WT/DS194/R
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ANNEX A
Parties' Answers to Written Questions
Contents Page
Annex A-1 Executive Summary of Answers of Canada to questions posed by
the Panel at the First Substantive MeetingA-2
Annex A-2 Executive Summary of Answer s of the United States to questions
posed by the Panel at the First Substantive MeetingA-17
Annex A-3 Executive Summary of Answers of Canada to Questions posed by
the Panel at the Second Substantive MeetingA-41
Annex A-4 Executive Summary of Answers of the United States to Questions
posed by the Panel at the Second Substantive MeetingA-55
Annex A-5 Letter from the United States commenting on Canada's Answers
to Questions posed at the Second Substantive Meeting of the PanelA-70
Annex A-6 Letter from Canada to the Panel commenting on the US letter
of 7 March 2001A-73WT/DS194/R
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ANNEX A-1
EXECUTIVE SUMMARY OF ANSWERS OF CANADA TO
QUESTIONS POSED BY THE PANEL AT THE FIRST
SUBSTANTIVE MEETING
(28 February 2001)
FIRST MEETING OF THE PANEL WITH THE PARTIES - QUESTIONS DATED
18 JANUARY 2001
I. QUESTIONS TO BOTH PARTIESQ1. What, in your view, is an "export restraint"?  That is, what are the essential, defining
characteristics of an export restraint that would be universal to all "export restraints", no
matter what the specific form of the export restr aint in a given situation, and no matter what
other elements might be present in a given meas ure that included an export restraint?  Can you
describe how an export restraint operates?  Can you give any example of an export restraint
which might, arguably, amount to a subsidy within the meaning of SCM Article 1.1?
Reply
An export restraint is a border measure that takes the form of a government law or regulation
which expressly limits the quantity of exports or conditions the circumstances under which exports
are permitted.  Such measures could also take the form of a government-imposed fee or tax on exports
of the product calculated to limit the quantity of exports.
Canada cannot conceive of an export restraint that could, even arguably, meet the definition
of “financial contribution” in Article 1.1(a) of the SCM Agreement.
Q2. Do you agree that the conferral of a benefit under Article 1.1(b) of the SCM Agreement
is immaterial to the question of the existence of a financial contribution under Article 1.1(a) of
the Agreement?
Reply
Yes,  “benefit” and “financial contribution” are discrete legal elements under the definition of
a subsidy. Canada has pointed out the Appellate Body’s statements in the Canada and Brazil Aircraft
cases to this effect.
II. QUESTIONS TO CANADA
Q3. Do you agree with the US characterisation th at you are asking the Panel to rule that an
export restraint could never, under any circumstances, constitute a subsidy?
Reply
Canada cannot envisage any circumstances in which an export restraint could meet the
definition of “financial contribution” in Article 1.1 (a)(1) of the SCM Agreement.  It bears emphasis
that what Canada is asking this Panel to determine is whether the treatment of export restraints underWT/DS194/R
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US law is inconsistent with the definition of  “f inancial contribution” in Article 1.1(a) of the SCM
Agreement.
Q4. You state, in paragraph 4 of your first written submission:
"These measures, taken together , are inconsistent with Article 1.1 of the
SCM Agreement  and, because they require the imposition of countervailing
duties against practices that are not subs idies within the meaning of Article 1.1,
are inconsistent with Article 10 (as well as Articles 11, 17, and 19, as they relate
to the requirements of Article 10) and 32.1 of the SCM Agreement ."  (emphasis
added)
You further state, in paragraph 15 of your response to the US Request for Preliminary
Rulings:
" . . . [I]n accordance with the United States – Section 301  Panel's
observation, the elements of US law at issue in this dispute must be analysed
together ".  (emphasis added)
Are Section 771(5) of the Tariff Act , the SAA, the Preamble, and US  "practice" "measures" that
are individually  susceptible to dispute settlement?  Do you claim that any of the four identified
measures is by itself inconsistent with the SCM Agreement ?  Or, should the Panel simply be
looking at the four identified measures as a package?  In other words, should the Panel only
look to these four measures when "taken together"?
Reply
Canada challenges the treatment of export restraints under US countervailing duty (CVD) law
which is a result of the measures identified by Canada taken together. This treatment is inconsistentwith the United States’ obligations under the SCM and WTO Agreements. Thus, these measures
should be analysed together to determine the treatment of export restraints under US countervailing
duty law. This does not mean that the individual measures are not susceptible to dispute settlement.
Should the Panel determine that one of the measures identified by Canada is not a “measure”, this
does not mean that the remaining measures are not susceptible to dispute settlement when considered
together.
The SAA specifically requires that the United States continue its pre-WTO practice with
respect to export restraints and clearly states that in the United States’ view, such practice is consistent
with both Article 1.1(a)(1)(iv) of the SCM Agreement and Section 771(5)(B)(iii) of the Tariff Act of
1930 . The Preamble does so as well.  In Canada’s view any measure that is inconsistent with a
relevant obligation is susceptible to dispute settlement. Under Article 32.5 of the SCM Agreement, aMember must ensure the conformity of its laws, regulations and administrative procedures with the
provisions of the SCM Agreement.
Q5. Assume for the sake of argument that the measures challenged by you do not require  –
but authorise  – the treatment of export restraints as financial contributions within the meaning
of Article 1 of the SCM Agreement .  In that case, could the measures be found as such to be
inconsistent with the United States' WTO obligations?  If so, on what basis?  If not, please
explain why.
Reply
The measures taken together require  the United States to treat export restraints as financial
contributions within the meaning of Article 1 of the SCM Agreement.  If the measures merelyWT/DS194/R
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authorised  the treatment of export restraints as financial contributions in the sense that the measures
did not commit the United States to interpret Section 771(5)(B)(iii) to treat export restraints as
“financial contributions”, then the measures should not be found inconsistent with the United States’
WTO obligations.  It would be implicit in such a finding that the United States would not have
substantially undermined the predictability of trading conditions as discussed in United States – Anti-
Dumping Act of 1916  and United States – Superfund .
However, such a finding would not be warranted as the SAA and Preamble make clear that
the United States is committed to interpret the statute to treat export restraints as financial
contributions.  The initiation of the Live Cattle case and the language in the Live Cattle  and Korean
Stainless Steel cases reflect an administrative practice of adhering to the commitment set forth in the
SAA and Preamble.  The United States has made cl ear in its submissions that it considers export
restraints can satisfy the “financial contribution” element of the definition of “subsidy”. Canada
further develops these comments in Part II of its Second Submission.
FIRST MEETING OF THE PANEL WITH THE PARTIES - QUESTIONS DATED
19 JANUARY 2001
I. QUESTIONS TO BOTH PARTIESQ1. You argue that the subject of Article 1.1(a)(1)(iv) is “indirect subsidies” (in Canada’s
case that that article addresses this concep t comprehensively).  To what extent do your
arguments under Article 1.1 depend on the equation of Article 1.1(a)(1)(iv)-type subsidies with
“indirect subsidies” either as a whole or in part.  In other words, does the extent to which export
restraints fit or do not fit within the scope of Article 1.1(a)(1)(iv) depend on whether that
provision is concerned with indirect, as opposed to  direct, subsidies?  What  light is shed on the
issues in dispute by your arguments that the subject matter of Article 1.1(a)(1)(iv) is “indirect”,
as opposed to “direct”, subsidies?
Reply
Canada’s position does not depend on equating government actions that may satisfy
Article 1.1(a)(1)(iv) with “indirect subsidies,” a term which is not used in the SCM Agreement or inthe GATT.  Article 1.1 specifies precisely what government actions, in what circumstances, can
constitute the indirect bestowal of a financial contribution which, if it confers a benefit, will constitute
a subsidy. Article1.1(a)(1)(iv) is the specific part of the definition that addresses this issue of indirect
bestowal.
The United States essentially argues that because Article 1.1(a)(1)(iv) involves what the
United States terms “indirect subsidies”, the provision should be interpreted broadly. The US effort,
articulated in the SAA and Preamble, to fit expor t restraints somewhere within the definition of
“subsidy” in Article 1.1 relies on subparagraph (iv) as the place where export restraints can allegedly
“fit” within the definition of financial contribution.
The fact that the subject matter of subparagraph (iv) is “indirect” as opposed to “direct”, has
at least three implications. First, an indirect bestowal of a financial contribution is not a “financial
contribution” if it fails to satisfy any one of the five requirements contained the subparagraph.  Export
restraints fail to satisfy those requirements.
Second, the US attempt to fit export restraints into subparagraph (iv) does damage not only to
the text of subparagraph (iv) but also to its object and purpose. If an export restraint is considered to
be the provision of a good because it  might  result in greater domestic availability of a product, then
any measure that might induce or encourage domestic producers to increase the supply of a productWT/DS194/R
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would have to be considered to be the provision of a good, and hence a financial contribution.  This is
an unthinkable expansion of the definition of “subsidy” in the Agreement, undermines the Uruguay
Round bargain and eliminates the security and predictability that was achieved.  Article 1.1(a)(1)(iv)
is not a catch-all for the myriad government regulatory actions that are not “financial contributions”
under paragraphs (i) through (iii), even though such actions may have some beneficial effect onprivate actors.  Rather, it was intended to ensure that a government could not avoid otherwise
applicable subsidies disciplines by entrusting or directing a private body to make a “financial
contribution” that the government normally would have made directly.
Third, subparagraph (iv) provides for “indirect” financial contributions only to the extent that
a government action fits within the plain meaning of its terms.  The United States attempts to avoid
this result by redefining the word “direct” to mean “cause” and by introducing the concepts of“functional equivalence” and “conceptual” similarity into the provision, thus introducing a second,
unbounded level of indirectness which does not exist in the provision.
Q2. What is the ordinary meaning, in  accordance with Article 31 of the Vienna Convention
of the Law of Treaties , of the word "type" as it appears in Article 1.1(a)(1)(iv)?
Reply
The dictionary meaning of “type” is “a class of things or persons having common
characteristics”.  In its context in Article 1.1(a)(1)(iv), the relevant things having commoncharacteristics are the functions, or forms of government action, enumerated in subparagraphs (i)
through (iii).  The common characteristic that defines them as a “type” is that, by the ordinary
meaning of the Article 1.1(a)(1) chapeau, each is a financial contribution for purposes of the
Agreement.  The functions, however, are expressly worded as functions carried out by governments.
Consequently, had the drafters simply said “one or more of the functions illustrated in (i) through(iii)”, the text would not have made sense. To incorporate the same practices when carried out by a
private body , the drafters could not simply refer to the “functions” in (i) through (iii), but needed the
term “type of functions.”   “Type” was essential to incorporate the essence of each function in (i)
through (iii), without incorporating the government  element that is explicit in the wording. The
function carried out by a private body is inherently (although only technically) different from that
carried out by a government.
The US argument is based only on a definition of  “type” and not on a textual analysis of the
term in its context.  It also is fundamentally illogical, and at odds with the object and purpose of
subparagraph (iv), the definition of “subsidy”, and the SCM Agreement more generally.  The US
argument implies that a far broader, and undefined , universe of actions may be read into
subparagraph (iv), even though, under the US argu ment, the same broad and undefined reading of
subparagraphs (i) through (iii) would not be possible.  In other words, a wide variety of actions would
constitute financial contributions when carried out by a private body at government direction within
the terms of (iv), but those same actions would not be subject to SCM disciplines when carried out by
governments themselves.
The terms of subparagraph (iv), make clear that it is aimed precisely at financial contributions
that, as a rule, are made by governments.  The definition of “subsidy” was the critical building block
of the Agreement precisely because it defines  what government actions (whether performed by
governments or accomplished by an entrustment or direction to a private body) are subject to
Agreement disciplines.  The object and purpose of the Agreement includes disciplining certaingovernment actions and disciplining the application of countervailing measures to those actions.  The
suggestion that subparagraph (iv) transforms the primary focus of the Agreement into disciplining a
wide range of private actions that are not subject to discipline when performed by governments finds
no support in the Uruguay Round negotiating history.WT/DS194/R
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The phrase “type of functions illustrated in (i) to (iii) above” does not broaden the scope of
subparagraph (iv) beyond the scope of subparagraphs (i) to (iii). It simply links the government action
in subparagraph (iv) to the defined and circumscribed functions in subparagraphs (i) to (iii).
Subparagraph (iv) broadens the scope of “financial contribution” only to the extent that it brings into
the definition actions where a government, instead of undertaking the financial contributions itself,“entrusts or directs a private body” to do so.
II. QUESTIONS TO CANADA
Q3. We note that, in paragraph 29 of the writte n version of your oral statement at the first
meeting of the Panel, you use the word "may", bu t that in delivering the statement orally, you
substituted the word "must".  In response to our oral question on this point, you stated that the
written version ("may") is correct.  Please confirm this.
Reply
Canada confirms that the written version of its oral statement (“may”) is correct.
Q4. In paragraph 18 of its oral statement at the first meeting of the Panel, the European
Communities presents a summary of its view of Canada's  claims and arguments in this dispute.
Do you agree with this summary?  If not, please explain in detail in what respects you disagree.
Reply
Canada agrees that pre-WTO practice has b een brought forward into post-WTO US CVD law
through its incorporation into the SAA and Preamble. Canada agrees that post-WTO US practice
serves as evidence of this incorporation. Canada is of the view that this post-WTO practice is also amanifestation of an administrative commitment or policy to adhere to a particular legal view or to
apply a particular interpretation or methodology in future cases. The EC summary is not complete in
so far as it does not include reference to Canada’s concerns with respect to US practice as it relates to
the relief Canada has requested.
Q5. Assume that a government directs certain privately owned banks to ensure that 10 per
cent of the funds they lend are to be set aside for a given group of borrowers, in the sense thatthe banks, while not required to lend to these borrowers, cannot lend the set-aside funds to any
other borrowers.  In your view, would such a situ ation constitute a financial contribution in the
form of a government-directed direct transfer of funds or potential direct transfer of funds, in
the sense of Article 1.1(a)(1)(i) and (iv)?  If not, why not?  If so, what distinction can be drawn
in respect of the question of "financial contri bution" between this situation and the imposition
of an export restraint?  Please explain.
Reply
It is Canada’s view that the described situation would not constitute a “financial contribution”
within the meaning of Article 1.1(a)(1) of the SC M Agreement. The set aside can properly be viewed
as having occurred as a result of a government direction since the banks are (presumably) required by
law to do so.  However, it cannot be said that the banks are also “directed” to make a “direct transfer
of funds” to the designated group of borrowers si nce the banks are not compelled to lend the funds to
them. Indeed, the banks may, on the basis of generally accepted financial risk and related prudentialconsiderations, prefer to let the funds sit idle rath er than lend to the designated group of borrowers.
(Canada gives examples of reasons for this in its complete answer.) Each bank will make its own
assessment of the merits of lending the funds based on prudential considerations.WT/DS194/R
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The possibility that the banks might opt to lend the set aside funds to the designated group of
borrowers does not constitute a government direction to make “potential direct transfers of the funds”.
The “potential” direct transfer of funds envisaged by Article 1.1(a)(1)(i) is made “actual”, not at the
option of the potential transferor, but by the existence of a legal relationship under which a contingent
liability is created and the occurrence of a specified event that results in a direct transfer of funds. Theword “potential” in Article 1.1(a)(1)(i) is a referenc e to the specified event occurring that triggers the
commitment to make a direct transfer of funds.
Q6. Pursuant to your arguments in paragraphs 39-40 of your oral statement at the first
meeting of the Panel, is it your assertion th at there could be no circumstances in which a
producer would have no choice but to sell its goods to the domestic users of its product pursuant
to the imposition of an export restraint?
Reply
Canada cannot conceive of a situation in which an export restraint will result in a producer
having no choice but to sell its goods to the domestic users of those goods.  Certain choices arealways available to a producer.  For example, a producer could vertically integrate and, depending on
the circumstances, sell either an upstream or downs tream product not subject to the restraint to either
the export or domestic market.  It could also choose to produce and sell an entirely different product
or use its capital for an entirely different economic activity.  Further, a producer could always elect to
reduce or terminate its production.
Q7. Please comment on the US argument that th e proposition that an export restraint could
never, under any circumstances, constitute a financ ial contribution is simply too abstract for the
Panel to be able to rule on it, i.e., that the range of possible export restraints is too broad for the
Panel to be able to imagine all of them, and to rule that none could ever qualify as a financialcontribution.
Reply
This is not the ruling Canada has requested, although Canada agrees that an export restraint
can never be a financial contribution. The issue is not abstract.  An export restraint is a border
measure that takes the form of a government law or regulation that expressly limits the quantity ofexports or places explicit conditions on the circumstances under which exports are permitted.  It could
also take the form of a government-imposed fee or tax on exports of the product calculated to limit the
quantity of exports.  For the purpose of assessing the consistency of the US measures with the SCM
Agreement, this Panel has to determine whether such government actions are included in the range of
government actions that are defined as a “financial contribution” in Article 1.1(a)(1) of theAgreement.
The level of restraint can vary, but this does not change the basic nature of an export restraint.
These variations do not make the issue abstract nor do they change the character of the measures that
is relevant to ascertaining whether they are a financial contribution—they are government actions thatrestrict exports.
In assessing the relevance of variations in export restrictions, a distinction must be drawn
between “action” and “effect”.  Article 1.1(a)(1) circumscribes a class of government actions  defined
to be financial contributions, the first element in the definition of a subsidy.  Article 1.1(b) sets out thesecond element - “a benefit is thereby conferred” - which goes to the effect  of the government actions
defined in the first element. The US focus is on the effect.
Q8. Please comment on the EC st atement in footnote 21 to its written submission that an
export restraint may form part of a package of measures which, taken together, amount toWT/DS194/R
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government "direction" under subparagraph (iv).  The example given by the European
Communities is a government prohibition of exports of a product and a requirement that the
producer maintain output levels and sell the product at a certain price to downstream users.
How should such a measure (or package of me asures) be approached should it arise in a
countervail investigation?  Would there be a financial contribution, and would that contributionemanate from the measure as a whole or only from some part/s of the measure?
Reply
Canada is asking this Panel to determine whether an export restraint as such satisfies the
definition of financial contribution in Article1.1 of the SCM Agreement.  Canada is not asking the
Panel to decide the WTO consistency of some other measure that involves an export restraint and oneor more other government actions, where those other government actions in themselves may
constitute a financial contribution within the meaning of subparagraph (iv).  In the example given by
the EC it is not an export restraint that affects whether a financial contribution exists.  Rather the
elements that would go to determining this are the specific requirements that the producers in question
maintain output levels of the product and sell the product to certain specified downstream users.
To initiate a countervailing duty investigation in respect to such a package of measures, an
investigating authority must be satisfied, and articulate its reasons for being satisfied, as to how the
specific requirement that the producers in question maintain output levels of the product and provide
it at certain prices to certain specified downstream users meets the standard set out in Article 11.2 ofthe SCM Agreement, and more specifically, how that requirement represents sufficient evidence of
the existence of a “subsidy”, i.e. how it represents sufficient evidence of “financial contribution”,
“benefit” and specificity”.
Q9. The Panel notes your response in paragraphs 26-27 of your oral statement at the first
meeting of the Panel to the apparent US argument that an export restraint can be the
"functional equivalent" of an affirmative obligation to provide a good to domestic purchasers,
to the extent that, by directing producers not to export, it directs them instead to seek the only
other purchasers available to them for the sale of  their goods.  Assuming a situation in which
the producers have no choice but to sell to domestic purchasers ( i.e., they cannot exercise any of
the theoretical options identifi ed by the European Communities  as open to them), on what
substantive basis could an export restriction be distinguished from an affirmative obligation toprovide the restrained good to domestic purchasers?
Reply
Canada has indicated in its submissions that it cannot conceive of a situation in which an
export restraint as such will result in a producer having no economic choice but to sell its goods to the
same domestic users of the good in question that it sold to before the export restraint was imposed.
For producers to truly have “no choice” but to sell to domestic purchasers implies that some
government action other than an export restraint is present. It is that other government action that may
constitute a financial contribution and not the export restraint.  It is that other government action thatcreates an affirmative obligation to provide the restrained good. An export restraint, because it is
simply a prohibition against doing something, cannot, by itself, be transformed into an affirmative
obligation. The United States disregards the text of the SCM Agreement in favour of economic
determinations of what government actions may have effects similar to actions defined as financial
contributions in the SCM Agreement.
Q10. You seem to argue that a "private body" in the sense of Article 1.1(a)(1)(iv) must be an
organised "collectivity", and that therefore the mere sharing of a common characteristic (e.g.,
gold miners) is not sufficient to transform a group of individual entities into a "private body".
Is it your argument that an individual producer of a good could not be a "private body"WT/DS194/R
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because it was not part of an organised "collectivity"?  If not, are you arguing that each
individual producer of a product could be a "private body", but that looked at as a whole ( i.e.,
from the perspective of their common characteristic), such producers could not be a "private
body"?  Please explain.
Reply
Canada’s interpretation is grounded in both the plain meaning of the term “private body” and
its context, i.e., the phrase “a government . . . entrusts or directs a private body to carry out” a
financial contribution that is normally vested in the government in question and practised by
governments generally.  The “private body” is the recipient of the government entrustment or
direction, and it is the surrogate of the government in making the financial contribution.  In context,the mere fact that individuals share a common characteristic (e.g., bankers) that is unrelated to an
entrustment or direction to carry out a financial contribution does not transform them into a private
body within the meaning of subparagraph (iv).
Canada considers the apt meaning of “private body” to be “a group of individuals organised
for some purpose ”. In the context of subparagraph (iv), the event that makes individual entities
“organised for some purpose” is the government entrustment or direction to make a financial
contribution, which would necessarily both designate th ose being entrusted or directed and define the
financial contribution purpose.  Although the individuals may be bankers, it is not that fact that makes
them a “private body” in the sense of subparagraph (iv).  Thus a law, regulation, or administrativedirective requiring “all bankers” to lend (in lieu of the government’s lending) to the widget industry
might make bankers a “private body”, but they would not be a “private body” simply because they
were in the banking business.
Similarly, a law requiring individual producers of a good (e.g., barley farmers) to provide that
good, or a government direction expressly charging those individual producers with responsibility for
providing that good, might make those individual producers a “private body”, but they are not a
“private body” simply by reason of the fact that they are producers of a good. Absent the government
entrustment or direction to provide the good, they would not become a “private body” by reason of
some other  government action (a change in the tax regime, an export restraint, a duty or duty
reduction) that may have some economic effect in the market in which they participate.
A government might entrust or direct a single individual or entity to make a financial
contribution within the terms of subparagraph (iv), and in that instance, the individual or entity would
be a “private body.”  That does not, however, mean that “private body” can be isolated from its
context and translated as “any private person(s)”.  Canada notes that if the drafters had meant “any
private person(s)”, presumably they would not have adopted the term “private body”.
Q11. You argue that the United States interprets in an overly-broad manner
Article 1.1(a)(1)(iv) in respect of government-entrusted or -directed provision by a private body
of a good.  In your view, the US interpretation would potentially open the door to defining any
government regulatory measure that increases the domestic supply of a good as a government-directed provision of a good:
(a) In your view, how narrowly should this provision be construed?  Would you
consider that if a government ordered a producer to sell its product to a certain
customer (or customers), without specifying a price, quantity or other terms,that this would constitute government-dir ected provision of a good?  If not, why
not?WT/DS194/R
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Reply
The issue before this panel is not a matter of interpreting subparagraph (iv) “narrowly” or
“broadly”, but rather is a matter of construing the provision in a manner that gives effect to the plain
meaning of its terms.  In the example given, Canada considers that a government ordering a producerto sell its product to a certain customer(s) would constitute a government-directed provision of a
good.  Whether it would be a financial contribution would depend upon whether the other elements of
subparagraph (iv) was met.
(b) Are there any circumstances other than an explicit  requirement by a government
to make available a given product to given purchasers that in your view would
constitute government-entrusted or -directed provision of goods?
Reply
Based on the plain meaning of the words “entrust” and “direct”, it is Canada’s position that
only an explicit requirement by a government to provide a given product to given purchasers couldconstitute a government-entrusted or -directed prov ision of goods. In their plain meaning, the words
“entrusts or directs” connote an affirmative action to order or commission someone to do something.
The New Shorter Oxford English Dictionary  defines “entrust” as meaning to “invest with a trust; give
(a person, etc.) the responsibility for a task …”.  “Entrust” thus carries a strong connotation of agency.
This understanding of “entrust” is further reflected in the Concise Oxford Dictionary  which defines
“entrust” as meaning to “give responsibility for (a person or a thing) to a person in whom one has
confidence … assign responsibility for a thing to (a person) … . The ordinary meaning of the term
“direct” is “to give authoritative instructions to; to ordain, order or appoint (a person) to do (a thing)
to be done; order the performance of”.
The “explicit” nature of these actions is reinforced by the terms that immediately follow
“entrusts or directs”, namely “to carry out”.  The ordinary meaning of “to carry out” is to “conduct to
completion, put into practice” or “to put into execution”. When read together, “entrusts or directs …
to carry out” suggests the communication of a duty or instruction that is to be discharged or executed,
i.e. an action that is explicit (not implied).
(c) Taking into account your responses to questions (a) and (b) above, how
proximate a relationship of cause and effect must there be between a
government's action and a private body's action for the "entrusts or directs"
standard in Article 1.1(a)(1)(iv) to be satisfied?
Reply
There is no issue of cause and effect.  There must be a government action that entrusts or
directs a private body to, for example, provide goods.  It is that government action that potentially
gives rise to a financial contribution provided that all other elements are also satisfied.
Q12. You argue that, where the government entrus ts or directs a private body to carry out
one of the types of functions in subparagraphs (i)-(iii) of Article 1.1(a)(1), subparagraph (iv)
requires that such a function must be one that would normally be vested in the government and
must not differ in any real sense from practices normally followed by governments:
(a) Please expand on how, in your view, th ese concepts or requirements fit in the
context of the functions listed in subparagraphs (i)-(iii).  Could it not be argued
that many of these functions are "normally" undertaken by the private sector
(e.g., investment of equity capital, lending of money, provision or purchase ofWT/DS194/R
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goods, etc.)  Under what conditions or ci rcumstances could it be said that such
functions are "normally" undertaken by a government?
Reply
It is necessary to first clarify the meaning of  “normally vested in the government” and “the
practice in no real sense differs from practices normally followed by governments”. In the phrase “a
government . . . entrusts or directs”, “a government” refers to the government being scrutinized under
subparagraph (iv).  The phrase “which would normally be vested in the government” refers to that
same government and, “followed by governments” refers to governments in the generic sense.
Subparagraph (iv) therefore does not encompass all instances of the types of functions defined in
subparagraphs (i) to (iii), because the phrase “…normally be vested in the government” imposes afundamental limitation on the scope of subparagraph (iv).  Any other interpretation would deprive the
phrase “which would normally be vested in the government” of any meaning or effect.
In the phrase “the practice in no real sense differs from practices normally followed by
governments”, the “practice” is the “carry[ing] out [of] one or more of the type of functions illustratedin (i) to (iii)” by a private body, i.e., the making of the financial contribution by the private body.
This practice must, in no real sense, differ from practices normally followed by governments.  Thus,
the financial contribution would have to be one that the government in question ordinarily performed,
and one that, as a rule, governments engage in.
Canada believes that the “normally vested in” and “normally followed by” elements of
subparagraph (iv) are express limiting elements that make clear that a function in (i) through (iii),
when carried out by a private body at the direction of government, is a financial contribution only
when the private body is performing a normal government function in place of the government in
question.
While a number of the functions in (i) through (iii) will often “normally” be undertaken by
the private sector, the language plainly contemplates that there will be circumstances in which it could
be said that such functions are “normally” undertaken by a particular government and normally
practiced by governments generally. Thus, while the requirements limit subparagraph (iv), they do not
render it a nullity.  Without prejudging what circumstances might be sufficient in a particular instance,
Canada notes as one example that provision of waste management services may normally beperformed by a specific government and commonly provided by governments generally.  It cannot be
the case, however, that a government’s mere ability or power to entrust or direct a private body means
that the function is “vested in the government” or “normally followed by governments.” That
interpretation would render the requirements redundant of the “entrusts or directs” requirement.
(b) The United States argues that su ch functions are "normal" government
functions in the context of the provision of subsidies.  Given that you emphasise
in your arguments that the concepts of financial contribution and benefit are
separate and must not be confused or blended, is it correct that you would not
agree with this statement by the United States?  If you do not agree with the
United States on this point, on what other basis or under what other
circumstances do you consider that these functions would fall within the
government's "normal" activities and thus would satisfy the test in
subparagraph (iv)?
Reply
The “functions” in subparagraph (iv) (i.e., those normally vested in the government and
normally followed by governments) are the forms of government action that constitute a “financial
contribution” under the remainder of Article 1.1(a)(1), without consideration of their “effects”. SinceWT/DS194/R
Page A-12
there can be no “subsidy” unless the financial contribution in question confers a benefit, the US
argument would read into subparagraph (iv) words (“ in the context of the provision of subsidies”) that
are not there.  Moreover, the US argument is circular: one would first have to determine if there was a
subsidy to determine if there was a “financial contribution” under subparagraph (iv), even though a
financial contribution is a prerequisite to a subsidy. One would also have to determine if there was a“benefit” in order to determine whether there was a “financial contribution”, even though, under the
plain wording of Article 1.1, it is the financial contribution that must confer the benefit, and not the
other way around.
In response to question (a), Canada has tried to describe the kinds of circumstances under
which the functions in (i) through (iii) might satisfy the tests in subparagraph (iv).
(c) The Cartland I draft
1 combined in each subparagraph (i)-(iv) the concepts of
financial contribution and benefit.  In addition, subparagraph (iv) also contained
the "normally vested" and "in no real sense differs" language.  Subsequent
drafts separated the concept of financial contribution from the concept of
benefit, but subparagraph (iv) maintained its references to "normally vested"and "in no real sense differs".  What, if anything, is the  significance of this
drafting history for understanding the "normally vested" and "in no real sense
differs" language in subparagraph (iv)?
Reply
This drafting history confirms that the “normally vested” and “in no real sense differs”
language are requirements that limit the “financial contributions” (or functions) encompassed in
subparagraph (iv) and that those requirements do not relate to “benefit” or “subsidy”.  Because the
Cartland I draft combined the concepts of financial contribution and benefit in each subparagraph, itcould have been argued that the “normally vested” and “in no real sense differs” language was
relevant to “benefit” as well as “financial contribution”.  The separation of “benefit” in subsequent
drafts, and the retention of the references to “normally vested” and “in no real sense differs” in
subparagraph (iv), make plain that the drafters’ intent was for that language to apply only to the
“financial contribution” element.
(d) Considering the specific case of provision of goods, what constitutes the
"normal" provision of goods by a government?  In what circumstances could it
be said that a provision of goods by a private body at the direction of a
government would satisfy the criteria of "normally vested in the government"
and "in no real sense differs from practices normally followed by governments"
set forth in subparagraph (iv)?
Reply
It may be relatively uncommon for the provision of goods by a government to be “normal”.
There would, however, be such instances, where a government produces or markets a good.  InCanada’s view, the provision of a good by a government would be “normal” when the government
had engaged in that activity.
“Normally vested in” means that the provision of  goods by the private body at the direction of
a government must be carried out in materially the same way as it had been carried out by thegovernment in question.  If the private body, in providing goods, is simply reacting to market forces
as a private market participant, it is performing a purely private  market function. (Although
governments may at times act like private market participants, the question here is whether the private
                                                     
