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CANADA � MEASURES AFFECTING THE IMPORTATION OF MILK
IV. Issues Raised in this Appeal 54. This appeal raises the following issues:
V. Article 10.3 of the Agreement on Agriculture -Rules of Evidence 55. At the outset of its findings, the Panel considered the significance of Article 10.3 of the Agreement on Agriculture for these proceedings. The Panel noted that the parties were in agreement that, under Article 10.3, Canada-the responding Member-bears the burden of proof.44 Accordingly, the Panel opined that, if the complaining Members demonstrated "that Canada has exceeded its export subsidy reduction commitment levels on certain dairy products", it would be for Canada to establish that it is not providing export subsidies in relation to the exports exceeding its commitment levels.45 In that respect, the Panel stated that:
56. Thus, the Panel envisaged a three-step process under Article 10.3:
57. Canada considers that the Panel erred by requiring the complaining Members to make out a prima facie case of their claims. In consequence, Canada argues that the Panel failed properly to apply the burden of proof. Canada asserts that Article 10.3:
58. In its appeal, Canada submits that the original panel in Canada - Dairy48 correctly interpreted Article 10.3. 59. In the original panel proceedings, the panel made the following remarks on Article 10.3:
60. The original panel did not require the complaining Member to make out a prima facie case; that is, the second step above was not included in the reasoning. Instead, the original panel read Article 10.3 as allocating the burden of proof to the responding Member to demonstrate that no subsidies were provided for exports exceeding the commitment levels (that is, the third step above).50 61. In the first Article 21.5 proceedings, the panel expressed a very similar view, opining that "when reduction commitments have been exceeded, Article 10.3 has the effect of reversing the usual burden of proof ".51 That panel did not require the complaining Members to make out a prima facie case of the elements of the claimed export subsidy.
62. The meaning of Article 10.3 of the Agreement on Agriculture was also addressed in the original proceedings in US - FSC. In that dispute, the panel considered it "evident" that Article 10.3 "shifts" or, as it also said, "reverses", the usual rule that the burden of proof is on the complaining Member to establish its claims.52 That panel also made no mention of any requirement for the complaining Member to make out a prima facie case of the elements of the claimed export subsidy. 63. Although Article 10.3 of the Agreement on Agriculture has been examined by several panels, this is the first time that we examine the interpretation of this provision. 64. Before addressing Article 10.3, it is useful to recall our view of the burden of proof as a general matter. This issue was first examined in US - Wool Shirts and Blouses, where we stated that:
65. In EC - Hormones , we said:
66. Thus, we have consistently held that, as a general matter, the burden of proof rests upon the complaining Member. That Member must make out a prima facie case by presenting sufficient evidence to raise a presumption in favour of its claim. If the complaining Member succeeds, the responding Member may then seek to rebut this presumption. Therefore, under the usual allocation of the burden of proof, a responding Member's measure will be treated as WTO-consistent, until sufficient evidence is presented to prove the contrary. We will not readily find that the usual rules on burden of proof do not apply, as they reflect a "canon of evidence" accepted and applied in international proceedings. 67. Article 10.3 of the Agreement on Agriculture reads:
�
68. This provision requires that a specific Member, in defined circumstances, "establish that no export subsidy � has been granted". We begin by identifying the specific Member and circumstances to which Article 10.3 applies. The provision refers to a Member making a "claim" that certain exports are "not [being] subsidized". Although the word "claim" usually refers to an assertion by a complaining Member that a measure is WTO-inconsistent, in this provision the word "claim" refers to an assertion by a responding Member that a measure is WTO-consistent. The "claim" to which Article 10.3 refers is, therefore, a defensive argument made by the responding Member. 69. Article 10.3 does not impose any substantive obligations regulating the grant of export subsidies under the Agreement on Agriculture . Rather, Article 10.3 provides a special rule for proof of export subsidies that applies in certain disputes under Articles 3, 8, 9, and 10 of the Agreement on Agriculture . 70. In identifying the nature of the special rule, it is useful to analyze the character of claims brought under these provisions. Pursuant to Article 3 of the Agreement on Agriculture , a Member is entitled to grant export subsidies within the limits of the reduction commitment specified in its Schedule.55 Where a Member claims that another Member has acted inconsistently with Article 3.3 by granting export subsidies in excess of a quantity commitment level, there are two separate parts to the claim. First, the responding Member must have exported an agricultural product in quantities exceeding its quantity commitment level. If the quantities exported do not reach the quantity commitment level, there can be no violation of that commitment, under Article 3.3. However, merely exporting a product in quantities that exceed the quantity commitment level is not inconsistent with the commitment. The commitment is an undertaking to limit the quantity of exports that may be subsidized and not a commitment to restrict the volume or quantity of exports as such. The second part of the claim is, therefore, that the responding Member must have granted export subsidies with respect to quantities exceeding the quantity commitment level. There is, in other words, a quantitative aspect and an export subsidization aspect to the claim. 