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UNITED STATES - MEASURES TREATING
(Continuation) H. SECOND ORAL STATEMENT OF THE UNITED STATES
5.249 The United States argues that if "bad facts make bad law", "no facts make
worse law." The United States argues that Canada is asking the Panel to rule, in
the absence of facts, that a particular category of measures can never, under
any circumstances, constitute a financial contribution. For the United States
this is a recipe for not only bad law, but "worse" law. In the US view, the
Panel can avoid making "worse" law by finding that the so-called "measures"
identified by Canada do not require the DOC to treat export restraints as
subsidies. Such a finding is dispositive of this dispute, and is the only
finding the Panel could make that would be supported by evidence.
5.250 For the United States, Canada's assertion that it is not asking for an
"advisory opinion" is nonsense. The United States argues that according to
Canada, even if the Panel finds that Canada is not entitled to any relief, the
Panel nonetheless must make findings on the status of export restraints,
notwithstanding that any such findings would be of no legal effect. In the view
of the US, that is the essence of a request for an "advisory opinion."
5.251 The United States asserts that Canada tries to slip in the notion that the
US bears the burden of proving that the "measures" at issue do not require WTO-inconsistent
action, and argues that Canada is wrong for at least two reasons. First, Canada
has made the factual allegation that the "measures" at issue require the DOC to
treat export restraints as subsidies (or financial contributions). As the
complainant, Canada bears the burden of substantiating this allegation, both in
terms of the burden of coming forward and the ultimate burden of persuasion.
Second, the Appellate Body did not find in the 1916 Act case that the
mandatory/discretionary doctrine is an "affirmative defense." Thus, the United
States submits, nothing in the 1916 Act case relieves Canada of its burden of
proving its allegation that the "measures" at issue require the DOC to treat
export restraints as subsidies.
5.252 Turning to the mandatory/discretionary doctrine itself, the United States
notes that Canada asserts that in each of the cases cited by the United States,
the panel ruled in favor of the defending party only because that party had
either applied discretionary legislation in a GATT-consistent manner or was "in
some sense committed to do so." In the US view, Canada has ignored the GATT and WTO cases cited by the United States that directly contradict Canada's
assertion. In EEC Parts, the panel found that the EEC's application of its
anti-circumvention legislation was inconsistent with Article III:2, but found
that the legislation, as such, was not GATT-inconsistent because it did not
require GATT-inconsistent action. In Canada Aircraft, the panel found that
particular debt financing under the Canada Account constituted a prohibited
subsidy, but found that the Canada Account, as such, was not WTO-inconsistent
because it did not mandate the provision of export contingent subsidies.
Notwithstanding that the panel found that Canada had applied the Canada Account
in a WTO-inconsistent manner, the panel found that "[i]n light of the
distinction that GATT/WTO panels have consistently drawn between discretionary
legislation and mandatory legislation, we find that we may not make any findings
on the Canada Account programme per se."
5.253 According to the United States, another erroneous Canadian proposition is
that a Member must be allowed to challenge whether a Member has "curtailed its
discretion" not to violate a WTO commitment. In the US view, there is no
authority for this proposition, as previously recognized by Canada. In Canada
Aircraft, Canada stated: "There is no basis in the findings of the Panel or the
Appellate Body, the SCM Agreement, or international law for imputing to Canada
an obligation to prove that discretionary laws could not possibly be used to
grant export subsidies." (emphasis added). The United States notes that
Appellate Body agreed with Canada.
5.254 Turning to the application of the mandatory/discretionary doctrine to the
"measures" at issue, the United States asserts that Canada appears to be upset
that the United States has not acknowledged in this dispute that if there is a
Lumber IV, the DOC will find Canadian log export restraints to be subsidies.
According to the United States, none of the members of the US delegation at the
Panel meeting - indeed, no employee of USTR or the DOC - is in a position to
state what might happen if there ever were to be a Lumber IV. Moreover, as a
legal matter, what the DOC might do in a future case is irrelevant. What is
relevant for the United States is what, if anything, US law mandates the DOC to
do. In this regard, it is the opinion of the United States that if the Assistant
Secretary for Import Administration should determine in an actual CVD proceeding
that a provincial log export restraint does not constitute a financial
contribution, no US court or NAFTA binational panel would overturn that
determination on the grounds that the SAA, the Preamble, or some amorphous
"administrative commitment" require a different result.
5.255 Turning to Canada's discussion of the SAA, the United States argues that
no US court would read the proviso out of existence the way Canada does.
