V. Article III:2, First Sentence, of the GATT 1994

With respect to the application of Article III:2, first sentence, we agree with the Panel that:

... the following two questions need to be answered to determine whether there is a violation of Article III:2 of GATT 1994: (a) Are imported "split-run" periodicals and domestic non "split-run" periodicals like products?; and (b) Are imported "split-run" periodicals subject to an internal tax in excess of that applied to domestic non "split-run" periodicals? If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence.^* If the answer to the first question is negative, we need to examine further whether there is a violation of Article III:2, second sentence.³³

______________________


^*In this context, we need not examine the applicability of Article III:1 separately, because, as the Appellate Body noted in its recent report, the first sentence of Article III:2 is, in effect, an application of the general principle embodied in Article III:1. Therefore, if the imported and domestic products are "like products", and if the taxes applied to the imported products are "in excess of" those applied to the like domestic products, then the measure is inconsistent with Article III:2, first sentence. Appellate Body Report on Japan - Taxes on Alcoholic Beverages, op. cit., pp. 18-9.

A. Like Products

We agree with the legal findings and conclusions in paragraphs 5.22 - 5.24 of the Panel Report. In particular, the Panel correctly enunciated, in theory, the legal test for determining "like products" in the context of Article III:2, first sentence, as established in the Appellate Body Report in Japan ­ Alcoholic Beverages.³⁴ We also agree with the second point made by the Panel. As Article III:2, first sentence, normally requires a comparison between imported products and like domestic products, and as there were no imports of split-run editions of periodicals because of the import prohibition in Tariff Code 9958, which the Panel found (and Canada did not contest on appeal) to be inconsistent with the provisions of Article XI of the GATT 1994, hypothetical imports of split-run periodicals have to be considered.³⁵ As the Panel recognized, the proper test is that a determination of "like products" for the purposes of Article III:2, first sentence, must be construed narrowly, on a case-by-case basis, by examining relevant factors including:

(i) the product's end-uses in a given market;

(ii) consumers' tastes and habits; and

(iii) the product's properties, nature and quality.³⁶

However, the Panel failed to analyze these criteria in relation to imported split-run periodicals and domestic non-split-run periodicals.³⁷ Firstly, we note that the Panel did not base its findings on the exhibits and evidence before it, in particular, the copies of TIME, TIME Canada and Maclean's magazines, presented by Canada, and the magazines, Pulp & Paper and Pulp & Paper Canada, presented by the United States³⁸, or the Report of the Task Force on the Canadian Magazine Industry (the "Task Force Report").³⁹

Secondly, we observe that the Panel based its findings that imported split-run periodicals and domestic non-split-run periodicals "can" be like products, on a single hypothetical example constructed using a Canadian-owned magazine, Harrowsmith Country Life. However, this example involves a comparison between two editions of the same magazine, both imported products, which could not have been in the Canadian market at the same time. Thus, the discussion at paragraph 5.25 of the Panel Report is inapposite, because the example is incorrect.⁴⁰

The Panel leapt from its discussion of an incorrect hypothetical example⁴¹ to

... conclude that imported "split-run" periodicals and domestic non "split-run" periodicals can be like products within the meaning of Article III:2 of GATT 1994. In our view, this provides sufficient grounds to answer in the affirmative the question as to whether the two products at issue are like because, ... the purpose of Article III is to protect expectations of the Members as to the competitive relationship between their products and those of other Members, not to protect actual trade volumes.⁴² (Emphasis added)

It is not obvious to us how the Panel came to the conclusion that it had "sufficient grounds" to find the two products at issue are like products from an examination of an incorrect example which led to a conclusion that imported split-run periodicals and domestic non-split-run periodicals can be "like".

We therefore conclude that, as a result of the lack of proper legal reasoning based on inadequate factual analysis in paragraphs 5.25 and 5.26 of the Panel Report, the Panel could not logically arrive at the conclusion that imported split-run periodicals and domestic non-split-run periodicals are like products.

We are mindful of the limitation of our mandate in Articles 17.6 and 17.13 of the DSU. According to Article 17.6, an appeal shall be limited to issues of law covered in the Panel Report and legal interpretations developed by the Panel. The determination of whether imported and domestic products are "like products" is a process by which legal rules have to be applied to facts. In any analysis of Article III:2, first sentence, this process is particularly delicate, since "likeness" must be construed narrowly and on a case-by-case basis. We note that, due to the absence of adequate analysis in the Panel Report in this respect, it is not possible to proceed to a determination of like products.

