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CANADA - IMPORT RESTRICTIONS ON ICE CREAM AND YOGHURT

(Continued)

Articles X and XIII

47. The United States indicated that Canada had failed to observe the procedural obligations of Article X:1, Article X:2 and Article XIII:3(b). These provisions of the General Agreement created distinct obligations in addition to the requirement of public notification arising under Article XI:2(c). In brief, any contracting party undertaking to impose quantitative limitations had to provide prior notification to interested governments and traders of the total quota amount. Canada had implemented its quota on imports of ice cream and yoghurt before it provided any official notice, even to Canadian importers, and maintained its quotas for one year before providing any public notice of the total quota amount. In doing so, Canada had breached its obligations under these provisions of the General Agreement.

48. Canada stated that the Notices to Importers regarding import controls on ice cream and yoghurt had been widely distributed in advance of the application of restrictions. Whereas Article XIII:2(a) recommended, whenever practicable, that quotas be fixed and notice given of their amount, paragraph 2(b) of that Article recognized that in some cases quotas were not practicable and that restrictions could be applied through permits. Because of the ongoing consultations with its major supplier, it had not been practicable for Canada to fix quotas in 1988; however the quotas for 1989 had been fixed and announced in accordance with Article XIII:2(a).

49. In addition, Canada observed that Article XIII:4 gave authority for the initial selection of a representative period and appraisal of special factors to the country imposing import restrictions under Article XI:2(c)(i). This provision required this country to consult promptly with other contracting parties on their request. Canada had held both formal and informal consultations with the United States on a number of occasions, and considered its actions to be fully consistent with this provision. Canada further noted that it used the same permit system for all products subject to import quotas, with standard forms and procedures. The utilization rate for these quotas approached 100 per cent.

Nullification and Impairment

50. The United States maintained that Canada's import restrictions on ice cream and yoghurt were inconsistent with Article XI:1 and were not justified by Article XI:2(c)(i). These actions had resulted prima facie in a nullification or impairment of benefits accruing to the United States under the General Agreement.

51. Canada maintained that the actions it had taken to place quantitative import restrictions on ice cream and yoghurt were consistent with Canada's rights and obligations under Article XI:2(c)(i) of the General Agreement, as well as Articles X and XIII. As such, Canada's action did not nullify or impair any benefits accruing to the United States. Without these controls, unlimited imports of these products would circumvent the domestic restriction on the production of industrial milk. This would make it impossible for Canada to maintain the effectiveness of its supply management programme for industrial milk.

SUBMISSIONS BY OTHER CONTRACTING PARTIES

The European Community

52. The European Community considered that the measures applied by Canada on imports of ice cream and yoghurt were incompatible with its obligations under the General Agreement, in particular Article XI. It observed that Canada must provide the proof that it had fulfilled all the necessary conditions for an exception under Article XI:2(c)(i), and did not believe that Canada had met the requirements that: (a) the domestic measures and import restrictions applied to like or directly competing products; (b) that ice cream and yoghurt were covered by Canadian governmental measures; or (c) that the import restrictions were necessary to the enforcement of domestic measures.

53. With regard to the first point, the Community noted that industrial milk, and yoghurt and ice cream, were not like products. Although the latter were usually manufactured from milk, they included many other components, such as sugar, fruit, cocoa and so forth. The tariff classification for yoghurt included it with "dairy products", whereas ice cream was considered under "miscellaneous edible preparations", further reflecting the fact that, for the consumer, these products were not interchangeable with milk in their use. The Community also observed that ice cream and yoghurt were final consumption goods, ready to be marketed, and were thus not products "in an early stage of processing". In addition, there was no evidence that consumers might replace purchases of milk by purchases of yoghurt or ice cream, and so these products could not be considered as directly competitive with milk.

54. As ice cream and yoghurt were not like products "in any form" to milk, Canada could invoke the exception under Article XI:2(c)(i) only if it were restricting its domestic production of ice cream and yoghurt, but there were no such domestic restrictions. Canadian production restrictions applied only to raw milk, not to any of its processed products. Finally, the Community observed that given the low level of imports and the favourable conditions of the Canadian markets for ice and yoghurt the restrictions on imports were not necessary. It cited official Canadian publications which reported rising sales for Canadian-made ice cream and yoghurt as growing demand for these products allowed for increased sales prices.