1 Exhibit CAN-36.WT/DS194/R
Page A-13
body, at the direction of government, is acting like the government, i.e., as its surrogate.)  “Normally
followed by” simply means that provision of goods by the private body at the direction of government
must be materially the same as the provision of goods normally performed by governments.  For
example, if a government were to direct a private body to provide water to individuals and businesses
rather than providing it through a public utility, the issue would be whether that provision wasmaterially the same as the provision accomplished through the public utility.
Q13. Do you agree with the European Communities’ argument that, in the case of
government-entrusted or -directed provision of goods, for the condition of the “carrying out of
functions that would normally be vested in the government” to be fulfilled, not only would there
have to be specific direction to the producers to  provide the goods, but also that this provision
would have to be on “certain pre-determined conditions”?  If you agree, why would “pre-determined conditions” have to exist in order for a private body to be carrying out a function
normally vested in a government ( i.e., for a financial contribution  to exist)?  That is, are not the
“conditions” on which a good is provided the dete rminant of whether there is a benefit?  If so,
in what way would “conditions”, pre-determined or otherwise, be relevant to the question of
financial contribution?
Reply
Canada agrees generally with the European Communities’ position.  Where there is a
government entrusted or directed provision of goods, the remaining elements of subparagraph (iv)must still be met.  For the function to be one “normally vested” in the government and “normally
followed by governments’, the private body, in carrying out the function at government direction,
must be acting in the place of the government rather than behaving as a participant in the private
market.  Some pre-determined conditions would therefore be a necessary element of a financial
contribution, to ensure that the government function was mirrored when performed by the privatebody.  While Canada agrees that some conditions relevant to a financial contribution might also be
relevant to benefit, the inquiries into the two elements of a subsidy are distinct.
Q14. Please comment on paragraphs 17-31 of th e United States' oral statement at the first
meeting of the Panel with the parties.
Reply
Canada’s comments can be found in Part  III of Canada’s Second Submission.
Q15. Please explain why (in paragraph 45 of yo ur first written submission and paragraph 56
of your response to the US request for preliminary rulings, which view also is expressed by theEuropean Communities in paragraph 27 of its oral  statement at the first meeting of the Panel)
you consider that the proviso in the SAA limi ts any discretion that Commerce may enjoy to
"satisfying itself that an alleged subsidy involves a formal enforceable measure".  The proviso
states, in particular, that the type of indirect subsidies which Commerce has countervailed in
the past will continue to be countervailable "provided that Commerce is satisfied that thestandard under Section 771(5)(B)(iii) has been met".  Do these words not require Commerce to
be satisfied that all of the elements in Section 771(5)(B)(iii) have been met?
Reply
The proviso must be read in the context of the three paragraphs that precede it. Although the
proviso states that Commerce must be satisfied that all the elements of section 771(5)(B)(iii) are met,
the preceding paragraphs have already authorit atively instructed Commerce as to when those
conditions should be considered to be met and, at a minimum, authoritatively instruct Commerce that
they will be met in circumstances similar to Leather  and Lumber .WT/DS194/R
Page A-14
The first paragraph states unequivocally that the “entrusts or directs standard” of
771(5)(B)(iii) “shall be interpreted broadly” to “continue [the Administration’s] policy of not
permitting the indirect provision of a subsidy to become a loophole” in countervailing duty
enforcement. The second paragraphs, discussion of Leather  and Lumber makes clear that a “formal,
enforceable measure” is the only requirement relevant to the determination of whether an export
restraint is a “financial contribution”. The third and crucial paragraph then declares that those export
restraints meet the entrusts or directs standard of 771(5)(B)(iii), and that in such cases, the amended
law is to be “administered on a case-by-case basis consistent with” the pre-WTO practice.  Any
remaining doubt about the SAA’s authoritative inst ructions with respect to the interpretation of
section 771(5)(B)(iii) is removed by the very words that precede the proviso, when the SAA declares
the
Administration’s view that Article 1.1(a)(1)(iv) of the Subsidies Agreement and
section 771(5)(B)(iii) encompass indirect subsidy practices like those which
Commerce has countervailed in the past, and that these types of indirect subsidies
will continue to be countervailable, provided that Commerce is satisfied that thestandard under section 771(5)(B)(iii) has been met. (emphasis added)
As Canada has previously pointed out, this statement does not say “may encompass” or “could
encompass”.  It simply and clearly says “encompass”.  Thus the SAA gives Commerce explicit
direction as to the determination it should make under the proviso with regard to export restraints.
Q16. You state, in paragraph 39 of your response to the US Request for Preliminary Rulings:
" . . . [T]he 'practice' at issue is not individual determinations in
countervailing duty cases as the United States suggests.  As Canada has made
clear, it does not seek a ruling overturning the determinations in particular pastcases.  Practice is, rather, an administrative commitment or policy to adhere to a
particular legal view and to apply a particular interpretation or methodology –
here, to treat an export restraint as meeting the financial contribution
requirement of the SCM Agreement  when US authorities find a benefit."
(footnotes omitted)
(a) How, in your opinion, is such an "administrative commitment or policy"
susceptible of dispute settlement per se ?  How is such an "administrative
commitment or policy" – something that might be otherwise described as
US 'behaviour' – to be conceived of as a measure?
Reply
An administrative commitment or policy is susceptible of dispute resolution per se  because it
is a “measure”, as that term is understood in the DSU and GATT 1994, that is inconsistent with US
obligations under the SCM and WTO Agreements.
The ordinary meaning of the word “measure” is “a plan or course of action to attain some
object, a suitable action,” or “a step planned or taken as a means to an end.”  A “measure” clearly
encompasses an administrative commitment or policy to  adhere to a particular legal view and to apply
a particular interpretation or methodology.  The Appellate Body in Guatemala – Cement  confirmed
that “a ‘measure’ may be any act of a Member, whether or not legally binding, and it can include even
non-binding administrative guidance by a government…”
The context of the word “measure” supports the broad scope of the term.  Article 3.3 of the
DSU refers to the “prompt settlement of situations in which a Member considers that any benefitsWT/DS194/R
Page A-15
accruing to it directly or indirectly under the covered agreements are being impaired by measures
taken by another Member”. Restricting the scope of the term “measure” as suggested by the United
States would limit the scope of dispute settlement and exclude certain government actions such as
administrative policies and practice that could impair benefits accruing under covered agreements.
Given the importance of administrative policy and practice in the legal regimes of many Members,such a limitation could have substantial adverse consequences.  The Panel in United States -
Section 301  recognized the importance of capturing all elements of Members’ laws in interpreting the
disciplines in the WTO Agreements.
Furthermore, Article 3.2 of the DSU states in unequivocal terms that “[t]he dispute settlement
system of the WTO is a central element in providin g security and predictability to the multilateral
trading system.”  To remove the measures at issue here from the scope of dispute settlement wouldfrustrate the attainment of security and predictability.
The importance of including administrative practices in the definition of measure is
underscored at paragraph 8.2 of the Panel Report in United States – Imposition of Countervailing
Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the UnitedKingdom , where the Panel recommended that the United States revise its continuing and WTO-
inconsistent, administrative practice. The admini strative commitment or policy to adhere to a
particular legal view and to apply a particular interpretation or methodology at issue in this dispute is
an administrative practice akin to that referred to by that Panel.
(b) In what way is US "practice", in the sense described in the above quote,
different from the references to export restraints in the SAA and the Preamble
as you characterise them?  That is, if the Panel were to rule on the SAA and the
Preamble, as requested by you, as policy statements binding on the DOC in
respect of the treatment of export restraints, what would an additional ruling inrespect of US "practice" add?
Reply
US practice is part of the treatment of export restraints as financial contributions under US
countervailing duty law. Compliance by the United States with its WTO obligations would require it,
inter alia , to cease applying the WTO-inconsistent treatment of export restraints in then-ongoing or
subsequent countervailing duty investigations.
(c) If practice is "not individual determinations in countervailing duty cases", and
also is something different from and beyond the statements in the SAA and the
Preamble, then what is it precisely?
Reply
Practice is an administrative commitment or policy to adhere to a particular legal view and to
apply a particular interpretation or methodology. Practice is related to precedent and becomes the“practice” followed in subsequent cases.  Practice is an institutional commitment to follow declared
interpretations and methodologies that is reflected in cumulative determinations.  This commitment
causes uncertainty and unpredictability for exports of Canadian goods into the US market, contrary to
the object and purpose of the SCM and WTO Agreements.  Canada agrees that this commitment is
also expressed in the SAA and the Preamble, which Canada has also identified as measures withwhich it takes issue in this dispute.
(d) Do you believe that US "practice" as an "administrative commitment or policy"
is mandatory legislation in the sense that the term is used in the
mandatory/discretionary distinction?  And if US "practice" does not constituteWT/DS194/R
Page A-16
mandatory legislation – which requires  the United States to do something – then
on what basis could it be found as such to be inconsistent with the United States'
WTO obligations?
Reply
Yes.  See Part IV of  Canada’s Second Submission.
Q17. Please respond in detail to the US argument s in paragraphs 43-55 of its oral statement at
the first meeting of the Panel, concerning the applicability of the WTO  and SCM Agreements ’
provisions cited by Canada to the measures identi fied by Canada.  (In this regard, please note
that, in response to an oral question from th e Panel at its first meeting, the United States
indicated that these arguments are applicable to the SAA and the Preamble, in addition to
practice, under which heading they appear in the US oral statement delivered at that meeting.)
Reply
Canada’s challenge is grounded in the definition of “subsidy” in Article 1.1 of the SCM
Agreement.  The measures at issue treat an export restraint as a financial contribution.  As an export
restraint is not a financial contribution under Article 1.1(a)(1), the treatment is inconsistent with that
Article.
Article 10 imposes an affirmative obligation on Members 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.  This includes ensuring that the foundation of US CVD law—the
definition of a subsidy—is in accordance the Agreem ent.  If this were not the case, investigations
could be initiated against measures that are clearl y not the proper subject of countervailing duties.
The violations of Articles 11, 17, 19 and 32.1 flow from the violation of Article 10.
Article 32.5 of the SCM Agreement requires the United States to take all necessary steps to ensure the
conformity of its laws, regulations and administrative procedures with the provisions of the
Agreement.  Accordingly, the inconsistency of US countervailing duty law with the above-noted
provisions also results in a violation of the positive obligation in Article 32.5. The same comments
apply to the US arguments regarding Canada’s challenge under Article XVI:4 of the WTOAgreement.WT/DS194/R
Page A-17
ANNEX A-2
EXECUTIVE SUMMARY OF ANSWERS OF THE UNITED STATES
TO QUESTIONS POSED BY THE PANEL AT THE FIRST
SUBSTANTIVE MEETING
(28 February 2001)
FIRST MEETING OF THE PANEL WITH THE PARTIES - QUESTIONS DATED
18 JANUARY 2001
The DOC has not taken a definitive position on th e status of export restraints, other than to
express the opinion that, in the appropriate circumstances, an export restraint might satisfy the
definition of a subsidy set forth in the US statute and the SCM Agreement.  Thus, with respect tomany of the questions posed by the Panel, there is no DOC or US position, nor could there be in the
absence of an actual case.  Therefore, the answers set forth herein do not necessarily reflect what the
DOC would do if confronted with actual facts in an actual case.
I. QUESTIONS TO BOTH PARTIES
Q1. What, in your view, is an "export restraint"?  That is, what are the essential, defining
characteristics of an export restraint that would be universal to all "export restraints", no
matter what the specific form of the export restr aint in a given situation, and no matter what
other elements might be present in a given meas ure that included an export restraint?  Can you
describe how an export restraint operates?  Can you give any example of an export restraint
which might, arguably, amount to a subsidy within the meaning of SCM Article 1.1?
Reply
This question highlights the problematic nature of this dispute.  It is neither practicable nor
desirable for the Panel to attempt to define, in the abstract, a term that does not appear in the SCMAgreement, but the ordinary meaning of “export restraint” would be an action or an act that holds
back or prevents exports.  Canada concedes that an export restraint can result in “a price effect
beneficial to users of the restricted product”, and Canada does not allege that an export restraint is
incapable of providing a “benefit.”  As examples of export restraints, the US refers the Panel to
WT/TPR/S/51, page 105; CDA-12 and CDA-13; CDA-14; CDA-22; US- 30; and WT/TPR/S/81,
pages 65-67.  The US declines to speculate on whether any of these export restraints would constitute
a subsidy under the new definition of “subsidy” in Article 1.1.  The US notes that under its pre-WTO
CVD law, the DOC found that the export restraints existing at the time in Alberta, Ontario and
Quebec did not constitute subsidies.
Q2. Do you agree that the conferral of a benefit under Article 1.1(b) of the SCM Agreement
is immaterial to the question of the existence of a financial contribution under Article 1.1(a) of
the Agreement?
Reply
The US agrees that “financial contribution” under Article 1.1(a) and “benefit” under
Article 1.1(b) are separate and distinct requirements that must be satisfied for a finding of a “subsidy”
under the SCM Agreement.  In the case of an export restraint, the same body of evidence might beWT/DS194/R
Page A-18
relevant for purposes of determining whether both requirements are satisfied, and the requirements
may not be totally unrelated.
II. QUESTIONS TO THE UNITED STATES
Q6. You indicate, in paragraph 36 of your request for preliminary rulings:
"In other words, the SAA is a type of legislative history.  In the United
States, legislative history is often considered for purposes of ascertaining the
meaning of a statute, but cannot change the meaning of, or override, the statute
to which it relates."
However, in the Section 301  case, you stated, in response to a question from the Panel:
"The SAA must, by law, be treated as the authoritative expression
concerning the interpretati on of the statute in any judicial proceedings".1
(a) Please reconcile these two statements.
Reply
The US does not consider the two statements to be in conflict.  If the meaning of a statutory
provision were clear, a contrary meaning expressed in the SAA could not override the statute.
(b) Please provide clarification as to whether the SAA is binding in respect of the
statute it accompanies.  In particular, please elaborate on the words "the
authoritative expression " in the quote above.
Reply
Under US legal principles the goal of statutory interpretation is to accurately discern the
intent of the legislature.  In cases where a statute is ambiguous or where confirmation of a clear
statutory meaning is sought, interpreters may resort to legislative history to help discern thelegislature’s intent.  An interpreter could properly resort to the SAA to identify the intent of the US
Congress.  As an “authoritative expression” of Congress’ intent, the SAA would prevail over other
legislative documents that also might shed light on that intent.
Q7. The SAA accompanying the URAA  indicates, on page 926:
"In cases where the government acts through a private party, such as in
Certain Softwood Lumber Products from Canada and Leather from Argentina
(which involved export restraints that led directly to a discernible lowering of
input costs), the Administration intends that the law continue to be administered
on a case-by-case basis consistent with  the preceding paragraph.  It is the
Administration's view that Article 1.1(a)(1)(iv) of the Subsidies Agreement andSection 771(5)(B)(iii) encompass indirec t subsidy practices like those which
Commerce has countervailed in the past, and that these types of indirect
subsidies will continue to be countervailable, provided that Commerce is
satisfied that the standard under Section 771(5)(B)(iii) has been met."
                                                     
