(a) The two elements under Article 10.1

7.120 In our view, for there to be a violation of Article 10.1, two elements need to be established:

7.121 Article 10.1 - in particular the second condition thereunder - has to be read together with Article 10.3, which provides:

7.122 Reading the second element of Article 10.1 together with Article 10.3, we note that all parties to this dispute agree that one example of applying export subsidies "in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments" is a situation where export subsidies other than Article 9.1 export subsidies are granted to a product subject to subsidy reduction commitments in excess of the reduction commitment level. ⁴⁹¹ We see no reason, in the circumstances of this case, to disagree with this interpretation of Article 10. In our view, Article 10.3 does, indeed, address both (i) the question of who bears the burden of proving whether or not an export subsidy is at issue in a specific instance ⁴⁹² , and (ii) the question of when certain export subsidies can be said to be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments.

7.123 We recall that, in this case, figures submitted by Canada show that for all of the dairy products in dispute and this during both marketing years at issue, the total amount of exports generated through Classes 5(d) and (e) exceeds Canada's reduction commitment level. ⁴⁹³ We also recall our consideration above that granting export subsidies "other" than those listed in Article 9.1 in excess of the relevant reduction commitment level for the subsidized product concerned, is sufficient to conclude that Article 10.1 is violated. ⁴⁹⁴ Therefore, in the circumstances of this dispute, whether or not Article 10.1 is violated depends on whether or not Classes 5(d) and (e) involve an "other" export subsidy in the sense of Article 10.1. In other words, in this dispute, we only need to further examine whether the first element of Article 10.1 is met.

(b) An "other" export subsidy under Article 10.1

7.124 The Article 10.1 concept of "[e]xport subsidies not listed in paragraph 1 of Article 9" is not further defined in Article 10 itself. Article 1(e) states, however, that:

For purposes of Article 10.1, we thus need to examine whether Classes 5(d) and (e) involve "subsidies contingent upon export performance" in the sense of Article 1(e) other than those listed in Article 9.1. Since we assumed earlier - in the alternative and for purposes only of our examination under Article 10.1 - that Classes 5(d) and (e) do not involve export subsidies as listed in Article 9.1, we need to examine next whether they do, nevertheless, constitute export subsidies in the sense of Article 1(e). ⁴⁹⁶

7.125 In our view, Article 1(e) covers a wider range of "export subsidies" than the specific practices listed in Article 9.1. Article 1(e) explicitly states that it "includes" - and is thus not limited to - export subsidies listed in Article 9.1. We consider, therefore, that any subsidy contingent upon export performance other than one listed in Article 9.1 is covered by Article 10.1. Accordingly, measures which meet some but not all of the definitional elements of the individual export subsidy practices listed in Article 9.1 would be covered by Article 10:1, provided that they meet the basic requirement of Article 1(e) that they are "subsidies contingent upon export performance". However, neither the wording of Article 9.1, Article 10 nor Article 1(e) explicitly indicates which of the Article 9.1 limitations are no longer valid under Article 10.1. The guidance that can be derived from Article 9.1, as part of the context of Article 1(e) and Article 10.1, is that Article 10.1 must include certain payments-in-kind and producer-financed schemes which do not fully meet all elements under, respectively, Article 9.1(a) or Article 9.1(c). In this respect, it could, for example, be argued that where Article 9.1(a) addresses the provision by governments or their agencies of "direct subsidies, including payments-in-kind" contingent on export performance, Article 10.1 can be presumed to cover the indirect version of such subsidies.

7.126 We find further guidance to interpret the meaning of a subsidy contingent upon export performance for the purposes of Article 1(e) and Article 10.1, inter alia, in the SCM Agreement which is, we consider, part of the general context of Article 1(e) and Article 10.1. Article 1 of the SCM Agreement, for example, includes as a subsidy "any form of income or price support in the sense of Article XVI of GATT 1994" whereby a benefit is conferred. However, since in this case we need to interpret the meaning of certain "export subsidies", we consider it more appropriate, without prejudice to the scope of Article 10.1, to examine what practices are considered under the SCM Agreement to be "export subsidies", rather than to examine how that Agreement defines the more general concept of a "subsidy" in its Article 1. Annex I to the SCM Agreement - the Illustrative List of Export Subsidies - identifies practices which are, under Article 3 of the SCM Agreement, "subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance". Both complainants invoke Paragraph (d) of the Illustrative List which provides that the following action is an "export subsidy" for purposes of the SCM Agreement:

A footnote added to the term "commercially available" states:

7.127 Given that Paragraph (d) deals with the provision of products at different prices for, on the one hand, use in the production of exported goods and, on the other hand, use in the production of goods for domestic consumption, we agree with the parties that Paragraph (d) under the Illustrative List is the most relevant one to this case. We next examine whether the provision of milk at a lower price for export under Classes 5(d) and (e) falls within the scope of Paragraph (d).

