19 February 1993

Table of Contents

I. INTRODUCTION

II. FACTUAL ASPECTS

III. FINDINGS REQUESTED

IV. ARGUMENTS OF THE PARTIES

V. ARGUMENTS PRESENTED BY JAPAN AS AN INTERESTED THIRD PARTY

VI. FINDINGS

VII. CONCLUSIONS

1. On 8 October 1991, Canada requested consultations with the United States under Article 3:1 of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (hereinafter: "the Agreement"). This request followed an announcement made by the United States on 4 October that the United States Department of Commerce intended to self-initiate a countervailing duty investigation of imports of softwood lumber from Canada and action taken on the same date by the United States Trade Representative (USTR) to withhold or extend liquidation of entries of softwood lumber products from Canada and to impose a bonding requirement. Consultations between Canada and the United States were held on 16 October 1991. On 31 October 1991, the United States self-initiated a countervailing duty investigation of import of softwood lumber products from Canada.

2. On 1 November 1991, Canada requested that a special meeting of the Committee on Subsidies and Countervailing Measures be convened for conciliation under Article 17 of the Agreement on the matter described by Canada in document SCM/128. On 7 November 1991, the Committee received a communication from the United States in response to this request for conciliation (SCM/131). The Committee held a meeting under the conciliation procedure of Article 17 in this matter on 15 and 18 November 1991 (SCM/M/55).

3. On 2 December 1991, Canada requested the Committee to establish a panel in this matter under Article 17:3 of the Agreement (SCM/133). The Committee met on 16 December 1991 and established a panel. The Committee authorized the Chairman to consult with the parties to the dispute on the terms of reference of this Panel and to decide the Panel's composition, in consultation with the parties (SCM/M/56, paragraph 8). The representative of Japan reserved his delegation's right to intervene in the Panel's proceedings.

4. On 21 February 1992, the Chairman of the Committee informed the signatories of the Agreement in SCM/141 of the Panel's terms of reference:

In the same communication, signatories of the Agreement were informed of the Panel's composition:

5. The Panel met with the parties to the dispute on 18-19 March, 20-21 May and 15 June 1992. The Panel received a written submission from Japan as interested third party.

6. The Panel submitted its findings and conclusions to the parties on 7 December 1992.

7. The dispute before the Panel concerned (i) the suspension of liquidation and imposition of bonding requirements by the United States on 4 October 1991 under Section 304 of the Trade Act 1974 with respect to imports of softwood lumber from Canada, and (ii) the initiation by the United States on 31 October 1991 of a countervailing duty investigation on imports of softwood lumber from Canada. In taking these actions, the United States referred to the termination by Canada on 4 October 1991 of a Memorandum of Understanding on trade in softwood lumber, concluded between Canada and the United States on 30 December 1986, a brief description of certain aspects of the conclusion and implementation of this Memorandum of Understanding is therefore appropriate.

8. On 5 June 1986, the United States Department of Commerce initiated a countervailing duty investigation on imports of softwood lumber from Canada. ¹ An affirmative preliminary determination of the existence of injury was made in this investigation by the United States International Trade Commission (USITC) on 29 June 1986. On 16 October 1986, the Department of Commerce made an affirmative preliminary determination of the existence of subsidization, as a result of which the liquidation of entries of softwood lumber from Canada was suspended and a cash deposit or bond equal to 15 per cent ad valorem required for each entry of this product. The notice of this preliminary determination indicated that a final determination was expected to be made by 30 December 1986.

9. On 1 August 1986, the Committee on Subsidies and Countervailing Measures, acting at the request of Canada, established a panel in a dispute between Canada and the United States with respect to the initiation by the United States of the above-mentioned countervailing duty investigation. ²

10. On 30 December 1986, Canada and the United States concluded a Memorandum of Understanding (hereinafter "MOU") "to resolve differences with respect to the conditions affecting trade in softwood lumber products". This MOU provided in Article 4 for the collection by Canada of an export charge on exports of softwood lumber to the United States; Article 5 provided for the possible reduction or elimination of these export charges upon introduction of "replacement measures". Article 3(b) of the MOU provided that the MOU was "without prejudice to the position of either Government as to whether the stumpage programmes and practices of Canadian governments constitute subsidies under United States law or any international agreement".