1 Section 301 , Panel Report, WT/DS152/R, adopted 27 January 2000, footnote 683.WT/DS194/R
Page A-19
(a) What, in your view, does it mean for the law to be administered "on a case-by-
case basis"?  In particular, under what circumstances would the DOC find that
export restraints do not meet the standard under Section 771(5)(B)(iii)?
Reply
With respect to the first question, Congress was confronted with a situation in which the DOC
had countervailed a variety of government programs – including export restraints – that fell under the
rubric of what were termed “indirect subsidies.”  The standard that the DOC had applied in these
situations was different from the standard called for by the SCM Agreement.  Congress chose to leave
it to the DOC to decide, based on the facts of a case and the application of those facts to the new
subsidy definition, whether a particular government program in a specific case constitutes an indirectsubsidy.  Insofar as export restraints are concerned, Congress refrained from pre-judging the matter
one way or the other.  The US is not in a position to speculate as to the precise circumstances under
which the DOC might find that an export restraint does not meet the standards of
section 771(5)(B)(iii).  The DOC would apply the sta ndards of that provision to the evidence before it.
(b) What, in your view, does it mean for "these types of indirect subsidies [to]
continue to be  countervailable" in the light of  the entry into force of the SCM
Agreement ?  In particular, how has the way in which you approach export
restraints in the context of counterv ail investigations changed with the
introduction of the new concepts of "financial contribution" and "benefit"
contained in the Agreement and incorporated into US law?
Reply
The quoted language cannot be read in isolation from the proviso that immediately follows.
When read together, the language constitutes a statement by Congress that congressional enactment of
the URAA should not be construed as signifying that the types of government programs described in
the SAA necessarily ceased to be countervailable.  Instead, Congress refrained from pre-judging the
issue.  “Benefit” was not a new concept.  With respect  to “financial contribution,” it is not an entirely
new concept in the sense that the US CVD law always has required some form of government action
in order for a subsidy to be found to exist.  With respect to the concept of “financial contribution” as
articulated in subparagraph (iv) of Article 1.1(a)(1) of the SCM Agreement, the US is not in a positionto elaborate on how this may have changed the DOC’s approach to export restraints.
Q8. Where terms such as "financial contributio n" and "entrusts or directs" are adopted in
the US statute from the SCM Agreement , is the SAA authoritative on the meaning of those
terms?  In other words, can the SAA affect the me aning to be given to terms in a treaty that are
incorporated in US legislation?
Reply
To the extent that the terms of a treaty are subject to interpretation, the SAA, as a general
proposition, expresses the authoritative view of C ongress and the Administration as to what those
terms should mean for purposes of domestic law.  With respect to the phrase “entrusts or directs”, the
SAA does not express a view on precisely what that phrase means, but instead merely expresses the
general desire of Congress and the Administration that the phrase be interpreted as broadly as the
statutory requirements permit.WT/DS194/R
Page A-20
FIRST MEETING OF THE PANEL WITH THE PARTIES - QUESTIONS DATED
19 JANUARY 2001
I. QUESTIONS TO BOTH PARTIES
Q1. You argue that the subject of Article 1.1(a)(1)(iv) is “indirect subsidies” (in Canada’s
case that that article addresses this concep t comprehensively).  To what extent do your
arguments under Article 1.1 depend on the equation of Article 1.1(a)(1)(iv)-type subsidies with
“indirect subsidies” either as a whole or in part.  In other words, does the extent to which export
restraints fit or do not fit within the scope of Article 1.1(a)(1)(iv) depend on whether that
provision is concerned with indirect, as opposed to  direct, subsidies?  What light is shed on the
issues in dispute by your arguments that the subject matter of Article 1.1(a)(1)(iv) is “indirect”,as opposed to “direct”, subsidies?
Reply
The phrase “indirect subsidies” is merely a shorthand expression that the parties have used to
describe the types of practices that potentially fall under subparagraph (iv).  The important point is
that subparagraph (iv) exists in order to prevent governments from avoiding subsidies disciplines by
using private actors as the vehicle for transmitting a subsidy.
Q2. What is the ordinary meaning, in  accordance with Article 31 of the Vienna Convention
of the Law of Treaties , of the word "type" as it appears in Article 1.1(a)(1)(iv)?
Reply
See paragraph 25 of the US First Submission .  An export restraint could constitute the
government entrustment or direction of the provisi on of a good, a function which is expressly listed in
subparagraph (iii).
II. QUESTIONS TO THE UNITED STATES
Q18. You argue that, insofar as the object and purpose of the SCM Agreement  is "to impose
multilateral disciplines on subsidies which distor t international trade", it would be inconsistent
with this object and purpose to rule out the possibility that export restraints could constitute
subsidies.  Assuming that this is a correct  statement of the object and purpose of the SCM
Agreement , how does this statement, which incorp orates the word “subsidies”, inform the
question as to what constitute “subsidies” subject to the Agreement?
Reply
The quoted phrase uses the term “subsidies” in the non-technical, commonly understood
sense of the word.  The US has not argued that the object and purpose of the SCM Agreement alone is
controlling, nor has it argued that all government measures that distort trade are subsidies.  What the
US has argued is that the meaning of these provisions should not be improperly narrowed to exclude
measures commonly understood to be subsidies that distort trade, where the text would not exclude
them and where doing so would frustrate the object and purpose of the Agreement.
Q19. Do you accept Canada's argument, in par agraph 33 of its oral statement at the first
meeting of the Panel, that the imposition of multilateral disciplines on subsidies which distort
international trade is only one of the objects of the SCM Agreement ?WT/DS194/R
Page A-21
Reply
That is the primary objective of the SCM Agreement, as acknowledged by prior WTO panels.
As the Appellate Body has noted, interpretations that make obligations under the SCM Agreement
easy to circumvent are contrary to the object and purpose of that Agreement.  Regulatingcountervailing measures is also a purpose of the SCM Agreement, but, as Canada has noted, should
not be done in a manner which allows governments to engage in complex schemes that evade subsidy
disciplines while artificially promoting domestic production.
Q20. You cite item (d) of the Illustrative List of Export Subsidies (“the provision by
governments, either directly or through government-mandated schemes, of imported or
domestic products or services”) as contextual support for your argument thatArticle 1.1(a)(1)(iv) can encompass export restra ints.  Thus, in your view, "indirect" subsidies
under item (d) ( i.e., provision of goods or services through government-mandated schemes) by
definition must satisfy the requirements of SCM  Article 1.1, including that they must involve a
financial contribution:
(a) Assuming that this is a correct reading of the Illustrative List, what light does
item (d) thereof shed on the central qu estion of whether an export restraint
constitutes a financial contribution in the form of government-directed provision
of goods?  In particular, is it not clear from Article 1.1 itself, without referring to
the Illustrative List, that government-directed provision of goods and services isa financial contribution?
Reply
The US agrees that it is clear that the government-directed provision of goods and services is
a financial contribution and that it is not necessary to refer to item (d).  However, item (d) provides
useful contextual support for the conclusion drawn from the ordinary meaning of the text.  Item (d)
confirms that a financial contribution exists where private parties provide goods as the result of a
“government-mandated scheme.”
(b) Canada and the European Communities argue that, in any case, you
misconstrue the Canada-Dairy  panel's findings in respect of item (d) (which, as
pointed out by the European Communities, were mooted by the Appellate Body).
In particular, they argue that the pane l established as the conditions for the
applicability of item (d), first that good s be provided on terms favouring exports,
second that such provision be by a government, either directly or indirectly
through a government-mandated scheme, and third that a benefit be conferred.In other words, according to the Cana da and the European Communities, the
panel did not consider that all government-mandated schemes favouring exports
and conferring benefits were covered by it em (d), but rather only those where
goods were being "provided".   Please comment on Canada's and the European
Communities' characterisation of your argument and of the Canada-Dairy
panel's findings.
Reply
The US does not dispute the fact that the Appellate Body characterized the panel’s findings as
moot.  However, the characterization of the panel’s findings as moot does not necessarily mean that
this Panel may not rely on those findings for useful guidance.  The US does not disagree with the
proposition that not all “government-mandated schemes” necessarily will violate item (d).  However,
there are two key points which distinguish the US reading of Canada - Dairy .  First, Article 1.1 and
item (d) do not limit the concept of “subsidy” to instances where the government itself is providing aWT/DS194/R
Page A-22
good.  Second, the panel found that the goods were “provided”, whether directly or indirectly, in a
situation where prices were negotiated; i.e., not pre-determined, as Canada and the EC argue is
required.
(c) Please comment on Canada's characterisation, in paragraph 31 of its oral
statement at the first meeting of the Pa nel, of the Appellate Body ruling in
United States – Tax Treatment for "Foreign Sales Corporations" .
Reply
Nothing in paragraph 93 of the Appellate Body report in the FSC case is inconsistent with the
US position.  The Appellate Body simply rejected the US argument that footnote 59 of the IllustrativeList constituted an exception to the general definition of “subsidy” found in Article 1.
Q21. The European Communities argues that, contrary to the US position, an export
restraint on a particular good is not substantively the same as a government direction requiring
producers of that good to provide it to certa in purchasers.  In particular, the European
Communities states that, when faced with an expo rt restraint, producers of the restrained goods
have a range of options other than simply co ntinuing to sell the product to the domestic
purchasers:  reducing output, diversifying pro duction, or becoming involved in downstream
operations where exports were not restricted:
(a) Do you agree or disagree with the European Communities that the imposition of
an export restraint opens a range of possible reactions by domestic producers to
an export restraint?  Please explain.
Reply
The US disagrees that an export restraint would open a range of possibilities to a producer of
the restrained good.  Instead, the US would characterize an export restraint as limiting  the
opportunities available to the producer of the restrained good.  The US also disputes the EC’s position
that the presence of options in response to an e xport restraint somehow would undermine the basis for
ever finding that an export restraint constitutes “direction.”  To argue that an export restraint does not
constitute direction because a producer of the restrained product is free to make choices it otherwisewould not make absent the restraint does not answ er the question of whether the export restraint
constitutes a financial contribution in a situation where the producer chooses to provide the goods to
the domestic industry as a result of the export restraint.
Assume that in a market free of a government-i mposed export restraint, the producer of the
input would choose to export the input to a differ ent market for processing into a downstream product
because it is more financially advantageous for it to do so.  However, because of the export restraint,
the producer of the input – which could not otherw ise economically justify processing – begins to
produce the downstream product, thereby artificially enhancing domestic production at the expense of
foreign producers of the downstream product.  None of this squares with Canada’s statement that“[s]ubsidies . . . can deny countries the benefits they can otherwise expect to derive from comparative
advantage and thereby inhibit efficient resource allocation.”
(b) If you agree, would you consider th at an export restraint constituted
government-entrusted or -directed provision of goods in all circumstances inwhich the producers of the restrained product continued to sell any of that
product to domestic purchasers, or would there be some circumstances in which
the continued sale of the restrained pr oduct to domestic purchasers would not
constitute government-entrusted or -directed provision of goods?  Please
explain, and describe any such circumstances.WT/DS194/R
Page A-23
Reply
The US agrees that there could be circumstances in which the continued sale of the restrained
product would not constitute the government entrustment or direction of a good.
(c) Or, are you saying, as appears to be implied in paragraph 81 of your oral
statement at the first meeting of the Panel,  that only if there are no other options
but to sell to domestic purchasers would there be entrustment or direction?
Reply
No, paragraph 81 does not make this implication.  The causal relationship is something that
must be examined on a case-by-case basis.  Paragraph 81 (the fifth in a series of rebuttal arguments)
simply stated that there may be situations in which Canada’s and the EC’s theoretical  options are not
available, in which case their arguments would be irrelevant.
Q22. In paragraph 78 of your oral statement at the first meeting of the Panel, you argue as
follows:
“[T]here is no requirement (in the text or otherwise) that the beneficiaries of the
subsidy practice at issue must be “targeted customers”, although it may well bethat a particular export restraint practice could satisfy such a requirement.  To
the extent that one must identify a class of beneficiaries, this relates to the
requirement of specificity in Article 1.2.”
How does this argument relate to and reconcil e with what seems to be the core of your
argument as to the reason that an export restraint at least can constitute a financial
contribution, namely that it is the government’s foreclosing of sales to a given group of
customers ( i.e., those in export markets), that directs (or can direct) the producers of the
restrained good to “provide” it exclusively or largely to a different, and particular, group of
customers ( i.e., those in the domestic market)?  That is, if you assume that the phrase “targeted
customers”, in the arguments which you dispute in the above quote, refers simply to domestic
purchasers of the good as a whole, and is not as you suggest related to the question of specificity,
is it not correct that your argument is that “targeting” to this extent is a necessary condition fora financial contribution to exist in the case of an export restraint?  Please explain.
Reply
The Panel’s essential description of the US position is correct.  As used by the Panel,
“targeting” is a very broad concept.  However, the US believes that the EC used the term in a much
narrower sense, suggesting a requirement that the intended beneficiaries of a subparagraph (iv)
subsidy somehow be de jure  specified in advance.  There is no textual requirement in
subparagraph (iv) of “targeting.”
Q23. Could you confirm that paragraph 69 of your  oral statement at the first meeting of the
Panel is in reference to SCM  Article 1.1(b), rather than to Article 1.1(a)(1).
Reply
Yes.
Q24. You argue, in paragraph 36 of your first written submission, that if an increased supply
of a product in the domestic market causes the pr ice for that product to be lowered, that is theWT/DS194/R
Page A-24
same result as if the government had ordered the growers to sell for less than market price , and
that therefore, applying an export restraint can be the functional equivalent of ordering
producers to sell their product domestically for less than adequate remuneration .  Both types of
functions, you argue, "fall squarely within Arti cle 1.1(a)(1)(iv)".  Is it your argument that the
element of less than adequate remuneration, or less than market price, is what makes these
functions (performed at the direction of a government) fall within Article 1.1(a)(1)(iv)?  In other
words, is it your position that less than ade quate remuneration or a below-market price is a
necessary condition for a government-directed provision of a good to fall within
Article 1.1(a)(1)(iv)?  Please explain how the adequacy of remuneration has any relevance to
whether a financial contribution exists.
Reply
No, the US position is that inadequacy of remuneration or below-market price are not
necessary conditions for a finding of a financial contribution in the form of the government-directed
provision of a good within the meaning of subparagraph (iv).  However, the evidence of a financial
contribution and benefit could well overlap.  In paragraph 36, the US merely was pointing out that thesame desired price effect could be achieved by governments:  (a) ordering producers to sell at fixed
(lower) prices (which Canada appears to concede would be a subparagraph (iv) subsidy); or (b) taking
actions that cause producers to sell domestically goods that they otherwise would have exported,
thereby increasing supply and reducing price.
Q25. You argue, in paragraph 77 of your oral statement at the first meeting of the Panel, that,
insofar as the element of financial contribution is  concerned, there is no requirement in the text
of subparagraphs (iii) or (iv) of Article 1.1(a)(1) that the price or quantities at which goods are
provided to the subsidised party be specified.  Rather, you argue that the question of whether
the price and quantity are sufficiently affected by government action that the provision of agood is for less than adequate remunera tion is relevant to the measure of benefit , not to the
existence of a financial contribution.  Yet, you also argue, in paragraph 54 of your first written
submission, that the functions identified in subparagraphs (i)-(iii) are “normal” government
functions in the sense of subparagraph (iv) in the context of government provision of subsidies  –
a concept that includes both financial contribution and benefit.  Please reconcile these two
arguments.  That is, if price and quantity are related to benefit, and thus not to financial
contribution in the case of provision of goods, then why would the reference to functions“normally” vested in a government, which occurs in the exclusive context of financial
contribution in the text of SCM  Article 1.1, be to the provision of “subsidies”, which implicitly
refers to both financial contribution and benefit?
Reply
As noted above, evidence of benefit and financial contribution could well overlap, because
subparagraph (iv) requires that there be a causal connection between the government action and the
behaviour of the private actor(s) and that the activity undertaken by the private actor be one that
governments normally engage in when providing a financial contribution.  In stating that “normal”government functions refer to government action in  the context of providing subsidies, the US was
using the term “subsidies” in the non-technical, ve rnacular sense, similar to the manner in which it
was used in the Article XVI:5 Report
Q26. Concerning the references in Article 1.1(a)( 1)(iv) to functions "normally vested in the
government" which "in no real sense differ[] from practices normally followed by
governments", you argue that there are at least some  instances in which governments
"normally" do provide certain goods and services (e.g., access to limited natural resources).
You further argue that the important point is  that, where a government is involved in theWT/DS194/R
Page A-25
provision of a good or service, and instead of doing so itself it delegates that function to a private
body, there "could" be a financial contribution:
(a) Are you arguing that a government would first have to be in the business of
providing a good and then delegate it to a private body for this condition to bemet?  That is, are you arguing that the United States would not consider a
government-directed provision of goods or services to be a financial contribution
unless the government in question "norma lly" provided those goods and services
on the basis of some prior action?  What criteria would determine whether a
government was "involved" in the provision of a good or service, or "normally"
provided such a good or service?
Reply
The US reiterates that it is not arguing anyt hing about what the DOC would consider, because
the DOC has yet to take a position on the issue.  All the US is doing in this case is responding to
Canada’s claim that an export restraint can never, under any set of circumstances, constitute asubsidy.  The US is not arguing that the text of subparagraph (iv) requires that a government
previously has been in the business of providing the good or service in question.  Instead, an
appropriate line of inquiry would be whether the private party action is of the type that a government
typically would take, or could take, in an effort to allocate resources through taxation or subsidization.
(b) Or, are you arguing that by virtue of  intervening at any time in a product
market through a private intermediary, a government would become "involved"
in the provision of a good or service, thereby satisfying the "normally vested"
and "in no real sense differs" criteria?  If this is your argument, would these
criteria not be rendered meaningless?
Reply
No, this is not what the US is arguing.  The US is simply arguing that when the extent and
effectiveness of government involvement is such as to cause private actors to provide goods to
domestic purchasers when they otherwise would have sold the same goods for export, the behaviour
of the private actors in no real sense differs from the behaviour of a government if it had provided thegoods directly.
(c) Please explain your use of the word "could" in the argument summarised above
(which appears in paragraph 53 of your firs t submission).  That is, you state that
if a government is "involved" in providing a good or service and instead of doingso itself it delegates this function to a private body, there "could" be a financial
contribution.  This suggests that, in your view, even under this set of facts, there
are circumstances in which there would not be a financial contribution.
Article 1.1(a)(1)(iii) and (iv), read together, however, seem to say that the
provision of goods or services at the direction of a government is a financial
contribution.  Please explain your position and provide examples illustrating the
circumstances in which a government-directed provision of goods or services
would and would not constitute a financial contribution in the sense of
Article 1.1 (a)(1).
Reply
The use of the word “could” was not intended to have any special meaning.  As a general
proposition, the US agrees with the Panel that if the degree of government activity is insufficient to
satisfy the standard of subparagraph (iv), a subsidy would not exist.WT/DS194/R
Page A-26
(d) In paragraph 54 of your first submission, you argue that subparagraph (iv)
refers to functions normally performed by governments " in the context of
providing a subsidy ", and that any other meaning would leave subparagraph (iv)
utterly empty.  If the reference to "normally" in subparagraph (iv) refers tofunctions in the context of providing a subsidy, however, does this not implicitly
import the concept of "benefit", which is treated separately in Article 1.1(b),
into the concept of "financial contri bution", which is the sole subject of
Article 1.1(a)(1)?  Please explain.
Reply
While separate requirements, the concepts of financial contribution and benefit are not totally
unrelated.
(e) The Cartland I draft2 combined in each subparagraph (i)-(iv) the concepts of
financial contribution and benefit.  In addition, subparagraph (iv) also containedthe "normally vested" and "in no real sense differs" language.  Subsequent
drafts separated the concept of financial contribution from the concept of
benefit, but subparagraph (iv) maintained its references to "normally vested"
and "in no real sense differs".  What, if anything, is the  significance of this
drafting history for understanding the "normally vested" and "in no real sensediffers" language in subparagraph (iv)?
Reply
In the view of the US, the phrases “normally vested” and “in no real sense differs” refer to the
government functions of taxation and subsidization.  See US First Submission , paras. 51-54.  The only
prior negotiating history – the Article XVI:5 Report  – supports this interpretation.
Q27. In your oral statement at the first meeting of the Panel, in paragraphs 3 and 5, you
assert that what Canada seeks to challenge and enjoin in this case are mere "tentative
opinions".  You characterise the Preamble as "tentative thinking" or "tentative thoughts"
(paragraph 27 of your oral statement at that meet ing).  Is it also your argument that the SAA,
insofar as relevant, expresses only "tentative op inions", and that the US "practice" on which
Canada relies is in some sense also "tentative"?
Reply
With respect to the SAA, it is not “tentative”, but it expresses no position on indirect
subsidies other than that they may be treated as subsidies if they satisfy the standard of
section 771(5)(B)(iii).  There simply is no post-WTO practice to speak of.
Q28. In paragraph 35 of your request for preliminary rulings, you state that the SAA is "an"
authoritative expression of the mean ing of the statute while, in the Section 301  dispute, you
stated that the SAA is "the" authoritative exp ression of that meaning.  Does your use of the
word "an" imply that the SAA is one of several authoritative expressions of the meaning of the
statute, i.e., that a court might not be bound by it if there were other relevant authoritative
documents?
                                                     
2 Exhibit CAN-36.WT/DS194/R
Page A-27
Reply
As a general proposition, in terms of legislative history the SAA ranks supreme.
Q29. Canada cites the following statement by the DOC in two 1999 cases involving stainless
steel products from Korea which refers to the SAA and the Preamble:
" . . . [T]he clear and unambiguous language of the SAA is that Congress
intended the specific types of indirect subsidies found to be countervailable in
Steel Products from Korea  to continue to be covered by the Act, as amended by
the URAA.  The Department's final coun tervailing duty regulations are equally
clear on this issue: the P reamble confirms that the standard for finding indirect
subsidies countervailable under the URAA-amended law 'is no narrower than
the prior US standard for finding an indirect subsidy as described in Steel
Products from Korea.'"
How do you explain these characterisations by the DOC of the SAA and the Preamble and their
legal effects in the light of your arguments that these instruments do not require the DOC to doanything, but instead simply permit the DOC to countervail certain measures provided it
determines on a case-by-case basis that such measures meet the new legal standard(s) set forth
in the statute?
Reply
The DOC determinations in these cases were based on multiple volumes of factual analysis,
including lengthy memoranda that detailed how the requirements for countervailability had been met.
Nothing in the passage suggests a belief on the part  of the DOC that it is free to ignore the new
standard contained in section 771(5)(B)(iii) or subparagraph (iv).
Q30. The Preamble states in respect of export restraints:
"With regard to export restraints, while they may be imposed to limit
parties’ ability to export, they can al so, in certain circumstances, lead those
parties to provide the restrained good to domestic purchasers for less than
adequate remuneration . . . [I]f the Department were to investigate situationsand facts similar to those examined in  Lumber and Leather in the future, the
new statute would permit the Department to reach the same result."
3
We note the above statement that, if Commerce "were to investigate situations and facts similarto those examined" in Certain Softwood Lumber Products from Canada  and Leather from
Argentina  in the future, the new statute would permit the Department to reach the same result"
as it had in those investigations.  Using each of these two previous cases as a separate factual
situation, and assuming exactly the same facts as were present in the Lumber and Leather
investigations, could the United States please indicate how, today, it would apply each of the
requirements of SCM  Article 1.1(a)(1) to determine whether or not a financial contribution
existed.  That is, would there be a financial contribution, and what would be the analysis of thefacts in each case that would lead to the conclusion that there was or was not a financial
contribution in the sense of SCM  Article 1.1(a)(1)?  Please note that this does not require any
reference to the concept of "benefit" as found in Article 1.1(b).
                                                     