Japan

55. Japan observed that the term "like product" had different meanings under various provisions of the General Agreement and that the scope of "like product" in Article XI:2(c) had never been fully established. Fresh milk was almost always traded in its processed forms. Some dairy products could be easily reconverted back into milk. Therefore it was reasonable to consider that some dairy products, and in particular those that could be reconverted, should be considered "like products" under Article XI:2(c). The ruling of the Panel on Japanese Restrictions on Imports of Certain Agricultural Products (L/6253), that "like product" was confined to the product in its original form, was not necessarily appropriate in that it did not address the actual mode of trade in fresh milk and dairy products.

56. Furthermore, although generalized criteria had not been established with regard to perishability, Japan recalled that the Panel on the EEC's Processed Fruits and Vegetables (L/4687) had concluded that tomato concentrate was perishable on the grounds that "after a certain time it would decline in quality and value". The conclusion was not based upon the perishability of fresh tomatoes. It would thus not be reasonable to require the same degree of perishability as that of the fresh product in deciding the perishability of a processed product under Article XI:2.

FINDINGS

Introduction

57. The Panel noted that the issue before it concerned restrictions maintained by Canada on imports of yoghurt and various ice cream products. The Panel observed that the quotas applied by Canada were prohibited by Article XI:1. This was not contested by the parties; at issue was whether these measures could be justified under Article XI:2(c)(i), and if so, whether the restrictions were administered in conformity with the provisions of Articles X and XIII. A further issue raised by the United States was whether the permit system per se operated as a restriction on imports in contravention of Article XI:1.

58. The Panel proceeded to examine whether Canada's import restrictions on ice cream and yoghurt could be justified under Article XI:2(c)(i). The text of this paragraph provides that:

"2. The provisions of paragraph 1 of this Article shall not extend to the following: ....

(c) Import restrictions on any agricultural or fisheries product, imported in any form, necessary to the enforcement of governmental measures which operate:

(i) to restrict the quantities of the like domestic product permitted to be marketed or produced, or, if there is no substantial domestic production of the like product, of a domestic product for which the imported product can be directly substituted;"

and further (in last sub-paragraph) that:

"Any contracting party applying restrictions on the importation of any product pursuant to sub-paragraph (c) of this paragraph shall give public notice of the total quantity or value of the product permitted to be imported during a specified future period and of any change in such quantity or value. Moreover, any restrictions applied under (i) above shall not be such as will reduce the total of imports relative to the total of domestic production, as compared with the proportion which might reasonably be expected to rule between the two in the absence of restrictions. In determining this proportion, the contracting party shall pay due regard to the proportion prevailing during a previous representative period and to any special factors which may have affected or may be affecting the trade in the product concerned."

59. The Panel recalled that it had previously been concluded that a contracting party invoking an exception to the General Agreement bore the burden of proving that it had met all of the conditions of that exception.13 It also noted, as had previous panels, that exceptions wer4 to be interpreted narrowly and considered that this argued against flexible interpretation of Article XI:2(c)(i).14 The Panel was aware that the requirements of Article XI:2(c)(i) for invoking an exception to the general prohibition on quantitative restrictions made this provision extremely difficult to comply with in practice.15 However, any change in the burden of proof could have consequences equivalent to amending Article XI, seriously affecting the balance of tariff concessions negotiated among contracting parties, and was therefore outside the scope of the Panel's mandate.

60. The Panel also noted that there existed dissatisfaction with Article XI:2(c)(i) and that its revision was under discussion. The focus of this provision was limited to a fresh product restricted by the domestic measures and the competition this product faced from imports. The provision was not designed to address the difficulties of a domestic processing industry that, as a consequence of the domestic restrictions on the fresh product, faced higher raw material costs, making it less competitive with imports. To the extent that Article XI:2(c)(i) could be applied to imports of processed products, it was solely on the basis of their relationship to the fresh product under domestic restriction. This was evident from the text of the provision and its interpretative notes. The drafters had expressly indicated, with regard to the application of the exception to processed products that "... [i]n particular, it should not be construed as permitting the use of quantitative restrictions as a method of protecting the industrial processing of agricultural or fisheries products" (Havana Reports, ICITO/I/8, p. 94). Although the Panel recognized that there could be concern over the practicability of applying the criteria of Article XI:2(c)(i) with respect to processed products, it was not the function of panels to propose changes to the provisions of the General Agreement but to make findings regarding their interpretation and application.

