1. Facts and claims of the parties

7.142 In Part I of Canada's Schedule to GATT 1994, Canada established a tariff-rate quota for fluid milk (HS 0401.10.10 and 0401.20.10) of 64,500 tonnes. In-quota imports are subject, initially, to a maximum duty of 17.5 per cent (a rate to be decreased to 7.5 per cent in 2001). Fluid milk imports outside of the 64,500 tonnes tariff-rate quota bear an initial rate of duty equal to 283.8 per cent, declining to 241.3 per cent in 2001. In its Schedule, Canada specified under "Other terms and conditions" that "[t]his quantity [64,500 tonnes] represents the estimated annual cross-border purchases imported by Canadian consumers".

7.143 Referring to its Schedule, Canada currently restricts access to the tariff-rate quota to cross border imports by Canadians of consumer packaged milk for personal use, valued at less than C$20 per entry. Such imports are made under the authority of the General Import Permit No.1 issued under the Export and Import Permits Act. For such imports, no individual permits are required and no duty is being imposed, not even the in-quota duty. Moreover, the quantity of these imports is not monitored so that it is not known whether the tariff-rate quota is actually filled or not, or exceeded. Commercial shipments of milk are not allowed under the tariff-rate quota.

7.144 The United States claims that by confining the scope of fluid milk entries that are eligible under the tariff-rate quota to cross border imports by Canadians of consumer packaged milk for personal use valued at less than C$20 per entry, Canada grants imports of fluid milk treatment less favourable than that provided for in Canada's Schedule and, thus, acts inconsistently with its obligations under Article II:1(b) of GATT 1994. The United States further claims that because Canada administers the tariff-rate quota through a general permit restricting any single import entry to a value of C$20 and subjects such entries to a personal use restriction, Canada's licensing procedures introduce additional trade impediments that are inconsistent with its obligations under Article 3 of the Agreement on Import Licensing Procedures ("the Licensing Agreement").

7.145 Canada responds that the limited access to the tariff-rate quota is provided for in its Schedule, read in light of its negotiating history, and that, accordingly, Article II:1(b) of GATT 1994 is complied with. Canada argues that since no restrictions are placed on imports that are additional to the terms and conditions incorporated in Canada's Schedule, Canada's import regime is in complete compliance with the Licensing Agreement.

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

7.146 Article II:1(b) of GATT 1994 provides:

This provision needs to be read in the context of Article II:1(a) of GATT 1994 which states:

7.147 The 64,500 tonnes tariff-rate quota established in Part I of Canada's Schedule can thus only be subject to the 17.5 per cent (in 2001, 7.5 per cent) duty rate set out in Canada's Schedule. Any other "terms, conditions or qualifications" with respect to the access to this tariff-rate quota need to be set forth in Canada's Schedule. In this dispute, two "conditions" effectively imposed by Canada are at issue:

7.148 The only "terms, conditions or qualifications" set forth in Canada's Schedule are contained in the following phrase, mentioned under "Other terms and conditions", next to the quota quantity of 64,500 tonnes:

If we were to find that this phrase does not include the two conditions currently imposed by Canada, Canada would be in violation of Article II:1(b). Our finding on the US claim of violation of Article II:1(b) thus depends on the interpretation we give to this phrase.

7.149 On the interpretation of a particular term in a Member's Schedule, the Appellate Body in its report on European Communities - Customs Classification of Certain Computer Equipment, stated as follows:

7.150 Accordingly, we need to examine first the ordinary meaning to be given to the relevant terms in Canada's Schedule in their context and in the light of the object and purpose of GATT 1994.

7.151 The phrase "[t]his quantity represents the estimated annual cross-border purchases imported by Canadian consumers" is mentioned under the heading "Other terms and conditions", next to the quota quantity. Even though one can thus presume that this phrase includes certain "terms and conditions" related to the tariff-rate quota, we find it difficult to read specific access restrictions into this phrase. The words "[t]his quantity represents the estimated annual ..." ⁵²³ are, in our view, introducing "terms" related to the quantity of the quota - i.e., describing the way the size of the quota was determined - rather than setting out "conditions" as to the kind of imports qualified to enter Canada under this quota. In particular, the ordinary meaning of the word "represent" in this context does not, in our view, call to mind the setting out of specific restrictions or conditions. ⁵²⁴

7.152 Even if the phrase could be said to include restrictions on access to the tariff-rate quota, we do not see how the two conditions at issue in this dispute could be read into this phrase. First, the restriction that only entries valued at less than C$20 qualify for the tariff-rate quota can nowhere be found in Canada's Schedule. Nowhere is any reference made to a maximum value per entry. Second, the requirement that only consumer packaged milk for personal use can fall within the tariff-rate quota, could only be referred to in the words "cross-border purchases imported by Canadian consumers". One could interpret these terms as restricting access to Canadians only (as opposed to, e.g., US citizens or residents) who make cross-border purchases. However, in our view, the ordinary meaning of the words "cross-border purchases" by "consumers" in this context does not warrant the conclusion that only consumer packaged milk for personal use can enter under the tariff-rate quota. An imported good, by definition, crosses a border. Also, the dictionary meaning of "consumer" is not restricted to a person buying for personal use in small retail packages. All dictionary definitions of "consumer" referred to by the parties include wider definitions without these restrictions. ⁵²⁵

7.153 We find support for our view that the two access restrictions at issue here are not set forth in Canada's Schedule when comparing the phrase in dispute to other "terms and conditions" specified in Canada's Schedule, in particular those in the field of milk and dairy products which are part of the immediate context of the phrase we need to interpret. With respect to the tariff-rate quota for cream, under "Other terms and conditions", the far more precise and mandatory phrase "sterilized cream, minimum 24 per cent butterfat, in cans of a volume not exceeding 200 ml" is added. For the tariff-rate quotas established for yoghurt and ice cream, the following is added: "access for yoghurt [ice cream] in retail sized containers only". No such restrictive language can be found in the phrase at issue here.

