5.95 Canada notes that the third element of Article 1.1(a)(1)(iv) is that what a private body must be directed or entrusted to do is to carry out a financial contribution within subparagraphs (i) through (iii). Canada states that an export restraint limits a producer's ability to export, and does not "entrust or direct" a producer to "provide goods" as the United States contends. Indeed, the US argument to the contrary is not based on the treaty terms at all in Canada's view, but rather is simply an assertion that an export restraint is "conceptually" the same thing as a provision of goods. For Canada, even if this were true, Article 1.1(a)(1)(iii) does not say "�the provision of goods or anything conceptually similar." Rather the text identifies the provision of goods as the relevant function in subparagraph (iii).

5.96 For Canada, the US argument that government actions are countervailable where they are the so-called "functional equivalent" of financial contributions listed in (i) through (iii) is similarly flawed. "Functional equivalence" and "conceptual similarity" are unbounded concepts that eliminate the textual limitations imposed in Article 1.1(a)(1) and introduce a level of subjectivity and hence uncertainty into the definition of financial contribution that the drafters could not possibly have intended.

5.97 Finally, Canada states, the fourth and fifth elements of Article 1.1(a)(1)(iv) confirm that the expansive interpretation that the United States urges for that provision is not warranted by the text. In Canada's view, those elements make clear that subparagraph (iv) does not open the definition of subsidy to encompass government regulatory actions that are not financial contributions within subparagraphs (i) through (iii), but rather is designed to ensure that a government cannot escape subsidy disciplines by entrusting or directing a private body to make a financial contribution that the government normally would have made directly.

5.98 For Canada, the US hypothetical example of pineapples in Shangri-La is a telling illustration of why an export restraint does not come within the text of Article 1.1(a)(1)(iv). Under the ordinary meaning of the words "entrust or direct", the hypothetical export restraint does not in Canada's view "entrust or direct" a private body to provide pineapples to the juice industry, it simply prevents the exportation of those pineapples. Moreover, Canada maintains, the producers, who already "provide pineapples" without government direction, may choose to continue to do so to the same extent, or make other economic choices. Similarly, in the example, pineapple producers do not act as a collective, but make individual and probably varying decisions. Finally, Canada argues, the US claim that an export restraint on pineapples is the "functional equivalent" of ordering the growers to sell to the juice industry at "less than adequate remuneration" is nothing less than a claim that if there is a price effect, an export restraint may be presumed to be a financial contribution.

5.99 Put differently, Canada states, this is an assertion that a benefit can "confer" a financial contribution. However, as the Appellate Body explained in Canada - Aircraft, a financial contribution must cause or lead to the benefit that is conferred, and not the reverse. A benefit cannot cause or lead to a financial contribution.

5.100 For Canada, its view of the text of the subsidy definition is borne out by the object and purpose of the SCM Agreement. Canada notes the Appellate Body statement in United States - Import Prohibition of Certain Shrimp and Shrimp Products: "It is in the words constituting [a] provision, read in their context, that the object and purpose of the states parties to the treaty must first be sought." As such, Canada argues, the United States has not only mischaracterized the object and purpose of the SCM Agreement, it has also deprived the text of Article 1.1 of its true meaning by beginning and basing its entire analysis on such a view.

5.101 In Canada's view, while one of the purposes of the SCM Agreement is to discipline certain forms of government action that may distort international trade, this is not the only object and purpose of the Agreement. Another purpose of the Agreement is to discipline the use of countervailing duty measures, hence its title "Agreement on Subsidies and Countervailing Measures". While discipline in regard to both of these "purposes" has now been achieved through the Agreement, Canada maintains, the fundamental question under the Agreement remains: "What forms of government action are subject to these disciplines?"

5.102 Canada notes that the United States' first written submission begins with an excerpt from the "Statement Made by the Delegation of Canada at the Meeting Held on 28-29 June 1988." Canada asserts that the United States has, however, quoted only selectively from Canada's statement, and that when considered in the context of the full statement, which is found in a section entitled "Parameters for the scope and application of countervail"⁶² , it is clear that Canada is speaking to the question of why, in Canada's view, disciplines on countervail were needed in the SCM Agreement.