61. The Panel considered the arguments presented by the parties with regard to the relevance of previous panel reports, and in particular that on Japan - Restrictions on Imports of Certain Agricultural Products (L/6253). That panel had also examined the application of quantitative restrictions to various processed dairy products. The Panel recognized that although the circumstances of the cases were quite different, some of the Japanese Agriculture Panel's considerations were relevant to this case. At the same time, however, on some issues of particular importance before this Panel, the report of the Japanese Agriculture Panel was useful but could not provide definitive guidance. The Panel thus thoroughly examined the questions before it in light of the relevant provisions of the General Agreement, taking account of all relevant previous panel findings.

62. As the party invoking an exception, it was incumbent upon Canada to demonstrate that the measures applied to imports of ice cream and yoghurt met each of the conditions under Article XI:2(c)(i) and XI:2(c) last sub-paragraph, in order to qualify in terms of these provisions for exemption from Article XI:1.

These conditions are:

- the measure on importation must constitute an import restriction (and not a prohibition);

- the import restriction must be on an agricultural or fisheries product;

- the import restriction and the domestic marketing or production restriction must apply to "like" products in any form (or directly substitutable products if there is no substantial production of the like product);

- there must be governmental measures which operate to restrict the quantities of the domestic product permitted to be marketed or produced;

- the import restriction must be necessary to the enforcement of the domestic supply restriction;

- the contracting party applying restrictions on importation must give public notice of the total quantity or value of the product permitted to be imported during a specified future period; and

- the restrictions applied must not reduce the proportion of total imports relative to total domestic production, as compared with the proportion which might reasonably be expected to rule between the two in the absence of restrictions.

63. The Panel concurred with the two parties that the first of these conditions had been met: Canada's measures constituted a restriction and not a prohibition of trade.

The Import Restriction must be on an Agricultural or Fisheries Product

64. The Panel observed that the Parties had not made detailed arguments with regard to this criterion of Article XI:2(c)(i). The term "agricultural product" is not defined in the General Agreement. The long-standing practice of the GATT, as evident in past rounds of trade negotiations and previous panel reports, was to accept that products falling under Chapters 1 to 24 in the Customs Cooperation Council Nomenclature could in principle be regarded as agricultural products.16 The Panel further noted that ice cream and yoghurt were food products generally regarded by consumers and the industry to be agricultural products. The Panel thus found that ice cream and yoghurt were agricultural products within the meaning of Article XI:2(c).

Like Products Imported in any Form

65. The Panel then proceeded to examine whether the import restrictions and the domestic production restrictions applied to "like" products "in any form". The first issue was to determine the relevant "fresh" Canadian product. Although Canada maintained that it effectively restricted the production of all milk, its arguments had primarily made reference to industrial milk. Yet the differentiation of "fluid" milk (raw milk used for processing into table milk and cream) and "industrial milk" (raw milk used for processing into other dairy products) was recognized to be merely an administrative differentiation, based on the intended use of the milk and not on any intrinsic differences.

66. The Panel recalled that in the drafting of the General Agreement, it was argued that Article XI:2(c)(i) was necessary due to "... the capricious bounty of nature, which will sometimes give you a huge catch of fish or a huge crop ..." and because of the existence "... of a multitude of small unorganized producers that cannot organize themselves" (EPCT/A/PV/19). It was clear, therefore, that the domestic product subject to restrictions had to be the product produced by farmers. In this case the farmers were producing raw milk, not "industrial" or "fluid" milk. The Panel found that the relevant Canadian "fresh" product subject to restriction was total raw milk.