71. Under the usual rules on burden of proof, the complaining Member would bear the burden of proving both parts of the claim. However, Article 10.3 of the Agreement on Agriculture partially alters the usual rules. The provision cleaves the complaining Member's claim in two, allocating to different parties the burden of proof with respect to the two parts of the claim we have described. 72. Consistent with the usual rules on burden of proof, it is for the complaining Member to prove the first part of the claim, namely that the responding Member has exported an agricultural product in quantities that exceed the responding Member's quantity commitment level. 73. If the complaining Member succeeds in proving the quantitative part of the claim, and the responding Member contests the export subsidization aspect of the claim, then, under Article 10.3, the responding Member "must establish that no export subsidy � has been granted" in respect of the excess quantity exported. (emphasis added) The language of Article 10.3 is clearly intended to alter the generally-accepted rules on burden of proof. The verb "establish" is synonymous with the verbs "demonstrate" and "prove".56 Moreover, the auxiliary verb "must" conveys that the responding Member has an obligation-or legal burden-to "establish" or "prove" that "no export subsidy � has been granted". 74. The plain meaning of the text is borne out by the immediate context of Article 10.3 of the Agreement on Agriculture . Article 10 is entitled "Prevention of Circumvention of Export Subsidy Commitments". As a subparagraph of this provision, Article 10.3 pursues this aim. The significance of Article 10.3 is that, where a Member exports an agricultural product in quantities that exceed its quantity commitment level, that Member will be treated as if it has granted WTO-inconsistent export subsidies, for the excess quantities, unless the Member presents adequate evidence to "establish" the contrary. This reversal of the usual rules obliges the responding Member to bear the consequences of any doubts concerning the evidence of export subsidization. Article 10.3 thus acts as an incentive to Members to ensure that they are in a position to demonstrate compliance with their quantity commitments under Article 3.3. 75. With respect to the export subsidization part of the claim, the complaining Member, therefore, is relieved of its burden, under the usual rules, to establish a prima facie case of export subsidization of the excess quantity, provided that this Member has established the quantitative part of the claim. We, therefore, do not agree with the Panel that the complaining Member must make out a prima facie case in support of this part of its claim. In practice, the complaining Member may wish to present evidence to rebut any evidence presented by the responding Member. However, the complaining Member is not required to lead in the presentation of evidence to panels, and it might well succeed in its claim even if it presents no evidence-should the responding Member fail to meet its legal burden to establish that no export subsidy has been granted with respect to the excess quantity. 76. We, therefore, find that the Panel erred, in paragraph 5.18 of the Panel Report, in its interpretation of Article 10.3 of the Agreement on Agriculture , by imposing upon the complaining Members the duty to make out a prima facie case in support of all aspects of their claims under Articles 3.3, 8, 9.1(c), and 10.1.57 When the Panel had determined that the complainants had established that Canada had exported dairy products in quantities exceeding its quantity commitment levels, it should have proceeded directly to require Canada to establish that the exports of dairy products did not benefit from export subsidies. Instead, the Panel's next step was to require the complaining Members to "make a prima facie showing that the elements of the claimed export subsidies are present."58 However, as the Panel found that the complaining Members had made out such a prima facie case, the Panel went on correctly to hold that it is for Canada "to establish that Canadian exports of cheese and 'other milk products' do not benefit from these particular types of export subsidies."59 77. Thus, although the Panel's interpretation was in error, this error does not vitiate any of the Panel's findings under Articles 3.3, 8, 9.1(c), and 10.1 of the Agreement on Agriculture . The Panel found that the complaining Members had made out a prima facie case that CEM involved export subsidies. Although the Panel should not have engaged in this inquiry, the inquiry led the Panel to find, correctly, that Canada was obliged to prove that it had not granted export subsidies for the dairy products exported in excess of the quantity commitment level. The Panel, therefore, arrived at the legal situation envisaged by Article 10.3 and, thereafter, properly applied the rules on burden of proof in that provision with respect to proof of the export subsidization aspect of the claim. The Panel concluded that Canada "failed to establish" that CEM did not involve export subsidies.60 We will examine, below, the appeals that Canada makes against this finding under Articles 9.1(c) and 10.1 of the Agreement on Agriculture . However, we see no reason to disturb these findings on the grounds that the Panel misinterpreted Article 10.3.
