B. Canada

1. Introduction

5.55  Canada welcomes the opportunity to participate in this Panel established pursuant to the European Commission's request for the establishment of a panel under the Dispute Settlement Body of the World Trade Organization regarding Sections 301-310 of the US Trade Act of 1974.  In this context, Canada wishes to highlight its specific concerns with respect to Sections 301-310 of the Trade Act of 1974 (collectively referred to as "301 legislation") in the form of a "third party" submission pursuant to Article 10 of the Understanding on Rules and Procedures Governing the Settlement of Disputes.

5.56  Canada firmly believes that disputes arising between Members concerning WTO obligations should be addressed within the parameters established by the DSU. In Canada's view, the application of 301 legislation that results in unilateral imposition of retaliatory measures in response to WTO violations, whether alleged or established, without obtaining the requisite authorization for such retaliatory measures from the WTO Dispute Settlement Body violates the DSU specifically and multilateralism in general. This threatened and actual use of unilateral sanctions is fundamentally incompatible with the multilateral trading system and threatens the overall stability and viability of the WTO dispute settlement regime.

5.57  As a preliminary matter, Canada would note that it appreciates that 301 legislation may be applied to situations arising under trade agreements other than the WTO, to countries that are not WTO Members or to situations that are not subject to WTO obligations. Canada appreciates that those situations are not subject to WTO dispute settlement proceedings unless they somehow violate obligations owed to WTO Members. Accordingly, Canada's present submissions are not directed to those situations.

2. Measures at Issue

5.58 Canada explains that Section 301(a)(1) of the Trade Act of 1974 requires the USTR to determine⁵³⁶ whether an act, policy or practice of a foreign country violates or denies the benefits or rights of the United States under any trade agreement or places an "unjustifiable" burden or restriction on US commerce.

5.59 In Canada's view, the Section 301 legislation combines mandatory and discretionary elements. Actions leading to the imposition of trade sanctions pursuant to section 301 can begin either as the result of a petition filed by an interested person⁵³⁷ or as a result of an investigation initiated by USTR.⁵³⁸ USTR is not obliged to initiate an investigation requested by a petitioner but if a decision is made not to do so, USTR must publish a notice in the Federal Register that contains a summary of the reasons for not initiating an investigation.⁵³⁹

5.60  Canada points out that there are essentially two types of matters that are actionable under section 301(a). The first type is a denial of benefits under, or a violation of a trade agreement,⁵⁴⁰ including the WTO Agreements. The other type of matter which is actionable under section 301 is whether an act, policy or practice of a foreign country is unjustifiable and burdens or restricts United States commerce.⁵⁴¹

5.61 Canada stresses that 301 legislation sets out specific and definitive time frames within which certain actions must occur. Examples of this include the following:

1. Where an alleged violation of a trade agreement is the subject matter of the investigation and a mutually acceptable resolution cannot be reached within the time frames noted in the legislation,⁵⁴² USTR is obligated by the statute to promptly initiate dispute settlement procedures under the trade agreement.
2. In the case of an investigation subject to dispute settlement procedures under a trade agreement, USTR must make a determination as to whether the matter in issue is "actionable" under section 301 within specific time frames.⁵⁴³
3. Where USTR determines that a matter is actionable under section 301 retaliatory action must normally be implemented no more than 30 days after making that determination.⁵⁴⁴

5.62  Canada explains that in the case of implementation of WTO dispute settlement recommendations, where USTR considers that a WTO Member has failed to implement a recommendation made pursuant to a WTO dispute settlement proceeding, USTR is required within 30 days of the expiration of the reasonable period of time established pursuant to Article 21 of the DSU to determine what further action USTR shall take under section 301(a).⁵⁴⁵

5.63 Canada notes that the provisions in question use the mandatory verb "shall". The burden of demonstrating that any action referred to in these provisions is not mandatory in US law falls upon the United States.

5.64 Canada specifically argues that Section 304(a)(2) of the Trade Act of 1974 requires that the USTR determination of whether US rights are being denied must be made by the earlier of thirty days after the conclusion of formal dispute settlement procedures or eighteen months after the date of the initiation of the Section 301 investigation.

5.65  According to Canada, while it is certainly possible for WTO dispute settlement procedures to be completed within 18 months, WTO practice demonstrates that factors such as delays in panel selection, extension of time frames by panels or the Appellate Body and delays in translation and other logistical matters can and do result in disputes not being determined within a 18 month time frame.