67. The Panel next considered whether ice cream and yoghurt were "like" products to raw milk. In the drafting of this provision it had been stated that the words "like products" in Article XI:2(c) "... definitely do not mean what they mean in other contexts - merely a competing product" (EPCT/C.II/PV.12). The Japanese Agriculture Panel had observed that Article XI:2(c)(i) and the note supplementary to it regarding "in any form" established different requirements for (a) restrictions on the importation of products that are "like" the product subject to domestic supply restrictions and (b) restrictions on the importation of products that are processed from a product that is "like" the product subject to domestic supply restrictions.17 The Japanese Agriculture Panel had considered that this differentiation would be lost if a product in its original form and a product processed from the original one were to be considered to be "like" products within the meaning of Article XI:2(c). This Panel concurred with that observation. It further noted that there was virtually no international trade in raw milk.

68. The Panel therefore considered whether ice cream and yoghurt were "like" products "in any form" to raw milk. It was recognized in Article XI:2(c)(i) that it might be necessary to restrict not only the fresh product, but also some of its processed forms. However, the scope of this exception from the general prohibition on quantitative restrictions was limited by the interpretative note Ad Article XI:

"Paragraph 2(c)

The term "in any form" in this paragraph covers the same products when in an early stage of processing and still perishable, which compete directly with the fresh product and if freely imported would tend to make the restriction on the fresh product ineffective."

Thus, the exception could not be extended to all processed forms of the fresh product but only to those which met the specified criteria.

69. In the Havana Charter this provision had been redrafted to read:

"... imported "in any form" means the product in the form in which it is originally sold by its producer and such processed forms of the product as are so closely related to the original product as regards utilization that their unrestricted importation would make the restriction of the original product ineffective" (Note to Article 20, emphasis added).

It was this close relationship with regard to use that justified extension of the exception to some forms of processed products. While the interpretative note to the General Agreement focused more on defining the acceptable forms of the processed product, i.e. those that were in an early stage of processing and still perishable, the concept of a close relationship in terms of use was nonetheless retained in the requirements that the processed product compete directly with the fresh one to the extent that its free importation would render ineffective the restrictions on the fresh product. There was no evidence in either the drafting history nor the texts of the General Agreement itself that the exception was ever meant to apply to all, or even most, of the processed forms of any particular fresh product.

70. In light of these considerations, the Panel examined whether ice cream and yoghurt met all the conditions for "like" products "in any form": that they were in an "early stage of processing", "still perishable", "directly competitive" with raw milk and if freely imported would "make the restriction on the fresh product ineffective". The exception to Article XI:1 could be applied only to those processed products which met all of these conditions.

Early Stage of Processing

71. With regard to "early stage of processing", the Panel did not find sufficient the Canadian argument that products resulting from a direct continuous processing method should be considered ipso facto as in an early stage of processing. "Continuous" processing could theoretically be continued until a highly processed product (e.g. powdered cake mix) resulted. Neither could the Panel accept the

implication of the US argument that any consumer-ready processed product could not be considered as in an early stage of processing. Drinking milk, having been pasteurized and homogenized, was a "processed", consumer-ready product, yet it would be difficult not to consider drinking milk to be "in an early stage of processing". The Panel noted that not all ice cream and yoghurt products were at the same stage of processing. For example, it appeared that fresh yoghurt was less processed than frozen yoghurt mix, and bulk ice cream less processed than individually packaged, chocolate-coated, moulded ice cream bars. A finding with respect to the "early stage of processing" criterion would thus require an examination of the processing of each type of product subject to the import restrictions. Given the variety of modern production methods and the rapid changes in technology, the Panel also had doubts whether the concept "early stage of processing" could provide much guidance as to the interpretation of Article XI:2(c). In light of its findings on the other requirements of Article XI:2(c)(i), the Panel did not consider it necessary to make a finding in this regard.