3 Regulations , 63 Federal Register, pp. 65 and 351 (Annex C – Exhibit CAN-3).WT/DS194/R
Page A-28
Reply
The US is not in a position to answer this question, because it would be inappropriate,
impractical, and possibly unlawful for the US to do  so.  In addition, a statement by the DOC as to
what it might do – as opposed to what it is required under US law to do – is irrelevant to the issues inthis case.
Q31. The SAA states:
"One of the definitional elements of a subsidy under the Subsidies
Agreement is the provision by a government or any public body of a ‘financial
contribution’ as defined by the Agreement, including the provision of goods orservices.  Moreover, the Subsidies Agreement specifically states that the term
‘financial contribution’ includes situations where the government entrusts or
directs a private body to provide the subsidy.  (It is the Administration’s view
that the term ‘private body’ is not necessarily limited to a single entity, but can
include a group of entities or persons.)  Additionally, Article VI of theGATT 1994 continues to refer to subsidies provided ‘directly or indirectly’ by a
government.  Accordingly,  the Administration intends that the ‘entrusts or directs’
standard shall be interpreted broadly .  The Administration plans to continue its
policy of not permitting the indirect provision of a subsidy to become a loophole
when unfairly traded imports enter the United States and injure a US industry."
The SAA seems to indicate that, under Section 771(5)(B)(iii) (which sets forth the "entrusts or
directs" standard), export restraints that have the effect of lowering input costs will be
countervailable as government "entrustment or direction" of the provision of goods, provided
that Commerce is satisfied that the "entrusts or directs" standard is met.  Please clarify if this is
a correct reading of this section of the SAA.
Reply
This is not a correct reading.  The quoted paragraph does not even address export restraints; it
merely describes certain aspects of the new subsidy definition and GATT Article VI.  The third
paragraph makes clear that an indirect subsidy may be countervailed only if the DOC is satisfied that
all of the requirements of section 771(5)(B)(iii) are satisfied.
Q32. Please comment on the argument in paragraph 27 of the European Communities' oral
statement at the first meeting of the Panel concerni ng the interpretation of  the "provisos" in the
SAA in respect of the statute as it pertains to "indirect subsidies".
Reply
The standard which the EC claims the SAA incorporated in the new statute is discussed in the
second of the three SAA paragraphs at issue in this case, which merely describes, as a factual matter,
what the DOC did under pre-WTO law.  The third paragraph makes clear that programs found to be
subsidies by the DOC under its pre-WTO standard would remain countervailable only if the DOC
determined, on a case-by-case basis, that the new WTO-consistent standard is satisfied.
Q33. Does the SAA authorise or require the Admi nistration to construe Section 771(5)(B)(iii)
as encompassing indirect subsidy practices othe r than where an authority makes a payment to a
funding mechanism to provide a financial contribution, or entrusts or directs a private party to
make a financial contribution?WT/DS194/R
Page A-29
Reply
The SAA does not authorize or direct the DOC to construe section 771(5)(B)(iii) in the
manner described.  It would be inaccurate to say th at the SAA “authorizes” any action by the DOC.  It
has no legal effect independent of the statute (and, thus, is not a measure), but rather provides anauthoritative expression regarding the proper interp retation of the statute.  With regard to the
interpretation of section 771(5)(B)(iii), the SAA expressed the view that the DOC countervail only
government practices that satisfy all of the elements of the statute.
Q34. You argue that the import of the SAA and th e Preamble is to indicate that the DOC is to
proceed on a case-by-case basis in determinin g whether a given export restraint fulfils the
"entrusts or directs" standard of the US statute.  What legal standard and criteria areemployed by the DOC in making such a determination?
Reply
For purposes of a final DOC determination, the domestic legal standard is found in
section 516A(b)(1)(B)(i) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1516A(b)(1)(B)(i), which
sets forth the standard of review applicable to DOC determinations.  Because the DOC has not yet had
to apply the “entrusts or directs” standard to an export restraint, it has not developed any criteria for
making such a determination.
Q35. In the Live Cattle  case, the DOC found that there was no subsidy because there was no
benefit from the measure at issue.  In your response to an oral question from the Panel at its
first meeting, you stated that, because there wa s no benefit, the DOC "exercised judicial
economy" and made no determination in respect of financial contribution.  Does this mean that
this question was not considered at all by the DO C?  Please identify the relevant portion(s) of
the DOC's determination in that investigation.
Reply
In Live Cattle  (CDA-22), the DOC’s main discussion of the Canadian Wheat Board (“CWB”)
runs from pages 57,047 to 57,052.  In this discussion, the DOC simply found that there was no
“benefit” ( see, e.g. , page 57,048 (left column, second full paragraph) and page 57,052 (middle
column, second full paragraph).  The DOC never determined, because it did not have to, that the
actions of the CWB constituted a “financial contribution.”
Q36. Please expand on your response, in paragr aph 57 of your first submission, to what you
refer to there as Canada's "slippery slope" ar gument, namely that if an export restraint is
considered to be the provision of a good because it might result in greater domestic availability
of a product, then any measure that might indu ce or encourage domestic producers to increase
the supply of a product would have to be considered the provision of a good , and hence a
financial contribution .  Your response is that, as a factual matter, it is unlikely that all such
measures could be found to confer a financial contribution that results in a benefit.
(a) While your response refers to both financial contribution and benefit, Canada's
argument does not mention benefit, but refers only to financial contribution.
Focusing only on the question of financial contribution, do you agree that any
measure that might induce or encourage domestic producers to increase thesupply of a product would have to be considered – as a legal matter – the
government-entrusted or –directed provision of a good, and hence a financial
contribution?  If not, on what legal basis under your interpretation could certain
such measures be deemed not to be provision of a good, and thus not a financial
contribution?  In other words, what are the legal limits to the sorts of measuresWT/DS194/R
Page A-30
that encourage domestic producers to increase the domestic supply of a product
that can be considered government-entrusted or -directed provision of a good
and hence financial contributions ?
Reply
The ordinary meaning of “direct” requires a causal connection between the government
measure and the behaviour of private actors in order for a financial contribution to exist.  Thus, the
legal basis is found in subparagraph (iv) itself.  It would be short-sighted to focus solely on the
financial contribution element of an actionable subsidy in analysing the “slippery slope” argument.
One must take into account the fact that the application of the concepts of “benefit” and “specificity”
will weed out government measures that might arguably satisfy the definition of “financialcontribution.”  Finally, the theoretical possibility that some Member might apply subparagraph (iv) in
an overly broad manner does not justify imposing in the abstract Canada’s narrow interpretation,
which would render subparagraph (iv) a nullity and leave a gaping loophole subject to abuse.
(b) Why do you consider it relevant to this question of legal interpretation of the
concept of "financial contribution" th at as a factual matter "not all" such
measures eventually would be deemed to be subsidies, due to the absence of a
benefit.
Reply
The requirements of “benefit” and “specificity” are relevant because Canada and the EC are
attempting to induce the Panel to adopt an unwarrant edly narrow interpretation of subparagraph (iv).
The “benefit” and “specificity” elements will operate so as to render many alleged indirect subsidies
non-actionable and, thus, non-countervailable.
Q37. Assume for the sake of argument that the measures challenged by Canada do not
require  – but authorise  – the treatment of export restraints as financial contributions within the
meaning of Article 1 of the SCM Agreement .  In that case, could the measures be found as such
to be inconsistent with the United States' WTO obligations?  If so, on what basis?  If not, please
explain why.
Reply
This dispute involves a measure (the statute) that does not expressly preclude treating export
restraints as financial contributions.  The measure cannot be found as such to be inconsistent with US
WTO obligations because of the mandatory/discretionary doctrine.  None of the other “measures” atissue “authorize” action by the US government.  The doctrine has been applied even where (unlike
here) there has been explicit authorization to undertake a WTO-inconsistent act.  The obligations of
Article 32.5 and Article XVI:4 are to ensure that laws, regulations and administrative procedures are
such so as to permit domestic authorities to act in a WTO-consistent manner.  As the Appellate Body
has observed, ensuring conformity cannot mean a strict guarantee or absolute assurance as to thefuture  application of a measure, because such a standard would “be very difficult, if not impossible, to
satisfy since no one can predict how unknown admini strators would apply, in the unknowable future,
even the most conscientiously crafted compliance measure.”
Q38. You cite the report of the Panel in EC – Audio Tapes , in paragraph 100 of your request
for preliminary rulings, as indicating that "[I] t would [not] be appropriate to reach findings on
a 'practice' in abstracto  when it had determined that the actions taken in a particular
investigation were not inconsistent with the Agreement and that the 'practice' was not pursuant
to mandatory legislation".  Is it your position that, where legislation authorises action contraryWT/DS194/R
Page A-31
to the WTO Agreement , but does not mandate it, it is not open to the Panel to hold that such
legislation is inconsistent with the WTO Agreement ?
Reply
Yes, that is the US position, and neither Canada nor the EC disputes this position.  One of the
WTO panel reports in which the mandatory/discretionary doctrine has been applied is Canada -
Aircraft .  It would be a peculiar result if, under the same agreement, a measure that merely authorized
the provision of prohibited subsidies was deemed WTO-consistent, while a measure that merely did
not expressly preclude the treatment of export restraints as subsidies was deemed WTO- inconsistent.
Q39. You argue that Canada is seeking an author itative interpretation by the Panel of certain
aspects of SCM  Article 1.1, a function which in your view is reserved for the Ministerial
Conference and the General Council, and that th e Panel should dismiss the dispute on the
grounds that, whatever the substantive obligations under the SCM and WTO Agreements
involved, the US legislation is discretionary.  Canada, by contrast, argues that the Panel must
first evaluate the substantive obligation under Article 1.1, before it can determine whether theUS legislation requires that obligation to be viol ated.  Is it your argument that, in every case in
which a piece of legislation as such is at issue, a Panel cannot  consider the substantive WTO
obligations involved unless and until it has determined that the legislation is mandatory?  Please
explain.
Reply
In the scenario hypothesized by the question, there would be no principled rationale for
deciding to address an issue the resolution of which is unnecessary for purposes of resolving the
dispute.  The Appellate Body already has stated that it is not the proper role of panels under the DSUto pursue dispute prevention by making abstract rulings.  Canada cites to no authority for the
proposition that a moot question of WTO-consistency must be addressed in a situation where the case
must be dismissed for other reasons.  In addition, in the cases Canada does cite, the nature of the
GATT or WTO obligations in question appear to have  been more complicated than the obligations at
issue in this case.  In those cases, the panels may have found it necessary to define the obligation
precisely before turning to the question of whether the responding party’s measure mandated a
violation of that obligation.  Canada appears to suggest that because the US does not agree withCanada’s interpretation of the SCM Agreement, the fact of this disagreement justifies having the
Panel decide the substantive issue.  However, the drafters of the DSU could not possibly have
intended that the existence of an abstract disagreem ent was something that called for a resolution by a
WTO dispute settlement panel in the form of an advisory opinion.  If this Panel were to issue the type
of advisory opinion sought by Canada, there would be no limits on the dispute settlement case loadinvolving requests from complainants for similar advi sory opinions.  The possibilities for abuse are
endless, and are much more real than Canada’s “slippery slope” scenarios.  Articles 24.3 and 24.4 of
the SCM Agreement establish a mechanism for deliver ing advisory opinions. This suggests that the
drafters were aware of the concept of an advisory opinion and knew how to establish a mechanism for
generating such opinions.  Second, the existence of the PGE advisory opinion mechanism means thatCanada has other options available to it if it needs assistance in making its choices.  In addition to
relying on the expert advice of its private counsel, Canada can ask the PGE – or it can ask the
Committee to ask the PGE – for an advisory opinion.  There is no need to waste the time and
resources of the WTO dispute settlement system.
Q40. In paragraph 15 of its oral statement at the first meeting of the Panel, the European
Communities argues on the basis of the Appellate Body ruling in Guatemala – Cement  that a
"measure" may be any act of a Member, whether or not it is legally binding, and that it can
include even simple administrative guidan ce by a government.  Please comment on thisWT/DS194/R
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argument of the European Communities, including its characterisation of the Appellate Body
ruling in Guatemala – Cement .
Reply
The EC mischaracterizes the Appellate Body’s rulings.  The EC’s arguments do not establish
that the SAA and the Preamble are measures.  The Appellate Body did not decide what constitutes a
“measure” for purposes of WTO dispute settlement.  Instead, the Appellate Body merely found that a
“measure” and a “claim” are two different things.  In footnote 47 of the report (which is clearly dicta)
the Appellate Body did not say that “all” acts “are” measures.  The brief reference to Japan -
Semiconductors  fails to disclose the particular circumstances of that case.  When the relevant portions
of that report are considered, it becomes apparent that the ruling of the panel in that case was far lesssweeping than the EC makes it out to be.  Furthermore, with respect to the other cases cited in
footnote 47 of the Guatemala - Cement  report, those cases involved situations where the relevant
WTO agreement established an affirmative obligation to act, which is not the case here.  Even the EC
concedes that the Preamble could constitute a measure under Article 6.2 of the DSU only “as long as
this act [the Preamble] contained authoritative guidance for the competent administration.”  The ECdoes not explain what “authoritative guidance” means, but simply relies on Canada’s erroneous
characterization of the status of regulatory preambles.   However, the Preamble is not binding on the
DOC and does not mandate or require the DOC to do anything.  Moreover, in terms of its content, the
Preamble does not express the view that the statute requires the DOC to treat export restraints as
subsidies, but instead expresses the tentative opinio n that the statute “would permit” the DOC to treat
export restraints as subsidies.
UNITED STATES' RESPONSES TO CERTAIN QUESTIONS POSED TO CANADA
(QUESTIONS DATED 18 JANUARY 2001)
Q3. Do you agree with the US characterisation th at you are asking the Panel to rule that an
export restraint could never, under any circumstances, constitute a subsidy?
Reply
This is precisely what Canada is asking the Panel to decide.
Q4. You state, in paragraph 4 of your first written submission:
"These measures, taken together , are inconsistent with Article 1.1 of the
SCM Agreement  and, because they require the imposition of countervailing
duties against practices that are not subs idies within the meaning of Article 1.1,
are inconsistent with Article 10 (as well as Articles 11, 17, and 19, as they relate
to the requirements of Article 10) and 32.1 of the SCM Agreement ."  (emphasis
added)
You further state, in paragraph 15 of your response to the US Request for Preliminary
Rulings:
" . . . [I]n accordance with the United States – Section 301  Panel's
observation, the elements of US law at issue in this dispute must be analysed
together ".  (emphasis added)
Are Section 771(5) of the Tariff Act , the SAA, the Preamble, and US  "practice" "measures" that
are individually  susceptible to dispute settlement?  Do you claim that any of the four identified
measures is by itself inconsistent with the SCM Agreement ?  Or, should the Panel simply beWT/DS194/R
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looking at the four identified measures as a package?  In other words, should the Panel only
look to these four measures when "taken together"?
Reply
It is dangerous for the Panel to seek to analyze an ill-defined “measure” identified as a
“package”.  The proper analysis of such a claim cannot be undertaken based upon abstract notions of
whether documents cited by a complaining party “must be analyzed together,” but on the status of the
cited documents under the responding Member’s domestic law.  Neither the SAA nor the Preamble
mandates that the DOC treat export restraints as su bsidies.  Moreover, there is no “practice” of doing
so, and even if there were, that practice could not mandate the treatment of an export restraint as a
subsidy under basic (and uncontested) principles of US administrative law.  Given the absence of aDOC regulation on this issue, the sole binding authority for addressing the status of export restraints is
the statute, which incorporates the standards of the SCM Agreement.
UNITED STATES RESPONSES TO CERTAIN QUESTIONS POSED TO CANADA
(QUESTIONS DATED 19 JANUARY 2001)
Q5. Assume that a government directs certain privately owned banks to ensure that 10 per
cent of the funds they lend are to be set aside for a given group of borrowers, in the sense that
the banks, while not required to lend to these borrowers, cannot lend the set-aside funds to anyother borrowers.  In your view, would such a situ ation constitute a financial contribution in the
form of a government-directed direct transfer of funds or potential direct transfer of funds, in
the sense of Article 1.1(a)(1)(i) and (iv)?  If not, why not?  If so, what distinction can be drawn
in respect of the question of "financial contri bution" between this situation and the imposition
of an export restraint?  Please explain.
Reply
Obviously, each situation would have to be assessed on its own facts, and a causal
relationship or nexus would have to exist between the government action and the direct transfer of
funds in order to find government entrustment or direction.  Presumably, Canada (and the EC) would
argue that a financial contribution would not exist because the bank “need not” lend the funds.However, to say this is to engage in a semantic game.
Q6. Pursuant to your arguments in paragraphs 39-40 of your oral statement at the first
meeting of the Panel, is it your assertion th at there could be no circumstances in which a
producer would have no choice but to sell its goods to the domestic users of its product pursuantto the imposition of an export restraint?
Reply
If Canada is making the assertion described by the Panel’s question, Canada has not provided
any evidence to support this assertion.  Moreover, “choice” must be understood to mean a real,
commercial choice.
Q8. Please comment on the EC st atement in footnote 21 to its written submission that an
export restraint may form part of a package of measures which, taken together, amount togovernment "direction" under subparagraph (iv).  The example given by the European
Communities is a government prohibition of exports of a product and a requirement that the
producer maintain output levels and sell the product at a certain price to downstream users.
How should such a measure (or package of me asures) be approached should it arise in aWT/DS194/R
Page A-34
countervail investigation?  Would there be a financial contribution, and would that contribution
emanate from the measure as a whole or only from some part/s of the measure?
Reply
The US does not disagree with the EC’s assertion that an export restraint could form part of a
package of measures that could amount to a subsid y under subparagraph (iv).  However, the US does
not rule out the possibility that an export restraint could constitute a subsidy standing alone,
depending upon the facts.  The EC’s point demonstrates why the Panel should refrain from making
findings in the abstract.  What precisely would the “package of measures” have to consist of in order
for government entrustment or direction to exist?  Even the EC offers no facts.
Q9. The Panel notes your response in paragraphs 26-27 of your oral statement at the first
meeting of the Panel to the apparent US argument that an export restraint can be the
"functional equivalent" of an affirmative obligation to provide a good to domestic purchasers,
to the extent that, by directing producers not to export, it directs them instead to seek the only
other purchasers available to them for the sale of  their goods.  Assuming a situation in which
the producers have no choice but to sell to domestic purchasers ( i.e., they cannot exercise any of
the theoretical options identifi ed by the European Communities  as open to them), on what
substantive basis could an export restriction be distinguished from an affirmative obligation to
provide the restrained good to domestic purchasers?
Reply
There is no substantive basis for making such a distinction.  In the hypothetical posed,
ordering producers not to export is substantively no different from ordering them to sell only to
domestic purchasers.  An export restraint is a direction to provide goods to domestic purchasers if it
can be shown, as a factual matter, that there is a proximate causal relationship between the export
restraint and the behaviour of the producers of the restrained product.  Of course, whether such a
causal relationship exists is something that can only be assessed on a case-by-case basis.  Canada has
failed to demonstrate that there is not, and can never be, an export restraint that has the type of posited
effect.  Furthermore, if the restraint results in the producer having no practical or commercial choice
but to sell in the domestic market, the restraint is the same as a direction to sell in the domestic
market.  Canada’s efforts to avoid discussing the object and purpose of the SCM Agreement, which itvery nicely summarized in CDA-106, is telling.
Q10. You seem to argue that a "private body" in the sense of Article 1.1(a)(1)(iv) must be an
organised "collectivity", and that therefore the mere sharing of a common characteristic (e.g.,
gold miners) is not sufficient to transform a group of individual entities into a "private body".Is it your argument that an individual producer of a good could not be a "private body"
because it was not part of an organised "collectivity"?  If not, are you arguing that each
individual producer of a product could be a "private body", but that looked at as a whole ( i.e.,
from the perspective of their common characteristic), such producers could not be a "private
body"?  Please explain.
Reply
See US First Submission , paras. 40-44.  Even the EC does not agree with Canada’s
interpretation of the phrase.
Q11. You argue that the United States interprets in an overly-broad manner
Article 1.1(a)(1)(iv) in respect of government-entrusted or -directed provision by a private body
of a good.  In your view, the US interpretation would potentially open the door to defining anyWT/DS194/R
Page A-35
government regulatory measure that increases the domestic supply of a good as a government-
directed provision of a good:
Reply
The interpretations referred to are interpretation s offered for purposes of this dispute in order
to rebut Canada’s claim that an export restraint can never, under any set of circumstances, constitute a
subsidy.  The DOC has yet to apply the standard set forth in section 771(5)(B)(iii) and
subparagraph (iv) in an actual CVD proceeding to anything other than government-directed
provisions of credit.  However, based only on the text of subparagraph (iv), the US seriously doubts
that all regulatory measures, as claimed by Canada, would satisfy the standard for a subsidy under
subparagraph (iv).  Among other things, there would need to be a demonstrated causal relationshipthat results in a private body taking an action of the type listed in subparagraphs (i) through (iii).
(a) In your view, how narrowly should this provision be construed?  Would you
consider that if a government ordered a producer to sell its product to a certain
customer (or customers), without specifying a price, quantity or other terms,that this would constitute government-dir ected provision of a good?  If not, why
not?
Reply
Absent other facts that might call for a different conclusion, the US fails to see how this could
not constitute the government-directed provision of a good based on the ordinary meaning of “direct.”
There is no textual support for the proposition that price or quantity (or any other terms) need be
specified.  As to how narrowly should this provision be construed, “entrusts or directs” language
combined with the requirements of “benefit” and “specificity”, are sufficient to address Canada’s“slippery slope” argument.
(b) Are there any circumstances other than an explicit  requirement by a government
to make available a given product to given purchasers that in your view would
constitute government-entrusted or -directed provision of goods?
Reply
Based on the ordinary meaning of the text, such an “explicit requirement” need not be
present.  Moreover, such an interpretation would elevate form over substance.
(c) Taking into account your responses to questions (a) and (b) above, how
proximate a relationship of cause and effect must there be between a
government's action and a private body's action for the "entrusts or directs"
standard in Article 1.1(a)(1)(iv) to be satisfied?
Reply
To the extent the Panel chooses to consider the status of export restraints in the abstract, this
is the crucial question.  The US agrees with the underlying premise of the question that, based on the
ordinary meaning of the term “direct”, there would have to be a demonstrated causal relationship
between an export restraint and a private body’s action ( e.g., the provision of a good) in order for the
standard in subparagraph (iv) to be satisfied.  Because the DOC has not had to address this question
under post-WTO law, the US is not in a position to opine further on how strong this causal
relationship must be.  Under pre-WTO law, the DOC applied a “direct and discernible effect”
standard to assess the causal relationship between an export restraint and the domestic prices of the
restrained product.  The US is not suggesting th at this would be the standard applied by the DOCWT/DS194/R
Page A-36
under post-WTO law in the context of an actual CVD case.  Nevertheless, the DOC found that
sometimes an export restraint had an appreciable effect on prices, and that other times it did not.  The
DOC did not simply assume that a causal link existed.
Q12. You argue that, where the government entrus ts or directs a private body to carry out
one of the types of functions in subparagraphs (i)-(iii) of Article 1.1(a)(1), subparagraph (iv)
requires that such a function must be one that would normally be vested in the government and
must not differ in any real sense from practices normally followed by governments:
(a) Please expand on how, in your view, th ese concepts or requirements fit in the
context of the functions listed in subparagraphs (i)-(iii).  Could it not be argued
that many of these functions are "normally" undertaken by the private sector(e.g., investment of equity capital, lending of money, provision or purchase of
goods, etc.)  Under what conditions or ci rcumstances could it be said that such
functions are "normally" undertaken by a government?
Reply
Canada’s interpretation is too restrictive and would render subparagraph (iv) a nullity.  The
only negotiating history on subparagraph (iv) makes it clear that the government functions referred to
in subparagraph (iv) relate to government actions in the context of providing a subsidy.  This is
another effective limitation on Canada’s “slippery slope” argument.  The induced private action mustentail a reallocation of resources by way of taxation or subsidization or it would not be the type of
government action that normally falls under subparagraphs (i)-(iii).
(b) The United States argues that su ch functions are "normal" government
functions in the context of the provision of subsidies.  Given that you emphasisein your arguments that the concepts of financial contribution and benefit are
separate and must not be confused or blended, is it correct that you would not
agree with this statement by the United States?  If you do not agree with the
United States on this point, on what other basis or under what other
circumstances do you consider that these functions would fall within the
government's "normal" activities and thus would satisfy the test in
subparagraph (iv)?
Reply
There is a difference between benefit and financial contribution for purposes of
subparagraph (iv).  Financial contribution would appear to be a matter of:  (1) a proximate causalrelationship between the government action and the private action; and (2) the private action being a
form of taxation or subsidization ( i.e., the type of action that a government “normally” would do).
While the evidence for this second aspect and “benefit” may overlap, they are not the same thing.
Insofar as Canada’s “slippery slope” argument is concerned, it is not particularly important whether
innocuous government regulations are excluded from the scope of an actionable subsidy because theyare not financial contributions, do not confer a benefit, or are not specific.
(d) Considering the specific case of provision of goods, what constitutes the
"normal" provision of goods by a government?  In what circumstances could it
be said that a provision of goods by a private body at the direction of agovernment would satisfy the criteria of "normally vested in the government"
and "in no real sense differs from practices normally followed by governments"
set forth in subparagraph (iv)?WT/DS194/R
Page A-37
Reply
The provision of a good by a private body at the direction of a government could satisfy the
criteria of “normally vested in the government” and “in no real sense differs from practices normally
followed by governments” where a subsidy results.
Q13. Do you agree with the European Communities’ argument that, in the case of
government-entrusted or -directed provision of goods, for the condition of the “carrying out of
functions that would normally be vested in the government” to be fulfilled, not only would there
have to be specific direction to the producers to provide the goods, but also that this provision
would have to be on “certain pre-determined conditions”?  If you agree, why would “pre-
determined conditions” have to exist in order for a private body to be carrying out a function
normally vested in a government ( i.e., for a financial contribution  to exist)?  That is, are not the
“conditions” on which a good is provided the dete rminant of whether there is a benefit?  If so,
in what way would “conditions”, pre-determined or otherwise, be relevant to the question of
financial contribution?
Reply
There is no requirement in any of the subparagraphs of Article 1.1(a)(1) that there be “certain
pre-determined conditions”.  While the EC erroneously accuses the US of focusing solely on the
object and purpose of the SCM Agreement (whi ch object and purpose certainly support the US
position), the EC Submission  contains no analysis of the ordinary meaning of the words used in
subparagraph (iv).  If the Panel examines the EC Submission  carefully, it will see that there is not a
single  reference to a definition of any of the terms at issue.
Q14. Please comment on paragraphs 17-31 of th e United States' oral statement at the first
meeting of the Panel with the parties.
Reply
At this point, the US merely would recall the principle set forth in paragraph 7.19 of the
US 301  panel report.  Under this principle, which is referred to in paragraph 71 of the US Request ,
while the Panel is not bound to accept the interpretation presented by the US, the US can reasonablyexpect that the Panel will give considerable deference to the US’ views on the meaning of its own
law.  Contrary to the picture Canada attempts to paint in paragraph 16 of Canada’s Response to US
Request for Preliminary Rulings  (“Canada’s Response ”), this principle is not of the US’ creation, but
rather was articulated by the panel in the US 301  case.
Q15. Please explain why (in paragraph 45 of yo ur first written submission and paragraph 56
of your response to the US request for preliminary rulings, which view also is expressed by the
European Communities in paragraph 27 of its oral  statement at the first meeting of the Panel)
you consider that the proviso in the SAA limi ts any discretion that Commerce may enjoy to
"satisfying itself that an alleged subsidy involves a formal enforceable measure".  The provisostates, in particular, that the type of indirect subsidies which Commerce has countervailed in
the past will continue to be countervailable "provided that Commerce is satisfied that the
standard under Section 771(5)(B)(iii) has been met".  Do these words not require Commerce to
be satisfied that all of the elements in Section 771(5)(B)(iii) have been met?
Reply
The interpretation of the SAA proposed by Canada and the EC would read the proviso out of
the SAA.  A US court or agency would not re nder the proviso ineffective by ignoring it.WT/DS194/R
Page A-38
Q16. You state, in paragraph 39 of your response to the US Request for Preliminary Rulings:
" . . . [T]he 'practice' at issue is not individual determinations in
countervailing duty cases as the United States suggests.  As Canada has made
clear, it does not seek a ruling overturning the determinations in particular pastcases.  Practice is, rather, an administrative commitment or policy to adhere to a
particular legal view and to apply a particular interpretation or methodology –
here, to treat an export restraint as meeting the financial contribution
requirement of the SCM Agreement  when US authorities find a benefit."
(footnotes omitted)
(a) How, in your opinion, is such an "administrative commitment or policy"
susceptible of dispute settlement per se ?  How is such an "administrative
commitment or policy" – something that might be otherwise described as
US 'behaviour' – to be conceived of as a measure?
Reply
The very question demonstrates the absurdity of Canada’s claims.  If the type of
“administrative commitment” alleged by Canada in this case is considered to be a “measure”, the
consequences for the WTO dispute settlement system would be much more dire and real than the
imagined “slippery slope” arguments Canada has advanced.
(b) In what way is US "practice", in the sense described in the above quote,
different from the references to export restraints in the SAA and the Preamble
as you characterise them?  That is, if the Panel were to rule on the SAA and the
Preamble, as requested by you, as policy statements binding on the DOC in
respect of the treatment of export restraints, what would an additional ruling inrespect of US "practice" add?
Reply
Because the SAA does not require the DOC to treat export restraints as subsidies and because
the Preamble is at most a non-binding, tentative opinion by the DOC to the effect that an export
restraint might constitute a subsidy under the new definition of that term, Canada needs somethingcalled “practice” to make its claims succeed.  However, there simply is no practice for Canada to
challenge in the sense of actual, post-WTO determinations by the DOC that an export restraint
constitutes a subsidy (or even a financial contribution).
(c) If practice is "not individual determinations in countervailing duty cases", and
also is something different from and beyond the statements in the SAA and thePreamble, then what is it precisely?
Reply
This question demonstrates the validity of the US position that Canada’s claims regarding
“US practice” are not properly before the Panel.  Even after one full round of briefing and a meeting
of the parties with the Panel, it is difficult to discern exactly what Canada means by “practice.”  If this
does not constitute prejudice to the US (assuming arguendo  that a showing of prejudice is required),
then the pleading requirements of the DSU are meaningless.
(d) Do you believe that US "practice" as an "administrative commitment or policy"
is mandatory legislation in the sense that the term is used in the
mandatory/discretionary distinction?  And if US "practice" does not constitute
mandatory legislation – which requires  the United States to do something – thenWT/DS194/R
Page A-39
on what basis could it be found as such to be inconsistent with the United States'
WTO obligations?
Reply
Canada has not disputed the principle that the DOC is not bound by its prior determinations.
Although the phrase “administrative commitment or policy” appears to be of Canadian derivation, it
stands to reason that if the DOC is not bound by its  determinations in actual cases, it is not bound by
an “administrative commitment or policy” articulated in the abstract and outside the context of actual
cases.  Canada has not disputed the continuing validity of the mandatory/discretionary doctrine.
Therefore, Canada’s alleged “administrative commitment or policy” cannot be found as such to be
inconsistent with US WTO obligations.  If the DOC should ever find a Canadian export restraint to bea subsidy in an actual case, or if the DOC should ever promulgate a binding regulation that mandated
WTO-inconsistent action, Canada would be entitled to bring a dispute to the WTO.  Until that time,
however, Canada’s rights under the WTO agreements have not been affected.
Q17. Please respond in detail to the US argument s in paragraphs 43-55 of its oral statement at
the first meeting of the Panel, concerning the applicability of the WTO  and SCM Agreements ’
provisions cited by Canada to the measures identi fied by Canada.  (In this regard, please note
that, in response to an oral question from th e Panel at its first meeting, the United States
indicated that these arguments are applicable to the SAA and the Preamble, in addition to
practice, under which heading they appear in the US oral statement delivered at that meeting.)
Reply
The US confirms the referenced statement at the first meeting of the Panel.  Although the US
disputes that the SAA and the Preamble are measures, assuming for purposes of argument that theyare, the arguments set forth in paragraphs 43-55 of the US Oral Statement  apply equally to them.WT/DS194/R
Page A-40
UNITED STATES' RESPONSE TO A QUESTION POSED TO THE
EUROPEAN COMMUNITIES
2. (c) Turning this argument around, is it your position that there would be no
"financial contribution" in the sense of Article 1.1(a)(1)(iii) if a government-
owned company established its production quantities and terms and conditions
of sale as it saw fit, rather than th e government establishing "pre-determined
conditions" therefor?
Reply
This would appear to be the upshot of the EC’s  argument.  At this point, the US simply would
note that Article 1.1(a)(1) of the SCM Agreement refers to a financial contribution “by a government
or any public body ”.  (Emphasis added).  The parties to this case appear to agree that a corporation
would constitute a “body”.  Therefore, it is difficult to see how a “government-owned company”
could be incapable of providing a financial contribution in the form of a provision of goods.WT/DS194/R
Page A-41
ANNEX A-3
EXECUTIVE SUMMARY OF ANSWERS OF CANADA TO
QUESTIONS POSED BY THE PANEL AT THE
SECOND SUBSTANTIVE MEETING
(8 March 2001)
QUESTIONS TO CANADA
Q13. Have there been any cases where the Preamble  has been used as a "legislative rule" in
the sense described by the United States at paragraphs 30-43 of its second oral statement?  If so,
please provide details.
Reply
US courts have frequently been called on to determine whether a particular agency statement
is a legislative rule, and have developed a variety of tests adapted to varied factual situations.  The
United States has put forward one such test, namely, the test applied by the Court of Appeals for the
District of Colombia in its 1994 American Mining Congress  decision.  Three years later, the same
court, in Troy Corporation v. Browner ,1 applied a simpler test, first developed by it in National
Family Planning and Reproductive Health Ass’n v. Sullivan ,2 to determine whether the preamble to a
final agency regulation was legislative.
Under both tests, the Preamble is a legislative ru le with respect to export restraints.  Applying
the test in Troy , the Preamble 1) “supplements” a statute by announcing interpretation with regard to
export restraints, which the statute does not address, 2) “effects a change in existing law or policy” by
establishing Commerce’s legal interpretation of the newly amended statute with regard to export
restraints, and 3) produces “significant legal effects on private interests” in that Commerce applied the
Preamble as conclusive in its countervailing duty determinations, as described in Canada’s Second
Written Submission at paras. 33-39.  Under Troy , any one of these factors establishes the Preamble as
a legislative rule.
Similarly, the Preamble meets the American Mining Congress  test. First, the Preamble
establishes a legislative basis for Commerce action as to “indirect subsidies” and the “entrusts or
directs” standard that would otherwise not exist, by declaring the standard no narrower than the pre-
WTO standard and establishing that Commerce applies its pre-WTO precedents on export restraints.
Hence the basis for Commerce action on export restraints is the Preamble, which Commerce simply
adheres to and applies as dispositive in its determinations.  Second, Commerce published the
Preamble with the rest of the regulations in the Federal Register, which, as previously demonstrated
by Canada, gives it full legal effect.  Third, Commerce explicitly invoked its legislative authority; thePreamble states that Commerce intended to “translate the principles of the implementing legislation in
specific and predictable rules”.  Commerce then applied its legislative authority by explicitly ruling on
export restraints.  Fourth, although the Preamble did not specifically amend a pre-existing legislative
                                                     