11. Three provisions of the MOU explicitly related to the countervailing duty investigation initiated in June 1986. First, Article 3(a) provided that the MOU would be implemented when the countervailing duty petition on certain softwood lumber products from Canada was withdrawn and a notice of termination of the investigation signed. Second, under Article 3(c), the United States undertook to release bonds and refund deposits made pursuant to the preliminary affirmative countervailing duty determination made in October 1986. Finally, under Article 3(d) the United States undertook to state in the notice of termination of the investigation that the affirmative preliminary countervailing duty determination on certain softwood lumber products from Canada was henceforth without legal force and effect.

12. In a side letter, the Government of Canada indicated that the objective of the MOU, "to resolve differences with respect to the conditions affecting trade in certain softwood lumber products", involved not only settlement of the dispute over the countervailing duty investigation initiated in June 1986, but also avoiding the enactment of legislated restrictions or further investigations under US trade law and that, in either eventuality, it might exercise its right to terminate the MOU. Article 9 of the MOU provided for the right of either party to terminate the MOU at any time upon thirty days written notice.

13. On 30 December 1986, immediately after signature of the MOU, the petitioner in the countervailing duty investigation, the Coalition for Fair Lumber Imports, withdrew its petition, "based upon the entry into force of the agreement between the Governments of Canada and the United States concerning trade in softwood lumber". At the same time, the petitioner indicated that this withdrawal was "without prejudice to the filing of another petition based upon the same Canadian acts and practices, should the Coalition determine at any time that it is in its interest to do so". ³

14. On 5 January 1987, the Department of Commerce published in the Federal Register a notice of termination of the countervailing duty investigation on softwood lumber from Canada, based upon the withdrawal of the petition on 30 December 1986. The relevant part of the notice reads as follows:

On 26 January 1987, this notice was amended to add the following sentence:

15. In an Agreed Minute to the MOU, Canada and the United States agreed that, promptly after implementation of the MOU, both parties would notify the GATT secretariat "that a mutually satisfactory settlement has been reached in the dispute concerning the countervailing duty proceeding by the United States of America on certain softwood lumber products from Canada". In letters dated 13 and 29 January 1987, Canada and the United States, respectively, informed the Chairman of the Panel established by the Committee on Subsidies and Countervailing Measures in August 1986 that a mutually satisfactory resolution of the dispute before the Panel had been reached. Canada provided the Panel with a copy of the MOU. The Report of the Panel contained a brief summary of the provisions of the MOU and noted that a copy of the MOU was available in the secretariat for consultation by interested delegations. ⁶

16. In its semi-annual report submitted under Article 2:16 of the Subsidies Code on countervailing duty actions taken in the period 1 January-30 June 1987, the United States notified the Committee on Subsidies and Countervailing Measures that, in the investigation of certain softwood lumber products from Canada, the "case" had been "withdrawn" on 5 January 1987. ⁷

17. In the exchange of Notes of 30 December 1986 effecting the MOU, the United States informed Canada that the MOU was "a trade agreement for purposes of United States law". ⁸ On the same date, the United States, by Presidential Proclamation 5595, imposed a temporary surcharge on imports of certain softwood lumber products from Canada, on the basis of a determination by the President under Section 301 of the Trade Act of 1974 that Canada's inability to collect an export charge on softwood lumber exported to the United States until at least 8 January 1987 was unjustifiable or unreasonable and constituted a burden or restriction of US commerce. ⁹ This temporary surcharge was suspended on 8 January 1987 when Canada began collecting the export tax. Also on 30 December 1986, the US President, acting under Section 301 of the Trade Act of 1974, instructed the Secretary of Commerce to determine periodically whether the Government of Canada and the Canadian provincial governments were fully imposing the export charge and any replacement measures therefor. The President announced that:

18. On 17 January 1987, Canada submitted a diplomatic note to the United States in which it objected to the imposition of this duty under Section 301 as well as to the determination by the President to use Section 301 to offset any shortfall in the full imposition of the export charge or the replacement measures.