Still Perishable

72. With regard to "still perishable", the Panel observed that both parties agreed that ice cream and yoghurt required special handling and storage conditions, and that the shelf life of fresh yoghurt was approximately three weeks. Canada had stated that ice cream made according to Agriculture Canada standards had a three-month shelf life. The United States had provided evidence that the ice cream it exported could be stored for 12 months. The United States further argued that a product which had undergone processing to make it less perishable than the raw product could no longer be considered to meet the requirements of this provision. The Panel did not agree with this interpretation; the interpretative note required only that the product be "still perishable", not "as perishable as the fresh product". The Panel recognized that there were considerable differences in perishability between products such as fresh yoghurt with its two to three week shelf life, and frozen yoghurt mix or some ice cream products which could be stored for up to one year. The Panel observed that there was no agreed definition of perishability in the General Agreement and little guidance provided by the drafting history. The drafters had stated that "... what we have in mind here is the perishable kind of processed product, not the kind which is capable of being stocked" (EPCT/A/PV/19). A previous panel had found that a product was still perishable because it would decline in quality and value after a certain time.18 However, as virtually all agricultural products declined in quality and value after a certain time, the Panel did not believe that this previous finding provided sufficient guidance for clearly distinguishing between perishable and non-perishable items. As with the concept "early stage of processing", the Panel observed that rapid changes in technology since the General Agreement was drafted raised doubts as to the practicability of using the concept of "still perishable" to distinguish the items that fell within the scope of Article XI:2(c) from those that did not. The Panel recalled that compliance with Article XI:2(c)(i) required that all of its conditions be met. The Panel did not feel that it was therefore necessary to make a finding with regard to perishability.

Directly Competitive

73. The Panel then proceeded to examine whether ice cream and yoghurt "compete directly" with fresh raw milk. Canada argued that imported ice cream and yoghurt competed directly with Canadian produced ice cream and yoghurt and thus displaced the raw milk which would have been processed into these products. The United States argued that ice cream and yoghurt were neither substitutable for nor destined for the same markets as raw milk. The Panel considered that the term "compete directly with ..." imposed a more limiting requirement than merely "compete with". As stated in the US arguments, the concept of "displacement" was apparently not intended by this provision. The essence of direct competition was that a buyer was basically indifferent if faced with the choice between one product or the other and viewed them as substitutable in terms of their use. Only limited competition existed between raw milk and ice cream and yoghurt. Their marketing was quite different, and as was implied in the Canadian arguments the competition which did exist was related to displacement of raw milk used in Canadian ice cream and yoghurt production. The Panel recalled that this provision was not designed to protect the processing industry. It further recalled its consideration concerning the narrow interpretation of exceptions (paragraph 59 above). The Panel did not consider it appropriate to broaden the scope of this requirement to include the concept of displacement or indirect competition. The Panel thus found that imports of ice cream and yoghurt did not compete directly with raw milk in terms of Article XI:2(c)(i).

Would Make the Restrictions Ineffective

74. The exception to Article XI:1 is further limited by its application only to those processed products whose free importation would render ineffective the restrictions on the fresh product. The drafters agreed that the exception "... should not be construed as permitting the use of quantitative restrictions as a method of protecting the industrial processing of agricultural or fisheries products" (Havana Reports, ICITO/I/8, p. 94). Canada argued that developments in the United States dairy situation encouraged the expansion of US exports. Uncontrolled imports of these products could displace close to 11 per cent of its industrial milk production (on a butterfat basis). As the United States had pointed out, the current Canadian dairy restriction programme had been in force since 1976, and although many other dairy products had been subject to quotas since that time, it had not previously been considered necessary to restrict imports of ice cream and yoghurt. Unrestricted imports of ice cream and yoghurt in the five years previous to the 1988 imposition of restrictions averaged, respectively, two-tenths of one per cent and three-tenths of one per cent of Canadian production of these products. Their impact upon total raw milk production in Canada could only be considered as minuscule.

75. The Panel recognized that Canada's concern was with regard to potential import levels, rather than historic ones, and with the accumulated effects of imports of various dairy products and the consequential effects on its domestic milk program. Prior to the imposition of the quantitative restrictions, imports of ice cream and yoghurt into Canada had been very small compared to Canadian production of these items, and these imports amounted to less than ten one-thousandths of one per cent of Canadian raw milk production. The factors cited by Canada could potentially lead to an increase in this import level; however, Canada had not provided evidence sufficient to convince the Panel that there existed an immediate threat of imports at such significantly increased levels as could render ineffective the Canadian dairy supply program. Article XI:2(c)(i) did not provide for the imposition of quantitative restrictions on imports at current levels merely on the basis of some hypothetical future situation. The Panel did not find that the evidence submitted by Canada justified the conclusion that unrestricted imports of ice cream and yoghurt would presently render ineffective the Canadian domestic restrictions on raw milk production.