5.66  Canada further points out that an affirmative determination pursuant to section 304(a)(2) requires USTR to impose sanctions set out in section 301(c) which must normally be implemented no later than thirty days after making that determination.⁵⁴⁶ Once again Canada notes that the legislation uses the word "shall".

5.67  Canada notes that USTR retaliatory authority under section 301 to (i) suspend, withdraw or prevent the application of benefits of trade agreement concessions; (ii) impose duties or other import restrictions on the goods of the foreign country for such time as USTR determines appropriate; or (iii) enter into agreements with the foreign country to eliminate the act, policy or practice that is the subject of the determination or provide the United States with compensatory trade benefits⁵⁴⁷ is subject to the direction, if any, of the President. While this provision of section 301(a)(1) concerning the direction of the President may create an ability for the President to formally direct the type of sanction applied, it does not remove the legislative requirement for the US executive branch to act. Section 301(b) clearly does remove the requirement to act in the circumstances set out in that section. If the provision that allows the President to make a specific direction concerning the action to be taken was intended to include an ability to override the requirement otherwise imposed by the US Congress that intention would have been expressly stated as was done in section 301(b).

3. Legal Arguments

5.68  Canada contends that the requirement that retaliatory measures be implemented where an affirmative determination is made by the USTR pursuant to section 304 is not contingent in any way on the approval for such action by the WTO's Dispute Settlement Body ("DSB"). Where the statutory deadlines contained in section 304(a)(2) expire prior to authorization by the DSB for retaliation pursuant to Article 22 of the DSU, the USTR is nonetheless required to determine the appropriate retaliatory action to take against the offending Member. While the DSU notes that the "prompt" settlement of disputes between Members is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members, the resolution of a dispute may not be achieved within the deadlines contained in section 304(a)(2).

5.69  According to Canada, where an affirmative determination has been made pursuant to section 304(a)(2), then section 305(a)(1) becomes operative. Under that provision, the action determined to be appropriate under section 304(a)(1) becomes mandatory. That action must occur on or before 30 days of the section 304(a)(1) determination.

5.70  Canada further argues that similarly, the implementation of retaliatory measures directed against a WTO member by means of section 306(b) and 301(a) in the absence of the approval of such measures by the DSB would clearly be in contravention of DSU Article 23. This determination by USTR leads to the implementation of retaliatory measures directed against the foreign country within thirty days regardless of whether or not the other Member has been found under WTO procedures to not be in compliance with the recommendations and rulings adopted by the DSB. The result would be that retaliation that has not been authorized by the DSB.

5.71  In Canada's view, the plain language of Article 23 contains an obligation by WTO Members to refrain from unilateral action. Article 23(1), entitled Strengthening the Multilateral System, states:

"When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding". (emphasis added)

5.72  Canada further alleges that Article 23 of the DSU obligates Members to employ the procedures contained in the DSU to remedy alleged or established WTO obligations.  Retaliatory action taken pursuant to Section 301 legislation prior to the approval of the DSB violates DSU Article 23(2)(a) which states that WTO Members "shall not make a determination to the effect that a violation has occurred ... except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding".  A Member that makes a determination unilaterally that a measure of another Member is inconsistent with WTO obligations is in clear violation of DSU Article 23.  A Member that makes a determination unilaterally that a another Member has failed to bring a measure found to be inconsistent with a covered agreement into compliance with that agreement also violates Article 23 in that the DSU establishes a procedure for determining the consistency of the measure.  Such a unilateral determination of non-compliance without recourse to the DSU procedures amounts to a determination that that a violation has occurred other than through recourse to DSB dispute settlement procedures.

5.73 Canada notes that it too has legislative authority to suspend concessions in response to measures of other countries. Section 13(1) of the World Trade Organization Agreement Implementation Act⁵⁴⁸ provides the Government of Canada with the legislative authority to take retaliatory measures under federal law to suspend rights or privileges granted by Canada to a WTO Member. However, unlike Section 301, the Canadian government is expressly authorized to do so for the purpose of suspending in accordance with the WTO Agreement the application to a WTO Member of concessions or obligations of equivalent effect pursuant to Article 22 of the DSU. Accordingly, Canadian law requires that the exercise of this authority must occur in accordance with Canada's WTO obligations. In particular, the authority permits action to suspend concessions pursuant to Article 22 of the DSU. As there is a presumption in Canadian law that a statute does not operate retrospectively so as to affect rights unless an intention to do so is clearly expressed or arises by necessary implication,⁵⁴⁹ suspension of concessions can only apply subsequent to the DSB authorizing a suspension of concessions or other obligations pursuant to Article 22.