7.128 In our view, Paragraph (d), applied to the facts of this case, requires the presence of three elements:

7.129 As to the first element under Paragraph (d), it is undisputed that through Classes 5(d) and (e) domestically produced milk is provided for use in the production of exported goods (processed dairy products) on terms and conditions more favourable than for provision of the same domestically produced milk for use in the production of dairy products for domestic consumption. ⁴⁹⁷ As we found earlier, the price differential between milk for use in exports and milk for use on the domestic market is significant. ⁴⁹⁸ We thus find that the first element under Paragraph (d) is met.

7.130 Examining the second element under Paragraph (d), we recall our analysis under Article 9.1(a) on the basis of which we found that under Classes 5(d) and (e) milk for export at a discounted price is "provided by" Canada's "governments or their agencies". ⁴⁹⁹ Even if we would have found that such lower priced milk is not "provided by" Canada's "governments or their agencies" - something we could assume here given that our examination under Article 10.1 is one in the alternative, i.e., on the assumption that the scheme is not an Article 9.1(a) export subsidy - we still consider that the evidence of record, outlined in paragraphs 7.68 to 7.85, is conclusive for us to find that such milk is, nevertheless, "provided by" Canada's "governments or their agencies either directly or indirectly through government-mandated schemes" ⁵⁰⁰ in the sense of Paragraph (d). Indeed, in the event milk were not directly provided by Canada's governments or their agencies under Classes 5(d) and (e), in our view, it is at least indirectly provided through government-mandated schemes. For there to be such schemes we do not consider it necessary, as argued by Canada, that the federal or provincial governments specifically direct a certain outcome or course of action to be achieved or taken by the CDC, the provincial marketing boards or the CMSMC. In our view, the ordinary meaning of the term "government-mandated" scheme - in its immediate context of products being provided "indirectly through government-mandated schemes" - also includes the delegation of authority by the government to its agencies which, in turn, set up a "government-mandated" scheme. ⁵⁰¹ We thus find that in this case the second element under Paragraph (d) is met.

7.131 Finally, referring to the third element under Paragraph (d), we recall our examination of whether or not the provision of milk to processors/exporters under Classes 5(d) and (e) confers a benefit to these processors/exporters, in such a way that one can conclude that a payment in kind is made to them in the sense of Article 9.1(a). ⁵⁰² We recall, in particular, those paragraphs where we applied the benchmark of whether processors/exporters can access milk, or for that matter milk derivatives, from any other source - in particular the world market - on terms and conditions equally favourable to those offered under Classes 5(d) and (e). ⁵⁰³ There we found that "the provision of milk to processors/exporters under Classes 5(d) and (e) at a price significantly lower than the domestic milk price ... and on terms and conditions which are more favourable than those under any other alternative source, including under the Import for Re-Export Program ... - confers a "benefit" ... to these processors/exporters and, for that reason, constitutes a payment in kind - namely, the provision of a good at a discounted price - in the sense of Article 9.1(a)". ⁵⁰⁴ Even if we had found that Classes 5(d) and (e) do not involve the payment in kind referred to in Article 9.1(a) - something we could assume here given that our examination under Article 10.1 is one in the alternative, i.e., on the assumption that the scheme is not an Article 9.1(a) export subsidy - we nevertheless consider that the evidence of record is conclusive for us to find that the provision of milk under Classes 5(d) and (e) is made on "terms or conditions ... more favourable than those commercially available on world markets" in the sense of Paragraph (d). We refer, in particular, to paragraphs 7.52 to 7.56 which, in our view, provide sufficient proof that the choice to be made by processors/exporters between accessing milk under Classes 5(d) or (e) and sourcing milk, or for that matter milk derivatives - in the event these milk derivatives could be considered to be directly competitive with fluid milk (an issue which is in dispute ⁵⁰⁵ ) and assuming that the availability of a directly competitive product is relevant in cases where the like product is not available - is not a choice which is "unrestricted and depends only on commercial considerations" in the sense of the footnote to Paragraph (d). We recall, in particular, the discretion granted to the Minister of Foreign Affairs and International Trade who has to issue a permit for imports to be allowed ⁵⁰⁶ ; the fact that to date commercial imports of fluid milk cannot, for all practical purposes, enter Canada ⁵⁰⁷ ; and the figures submitted to us which indicate - albeit in general terms only - that under Classes 5(d) and (e) milk can be sourced on more favourable terms and conditions than under, e.g., the Import for Re-Export Program, an indication reflected also in the overwhelming preference of processors/exporters for milk under Classes 5(d) and (e). ⁵⁰⁸