VI. Article 9.1(c) of the Agreement on Agriculture -"Payments Financed by Virtue of Governmental Action" 78. The second issue appealed by Canada is whether the Panel erred in its interpretation and application of Article 9.1(c) of the Agreement on Agriculture. This issue raises two separate questions: (a) whether the Panel erred in finding that CEM involves "payments" under Article 9.1(c); and (b) having found that CEM involves "payments", whether the Panel erred in finding that these "payments" are "financed by virtue of governmental action". We will examine these questions in turn. 79. Before turning to the question of "payments", we note that Canada does not appeal, and we will not address, the Panel's finding that the alleged CEM payments are made "on the export " of agricultural products, as required by Article 9.1(c) of the Agreement on Agriculture .61
80. The Panel began its reasoning by recalling that "payments" under Article 9.1(c) of the Agreement on Agriculture include "payments-in-kind" made through the supply of goods or services.62 The Panel noted that we held, in the first Article 21.5 proceedings, that the existence of payments-in-kind, for purposes of CEM, should be determined by comparing CEM prices with "some objective standard � reflect[ing] the proper value" of milk to the producer.63 The Panel also observed that we held that "the average total cost of production represents the appropriate standard" in these proceedings.64
81. Before the Panel, the parties disagreed as to how the average total cost of production standard (the "COP standard") should be determined. The Panel "doubted" that Canada was correct to argue that the standard should be each individual producer's costs of production, rather than a single industry-wide average figure, as proposed by the complaining Members.65 The Panel also found that Canada did not demonstrate why imputed costs for family labour and management, and for owner's equity, as well as quota, transport, marketing, and administrative costs, should not be included in calculating the COP standard, as suggested by the complaining Members.66 82. Despite these doubts regarding Canada's position, the Panel made two distinct findings on the existence of "payments"; one based on Canada's interpretation of the COP standard and the other based on the complaining Members' interpretation. The Panel ruled that, even assuming Canada's interpretation of the standard were correct, the evidence submitted by Canada did not support Canada's position that payments were not made.67 The Panel also considered that the complaining Members' evidence was sufficient to establish a prima facie case that payments were made, on the basis of their interpretation of the COP standard.68 83. As the Panel came to an identical conclusion under both interpretations of the COP standard, it concluded that it was "unnecessary [for it] to decide in this case which of these two interpretations is the correct one."69 Therefore, the Panel did not express any definitive views on the proper application of the COP standard. 84. In its appeal, Canada makes four primary arguments on the question of "payments". Canada contends: first, that the Panel erred in considering that the COP standard should be applied on an industry-wide basis; second, that the Panel erred in finding that the COP standard includes "non-monetary costs", such as the costs of family labour and management, and of owner's equity, that do not represent actual cash costs incurred by the producer; third, that the Panel erred in finding that the COP standard extends to costs associated with selling milk, such as quota, transport, marketing, and administrative costs, whereas Canada submits that it covers only the on-farm costs of producing milk; and fourth, that the Panel erred in its assessment of the evidence by placing a burden on Canada that it "cannot possibly be expected to meet".70 Before examining these four arguments, we provide general observations relating to Article 9.1(c).