Moreover, in its comments to the DOC in connection with the DOC's rulemaking
proceeding, the United States recalls that Canada took the position that the
statute and the SAA did not require the DOC to treat export restraints as
subsidies, and that Canada also took this position in the 1999 Live Cattle case,
as reflected by US-32. For the United States, Canada's brief in Cattle also
calls attention to another important portion of the SAA not discussed so far in
this case; namely, the paragraph at the top of page 925 of the SAA. According to
the United States, this portion of the SAA sets forth the general intent of
Congress and the Administration that prior DOC practice regarding the definition
of "subsidy" continue only to the extent that it is consistent with the new,
WTO-consistent definition of "subsidy" set forth in the statute.
5.256 With respect to the Preamble, in the view of the United States, Canada
improperly equates the Preamble with a regulation. The United States argues that
Canada has yet to cite any case that says the DOC is bound by anything other
than a regulation. The United States notes that Canada asserts that "U.S. courts
regularly find agency statements in preambles that interpret a statute to be
controlling and reviewable like any regulation ...", and states that as
authority, Canada simply refers to cases that the United States has previously
explained are either distinguishable or do not support the proposition for which
they are submitted.
5.257 The United States notes that Canada cites Professor Davis for the
proposition that publication in the CFR should not constitute evidence that an
agency statement is, or is not, a rule. According to the United States, Canada
is inviting the Panel to undermine the credibility of its own report by taking
the views of academics regarding how US law ought to be over the opinions of a
federal appellate court regarding what US law is. Moreover, referring to US-33
and US-34, the United States argues that when one considers what else Professors
Davis and Pierce have to say, it is apparent that they are not of the view that
a legislative rule need not be published in the CFR. In addition, the United
States maintains, if one were to apply the American Mining Congress test without
the criterion of publication in the CFR, the Preamble would not qualify as a
valid, binding legislative rule. Finally, the United States states, Canada's
citation to the Wiggins Brothers, Inc. case (CAN-124) is not on point, because
the court made clear that the preamble could not be disregarded because it
constituted part of the "legislative history" of the regulation that was being
construed. The court did not say that the preamble in question was itself a
binding, legislative rule, which is the status that Canada attempts to accord
the DOC Preamble at issue in this case. Also, continues the United States,
Canada has not addressed the case of Clean Air Implementation Project v. EPA
(US-26), which stands for the proposition that a preamble is not a "binding
statement of agency policy" where the agency does not consider the preamble as
such.
5.258 In the Preamble to the proposed rules, according to the United States, the
DOC expressly stated that it was not promulgating a regulation on "indirect
subsidies" in order to preserve its "flexibility and discretion." In the
Preamble to the final rules, the United States notes, the DOC expressly stated
that "the phrase 'entrusts or directs' could encompass a broad range of
meanings. As such, we do not believe it is appropriate to develop a precise
definition of the phrase for purposes of these regulations." Thus, for the
United States, the DOC's explanation in the portion of the Preamble at issue
here makes it clear that the DOC did not intend to bind itself on the topic of
indirect subsidies by promulgating a regulation. The United States argues that
it is simply absurd to assert, as Canada does, that at the same time as the DOC
was expressing an intent not to bind itself by means of a regulation, it
simultaneously intended to bind itself by means of a preambular statement
explaining why the DOC was not binding itself.
5.259 For the United States, the fact that the DOC may cite the Preamble in a
particular determination does not transform the Preamble into a binding
regulation any more than would a citation to a law review article transform the
article into a binding regulation. The United States does not dispute the fact
that courts and agencies rely on regulatory preambles for purposes of
interpreting agency regulations. In this case, however, the United States
argues, there is no regulation to interpret. Moreover, Canada has not identified
a single instance in which the DOC stated that it was following a principle
articulated in the Preamble because it was legally bound to do so. For the
United States this is a critical point. There is a big difference between citing
the Preamble as a shorthand explanation of the reasons why the DOC is making a
particular determination, and citing the Preamble as binding authority. The
United States argues that in the first situation, the DOC, as a matter of
discretion, is citing reasoning set forth in the Preamble because it finds that
reasoning to be persuasive. In the second situation, the DOC would be following
the Preamble because it has no discretion to do otherwise. Likewise, the United
States maintains, Canada has been unable to cite a single case where a court has
said that a portion of a DOC regulatory preamble unrelated to a regulation has
the force of law.
5.260 The United States argues that in respect of DOC "practice" - whatever that
may be - Canada has not been able to cite a single US court decision standing
for the proposition that agency practice in general, or DOC practice in
particular, is binding. Moreover, according to the United States, Canada's
assertion that an agency may depart from prior precedents only in "narrow
circumstances" is contradicted by the very US administrative law experts on
which Canada has relied in this case. The United States argues that as set forth
in US-34, Professors Davis and Pierce are of the view that an agency may freely
overrule its precedent.
