2. Article II:1 of GATT 1994 (Cont.)

4.494 Canada argued that its item on fluid milk in its Schedule fully reflected the position that Canada took through negotiations with the United States and its contents posed no questions for those US officials that were party to those discussions. Only after the Uruguay Round negotiations were over had the United States tried to gain access for what it was unable to negotiate. Canada argued that the following points emerged from the record of the Uruguay Round Negotiations ³⁴² :

4.495 Canada submitted that its concession of a TRQ for cross-border trade in consumer-packaged fluid milk was fully consistent with Article II. Canada asserted that, read in good faith and in context, and in view of the rich record of negotiations between the two countries, the conditions in question could not mean anything other than stated at the outset by Canada: that the TRQ remained open to consumer-packaged fluid milk in cross-border trade, but not to bulk or commercial fluid milk.

4.496 The United States noted that in the recent report on Computer Equipment ³⁴³ , the Appellate Body had stated that items in tariff schedules to the GATT 1994 were to be considered to be integral parts of a treaty and as such to be subject to the customary principles of treaty interpretation, as set out in the Vienna Convention. Accordingly, pursuant to Article 31.1 of the Vienna Convention, the meaning of a term in a treaty was to be determined in accordance with the ordinary meaning to be given to the term in its context and in the light of the object and purpose of the treaty. The language in Canada's Schedule stating that the quantity provided for under the tariff-rate quota "represents the estimated annual cross-border purchases imported by Canadian consumers" failed to limit market access in the manner Canada now asserts it intended. The indicated language did not in its ordinary meaning allow an interpretation that permitted the actual constraints imposed by Canada on eligibility of imports for the in-quota rate. Because the language did not create the "term, condition, or qualification" which Canada now claimed it intended to establish at the time of its inclusion, Canada was providing treatment less favorable to imports of fluid milk than was provided for in its Schedule. Canada, therefore, was acting inconsistently with its obligations under Article II:1(b) of the GATT 1994.

4.497 The United States noted that Canada raised three arguments in response to the US complaint. First, Canada contended that the words in its Schedule would be rendered meaningless if they were not construed to limit the scope of market access as Canada had intended. Second, Canada argued that the meaning of the word "consumer" was so clear that its use obviously confined imports under the in-quota rate to small, retail purchases for the personal use of Canadian residents. Third, Canada asserted that the meaning of the words in the Schedule was agreed between the United States and Canada. Each of Canada's contentions was without merit.

4.498 The United States did not agree that the language in Canada's Schedule was made meaningless by denying those words the meaning that Canada now attributed to them. While the United States agreed with the principle of treaty interpretation, articulated by the Appellate Body, that words were to be given effect, here the question was what was the operative word to which effect was to be given. The only operative word in Canada's Schedule relating to fluid milk was the word "represents". However, the schedule statement that the quantity of the tariff-rate quota "represents" an estimated amount of trade did not operate to limit access in the manner Canada contended. It was simply a narrative statement explaining the basis for arriving at the in-quota quantity. Canada's choice of language was not at all the same as saying "access is limited to", or "this quantity is available only for." Canada attempted to read into the language in its Schedule a meaning and effect that were not there. The starting point for any treaty interpretation was the plain text of the treaty, which was also the best statement of the intent and agreement of the parties. That text was unambiguous and, therefore, Canada had failed to demonstrate any basis for examination of the negotiating history between the United States and Canada respecting market access for milk. Indeed, resort to such an examination would contravene the very principles of treaty interpretation which Canada cited in its argument.