85. The word "payment", in Article 9.1(c) of the Agreement on Agriculture , denotes a "transfer of economic resources".71 Although a monetary payment certainly involves such a transfer, the same is equally true where goods or services are transferred for less than full value. Recognizing this, we upheld the original panel's finding that the ordinary meaning of the word "payment", in Article 9.1(c) of the Agreement on Agriculture , "encompasses 'payments' made in forms other than money".72 86. In these second Article 21.5 proceedings, New Zealand and the United States assert that non-monetary "payments" are effected through the supply of goods-CEM. The issue is, therefore, whether supplies of CEM, by Canadian producers, involve a transfer of economic resources to processors. 87. In examining this question in the first Article 21.5 proceedings, we took into account that Article 9.1(c) of the Agreement on Agriculture describes an unusual form of subsidy in that "payments" can be made by private parties, and need not be made by government.73 Moreover, "payments" need not be funded from government resources, provided they are "financed by virtue of governmental action".74 Article 9.1(c), therefore, contemplates that "payments" may be made and funded by private parties, without the type of governmental involvement ordinarily associated with a subsidy. Furthermore, the notion of payments encompasses a diverse range of practices involving monetary transfers, or transfers-in-kind. We, therefore, determined that, in identifying whether "payments" are made, it is necessary to consider the particular features of the alleged "payments", by whom they are made, and in what circumstances. Thus, we found that the standard for determining the existence of "payments" under Article 9.1(c) must be identified after careful scrutiny of the factual and regulatory setting of the measure.75
88. In the case of CEM, we took into account the fact that the alleged "payments" are made by private parties through the supply of milk. Moreover, subject to the requirement to pre-commit sales of CEM, the private parties are entirely free to produce milk for sale as CEM, and it is for them to agree the price, volume, and timing of the sale with the buyers.76 In these particular circumstances, we considered that the determination of whether "payments" are made depends on a comparison between the price of CEM and an "objective standard or benchmark which reflects the proper value of the [milk] to [its] provider".77 We found that, in the circumstances of this dispute, the standard for determining the proper value of CEM is the average total cost of production of the milk (the COP standard), as this standard represents the economic resources the producer invests in the milk. If CEM is sold at less than its proper value, "payments" are made, because there is a transfer of the portion of economic resources not reflected in the selling price. 89. We also provided certain guidance on the determination of the COP standard:
90. With these general observations in mind, we turn to Canada's four primary arguments on "payments".
91. Canada argues that the Panel erred in considering that the COP standard is a single, industry-wide average cost of production figure, rather than each individual producer's costs of production.79 92. Although the Panel expressed "doubts" that the COP standard should be each individual producer's costs, rather than an industry-wide figure, we note that it did not reach a definitive view on this question.80 Instead, as we said, the Panel examined the evidence from the perspective of the alternative positions, and found against Canada under each of them.81 93. Canada asserts that we found, in the first Article 21.5 proceedings, that the COP standard is based on individual producer's costs of production. However, this question was not specifically examined, nor resolved, in the first Article 21.5 proceedings. 94. For purposes of resolving this question, it is relevant to consider the nature of the obligations imposed under the Agreement on Agriculture . That Agreement, which is annexed to the Marrakesh Agreement Establishing the World Trade Organization, is an international agreement to which Canada is a party, as a sovereign State. Pursuant to this Agreement, Canada has undertaken a number of different obligations. Among these are the obligations in Articles 3.3 and 8 of the Agreement on Agriculture not to provide export subsidies otherwise than in conformity with this Agreement and with the commitments as specified in that Member's Schedule. Accordingly, under Article 3.3, Canada has undertaken not to provide the export subsidies listed in Article 9.1 "in excess of � [its] quantity commitment levels". 95. However, under Article 9.1(c) of the Agreement on Agriculture , it is not solely the conduct of WTO Members that is relevant. We have noted that Article 9.1(c) describes an unusual form of export subsidy in that "payments" can be made and funded by private parties, and not just by government.82 The conduct of private parties, therefore, may play an important role in applying Article 9.1(c). Yet, irrespective of the role of private parties under Article 9.1(c), the obligations imposed in relation to Article 9.1(c) remain obligations imposed on Canada. It is Canada, and not private parties, which is responsible for ensuring that it respects its export subsidy commitments under the covered agreements. Thus, under the Agreement on Agriculture , any "export subsidies" provided through private party action in Canada are deemed to be provided by Canada, and count towards Canada's export subsidy commitment levels. 