76. The exception to Article XI:1 can be applied only to those processed products which meet all the conditions for "like" products "in any form" of the interpretative note Ad Article XI:2(c)(i): are in "an early stage of processing", "still perishable", "compete directly" with the fresh product and if freely imported would "make the restriction on the fresh product ineffective". The Panel found that ice cream and yoghurt did not compete directly with raw milk, and that their free importation would not render ineffective the Canadian production measures for raw milk. The Panel did not find it necessary to make findings with regard to the criterion of early stage of processing or perishability.

Governmental Measures to Restrict Domestic Production

77. The raison d'être of Article XI:2(c)(i) is to permit the operation of governmental measures that restrict the quantity of some fresh agricultural product permitted to be produced or marketed. The drafters indicated that "to restrict" means to "... keep output below the level which it would have attained in the absence of restrictions".19 Proposals to make the regulation of production, through price stabilization programmes, an accepted criterion were rejected.20 The Panel further observed that other than requiring a governmental measure, Article XI:2(c)(i) did not specify how the production or marketing restriction was to be imposed.

78. Canada had described in detail its domestic milk marketing programmes, noting that the programmes covered all producers and all milk produced in Canada. Canada argued that over quota levies, which resulted in returns below the farmer's cash cost of production, ensured that production did not exceed the established market sharing quota. According to Canada, existing excess capacity for production indicated that in the absence of the government restrictions production would be higher. It presented econometric analyses indicating that the increase in production would be on the order of 31 to 39 per cent. The United States argued that the only limitation on fluid milk sales was what the market could bear, and there was no penalty for producers exceeding their fluid milk "quota". Furthermore, the United States contended that the method of calculating support payments on in-quota milk was such as to perhaps provide some financial incentive to overproduce. In fact, in the past six years total industrial milk production had consistently exceeded the established Market Sharing Quota.

79. The Panel recalled that the requirement was for the effective restriction of production, not merely its regulation. A major element of the requirement of restricted production was that the measure, regardless of how operated, had to reduce production below the level it would otherwise have attained. The Panel observed that this concept was difficult to apply in practice. In situations such as the Canadian one, where the government measures had been in place for many years and were interrelated with price support and other production incentives, it was virtually impossible to determine what production levels would be in their absence. This determination would be necessary in order to have an objective basis for comparison with current production levels. In light of its findings in paragraphs 73 to 76 above, the Panel did not consider it necessary to further examine this issue. The Panel, therefore, did not make a finding with regard to whether the Canadian dairy management scheme constituted a government measure which effectively restricted total raw milk production in Canada.

Necessary

80. A further requirement of Article XI:2(c)(i) is that the import restrictions be "necessary to the enforcement" of the supply-restricting governmental measures. The Panel observed that although the term "necessary" had never been defined, the 1955 Working Party on Quantitative Restrictions had concluded "it would be an abuse of intent of the provisions under Article XI:2(c)(i) if the contracting parties were to apply restrictions to processed products exceeding those necessary to secure enforcement of the actual measures restricting production or marketing of the primary products".21 There were also further interpretations with regard to seasonal restrictions. When restrictions on processed products were involved, the Panel found it difficult to separate completely the criterion of "necessary to the enforcement" from that regarding "... would render ineffective the restriction on the fresh product". If unrestricted imports would render a government measure ineffective, it would be difficult not to conclude that some restriction of the imports was necessary. The arguments of the parties had essentially been the same for these two criteria. Canada had expressed concern that potential future imports could replace Canadian production of ice cream and yoghurt, and thus displace that proportion of Canadian milk normally used in their processing. The United States stated that ice cream and yoghurt had been freely imported over the many years during which Canada had a supply management system without causing any apparent difficulties to the operation of that programme. Furthermore, unrestricted imports of these products had attained a very limited market share, amounting to a minuscule proportion of total Canadian milk production.