4.499 The United States argued that this language remained from Canada's efforts to comply with certain specific modalities for market access set forth in the Agreement on Modalities for the Establishment of Specific Binding Commitments under the Reform Programme, which were Part B of the Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations. ³⁴⁴ The modalities required "minimum access opportunities" for products for which there were "no significant imports." The modalities required that such opportunities would "represent in the first year of the implementation period not less than 3 per cent of corresponding domestic consumption in the base period ... and shall be expanded to reach 5 per cent of that base figure by the end of the implementation period." Canada had no significant imports of milk during the relevant period and was consequently faced with the prospect of a requirement to import milk in volumes equal to 5 per cent of domestic consumption. Canada's trade statistics showed no imports of milk, because milk was subject to an absolute quantitative restriction under its Import Control List. Faced with this stark reality, Canada had seized upon the idea of demonstrating the existence of some "current access". The imports that Canada relied on were unrecorded imports entered by returning Canadian shoppers. Such milk was not subject to formal customs entry. Consequently, no trade data was compiled. In creating a tariff-rate quota for milk as part of the required tariffication process, Canada sought to dress up this unknown quantity of trade as "current access" within the meaning of the modalities. Paragraph 11 of Section B of Part B ³⁴⁵ provided that "current access opportunities on terms at least equivalent to those existing shall be maintained as part of the tariffication process." In the absence of any official trade statistics to justify a current access concession, rather than the more onerous minimum access concession, Canada had to place in its schedule an ostensible basis for this lesser concession. There had been various estimates concerning the volume of this unreported trade. Estimates ranged as low as approximately 35,000 tonnes and as high as 80,000 tonnes. When Canada reported in its Schedule that it would permit access for 64,500 tonnes at in-quota duty rates, it was appropriate that Canada stated how this level of "current" access was determined. The explanatory note in its Schedule that the volume represents the estimated amount of cross-border purchases by Canadian residents explained the derivation of the quantity adopted for in-quota market access. Contrary to Canada's contention, the ordinary meaning of the language served a purpose and was not meaningless.

4.500 The United States argued that Canada's attempt to demonstrate that the word "consumer" could only refer to a retail customer, purchasing small quantities of a product was also flawed. Canada sought to give a special meaning to that term, but Article 31.4 of the Vienna Convention permitted a special meaning only when it could be established that the parties so intended. Canada had not met this burden. The United States noted that the facts did not support Canada's assertion that language in its Schedule, and Canada's current interpretation of that language, was agreed to by the United States and Canada. At most Canada had shown that it had used the language in the schedule in its own internal memoranda. None of the exhibits tendered by Canada showed that the United States had shared a common understanding of the words or, more importantly, that the United States had agreed to the limitations that Canada now reads into that language. Unless Canada could demonstrate a common intent of the parties to give a special meaning to the term "consumer", its ordinary meaning was the only basis for interpretation of Canada's Schedule under the Vienna Convention.

4.501 The United States argued that Canada could have clearly established the limitation on access to the tariff-rate quota that it now claimed to have intended. For example, Canada could have instead specifically stated that the quantity eligible for the in-quota rate was limited to purchases by its residents for their personal use. Canada could have said that access under the tariff-rate quota was limited to milk entered under its General Permit No. 1 for dairy products. Or Canada could have used the same language which it used in the case of yoghurt and ice cream, and indicated, as it did for each of those products, that eligible entries were limited to access in "retail sized containers only". ³⁴⁶ Canada did not use the same limiting language that it used for yoghurt and ice cream for fluid milk. In such circumstances, the United States questioned how could it be understood that Canada sought to impose the same restriction on fluid milk access.

4.502 The United States noted that the United States used the term "ultimate consumer" in its Schedule for a related purpose. ³⁴⁷ The term there was defined to exclude institutions that could prepare, but did not consume food articles, such as hospitals, prisons, restaurants, hotels and bakeries. Furthermore, the US schedule was very precise in identifying equivalent limitations on imports into the United States. Thus, the United States schedule specifically stated that the words "prepared for marketing to the ultimate consumer" means "that the product is imported in packaging of such sizes and labeling as to be readily identifiable as being intended for retail sale to the ultimate consumer without any alteration in the form of the product or its packaging". ³⁴⁸ The United States argued that in light of this very distinct use of a related term by the United States in the US Schedules Canada could not arrive at the conclusion that the United States shared Canada's intended construction of the word "consumer". The US use of the modifying adjective "ultimate" indicated that the United States believed it necessary in its Schedule to distinguish between the more narrow category encompassed by the words "ultimate consumer" and a broader category that includes all consumers. Indeed, there was no basis for Canada's arguments that the United States understood Canada's poorly communicated intent. Yet, despite Canada's failure to offer any explanation, Canada insisted that the two countries agreed on a common meaning for the term.