19. On 16 December 1987, Canada and the United States agreed to amend the MOU inter alia to exempt from the payment of export charges exports to the United States of certain softwood lumber products produced in New Brunswick, Newfoundland, Nova Scotia and Prince Edward Island. It was also agreed that replacement measures described in an Appendix to the amendments for the Province of British Columbia would constitute full replacement of the export charge upon the fulfilment of the conditions described in this Appendix. Provisions to monitor these replacement measures in British Columbia were also put in place. In a subsequent amendment to the MOU, Canada and the United States agreed to reduce the export charge with respect to exports of certain softwood lumber products produced in Quebec as of 1 April 1988, as a consequence of replacement measures instituted by that Province. Finally, Canada and the United States agreed to exempt 365 million board feet of lumber produced from logs of US-origin from the export charge annually.

20. In a diplomatic note dated 3 September 1991, Canada gave the United States formal notice of its intention to terminate the MOU, as provided for in Article 9 of the MOU, effective 4 October 1991. This notice followed a series of informal ministerial discussions between Canada and the United States which occurred over a period of several months.

21. On 4 October 1991, following Canada's termination of the MOU, the USTR, acting under Section 304 of the Trade Act of 1974, determined "(a) That acts, policies, and practices of the Government of Canada regarding the exportation of softwood lumber to the United States, specifically the failure of the Government of Canada to ensure the continued collection of export charges of softwood lumber envisioned by the MOU, are unreasonable and burden or restrict US commerce; and (b) That expeditious action is required and that the appropriate action at this time is to impose contingent, temporary increased duties on the parties identified in appendix 1 ( ) that originate on those provinces and territories listed in appendix 2 ( )". ¹¹

22. The notice of imposition of these measures described the reasons for these measures as follows:

23. The measures decided upon in this determination took the form of bonding requirements, the imposition of a duty, contingent upon affirmative final determinations of subsidization and injury, and the withholding or extension of liquidation of entries of certain softwood lumber from Canada. These measures took into account the replacement measures instituted in certain Canadian provinces. Thus in the case of lumber production in British Columbia, no bonding requirements were imposed and the rate of the contingent duty was zero. ¹³

24. On 16 October 1991, Canada held consultations with the United States under Article 3:1 of the Agreement. At these consultations on the basis of the provisions of Article 2:1 of the Agreement, Canada requested from the United States evidence of the existence of a subsidy, of injury and of a causal link between the alleged subsidy and the alleged injury on which the United States justified its intent to self-initiate a countervailing duty investigation.

25. On 31 October 1991, the United States Department of Commerce self-initiated a countervailing duty investigation on imports of certain softwood lumber products from Canada. ¹⁴ In the notice of the self-initiation of this investigation, the Department stated that:

The notice further explained that the practices subject to the investigation were "stumpage programmes, which are government programmes through which individuals and companies acquire the rights to cut and remove standing timber from provincial forest lands" ¹⁶ and that the information available to the Department indicated that the provisions of stumpage was specific, that discretion was exercized in the awarding of stumpage rights and the setting of stumpage prices, and that stumpage was preferentially priced. ¹⁷ The notice of initiation also indicated that, while the Department had information on restrictions applied by Canadian (federal and provincial) authorities on exports of logs, this information was not considered to be sufficient to warrant the inclusion of these export restrictions within the scope of the investigation:

26. The notice of the self-initiation of a countervailing duty investigation on imports of softwood lumber from Canada further contained a discussion of evidence available to the Department of Commerce which demonstrated "that the US softwood lumber industry is currently suffering material injury as a result of subsidized softwood lumber imports from Canada, and faces the threat of further, more extensive, material injury." ¹⁹

27. Finally, the notice of self-initiation of the investigation exempted from the scope of the investigation softwood lumber products produced in New Brunswick, Newfoundland, Nova Scotia and Prince Edward Island, on the ground that, because these Provinces had been exempted from payment of the export charges under the MOU, the termination of the MOU by Canada could not be considered to constitute "special circumstances" with respect to these Provinces. ²⁰

28. A detailed description of the evidence relied upon by the Department of Commerce as a basis for the self-initiation of the countervailing duty investigation on imports of softwood lumber from Canada appears in a Department of Commerce Memorandum. ²¹

29. On 3 and 13 December 1991, the Department of Commerce received information from interested parties in the investigation with respect to the price effects of the export restrictions maintained by British Columbia, Alberta, Ontario and Quebec. The Department found that this information provided sufficient evidence demonstrating that these export restrictions had a measurable downward effect on prices of logs in these provinces and therefore decided on 23 December 1991 to investigate these export restrictions as part of the countervailing duty investigation on imports of certain softwood lumber products from Canada.