96. We believe that the standard for determining the existence of "payments", under Article 9.1(c), should reflect the fact that the obligation at issue is an international obligation imposed on Canada. The question is not whether one or more individual milk producers, efficient or not, are selling CEM at a price above or below their individual costs of production. The issue is whether Canada, on a national basis, has respected its WTO obligations and, in particular, its commitment levels. It, therefore, seems to us that the benchmark should be a single, industry-wide cost of production figure, rather than an indefinite number of cost of production figures for each individual producer. The industry-wide figure enables cost of production data for producers, as a whole, to be aggregated into a single, national standard that can be used to assess Canada's compliance with its international obligations. 97. By contrast, if the benchmark were to operate at the level of each individual producer, there would be a proliferation of standards, requiring individual-level inquiry and application of Article 9.1(c), as if the obligations under the Agreement on Agriculture involved rights and obligations of individual producers, rather than WTO Members. 98. We, therefore, find that the COP standard for determining whether the sale of CEM involves "payments", under Article 9.1(c) of the Agreement on Agriculture, is an industry-wide average figure that aggregates the costs of production of all producers of milk.83 Although the Panel did not express any firm view on this issue, we see no error in the Panel's treatment of this question. 99. Canada objects to the inclusion, in the COP standard, of an imputed amount for the costs of the producer's family labour and management, and for the costs of owner's equity. Canada contends that, as the producer does not incur a cash cost for these items, they are not relevant because the COP standard does not include "non-monetary" costs.84 Rather, Canada says, these items are rewarded by any profits earned if revenues from milk sales exceed costs. 100. The Panel did not find that these imputed costs are to be included in the COP standard nor that they are to be excluded from it. Instead, the Panel examined the evidence from the perspective of these two positions, and found against Canada under each of them.85
101. In examining this issue, we recall that the notion of "payment", in Article 9.1(c), covers transfers of economic resources, irrespective of the means by which the resources are transferred. Thus, the transfer may be effected in monetary form or equally by a transfer of goods or services for less than full value.86 102. In these proceedings, the purpose of the COP standard is precisely to determine whether supplies of CEM involve payments-in-kind that are made in a form other than money. If the COP standard were confined solely to cash costs, as Canada argues, this would overlook the possibility of "payments" being made in the form of non-cash resources invested in the production of milk. Thus, the COP standard must cover all of the economic resources invested in the production of milk and which may be transferred, irrespective of whether the resources involve an actual cash cost. 103. We are satisfied that any labour or management services provided by the farmer's family to the dairy enterprise are relevant economic resources invested in the production of milk and must be included in the COP standard. For the dairy farmer, and his or her family, the investment of services in the dairy enterprise has an economic cost, as those services cannot be put to an alternative remunerative use. We observe that both the United States and New Zealand submitted evidence to the Panel in support of the view that, from the perspective of economic theory, any labour and management services provided to an enterprise involve such an economic "opportunity" cost.87 Moreover, we believe that remuneration of family labour and management services is not part of the profits of the dairy farm. Rather, profits are the proceeds remaining after all costs, including such salary costs, have been accounted for. 104. The same is also true of any equity the owner invests in the dairy enterprise. The allocation of such capital is, clearly, an investment of economic resources and carries an economic opportunity cost to the owner because the capital cannot simultaneously be invested elsewhere.88 Again, the profits of the dairy enterprise are the proceeds after all costs, including the cost of equity, have been accounted for. 105. Moreover, it would be incongruous if the costs of family labour and management were excluded from the COP standard when provided by family, but included when provided by others.89 Likewise, it would be curious if the cost of capital, of which equity is one type, were excluded from the COP standard when capital is provided through the owner's equity, but included when it is provided through, for instance, debt, merely because the cost of debt is expressed in recurring cash outlays for interest payments. In each case, the dairy enterprise is incurring an economic cost and that cost should be appropriately reflected in the costs of production. 106. Accordingly, we find that any failure to include in the COP standard the costs of family labour and management, or of owner's equity, would understate the costs of milk production, and may lead to a non-monetary "payment" going undetected. 