5.261 For the United States, Canada's reference to the so-called Subsidies
Appendix is worthy of a brief comment, because the history of the Subsidies
Appendix totally contradicts Canada's arguments in this case. The Subsidies
Appendix was attached to a 1984 final CVD determination which announced new DOC
practice on a host of CVD methodological issues at a time when there were no
regulations. Although the DOC had not generated the Subsidies Appendix through
the type of notice-and-comment process required by the Administrative Procedure
Act ("APA") for a valid, binding legislative rule, the DOC nonetheless began to
treat the Subsidies Appendix as if it were a legislative rule. In 1988, the US
Court of International Trade put a halt to this, as explained in the preamble to
the DOC's 1989 proposed regulations (CAN-5). The DOC's reviewing court told it
that it could not act as if its administrative practice was binding, because
under established US principles of administrative law, it was not. The court
told the DOC that if it wanted to make its practice binding, it would have to
codify it in the form of regulations.
5.262 The United States notes that Canada claims that Article 10 of the SCM
Agreement applies to this dispute because Article 10 imposes an obligation "to
'take all necessary steps to ensure . . .' that the imposition of countervailing
duties is consistent with the SCM Agreement and Article VI of the GATT 1994."
According to the United States, Canada claims that Article 10 (and the
provisions related thereto) itself imposes an obligation on a Member to ensure
the conformity of its countervailing duty law with the SCM Agreement and Article
VI. When one considers Article 10 in full, however, it is apparent to the United
States that Article 10 was intended to apply to the actions of Members in
individual countervailing duty proceedings. The reference in the first sentence
to "imposition" is suggestive of a case-specific determination, as is the
reference in the second sentence to "investigations initiated and conducted".
Moreover, the United States argues, if Canada's interpretation were accepted,
Article 10 would be redundant of Article 32.5, which expressly imposes an
obligation to ensure the conformity of laws, regulations and administrative
procedures. In the view of the United States, Canada has implicitly recognized
this in all of its prior submissions in this dispute. Article 10 and Article
32.5 can each be given meaning by interpreting Article 10 as governing actual
actions taken by a Member in an actual CVD proceeding, and Article 32.5 as
governing the conformity as such of a Member's laws, regulations and
administrative procedures.
5.263 According to the United States, putting aside the issue of whether the SAA, the Preamble, and the DOC's alleged "administrative commitment" constitute
"measures", even if one assumes arguendo that these "measures" should be
considered together, Canada has yet to cite any authority for the proposition
that, under US law, "measures" that individually do not require an agency to do
a particular thing do so require when considered together.
5.264 With respect to the phrase "entrusts or directs", the United States
asserts that Canada simply asks the Panel to ignore the dictionary definitions
of "direct" that undermine its case. Canada claims that the determination of
whether an export restraint constitutes a "financial contribution" is a legal,
rather than a factual, issue. However, the United States maintains, this is true
only if one ignores the ordinary meaning of "direct." All of the dictionaries
referred to in this dispute include definitions with a causal element. For the
United States, it is significant that Canada has conceded that an export
restraint constitutes government "direction", and simply argues that the
"direction" is "to not export." In the view of the United States, this is
nothing more than a semantic game.
5.265 Finally, the United States argues, Canada reiterates its tired argument
that "the freedom of producers to adapt to the imposition of an export
restraint" means that there is no entrustment or direction within the meaning of
subparagraph (iv). The United States submits that Canada's alleged "freedom of
producers" to adapt is unsupported by any factual evidence. In an effort to
gloss over its evidentiary failings, asserts the United States, Canada
misrepresents the position that the US has taken in this case, asserting that
the US is arguing that an export restraint is subject to subparagraph (iv)
"because it might result in greater domestic availability of a product ... ."
The United States indicates that its prior submissions make clear that the US
position is that an export restraint might be subject to subparagraph (iv) only
if it did result in greater domestic availability. In the US view, it is Canada
which bases its position on theoretical speculation as to what an export
restraint might do, because it fears what the facts might reveal in actual
cases.
5.266 Finally, what the United States sees as the emptiness of Canada's argument
regarding the "freedom of producers" is revealed by the last sentence of its
answer to Question 6 (Second Set), in which it states that a producer would have
the freedom to "elect to reduce or terminate its production"; i.e., go out of
business. For the United States, if this is the type of "freedom" that removes a
government measure from the scope of subparagraph (iv), then subparagraph (iv)
is truly meaningless. In a scenario in which a government directs a producer to
sell a product to identified domestic customers on pre-determined conditions (a
scenario which both Canada and the EC concede ought to fall under subparagraph
(iv)), the producer would have the same "freedom" to go out of business.