We feel constrained, therefore, to reverse the legal findings and conclusions of the Panel on "like products". As the Panel itself stated, there are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence. If the answer to one question is negative, there is a need to examine further whether the measure is consistent with Article III:2, second sentence.⁴³

Having reversed the Panel's findings on "like products", we cannot answer both questions in the first sentence of Article III:2 in the affirmative as is required to demonstrate a violation of that sentence. Therefore, we need to examine the consistency of the measure with the second sentence of Article III:2 of the GATT 1994.

B. Non-Discrimination

In light of our conclusions on the question of "like products" in Article III:2, first sentence, we do not find it necessary to address Canada's claim of "non-discrimination" in relation to that sentence.⁴⁴

VI. Article III:2, Second Sentence, of the GATT 1994

We will proceed to examine the consistency of Part V.1 of the Excise Tax Act with the second sentence of Article III:2 of the GATT 1994.

A. Jurisdiction

Canada asserts that the Appellate Body does not have the jurisdiction to examine a claim under Article III:2, second sentence, as no party has appealed the findings of the Panel on this provision. In the United States' view, the procedure suggested by Canada is not consistent with the fundamental goals stated in Article 3.3 of the DSU, according to which the prompt settlement of disputes is essential to the effective functioning of the WTO and the maintenance of a proper balance of rights and obligations of Members. Contrary to Canada, the United States asserts that there is a sufficient basis in the panel record for the Appellate Body to apply the law to these facts.

We believe the Appellate Body can, and should, complete the analysis of Article III:2 of the GATT 1994 in this case by examining the measure with reference to its consistency with the second sentence of Article III:2, provided that there is a sufficient basis in the Panel Report to allow us to do so. The first and second sentences of Article III:2 are closely related. The link between the two sentences is apparent from the wording of the second sentence, which begins with the word "moreover". It is also emphasized in Ad Article III, paragraph 2, which provides: "A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where ...". An examination of the consistency of Part V.1 of the Excise Tax Act with Article III:2, second sentence, is therefore part of a logical continuum.

The Appellate Body found itself in a similar situation in United States ­ Gasoline. Having reversed the Panel's conclusions on the first part of Article XX(g) and having completed the Article XX(g) analysis in that case, the Appellate Body then examined the measure's consistency with the provisions of the chapeau of Article XX, based on the legal findings contained in the Panel Report.⁴⁵

As the legal obligations in the first and second sentences are two closely-linked steps in determining the consistency of an internal tax measure with the national treatment obligations of Article III:2, the Appellate Body would be remiss in not completing the analysis of Article III:2. In the case at hand, the Panel made legal findings and conclusions concerning the first sentence of Article III:2, and because we reverse one of those findings, we need to develop our analysis based on the Panel Report in order to issue legal conclusions with respect to Article III:2, second sentence, of the GATT 1994.

B. The Issues Under Article III:2, Second Sentence

In our Report in Japan - Alcoholic Beverages, we held that:

... three separate issues must be addressed to determine whether an internal tax measure is inconsistent with Article III:2, second sentence. These three issues are whether:

(1) the imported products and the domestic products are "directly competitive or substitutable products" which are in competition with each other;

(2) the directly competitive or substitutable imported and domestic products are "not similarly taxed"; and

(3) the dissimilar taxation of the directly competitive or substitutable imported domestic products is "applied ... so as to afford protection to domestic production".⁴⁶

1. Directly Competitive or Substitutable Products

In Japan - Alcoholic Beverages, the Appellate Body stated that as with "like products" under the first sentence of Article III:2, the determination of the appropriate range of "directly competitive or substitutable products" under the second sentence must be made on a case-by-case basis.⁴⁷ The Appellate Body also found it appropriate to look at competition in the relevant markets as one among a number of means of identifying the broader category of products that might be described as "directly competitive or substitutable", as the GATT is a commercial agreement, and the WTO is concerned, after all, with markets.