7.132 For the above reasons ⁵⁰⁹ , we find that Classes 5(d) and (e) involve an export subsidy as listed in Paragraph (d) of the Illustrative List of Export Subsidies annexed to the SCM Agreement. We do not consider it necessary in this case to decide whether the fact that a scheme involves an export subsidy under the SCM Agreement necessarily means that it also constitutes an export subsidy under Article 1(e) of the Agreement on Agriculture. We are not called upon - and do not intend here - to decide whether the scope of the concept of export subsidy under the SCM Agreement is the same as, or different than, that under the Agreement on Agriculture. We do find, however, that in the circumstances of this case and on the grounds outlined above ⁵¹⁰ , Classes 5(d) and (e) - assuming, in the alternative, that they do not constitute an export subsidy as listed in either Article 9.1(a) or Article 9.1(c) - nevertheless involve an "other" export subsidy in the sense of Article 10.1.

7.133 Given our finding in the previous paragraph and recalling: (i) our consideration above that granting export subsidies "other" than those listed in Article 9.1 in excess of the relevant reduction commitment level for the subsidized product concerned, is sufficient to conclude that Article 10.1 is violated ⁵¹¹ ; and (ii) the fact that for all of the dairy products in dispute and this during both marketing years at issue, the total amount of exports generated through Classes 5(d) and (e) does exceed Canada's reduction commitment levels, we find that Canada - in the alternative, i.e., only in the event Classes 5(d) and (e) do not involve export subsidies as listed in either Article 9.1(a) or Article 9.1(c) - has acted inconsistently with its obligations under Article 10.1 with respect to all three dairy products at issue and during both marketing years in dispute.

9. Article 8 of the Agreement on Agriculture

7.134 Recalling that Article 8 of the Agreement on Agriculture provides that "[e]ach Member undertakes not to provide export subsidies otherwise than in conformity with this Agreement", we also find that as a consequence of the violations of either Article 3.3 (through Article 9.1) or Article 10.1 we found earlier ⁵¹² , Canada has acted inconsistently with its obligations under Article 8.

10. Article 3 of the SCM Agreement

7.135 The United States also claims that the provision of milk under Classes 5(d) and (e) is inconsistent with Canada's obligations under Article 3 of the SCM Agreement which contains, inter alia, a general prohibition on export subsidies.

7.136 We have found that the Canadian scheme is inconsistent with: (i) Canada's obligations under both Article 3.3 and Article 8 (through Article 9.1(a) and Article 9.1(c)) ⁵¹³ ; or (ii) in the alternative, Canada's obligations under both Article 10.1 and Article 8 ⁵¹⁴ , of the Agreement on Agriculture. Therefore, the exemption provided for in Article 13(c)(i) of the Agreement on Agriculture from actions under Article 3 of the SCM Agreement for "export subsidies that conform fully to the provisions of Part V" of the Agreement on Agriculture, does not apply. In principle, the scheme could therefore also be subjected to an examination under Article 3 of the SCM Agreement.

7.137 Article 3 is identified in the US request for this Panel and could thus, in principle, be presumed to fall within the Panel's terms of reference. ⁵¹⁵ The question then arises whether we could and, as the case may be, should apply the principle of judicial economy and decide not to examine the US claim under Article 3. We recall the Appellate Body's statement in Australia - Salmon, quoted earlier ⁵¹⁶ , which provides the most recent statement on when judicial economy can be exercised.

7.138 We note, firstly, that although the United States extensively referred to the SCM Agreement as context of its claims under the Agreement on Agriculture, the US arguments on its claim under Article 3 of the SCM Agreement are minimal. ⁵¹⁷ The US' only argument under Article 3 is effectively that because Canada violated its export subsidy commitments under the Agreement on Agriculture, it thereby automatically violates its obligations under Article 3 of the SCM Agreement. ⁵¹⁸

7.139 Secondly, we note that Article 4 of the SCM Agreement (entitled "Remedies") provides for "special or additional rules and procedures on dispute settlement" (as referred to in Article 1.2 of the DSU) in respect of claims made under Article 3. Article 4 sets out rights and obligations which may benefit either party to a dispute. It obliges panels to give recommendations that differ from those generally made under the DSU, a right which may be beneficial to complaining parties. Pursuant to Article 4.7, a panel has to recommend to the DSB that the subsidy be withdrawn without delay and has to specify the time-period allowed for such withdrawal. However, Article 4 also requires, in paragraph 2, that a request for consultations "include a statement of available evidence with regard to the existence and nature of the subsidy in question", a provision which may work to the advantage of the defending party. The same is true, in our view, in respect of Article 4.5 which states that "[u]pon its establishment, the panel may request the assistance of the Permanent Group of Experts ... with regard to whether the measure in question is a prohibited subsidy". Article 4 also imposes a time-frame that is stricter than the usual DSU time-frame for the settlement of disputes. These shorter time periods may also be advantageous to defending parties in that their situation will need to be clarified more rapidly.