30. Canada requested the Panel to find that the measures taken by the United States on 4 October 1991 in the form of a suspension of liquidation of entries of softwood lumber products from Canada and the imposition of bonding requirements on such entries were inconsistent with the obligations of the United States under Article 5:1, and were not justifiable as a form of "expeditious action" under Article 4:6 of the Agreement.

31. The United States requested the Panel to find that the measures taken on 4 October 1991 with respect to entries of softwood lumber products from Canada were fully consistent with Article 4:6 of the Agreement.

32. Canada requested the Panel to find that the self-initiation by the United States on 31 October 1991 of a countervailing duty investigation on imports of softwood lumber products from Canada was inconsistent with the obligations of the United States under Article 2:1 of the Agreement.

33. The United States requested the Panel to find that the self-initiation on 31 October 1991 of a countervailing duty investigation of imports of softwood lumber products from Canada was fully consistent with the obligations of the United States under Article 2:1 of the Agreement.

34. Canada requested the Panel to recommend that the Committee on Subsidies and Countervailing Measures request the United States (1) to withdraw the bonding requirements imposed on 4 October 1991, release the bonds, refund with interest any cash deposits and amounts collected, and terminate the suspension of liquidation of entries of softwood lumber from Canada ordered on 4 October 1991, and (2) to terminate the countervailing duty investigation initiated on 31 October 1991 with respect to imports of softwood lumber from Canada.

1. MEASURES TAKEN BY THE United States ON 4 October 1991

35. Canada submitted that the interim bonding requirement and suspension of liquidation of entries imposed by the United States on 4 October 1991 on softwood lumber products from Canada were contrary to the requirements of Article 5:1 of the Agreement. Article 5:1 sets out the conditions for the imposition of provisional measures as follows:

The types of provisional measure that could be imposed by a signatory were defined in Article 5:2:

The bonding requirement and the suspension of liquidation of entries of softwood lumber from Canada had been imposed by the United States not only prior to a preliminary determination of the existence of a subsidy, but even prior to the self-initiation of a countervailing duty investigation on 31 October 1991. The introduction of these measures by the United States absent a preliminary determination of the existence of a subsidy and injury was prima facie inconsistent with the obligations of the United States under Article 5:1 of the Agreement.

36. Canada considered that the imposition of provisional measures by the United States on 4 October 1991 could not be justified under Article 4:6 of the Agreement which allowed for "expeditious actions" under very narrowly defined circumstances:

Any action taken under this provision must be "in conformity with" the provisions of the Agreement. One such provision was Article 4:2 which stipulated that no countervailing duty shall be levied on any imported product in excess of the amount of the subsidy found to exist. N° such determination of subsidy had been made by the United States; the only final determination on the existence of a subsidy (made in 1983) had concluded that imports of softwood lumber products from Canada were not subsidized.

37. Canada also pointed out in this respect that a signatory could only take action under Article 4:6 in the form of immediate application of provisional measures if an undertaking had been violated. As the MOU concluded between Canada and the United States on 30 December 1986 had been negotiated outside the framework of the countervailing duty legislation of the United States, no "undertaking" within the meaning of Article 4:5 existed and no "violation" within the meaning of Article 4:6 had occurred. One of the provisions of the MOU had allowed for either party to terminate the Understanding at any time upon thirty days written notice. Canada had acted in accordance with this provision when on 3 September 1991 it had given notice of its intention to terminate the MOU, effective 4 October 1991. Canada could not be construed in any way of violating the MOU by adhering to its terms and conditions.

38. The United States argued that the measures taken on 4 October 1991 with respect to entries of softwood lumber products from Canada found their legal basis in Article 4:6 of the Agreement. The United States considered that (1) the MOU concluded between Canada and the United States on 30 December 1986 constituted an undertaking within the meaning of Article 4:5(a) of the Agreement; (2) Canada's withdrawal from the MOU provided a basis for expeditious action under Article 4:6 of the Agreement and, (3) the suspension of liquidation and imposition of bonding requirements were specifically recognized in the Agreement as forms of "provisional measures" authorized under Article 4:6.