According to the Panel Report, Canada considers that split-run periodicals are not "directly competitive or substitutable" for periodicals with editorial content developed for the Canadian market. Although they may be substitutable advertising vehicles, they are not competitive or substitutable information vehicles.⁴⁸ Substitution implies interchangeability. Once the content is accepted as relevant, it seems obvious that magazines created for different markets are not interchangeable. They serve different end-uses.⁴⁹ Canada draws attention to a study by the economist, Leigh Anderson, on which the Task Force Report was at least partially-based, which notes:

US magazines can probably provide a reasonable substitute for Canadian magazines in their capacity as an advertising medium, although some advertisers may be better served by a Canadian vehicle. In many instances however, they would provide a very poor substitute as an entertainment and communication medium.⁵⁰

Canada submits that the Task Force Report characterizes the relationship as one of "imperfect substitutability" -- far from the direct substitutability required by this provision. The market share of imported and domestic magazines in Canada has remained remarkably constant over the last 30-plus years. If competitive forces had been in play to the degree necessary to meet the standard of "directly competitive" goods, one would have expected some variations. All this casts serious doubt on whether the competition or substitutability between imported split-run periodicals and domestic non-split-run periodicals is sufficiently "direct" to meet the standard of Ad Article III.⁵¹

According to the United States, the very existence of the tax is itself proof of competition between split-run periodicals and non-split-run periodicals in the Canadian market. As Canada itself has acknowledged, split-run periodicals compete with wholly domestically-produced periodicals for advertising revenue, which demonstrates that they compete for the same readers. The only reason firms place advertisements in magazines is to reach readers. A firm would consider split-run periodicals to be an acceptable advertising alternative to non-split-run periodicals only if that firm had reason to believe that the split-run periodicals themselves would be an acceptable alternative to non-split-run periodicals in the eyes of consumers. According to the United States, Canada acknowledges that "[r]eaders attract advertisers" and that, "... Canadian publishers are ready to compete with magazines published all over the world in order to keep their readers, but the competition is fierce".⁵²

According to the United States, the Task Force Report together with statements made by the Minister of Canadian Heritage and Canadian officials, provide further acknowledgment of the substitutability of imported split-run periodicals and domestic non-split-run periodicals in the Canadian market.⁵³

We find the United States' position convincing, while Canada's assertions do not seem to us to be compatible with its own description of the Canadian market for periodicals.

According to the Panel:

Canada explained that there is a direct correlation between circulation, advertising revenue and editorial content. The larger the circulation, the more advertising a magazine can attract. With greater advertising revenue, a publisher can afford more to spend on editorial content. The more a publisher spends, the more attractive the magazine is likely to be to its readers, resulting in circulation growth. Similarly, a loss of advertising revenue will produce a "downward spiral". Less advertising entails less editorial, a reduction in readership and circulation and a diminished ability to attract advertising. Magazines can be sold on newsstands, or through subscriptions, or distributed at no cost to selected consumers ... Canadian English-language publications face tough competition on newsstands; they account for only 18.5 per cent of English-language periodicals distributed on newsstands, where space is dominated by foreign publications ...⁵⁴


... Canadian periodical publishers face a major competitive challenge in their business environment that is not common to their counterparts in countries with a larger population to serve. The pivotal fact is the penetration of the Canadian market by foreign magazines. Canadian readers have unrestricted access to imported magazines. At the same time, Canadian readers have demonstrated that they value magazines that address their distinct interests and perspectives. However, foreign magazines dominate the Canadian market. They account for 81.4 per cent of all newsstand circulation and slightly more than half (50.4 per cent) of the entire circulation of English-language magazines destined for the general public in Canada.⁵⁵

This description of the Canadian market for periodicals corresponds to the following passages of the Task Force Report, as quoted in the Panel Report:

"[Canadian publishers'] English-language consumer magazines face significant competition for sales from imported consumer magazines. In large measure, this is because the majority of the magazines are from the United States and are a close substitute. ... It is reasonable to expect that the content of American magazines will be of interest to Canadians ...".