107. Although it is clear that the COP standard includes all economic costs, even if they are non-cash costs, we acknowledge that a specific value cannot be as readily ascribed to non-cash costs as it can to cash costs. However, we do not believe, as suggested by Canada, that this practical difficulty precludes the application of an objective COP standard. 108. In some situations, it may be appropriate for a panel to value non-monetary costs using a methodology set forth in a Member's Generally Accepted Accounting Principles ("GAAP"). In that respect, we observe that Canada did not contest the amounts the Canadian Dairy Commission (the "CDC") ascribed to depreciation using the rules in Canadian GAAP.90 However, although GAAP provide an objective valuation methodology for some non-monetary costs, they may not address all such costs.91 If GAAP rules do not provide an appropriate basis for valuing a particular cost, a panel should attempt to determine a value for relevant non-monetary costs using an objective methodology that is reasonable in the circumstances. Clearly, a panel must base itself on the evidence before it, applying the applicable rules on burden of proof. 109. We note that New Zealand and the United States submitted evidence to the Panel in the form of CDC data that includes an imputed amount for the costs of family labour and management, and of owner's equity. The methodologies the CDC used to arrive at the costs for these items are set forth in the CDC Handbook and seem, to us, to be perfectly reasonable.92 In our view, the Panel did not err in placing reliance upon these data and the methodologies underlying them. Although we acknowledge that other equally reasonable valuation methods may exist, we note that Canada did not submit, pursuant to Article 10.3 of the Agreement on Agriculture , evidence of any alternative method for valuing these inputs. 110. We, therefore, find that the COP standard for determining whether "payments" exist, under Article 9.1(c) of the Agreement on Agriculture , includes all monetary and non-monetary economic costs of production, such as the costs of family labour and management, and of owner's equity. We see no error in the Panel's approach to this issue. 111. Canada suggests that, for purposes of Article 9.1(c) of the Agreement on Agriculture, only the farm-based costs of producing milk should be taken into account in the COP standard, so that the costs of selling milk-such as quota, transport, marketing, and administrative costs-would be excluded.93 112. The Panel did not find that these selling costs are to be included in the COP standard, nor that they are to be excluded from it. Instead, the Panel examined the evidence from the perspective of both positions and found against Canada under each of them.94 113. We recall that the COP standard represents the producer's investment of economic resources in milk and, hence, in these proceedings, the proper value of the milk to the producer.95 In our view, costs incurred by the producer in selling milk are as much a part of the economic resources the producer invests in the milk as are farm-based production costs. Indeed, the costs incurred to make sales are a vital part of the process by which the producer earns revenues through producing milk. If the producer sells milk at a price sufficient to cover only the farm-based production costs, it transfers to the processor any resources invested in selling the milk, such as the value of transport, marketing, and administration. There would, in such circumstances, be a "payment" of the value of these additional selling costs. Accordingly, these costs must be included in the COP standard in the comparison with the sales price of CEM. 114. In addition, we can see no reason to exclude the cost of quota from the COP standard. On the contrary, to the extent that the acquisition or retention of quota involves economic costs for the dairy producer, these costs should be reflected in the COP standard. In that respect, we are not persuaded by Canada that the cost of quota should be excluded from the COP standard because it relates solely to the domestic market. In the first Article 21.5 proceedings, we held that the COP standard must be determined for "all milk, whether destined for domestic or export markets".96 Thus, in principle, the costs of quota form part of the COP standard. It remains, however, to decide how quota costs are to be incorporated into the standard. 115. In these second Article 21.5 proceedings, there is very little evidence on record relating to the cost of acquiring or retaining quota, and the Panel did not make any specific findings relating to the cost of quota. Instead, in the absence of evidence, the Panel made a general statement that, "[i]f anything, additions reflecting the cost of quota" should be made to the CDC data on costs of production.97 In other words, the Panel believed that the CDC data understated the real costs of production because they did not include an amount for the cost of quota. But the Panel was unable to quantify the addition it believed should be made. As the Panel had found that the evidence before it supported a finding that CEM sales are, on average, made at a price below the COP standard, this general remark did not have any bearing on the Panel's conclusion.98 In the light of this fact, and in the absence of evidence relating to quota, we make no determination as to how, precisely, the cost of quota should be reflected in the COP standard. 116. Accordingly, we find that any transport, marketing, and administrative costs are to be included in the COP standard applied under Article 9.1(c), as are any costs of acquiring and retaining quota. The Panel committed no error of law in its assessment of these costs.