5.103 With this in mind, Canada agrees that the SCM Agreement disciplines the use of trade-distorting subsidies. However, Canada maintains, the Agreement does so by defining the concept of a subsidy, by specifying what kinds of subsidies are prohibited, actionable, or non-actionable and by setting out the rules on how countervailing measures are to be applied against actionable subsidies. Accordingly, it is clear that the Agreement not only creates disciplines on the use of subsidies, but also creates disciplines on when countervailing measures may be imposed. This balance was an integral part of arriving at the negotiated result.

5.104 Finally, Canada argues, the United States claims that the Canadian interpretation of Article 1.1 of the SCM Agreement would "make circumvention of obligations by Members too easy." Yet for Canada, whether an export restraint constitutes circumvention of the SCM Agreement turns on whether export restraints are covered by the SCM Agreement. If they are not covered, then maintaining an export restraint would not constitute circumvention. Therefore in Canada's view, the US argument is circular because it assumes the conclusion it desires to prove.

3. The United States' Arguments Regarding the "Economics" of Export Restraints are Misplaced

5.105 Canada notes that the United States first asserts that there is "no question that economically, and in the vernacular, export restraints are regarded as subsidies" because they can have price effects. Such an assertion in Canada's view assumes that a potential economic effect determines whether there is a financial contribution under Article 1.1(a)(1). For Canada, whatever the United States may think a subsidy is in the "vernacular" is not relevant to the meaning of the definition of subsidy in the SCM Agreement, and none of the sources relied on by the United States addresses whether an export restraint comes within the meaning of the text of Article 1.1 of the SCM Agreement.

5.106 More specifically, Canada argues, the United States alleges that when faced with an export restraint, a domestic producer has only one economic choice and that is to sell the restrained good to domestic purchasers of that good. From an economic perspective, in Canada's view, this is simply incorrect. It does not inevitably follow that an export restraint will force a domestic producer of the restrained good to sell into the domestic market. Furthermore, as Commerce itself recognized in Anhydrous and Aqua Ammonia from Mexico, it does not necessarily follow that a reduction in the price of the restrained good, if any, in the domestic market for that good after the imposition of an export restraint, will be caused by that export restraint⁶³.

5.107 In the view of Canada this same mistaken approach to economics underlies the points that the United States tries to make through its hypothetical discussion of the pineapple industry in Shangri-La that is prohibited from exporting. As presented by the United States, a pineapple grower in Shangri-La would have no choice but to sell pineapples to the domestic pineapple juice industry, which for Canada is simply not true. Pineapple growers could make a number of different choices in response to a restraint on the export of pineapples. Growers might switch to growing another fruit or other crop that the land is suited to. They could choose to become integrated producers and produce pineapple juice products with their own and/or others' production or they could supply pineapples to other end users or make other choices. While Canada acknowledges that an export restraint limits a domestic producer's ability to export the restrained good, it maintains that it is not true that an export restraint "requires" or "forces" a producer of the restrained good to sell it to particular users of that good at lower prices. As such it does not "entrust or direct" these producers.

5.108 Thus, in Canada's view, the United States is wrong in asserting that an export restraint is the "functional equivalent" of ordering producers of a restrained good to sell the restrained good to domestic users of that good. For Canada, this does not necessarily follow either economically, or from a textual analysis of the wording of Article 1.1(a)(1)(iv) of the SCM Agreement. As such, the efforts of the United States to broaden the plain meaning of Article 1.1(a)(1)(iv) of the Agreement beyond any reasonable interpretation of those words must in Canada's opinion fail.

D. FIRST ORAL STATEMENT OF THE UNITED STATES

5.109 The United States argues that the WTO does not regulate opinions and WTO dispute settlement does not deal with "thought crimes." Instead, the WTO regulates - and WTO dispute settlement deals with - measures taken. With respect to the subject matter of this dispute, the United States maintains, relevant measures would be either (1) the imposition of countervailing duties in a manner inconsistent with the SCM Agreement, or (2) the enactment of a law, regulation or procedure that mandates domestic authorities to impose countervailing duties in a manner inconsistent with the SCM Agreement. The United States notes that Canada does not allege the former, and asserts that the United States has not done the latter.

5.110 The United States argues that it is bad enough that Canada seeks to enjoin the DOC from expressing tentative opinions, but to make matters worse, Canada seeks to obtain its injunction by asking the Panel to rule entirely in the abstract that never, under any set of circumstances present or future, can an export restraint constitute a subsidy under Article 1.1 of the SCM Agreement.