This report also observes that "there is considerable price competition" on newsstands between domestic and imported magazines", and that:


"the initial effect of the entry of Canadian regional editions of foreign magazines into the Canadian advertising market would be a loss of advertising pages in Canadian publications offering advertisers a readership with similar demographics".⁵⁶

This description corresponds also to the statement made by the then Minister of Canadian Heritage, the Honourable Michel Dupuy:

Canadians are much more interested in American daily life, be it political or sports life or any other kind, than vice versa. Therefore, the reality of the situation is that we must protect ourselves against split-runs coming from foreign countries and, in particular, from the United States.⁵⁷

The statement by the economist, Leigh Anderson, quoted by Canada and the Task Force Report's description of the relationship as one of "imperfect substitutability" does not modify our appreciation. A case of perfect substitutability would fall within Article III:2, first sentence, while we are examining the broader prohibition of the second sentence. We are not impressed either by Canada's argument that the market share of imported and domestic magazines has remained remarkably constant over the last 30-plus years, and that one would have expected some variation if competitive forces had been in play to the degree necessary to meet the standard of "directly competitive" goods. This argument would have weight only if Canada had not protected the domestic market of Canadian periodicals through, among other measures, the import prohibition of Tariff Code 9958 and the excise tax of Part V.1 of the Excise Tax Act.

Our conclusion that imported split-run periodicals and domestic non-split-run periodicals are "directly competitive or substitutable" does not mean that all periodicals belong to the same relevant market, whatever their editorial content. A periodical containing mainly current news is not directly competitive or substitutable with a periodical dedicated to gardening, chess, sports, music or cuisine. But newsmagazines, like TIME, TIME Canada and Maclean's, are directly competitive or substitutable in spite of the "Canadian" content of Maclean's. The competitive relationship is even closer in the case of more specialized magazines, like Pulp & Paper as compared with Pulp & Paper Canada, two trade magazines presented to the Panel by the United States.

The fact that, among these examples, only TIME Canada is a split-run periodical, and that it is not imported but is produced in Canada, does not affect at all our appreciation of the competitive relationship. The competitive relationship of imported split-run periodicals destined for the Canadian market is even closer to domestic non-split-run periodicals than the competitive relationship between imported non-split-run periodicals and domestic non-split-run periodicals. Imported split-run periodicals contain advertisements targeted specifically at the Canadian market, while imported non-split-run periodicals do not carry such advertisements.

We, therefore, conclude that imported split-run periodicals and domestic non-split-run periodicals are directly competitive or substitutable products in so far as they are part of the same segment of the Canadian market for periodicals.

2. Not Similarly Taxed

Having found that imported split-run and domestic non-split-run periodicals of the same type are directly competitive or substitutable, we must examine whether the imported products and the directly competitive or substitutable domestic products are not similarly taxed. Part V.1 of the Excise Tax Act taxes split-run editions of periodicals in an amount equivalent to 80 per cent of the value of all advertisements in a split-run edition. In contrast, domestic non-split-run periodicals are not subject to Part V.1 of the Excise Tax Act. Following the reasoning of the Appellate Body in Japan - Alcoholic Beverages⁵⁸, dissimilar taxation of even some imported products as compared to directly competitive or substitutable domestic products is inconsistent with the provisions of the second sentence of Article III:2. In United States ­ Section 337, the panel found:

... that the "no less favourable" treatment requirement of Article III:4 has to be understood as applicable to each individual case of imported products. The Panel rejected any notion of balancing more favourable treatment of some imported products against less favourable treatment of other imported products.⁵⁹

With respect to Part V.1 of the Excise Tax Act, we find that the amount of the taxation is far above the de minimis threshold required by the Appellate Body Report in Japan - Alcoholic Beverages.⁶⁰ The magnitude of this tax is sufficient to prevent the production and sale of split-run periodicals in Canada.⁶¹

3. So as to Afford Protection

The Appellate Body established the following approach in Japan - Alcoholic Beverages for determining whether dissimilar taxation of directly competitive or substitutable products has been applied so as to afford protection:

... we believe that an examination in any case of whether dissimilar taxation has been applied so as to afford protection requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products. We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products.


Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure. The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, ... Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case.⁶²

With respect to Part V.1 of the Excise Tax Act, we note that the magnitude of the dissimilar taxation between imported split-run periodicals and domestic non-split-run periodicals is beyond excessive, indeed, it is prohibitive. There is also ample evidence that the very design and structure of the measure is such as to afford protection to domestic periodicals.