39. The United States argued that the MOU by its terms constituted an undertaking within the meaning of Article 4:5 of the Agreement. An undertaking under Article 4:5 existed if (1) a signatory agreed to eliminate or limit a subsidy or to take other measures concerning its effects and (2) a countervailing duty investigation was suspended or terminated as a consequence. In the case of the MOU on softwood lumber, both these elements of an Article 4:5 undertaking were expressly met in the actions taken by the United States and Canada in concluding and implementing the MOU and were explicitly reflected in the text of the MOU itself. First, the United States had terminated the countervailing duty investigation upon implementation of the MOU: Article 3(a) of the MOU expressly provided that termination of the countervailing duty investigation was a condition precedent on implementation of the MOU. Second, Canada had imposed an export charge in the precise amount of the margin preliminarily established in October 1986 in an investigation conducted under US law in accordance with the provisions of the Agreement: Article 4(b) of the MOU established an export charge in the amount of 15 per cent to be collected by Canadian federal authorities or offset through the implementation of replacement measures by Canadian provincial authorities under the MOU. This rate was identical to that established in the preliminary determination of subsidization in the countervailing duty investigation. The provisions in Article 7 of the MOU, which served the monitoring function contemplated in Article 4:6 of the Agreement, reinforced the conclusion that the MOU constituted an undertaking within the meaning of Article 4:5 of the Agreement.

40. Canada argued that it had never considered the MOU to be an undertaking and had not treated it as such. Canada had specifically sought and obtained the termination by the United States of the investigation initiated in June 1986 (Articles 3(a) and 3(d) of the MOU). In addition, Article 4:5(a)(i) of the Agreement described undertakings as actions whereby "the government of the exporting country agrees to eliminate or limit the subsidy or take other measures concerning its effects". Since Canada per Article 3(b) of the MOU had not accepted that there was a subsidy, it could not have agreed "to eliminate or limit the subsidy or take other measures concerning its effects". The MOU therefore could not have been an undertaking within the meaning of Article 4:5(a)(i).

41. The United States observed, in response to Canada's argument that it had specifically sought and obtained the termination of the countervailing duty investigation, that the Agreement expressly recognized that both suspension and termination agreements could serve as undertakings between signatories. In response to Canada's argument based on Article 3(b) of the MOU, the United States argued that Canada's reasoning that an undertaking within the meaning of Article 4:5 could exist only if the signatory alleged to be providing a subsidy expressly agreed that the practice in question was a subsidy under the Agreement would eliminate the prospect of concluding an undertaking in most cases, thus undermining the purpose of Article 4. Canada's argument ignored the fact that most undertakings arose because a country wanted to avoid an express finding of subsidization. The United States furthermore observed that it was disingenuous now for Canada to assert that its decision to enter into the undertaking was tantamount to the two parties agreeing that Canada's stumpage pricing practices did not constitute subsidies. Had Canada so believed, it could have pursued its complaint referred to the Panel established in August 1986 through to completion. The United States, referring to Article 58 of the Vienna Convention on the Law of Treaties (1969), also argued that the Canadian argument that Article 3(b) of the MOU meant that the United States had somehow implicitly waived its rights to enforce the MOU under Article 4:6 of the Agreement was contrary to the established principle of international law that a bilateral agreement would not waive the rights of the parties to that agreement under an existing multilateral agreement unless such a waiver was explicit and the parties to the multilateral agreement had been notified of the waiver. In the case of the MOU, there was no such express waiver of rights under the Agreement.