5.111 In the view of the United States, Canada's extraordinary request for an advisory opinion has dangerous implications for the WTO dispute settlement system. The United States indicates that it has no hesitation in addressing the substantive issues raised by Canada, but feels compelled to address the broader systemic issues first.

5.112 The United States maintains that it is not seeking to deny Canada any of its rights, but that it is simply faced with a situation where the United States has not taken any measures that impair Canada's WTO rights. The United States argues that should it ever take such measures, Canada's right to challenge such actions is fully preserved.

5.113 In the view of the United States, there is a well-established method by which the Panel can dismiss Canada's attempt to have panels get into the business of regulating Members' opinions and issuing authoritative interpretations. That method is to apply the mandatory/discretionary doctrine.

5.114 The United States notes that Canada does not dispute the continuing validity of the mandatory/discretionary doctrine or the US interpretation of that doctrine. Instead, the United States argues, Canada advances the factually inaccurate argument that the various documents it has cited require the DOC to treat export restraints as subsidies (or financial contributions). Alternatively, Canada makes the novel argument that even if these documents do not require that the DOC treat export restraints as subsidies (or financial contributions), the Panel cannot make that finding until it first makes a ruling, in the abstract, that an export restraint can never, under any set of circumstances present or future, constitute a subsidy under Article 1.1 of the SCM Agreement. For the United States, Canada is wrong on both counts.

5.115 With respect to Section 771(5), the United States maintains, Canada has consistently acknowledged that Section 771(5), on its face, does not require the DOC to treat export restraints as subsidies (or financial contributions). Thus, there appears to be agreement that Section 771(5) does not mandate WTO-inconsistent action.

5.116 Turning to the SAA, the United States argues that Canada alleges that the United States has attempted to misportray that document's status. In the view of the United States this is not the case, as set forth in paragraph 75 of the US Request.

5.117 The United States asserts that its disagreement with Canada is not with the SAA's status (although the United States does disagree that it is a "measure" in its own right), but rather with what the SAA means. In the view of the United States, the only way one can read the SAA is as a decision by Congress and the Administration to refrain from deciding exactly what types of measures previously falling under the rubric of "indirect subsidies" could be considered as subsidies under the new definition set forth in Section 771(5)(B)(iii) of the Tariff Act and Article 1.1(a)(1)(iv) of the SCM Agreement.

5.118 As a matter of US law, the United States asserts, the Preamble is at most a non-binding statement by the DOC regarding its views at the time concerning the scope of Section 771(5)(B)(iii). The United States recalls that the DOC did not promulgate a regulation dealing with indirect subsidies in general, or export restraints in particular. While the DOC expressed the view in the Preamble that export restraints might qualify as subsidies in appropriate circumstances, it did not definitively say that they do or otherwise bind itself to that view.

5.119 The United States notes that Canada cites a handful of cases - none of which involve the DOC's regulations or even the US countervailing duty law - for the proposition that agency statements in preambles to notices of final rules are always binding on the agency. However, for the United States each of these cases is either distinguishable or does not support the proposition for which it is submitted, as demonstrated by US Exhibits 26-29. Of particular significance to the United States is the fact that the Preamble was not included in the Code of Federal Regulations. This is because, the United States maintains, pursuant to the regulations governing the Code of Federal Regulations, the DOC did not intend the Preamble to have legal effect.

5.120 The United States argues with respect to the DOC Preamble that it was perfectly consistent with notions of transparency and good government for the DOC to express its tentative thinking on the issue of indirect subsidies, and that it would be a perverse result if the Panel were to penalize a Member for demonstrating greater transparency with respect to its thinking.

5.121 Like tribunals around the world, the United States notes, the DOC in a given case may cite a variety of materials to justify its determination, including such things as prior DOC determinations and law review articles, none of which are binding on the DOC. Thus, the DOC's citation to the Preamble does not, in the view of the United States, confer binding status on the Preamble.

5.122 In the US view, Canada's definition of "practice" constantly shifts, with Canada now saying that by "practice" it means "an administrative commitment or policy to adhere to a particular legal view and to apply a particular interpretation or methodology." Under any of the definitions used by Canada, the United States maintains, "practice" does not bind the DOC so as to require it to treat export restraints as subsidies (or financial contributions).

5.123 In the view of the United States, Canada seems to argue that even if the measures it has identified do not individually give rise to a WTO violation, they do when considered together. However, the United States argues, Canada does not explain how this conclusion is justified on the basis of any provision in the DSU or any other WTO agreement.