1 Troy Corp. v. Browner , 120 F.3d 277, 287 (D.C. Cir. 1997) (finding an agency statement not to be a
legislative rule where it merely restated existing policy). (Exhibit CDA-138)
2 979 F.2d 227, 236-40 (D.C. Cir. 1992) (holding agency directives to be legislative rules where they
did not merely clarify a statutory term but supplemented the statute, changed law or policy, and had significanteffect on private interests). (Exhibit CDA-137).WT/DS194/R
Page A-42
rule (because Commerce had never issued final  substantive countervailing duty regulations), the
Preamble established the legislative rule on export restraints.  Any one of these factors establishes the
Preamble as a legislative rule under the American Mining Congress  test.
There are numerous examples of when the Preamble has been used as a legislative rule in the
sense described by the United States at paragraphs 30-43 of its second oral statement.  The Korea
Stainless Steel cases as well as the Live Cattle  case are but a few relevant examples that Canada has
previously provided. A listing of numerous other examples can be found in paragraphs 14-20 of
Canada’s Responses to the Panel’s February 21-22 Questions (“February Responses”).
With regard to the US discussion of the Davis treatise at paragraphs 31-33 of it oral statement,
the United States alleges that Canada has attempted to substitute the views of academics regardingpublication in the CFR for the decisions of the US Court of Appeals for the District of Columbia.  Of
course, Canada has shown that it was this same court that held publication in the CFR to be of no
significance. More importantly, the United States submitted only the “interpretative rule” portions of
Professor Davis’s exposition on distinctions between legislative and interpretative rules.  Immediately
following the pages submitted by the United States, however, Professor Davis provides a criticalclarification:  a rule that “announces the agency’s construction of a statute it has responsibility to
administer” is a “legislative rule”, not an “interpretative rule” if the agency has and exercises the
authority to promulgate a legislative rule.
3  This is precisely what Commerce accomplished through
the Preamble with regard to export restraints, an d such legislative rule is binding on courts, on
citizens, and on the agency itself.4
Q14. Canada argues, in response to question 16(c) from the Panel, that "[p]ractice is [] not anindividual determination in a countervailing duty  case (although a determination normally will
reflect 'practice'), but rather is an institutiona l commitment to follow declared interpretations
and methodologies that is reflected in cumulative determinations".  In Canada's view, how isthe "institutional commitment" expressed?  That is, for something to be identifiable as such a
"commitment", would it need to be reflected in writing,  e.g., in a DOC determination, and
identified in general terms as agency "practice" or  "policy"?  If not, how (that is, in what form)
would such an expression be made?  To the extent  that there is an explicit identification of a
"practice" in a DOC determination or other document, how, in Canada's view, is this different
from "legislation"?
Reply
The “institutional commitment” is normally reflected in writing.  A “practice” identified in a
Commerce determination differs from “legislation” because it is not statutory and has not been validly
promulgated as a legislative rule.  It simply is what the agency systematically does.  As a matter of USlaw, a practice also differs from legislation (in the sense of statute) in that a practice that was
inconsistent with a statute would not be upheld in a US court.  However, as noted in response to
Question 15, practice must normally be followed, and those affected by the US countervailing duty
law therefore have reason to expect that it will be.
Q15. Also in response to question 16(c) from the Panel, Canada indicates that "in the context
of this dispute, practice is related to preceden t, in that an interpretation or methodology will
often be developed in a single case or group of cases, and becomes the 'practice' followed in
subsequent cases".  In Canada's view, why is this principle applicable in the present dispute,
given the absence of any post-WTO cases where the United States has countervailed exportrestraints?  Further, even if there were such cases, and the DOC had set out the methodologies
it "normally" applied in such cases, do you disagree with the US statement that under US law
                                                     
3 Davis, Vol. I, § 6.3, at 234-235. (Exhibit CDA-140)
4 Id., § 6.5, at 250-251.WT/DS194/R
Page A-43
the DOC could depart from those methodologies as  long as it explained the reasons therefor?
How does this affect the identification, in concret e terms, of "practice" as this term is used by
Canada, i.e., as "related to precedent"?  Regarding Live Cattle , is it Canada's argument that a
decision to initiate an investigation is of eq uivalent precedential value to that of a final
affirmative determination?
Reply
First, pre-WTO practice was brought forward into post-WTO law and practice by virtue of the
SAA and the Preamble.  Second, the initiation of the Live Cattle  case expressly relied on the pre-
WTO decisions in Leather  and Lumber  and, in the final determination, Commerce expressly rejected
Canada’s arguments as to why an export restraint could not satisfy the financial contributionrequirement in section 771(5)(b)(iii).  Third, in the Korea Stainless Steel  cases, Commerce made clear
that it is directed to and will apply the same standa rd to indirect subsidies that was applied prior to the
WTO and, as is made clear in the measures at issue in this case, “indirect subsidies” includes export
restraints.
Agencies, including Commerce, normally follow the precedents of prior determinations, and
are required by US courts to do so absent a reasoned explanation as to why the particular facts or an
intervening change in law justify the departure, and how the departure is consistent with the statute
and supported by substantial evidence.  Agencies may not treat like circumstances differently, or
simply change their minds from case to case.  While Commerce may therefore theoretically departfrom its export restraint practice under these very limited circumstances, all the evidence with respect
to export restraints is that it will not do so.  That is, all the evidence in this case reflects Commerce’s
clear commitment to continue its practice.
The decision to initiate the Live Cattle  case is of precedential value because it reflects
Commerce’s decision that the standard that there be “sufficient evidence” of all the elements of a
countervailable subsidy, including financial contribution, had been met.  Thus, while a decision to
initiate an investigation may not have the same precedential value as a final determination because it
applies a different standard, under both standards the same legal elements are required to be present.
Moreover, the initiation in Live Cattle  is precedent for initiating a subsequent case alleging an export
restraint “subsidy”.  As Canada has pointed out, in initiating Live Cattle , Commerce necessarily had
to conclude that the CWB’s “control” over barley exports, if proved to exist, would meet the financialcontribution standard under section 771(5)(B)(iii) and thus that export restraints are financial
contributions.
Q16. Assume hypothetically that the Panel w ere to rule on, and find in favour of Canada's
claims in respect of, all of the "measures" id entified by Canada other than "practice".  In
Canada's view, what actions would the United States need to take in order to "bring its
measures into conformity" pursuant to such a ruling?  How would such actions differ from
those that the United States would have to take if the Panel ruled in favour of Canada's claim in
respect of "practice" as well?  That is, what does Canada believe that the specific, practical
implications would be for remedy of including or excluding "practice" from any hypothetical
ruling by the Panel in favour of Canada's clai ms?  In your response, please comment on the
statement of the panel in European Communities – Parts and Components , after the finding that
the legislative provisions in question were not mandatory, that while it would be desirable for
the European Communities to withdraw the le gislative provisions in question, the European
Communities would meet its GATT obligations if it were to cease to apply those provisions inrespect of Contracting Parties
5.  Would the same be true in this case, assuming the hypothetical
ruling posited above?  If not, why not?  In your oral response to this question, you indicated
                                                     
5 European Economic Community – Regulation on Imports of Parts and Components , Report of the
Panel, BISD 37S/132, adopted 16 May 1990, para. 5.26.WT/DS194/R
Page A-44
that, assuming the hypothetical ruling, it would no t be necessary for the United States to revise
the SAA.  How does this statement relate to your previous assertion that the SAA mandates the
DOC to treat export restraints as financial contributions?
Reply
As Canada suggested in answering follow-up quest ions from the panel, this is essentially a
question for the United States to address in de termining how it would implement the hypothetical
decision and Canada cannot prejudge how the United States might choose to do this.  Having said
this, Canada will respond by making general comments about each measure in turn.
With respect to the statute, Canada believes that no amendment would be necessary.  As
Canada has pointed out, the statute itself does not specifically address export restraints.  However,
because section 771(5)(B)(iii) provides the statutory basis or authority for the application of the
treatment of export restraints under US countervailing duty law at issue in this dispute, the statute
must be included in, and is essential to, any consideration of that treatment.
With respect to the SAA, whatever action the United States did take would have to have
sufficient legal authority to allow the United Stat es to treat export restraints in a manner consistent
with the DSB ruling so that the treatment of export restraints required by the SAA and the other
measures at issue would no longer have any fo rce or effect under US countervailing duty law.
Regarding the Preamble, implementation would have to include in some manner Commerce’s
disavowal of the language regarding export restraints in the Preamble, such as through a Federal
Register notice stating a new interpretation of the statute that was consistent with the DSB ruling and
made clear that Commerce would no longer follow its  pre-WTO practice and precedents on this issue.
Finally, with respect to practice, in Canada’s view, Commerce would have to bring its
practice into conformity with the DSB ruling by ceasing to treat export restraints as a financial
contribution.  This would need to be evidenced in any initiations, preliminary and final
determinations, and preliminary and final results of review (if any).  Further, it is important to note
that if the United States modified the Preamble such that it simply did not address export restraints,
there would still be a US practice of treating export restraints as financial contributions that would not
be in conformity with the DSB ruling, and this practice would have to cease.
The EEC – Parts and Components  case should be distinguished from this case in that the
legislation at issue in that case was unequivocally discretionary in that the operative word in the
legislation was “may”, while here Canada has demonstrated that US countervailing duty law requires
the treatment that Canada has complained about.
Q17. We understand Canada to make the following two arguments concerning the legislation
at issue:  (i) that the statute "as int erpreted by" the SAA and the Preamble is mandatory
legislation that requires  the DOC to violate its obligations under the SCM Agreement; and (ii)
that, although the statute on its own is discretion ary, in the sense that it would be possible to
interpret it in a WTO-consistent manner, the SAA and the Preamble "c urtail the discretion" of
the DOC to act WTO-consistently.  Is this a correct understanding of Canada's arguments?
Are these two formulations simply two different wa ys of saying the same thing, or is the second
formulation an alternative argument to the first, or a different argument in some other respect
from the first?  Please explain.
Reply
The Panel has the correct understanding of Canada’s arguments.  There is no difference
between them in that the result under either argument is that the US measures are not “discretionary”WT/DS194/R
Page A-45
within the meaning of the mandatory/discretionary distinction in GATT/WTO jurisprudence, i.e. that
the United States has not demonstrated that it has sufficient discretion to conform with its WTO
obligations.  As Canada has explained in conjunction with the second formulation, the
mandatory/discretionary distinction does not mean that discretion of any type or degree will allow a
defending party to successfully avail itself of this defence.   Here, the SAA and the Preamble curtailthe discretion of the executive authority in the contex t of this dispute such that the legislation will be
interpreted and applied in a WTO-inconsistent manner.  These measures therefore demonstrate that
the US cannot successfully avail itself of the mandatory/discretionary defence, even assuming
arguendo  that the measures provide Commerce with some  level of discretion.  Further, the US claim
that it could avoid interpreting its law so as to not treat an export restraint as a financial contribution,
i.e. interpret its law differently th an the interpretation to which it is committed, is also not discretion
of a nature or breadth as to allow the United States to avail itself of the mandatory/discretionarydistinction as a defence.
Q18. Could Canada please reconcile its statement that the statute does not require the
treatment of export restraints as financial cont ributions with its statement that each of the
measures individually requires such treatment.
Reply
As Canada has pointed out, the statute itself does not specifically address export restraints.
However, because section 771(5)(B)(iii) provides the statutory basis or authority for the application ofthe treatment of export restraints under US countervailing duty law at issue in this dispute, the statute
must be included in, and is essential to, any considera tion of that treatment.  Therefore it is fair to say
that while the statute should be considered among the measures which, taken together, result in the
WTO-inconsistent treatment of export restraints under US countervailing duty law, the statute does
not require this treatment independent of one or more of the other measures.
Q19. Could Canada explain the apparent inconsistency between its characterisation of the
proviso in the SAA in this dispute and its arguments concerning the same proviso in the Live
Cattle investigation, referred to at paragraph 24 of the second oral statement of the
United States.
Reply
With respect to the United States’ reliance on Canadian submissions in the Live Cattle  case,
Canada pleads guilty to trying to persuade Commerce to interpret US countervailing duty law in a
manner that would be WTO consistent.  In Live Cattle , Canada still harboured the hope that the
United States would and could do so.  One of the reasons Canada is before this Panel is thatCommerce made clear in Live Cattle , through both the basis upon which it initiated the case and its
reasons for disagreeing with Canada’s arguments regarding financial contribution in its final
determination, that it considers itself required to treat export restraints in a manner that is WTO-
inconsistent.
Q20. What is the significance of the followin g sentence of the paragraph from the Senate
Joint Report on the URAA (Exhibit CAN-134), an excerpt of which you quote at paragraph 19
of Canada's second oral statement?:
"The Committee further expects that these types of indirect subsidies will continue to be
countervailable where the standard under new section 771(5)(B)(iii) has been met."
Does this sentence in Canada's view have the same meaning as the proviso in the SAA?WT/DS194/R
Page A-46
Reply
No.  The sentence does not have the same meaning as the proviso.  In Canada’s view, the
statement reflects the committee’s understanding that  the standard has already been defined in the
preceding statements that Canada has quoted.  Those statements are consistent with Canada’sunderstanding of the SAA.  More specifically, the last sentence in the paragraph of the Report in
question does not apply to the immediately precedin g statement that Canada quoted.  Unlike the SAA,
this sentence does not apply to the committee’s statement that Commerce should administer US
countervailing duty law consistent with Leather and Lumber .
Q21. Could Canada clarify whether in its view  the Senate Joint Report on the URAA should
be considered by the Panel as further interpretative guidance, or as in some sense binding onthe Department of Commerce?  In other words, wh at is the status of this report in respect of
Section 771(5)(B)(iii) and the SAA?
Reply
In terms of US legislative history, the Senate Joint Report ranks just below the SAA in that it
has not been approved by the whole Congress.  The Report was offered by Canada as further evidence
of the United States’ commitment to treat export rest raints as financial contributions and to reinforce
what the SAA says and means, i.e. to demonstr ate that the SAA is not simply “empty” words.
Q22. Would Canada please respond to the United States' argument at paragraph 63 of the
US second oral statement.
Reply
The premise of the US argument is wrong because subject to Canada’s comments in
Question 18, regarding the statute, the measures individually do require the treatment of export
restraints as financial contributions.  Canada’s point is that to fully understand the treatment of export
restraints under US countervailing duty law, one needs to consider together all the elements of US law
that bear on that treatment.
Q23. Canada appears to argue, in its responses to questions 11 and 12(a) from the Panel, that
the coverage of paragraphs (i)-(iii) of Article 1.1(a)(1) is broader than that of paragraph (iv).
That is, Canada argues that any action by a government itself of the type described in
paragraphs (i)-(iii) would, by definition, and wi thout any additional conditions, be a "financial
contribution".  Canada also argues, however, that if a government undertook the same action
but this time operated through  a private body, this action would only be a "financial
contribution" if that government "ordinarily" p erformed that function.  The implication of this
argument would appear to be that government intervention in the market through a private
body (even if repeated over some period of time) would not satisfy the requirements of
paragraph (iv), unless the government already had a past history (or prior "ordinary" practice)
of doing so itself directly.  For example, if a government had no past history of lending money toprivate companies itself out of its own funds, and then began to order private banks to make
certain loans to certain companies, Canada's argume nt seems to imply that these loans, in spite
of being made at the explicit direction of the government, would not constitute financial
contributions by that government, because of  the absence of a prior practice of direct
government lending.  Is this a correct understanding of Canada's argument?  Please explain,and please discuss the rationale or purpose under Article 1 for what Canada sees as two
different legal standards under different paragraphs of the same "financial contribution"
provision, i.e., one standard under paragraphs (i)-(iii), and a second, narrower standard under
paragraph (iv)?WT/DS194/R
Page A-47
Reply
Canada believes that the “normally vested” and “normally followed” requirements are express
limiting factors of subparagraph (iv). Canada recognizes that future panels may have to develop a
more comprehensive interpretation of these requirements.  Canada has advanced a good faithinterpretation that relies upon the ordinary meaning of the words of the treaty in their context and in
the light of its object and purpose. Having said this, Canada would advocate neither a “broad” reading
of subparagraph (iv) nor a “narrow” reading of it.  Canada would advocate a reading of the provision
that is consistent with the Vienna Convention, and consistent with the object and purpose of the
treaty, which sets out a particular set of government actions that are subject to discipline under the
Agreement.  These actions are limited to the terms used in the definition including the terms used in
subparagraph (iv).   Having reference to these provisions, Canada notes that subparagraph (iv)necessarily implies limitations.
Q24. Could Canada please respond to the US argument in the last sentence of paragraph 46
of its second oral statement.
Reply
The US argument at paragraphs 45 and 46 of its second oral statement that the Preamble itself
demonstrates that Commerce did not intend the Preamble language to be binding is incorrect.  What
Commerce said in the Preamble was that it did not think it appropriate to develop a precise definition
of “entrusts or directs” .  Commerce did not say that it did not intend to be bound by the
interpretations of “indirect subsidies” and “entrusts or directs” that it did state in the Preamble.  As
Canada pointed out in its Second Written Submission, under US law the burden is on the agency
publishing a notice in the Federal Register to clearly communicate some other intent if the publication
is not intended to have the binding effect of a duly promulgated regulation.  Neither the Preambleitself nor any other contemporaneous communication by Commerce stated any intent not to be bound
by its statements, and the United States’ post hoc assertion in this proceeding about its intent in
publishing the Preamble cannot, under US law, substitute for such a communication.  Moreover, the
very fact that Commerce expressly did not precisely define “entrusts or directs” is evidence that, had
it intended not to issue any binding interpretations of that phrase or “indirect subsidies”, it would have
so stated.
Moreover, while Commerce did not precisely define “entrusts or directs”, it did interpret that
phrase and “indirect subsidies” in the Preamble in very important ways: (1) Commerce confirmed that
the “current standard is no narrower than the prio r US standard for finding an indirect subsidy as
described in . . . Lumber ”; (2) Commerce declared its position that “the phrase ‘entrusts or directs’
subsumes many elements of the definitions proposed by commenters”, when all of the referencedcomments had proposed defining “entrusts or directs” solely in terms of causation or effects, and none
had addressed the nature of the government action required; and (3) Commerce found it unnecessary
to provide an illustrative list of situations that would fall under the “entrusts or directs” standard,
because the SAA already listed cases (including Leather  and Lumber ) in which Commerce had found
indirect subsidies in the past, which provided “ex amples of situations where [Commerce] believe[d]
the statute would permit the Department to reach the same result”.
Thus what Commerce stated in the Preamble did in fact define “entrusts or directs” to some
degree, by declaring the standard to be a causation standard at least as broad as in its pre-WTO
practice, as illustrated in Leather  and Lumber .  Commerce has consistently applied those
interpretations as conclusive of parties’ rights under the countervailing duty law since the Preamble
was published.WT/DS194/R
Page A-48
Q25. Could Canada please respond to the US argument in paragraph 56 of its second oral
statement.
Reply
The US argument regarding the Subsidies Appendix  is very illuminating, because it
demonstrates that Commerce has been treating the Preamble as a legislative rule.  The United States
says in paragraph 55 that “DOC nonetheless began to treat the Subsidies Appendix  a s  i f  i t  w e r e  a
legislative rule,” and explains that two Court of International Trade (CIT) decisions found this
approach invalid.  The significance of this statement is that Commerce now treats the Preamble in the
same way that it treated the Subsidies Appendix , which the United States concedes was equivalent to a
legislative rule.6  In other words, in the cases criticized by the CIT, Commerce had not said expressly
that “we are bound by the Subsidies Appendix .”  Rather, Commerce had simply cited the Subsidies
Appendix  as justification for its position.7  Exactly the same is true regarding Commerce’s practice
with respect to the Preamble.  Therefore, if Commerce’s use of the Subsidies Appendix  was as a
legislative rule, the same is true of Commerce’s use of the Preamble.   As discussed in response to
Question 13, above, the issue is not whether the Preamble can have legal effect under US law; itclearly can.  Instead, the issue is whether the substantive statements made in the Preamble commit
Commerce to treat export restraints as financial contributions (which Canada has demonstrated they
do).
Contrary to the US claim, the CIT decisions criticizing Commerce’s use of the Subsidies
Appendix  do not mean that Commerce’s administrative practice is not binding.  That practice is
binding as and to the extent set out in paragraphs  40-43 of Canada’s Second Written Submission and
in response to Question 15 above.  As Canada noted at the meeting with the Panel, the CIT decisions
cited were, in part, a response to Commerce’s fa ilure to have ever promulgated substantive
regulations that were subject to the notice and comment provisions of the Administrative Procedure
Act.  Moreover, despite those court decisions, Commerce subsequently issued and applied the General
Issues Appendix  as it had the Subsidies Appendix , and it commonly expressly relies on its “practice”
as the basis for its determinations in countervailing duty cases.
Q26. Could Canada please respond to the apparent implication of the US argument in
paragraph 72 of its second oral statement that, under Canada's most recent arguments,
"private body" in the sense of subparagraph (iv) becomes entirely a function of government"entrustment or direction".
Reply
The term “private body” is not defined in the Agreement.  Canada believes that the plain
meaning of the term in the context of subparagraph (iv) is a group organized for some purpose.  This
gives rise to the question of how they are organize d.  The answer comes when the term is interpreted
in the context of the larger phrase; i.e., “a government …entrusts or directs a private body to carry out
one or more of the type of functions … normally vested in the government and the practice, in no real
sense differs from practices normally followed by governments.”  In order for a government to entrustor direct someone to do something, there must be  some sort of government communication with the
person or group so entrusted or directed.  Whatever device is available or chosen to so communicate,
it would identify the person(s) to whom the entrus tment or direction was given and would impose the
obligation on that person(s) to carry out a specific financial contribution.  In addition, the private body
                                                     