5.267 With respect to the phrase "private body", to the United States it is now
entirely unclear what Canada's position is with respect to this phrase. In its
answer, Canada says that "a law, regulation, or administrative directive
requiring 'all bankers' to lend (in lieu of the government lending) X percent of
their loanable funds to the widget industry might make bankers a 'private body'
... ." The United States fails to see any substantive difference between this
scenario and a scenario in which a government, by means of an export restraint,
directs producers of an input to sell only to domestic customers.
5.268 With respect to the language in subparagraph (iv) that begins with the
phrase "normally vested in", the United States argues, as indicated in its
response to Question 26(a), that because the DOC has yet to address this
language, the United States does not have a definitive position on the meaning
of this language. However, it appears to the United States that this language
was drawn from the 1960 Article XVI:5 Report, which referred to the functions of
taxation and subsidization. Thus, to the United States this language suggests
that the appropriate inquiry is whether the practice that a private body is
directed to perform falls within the types of practices that a government
normally engages in for purposes of delivering a subsidy.
5.269 It appears to the United States that there are several possible
interpretations of the "normally vested in" language. Based on the fact that the
functions in subparagraphs (i) through (iii) are expressly recognized as
mechanisms used by governments directly to provide financial contributions, one
possible interpretation of the "normally vested in" language is that it
recognizes that the functions listed in (i) through (iii) are normally vested in
the government and places that same limitation on functions of the same "type".
As a result, under this interpretation, subparagraph (iv) encompasses the
functions in (i) through (iii), which are normally vested in the government, and
functions of that "type", provided that they are also normally vested in the
government.
5.270 Another possible interpretation, according to the United States, is that
the "normally vested in" language serves to screen out government actions that,
at first blush, might appear to be government direction to perform a function
illustrated in subparagraphs (i)-(iii). For example, using Canada's example of a
government action to break up a monopoly, looked at superficially, one might say
that this could result in the type of government-directed provision of a good at
reduced prices that qualifies as a subsidy. However, when considered from a
different perspective, one could say that governments typically do not provide
subsidies by breaking up cartels and restoring normal market conditions.
5.271 Finally, the United States notes, there is Canada's interpretation, which,
as the United States understands it, is that the language requires that the
government in question have ordinarily performed the function that the private
body is directed to perform.
5.272 The United States argues that it is not uncommon for multilateral
negotiations to produce legal documents that reflect less than ideal drafting.
With all due respect to the drafters, the United States would admit that the
"normally vested in" language is not a model of clarity, which makes recourse to
its negotiating history all the more important.
5.273 However, in the US view, the Panel does not have to resolve the precise
meaning of this language, because even under Canada's interpretation, Canada
must still lose. Canada has not shown, as a factual matter, that there are not
and never will be situations in which a government that has historically
provided a good directly also restrains exports of that good in a manner that
causes a private body to begin to provide the good.
VI. ARGUMENTS OF THE THIRD PARTIES
6.1 The arguments of the third parties the European Communities, and India are
set out in their submissions and oral statements to the Panel, which are
attached to this Report in Annex B. Australia did not make a written submission
or an oral statement. (See List of Annexes, page v, supra).
VII. INTERIM REVIEW
7.1 The Panel issued its interim report to the parties on 27 April 2001. On 11
May 2001, both parties submitted written requests for review of specific aspects
of the interim report. On 16 May 2001, the parties submitted comments on one
another's interim review requests. Neither party requested an interim review
meeting.
7.2 Canada argues that we have inaccurately reflected its position concerning
the mandatory/discretionary distinction. We have expanded the quotation from
Canada's response to a question in paragraph 8.6 as well as reflected its
response to another question in paragraph 8.8 to provide a more complete context
for our understanding of Canada's position.
7.3 Canada also suggests slight wording changes in paragraphs 8.23 and 8.50 to
reflect more accurately its arguments. The United States proposes an alternative
in respect of paragraph 8.50. We have adjusted the drafting in these paragraphs.
7.4 Canada also suggests deletion of a word in paragraph 8.75 as unnecessary,
and makes a general comment in respect of our use of the phrase "independent
operational status" in paragraphs 8.85, 8.99, 8.113, and 8.126. We disagree with
the first comment, and have thus made no change to paragraph 8.75. We do not
believe that Canada has asked for a particular change to the other cited
paragraphs, nor do we feel that one is necessary. Thus, we have made no change
to those paragraphs either.