7.140 However, in this case the United States never invoked or even referred to the rules and procedures contained in Article 4. It did not do so in its request for consultations, in its request for a panel or in any of its submissions before the Panel, nor did it at any stage in this dispute pursue the matter within the framework of Article 4. Given that the United States - and, as a result, also Canada and the Panel - did not at any point proceed under Article 4, we consider it inappropriate at this stage - given also our earlier findings of violation of the Agreement on Agriculture - to further pursue the US claim under Article 3.

7.141 On the grounds set out above ⁵¹⁹ , and in view of the particular circumstances of this case, we thus conclude that we should apply the principle of judicial economy and, therefore, do not examine Article 3 of the SCM Agreement.

To continue with The Tariff-Rate Quota for Fluid Milk

⁴⁹¹ See, in particular, Canada's answer to Panel Question 16 to Canada.

⁴⁹² See paras. 7.32-7.34.

⁴⁹³ See para. 7.115, referring to Table 2 in para. 2.41.

⁴⁹⁴ See para. 7.122.

⁴⁹⁵ Emphasis added.

⁴⁹⁶ With reference to para. 7.41 and footnote 453, to the extent that the US claims also cover any of the milk classes other than Classes 5(d) and (e), we note that all of these other milk classes can also (often exclusively) be accessed by processors which produce for the domestic market. Nothing offered under these other milk classes is thus "contingent upon export performance". We therefore find that these other milk classes do not involve an export subsidy in the sense of Article 10.1.

⁴⁹⁷ See Table 3 in para. 2.51.

⁴⁹⁸ See para. 7.50.

⁴⁹⁹ See paras. 7.63-7.86.

⁵⁰⁰ Emphasis added.

⁵⁰¹ The New Shorter Oxford English Dictionary (Ed. Brown, L., Clarendon Press, Oxford, Volume 1, p. 1683) defines "mandate" as follows: "1. Command, require by mandate; necessitate ... 4. Give a mandate to, delegate authority to (a representative, group, organization, etc.)".

⁵⁰² See paras. 7.46 ff.

⁵⁰³ See paras. 7.49-7.58.

⁵⁰⁴ Para. 7.58, emphasis added.

⁵⁰⁵ See para. 7.55.

⁵⁰⁶ See para. 7.53.

⁵⁰⁷ See para. 7.54.

⁵⁰⁸ See para. 7.56.

⁵⁰⁹ See paras. 7.129-7.131.

⁵¹⁰ See paras. 7.124-7.131.

⁵¹¹ See para. 7.122.

⁵¹² See, respectively, in paras. 7.116 and 7.133.

⁵¹³ See paras. 7.116 and 7.134.

⁵¹⁴ See paras. 7.133 and 7.134.

⁵¹⁵ The question arises, however, whether we can examine the Article 3 claim at all (even though Article 3 is mentioned in the US Panel request) given that in the US request for consultations and for establishment of this Panel, the United States only invoked - as a legal basis for consultations and a Panel on its SCM claim - Article 30 of the SCM Agreement, i.e., the general provision on "Dispute Settlement" (together with Articles 4 and 6 of the DSU), and not the more specific Article 4 of the SCM Agreement which sets out certain special and additional dispute settlement procedures for cases involving prohibited subsidies. We note that - given the multiple claims submitted in this dispute (both under the Agreement on Agriculture and the SCM Agreement) - the United States could, for example, have invoked Article 4 as a legal basis to obtain recommendations with respect to its Article 3 claim, while at the same time waive its right to, inter alia, those elements of the accelerated procedure under Article 4 that are at odds with the usual timetable applicable under the DSU. However, as further discussed below, we do not consider it necessary to answer these questions in this case.

⁵¹⁶ See para. 7.119.

⁵¹⁷ The only US argument is, indeed: "Consequently, these export subsidies are also inconsistent with Canada's obligations under Article 3 of the SCM Agreement" (US first submission, para. 125).

⁵¹⁸ In this respect, we note, however, that as opposed to our examination of this dispute under the Agreement on Agriculture (where Canada was found to bear the burden of proof, see para. 7.34), under Article 3 of the SCM Agreement, the usual rules on burden of proof apply.

⁵¹⁹ See paras. 7.138-7.140.