42. Canada pointed out that it was not disputing that the Agreement provided for undertakings involving either the termination or the suspension of a countervailing duty investigation. While the Agreement allowed signatories to use suspension and termination agreements as undertakings, the Agreement did not require signatories to use either form of agreement (or to allow undertakings at all). The countervailing duty legislation of the United States provided in section 704 (i) of the Tariff Act of 1930, as amended, for the authority to take action in respect of violation of suspension agreements concluded pursuant to sections 704 (b) or (c), but not in respect of termination agreements, as this phrase was used in Article 4:5 of the Agreement. The fact that the United States had availed itself of the authority to use suspension agreements as "undertakings" did not allow it to transform separate and substantively different trade agreements into "undertakings" ex post facto by calling such agreements "termination agreements". The action taken by the United States in instituting the bonding requirements had been taken under the authority of section 301 of the United States Trade Act of 1974, outside the countervailing duty legislation of the United States. The EEC, in contrast, had specifically provided for the acceptance of "termination agreements" as "undertakings" in Article 10:6 of the Regulation providing for the authority to apply countervailing duty measures, and for the imposition of provisional measures upon withdrawal from such agreements, as provided under the Agreement.

43. In response to the argument of the United States that, if the MOU had been intended by the parties to be outside of the provisions of the Agreement, there should have been an expressed intention of the parties to suspend inter se the operation of Article 4, Canada argued that the principal fallacy in this argument was that the "right" that was supposedly being "waived" simply did not exist in the context of the MOU. The United States had no rights under Article 4:6 of the Agreement with respect to the MOU because the MOU was not an undertaking under Article 4:5 of the Agreement. N° "waiver" of rights under Article 4:6 had therefore been necessary and, accordingly, there had been no obligation to notify the signatories of the Agreement of such a "waiver". The termination of the countervailing duty investigation in January 1987 had extinguished any right of the United States to use the investigation initiated in June 1986 as a basis for the imposition of provisional measures. The fact that an independent trade agreement, outside the provisions of the countervailing duty law of the United States, was concluded at the same time a countervailing duty investigation was terminated did not make that agreement an undertaking for purposes of Article 4:5 of the Agreement and did not lead to the accrual of rights under the Agreement as a result of the conclusion of that independent agreement. This was confirmed by Article 4:8 of the Agreement which through the use of the word "shall" set out mandatory notification requirements whenever a countervailing duty investigation was suspended or terminated, pursuant to Article 4:5. Thus the rights and procedures of Articles 4:5 and 4:6 had to be invoked; they were not automatic.

44. In light of the statement of the United States that in the case of the MOU Canada and the United States had not expressed an intention to suspend obligations under the Agreement, the Panel asked the United States to comment on the fact that in its semi-annual report of countervailing duty actions in the first half of 1987 the United States had indicated with respect to the investigation of softwood lumber from Canada that "the case" had been "withdrawn". In response, the United States pointed out that this notification indicated the disposition of the case or investigation and did not in any way state or imply that the United States was waiving its rights under Article 4. This notification, like the notification of the MOU to the Panel established in August 1986 and to the Committee on Subsidies and Countervailing Measures and the notification by the United States in its semi-annual report for the second half of 1991 all contradicted Canada's position that the MOU had existed outside the parameters of the Agreement.

45. Canada noted that there was no explicit provision in the MOU which precluded the United States from taking countervailing duty action on the softwood lumber products covered in the MOU. Canada had considered the purpose of the MOU to avoid "the enactment of legislated restrictions or further investigation under US trade law", and to this effect, an agreed side letter was included in the MOU stating that "in the event of further investigations under US law, Canada may exercise its right to terminate the agreement".

46. The United States observed that the text of the MOU itself did not address the issue of whether, as long as the MOU remained in force, there would be no new countervailing duty investigations initiated on softwood lumber from Canada. However, it was clear that the MOU was dependent upon the withdrawal of the existing countervailing duty case and that the filing of a new countervailing duty petition would have led to the prompt termination of the MOU. In a side letter Canada had stated its view that "the objective of the MOU ... involves ... avoiding ... further investigations under US trade law". This would be a prime objective for any country (or the country's exporters) in concluding a termination undertaking within the meaning of Article 4:5. Indeed, it would be inconsistent with Article VI to impose countervailing duties on a product already subject to a suspension or termination undertaking in connection with the same practice or programme.

47. Canada considered that the term "undertaking" in the title to paragraph 6 of the MOU had meaning only in the context of the MOU. It had no relevance under the Agreement.

48. The United States considered that the fact that paragraph 6 of the MOU is entitled "Additional undertaking" was of significance in that under the Agreement the MOU could not have been anything else.