5.124 The United States argues that Canada amazingly argues that the Panel should make an authoritative interpretation of Article 1.1 first before dealing with the mandatory/discretionary doctrine. However, in the view of the United States, Canada's discussion of GATT and WTO panel reports on this point does not support its position. In none of the cases discussed does it appear that the respondent requested a preliminary ruling. The United States asserts that there is nothing in the DSU or this Panel's Working Procedures that limits preliminary rulings in the manner suggested by Canada, and that in addition, none of the cited cases expressly holds that a Panel must decide substantive issues first before invoking the mandatory/discretionary doctrine.

5.125 The United States maintains that there is a fundamental difference between the cases invoked by Canada and this case. In the cases cited by Canada, the panels were asked to opine on discrete measures maintained by the respondent, which is not the case here. In this dispute, according to the United States, the measures really at issue include not only the documents challenged by Canada, but an unidentified number of current and future export restraints. In the US view, the Panel cannot do what Canada asks it to do without opining in the abstract, and without any facts before it, that there never has been and never will be an export restraint capable of satisfying the definition of a subsidy in Article 1.1 of the SCM Agreement.

5.126 If the Panel finds - as the United States thinks it must - that the measures in question do not require what Canada says they do, for the United States that should be the end of the matter; anything else the Panel might say would be dicta.

5.127 The United States argues that Canada currently says that "practice" does not consist of individual determinations in particular countervailing duty cases, but instead consists of the DOC's institutional state of mind, which Canada describes as an "administrative commitment or policy." The DOC's state of mind does not constitute a measure "taken" within the meaning of the DSU according to the United States. In addition, the DOC's state of mind could not violate any of the provisions invoked by Canada.

5.128 For the United States, Article 1.1 is a definitional provision. Thus, strictly speaking, US "practice" - whatever that is defined to be - cannot violate Article 1.1. The United States maintains that Article 10 does not apply here, because Canada says it is not challenging the actual imposition by the United States of countervailing duties under Section 771(5) as the result of a finding that an export restraint is a subsidy, and that Articles 11, 17 and 19 of the SCM Agreement are inapplicable here for the same reason as is Article 10. The United States notes that Canada has not challenged - and the United States has not even taken - "specific action" under Section 771(5) with respect to an export restraint, and the DOC's state of mind cannot constitute "specific action." Therefore, according to the United States, Article 32.5 of the SCM Agreement also is inapplicable.

5.129 The United States maintains that with respect to Article 32.5, the US statute, regulations, and procedures are fully in conformity with the SCM Agreement. An "administrative commitment or policy" is not within the scope of Article 32.5. In the US view, the same conclusion holds for Article XVI:4 of the WTO Agreement. There can be no breach of Article 32.5 or Article XVI:4 absent a law, regulation or procedure that mandates a violation of some other provision of the SCM Agreement.

5.130 The United States strongly objects to paragraph 40 of Canada's Response in which, the United States maintains, Canada attempts to portray the United States as having failed to comply with DSB rulings. The United States asserts that in no case has a WTO panel determined that the United States has failed to implement a DSB ruling, and under Article 23 of the DSU, Canada cannot make such a determination unilaterally.

5.131 According to the United States, Canada essentially asserts that "practice" - however it is defined - should be regarded as a measure taken because one should presume that WTO Members will act in bad faith. The United States notes that the Appellate Body has explained that such a presumption is not allowed.

5.132 In the view of the United States, for the reasons set forth in the US Request, Canada's claims regarding "practice" should also be dismissed due to Canada's failure to comply with Articles 4.7 and 6.2 of the DSU. Accepting for purposes of argument the equitable doctrine of "prejudice" that the Appellate Body and panels have grafted on to the requirements of the DSU, the United States submits that it has been prejudiced. Moreover, the United States maintains that there is prejudice to it and the WTO dispute settlement system when the notification and consultation requirements are treated in a pro forma way that precludes a thorough and accurate description of what the complainant is challenging.

5.133 The United States notes, in regard to why the SAA and the Preamble are not measures, that neither document has any independent legal effect under US law.

5.134 With respect to the question of whether either document is within the Panel's terms of reference, the United States notes that in its Response, Canada does not even attempt to explain how one could possibly read its panel request as encompassing the SAA and the Preamble as independent measures. Moreover, at two DSB meetings, the United States recalls that it expressed its belief that Canada had substituted Section 771(5) for the SAA and the Preamble as the challenged measure, and Canada did not challenge the accuracy of the US assessment.