7.5 The United States requests that we expunge Sections VIII.B.2 and VIII.B.3 of
our findings, i. e., the part of the findings that address Canada's claims under
SCM Article 1. In the view of the United States, similarly to what they had
argued throughout the Panel proceedings, these sections are not necessary given
our finding in Section VIII.B.4 that the US legislation does not require the DOC
to treat export restraints as a subsidy. The United States further maintains
that this aspect of the report, if followed by other panels, will have extremely
serious and unfortunate consequences for the WTO dispute settlement system.
Canada disagrees, and notes that we have considered whether the treatment
complained of constitutes a violation of WTO obligations and then whether the
measures at issue mandate such treatment. Moreover, Canada points out that the
Appellate Body has criticised panels for failing to complete their analysis
where panel findings on certain issues have been overturned. We have explained
the reasons for the approach we have taken and the precedents for this approach.
We have not made any change to these sections.
7.6 The United States makes further specific comments on Section VIII.B.3 in the
event that we decide to maintain it. First, the United States indicates that we
have misunderstood its position regarding the object and purpose of the SCM
Agreement, and that we have not reconciled our interpretation of Article 1 with
the object and purpose of the SCM Agreement. We have completed the quotation of
Article 32 of the Vienna Convention in paragraph 8.64 following Canada's
response to this US comment. We have also made some drafting changes to
paragraphs 8.62 and 8.63 to clarify the US position, and to clarify our views on
the relationship between our analysis of Article 1 and the object and purpose of
the Agreement.
7.7 The United States indicates that we have misconstrued its arguments
concerning dictionary definitions of the word "directs", and that we have only
partially addressed in our findings dictionary definitions pertaining to the
word "directs" in the particular grammatical construction that is used in
Article 1.1(a)(1)(iv). We have redrafted paragraph 8.27 to reflect more fully
the US argument, and have clarified our grammatical point in paragraph 8.28. We
have also slightly redrafted paragraph 8.44 to clarify our response to the US
argument.
7.8 The United States argues that we have incorrectly characterised its position
as failing to recognise "financial contribution" as a separate and meaningful
legal element of a subsidy. We have expanded the quotation from US responses to
questions to clarify better its position on this point, and have clarified the
drafting in paragraph 8.39 concerning our views as to the implications of the US
position. The United States also questions the placement of footnote 135 of the
report. We have made no change in response to this comment.
7.9 The United States also argues that we have mischaracterized its arguments
concerning the phrase "type of functions" in paragraphs 8.51-8.52. We have
redrafted our description of the US arguments in these paragraphs, as well as
our concluding sentence on this issue in paragraph 8.55, to reflect more
accurately the US argument, and have made consequential drafting changes in
paragraph 8.53.
7.10 The United States also identifies clerical errors in footnotes 177, 186,
and 187, which we have corrected.
7.11 We have also introduced clerical and technical corrections in Sections IV
and V, and wording changes in paragraph 8.6 and the heading to Section
VIII.B.4(a).
VIII. FINDINGS
A. REQUEST FOR PRELIMINARY RULINGS
8.1 We recall that the United States has requested the Panel to dismiss Canada's
claims by making the following preliminary rulings (See Section IV.A, supra):
(a) That, as neither Section 771(5), the SAA, the Preamble, nor any DOC
"practice" requires US authorities to treat export restraints as subsidies,
these alleged measures, as such, do not violate US obligations under any of the
provisions cited by Canada in its request for a panel;
(b) That US "practice" - whether past, present, or future - does not constitute
a measure properly before this Panel;
(c) That, because Canada did not include US "practice" under Section 771(5) in
its request for consultations, the parties did not actually consult on US
"practice", and Canada's panel request fails to adequately identify the US
"practice" in question, Canada's claims regarding US "practice" fail to conform
to Articles 4.7 and 6.2 of the DSU, and are not properly before this Panel; and
(d) That, because Canada's panel request did not identify the SAA or the
Preamble as measures, and because, in any event, neither the SAA nor the
Preamble is a measure, Canada's inclusion of the SAA and the Preamble as
separate measures in its First Written Submission fails to conform to Article
6.2 of the DSU, and Canada's claims regarding the SAA and the Preamble are not
within the Panel's terms of reference.
8.2 We consider that the United States' preliminary objections, particularly as
to what constitute the measures at issue and whether these measures are
mandatory or discretionary in respect of the alleged treatment of export
restraints, go to the substance of the matter before us. We therefore do not
consider it appropriate to address the objections raised by the United States as
threshold issues. Rather, we address these issues as part of our substantive
analysis of the claims. |
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