81. The Panel recognized the merits of Canada's argument that for a product which is traded almost exclusively in its processed forms, such as milk, restrictions on the imports of the processed products might in some sense be "necessary" to ensure that the restriction on the production of the raw material was not undermined. This consequential result was, as the Panel had previously noted (paragraph 73), indirect. Canadian processors, whose access to dairy ingredient inputs was limited to higher priced domestic supplies, might not be able to compete effectively with imported processed products, and subsequently would reduce their production of these processed goods and hence their demand for the raw milk input. At this time, however, there was not sufficient evidence to believe that future imports of ice cream and yoghurt would achieve such levels as to significantly affect Canadian producers ability to market raw milk. In the past, unrestricted imports had gained less than a half a percent share of the Canadian ice cream and yoghurt market, and accounted for less than ten one-thousandths of one per cent of total raw milk production. Against this background and in the absence of an imminent threat to the Canadian dairy system, the Panel found that the criterion of "necessary" to the operation of the governmental restrictions could not be met.

Public Notice, Level of Imports

82. The Panel observed that the remaining provisions of Article XI:2(c), as concerned public notice and the level of imports, as well as those contained in Articles X and XIII, concerned the operation of the quota. As the Panel had found that the Canadian import quotas for ice cream and yoghurt could not be justified under Article XI:2(c)(i), it did not consider it necessary to examine whether the administration of these quotas was in conformity with the General Agreement.

Permit System

83. The Panel considered the United States arguments that the permit system operated as a quantitative restriction in addition to the quotas, as permits were not freely available and had limited validity. Given the Panel's findings that the quotas could not be justified under the General Agreement, to the extent that the permit system was a mechanism for the administration of the quota system, it had no justifiable basis and the Panel did not consider it necessary to further examine its operation. The Panel was aware that in 1988, having announced the restriction of imports of ice cream and yoghurt, Canada had not established a quota but had nonetheless required import permits. The Panel recognized that this was an exceptional measure, which had been taken in the past and not repeated since 1988, and did not consider it necessary to further examine its conformity with the General Agreement. It did observe, however, that restrictions applied through discretionary licensing could not meet the requirement in Article XI:2(c) of prior public notice of the quantity or value permitted to be imported.

CONCLUSIONS

84. In light of the considerations set out in paragraphs 57 to 81 above, the Panel concluded that Canada's restrictions on the importation of ice cream and yoghurt are inconsistent with Article XI:1 and cannot be justified under the provisions of Article XI:2(c)(i). In particular, the Panel found that ice cream and yoghurt do not meet the requirements of Article XI:2(c)(i) for "like products" "in any form" to Canadian raw milk because they do not compete directly with raw milk nor would their free importation be likely to render ineffective the Canadian measures on raw milk production. The Panel found further that the restriction of imports of ice cream and yoghurt is not necessary to the enforcement of the Canadian programme for raw milk.

85. The Panel, therefore, recommends that the CONTRACTING PARTIES request Canada either to terminate these restrictions or to bring them into conformity with its obligations under the General Agreement.


13Report of the Panel on "Canada - Administration of the Foreign Investment Review Act", BISD 30S/140, 164; Report of the Panel on "Japan - Restrictions on Imports of Certain Agricultural Products", L/6253, p. 64; and Report of the Panel on "European Economic Community - Restrictions on Imports of Dessert Applies - Complaint by Chile", L/6491, p. 37.

14See, for example, Report of the Panel on "Japan - Restrictions on Imports of Certain Agricultural Products", L/6253, p. 65 and Report of the Panel on "EEC - Restrictions on Imports of Apples - Complaint by the United States", L/6513, p. 33.

15See, e.g., Report of the Panel on "EEC - Restrictions on Imports of Dessert Apples - Complaint by Chile", L/6491.

16See, e.g., Report of the Panel on "Japan - Restrictions on Imports of Certain Agricultural Products", L/6253, p. 61.

17Report of the Panel on "Japan - Restrictions on Imports of Certain Agricultural Products", L/6253, p. 62.

18Report of the Panel on "EEC - Programme of Minimum Import Prices, etc." BISD 25S/100.

19Havana Reports, ICITO/I/8, p. 89, para. 17.

20EPCT/A/PV/19.

21BISD 3S/189, 190.