a subsidy under Article 1.1 of the SCM Agreement. The United States asserts that to the contrary, the United States has demonstrated that on the basis of standard principles of treaty interpretation, subparagraph (iv) of Article 1.1(a)(1) - the provision cited by Canada - can accommodate export restraints. As a result, the United States argues, Canada has failed to satisfy its burden of proof.

C. FIRST ORAL STATEMENT OF CANADA

1. The US Request For Preliminary Rulings

5.85 Canada refers to its Response to the US Request (See Section IV.B, infra).

2. The Definition Of "Subsidy" In The SCM Agreement

5.86 Canada argues that in its first written submission, the United States misinterprets the SCM Agreement definition of "subsidy" in several respects, beginning with assertions about economics and a flawed version of the object and purpose of the SCM Agreement. According to Canada, while the United States purports to apply the requirements of the Vienna Convention, its approach seeks to bend the ordinary meaning of the words in order to enable the United States to continue to act against practices that might confer a benefit.

5.87 Canada states that as the Appellate Body made clear in Canada - Aircraft, however, the interpretative task begins with "examining the ordinary meaning of the text". Canada agrees, and begins with the text of Article 1.1(a)(1).

5.88 Canada asserts that the United States agrees with it that Article 1.1 of the SCM Agreement defines the universe of what constitutes a "subsidy." Thus, Canada states, both countries concur that the existence of a "subsidy" within the meaning of Article 1.1 of the SCM Agreement is a prerequisite to the imposition of countervailing measures. Where Canada and the United States differ, according to Canada, is the extent of the "universe" of government actions encompassed within the definition of "financial contribution" in Article 1.1(a)(1) of the Agreement.

5.89 Canada states that in keeping with the approach to treaty interpretation set forth in the Vienna Convention it believes that a government regulatory measure that restrains exports is not within the ordinary meaning of the terms of Article 1.1 (a)(1)(iv). In restraining exports, Canada states, a government does not "entrust or direct" a "private body" to make a financial contribution enumerated in subparagraphs (i) through (iii), or meet the other requirements of subparagraph (iv). Each of these failings is sufficient to render the US measures inconsistent with the SCM and WTO Agreements.

5.90 Regarding the "entrusts or directs" element, Canada notes that the United States concentrates its arguments on the concept of "directs" rather than "entrusts", thus apparently recognizing that a restraint on a producer's ability to export cannot be seen as investing a producer with a trust or responsibility to carry out a governmental function.

5.91 Remarkably to Canada, however, the United States claims that the term "directs" means "causes". Not only do these words commonly mean very different things, Canada counters, but "causes" is taken completely out of context from dictionary definitions offered by the United States and an export restraint plainly does not meet those definitions. For example, if "direct" is defined to mean "cause to take a specified direction", an export restraint would not qualify as a "direction" under Article 1.1(a)(1)(iv), because the "specified direction" would need to be "to carry out one or more of the type of functions illustrated in [subparagraphs] (i) to (iii)." Yet Canada maintains, the "specified direction" in the case of an export restraint is not to provide goods, but rather is "to not export." The same is true if "directs" is defined as "to cause (something or someone) to move on a particular course". In the case of an export restraint, the "particular course" is " to not export", Canada states; it is not to make a financial contribution by providing goods.

5.92 In short, Canada argues, the ordinary meaning of "directs" is to "give authoritative instructions to" or "order a person to do a thing", and even the dictionary definitions supplied by the United States cannot be stretched to transform the plain meaning of "directs" into "causes". Canada argues that the drafters were obviously familiar with the concept of causation, and that it must be assumed that if they had contemplated using that concept in subparagraph (iv) of the definition of "financial contribution", they would have used that word.

5.93 For Canada, the US approach would lead to absurd and unpredictable results, and would expand the SCM Agreement definition of "subsidy" beyond recognition by subjecting the exercise of regulatory authority by governments to countervailing measures. For example, considering the situation where a government restricts imports of steel, or increases its steel tariffs within its WTO tariff bindings, under the US approach if this led to an increase in domestic steel prices, the government would have "caused" private parties (steel purchasers) to provide funds to steel producers that otherwise would not have been provided, and therefore would have provided a financial contribution. But according to Canada this was clearly not intended.

5.94 In Canada's view, the US approach to the term "private body" is similarly aimed at diminishing, rather than giving effect to, the ordinary meaning of the terms of the treaty, and for that reason is equally flawed. The United States insists that "private body" can mean, among other things, a vast number of unassociated individual persons, in effect asserting, for example, that "all persons under 21" can be a "private body", but doing so by reference to dictionary definitions that refer to "an assemblage" or a "collective". Canada argues that the United States offers no suggestion why the drafters used the term "private body" if, as the US urges, they meant "private person or persons". Finally, according to Canada, the US approach does not articulate any principle that would distinguish between private actors in terms of which situations involve a "body" and which do not. Thus, taken together with the US interpretation of "direct" to mean "cause", the US view would in Canada's view mean that any government action that affects the marketplace (that is, individual buyers and sellers) would "entrust or direct a private body." Had that been the drafters' intent, Canada maintains, they could surely have so stated.