4.503 The United States refuted Canada's efforts to establish the ordinary meaning of the term "consumer". Specifically, Canada relied to a major extent on the meaning given to a phrase, in fact, a term of art under the Uniform Commercial Code - "consumer goods" - that did not appear in Canada's Schedule and which possessed a connotation of its own, distinct from the word "consumer". The attempt to attribute the meaning of an entirely distinct phrase to the words in the Schedule was entirely inappropriate. Furthermore, entirely missing from Canada's argument regarding the meaning of the word "consumer" was any reference to the New Shorter Oxford English Dictionary on Historical Principles, ³⁴⁹ that it regularly cited for a variety of definitions. The New Shorter Oxford English Dictionary defined "consumer" to mean "a person who or thing which squanders, destroys, or uses up; a user of an article or commodity, a buyer of goods or services". Clearly, this definition was at odds with the more restricted definition of the term "consumer" offered by Canada. In fact, there was nothing in the New Shorter Oxford English Dictionary definition to limit the meaning of the word "consumer" to individuals purchasing goods for their own personal use in small, retail packages.

4.504 The United States further refuted the Canadian contention that the negotiations between the United States and Canada at the end of the Uruguay Round regarding market access lent support to Canada's argument. Canada's assertion that its market access offer for dairy was always in the form of "current" access was entirely unfounded. Canada was fixated on the idea of modifying Article XI of the GATT to allow quantitative restrictions on imports to remain inviolate. Canada had resisted the concept of tariffication of quantitative restrictions to the very end of the Uruguay Round. Thus, to suggest that Canada had any long-held position regarding any level of market access for fluid milk was misleading. Canada's first offer relating to market access, moreover, had been based on the Dunkel modalities, with access initially set at 3 per cent of its market, increasing to 5 per cent at the end of the implementation period. ³⁵⁰ The United States acknowledged that Canada indicated that this offer would only remain on the table if enhanced access to the US market for dairy products was provided. Negotiations between the two countries through the end of 1993 and the beginning of 1994 were aimed at reaching agreement on how such improved market access for a variety of products could be achieved. The negotiations were unsuccessful. Then in February 1994, Canada had submitted its final schedule to the WTO, including the 64,500 tonne tariff-rate quota for fluid milk. There had never been any agreement between the United States and Canada relating to either the size or nature of this tariff-rate quota, or the language used in Canada's Schedule.

4.505 The United States noted that given that Canada had commenced discussions of tariffication and market access at such a late date, resolution of the differences in position were not resolved by the time Canada was compelled to submit its Schedule. When it did so in February 1994, there certainly was no agreement between the United States and Canada on either the content of its concessions respecting fluid milk or the meaning of the terms used to describe the concession. Thus, Canada's selection of 64,500 tonnes as the quantity which represented so-called cross-border trade, was a number that it reached independently. Moreover, its choice of language to describe what that 64,500 tonnes represented was also made unilaterally.

4.506 Canada stressed that it did not claim that the United States agreed with Canada's action - what it claimed was that the United States' negotiators understood it. The United States had accepted Canada's Schedule, including the tariff item at issue, in the full knowledge of the meaning and implications of the terms and conditions placed in that Schedule with respect to fluid milk. Canada argued that under the interpretation advanced by the United States, everything but the purely grammatical sense of the words was ignored. This rendered an analysis incomplete. The Appellate Body, in United States - Import Prohibition of Certain Shrimp and Shrimp Products ³⁵¹ , had recently reaffirmed the importance of examining each element of Article 31.1 of the Vienna Convention. In particular, regarding the interpretation of the chapeau of Article XX of the GATT 1994, the Appellate Body noted that the Panel "...did not expressly examine the ordinary meaning of the words...", ³⁵² that it had "... failed to scrutinize the immediate context of the chapeau," ³⁵³ and finally, that it "...did not look into the object and purpose of the chapeau." ³⁵⁴ (emphasis in original).