6 Of course, the Preamble, unlike the Subsidies Appendix, has been promulgated in accordance with
notice-and-comment procedures, and therefore Commerce ha s authority to treat it as a legislative rule (which
was not the case with the Subsidies Appendix).
7 See Ipsco , 687 F. Supp. 614, 627 (1988). (Exhibit CDA-139).WT/DS194/R
Page A-49
must be capable of carrying out a practice that in no real sense differs from that normally followed by
governments.
Q27. Does Canada agree with the statement in pa ragraph 67 of the US second oral statement
that an export restraint would be the same as a direction to "sell only to domestic customers"?
Could Canada also confirm that, in its view, there are no hypothetical circumstances in which a
producer or a product subject to an export restraint would have no choice but to sell that
product domestically.
Reply
Canada does not agree with the statement in paragraph 67 of the US second oral statement
that an export restraint would be the same as a direction to “sell only to domestic customers.”  As
Canada has previously stated, an export restraint does not leave the producer of the good with only
one choice.  Canada cannot conceive of a situation in which an export restraint will result in a
producer having no choice but to sell its goods to domestic users of those goods, and has listed a
number of other options available to the producer.
ADDITIONAL QUESTIONS TO CANADA FROM THE UNITED STATES
Q1. Referring to pages 233-234 of US-34, Professors Davis and Pierce state that "a
legislative rule has the same binding effect as a statute.  It binds members of the public, the
agency, and even the courts, in the sense that courts  must affirm a legislative rule as long as it
represents a valid exercise of agency authority."  Referring to pages 252 of US-34, Davis and
Pierce state that "[o]rdinarily, interpretative rules do not bind an agency", and they add at
page 253 that "[t]he occasional cases holding an agency bound by its own interpretative rulescan be explained on constitutional grounds."  Because Canada has alleged that the DOC is
bound by the portions of the Preamble that Canada has challenged in this dispute (63 Fed. Reg.
65,348, 65,349-51 (25 Nov. 1998), Canada presumably is alleging that this portion of the
Preamble constitutes a legislative, rather than an interpretative, rule.
(a) Although the United States does no t concede that the challenged portions
constitute a "rule" at all, would Canada please confirm that it is alleging that thechallenged portions constitute a legislative rule?  If so, would Canada please
identify those decisions of the DOC’s reviewing courts ( i.e., the US Court of
International Trade, the US Court of Appeals for the Federal Circuit, and the
US Supreme Court) in which a court has held that it is bound by a DOC
regulatory preamble that, like the portio ns of the Preamble at issue here, is
unrelated to any regulation.  For any such  decisions, please identify and provide
a copy of the precise portion of the decision in which the court held that it is so
bound.
Reply
Yes.  See Canada’s responses to Questions 13 and 25 from the Panel.  As to the second part of
the question, Canada is not aware of any court decisions to that effect with regard to any Commerce
regulation (whether in the Preamble or not).  This is not surprising, since Commerce regulations are
rarely if ever challenged as such.  Courts are normally asked to review whether a Commercedetermination is supported by substantial evidence and is otherwise in accordance with law.  In
addition, of course, since the Commerce regulations have been in effect only since 1997 (anti-
dumping) and 1998 (countervailing duties), there has been little time for there to be many court
decisions reviewing Commerce’s application of its regulations in cases filed after those dates.WT/DS194/R
Page A-50
(b) If Canada is not alleging that the challenged portions of the Preamble constitute
a legislative rule, on what basis does Canada claim that, as a matter of US law, the DOC is
bound by the challenged portions.
Reply
See answer to (a) above.
Q2. Please identify DOC determinations in wh ich the DOC has expressly stated that it is
following a regulatory preamble unconnected to any regulation because it is legally bound to do
so.  For any such determinations, please identify and provide a copy of the precise portion of the
determination in which the DOC says that it is so bound.  (In this regard, the United Statesunderstands that Canada has argued that in numerous determinations the DOC has followed
reasoning set forth in the Preamble or otherwise cited to the Preamble.  This question is not
addressed at these determinations, but rather at  determinations where the DOC expressly states
that it has no legal option other than to follow the Preamble).
Reply
It would not be normal practice for Commerce or any other agency to “expressly state” that it
is following a regulatory preamble unconnected to any regulation because it is legally bound to do so.
As demonstrated by cases cited in Canada’s prior submissions and in response to Questions 13 and 25from the Panel, Commerce and other agencies normally simply apply the interpretations they
announce in their regulations, including regulatory preambles, without express discussion of whether
they are legally bound.  That is, when an agency applies an interpretation as conclusive with respect to
a legal issue, as Commerce did, for example, in Live Cattle  and the Korea Stainless Steel  cases, it is
understood that the agency considers itself bound by its properly promulgated regulations.
Q3. Given that Canada has defined "practice" as an "administrative commitment" to treat
export restraints as financial contributions, how many precedents does it take to give rise to this
type of "practice."  If, as indicated by Canada in its preliminary oral answer to a similar
question, Canada is of the view that a single precedent can give rise to an agency "practice", is
it Canada’s view that a single case precedent is binding on the DOC?
Reply
Certainly, Commerce’s legal interpretations of particular issues that are developed, stated and
applied in individual determinations establish precedents that Commerce follows and applies in
subsequent proceedings.  In this regard, an i ndividual Commerce determination, particularly if it
addresses a particular legal issue for the first time, can give rise to the agency’s practice on that issue.
Once Commerce establishes its legal interpretation in an individual case, Commerce is obligated to
follow that precedent in future cases, unless Commerce provides a well-reasoned and defensible basis
for departure from its precedents.  While Commerce’s practice developed through its legal
interpretations in individual cases is not “binding” as a legislative rule in the way the Preamble to theregulations is binding, the practice established through individual determinations puts a burden on
Commerce to follow its practice, unless and until it articulates a well-reasoned and defensible basis
for departure.
CANADA’S RESPONSES TO CERTAIN QUESTIONS POSED TO THE UNITED STATES
Q2. In respect of the criminal action provided  for by the 1916 Act, the Appellate Body found
that "the discretion enjoyed by the United States Department of Justice is not discretion of suchWT/DS194/R
Page A-51
a nature or of such breadth as to transform the 1916 Act into discretionary legislation . . . "8.
Please comment on the implications, if any, of th is finding of the Appellate Body for the order in
which a panel might address the two questions of whether a particular legislation is mandatory
or discretionary and of whether that legislation violates a Member's WTO obligations.
Reply
Canada has two initial observations to make with regard to this statement.  First, Canada notes
that it is reflective of the Appellate Body’s later co nclusion in paragraph 97 of the same report that the
mandatory/discretionary distinction is a defence, which the United States bore the burden of
establishing.  This is because underlying the discussion of the mandatory/discretionary defence are the
affirmative findings of the panel, already made, regarding the applicability of Article VI of GATT1947.  Second, the statement also reflects the Appellate Body’s approval of the common sense
approach taken by the panel in assessing the consistency of the 1916 Act with the United States’
obligations under the relevant provisions of GATT 1947.  That is, the panel first interpreted Article VI
in order to determine whether the 1916 Act fell within the scope of that provision.  This involved
determining precisely what that scope was.  Having established the scope of Article VI, only thencould the panel assess whether the United States would be able to avoid the inconsistent application of
the 1916 Act through an interpretation that would make it fall outside the scope of Article VI.  Put
differently, only then could the panel move to assess whether the United States’ domestic law was
sufficiently discretionary to enable it to not take action that would be inconsistent.  This approach
applies with equal force in this dispute.
As Canada noted in comments made at the second hearing, the United States’ reliance on the
EEC Parts  case in paragraph 12 of its Statement is consistent in this regard and the United States has
failed to show that the discretion enjoyed by Co mmerce is discretion of such a nature or of such
breadth as to transform the measures into discretionary legislation.
Q3. In 1916  Act, the United States argued before th e Appellate Body that the panel had
incorrectly treated the mandatory/discretionary distinction as a defence by the United States,
which the United States bore the burden of proving.  The Appellate Body found no error by the
panel in its articulation and application of the burden of proof.
9  Does the United States believe
that the burden of proof questions are different in this case from those in 1916 Act ?  In
particular, does the fact that the United States  has raised the mandatory/discretionary issue in
the form of a request for preliminary ruling change the allocation of burden of proof in this case
in any way?  Please explain in detail, citing any relevant precedents.
Reply
In Canada’s view, the Appellate Body found that the Panel in 1916 Act  had correctly
articulated the burden of proof.  In particular, the Appellate Body cited with approval the Panel’s
rationale, as set out in paragraph 6.38 of the EC Panel Report and paragraph 6.25 of the Japan Panel
Report. The fact that the United States first raised the mandatory/discretionary distinction in the
context of its Request for Preliminary Rulings changes nothing in this rationale.
Canada is of the view that, as stated by the Appellate Body in United States – Anti-Dumping
Act of 1916  (referring to the AB reports in Wool Shirts  and Hormones ), a complaining Member bears
the burden of demonstrating on a prima facie  basis that another Member’s measure is inconsistent
with that Member’s obligations under the agreem ent in question.  Once the complaining party has
done so, the burden shifts to the defending party to rebut that prima facie  case.  As Canada has stated
                                                     
8 1916 Act , Report of the Appellate Body, WT/DS136/AB/R-WT/DS162/AB/R, adopted
26 September 2000, para. 91 (footnote omitted).
9 Id., paras. 93-97.WT/DS194/R
Page A-52
throughout this case, and most recently in paragraph 8 of its Second Written Submission, Canada
believes it has established that the measures it has challenged require that export restraints be treated
as “financial contribution” under US countervailing duty law and why this treatment is inconsistent
with the United States’ obligations under the SCM and WTO Agreements.  In other words, Canada
has established a prima facie  case and thus has satisfied its burden.
Canada takes the opportunity to reiterate comments it made at the second hearing regarding
the United States’ reliance on Canada – Aircraft .  In Canada’s view, this reliance is misplaced.  In
addition to Canada’s earlier comments in its Response to the United States’ Request for Preliminary
Rulings, Canada notes that the circumstances in Aircraft  were different than this case because Brazil
was not able to establish its prima facie  case.  That is, Brazil did not establish that Canada intended
that the EDC mandate was to be interpreted in a WTO inconsistent manner.  Rather, the WTOinconsistency resulted from the EDC’s own interpretati on of its mandate.  It was not as a result of any
authoritative direction to the EDC under Canadian law.   In this case, the S AA authoritative ly directs
Commerce how to interpret and apply section 771(5)(B)(iii) in the context of export restraints.  Thus
in the present case the act of “requiring” is the result of the authoritative direction to Commerce
contained in US law and not, in the first instance, from Commerce’s interpretation of that law.  Infact, Commerce’s practice makes clear its understanding that it has been so directed.
10
Q7. In respect of the circumstances in which a su bsidy is, in the words of footnote 4 of the
SCM Agreement, "tied to" actual or anticipated exportation, the Appellate Body, in Canada –
Aircraft , found as follows:
"It does not suffice to demonstrate solely that a government granting a subsidy
anticipated  that exports would result.  The prohibition . . . applies to subsidies that are
contingent upon export performance . . . [A] subsidy may well be granted in the knowledge, or
with the anticipation, that exports will result.  Yet, that alone is not sufficient, because that
alone is not proof that the granting of the subsidy is tied to  the anticipation of exportation".11
What implications, if any, would this Appellate Body statement have for the US argument that
an export restraint can meet the SCM Agreement's definition of a financial contribution if it has
the effect  of increasing the domestic supply of the restrained good?
Reply
The use of the words “tied to” in footnote 4 of the SCM Agreement provide further support
for Canada’s interpretation of “directs” in subparagraph 1.1(a)(1)(iv).  “Directs” means more than
“causes”.  It connotes authoritative instructions from a government, an order from a government, oranother form of affirmative control.  The mere fact  that a government action has an incidental effect
does not mean that a government “directs” an action that has that effect.
Q8. Is it the US position that a trader is "ent rusted or directed" to provide goods (because it
is "caused" to do so) where it is faced by an ex port restraint to which it could respond by any of
                                                     
10 Likewise, the issue presented in Canada – Aircraft  relating to the Technology Partnerships Canada
(TPC) programme was whether Canada had to demonstrate that its revised TPC law could not be used toprovide export contingent subsidies, even though there was no evidence presented that the law or anysubsequent interpretations thereof committed Canada to pr ovide such subsidies.  This was the issue addressed
by the Appellate Body, not whether Canadian legislation could be challenged if Canadian actions demonstrated
that the law committed Canada to provide export contingent subsidies.  The United States, in paragraph 17 of its
Second Oral Statement, is therefore attempting to create an inconsistency where there is none.
11 Canada – Measures Affecting th e Export of Civilian Aircraft , Report of the Appellate Body,
WT/DS70/AB/R, adopted 20 August 1999, paras. 171-172.WT/DS194/R
Page A-53
several commercially viable options, one of which is to supply the domestic market, and it
chooses that option?  The Panel refers to paragraphs 47-48 on the one hand, and paragraph 125
on the other hand, of the US responses to questions dated 7 February 2001.
Reply
Canada has offered comments in respect of the elements of this question in its response to
Panel Question 23.  As Canada has stated, the producer will have a number of options.  All of these
options are real and the producer will make its choice based upon what it conceives to be in its best
economic interest.  Moreover, the decision to choose one option or another need not be a one-time,
unalterable decision.  Like any other businessman, a producer that produces a product subject to an
export restraint will constantly be reviewing its business operations to determine what business plansand procedures the producer should follow to optimize returns.  In other words, the effect of an export
restraint as evidenced by the actions of private parties will be incidental and will be influenced by a
multitude of factors that are independent of or external to the government action in question (i.e., the
export restraint).
Under the US theory, under some set of economic circumstances particular to some producers
there will be an entrustment or direction to provide goods.  However, the United States also asserts
that there is no entrustment or direction under those same circumstances where producers decide not
to provide goods domestically.  In fact, under the US theory, in any case where a producer decides not
to provide goods domestically, there would be no entrustment or direction.  It goes without saying thatmost of these economic circumstances would be beyond the control of the producer, and many of
them would be beyond the control of the government as well.  Thus, the US theory itself demonstrates
that the effect of an export restraint on private parties is incidental.  In no sense are the private parties
“directed” to sell to domestic customers by an export restraint.
Q10. The United States indicates, in resp onse to question 12(b) from the Panel:
"There is a difference between benefit and financial contribution for purposes of
subparagraph (iv).  Financial contribution would appear to be a matter of: (1) a proximate
causal relationship between the government acti on and the private action; and (2) the private
action being a form of taxation or subsidisation ( i. e., the type of action that a government
'normally' would do)."
In the view of the United States, how can it be determined in practical terms, and without
considering the question of benefit, that a given government "entrustment" or "direction" in
the sense of subparagraph (iv) does or does not constitute a "form of taxation or subsidisation"?
Reply
The genesis of the concept “taxation or subsidization” was in the Report by the Panel adopted
on 24 May 1960 entitled “Review Pursuant to Article XVI:5.12  The Report first noted that the GATT
did not concern itself with actions by private parties acting independently of their governments exceptin so far as it allows importing countries to take action under other provisions of the Agreement.
Thus, they concluded that there was no obligation to notify other Contracting Parties where a group of
producers voluntarily taxed themselves in order to subsidize exports.  However, the Panel believed
there could be GATT implications in such circumstances depending upon the source of the funds and
the extent of government involvement.  Accordingly, they considered that governments did have anobligation to notify where the government took part either by making payments into the common fund
or by entrusting to a private body the functions of taxation and subsidization with the result that the
practice would in no real sense differ from those normally followed by governments.
                                                     
12 BISD 9S/188 (L/1160).WT/DS194/R
Page A-54
One then must follow the evolution of the language through the 1987 Note by the
Secretariat13 that formed part of the negotiating history of the SCM Agreement.  The first portion of
that Note recognized that part of the problem was the question of the definition of a subsidy and the
definition of the amount of a subsidy for the purpose of the imposition of countervailing measures.On the question of so-called “indirect subsidies” the Note referred to a view expressed in the Group of
Experts on the calculation of the Amount of a Subsidy. That view found the 1960 Panel Report to be
generally useful and considered that the example of producer levies demonstrated the necessary link
between a subsidy and the taxation function.  It cons idered that there may be similar situations in
which a government chooses to direct a private body to carry out certain functions relating to the
sovereign right of governments to collect revenues and expend them.  It then set out practices
involving direct transfers or liabilities and those involving revenue foregone or not collected.  Theconclusion stated was that such practices are specific examples of the general principles of the Panel
Report that subsidies exist where the government exercises its authority to impose tax and to expend
revenue, whether directly or through delegation of its taxing and [expenditure of revenue]
14 authority.
Thus the issue is not determining the existence of a financial contribution by determining
whether the government is delegating its function of taxation and/or (circular) function of
subsidization. The issue is whether the government has entrusted or directed a private body to carry
out the functions of the type illustrated in subparagraphs (i) to (iii) that are normally vested in the
government and whether the practice in no real sense differs from those normally followed by
governments.
                                                     
13 See footnote 50 of the First Submission of the United States; Negotiating Group on Subsidies and
Countervailing Measures; Subsidy and Countervailing Measures; Note by the Secretariat,MTN.GNG/NG10/W/4 (28 April 1987).
14 Canada notes that the square bracketed language does not appear in the Note.  Given the surrounding
discussion and syntax, Canada concludes that its omission is inadvertent.WT/DS194/R
Page A-55
ANNEX A-4
EXECUTIVE SUMMARY OF ANSWERS OF
THE UNITED STATES TO QUESTIONS
POSED BY THE PANEL AT THE
SECOND SUBSTANTIVE MEETING
(9 March 2001)
QUESTIONS TO THE UNITED STATES
Q1. In paragraph 63 of the second oral statement of the United States, the United States
objects to an approach which would "take together"  the "measures" identified by Canada.  Is it
the US argument that the statute could be exam ined by the Panel without some regard to its
interpretation as reflected in th e SAA?  Is it an accurate characterisation of Canada's argument
that "'measures' that individually do not  require an agency to do a particular thing . . . do so
require when considered together"?  It would a ppear that Canada's argument is, rather, that
the "measures" they have identified do require , individually and collectively, the treatment of
export restraints as financial contributions.
Reply
It is not the US argument that the statute could or should be examined without some regard to
the interpretation reflected in the SAA.  See, e.g. , US Request , para. 124, note 134.  In determining
what US law means, it would be appropriate for the Panel to consider the SAA, just as a US court
would, recognizing that the SAA can clarify, but not ov erride, the statute.  The statute at issue in this
dispute, whether considered alone or in conjunction with the SAA, does not require action
inconsistent with US WTO obligations.
Canada nominally has made arguments in the alternative; i.e., it has nominally argued that the
measures should be looked at individually and as a package.  However, the United States believes that
the real focus of Canada’s argument relates to considering the so-called “measures” together.  See,
e.g., Canada’s First Submission , para. 4; Canada’s Response , para. 8; and Canada’s First Oral
Statement ,  para. 8.  In Canada’s Responses to the Panel’s January 18 Questions  (7 February 2001),
Canada made the following statement in response to Question #4:
Fundamentally, and from the outset of this dispute,  Canada has challenged the
treatment of export restraints under US countervailing duty law.  This “treatment” is
a result of the measures identified by Canada taken together.  In Canada’s view this
treatment is inconsistent with the United States’ obligations under the SCM and WTO
Agreements. Thus, in Canada’s view, these measures should be analysed together to
determine the treatment of export restra ints under US countervailing duty law.
Canada has in its submissions described the role of each of these measures in setting
out such treatment. Canada believes the measures should be analysed together. This
does not mean that the measures taken separately are not susceptible to disputesettlement.   In addition, should the Panel determine that one of the measures
identified by Canada is not a “measure”, this does not mean that the remainingWT/DS194/R
Page A-56
measures are not susceptible to dispute settlement when considered together.
(Emphasis added).
While Canada made a brief reference to the notion that “this does not mean that the measures
taken separately are not susceptible to dispute settlement”, the focus of Canada’s arguments has notbeen on the “measures” taken individually.  Indeed, it would be difficult for Canada to argue that the
“measures” individually require action that would violate US WTO obligations, given that Canada has
admitted on numerous occasions that the statute, considered alone, is WTO-consistent, and given that,
until it filed this case, Canada took a similar view with respect to the SAA.  Likewise, in its 1995
comments regarding the DOC’s rulemaking proceeding, Canada acknowledged that the DOC has
preserved its “flexibility and discretion” by refraining from promulgating a regulation on the topic of
“indirect subsidies.”
If, as Canada sometimes suggests, the “measures” individually require the DOC to treat
export restraints as subsidies (or financial contributions), they do not need to be treated together, or as
a “package”, in order for Canada to obtain relief.  However, knowing that it cannot demonstrate that
any of the “measures” individually require the DOC to treat export restraints as subsidies (or financialcontributions), Canada focuses on treating the “measures” together under the amorphous concept of
something called an “administrative commitment.”  The problem with this argument, though, is that
Canada has failed to cite any US legal authority in support of the proposition that “measures” which
individually are not mandatory somehow become mandatory when the “measures” are considered
together.  The reason for this, as previously explained by the United States, is that there is no suchauthority.
Q2. In respect of the criminal action provided  for by the 1916 Act, the Appellate Body found
that "the discretion enjoyed by the United States Department of Justice is not discretion of such
a nature or of such breadth as to transform the 1916 Act into discretionary legislation . . . "
1.
Please comment on the implications, if any, of this finding of the Appellate Body for the order in
which a panel might address the two questions of whether a particular legislation is mandatory
or discretionary and of whether that legislation violates a Member's WTO obligations.
Reply
In the 1916 Act  case, the panel found that the legislation in question was mandatory
legislation in the sense that, when applied, it required action inconsistent with US WTO obligations.
The panel also found, and the Appellate Body affirmed, that prosecutorial discretion to refrain from
applying the statute was not enough to transform the 1916 Act into discretionary legislation.  In the
instant dispute, the issue is whether the so-called “measures” are mandatory legislation at all in the
sense of requiring allegedly WTO-inconsistent action when applied.  In the view of the United States,Canada has failed to establish that they are; i.e., Canada has failed to establish that the “measures”
require the DOC to treat expor t restraints as subsidies (or financial contributions).
With respect to the implications for this disp ute, given that this dispute does not involve
issues of prosecutorial or judicial discretion, and given that the applicability of themandatory/discretionary doctrine is not in dispute, the only clear implication is that a statute must
require  a WTO breach in order to be found WTO-inconsistent as such.  In this regard, the United
States calls to the Panel’s attention the recently circulated panel report in United States - Anti-
Dumping Measures on Certain Hot-Rolled Steel Products from Japan , WT/DS184/R, in which the
panel stated, at para. 7.192, as follows:
                                                     