7.154 In this respect, we also refer to the object and purpose of Article II of GATT 1994, namely "to preserve the value of tariff concessions negotiated by a Member with its trading partners, and bound in that Member's Schedule. Once a tariff concession is agreed and bound in a Member's Schedule, a reduction in its value by the imposition of duties in excess of the bound tariff rate would upset the balance of concessions among Members" ⁵²⁶ ; as well as to the object and purpose of the WTO Agreement, generally, and of GATT 1994, namely "the security and predictability of the reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade". ⁵²⁷ We cannot read the access restrictions imposed by Canada in its current Schedule. The principles of security and predictability, as well as those of treaty interpretation, do not "condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that are not intended". ⁵²⁸

7.155 On these grounds, we consider that the meaning of the terms at issue can be established by examining their ordinary meaning in their context and in the light of the object and purpose of GATT 1994. In accordance with the rules of treaty interpretation referred to above ⁵²⁹ , we see no need to also examine the historical background against which these terms were negotiated. We do note, however, that the drafting history of the relevant part of Canada's Schedule is inconclusive, possibly supporting both the view of Canada and that of the United States. ⁵³⁰

7.156 We, therefore, find that Canada, by restricting the access to the tariff-rate quota for fluid milk to (i) consumer packaged milk for personal use and (ii) entries valued at less than C$20, acts inconsistently with its obligations under Article II:1(b) of GATT 1994.

3. The Licensing Agreement

7.157 Since we have found above that the two access restrictions imposed by Canada with respect to its tariff-rate quota for fluid milk are contrary to Canada's obligations under Article II:1(b) of GATT 1994, we see no need to examine whether in so doing Canada also violates Article 3 of the Licensing Agreement.

VIII. Conclusions

8.1 In the light of the above findings we conclude that Canada:

8.2 Since Article 3.8 of the DSU provides that "[i]n cases where there is an infringement of the obligations assumed under a covered agreement [including the Agreement on Agriculture and GATT 1994], the action is considered prima facie to constitute a case of nullification or impairment", we conclude that - to the extent Canada has acted inconsistently with its obligations under the Agreement on Agriculture and GATT 1994 - it has nullified or impaired benefits accruing to New Zealand and the United States under these Agreements.

8.3 We recommend that the Dispute Settlement Body requests Canada: (i) to bring its dairy products marketing regime into conformity with its obligations in respect of export subsidies under the Agreement on Agriculture ⁵³¹ ; and (ii) to bring its tariff-rate quota for fluid milk into conformity with GATT 1994.

⁵²⁰ Underlining added.

⁵²¹ Underlining added.

⁵²² Adopted on 5 June 1998, WT/DS62/AB/R, paras. 84-86, underlining added.

⁵²³ Emphasis added.

⁵²⁴ The New Shorter Oxford English Dictionary, for example, defines "represent", as used in this context, as: "1. Bring into the presence of someone or something ... 2. Bring clearly and distinctly to mind, esp. by description or imagination ... 5. ... b. Of a quantity: indicate or imply (another quantity) ..." (Ed. Brown, L., Clarendon Press, Oxford, Volume 2, p. 2552).

⁵²⁵ The New Shorter Oxford English Dictionary, for example, defines "consumer" as "1. A person who or thing which squanders, destroys, or uses up. 2. A user of an article or commodity, a buyer of goods or services. Opp. producer" (Ed. Brown, L., Clarendon Press, Oxford, Volume 1, p. 490). The Black's Law Dictionary, referred to by Canada, defines "consumer" as: "Individuals who purchase, use, maintain, and dispose of products and services ... Consumers are to be distinguished from manufacturers (who produce goods) and wholesalers and retailers (who sell goods). A buyer (other than for the purpose of resale) of any consumer product" (West Publishing Co., Minneapolis Minn., 1990).

⁵²⁶ Appellate Body report on Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel, and Other Items, adopted on 27 March 1998, WT/DS56/AB/R, para. 47.

⁵²⁷ Appellate Body report on European Communities - Customs Classification of Certain Computer Equipment, op. cit., para. 82.

⁵²⁸ Appellate Body report on India - Patent Protection for Pharmaceutical and Agricultural Chemicals, adopted on 19 December 1997, WT/DS50/AB/R, para. 45.

⁵²⁹ See para. 7.149.

⁵³⁰ No agreement between Canada and the United States as to whether or not the phrase in dispute includes the two access restrictions imposed by Canada, can be derived from the drafting history. Canada argues that during the Uruguay Round negotiations it clearly indicated to the United States that "it intended to continue its access for US milk imported by Canadian consumers while non-consumer utilisation would continue to be blocked until equivalency was established" (Canada's oral statement at our second substantive meeting, para. 129). The United States, on the other hand, submits that the phrase at issue was added to clarify that the tariff-rate quota was a continuation of "current access" opportunities already available before the Uruguay Round negotiations; not a phrase limiting access to the quota as such. In so doing, the United States argues, Canada avoided granting the "minimum access opportunities" for products for which there are no significant imports (ranging from 3 to 5 per cent of domestic consumption) refered to in the Agreement on Modalities for the Establishment of Specific Binding Commitments under the Reform Program (MTN.TNC/W/FA, p. L.19, 20 December 1991).

⁵³¹ In this respect, we recall our findings under Article 10.1 and Article 8 of the Agreement on Agriculture (paras. 7.117-7.134).