4.507 Canada noted that in support of its interpretation, the United States asserted that the only operative word in the Schedule was the word "represents" and claimed that this was merely a narrative statement explaining the basis for arriving at the in-quota quantity. However, the United States had not examined of the meaning of that term. Canada submitted that even at this initial stage of analysis, there were two potential meanings of the term "represents" as it was used in the Schedule. First, the word was defined as meaning to "...bring clearly and distinctly to mind, esp. by description or imagination." ³⁵⁵ Thus, the word operated to more precisely identify the 64,500 tonnes found under the "Initial Quota" and "Final Quota" columns as being cross-border purchases of fluid milk by Canadian consumers. A second definition could be "... of a quantity: indicate or imply another quantity." The TRQ dealt with quantities. The figure of 64,500 tonnes was found in the "Initial Quota" and "Final Quota" columns of the Schedule. Thus, the word "represents," in its ordinary meaning, instructed the reader to have in mind cross-border purchases of fluid milk by Canadian consumers when reading 64,500 tonnes under the initial/final quota columns of Canada's Schedule.

4.508 Canada noted that a single dictionary meaning did not exhaust the search for ordinary meaning and that the dictionary meaning of "consume" also included the concept of "eat up, drink down, devour". This definition carried with it the concept of a person actually ingesting the article in question. Thus, in the context of an agricultural product, this definition was part of the ordinary meaning.

4.509 Canada further argued that, continuing with the analysis expounded by the Appellate Body, it was evident that the United States had, at the outset, failed to consider the context of the Canadian terms and conditions attached to its TRQ for fluid milk. The immediate context of these words was that they were found in the column entitled "Other Terms and Conditions," which in itself followed the columns entitled "Initial Quota" and "Final Quota." The inescapably logical conclusion was that the words found under "Other Terms and Conditions" were just that: terms and conditions that applied to the quantity described as the initial/final quotas. Had these words merely represented "a narrative statement explaining the basis for arriving at the in-quota quantity," they would not have found a place in the Schedule. Turning to the object and purpose of the "Other Terms and Conditions" column, this was evidenced by the very words describing the function of the column. This column had been provided to allow Members to describe the terms and conditions that they had attached to the TRQ applicable to the product in question, not to describe how they had arrived at the TRQ itself.

4.510 In respect of the negotiating history, Canada recalled that it had clearly indicated to the United States, as set out in jointly drafted documents, that it intended to continue its access for US milk imported by Canadian consumers while non-consumer utilization would continue to be blocked until equivalency was established. Canada's intentions had been clear. Canada maintained that if the United States had had any doubt about whether or not Canada's Schedule provided access consistent with their interpretation of the negotiations and resulting treaty terms, it would have been their responsibility to verify the meaning of the term and condition. It had been their responsibility to ensure that their interpretation of what access was agreed to in the negotiations was ensured. ³⁵⁶

4.511 Canada did not concede, in respect of the US references to other language used by both Canada and the United States in their respective schedules, that such other language would necessarily have any adverse bearing on the language it had chosen with respect to its obligations. Indeed, the use of different words with respect to different categories of products merely illustrated that the terms and conditions applicable thereto were formulated in their own differing contexts, and thus had to be examined accordingly. Again, this illustrated the importance of heeding the guidance provided by the Vienna Convention when interpreting the terms of a treaty, ³⁵⁷ particularly when faced with interpreting tariff schedules. ³⁵⁸

3. Article 3 of the Agreement on Import Licencing Procedures

4.512 The United States argued that Canada administered the tariff-rate quota on fluid milk through general import permits provided for under Canada's Export-Import Permit Act. ³⁵⁹ By virtue of the general permit, residents of Canada were confined in any single import entry to C$20 worth of dairy products, limited to their personal or household use. ³⁶⁰ The two limitations, i.e., personal use and a specific dollar value, were imposed in addition to both the requirement for a general permit and the quantitative limit on the volume of fluid milk eligible for the in-quota rate under Canada's WTO Schedule. These additional constraints on imports were inconsistent with the requirements of Import Licensing Agreement. Specifically, Article 3.2 of the Import Licensing Agreement provided that:

4.513 The United States argued that the obligation encompassed in Article 3.2 reflected the Import Licensing Agreement's objectives that the flow of international trade not be "impeded by the inappropriate use of import licensing procedures" and that "licensing procedures should be no more administratively burdensome than absolutely necessary to administer the relevant measure". ³⁶¹ Hence, the general permit, by imposing two conditions on entry that were additional to the licensing requirement itself, added another impediment to fluid milk trade between the United States and Canada and resulted in procedures that were more administratively burdensome than necessary to administer the measure. By limiting entries to the personal use of the importer, the general permit restricted trade beyond those constraints that would result from the mere act of licensing imports. By confining the value of imports, the general permit further impeded trade and was also inconsistent with Article 3.5(i) of the Agreement, which directed Members to "take into account the desirability of issuing licenses for products in economic quantities." The limitation on imports to C$20 appeared to eliminate all but individual consumer retail purchases of milk.

4.514 Finally, the United States argued that Canada had failed in its obligation under Article 3.5(iv) to provide information respecting the value and volume of fluid milk within the tariff-rate quota. This data was requested by the United States during consultations in November 1997, and Canada advised that such information had not been developed despite assurances in earlier consultations that the data would be made available. ³⁶²

4.515 Canada argued that Article 1.1 of the Import Licensing Agreement defined import licensing as being administrative procedures used for the operation of import licensing regimes requiring the submission of an application or other documentation to the relevant administrative body as a prior condition for importation. Canada did not require Canadian residents to apply for or acquire import permits for the importation of less than C$20 worth of dairy products. There were no administrative procedures associated with the general import licensing regime in respect of such import. Therefore, that Agreement did not apply.

4.516 Canada further argued that its administration of the fluid milk tariff quota was consistent with the Import Licensing Agreement. Imports of fluid milk for personal use into Canada were freely made by Canadians under the terms of General Import Permit No.1. Individual permits were not required. Further, in the current circumstances, Canada had not considered it necessary to monitor the flow of such milk imports into Canada. Any such inspection regime would not be practicable, since it would, in effect, require the stopping of all returning Canadians at the many Canada-US border crossing points to inspect and record the contents of their grocery bags. Moreover, it would introduce an unwanted and unneeded interference in such import trade. No restrictions were placed on imports that were additional to the terms and conditions incorporated in Canada's tariff concession. Accordingly, this regime was in complete compliance with the requirements of Article 3.2 of the Import Licensing Agreement. Since any monitoring regime for such imports was neither realistic nor practicable, the provisions of Article 3.5(iv), cited by the United States did not apply.

4.517 The United States claimed that there could be no dispute that the Import Licensing Agreement applied to tariff-rate quotas. The Appellate Body in two separate disputes resolved the question by affirming that the Agreement's scope includes tariff-rate quotas. ³⁶³ Despite this clear statement by the Appellate Body, Canada argued that the Import Licensing Agreement did not apply in this instance because Article 1.1 limited the scope of import licensing to "the operation of import licensing regimes requiring the submission of an application or other documentation to the relevant administrative body as a prior condition for importation" (paragraph 4.515). Hence, Canada asserted that because its General Permit for dairy imports did not require any administrative procedures for imports of less than C$20, the Import Licensing Agreement was inapplicable.

4.518 The United States noted that Canada chose to ignore the fact that under Canada's Export and Import Permits Act administrative procedures existed for obtaining import licenses in situations in which the General Permit was inapplicable, e.g., where the desired dairy imports were valued at more than C$20. ³⁶⁴ While Canada rarely, if ever, granted licenses under those procedures for fluid milk imports, it presumably did grant licenses for other dairy products. For example, the United States assumed that Canada issued licenses for dairy imports under Canada's Import for Re-Export Program. ³⁶⁵ More importantly, Canada had administrative procedures in place for licensing such imports. The fact that Canada elected not to grant such licenses did not negate the existence of those licensing procedures. It would be a most curious result for a country to establish licensing procedures, but then be able to avoid the disciplines of the Import Licensing Agreement simply because it refused to grant any licenses. Canada's procedures, thus, remained within the scope of the Import Licensing Agreement.