1 1916 Act , Report of the Appellate Body, WT/DS136/AB/R-WT/DS162/AB/R, adopted
26 September 2000, para. 91 (footnote omitted).WT/DS194/R
Page A-57
It is established GATT/WTO practice that the consistency of a law on its face may be
challenged independently from any application thereof only in so far as the law is
mandatory and not discretionary in nature .  In other words, only if a law mandates
WTO inconsistent action or prohibits WTO consistent action  can the legislation be
challenged on its face in a dispute settlement proceeding.  (Emphasis added).
Referring to the analysis required by the captive production provision at issue, the panel went on to
add, at para. 7.197, that “[w]hile there is no guarantee that this analysis will result in a determination
consistent with US obligations under the AD Agreement, it does not require any action inconsistent
with those obligations.”2
Q3. In 1916  Act, the United States argued before th e Appellate Body that the panel had
incorrectly treated the mandatory/discretionary distinction as a defence by the United States,
which the United States bore the burden of pr oving.  The Appellate Body found no error by the
panel in its articulation and application of the burden of proof.3  Does the United States believe
that the burden of proof questions are different in this case from those in 1916 Act ?  In
particular, does the fact that the United States  has raised the mandatory/discretionary issue in
the form of a request for preliminary ruling change the allocation of burden of proof in this case
in any way?  Please explain in detail, citing any relevant precedents.
Reply
The Appellate Body did not characterize the mandatory/discretionary doctrine as an
“affirmative defence.”  Instead, the Appellate Body found that the panel had properly articulated andapplied the rules on burden of proof as set forth in the India Wool Shirts  and EC Hormones  cases.
The panel found that the EC and Japan had made a prima facie  case that the 1916 Act was mandatory
legislation that required WTO-inconsistent action when applied, and that the United States had failed
to rebut their case.  The United States does not believe that the burden of proof questions are different
from those in the 1916 Act  case.  Like the EC and Japan, Canada has the burden of proof, both in
terms of making a prima facie  case and bearing the ultimate burden of persuasion, that the “measures”
constitute mandatory legislation that require the DOC to treat export restraints as subsidies when
applied.  The United States does not believe that Canada has made a prima facie  case, but assuming
arguendo  that it has, the United States has successfully rebutted it.
With respect to the implications of the US re quest for preliminary rulings, the United States
does not see how such a request would affect the allocati on of the burden of proof.  In that request, the
United States merely asked the Panel to dismiss Canada’s case sooner rather than later because
Canada had failed to demonstrate that the “measures” in question constitute mandatory legislation.  In
this regard, the United States would note that the fact that the United States first raised the
mandatory/discretionary doctrine in the context of its request for preliminary rulings does not limit the
applicability of that doctrine.  Under the mandatory/discretionary doctrine, in order to prevail, Canadamust demonstrate that the “measures” require the DOC to treat export restraints as subsidies (or
financial contributions).  Canada would face this burden even if the United States had never requested
preliminary rulings by the Panel.
                                                     
2  The panel reached a similar conclusion with respect to Japan’s challenge to the critical circumstances
provisions of the US anti-dumping statute, citing the Appellate Body’s decision in the 1916 Act  case for the
continuing validity of the mandatory/discretionary doctrine.  Id., para. 7.141.
The panel also found it “of great importance” that the portion of the SAA relating to the “captive
production” provision made clear that that provision did not require the relevant US authority to ignore therequirements for a valid injury determination under the AD Agreement.  Id., para. 7.198.  In a similar vein, the
proviso to the SAA that we have been discussing in this case makes clear that the DOC must apply the standards
of subparagraph (iv) of Article 1.1(a)(1) of the SCM Agreement.
3 Id., paras. 93-97.WT/DS194/R
Page A-58
Q4. The United States indicates, in its response to question 34 from the Panel:
"Obviously, the ordinary meaning of the 'entrusts or
directs' standard requires some causal connection  between the
government action and the behaviour of private actors . . . "(emphasis added).
According to the US approach outlined above, the existence of a financial contribution
in the case of an export restraint would depend  entirely on the reaction thereto of the producers
of the restrained good, specifically, the extent to which they increase their domestic sales of the
restrained product, and cannot be determined from the nature of that action (the export
restraint) as such.  Does this argument by the United States imply that the legal standard under
subparagraph (iv) is broader than that under subpa ragraphs (i)-(iii), in the sense that (i)-(iii)
have to do with specified actions by a governme nt, and not the results or effects thereof, while
under subparagraph (iv) the US argument is that the results or effects are determinative ?  Or is
the United States arguing that the effects would be relevant and determinative under all four
paragraphs?
Reply
Whether it would be proper to characterize subparagraph (iv) as broader or narrower than the
other subparagraphs is open to debate.  It certainly can be said, however, that the standard under
subparagraph (iv) is different from the standards under subparagraphs (i)-(iii).  Under subparagraph(iv), for a financial contribution to exist there must be findings of:  (a) government action that (b)
entrusted or directed, (c) a private body, (d) to carry out a function of the type illustrated in
subparagraphs (i) to (iii) that (e) is normally vested in the government and in no real sense differs
from practices normally followed by governments.
The United States is not suggesting that an increase in the amount of goods provided
domestically following the imposition of an export restraint, in and of itself, would be determinative
of the issue of financial contribution.  Rather, at a minimum, a sufficient causal connection between
the government action and the behaviour of  a private body would have to be shown.
Q5. If the Lumber and Leather cases were before the DOC today, would the DOC determine
the existence of a financial contribution on the basis of factual evidence as to changes in the
domestic supply of the restrained good?  Would  there (instead or also) be other analytical
elements (beyond the existence of the export re straint as such), which the DOC would examine
in making this determination?  If so, please identify them.
Reply
Subject to the caveat that the United States is not in a position to state definitively what the
DOC would do if the Lumber and Leather  cases were before the DOC under the post-WTO CVD law,
it is highly probable that the DOC would examine factual evidence relating to changes in domestic
supply of the restrained good.  Although this does not purport to be a definitive list, other types ofevidence that the DOC might consider would be econometric analyses; the specific language of the
export restraint measure in question; the existence and nature of any penalties for non-compliance; the
purpose for which the export restraint was imposed; whether demand for the restrained product exists
outside the jurisdiction in question; whether there are sufficient exports to meet that demand
notwithstanding the existence of an export restraint; the extent of the price differential, if any,between the domestic and export markets; whether producers of the restrained product desired toWT/DS194/R
Page A-59
export their products.  More generally, the DOC would require evidence establishing that each of the
elements of subparagraph (iv) is satisfied.
Q6. The United States submits, in response to question 36(b) from the Panel, that "the
'benefit' and 'specificity' elements will operate so as to render many alleged indirect subsidies
non-actionable and, thus, non-countervailable".  Please comment on the implications for this
argument, if any, of the Appellate Body statement, in Brazil – Aircraft , that "the issues – and the
respective definitions – of a 'financial contribution' and a 'benefit' are two separate legal
elements in Article 1.1 of the SCM Agreement, which together determine whether a 'subsidy'
exists"4 for this US comment.  In particular, is it  correct that the US comment implies that the
"financial contribution" element would not act as a limiting factor in itself in respect of the
determination of the types of measures that fa ll within the scope of the SCM Agreement, and
that the only limiting factors are "benefit" and "specificity"?
Reply
The United States does not dispute the notion that “financial contribution” and “benefit” are
separate elements, and the implication read into the US response is incorrect.  Not all government
measures would satisfy the standard of subparagraph (iv), so that “financial contribution” would be a
limiting factor.  However, it would be short-sighted to focus solely on the financial contribution
element in analyzing Canada’s “slippery slope” argument, because it is a fact that the elements of
“benefit” and “specificity” will also serve to weed out government measures that might arguablysatisfy the definition of “financial contribution.”  The second half of the Appellate Body’s statement
quoted above in fact confirms the United States’ point:  “financial contribution” and “benefit”
together determine whether a “subsidy” exists.
Moreover, because “benefit” is also a requirement for finding a “subsidy,” in certain instances
the DOC may be relieved of undertaking a “financial contribution” analysis in determining that a
particular government measure does not constitute a subsidy within the meaning of Article 1.1.
Contrary to Canada’s mischaracterizations of the case, this situation arose in Live Cattle  where the
DOC found there was no benefit, and consequently did not need to make a final determination with
respect to the US industry’s claims concerning “financial contribution.”
Q7. In respect of the circumstances in which a su bsidy is, in the words of footnote 4 of the
SCM Agreement, "tied to" actual or anticipated exportation, the Appellate Body, in Canada –
Aircraft , found as follows:
"It does not suffice to demonstrate solely that a
government granting a subsidy anticipated  that exports would
result.  The prohibition . . . applies to subsidies that are
contingent upon export performance . . . [A] subsidy may well be
granted in the knowledge, or with  the anticipation, that exports
will result.  Yet, that alone is not sufficient, because that alone is
not proof that the granting of the subsidy is tied to  the
anticipation of exportation".5
What implications, if any, would this Appellate Body statement have for the US
argument that an export restraint can meet the SCM Agreement's definition of a financial
contribution if it has the effect  of increasing the domestic supply of the restrained good?
                                                     
4 Brazil – Export Financing Programme for Aircraft , Report of the Appellate Body, WT/DS46/AB/R,
adopted 20 August 1999, para. 157 (emphasis in original).
5 Canada – Measures Affecting th e Export of Civilian Aircraft , Report of the Appellate Body,
WT/DS70/AB/R, adopted 20 August 1999, paras. 171-172.WT/DS194/R
Page A-60
Reply
In the view of the United States, the quoted stat ement has little relevance to the issues in this
dispute, because the Appellate Body was addressing terms (“contingent” and “tied to”) that have
different meanings than the terms at issue in this  case.  To the extent that the Appellate Body’s
teachings were applied to this case by analogy, they support the US position.  The United States does
not contend that mere anticipation or expectation of a result is sufficient to find a financial
contribution under subparagraph (iv).  Instead, there would, at a minimum, have to be a finding that
an export restraint caused the provision of a good.
Q8. Is it the US position that a trader is "ent rusted or directed" to provide goods (because it
is "caused" to do so) where it is faced by an ex port restraint to which it could respond by any of
several commercially viable options, one of which is to supply the domestic market, and it
chooses that option?  The Panel refers to paragraphs 47-48 on the one hand, and paragraph 125
on the other hand, of the US responses to questions dated 7 February 2001.
Reply
With respect to whether “entrusts or directs” means “cause”, it is not the position of the
United States that the mere fact that a producer chooses to supply goods domestically in the face of an
export restraint means that it has been “directed” to  do so within the meaning of subparagraph (iv).
There would have to be some type of demonstrated causal connection between the producer’sbehaviour and the government action, although the DOC has not yet had to address the question of
how strong this causal connection would have to be.  Also, while the standards may be different for
“entrusts” and “directs”, the United States reiterates that every dictionary cited in this dispute by
either party contains a definition of “direct” with causal elements.
With respect to the issue of alleged “options”, none of the options presented by Canada are
“commercially viable” in this context.  Canada posits a producer having essentially four options:
export, sell to domestic processors, process itself, or go out of business.  If it is proven, on the facts of
the case, that export has been legally/commercially restricted and, in fact, selling to domestic
processors is the only commercially viable option and such sales increase, this result would not seem
to warrant a different characterization for purposes of the SCM Agreement than if the government had
simply declared "you must sell only to domestic processors."  In the view of the United States, wherea government action leaves only one commercially viable option to private entities, to say that the
government action does not “direct” a commercial actor to exercise that option would open an
enormous loophole in the SCM Agreement, based merely on a semantic distinction.
Canada's efforts to explain its "options" only lead to further contradictions.  Canada has
argued that the producer of the input could become a downstream processor once export is prohibited.
If this occurs, government regulation has created additional production of the downstream product in
the country imposing the export restraint (which was uneconomic absent the restraint) at the expense
of the industry in third countries, exactly the type of government subsidy that should be actionable
according to Canadian documents prepared outside of this litigation.  See US Answers , para. 44,
quoting  CDA-106.
Now, Canada argues that the input producer could choose to go out of business by selling to
someone else.  At most, this option is a chimera.  After all, what does the new purchaser do?  It faces
the same export restraint that eliminates the economi cally viable option of exporting, thereby forcing
increased domestic sales or production of the downstream product that would not have occurred but
for the export restraint.  Or would Canada argue that the new purchaser has options because it, in turn,
can sell the business to someone else?  And that new purchaser, in turn, can sell to someone else, ad
infinitum ?WT/DS194/R
Page A-61
Throughout this dispute, the United States has set forth several reasons, in addition to the
explanation above, as to why Canada’s interpretation of “entrusts or directs” is incorrect.  Given
Canada’s misdirection, a brief summary at this juncture seems necessary.  First, the United States has
cited multiple texts that make clear that "entrusts or directs" includes circumstances in which one
party (the government) engages in action which causes or results in the private body's action.  First
US Submission , paras. 30-31.  Canada now provides another text which it claims supports its
"mandate" interpretation of "entrusts or directs."  Canada quotes that source very selectively, because
that source actually provides that "direct" means:  "control, guide; govern the movements of"; "give a
formal order or command to"; "tell or show . . . the way to a destination"; "point, aim, or cause . . . to
move in a certain direction"; "guide as an adviser, as a principle, etc."; "supervise the performing,
staging, etc. of ... ."; "guide the performance of".  See CDA-136.
Even if one accepts Canada's argument that "directs" can only mean "give a formal order or
command to", an export restraint is capable of satisfying that definition.  An export restraint can be
considered a “formal order or command to” not export.  While Canada takes issue with whether or not
an instruction to not export equates to an instruction to provide goods, i.e., the function enumerated in
subparagraph (iii), it should be noted that according to subparagraph (iv) the issue is whether thegovernment direction is of the type  of function illustrated in subparagraphs (i)-(iii).  Furthermore,
based on its arguments in this case,  the United States understands Canada to concede that, whether or
not considered to be an export restraint,  a “formal order or command” to use or sell a good
domestically satisfies the standard of subparagraph (iv).
Second, the negotiating history strongly supports the US interpretation.  Canada (and the EC)
had argued throughout the Uruguay Round for a narrow definition of subsidy that would only include
subsidies which involved a cost to government.  Canada made it clear that it believed that export
restraints and other indirect subsidies would not be countervailable because they did not involve a
"cost to government."  Only since having lost that misguided argument in Canada Aircraft  has
Canada shifted its focus to the "entrusts or directs" language.
Third, other cases – particularly Canada Dairy  – and an analysis of the Illustrative List of
Export Subsidies support the US position.  First US Submission , paras. 61-66.
Finally, the object and purpose of the SCM Ag reement clearly support the US view.  Indeed,
export restraints are widely understood as providing a subsidy.  Frankly, the United States is puzzledby the extensive Canadian argument that the US reliance on the normal understanding of the term
subsidy as used by WTO, UN, and Canadian officials and economists somehow weakens the US case.
Q9. How does the United States reconcile its argument that, so long as the effect  of an export
restraint is to increase the domestic supply of the restrained good, that export restraintconstitutes a financial contribution in the form of a government-entrusted or -directed provision
of goods within the meaning of paragraph (iv), with the "normally vested" and "in no real sense
differs" language in that provision?  In particul ar, could these conditions be seen as connoting,
at a minimum (and whatever else they might mean), a direct  and explicit  affirmative  control by
the government of the particular action of the private body involved?  If so, how could this bereflected in the effects-based approach that you advocate?  If not, why not?
Reply
In addition to an examination of the causal relationship between the government action ( i.e.,
the export restraint) and the private action ( i.e., the domestic provision of a good), the other elements
of subparagraph (iv) would still have to be satisfi ed – including the “normally vested in” and “in no
real sense differs” elements – in order for a financial contribution to exist.  However, “normally
vested in” and “in no real sense differs” refer to the type of function carried out, and the manner inWT/DS194/R
Page A-62
which it is carried out by the private body, not to the causal relationship between the government
action and the behaviour of the private body.
The United States continues to be of the view that the language in question was taken from
the Article XVI:5 Report , which referred to the government functions of taxation and subsidization.
That is, in order to satisfy the requirements of subparagraph (iv), the type of function which a private
body is entrusted or directed to perform must be the type of action that a government would engage in
when it subsidizes; i.e., behaviour that reallocates resources.6
There could well be situations in which the “entrusts or directs” element is satisfied, but other
elements are not.  One such example was provided in paragraph 75 of the Second US Oral Statement .
Finally, the United States reiterates that nowhere in subparagraph (iv) is there any indication
that “direct and explicit affirmative control” is required under either the “entrusts or directs” or the
“normally vested in/no real sense differs” elements.  Those terms were not used in the text, nor would
their use make any sense.  If “direct and affirmative control” by the government were the standard,
then subparagraph (iv) could easily be evaded, and, as a result, would be rendered meaningless.
Q10. The United States indicates, in resp onse to question 12(b) from the Panel:
"There is a difference between benefit and financial
contribution for purposes of subparagraph (iv).  Financialcontribution would appear to be a matter of: (1) a proximate
causal relationship between the government action and the
private action; and (2) the private action being a form of taxation
or subsidisation ( i. e., the type of action that a government
'normally' would do)."
In the view of the United States, how can it be determined in practical terms, and
without considering the question of benefit, that a given government "entrustment" or
"direction" in the sense of subparagraph (iv) does or does not constitute a "form of taxation or
subsidisation"?
Reply
Given that a subsidy involves a reallocation of resources, it could be determined, without
getting into the question of benefit, whether a private body is being directed to provide resources ( e.g.,
a good) to another party in a transfer that would no t otherwise occur.  For example, in the context of
an export restraint, the question would be whether private actors are directed to provide goods
domestically when, in the absence of government dire ction, they would not otherwise do so.  It would
be a separate question whether this government-directed provision of goods actually resulted in the
conferral of a benefit.  In theory, the government direction could result in no changes in the prices that
would obtain absent the government direction, in which case a benefit likely would not exist.
                                                     