44 Panel Report, para. 5.13. See also Panel Report, paras. 3.4-3.5. 45 Ibid., para. 5.15. 46 Ibid., paras. 5.18-5.19. 47 Canada's appellant's submission, para. 31. 48 In this Report, we refer to the panel that considered the original complaint brought by New Zealand and the United States as the "original panel". 49 Panel Report, Canada - Dairy, para. 7.33. 50 The original panel also established that Canada had exported dairy products in quantities exceeding the quantity commitment level (that is, the first step above). (Ibid., para. 7.34) 51 Panel Report, Canada - Dairy (Article 21.5 - New Zealand and US), para. 6.3. 52 Panel Report, US - FSC, paras. 7.136 and 7.161. 53 Appellate Body Report, US - Wool Shirts and Blouses, at 335. 54 Appellate Body Report, EC - Hormones , para. 98. 55 Under Articles 3.1 and 3.3 of the Agreement on Agriculture, "commitments limiting subsidization" of exports are specified in the Schedule in terms of "budgetary outlay and quantity commitment levels". 56 The Shorter Oxford English Dictionary, C.T. Onions (ed.) (Guild Publishing, 1983), Vol. I, p. 682; Roget's Thesaurus of English words and phrases (Longman Group Limited, 1982), p. 809. 57 The Panel reiterated this error in paragraph 5.19 of the Panel Report. 58 Panel Report, para. 5.18. 59 Ibid., para. 5.19. 60 Panel Report, paras. 5.136 and 5.164. 61 See ibid., para. 5.23. 62 Ibid., para. 5.26, referring to Appellate Body Report, Canada - Dairy, para. 112; and to Appellate Body Report, Canada - Dairy (Article 21.5 - New Zealand and US), paras. 71 and 76.