4.519 The United States argued that Canada could not be allowed to use GATT inconsistent measures to argue that the Import Licensing Agreement was inapplicable. Canada maintained procedures under its Import-Export Permits Act to permit dairy imports, including fluid milk, that did not qualify under the General Permit. Canada's refusal to grant licences under that authority did not diminish the reality of those procedures. Moreover, these procedures were precisely the subject of the Import Licensing Agreement's disciplines. Canada could not deny the Agreement's applicability by simply disclaiming the existence of any relevant procedures.

4.520 Canada recalled its position that the Import Licensing Agreement did not apply to the General Import Permit system. The United States understood this statement as being a claim by Canada that the Agreement did not apply to tariff quotas generally. Canada could not understand how the United States could have read its statement in this way and affirmed that the Import Licensing Agreement applied to any tariff quota administration regime falling in the description of Article 1.1 of that Agreement.

To continue with Summary of Third Party Submissions

³⁴² Canada made reference to Exhibits 40 - 50.

³⁴³ Appellate Body Report on EC - Computer Equipment, op. cit.

³⁴⁴Canada Exhibit 32: MTN.TNC/W/FA, p. L.19 (20 December 1991).

³⁴⁵Ibid, p.L.26

³⁴⁶ Canada's Schedule V. (United States, Exhibit 51)

³⁴⁷ The United States referred to excerpts from Schedule XX. (United States, Exhibit 52)

³⁴⁸ Ibid.

³⁴⁹ Lesley Brown (ed.), (Oxford: Oxford University Press, 1993).

³⁵⁰ United States, Exhibit 53.

³⁵¹ Appellate Body Report on US - Shrimp-Turtle, op.cit.

³⁵² Ibid, p. 42, para. 115.

³⁵³ Ibid, pp.42-43, para. 116.

³⁵⁴ Ibid, p. 43, para. 116.

³⁵⁵ The New Shorter Oxford English Dictionary on Historical Principles, Lesley Brown (ed.), (Oxford: Oxford University Press, 1993).

³⁵⁶ Appellate Body Report on EC - Computer Equipment, op. cit., para. 82, 84.

³⁵⁷ Appellate Body Report on US - Shrimp-Turtle, op. cit., 50, p. 42.

³⁵⁸ Appellate Body Report on EC - Computer Equipment, op. cit., para. 82, 84.

³⁵⁹ Responses to Questions from the US on Fluid Milk TRQ, Letter, dated 24 November 1997 (Answer to Question 31. United States, Exhibit 34)

³⁶⁰ United States, Exhibit 34.

³⁶¹ Preamble, WTO Import Licensing Agreement, paras. 8 and 9.

³⁶² Consultations on 19 November 1997. Answers to question 24. (United States, Exhibit 34)

³⁶³ In the proceedings involving European Communities - Regime for the Importation, Sale, and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, para. 194 and European Communities - Measures Affecting the Importation of Certain Poultry Products, WT/DS69/AB/R, adopted 23 July 1998, paras. 120-122.

³⁶⁴ The United States noted that Canada described the nature of the applicable procedures in its answer to question 5 from the United States. Specifically, Canada stated that pursuant to paragraph 8.3(3) of the Act, "where goods have been included on the Import Control List and the Minister has determined an import access quantity for the goods pursuant to subsection 6.2(1), the Minister may issue (a) a permit to import those goods in a supplemental quantity to any resident of Canada who applies for the permit ...".

³⁶⁵ The United States noted that Canada stated in its response to the questions from the Panel and from New Zealand that the Import for Re-Export Program had not allowed the importation of fluid milk classified in tariff item 0401.10. (Response to Question 1(b) from New Zealand)