The Canadian policy which led to the enactment of Part V.1 of the Excise Tax Act had its origins in the Task Force Report. It is clear from reading the Task Force Report that the design and structure of Part V.1 of the Excise Tax Act are to prevent the establishment of split-run periodicals in Canada, thereby ensuring that Canadian advertising revenues flow to Canadian magazines. Madame Monique Landry, Minister Designate of Canadian Heritage at the time the Task Force Report was released, issued the following statement summarizing the Government of Canada's policy objectives for the Canadian periodical industry:

The Government reaffirms its commitment to protect the economic foundations of the Canadian periodical industry, which is a vital element of Canadian cultural expression. To achieve this objective, the Government will continue to use policy instruments that encourage the flow of advertising revenues to Canadian magazines and discourage the establishment of split-run or 'Canadian' regional editions with advertising aimed at the Canadian market. We are committed to ensuring that Canadians have access to Canadian ideas and information through genuinely Canadian magazines, while not restricting the sale of foreign magazines in Canada.⁶³

Furthermore, the Government of Canada issued the following response to the Task Force Report:

The Government reaffirms its commitment to the long-standing policy of protecting the economic foundations of the Canadian periodical industry. To achieve this objective, the Government uses policy instruments that encourage the flow of advertising revenues to Canadian periodicals, since a viable Canadian periodical industry must have a secure financial base.⁶⁴

During the debate of Bill C-103, An Act to Amend the Excise Tax Act and the Income Tax Act, the Minister of Canadian Heritage, the Honourable Michel Dupuy, stated the following:

... the reality of the situation is that we must protect ourselves against split-runs coming from foreign countries and, in particular, from the United States.⁶⁵

Canada also admitted that the objective and structure of the tax is to insulate Canadian magazines from competition in the advertising sector, thus leaving significant Canadian advertising revenues for the production of editorial material created for the Canadian market. With respect to the actual application of the tax to date, it has resulted in one split-run magazine, Sports Illustrated, to move its production for the Canadian market out of Canada and back to the United States.⁶⁶ Also, Harrowsmith Country Life, a Canadian-owned split-run periodical, has ceased production of its United States' edition as a consequence of the imposition of the tax.⁶⁷

We therefore conclude on the basis of the above reasons, including the magnitude of the differential taxation, the several statements of the Government of Canada's explicit policy objectives in introducing the measure and the demonstrated actual protective effect of the measure, that the design and structure of Part V.1 of the Excise Tax Act is clearly to afford protection to the production of Canadian periodicals.

VII. Article III:8(b) of the GATT 1994

Article III:8(b) of the GATT 1994 reads as follows:

(b) The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products.

Both participants agree that Canada's "funded" postal rates involve "a payment of subsidies". The appellant, the United States, argues, however, that the "funded" postal rates programme involves a transfer of funds from one government entity to another, i.e. from Canadian Heritage to Canada Post, and not from the Canadian government to domestic producers as required by Article III:8(b).

As we understand it, through the PAP, Canadian Heritage provides Canada Post, a wholly-owned Crown corporation, with financial assistance to support special rates of postage for eligible publications, including certain designated domestic periodicals mailed and distributed in Canada. This programme has been implemented through a series of agreements, the MOA, between Canadian Heritage and Canada Post, which provide that in consideration of the payments made to it by Canadian Heritage, Canada Post will accept for distribution, at special "funded" rates, all publications designated by Canadian Heritage to be eligible under the PAP. The MOA provides that while Canadian Heritage will administer the eligibility requirements for the PAP based on criteria specified in the MOA, Canada Post will accept for distribution all publications that are eligible under the PAP at the "funded" rates.

The appellant, the United States, cited four GATT 1947 panel reports as authorities for its interpretation of Article III:8(b).⁶⁸ However, these panel reports are not all directly on point. In Italian Agricultural Machinery and EEC - Oilseeds, the panels found that subsidies paid to purchasers of agricultural machinery and processors of oilseeds were not made "exclusively to domestic producers" of agricultural machinery and oilseeds, respectively. In United States - Malt Beverages and United States - Tobacco, the issue was whether a reduction in the federal excise tax on beer or a remission of a product tax on tobacco constituted a "payment of subsidies" within the meaning of Article III:8(b). In United States - Malt Beverages, the panel found that a reduction of taxes on a good did not qualify as a "payment of subsidies" for the purposes of Article III:8(b) of the GATT 1994.⁶⁹ In United States ­ Tobacco, having found that the measure at issue was not a tax remission, the panel concluded that it was a payment which qualified under Article III:8(b) of the GATT 1994.⁷⁰

