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World Trade
Organization

WT/DS103/R WT/DS113/R
17 May 1999
(99-1924)
Original: English

Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products

Report of the Panel


The report of the Panel on Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 17 May 1999 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel Report is available from the WTO Secretariat.


Table of Contents
I. Introduction
II. Factual Aspects A. The Canadian Dairy Sector 1. General
2. Components of the Canadian Dairy Policy
3. The Canadian Dairy Commission (the "CDC")
4. Provincial Milk Marketing Boards
5. The NMMP
6. The CMSMC and the MSQ
B. The Canadian Special Milk Classes Scheme 1. Background
2. The Special Classes
3. In-quota milk and over-quota milk
4. The price of milk to the processor (a) Other Classes (Classes 1 - 4)
(b) Class 5 (Special Classes)
5. Returns to producers from exports (a) General
(b) In-quota exports
(c) Over-quota exports
6. Pooling
C. Canada's Tariff-Rate Quota on Fluid Milk and Cream
III. Claims of the Parties A. Exportation of Dairy Products 1. Product coverage and period of time
2. Nature of Measure
3. Agreement on Agriculture (a) Article 1(e)
(b) Article 9.1(a) and (c)
(c) Article 3.3 and Article 8
(d) Article 10
4. Agreement on Subsidies and Countervailing Measures ("SCM Agreement") (a) Article 1 and Paragraph (d) of the Illustrative List of Export Subsidies in Annex I
(b) Article 3
B. Importation of Milk 1. Article II of GATT 1994 and the Agreement on Import Licensing Procedures C. Recommendations Requested by the Parties
IV. Arguments of the Parties A. Exportation of Dairy Products 1. Nature of Canada's Special Milk Classes Scheme (a) Outline
(b) The Authority and Role of the Canadian Dairy Commission (CDC)
(c) Government Involvement
(d) Producers' Involvement
(e) In- and Over-quota Milk and the Producers' Choice
2. "Export Subsidy" - the Interpretive Context (a) The SCM Agreement and the Agreement on Agriculture
(b) The Relevance of the Vienna Convention and Negotiating History
3. The Agreement on Agriculture (a) Outline
(b) Article 9.1(a) (i) The meaning of "direct subsidies, including payments-in-kind"
(ii) The meaning of the term "direct"
(c) Article 9:1(c) (i) The meaning of the term "payment"
(ii) Financed by virtue of governmental action
(d) Article 10 (i) Outline
(ii) "Export subsidy" within the meaning of Article 10
(iii) "Circumvention"
(iv) Article 10.3 - the Burden of Proof
(e) Other Relevant Provisions of the Agreement on Agriculture (i) Article 8 and 3.3
4. Agreement on Subsidies and Countervailing Measures ("SCM Agreement") (a) Outline
(b) Article 1 (i) Article 1.1(a)(1) - Financial Contribution
(ii) Article 1.1(a)(2) - Income or Price Support in the sense of Article XVI of GATT 1994
(iii) Article 1.1(b) - "Benefit"
(c) Paragraph (d) of the Illustrative List of Export Subsidies (i) Outline
(ii) Government mandated
(iii) Terms or conditions more favourable
(iv) Terms and conditions more favorable than those commercially available
(d) Article 3
5. Protected Markets and Export Subsidies
B. Importation of Milk 1. Outline
2. Article II:1 of GATT 1994
3. Article 3 of the Agreement on Import Licencing Procedures
V. Summary of Third Party Submissions A. Australia 1. Introduction
2. Discussion (a) Relationship between the Agreement on Agriculture and the SCM Agreement
(b) Classes 5(d) and (e) under the Special Milk Classes Scheme constitute export subsidies
(c) Export Subsidies under Article 9.1 of the Agreement on Agriculture (i) "Provision by governments or their agencies"
(ii) "Direct subsidies, including payments-in-kind"
(d) Article 3 of the Agreement on Agriculture
(e) Article 10 of the Agreement on Agriculture
(f) Article 3 of the SCM Agreement
B. Japan 1. Introduction
2. Legal Arguments (a) Canada's Special Milk Classes Scheme provided an export subsidy within the meaning of Article 9.1(c) of the Agreement on Agriculture
(b) By operating the Special Milk Class System, Canada circumvented or threatened to circumvent its export subsidy commitments
(c) Canada was requested to bring the measures at issue into conformity with the Agreement on Agriculture
VI. Interim Review
VII. Findings A. Claims of the Parties 1. The Special Milk Classes Scheme
2. The tariff-rate quota for fluid milk
3. Other claims raised in the requests for this Panel
B. The Special Milk Classes Scheme 1. Summary of claims and arguments of the parties (a) New Zealand and the United States
(b) Canada
2. The Panel's decision of 16 December 1998
3. The Agreements referred to and the sequence in which the Panel will address the claims (a) The Agreement on Agriculture and the SCM Agreement
(b) The Agreement on Agriculture (i) General outline
(ii) The specific provisions relied upon by the parties
4. Burden of proof as a consequence of Article 10.3 of the Agreement on Agriculture
5. Article 9.1(a) of the Agreement on Agriculture (a) "direct subsidies, including payments-in-kind" (i) General criteria
(ii) Milk sales under Special Milk Classes 5(d) and (e): the provision of milk for the processing of dairy products for export at a lower price
(iii) Milk sales under Special Milk Classes 5(d) and (e): the provision of milk for the processing of dairy products for export by the CDC with an assured margin for the processor
(iv) Concluding remarks on the payment in kind offered to processors/exporters
(b) provided "by governments or their agencies" (i) The provision of milk under Classes 5(d) and (e) is not financed by governmental funds but by milk producers either collectively (in-quota) or individually (over-quota)
(ii) The degree of government involvement required for there to be a "provision by governments or their agencies" under Article 9.1(a)
(iii) How milk for export is made available under Classes 5(d) and (e) Sales of milk for export under Class 5(d)
Sales of milk for export under Class 5(e)
(iv) The extent to which Canada's governments or their agencies are involved in the making available of milk under Classes 5(d) and (e) Canada's governments and their agencies
The concrete government involvement in making milk available under Classes 5(d) and (e)
(v) The Panel's finding on whether the milk is provided by governments or their agencies
(c) The Panel's finding under Article 9.1(a)
6. Article 9.1(c) of the Agreement on Agriculture (a) "payments on the export of an agricultural product"
(b) payments "financed by virtue of governmental action" Additional considerations with respect to sales of in-quota milk
Additional considerations with respect to sales of over-quota milk
(c) The Panel's finding under Article 9.1(c)
7. Article 3.3 of the Agreement on Agriculture
8. Article 10 of the Agreement on Agriculture (a) The two elements under Article 10.1
(b) An "other" export subsidy under Article 10.1
9. Article 8 of the Agreement on Agriculture
10. Article 3 of the SCM Agreement
C. The Tariff-Rate Quota for Fluid Milk 1. Facts and claims of the parties
2. Article II:1(b) of GATT 1994
3. The Licensing Agreement
VIII. Conclusions

To continue with Introduction