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Complaint by Japan.
On 3 July 1998, Japan requested consultations with
Canada in respect of measures being taken by Canada in the automotive
industry. Japan contended that under Canadian legislation implementing an
automotive products agreement (Auto Pact) between the US and Canada, only
a limited number of motor vehicle manufacturers are eligible to import
vehicles into Canada duty free and to distribute the motor vehicles in
Canada at the wholesale and retail distribution levels. Japan further
contended that this duty-free treatment is contingent on two requirements:
- a Canadian value-added (CVA) content requirement
that applies to both goods and services; and
- a manufacturing and sales requirement. Japan
alleges that these measures are inconsistent with Articles I:1, III:4 and
XXIV of GATT 1994, Article 2 of the TRIMs Agreement, Article 3 of the SCM
Agreement, and Articles II, VI and XVII of GATS.
On 17 August 1998, the EC requested consultations with
Canada in respect of the same measures raised by Japan in WT/DS139 and
cites the same provisions alleged to be in violation, except for Article
XXIV of GATT 1994, which was cited by Japan but is not cited by the EC.
On 12 November 1998, Japan requested the establishment
of a panel in respect of WT/DS139. At its meeting on 25 November 1998, the
DSB deferred the establishment of a panel.
Panel and Appellate Body proceedings
Further to requests to
establish a panel by Japan and the EC, at its meeting on 1 February 1999,
the DSB established a single panel, pursuant to Article 9.1 of the DSU, to
examine the complaints WT/DS139 and WT/DS142. India, Korea, and the US
reserved their third-party rights. On 15 March 1999, the EC and Japan
requested the Director-General to determine the composition of the Panel.
On 25 March 1999, the Panel was composed. The report of the panel was
circulated to Members on 11 February 2000. The panel found that:
the conditions under which Canada granted its import
duty exemption were inconsistent with Article I of GATT 1994 and not
justified under Article XXIV of GATT 1994.
the application of the CVA requirements to be
inconsistent with Article III:4 of GATT 1994.
the import duty exemption constitutes a prohibited
export subsidy in violation of Article 3.1(a) of the SCM Agreement.
the manner in which Canada conditioned access to the
import duty exemption is inconsistent with Article II of GATS and could
not justified under Article V of GATS.
the application of the CVA requirements constitutes a
violation of Article XVII of the GATS.
On 2 March 2000, Canada notified its intention to
appeal certain issues of law and legal interpretations developed by the
panel. The Appellate Body report was circulated to Members on 31 May 2000.
The Appellate Body:
reversed the panel’s conclusion that Article 3.1(b) of
the Subsidies Agreement did not extend to contingency “in fact”.
considered that the panel had failed to examine whether
the measure at issue affected trade in services as required under Article
I:1 of the GATS.
reversed the panel’s conclusion that the import duty
exemption was inconsistent with the requirements of Article II:1 of the
GATS as well as the panel’s findings leading to that conclusion.
The DSB adopted the Appellate Body report and the Panel
report, as modified by the Appellate Body report, on 19 June 2000.
Implementation of adopted reports
Pursuant to Article 21.3 of the DSU, Canada informed the
DSB on 19 July 2000 that it would comply with the recommendations of the
DSB. One of the recommendations made by the DSB was that Canada withdraw
within 90 days the export subsidy found to be inconsistent with Article
3.1(a) of the Subsidies Agreement. On 4 August 2000, Japan and the
European Communities requested, pursuant to Article 21.3(c) of the DSU,
that the reasonable period of time be determined by arbitration. The
arbitrator determined that the “reasonable period of time” was
8 months from the date of adoption of the Appellate Body and Panel
Reports, as modified by the Appellate Body Report. The “reasonable
period of time” was thus to expire on 19 February 2001.
At the DSB
meeting of 12 March 2001, Canada stated that, as of 18 February 2001, it
had complied with the DSB’s recommendations.
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