5.74 Canada would distinguish 301 legislation from the type of matter at issue in Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes.⁵⁵⁰ In that case, the panel was concerned with an enabling provision which allowed executive authorities to impose discriminatory taxes. The panel concluded that the possibility that the Act in question could be applied in a manner contrary to the GATT, was not sufficient to make the Act inconsistent with the General Agreement. In this case the legislation requires a determination regarding the consistency of a country's measures to be made in a thirty day time frame following the conclusion of dispute settlement procedures. The United States' publication "The Uruguay Round Agreements Act: Statement of Administrative Action" appears to indicate that the United States regards the conclusion of Uruguay Round dispute settlement procedures to be the conclusion of the reasonable time to implement the panel or Appellate Body's report.⁵⁵¹ Canada would be interested to know whether the United States has a different interpretation of when WTO dispute settlement procedures conclude. Unlike Thailand's excise tax regime on cigarettes which was totally discretionary until such time as the Thai authorities imposed the tax, 301 legislation has mandatory elements which can require the United States to make an unilateral determination of the WTO consistency of another country's measures and impose trade sanctions in response. The Thai Cigarette panel recognized that legislation mandatorily requiring the executive to act inconsistent GATT obligations was a violation "…whether or not an occasion for its actual application had yet arisen;…".⁵⁵²

5.75  In response to the US inquiry, Canada states that as a preliminary matter prior to responding to the questions of the United States, it would note that the measures in question are those of the United States and not those of any other Member. Accordingly, the practices of any other Member and their consistency with WTO obligations are not germane to the issues before the Panel. Nonetheless, and without prejudice, Canada would provide the following responses in the interests of being helpful in resolving the broad systemic matters before the Panel.

5.76 Canada emphasizes that its legislative authority to suspend concessions in response to measures of other countries is found at subsection 13(1) of the World Trade Organization Agreement Implementation Act, Statutes of Canada, 1994, c.47. Although subsection 13(2) of the Act is not relevant to WTO Members, Canada reproduces below section 13 in its entirety.

"Orders

13(1) Orders re suspension of concessions

13. (1) The Governor in Council may, for the purpose of suspending in accordance with the Agreement the application to a WTO Member of concessions or obligations of equivalent effect pursuant to Article 22 of the Understanding on Rules and Procedures Governing the Settlement of Disputes set out in Annex 2 to the Agreement, by order, do any one or more of the following:

1. suspend rights or privileges granted by Canada to that Member or to goods, service providers, suppliers, investors or investments of that Member under the Agreement or any federal law;
2. modify or suspend the application of any federal law with respect to that Member or to goods, service providers, suppliers, investors or investments of that Member;
3. extend the application of any federal law to that Member or to goods, service providers, suppliers, investors or investments of that Member; and
4. take any other measure that the Governor in Council considers necessary.

13(2) Suspension of concessions to non-WTO Members

(2) The Governor in Council may, with respect to a country that is not a WTO Member, by order, do any one or more of the following:

1. suspend rights or privileges granted by Canada to that country or to goods, service providers, suppliers, investors or investments of that country under any federal law;
2. modify or suspend the application of any federal law with respect to that country or to goods, service providers, suppliers, investors or investments of that country;
3. extend the application of any federal law to that country or to goods, service providers, suppliers, investors or investments of that country; and
4. take any other measure that the Governor in Council considers necessary.

13(3) Period of order

(3) Unless repealed, an order made under subsection (1) or (2) shall have effect for such period as is specified in the order.

13(4) Definition of 'country'

(4) In this section, "country" includes any state or separate customs territory that may, under the Agreement, become a WTO Member".