6  As the United States has previously noted, see First US Submission , para. 36, note 32, the Appellate
Body has stated that “a ‘subsidy’ involves a transfer of  economic resources from the grantor to the recipient for
less than full consideration.”  Canada - Measures Affecting the Importation of Milk and the Exportation of
Dairy Products , WT/DS103/AB/R, WT/DS113/AB/R, Report of the Appellate Body adopted 27 October 1999,
para. 87.  Canada previously has agreed that subparagraph (iv) addresses the government functions of taxationand subsidization.  See First US Submission , para. 52, note 51, quoting Canada - Measures Affecting the
Importation of Milk and the Exportation of Dairy Products , WT/DS103/R, WT/DS113/R, Report of the Panel,
as modified by the Appellate Body, adopted 27 October 1999, para. 4.342.WT/DS194/R
Page A-63
Q11. The United States further submits, also in  response to question 12(b) from the Panel:
"While evidence for this second aspect [the private action
being a form of taxation or subsidisation] and 'benefit' may
overlap, they are not the same thing ."  (emphasis added)
Please explain in concrete terms the nature of the evidence to which you refer, and how
such evidence could "overlap" in respect of financial contribution and benefit, without "being
the same thing".  Does the United States mean by this that the evidence would not be the same
thing in the two contexts, or that th e two contexts are not the same thing?
Reply
The evidence for private action being functionally the same type of activity performed by a
government when it engages in taxation or subsidization and the evidence of “benefit” overlap
because they both arise out of the same transaction and may or may not demonstrate that the private
action would not have occurred but for the government intervention.  The evidence of financial
contribution goes to the existence of a transaction that meets the requirements of subparagraph (iv),
while the evidence of benefit goes to whether the circumstances of that transaction meet therequirements of Article 14 of the SCM Agreement.
For example, in the case of a government loan, one must look to the loan transaction itself to
determine whether a financial contribution took place, and then look to the terms of that same
transaction in order to determine the existence of a benefit.  The same would be true in the case of agovernment-directed loan, although there would be an additional evidentiary question of whether the
government, in fact, directed the loan.
Q12. Would functions "normally [] vested" in a government in the sense of subparagraph (iv)
be limited to "taxation and subsidisation"?  Would other government functions involving the
execution of various government policies (e.g., social policies) necessarily consist of "taxation or
subsidisation"?  If not, would such functions, even if they corresponded to functions described
in subparagraphs (i)-(iii), fall outside of the scope of subparagraph (iv)?
Reply
As indicated in the Second US Oral Statement , paras. 73-78, there are several possible
interpretations that one could ascribe to the “normally vested” language, and the United States
provided at least one example of a situation which probably would fall outside the scope of
subparagraph (iv) even though the function arguably falls under subparagraphs (i)-(iii).  The
“normally vested in” language is an independent required element of subparagraph (iv), even if the
function in question corresponds to subparagraphs (i)-(iii).WT/DS194/R
Page A-64
US RESPONSES TO CERTAIN QUESTIONS
POSED TO CANADA
Q13. Have there been any cases where the Preamble  has been used as a "legislative rule" in
the sense described by the United States at paragraphs 30-43 of its second oral statement?  If so,please provide details.
Reply
Canada’s position appears to be that the DOC treats the portion of the Preamble at issue here
as if it were a regulation, in disregard of various principles of US administrative law relating to
legislative rules and the non-binding nature of administrative precedent.  In the view of the UnitedStates, this assertion is not supported by the relevant portion of the Preamble itself or the manner in
which it has subsequently been cited by the DOC.  However, when the entire Preamble is examined –
as opposed to the portions challenged by Canada – it becomes even more apparent that the DOC was
well-aware of what it needed to do in order to bind itself, and that when it chose not to do so, it did so
deliberately.
For example, at page 65,349 of the DOC’s Notice of Final Rule , CDA-3, the DOC provided
the following explanation of why it chose not to bind itself with respect to so-called “hybrid
instruments”:
In this regard, the Department considered codifying its approach with respect
to so-called “hybrid instruments,” financial contributions that do not readily fall into
the basic categories of grant, loan, or equity.  In the 1993 steel determinations ( see
Certain Steel products from Austria (General Issues Appendix) , 58 FR 37062, 37254
(9 July 1993) (“GIA”), the Department developed a hierarchical approach forcategorizing hybrid instruments, an approach that was sustained in Geneva Steel v.
United States , 914 F. Supp. 563 (CIT 1996).  However, notwithstanding this judicial
imprimatur, the Department has relatively little experience with hybrid instruments.
Therefore, although the Department has no present intention of deviating from the
approach set forth in the GIA, the codifica tion of this approach in the form of a
regulation would be premature at this time.
At page 65,355 of CDA-3, the DOC provided the following explanation as to why it chose
not to bind itself with respect to its so-called “privatization methodology”:
While we have developed some expertise on the issue of changes in
ownership over the past five years, and the comments submitted in response to the1997 Proposed Regulations have provided us with additional ideas to consider, we do
not think it is appropriate to promulgate a regulation on this issue at this time.  As
noted above, many of the ideas presented by the commenters would move us in the
direction of adopting extreme positions.  Another factor weighing against codification
of any privatization methodology at this time is that the Courts may, in the course oftheir review of the current methodology, adopt  an interpretation of the law that would
either validate or overturn some of the options that we have considered, including
those proposed by the commenters.  Finally, given the rapidly changing economic
conditions around the world, particularly with respect to the issue of state ownership,
we believe we should continue to develop our policy in this area through theresolution of individual cases.  These changing economic conditions pose additional
challenges in developing a unified framework in which to analyze change-in-
ownership transactions.  In the 1997 Proposed Regulations, we identified many of
these additional issues and new challenges that may warrant consideration in thisWT/DS194/R
Page A-65
context and raised questions about them.  However, it is our view that the comments
we received did not sufficiently address many of these concerns.
. . . .
Our decision not to include a provision on changes in ownership to these
Final Regulations does not preclude us from issuing such a regulation at a later date.
We will continue to examine this issue and consider whether an alternative analytical
framework can be developed that addresses the variety of change-in-ownership
scenarios we have encountered and that, like the present methodology, satisfies
Congressional intent that we examine changes in ownership on a case-by-case basis.
In the interim, we will continue to a pply our current methodology for ongoing CVD
cases and carefully examine the facts of each case.  However, we will considerwhether modifications to the methodology may be appropriate.
Elsewhere in the Preamble, the DOC explained why it was not promulgating regulations with
detailed criteria involving the concept of “gen eral infrastructure” (CDA-3, page 65,378); regulations
regarding the government purchase of goods (CDA-3, page 65,379); regulations codifying the DOC’s
then-existing practice regarding worker-related subsidies (CDA-3, page 65,380); and regulations onimport substitution subsidies (CDA-3, page 65,385).
With respect to each of these topics, the discussion in the Preamble reveals that the DOC did
not consider that it had sufficient experience to warrant the promulgation of a binding regulation, and
that it preferred instead to retain its flexibility to  develop its policy regarding these topics on a case-
by-case basis.  In light of these examples, it is simply implausible to argue, as Canada does, that the
DOC considers itself bound by the portion of the Preamble challenged by Canada.
Canada’s counter-argument is that if these types of preambular statements are not binding,
then they are “meaningless.”  The United States cannot speak to the situation under Canadian law, butin the United States it is considered highly desirable for an administrative agency, operating within
the framework of a democratic system of government, to keep the public informed of the agency’s
thinking via non-binding instruments such as general policy statements or interpretative rules.  Thus,
the portions from the Preamble quoted above were not “meaningless” statements, because they
communicated to the public the DOC’s thinking on the topics to which they related.
More generally, it is worth mentioning the trade-offs an agency faces when trying to decide
between the use of a legislative rule or some non-bindi ng instrument, such as an interpretative rule or
a general policy statement.  From the agency’s perspective, a legislative rule offers significant
advantages in terms of efficiency.  If a legislative rule is validly promulgated, the legislative rule is
law, and the agency need not thereafter repeatedly justify the rule.  In the case of an interpretative
rule, on the other hand, the agency must continually justify the rule on a case-by-case basis.  Inaddition, a recent decision by the US Supreme Court suggests that a legislative rule may receive a
greater degree of judicial deference than an interpretative rule.  See US-33, page 171, discussing the
decision in Christensen v. Harris County , 120 S. Ct. 1655 (2000).
The downside of a legislative rule is that because it is binding on the agency, the agency must
live with the consequences of the policy choices reflected in the rule.  For example, if, in a CVD
proceeding, the DOC considered that the application of a regulation to the facts of the case generated
the wrong result, the DOC would have to live with  those results pending the repeal or amendment of
the regulation.  On the other hand, in the case of an interpretative rule, if an agency decided that the
rule generated the wrong result, the agency could freely overrule the rule.
The Preamble, when considered in toto , indicates that the DOC considered these types of
trade-offs.  With respect to those topics for which the DOC felt that it had sufficient experience, it
promulgated regulations, thereby binding itself.  With  respect to those topics for which the DOC felt itWT/DS194/R
Page A-66
had insufficient experience – such as the new standards applicable to “indirect subsidies” under
section 771(5)(B)(iii) of the Tariff Act – the DOC declined to promulgate regulations, thereby
preserving its flexibility and discretion.
Q14. Canada argues, in response to question 16(c) from the Panel, that "[p]ractice is [] not an
individual determination in a countervailing duty  case (although a determination normally will
reflect 'practice'), but rather is an institutiona l commitment to follow declared interpretations
and methodologies that is reflected in cumulative determinations".  In Canada's view, how is
the "institutional commitment" expressed?  That is, for something to be identifiable as such a
"commitment", would it need to be reflected in writing,  e.g., in a DOC determination, and
identified in general terms as agency "practice" or  "policy"?  If not, how (that is, in what form)
would such an expression be made?  To the extent  that there is an explicit identification of a
"practice" in a DOC determination or other document, how, in Canada's view, is this different
from "legislation"?
Reply
For its part, the United States remains confused as to the precise nature of Canada’s
“institutional commitment” and how it fits within the legal framework in which the DOC operates.
Putting aside the question of how this alleged “institutional commitment” is expressed, the key
question is whether this “commitment” – whatever it may be – binds the DOC so as to require it to
treat export restraints as financial contributions.  In the view of the United States, there are only twosuch instruments that would be mandatory in this sense:  a statute or a regulation.  Canada has not
disputed the fact that there is no DOC regulation regarding indirect subsidies in general, or export
restraints in particular, and Canada has conceded that the statute does not mandate the DOC to treat
export restraints as subsidies.  Moreover, this conclusion regarding the statute does not change upon
consideration of the SAA.
Q16. Assume hypothetically that the Panel w ere to rule on, and find in favour of Canada's
claims in respect of, all of the "measures" id entified by Canada other than "practice".  In
Canada's view, what actions would the United St ates need to take in order to "bring its
measures into conformity" pursuant to such a ruling?  How would such actions differ from
those that the United States would have to take if the Panel ruled in favour of Canada's claim in
respect of "practice" as well?  That is, what does Canada believe that the specific, practical
implications would be for remedy of including or excluding "practice" from any hypothetical
ruling by the Panel in favour of Canada's clai ms?  In your response, please comment on the
statement of the panel in European Communities – Parts and Components , after the finding that
the legislative provisions in question were not mandatory, that while it would be desirable for
the European Communities to withdraw the le gislative provisions in question, the European
Communities would meet its GATT obligations if it were to cease to apply those provisions in
respect of Contracting Parties
7.  Would the same be true in this case, assuming the hypothetical
ruling posited above?  If not, why not?   In your oral response to this question, you indicated
that, assuming the hypothetical ruling, it would no t be necessary for the United States to revise
the SAA.  How does this statement relate to your previous assertion that the SAA mandates the
DOC to treat export restraints as financial contributions?
                                                     
7 European Economic Community – Regulation on Imports of Parts and Components , Report of the
Panel, BISD 37S/132, adopted 16 May 1990, para. 5.26.WT/DS194/R
Page A-67
Reply
The United States submits that Canada’s oral answer to this question wholly undermines the
credibility of Canada’s claims.  Based on the US delegation’s notes, Canada made the following
significant statements:
(a) With respect to the statute, no amendment to the statute would be necessary because the
statute is not, on its face, inconsistent with the SCM Agreement;
(b) With respect to the SAA, the United States could “exploit” the proviso in the SAA so as to
adjust its interpretation of the statute; and
(c) With respect to the Preamble, the DOC either could (i) publish a notice in the Federal
Register  disavowing the portion of the Preamble at issue in this dispute; or (ii) by means of a
determination in a particular case cease to treat export restraints as subsidies ( e.g., decline to
initiate on an alleged export restraint in an actual case, or issue a negative determination in an
actual case on the grounds that export restraints do not constitute subsidies).
These statements are fundamentally at odds with the position Canada has taken throughout
this dispute.  With respect to the SAA, Canada has insisted that the SAA requires the DOC to interpret
the statute in such a way as to treat export restraints as subsidies (or financial contributions).  More
specifically, as the Panel well knows, Canada has argued throughout this dispute that the proviso inthe SAA is meaningless.  Indeed, in Canada’s Second Oral Statement , paras. 15-17, Canada
continued to insist that the SAA requires the DOC to treat export restraints as subsidies (or financial
contributions).  Yet, only a few hours later, Canada, in responding to this question, admitted that the
SAA does not really require any such thing.
The fact that Canada has taken inconsistent positions in the course of this dispute is not
surprising.  As demonstrated by US-32, as recently as September 1999 in the Live Cattle  case, Canada
was of the view that the SAA did not require the DOC to treat export restraints as subsidies.
Turning to the Preamble, Canada has insisted throughout this case that the Preamble has the
same status as a regulation; i.e., that it is a legislative rule that is binding on the DOC.  However, if
that were the case, then the DOC could not simply disavow the Preamble by publishing a Federal
Register  notice or applying a new approach in an actual CVD case.  As a legislative rule, the
Preamble would be “law”; i.e., it would be binding on the DOC until properly repealed or amended.
The only proper way to repeal or amend a legislative rule is to engage in the same notice-and-
comment rulemaking by which the legislative rule was promulgated in the first place.  Thus, Canada’s
suggested methods of implementation are totally at odds with its characterization of the legal status ofthe Preamble.
Q17. We understand Canada to make the following two arguments concerning the legislation
at issue:  (i) that the statute "as int erpreted by" the SAA and the Preamble is mandatory
legislation that requires  the DOC to violate its obligations under the SCM Agreement; and (ii)
that, although the statute on its own is discretion ary, in the sense that it would be possible to
interpret it in a WTO-consistent manner, the SAA and the Preamble "c urtail the discretion" of
the DOC to act WTO-consistently.  Is this a correct understanding of Canada's arguments?
Are these two formulations simply two different wa ys of saying the same thing, or is the second
formulation an alternative argument to the first,  or a different argument in some other respect
from the first?  Please explain.WT/DS194/R
Page A-68
Reply
The United States notes that “curtailing discretion” is not the same as “mandatory
legislation.”  Any authority – a law review article, a congressional committee report, a prior
administrative precedent, a determination by authorities of another Member – can be said to “curtaildiscretion” in the sense that, to the extent the authority is persuasive, it makes one approach more
likely than the alternative and, for a rational, defensible decision, a decision-maker may choose to
follow, explain, or distinguish the authority.  However, this is not the same thing as mandatory
legislation.
Consider, for example, the treatment of the Canada Account in Canada Aircraft .  The
existence of the Canada Account made the provision of prohibited export subsidies more likely thanwould have been the case if the Canada Account ha d not existed.  Nonetheless, the panel in that case
found that the Canada Account, as such, was not WTO-inconsistent because it did not mandate the
provision of export subsidies.  The panel so ruled notwithstanding the fact that it simultaneously
found that particular debt financing made under the Canada Account did constitute the provision of
prohibited export subsidies.
Q19. Could Canada explain the apparent inconsistency between its characterisation of the
proviso in the SAA in this dispute and its arguments concerning the same proviso in the Live
Cattle investigation, referred to at paragraph 24 of the second oral statement of the
United States.
Reply
In the view of the United States, the inconsistency and Canada’s attempted rationalization
speak for themselves.  The United States notes that when Canada made the argument in Live Cattle , it
presumably was convinced, and argued on the record, that the DOC was not required by the statute,
the SAA, or any other “measure” to treat export restraints as subsidies (or financial contributions).
Q20. What is the significance of the followin g sentence of the paragraph from the Senate
Joint Report on the URAA (Exhibit CAN-134), an excerpt of which you quote at paragraph 19
of Canada's second oral statement?:
"The Committee further expects that these types of indirect subsidies
will continue to be countervailable where the standard under new section
771(5)(B)(iii) has been met."
Does this sentence in Canada's view have the same meaning as the proviso in the SAA?
Reply
Setting aside the obvious implication to be drawn from Canada’s selective quotation of the
Senate Joint Report in its Second Oral Statement , in the view of the United States, this sentence has
the same meaning as the proviso in the SAA; namely, that “indirect subsidies” of the typecountervailed in the past will continue to be countervailable only if the DOC determines that the
standard of subparagraph (iv) has been met.
Canada purports to have identified all the “measures” that make up the “treatment of export
restraints under US countervailing duty law, but until the last minute ignored the Senate Joint Report.This is yet another reason why panel rulings should be based on actual actions of Members or clear
mandatory legislation, rather than speculation about how an administrative agency might rule in the
face of a plethora of authority and possible fact patterns.WT/DS194/R
Page A-69
Q23. Canada appears to argue, in its responses to questions 11 and 12(a) from the Panel, that
the coverage of paragraphs (i)-(iii) of Article 1.1(a)(1) is broader than that of paragraph (iv).
That is, Canada argues that any action by a government itself of the type described in
paragraphs (i)-(iii) would, by definition, and wi thout any additional conditions, be a "financial
contribution".  Canada also argues, however, that if a government undertook the same actionbut this time operated through  a private body, this action would only be a "financial
contribution" if that government "ordinarily" p erformed that function.  The implication of this
argument would appear to be that government intervention in the market through a private
body (even if repeated over some period of time) would not satisfy the requirements of
paragraph (iv), unless the government already had a past history (or prior "ordinary" practice)
of doing so itself directly.  For example, if a government had no past history of lending money to
private companies itself out of its own funds, and then began to order private banks to makecertain loans to certain companies, Canada's argume nt seems to imply that these loans, in spite
of being made at the explicit direction of the government, would not constitute financial
contributions by that government, because of  the absence of a prior practice of direct
government lending.  Is this a correct understanding of Canada's argument?  Please explain,
and please discuss the rationale or purpose under Article 1 for what Canada sees as twodifferent legal standards under different paragraphs of the same "financial contribution"
provision, i.e., one standard under paragraphs (i)-(iii), and a second, narrower standard under
paragraph (iv)?
Reply
For reasons previously expressed, the United States considers Canada’s argument (which the
Panel accurately reflects) to be without logical foundation.  At the close of the second meeting with
the Panel, even Canada appeared to acknowledge th e perverse results which its interpretation would
generate.
At this point, the United States simply would add that Canada’s interpretation is inconsistent
with the object and purpose of the WTO Agreement, which, as expressed in the preamble thereto,
includes “entering into reciprocal and mutually advantageous arrangements directed to the substantial
reduction of tariffs and other barriers to trade ... .”  Under Canada’s interpretation, activity by Member
A might constitute a financial contribution within the meaning of subparagraph (iv), while the same
activity by Member B might not.  Such an outcome is not only nonsensical, but hardly can beconsidered “reciprocal and mutually advantageous.”
Q24. Could Canada please respond to the US argument in the last sentence of paragraph 46
of its second oral statement.
Reply
Please see the US answer to question 13 to Canada, above.WT/DS194/R
Page A-70
ANNEX A-5
LETTER FROM THE UNITED STATES COMMENTING ON
CANADA'S ANSWERS TO QUESTIONS POSED AT THE
SECOND SUBSTANTIVE MEETING OF THE PANEL
(7 March 2001)
My authorities have instructed me to submit the following comments regarding Canada’s
Answers to the Questions Posed at the Second Substantive Meeting of the Panel  (“Canada’s Second
Answers ”), dated 2 March 2001.  For the reasons set forth below, the United States respectfully
requests that the Panel take these comments into consideration.
While the United States, in general, disagr ees with the legal arguments set forth in Canada’s
Second Answers , those arguments largely repeat prior arguments made by Canada, and it is not the
wish of the United States to engage in yet another round of briefing by repeating the rebuttals it
already has made.  Instead, the comments set forth below relate largely to three new pieces of factual
information that were attached to, and discussed in, Canada’s Second Answers ; specifically,
CDA-137, 138, and 140 as they relate to the concept of a “legislative rule” under US administrative
law.  This is new factual information on which the United States has not had an opportunity to
comment.  The United States believes it is impor tant that the following points be brought to the
Panel’s attention.
The other area on which the United States would like to briefly comment concerns Canada’s
answer to Question 1(a) posed to it by the United States.  Although Canada does not submit new
information in its answer to that question, it makes a factually erroneous assertion that, in the view of
the United States, requires correction.
The Panel’s Question 13 and Legislative Rules
In responding to Question 13 from the Panel, Canada submits as evidence two US court
decisions, National Family Planning and Reproductive Health Ass’n v. Sullivan , 979 F.2d 227 (D.C.
Cir. 1992) (CDA-137), and Troy Corporation v. Browner , 120 F.3d 277 (D.C. Cir. 1997) (CDA-138).
Canada appears to allege that these cases set out some new and different standard for identifying a
legislative rule, but, in fact, these cases are not inconsistent with the cases previously cited by the
United States.  Having said that, however, there are certain important points concerning these casesthat Canada omits from its discussion.
In Troy , the complainant, like Canada in the instant dispute, alleged that a regulatory
preamble constituted a legislative rule.  Canada accurately summarizes the court’s discussion of the
criteria for a legislative rule, but it omits the court’s discussion of the criteria for a general policystatement.  The court said that “first, a general statement is one that ‘does not impose any rights and
obligations’ and, second, that a policy statement generally leaves the agency and its decisionmakers
free to exercise discretion.”  120 F.3d, at 287 (citations omitted).  Canada also omitted the statement
by the court that “[w]e will also consider an agency’s characterization of its own actions, although
that characterization is not dispositive.”  Id (citation omitted).
Finally, Canada omitted the court’s discussion of why it did not find the preamble in question
to constitute a legislative rule.  The court stated as follows:WT/DS194/R
Page A-71
Applying these principles, we conclude that the EPA’s exposure policy was exempt
from the notice and comment requirements of section 553.  The EPA’s exposure
policy merely informed the public that the agency would exercise its discretion by
considering exposure only for low toxicity chemicals.  The EPA did not thereby
curtail this discretion; it did nothing more than clarify its own position.  The policydoes not impose rights or obligations or bind the agency to a particular result.
Chemicals of low toxicity may be added despite the policy, just as chemicals of
moderate or high toxicity are not necessarily added because of it.  Id.
This statement could easily apply to the portion of the DOC Preamble at issue in this dispute.
The DOC Preamble, at most, merely informed the public of the DOC’s tentative thinking regarding
the interpretation of the new section 771(5)(B)(iii) of the Tariff Act.  This clarification of the DOC’s
position did not impose rights or obligations or bind the DOC to a particular result.  In this regard, inits answers to Questions 1 and 2 posed by the United States, Canada failed to cite a single case –
judicial or administrative – where a court or the DOC has said that the DOC is legally bound by the
type of preambular statement at issue in this dispute.  Moreover, Canada effectively admits that the
DOC is not so bound in its answer to Question 16 from the Panel.  There, Canada asserts that the
DOC could simply cease to apply the alleged “legislative rule” of the Preamble in future cases.However, if the Preamble is a “legislative rule”, then it is binding, and the DOC cannot simply decide
to ignore it.
This latter point was made clearly in National Family Planning .  In that case, the agency in
question issued “Directives” which the court found had the effect of amending a prior legislative rulepromulgated in the form of a regulation.  In striking down the Directives, the court stated that “an
agency issuing a legislative rule is itself bound by the rule until that rule is amended or revoked.”
979 F.2d, at 234 (citations omitted).  The court added:   “It is a maxim of administrative law that:  ‘If
a second rule repudiates or is irreconcilable with [a prior legislative rule], the second rule must be an
amendment of the first; and, of course, an amendment to  a legislative rule must itself be legislative.’”
Id., quoting  Michael Asimow, Nonlegislative Rulemaking and Regulatory Reform , 1985 Duke L.J.
381, 396.
Thus, under US law, if the Preamble actually were a legislative rule, it could be amended or
revoked only by going through notice-and-comment rulemaking.  Canada’s assertion that the DOC
could disavow the Preamble simply by publishing a Federal Register  notice to that effect or
announcing some action in an actual CVD case is incompatible with Canada’s claim that the Preambleis a binding, legislative rule.
1
Finally, Canada cites to pages 234-235 of volume I of the Davis & Pierce administrative law
treatise (CDA-140).  The United States does not disagree with Davis & Pierce that many legislative
rules perform an interpretative function.  Indeed, while no precise taxonomy has ever been prepared, a
fair number of the DOC’s regulations could be described as performing an interpretative function.
However, Canada draws a false conclusion from the professors’ otherwise unobjectionable
statement.  The professors say that some legislative rules perform an interpretative function.  They do
not say, as Canada claims, that any rule which performs an interpretative function thereby is a
legislative rule.  Otherwise, there would be no distinction between a legislative rule and an
                                                     
1 Another interesting aspect of National Family Planning  can be found on page 239 of the decision.
There, the court cites a prior decision called Fertilizer Institute , in which the US Environmental Protection
Agency set out in a preamble to a rule a detailed interpretation of a statutory term.  According to the National
Family Planning  court, in Fertilizer Institute  it held that the preamble did not constitute a legislative rule,
notwithstanding the apparent detail of the agency’s interpretation.WT/DS194/R
Page A-72
interpretative rule.  Instead, more is required for a legislative rule, particularly an intent on the part of
the agency that it be bound.
Canada’s Answer to Question 1(a) from the United States
In paragraph 52 of Canada’s Second Answers , Canada is unable to come up with a single
example in which a reviewing court of the DOC has held that the DOC is bound by a regulatory
preamble that, like the portions of the Preamble at issue in this dispute, is unrelated to any regulation.
This failure is telling, but Canada attempts to dismiss this failure by referring to the fact that the DOC
regulations have been in effect only since 1997.
Of course, the question was not limited to the DOC regulations currently in force, and Canada
attempts to create the misimpress ion that DOC regulations have exis ted only since 1997.  In fact, the
first comprehensive set of DOC regulations were published in 1980, when the DOC assumed the
responsibility for administering the US AD/CVD laws.  The DOC published notices of final rule at 45
Fed. Reg. 4,932 (22 January 1980) (CVD), and 45 Fed. Reg. 8,182 (6 February 1980) (AD).  These
regulations were thoroughly overhauled in 1988-89 with the publication of notices of final rule at 53Fed. Reg. 52,306 (27 December 1988) (CVD), a nd 54 Fed. Reg. 12,742 (28 March 1989) (AD).
During this period and after, there also were more modest rulemaking proceedings which amended the
then-existing regulations.  Each of these rulemaki ng proceedings – both the major and the minor ones
– would have been accompanied by preambles explaining the regulations that were being
promulgated.  Thus, this is not a situation in which there has been insufficient time for there to bemany court decisions, as claimed by Canada in paragraph 52.  The United States does not know the
precise number of court decisions that have been issued regarding DOC AD/CVD determinations, but
would estimate that the number is at least over one thousand.
Similarly, Canada’s assertion in paragraph 52 that “Commerce’s regulations are rarely if ever
challenged as such” is also misleading, because the status of Commerce’s regulations certainly has
been litigated.  Canada itself has cited court decisions for the proposition that the DOC is bound by its
regulations .  See CDA-33 and CDA-122.  One would think that if, as alleged by Canada, the DOC
treated regulatory preambles of the type at issue in this dispute as binding, legislative rules, US courts
would have opined on this behaviour at least once.  However, despite the fact that DOC regulations
have been in effect in one form or another for over twenty years, Canada has been unable to identify a
single case – either judicial or administrative – supporting its assertion that the DOC is bound by thetype of regulatory preamble at issue in this dispute.
This dearth of authority is not surprising because the simple fact is that the DOC is not so
bound.  As discussed above, even Canada admits as much in its answer to Question 16 from the Panel.WT/DS194/R
Page A-73
ANNEX A-6
LETTER FROM CANADA TO THE PANEL
COMMENTING ON US LETTER OF 7 MARCH 2001
(9 March 2001)
Further to our receipt of the letter of the United States dated 7 March 2001, my authorities
have instructed me to submit the following comments.
Notwithstanding the United States' assertion that its comments with respect to Question 1(a)
posed by the United States are in the nature of a correction to a "factually erroneous assertion", in
Canada's view, these comments are not "factual" but rather attempt to make substantive arguments.
As such, these comments are improper and should be disregarded.  Moreover, in Canada's view, it is
evident that Canada's purpose was not to dispute whether there had ever been preambles other than
the Preamble to the substantive countervailing duty regulations issued in 1998, or how many court
decisions there have been over the years.  It is instructive, however, that the United States has not
referred to any case among the thousand it contends exist in which a Court has found that Commercefailed to follow a preamble.
Regarding Canada's answer to Question 13 from the Panel, Canada would like to point out
that it filed these additional authorities, in full, in response to the Panel's specific request that Canada
"provide details" in responding to this questi on.  Canada's answer also conforms with the
requirements of paragraph 14 of the Panel's Working Procedures.  Although the United States'
comments on Question 13 misstate both Canada's position with respect to the Preamble and Canada's
analysis of the standards in Troy  and National Family Planning , Canada will let its answer speak for
itself.  Regarding the United States' comments as to how the process by which compliance with the
hypothetical ruling posed in the Panel's Question 16 could be achieved with respect to the Preamble, itis Canada's understanding that the steps outlined by the United States would end with the Federal
Register notice that Canada suggested may be part of such a process.