49. Canada also argued that the fact that the MOU had not been treated by the United States as an undertaking supported its view that the MOU had not constituted an undertaking within the meaning of Article 4:5 of the Agreement. First, the United States had not notified the MOU as an undertaking in its semi-annual report of countervailing duty actions covering the period 1 July-31 December 1986 (SCM/84(Add.4), as required by Article 2:16 of the Agreement. Second, the MOU had not been notified as an undertaking in the Federal Register notice of the termination of the investigation initiated in June 1986, as required by Article 4:8 of the Agreement. Indeed, the United States had terminated the investigation, stating that the petition had been withdrawn and that the preliminary determination was without legal force or effect. In the exchange of letters accompanying the MOU, the United States had expressly advised Canada that it considered the MOU to be a "trade agreement" for the purposes of US law. This was intended to bring the MOU under the authority of Section 301 of the Trade Act of 1974 precisely because the United States would not be able to enforce the MOU under the "suspension agreement" provisions of its countervailing duty law. Third, the bonding requirement and suspension of liquidation of entries on 4 October 1991 were imposed by the United States under the provisions of Section 304 of the United States Trade Act of 1974. These provisions were not part of the legislation notified by the United States to the Committee on Subsidies and Countervailing Measures in document SCM/1/Add.3 of 30 April 1980 (Tariff Act 1930, as amended). The United States Trade Representative (USTR) had not been notified to the Committee as the responsible agency for dealing with the initiation and conduct of countervailing duty investigations.

50. Canada further pointed out in this context that during the life of the MOU, no steps had been taken by either party with respect to the notification of the GATT or the Committee on Subsidies and Countervailing Measures regarding the characterization of the MOU as an undertaking. This lack of action was not an omission. Both sides had been well aware of the obligations to notify an undertaking under the Agreement. Canada noted in this regard that the Agreement did not distinguish between substantive and procedural requirements of undertakings. While the text of the MOU had been provided to the Chairman of the Panel established by the Committee in July 1986, this had been done solely for the purpose of informing the Panel that a mutually satisfactory solution had been reached in the dispute examined by that Panel. In the Federal Register notice of the imposition of interim measures on 4 October 1991 the United States had not referred to any violation of an undertaking. In introducing these measures, the United States had not made any reference to the application of the provisions of the Agreement. These omissions were further evidence that the United States had not considered the MOU to be an undertaking within the meaning of the Agreement. The United States had considered the MOU to be outside its countervailing duty law until after the termination of the MOU. It was only on 16 October 1991 that the United States had stated in bilateral consultations with Canada that it considered the MOU to be an undertaking under Article 4:5 of the Agreement.

51. In response to Canada's argument that the United States had not treated the MOU as an undertaking within the meaning of Article 4:5 of the Agreement, the United States argued that the MOU was treated precisely as any 'termination undertaking' under Article 4 would be treated under US law. Moreover, Canada's argument ignored that under international law the subjective intent of the parties to an agreement was irrelevant for purposes of interpreting the agreement: what mattered was the intention of the parties as expressed in the text. This was confirmed both by the jurisprudence of the ICJ and by Article 31 of the Vienna Convention on the Law of Treaties (1969). Thus, the purpose of an international agreement was not determined by the unexpressed intent of one of the parties to the agreement. In addition, Canada was factually incorrect in claiming that the United States had not treated the MOU as an undertaking within the meaning of Article 4:5 of the Agreement. The record demonstrated that the United States had considered the MOU as a termination undertaking within the meaning of Article 4:5 of the Agreement. For example, in the context of the United States-Canada FTA Chapter 19 bilateral Working Group the suspension agreement on raspberries and the MOU on softwood lumber were treated identically as "bilateral agreements" arising out of countervailing duty investigations but not covered by countervailing duty orders. Similarly, the United States had explicitly indicated to Canada that it planned to enforce the MOU as a trade agreement, which showed that the United States saw the MOU as an enforceable undertaking, as this would be the only means of enforcing a termination undertaking under US law.