In EEC - Oilseeds, the panel stated that "it can reasonably be assumed that a payment not made directly to producers is not made 'exclusively' to them".⁷¹ This statement of the panel is obiter dicta, as the panel found in that report that subsidies paid to oilseeds processors were not made "exclusively to domestic producers", and therefore, the EEC payments of subsidies to processors and producers of oilseeds and related animal feed proteins did not qualify under the provisions of Article III:8(b).⁷²

A proper interpretation of Article III:8(b) must be made on the basis of a careful examination of the text, context and object and purpose of that provision. In examining the text of Article III:8(b), we believe that the phrase, "including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products" helps to elucidate the types of subsidies covered by Article III:8(b) of the GATT 1994. It is not an exhaustive list of the kinds of programmes that would qualify as "the payment of subsidies exclusively to domestic producers", but those words exemplify the kinds of programmes which are exempted from the obligations of Articles III:2 and III:4 of the GATT 1994.

Our textual interpretation is supported by the context of Article III:8(b) examined in relation to Articles III:2 and III:4 of the GATT 1994. Furthermore, the object and purpose of Article III:8(b) is confirmed by the drafting history of Article III. In this context, we refer to the following discussion in the Reports of the Committees and Principal Sub-Committees of the Interim Commission for the International Trade Organization concerning the provision of the Havana Charter for an International Trade Organization that corresponds to Article III:8(b) of the GATT 1994:

This sub-paragraph was redrafted in order to make it clear that nothing in Article 18 could be construed to sanction the exemption of domestic products from internal taxes imposed on like imported products or the remission of such taxes. At the same time the Sub-Committee recorded its view that nothing in this sub-paragraph or elsewhere in Article 18 would override the provisions of Section C of Chapter IV.⁷³

We do not see a reason to distinguish a reduction of tax rates on a product from a reduction in transportation or postal rates. Indeed, an examination of the text, context, and object and purpose of Article III:8(b) suggests that it was intended to exempt from the obligations of Article III only the payment of subsidies which involves the expenditure of revenue by a government.

We agree with the panel in United States - Malt Beverages that:

Article III:8(b) limits, therefore, the permissible producer subsidies to "payments" after taxes have been collected or payments otherwise consistent with Article III. This separation of tax rules, e.g. on tax exemptions or reductions, and subsidy rules makes sense economically and politically. Even if the proceeds from non­discriminatory product taxes may be used for subsequent subsidies, the domestic producer, like his foreign competitors, must pay the product taxes due. The separation of tax and subsidy rules contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more difficult, as in the case where producer aids require additional legislative or governmental decisions in which the different interests involved can be balanced.⁷⁴

As a result of our analysis of the text, context, and object and purpose of Article III:8(b), we conclude that the Panel incorrectly interpreted this provision. For these reasons, we reverse the Panel's findings and conclusions that Canada's "funded" postal rates scheme for periodicals is justified under Article III:8(b) of the GATT 1994.

VIII. Findings and Conclusions

For the reasons set out in this Report, the Appellate Body:

(a) upholds the Panel's findings and conclusions on the applicability of the GATT 1994 to Part V.1 of the Excise Tax Act;


(b) reverses the Panel's findings and conclusions on Part V.1 of the Excise Tax Act relating to "like products" within the context of Article III:2, first sentence, thereby reversing the Panel's conclusions on Article III:2, first sentence, of the GATT 1994;


(c) modifies the Panel's findings and conclusions on Article III:2 of the GATT 1994, by concluding that Part V.1 of the Excise Tax Act is inconsistent with Canada's obligations under Article III:2, second sentence, of the GATT 1994; and


(d) reverses the Panel's findings and conclusions that the maintenance by Canada Post of the "funded" postal rates scheme is justified by Article III:8(b) of the GATT 1994, and concludes that the "funded" postal rates scheme is not justified by Article III:8(b) of the GATT 1994.

The foregoing legal findings and conclusions modify the conclusions of the Panel in Part VI of the Panel Report, but leave intact the findings and conclusions of the Panel that were not the subject of this appeal.