63
Ibid., para. 5.27, referring to Appellate Body Report,
Canada - Dairy (Article 21.5 - New Zealand
64
Ibid., para. 5.28, referring to Appellate Body Report,
Canada - Dairy (Article 21.5 - New Zealand 65 Panel Report, paras. 5.50-5.51. 66 Ibid., para. 5.85. 67 Ibid., paras. 5.65 and 5.87. 68 Ibid., paras. 5.34 and 5.86. 69 Ibid., para. 5.90. (original italics; underlining added) We note, however, that the Panel also stated, in paragraph 5.126 of the Panel Report, that "imputed costs of family labour, return to management, return to equity, and production quota, as well as transport, marketing and administrative costs � are properly to be included in a calculation of the average total cost of production." 70 Canada's appellant's submission, para. 47. 71 Appellate Body Report, Canada - Dairy, para. 107. 72 Ibid., para. 112. 73 Appellate Body Report, Canada - Dairy (Article 21.5 - New Zealand and US), paras. 113 and 115. 74 Ibid., para. 114. 75 Ibid., para. 76. 76 In response to questioning at the oral hearing, Canada affirmed us that pre-commitment of CEM sales must be made at least 30 days in advance of the sale date. 77 Appellate Body Report, Canada - Dairy (Article 21.5 - New Zealand and US), para. 74. 78 Ibid., para. 96. 79 We note that, although Canada argues that the COP standard should be each individual producer's costs of production, Canada presented evidence based on ten industry-wide groupings, giving an average cost of production figure for each of these groups. For each group or "decile", Canada gave the lowest and highest individual cost of production figure. The Panel also makes this point: "While speaking of the costs to individual producers, not industry-wide average costs, Canada has only provided the Panel with average costs, albeit averages within ten groupings of producers." (Panel Report, para. 5.64) 80 Panel Report, paras. 5.50 and 5.90. 81 Ibid., paras. 5.86-5.87. 82 Supra, para. 87. 83 We consider that it may be appropriate for the industry-wide cost of production figure to be determined using a statistically valid sample of all producers. 84 Canada's appellant's submission, para. 59. 85 Panel Report, para. 5.90. We note, however, that the Panel also "recalled", in paragraph 5.126 of the Panel Report, that these imputed costs "are properly to be included in a calculation of the average total cost of production." 86 Appellate Body Report, Canada - Dairy, paras. 107-112. 87 Exhibit NZ-23 submitted by New Zealand to the Panel; Exhibit US-35 submitted by the United States to the Panel. 88 The documentary evidence submitted by New Zealand and the United States is equally supportive of the view that, in economic theory, investment of equity involves an economic opportunity cost. (Ibid.) 89 We note that, according to the Canadian Dairy Commission Handbook ("CDC Handbook"), family labour and management is treated as an imputed, non-cash cost, "regardless of whether or not the family member is paid for his/her labour". (CDC Handbook, p. 26, Exhibit NZ-4 submitted by New Zealand to the Panel; Exhibit US-22 submitted by the United States to the Panel) Thus, in some cases there may be an actual cost for family labour and management which is excluded by the CDC and replaced by an imputed cost using the CDC's methodology. Canada's argument would, in fact, exclude both an actual cost incurred by the dairy enterprise and an imputed cost. We note also that the CDC Handbook defines a family member in broad terms to include: "the producer, the producer's spouse, children, brothers, sisters, sons-in-law, daughters-in-law and parents." (CDC Handbook, p. 25, principle 8, Exhibit NZ-4 submitted by New Zealand to the Panel) 90 CDC Handbook, pp. 23-24, Exhibit NZ-4 submitted by New Zealand to the Panel; Exhibit US-22 submitted by the United States to the Panel. 91 We note that GAAP typically provide accounting rules for corporations, often publicly listed, and not for smaller family-run enterprises. As such, many countries' GAAP may not provide rules on imputed costs for family labour, management, or owner's equity. 92 CDC Handbook, pp. 26-31, Exhibit NZ-4 submitted by New Zealand to the Panel; Exhibit US-22 submitted by the United States to the Panel. 93 Although Canada considers that these costs should be excluded from the COP standard, Canada also considers that sales proceeds referable to transport, marketing, and administration inputs should be deducted from the sales price in comparing the COP standard to CEM prices. (Canada's appellant's submission, para. 64) As Canada stated at the oral hearing, the result is, therefore, the same as if these costs were included in the COP standard and included in the price. However, leaving aside the practical implications of Canada's position, the legal issue remains whether it is appropriate for selling costs to be included in the COP standard. 94 Panel Report, para. 5.90. We note, however, that the Panel also "recalled", in paragraph 5.126 of the Panel Report, that the cost of quota, and transport, marketing and administrative costs "are properly to be included in a calculation of the average total cost of production." 95 Appellate Body Report, Canada - Dairy (Article 21.5 - New Zealand and US), para. 96. 96 Appellate Body Report, Canada - Dairy (Article 21.5 - New Zealand and US), para. 96. (original italics; underlining added) 97 Panel Report, para. 5.85. 98 Ibid., para. 5.89.
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