5.135 The United States argues that it demonstrated in its first submission that an export restraint is capable of satisfying all of the elements of subparagraph (iv) of Article 1.1(a)(1) of the SCM Agreement. Whether a particular export restraint practice fulfilled all of the elements for a subsidy is something that could only be determined on the basis of a case-specific analysis of actual evidence. Here, in the US view, it is enough to say that Canada has failed to demonstrate that never, under any set of circumstances, could an export restraint practice satisfy all of the elements.

5.136 The United States maintains that a reading of its first submission demonstrates that the United States has engaged in a thorough textual analysis of subparagraph (iv). However, the object and purpose of the SCM Agreement is relevant to the interpretation of subparagraph (iv), and it is relevant that Canada's interpretation is inconsistent with that object and purpose, as well as with the common understanding of what is and is not a subsidy.

5.137 The United States argues that it has not said that all government interventions that distort international trade qualify as subsidies. Rather, it has emphasized that any government intervention would have to meet all of the definitional elements of an actionable subsidy.

5.138 According to the United States, the European Communities' "slippery slope" argument is without merit, because in the examples given, it is difficult to see where there would be a financial contribution. Moreover, in the 10 years since the DOC's determination in Leather from Argentina, the United States argues, the "parade of horribles" has not taken place.

5.139 At paragraph 90 of Canada's first submission, the United States recalls, Canada states that an export restraint does not qualify as a subsidy because "[i]t involves no transfer of financial resources by a government to producers of goods." Thus, the United States does not agree that it has mischaracterized Canada's position. Rather, Canada is advancing the same net cost to government position that has been repeatedly rejected.

5.140 Finally, the United States asserts, it has been suggested that export restraints can never constitute subsidies because, even though they may limit a producer's opportunities and can reduce the price the producer charges for an input (as Canada has conceded in this case), they do not force producers to sell their goods domestically to targeted customers at pre-determined prices or in pre-determined quantities. According to this line of argument, the United States notes, there is no government "direction" because the producer's freedom of action is limited, but a pre-determined sale or price is not mandated.

5.141 For the United States, this argument is fatally flawed for several reasons. First, there is no requirement in the text of subparagraphs (iii) or (iv) of Article 1.1(a)(1) that the price or quantities at which goods are provided to the subsidized party be specified. Second, there is no requirement that the beneficiaries of the subsidy practice at issue must be "targeted customers", although it may well be that a particular export restraint practice could satisfy such a requirement. Third, there is no support for the proposition that in order for a subsidy to exist, the government must determine exactly the scope and extent of the benefit it wishes to confer and the class of beneficiaries at the time of the government action; the Panel in Canada - Dairy rejected this argument. Fourth, it is irrelevant to say that producers who would otherwise export may be able to adapt to modified market conditions, such as by doing something else. With respect to the US hypothetical regarding pineapple growers, the United States believes that it has been conceded that if the government directed pineapple growers to sell at a fixed price or in pre-determined quantities to juice processors, an indirect subsidy would exist. However, in this scenario, the United States maintains, pineapple growers also would be free to leave the pineapple growing business, enter the juice processing business, or engage in a totally different business (for example, growing bananas). The United States fails to see how the theoretical ability to adapt in this scenario would not preclude a finding of an indirect subsidy, but it would preclude such a finding in the scenario where the government direction does not specify precise prices or quantities.

5.142 Moreover, the United States asserts, there may be circumstances where a producer, faced with an export restraint, has no other option but to sell to the domestic processor, such as where the export restraint applies to a raw material. In other words, there may be situations where engaging in another business is not an option. In the US view, this is a factual question that has to be decided case-by-case on the basis of evidence, rather than speculation.

5.143 In summary, the United States argues, Canada has failed to carry its burden of proof; Canada has failed to demonstrate that an export restraint can never constitute a subsidy. However, the Panel does not even need to get this far in its analysis according to the United States, because the focus of Canada's challenge is on opinions, not measures. The United States maintains that while it might be tempting to address the substantive, abstract issue posed by Canada, to do so would distort the purpose and role of WTO dispute settlement. Thus, the United States submits that the proper outcome in this case is for the Panel to simply find that none of the measures cited by Canada require the DOC to treat an export restraint as a subsidy (or a financial contribution).