The Appellate Body recommends that the Dispute Settlement Body request Canada to bring the measures found in this Report and in the Panel Report, as modified by this Report, to be inconsistent with the GATT 1994 into conformity with Canada's obligations thereunder.

Signed in the original at Geneva this 23rd day of June 1997 by:

	____________________
	Mitsuo Matsushita Presiding Member
____________________		____________________
Claus-Dieter Ehlermann Member		Julio Lacarte-Muró Member

³³ Panel Report, para. 5.21.

³⁴ WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, pp. 19-20.

³⁵ Panel Report, para. 5.23.

³⁶ Appellate Body Report, Japan - Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 20.

³⁷ Panel Report, para 5.26.

³⁸ TIME and Pulp & Paper are non-split-run United States' magazines which are imported into Canada. TIME Canada is a United States' split-run magazine produced in Canada. Maclean's and Pulp & Paper Canada are Canadian non-split-run magazines.

³⁹ "A Question of Balance", Report of the Task Force on the Canadian Magazine Industry, Canada 1994, First Submission of the United States to the Panel, 5 September 1996, Exhibit A.

⁴⁰ Both the United States and Canada agreed that the example of Harrowsmith Country Life was incorrect: Canada's Appellant's Submission, 12 May 1997, pp. 17-18, paras. 64-71; United States' Appellee's Submission, 26 May 1997, p. 32, para. 80; Canada's Statement at the oral hearing, 2 June 1997; United States' Statement at the oral hearing, 2 June 1997.

⁴¹ Panel Report, para 5.25.

⁴² Panel Report, para 5.26.

⁴³ See Panel Report, para. 5.21, cited with approval at page 20 herein.

⁴⁴ See Canada's Appellant's Submission, 12 May 1997, p. 3, para. 12, where Canada makes this argument as an alternative point of appeal.

⁴⁵ WT/DS2/AB/R, adopted 20 May 1996, pp. 22-29.

⁴⁶ WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 24.

⁴⁷ Ibid., p. 25.

⁴⁸ Panel Report, para. 3.113.

⁴⁹ Panel Report, para. 3.115.

⁵⁰ Panel Report, para. 3.119.

⁵¹ Panel Report, para. 3.119.

⁵² Panel Report, para. 3.117.

⁵³ Panel Report, para. 3.118.

⁵⁴ Panel Report, para. 3.28.

⁵⁵ Panel Report, para. 3.29.

⁵⁶ Panel Report, para. 3.118.

⁵⁷ Panel Report, para. 3.118.

⁵⁸ WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 27.

⁵⁹ Adopted 7 November 1989, BISD 36S/345, para. 5.14.

⁶⁰ WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 27.

⁶¹ Indeed, this was the explicit objective of the Canadian policy. See Panel Report, paras. 3.118 and 5.25.

⁶² WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 29.

⁶³ Task Force Report, Appendix 5, p. 92.

⁶⁴ Ibid., p. 94.

⁶⁵ Panel Report, para. 3.118.

⁶⁶ Panel Report, para. 3.121.

⁶⁷ Panel Report, paras. 3.99 and 5.25.

⁶⁸ Panel Report, Italian Agricultural Machinery, adopted 23 October 1958, BISD 7S/60; Panel Report, United States - Malt Beverages, adopted 19 June 1992, BISD 39S/206; Panel Report, United States - Tobacco, DS44/R, adopted 4 October 1994; and Panel Report, EEC - Oilseeds, adopted 25 January 1990, BISD 37S/86.

⁶⁹ Adopted 19 June 1992, BISD 39S/206, para. 5.12.

⁷⁰ DS44/R, adopted 4 October 1994, paras. 109 and 111.

⁷¹ Adopted 25 January 1990, BISD 37S/86, para. 137.

⁷² Ibid.

⁷³ Interim Commission for the International Trade Organization, Reports of the Committees and Principal Sub-Committees: ICITO I/8, Geneva, September 1948, p. 66. Article 18 and Section C of Chapter IV of the Havana Charter for an International Trade Organization correspond, respectively, to Article III and Article XVI of the GATT 1947.

⁷⁴ Adopted 19 June 1992, BISD 39S/206, para. 5.10.