5.77  Canada explains that pursuant to section 10 of the Department of Foreign Affairs and International Trade Act, Revised Statutes of Canada, 1985, as amended, chapter E-22, the powers, duties and functions of the Minister of Foreign Affairs extend to and include all matters over which Parliament has jurisdiction, not by law assigned to any other department, board or agency of the Government of Canada, relating to the conduct of the external affairs of Canada, including international trade and commerce and international development.  The Minister for International Trade is appointed pursuant section 3 of the Department of Foreign Affairs and International Trade Act to assist the Minister of Foreign Affairs in carrying out his responsibilities relating to international trade.  Canada has signed the WTO Agreement and the Agreement was approved by the Parliament of Canada by means of section 8 of the World Trade Organization Agreement Implementation Act (see previous paragraph for citation).  These authorities give Canada its authority to exercise its rights pursuant to the WTO Agreement.

5.78  Canada further points out that prior to requesting consultation or a panel pursuant to the DSU, Canada will have concluded that a dispute exists between itself and another WTO Member with respect to one of the WTO covered agreements or a Plurilateral Trade Agreement to which both Canada and the other WTO Member are party.  Prior to proceeding with such action, Canada will have satisfied itself that it has a legitimate claim and that the matter is justicible under the DSU.

5.79  Canada argues that Article 23(a) expressly notes that recourse to dispute settlement in accordance with the DSU is permitted.  Canada, in requesting consultations or panels under the DSU is acting in accordance with the DSU and therefore in conformity with Article 23(a). Canada notes that it is interesting that the drafters of the DSU specifically chose the word "determination" in drafting Article 23 as that happens to be the exact language used in the Trade Act of 1974.

5.80  Canada states that its measures are fully consistent with its international obligations and in particular its obligations under the WTO Agreement. If any measures are determined pursuant to the DSU to be inconsistent with Canada's obligations, Canada will take the appropriate actions to eliminate the inconsistency or remedy the nullification and impairment of benefits determined to accrue to other Members.

5.81 In the view of Canada, past GATT practice⁵⁵³ has clearly established that to the extent that legislation is mandatory it is no defence to claim that it has not been applied or enforced in a manner contrary to the WTO Agreements. The very existence of mandatory legislation influences decisions of economic operators and, as such, has a "chilling" economic effect.

5.82  In response to the Panel's question as to whether DSU Article 23.2 prohibits any determination on WTO consistency or any determination to the effect that a violation has occurred, Canada states that Article 23(a) of the DSU prohibits determinations of non-consistency with WTO obligations or the existence of nullification or impairment or any impediment of the objectives of WTO covered agreement except through recourse to DSU procedures. The Article does not prohibit determination of consistency with WTO norms. Any such prohibition would be counterproductive to the objectives of Article 3.7 of the DSU which states that "(a) solution mutually acceptable to the parties to the dispute and consistent with the covered agreements is clearly to be preferred".

5.83  Canada further argues that the answer to this question must necessarily be speculative, as the question does not set forth the basis of the reasoning that would apply to the finding of inconsistency. The DSU is applicable to measures of WTO Members that impair any benefits accruing to other WTO Members under any covered agreement. Depending upon the reasoning underlying a finding that Sections 301 to 310 are WTO inconsistent, a measure of the United States, enforceable pursuant to DSU procedures, that those sections could only be applied in a manner consistent with the DSU would remove the WTO inconsistency and provide a remedy for non-compliance.

4. Conclusion

5.84  Canada claims that the mandatory nature of section 301 legislation is clear even if there are a number of instances where a determination could occur which would terminate the application of the legislation. Canada emphasises its recognition that 301 legislation combines mandatory and discretionary elements. Those opportunities for self-control do not alter the fact that section 301 legislation can culminate in a situation where retaliatory actions are mandated notwithstanding the status of such matters pursuant to the DSU.

5.85  Canada further argues that the facts surrounding the timing of the arbitrators' decision in the arbitration under article 22.6 of the DSU between the European Communities and the United States concerning the validity of the EC's implementation of the DSB's recommendations concerning the EC's banana import regime are well known. Canada does not intend to add to the EC's narrative on this point. Those facts demonstrate that DSB dispute settlement procedures do not necessarily coincide with the time frames set out in US 301 legislation in which the United States took the actions noted by the European Communities. This panel should clearly indicate to WTO Members that such an application of domestic legislation to suspend WTO benefits and concessions without DSB authorization results in a violation of a Members obligations under the DSU.

5.86  Canada submits that the Panel should find that where the statutory language contained in Sections 301-310 of the US Trade Act of 1974 results in an unilateral determination that a WTO violation by another Member has occurred or in the implementation of retaliatory measures against another Member without DSB authorization, such actions and mandatory provisions requiring such actions are inconsistent with the United States' obligations under the Dispute Settlement Understanding.

TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974

⁵³⁶ Canada points out that Sections 301 to 310 of the Trade Act of 1974, as amended, calls for the making of numerous "determinations".  These represent more than mere statements of policy or negotiating positions.  The outcome of these determinations are formal acts of the United States Government and result in the legal consequences set out in the legislation.

⁵³⁷ Section 302(a)(1) of the Trade Act of 1974, as amended.

⁵³⁸ Section 302(b)(1)(A) of the Trade Act of 1974, as amended.

⁵³⁹ Section 302(a)(3) of the Trade Act of 1974, as amended.

⁵⁴⁰ Section 301(a)(1)(A) and 301(a)(1)(B)(i) of the Trade Act of 1974, as amended.

⁵⁴¹ Section 301(a)(1)(B)(ii) of the Trade Act of 1974, as amended.  Canada notes that, pursuant to Section 301(d)(2), an act, policy or practice that burdens or restricts United States commerce is defined as including acts, policies or practices defined as "unreasonable" under section 301(d)(3)(B) notwithstanding that such matters may not be inconsistent with the international legal rights of the United States.  Section 301(d)(3)(B) is not an exclusive definition so it is not possible to determine from it what other actions might subject a country to US trade sanctions notwithstanding that the country is not in violation of international law. Canada further notes that the second type of actionable matters (i.e. acts, policies or practices considered to be unjustifiable and which burdens or restricts United States commerce) includes matters which the United States consider to deny fair and equitable provision of adequate and effective intellectual property rights "notwithstanding the fact that the foreign country may be in compliance with the specific obligations of the Agreement on Trade-Related Aspects of  Intellectual Property Rights …" negotiated pursuant to the Uruguay Round.  Accordingly, 301 legislation exposes foreign countries to US trade sanctions for perceived intellectual property wrongs even though that country is living up to the commitments that WTO Members agreed to in the negotiations leading to the Agreement on Trade-Related Aspects of  Intellectual Property Rights. 

⁵⁴² Canada notes that it is the earlier of (i) the close of any consultation period specified in the trade agreement; and (ii) 150 days after the day on which consultations was commenced.  See Section 303(a)(2) of the Trade Act of 1974, as amended.

⁵⁴³ Canada notes that it is the earlier of (i) thirty days after the conclusion of formal dispute settlement procedures; and (ii) eighteen months after the date of the initiation of the Section 301 investigation.  See 304(a)(2) of the trade Act of 1974, as amended.

⁵⁴⁴ Canada notes that this can be delayed by a maximum of 180 days where the specific circumstances cited in section 305(2)(A) occurs.

⁵⁴⁵ Section 306(b)(2) of the Trade Act of 1974, as amended.  Canada notes that it is noteworthy that section 301(a) is entitled "Mandatory Action".

⁵⁴⁶   Sections 301(a)(1) and 305(a)(1) of the Trade Act of 1974, as amended.  See also footnote 9.

⁵⁴⁷   Section 301(c) of the trade Act of 1974, as amended.

⁵⁴⁸ S.C. 1994, c. 47.  Subsection 13 (1) reads as follows:

"13 (1)    The Governor in Council may, for the purpose of suspending in accordance with the Agreement the application to a WTO Member of concessions or obligations of equivalent effect pursuant to Article 22 of the Understanding on Rules and Procedures Governing the Settlement of Disputes set out in Annex 2 to the Agreement, by order, do any one or more of the following:

1. suspend rights or privileges granted by Canada to that Member or to goods, service providers, suppliers, investors or investments of that Member under the Agreement or any federal law;

2. modify or suspend the application of any federal law with respect to that Member or to goods, service providers, suppliers, investors or investments of that Member;

3. extend the application of any federal law to that Member or to goods, service providers, suppliers, investors or investments of that Member; and

4. take any other measure that the Governor in Council considers necessary".

⁵⁴⁹ E.A. Dreidger, "The Composition of Legislation" (Second Edition); Department Of Justice: Ottawa, Ontario; 1976.

⁵⁵⁰ Panel Report on Thai – Cigarettes, op. cit.

⁵⁵¹ Statement of Administrative Action, op. cit., pp. 365-366.

⁵⁵² Panel Report on Thai – Cigarettes, op. cit., para. 84.

⁵⁵³   Panel Report on US – Malt Beverages, op. cit.