52. The United States also considered that the record did not support Canada's contention that Canada all along considered the MOU to be a bilateral agreement concluded, implemented and terminated completely outside the Agreement. To the contrary, the record demonstrated that Canada considered the MOU to be fully consistent with its obligations under the General Agreement. In view of this, the position urged by Canada in this proceeding strained credulity. Canada would have the Panel believe that (1) the MOU bore no relation to the countervailing duty investigation conducted in 1986, notwithstanding that implementation of the MOU was expressly contingent on the termination of that case; (2) the MOU bore no relation to the obligations of the United States and Canada under the Agreement, notwithstanding that the proceedings of a dispute settlement Panel under the Agreement had also been terminated upon the implementation of the MOU, and the MOU had been specifically notified in connection therewith; and (3) the MOU bore no relation to the obligations of the United States and Canada under the General Agreement, notwithstanding that Canada had taken care to emphasize that the MOU was fully consistent with those obligations. In the face of the record, Canada's post hoc contentions simply did not stand. Both Canada and the United States had considered the MOU to fall within their obligations under the General Agreement. In any event, even if Canada could so demonstrate, its view would not overcome the basic fact that the MOU on its face constituted a termination undertaking within the meaning of the Agreement.

53. The Panel asked the United States to explain its view on how the fact that Canada had considered the MOU to be consistent with its obligations under the General Agreement indicated that Canada had treated the MOU as an undertaking within the meaning of Article 4:5 of the Agreement. In response, the United States observed that the only manner in which a countervailing duty investigation could be terminated by agreement was Article 4 of the Agreement. Accordingly, the MOU could only have been a termination undertaking within the meaning of Article 4 of the Agreement.

54. The United States argued that it had twice notified the GATT of the termination of the countervailing duty investigation and the conclusion of the undertaking: (1) jointly with Canada through the "Agreed Minute appended to the MOU", and (2) by letter dated 29 January 1987, from Ambassador Samuels to the Chairman of the 1986 Panel. The terms of the MOU had been outlined in the Panel Report (SCM/83) and a copy of the MOU had been made available in the secretariat for consultation by interested signatories. Even if the United States had not complied with the notification requirements of Article 4:8 of the Agreement, this non-compliance with a procedural requirement could not have prejudiced substantive rights of the United States under the Agreement. In addition, for its part Canada had done nothing to demonstrate that it had taken any action making clear that it did not consider the MOU to be a termination undertaking within the meaning of the Agreement.

TO CONTINUE WITH MEASURES AFFECTING IMPORTS OF SOFTWOOD LUMBER FROM CANADA

¹ 51 Fed.Reg., 11 June 1986, pp.21205-21208.

² Documents SCM/76 and SCM/M/Spec/12.

³ Letter from Stanley Dennison, Chairman, Coalition for Fair Lumber Imports, to Gilbert Kaplan, Deputy Assistant Secretary for Import Administration, 30 December 1986.

⁴ 52 Fed.Reg., 5 January 1987, 315.

⁵ 52 Fed.Reg., 26 January 1987, p.2751.

⁶ BISD 34S/194.

⁷ SCM/84/Add.4, page 5.

⁸ Letter from the United States Trade Representative to the Embassy of Canada in the United States, 30 December 1986.

⁹ 52 Fed.Reg., 5 January 1987, pp.229-230.

¹⁰ 52 Fed.Reg., 5 January 1987, p.233.

¹¹ 56 Fed.Reg., 8 October 1991, p.50739.

¹² 56 Fed.Reg., 8 October 1991, p.50739.

¹³ 56 Fed.Reg., 8 October 1991, pp.50739-40.

¹⁴ 56 Fed.Reg., 31 October 1991, pp.56056-56058.

¹⁵ 56 Fed.Reg., 31 October 1991, p.56056.

¹⁶ 56 Fed.Reg., 31 October 1991, p.56056.

¹⁷ 56 Fed.Reg., 31 October 1991, p.56057.

¹⁸ 56 Fed.Reg., 31 October 1991, p.56057.

¹⁹ 56 Fed.Reg., 31 October 1991, p.56057.

²⁰ 56 Fed.Reg., 31 October 1991, p.56058.

²¹ Basis for Self-Initiating the Countervailing Duty Investigation on Certain Softwood Lumber Products from Canada, hereinafter "Initiation Memorandum".