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A.1.1 Article 1(a) and Annex 3 —
“Aggregate Measurement of Support” back to top
A.1.1.1 Korea — Various Measures on Beef,
para. 115
(WT/DS161/AB/R,
WT/DS169/AB/R)
… for purposes of
determining whether a Member has exceeded its commitment levels, Base
Total AMS, and the commitment levels resulting or derived therefrom, are
not themselves formulae to be worked out, but simply absolute figures
set out in the Schedule of the Member concerned. As a result, Current
Total AMS which is calculated according to Annex 3, is compared to the
commitment level for a given year that is already specified as a given,
absolute, figure in the Member’s Schedule.
A.1.2 Article 1(a)(ii) and Annex 3 — “AMS
commitments” back to top
A.1.2.1 Korea — Various Measures on Beef,
para. 112
(WT/DS161/AB/R,
WT/DS169/AB/R)
Looking at the wording of
Article 1(a)(ii) itself, it seems to us that this provision attributes
higher priority to “the provisions of Annex 3” than to the “constituent
data and methodology”. From the viewpoint of ordinary meaning, the
term “in accordance with” reflects a more rigorous standard than the
term “taking into account”.
A.1.2.2 Korea — Various Measures on Beef,
para. 114
(WT/DS161/AB/R,
WT/DS169/AB/R)
In the circumstances of the
present case, it is not necessary to decide how a conflict between “the
provisions of Annex 3” and the “constituent data and methodology
used in the tables of supporting material incorporated by reference in
Part IV of the Member’s Schedule” would have to be resolved in
principle. As the Panel has found, in this case, there simply are no
constituent data and methodology for beef. Assuming arguendo that
one would be justified — in spite of the wording of Article 1(a)(ii)
— to give priority to constituent data and methodology used in the tables
of supporting material over the guidance of Annex 3, for products
entering into the calculation of the Base Total AMS, such a step would
seem to us to be unwarranted in calculating Current AMS for a product
which did not enter into the Base Total AMS calculation. …
A.1.3 Article 1(e) — “subsidy”
back to top
A.1.3.1 Canada — Dairy, para. 87
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
… Correspondingly, a “subsidy”
involves a transfer of economic resources from the grantor to the
recipient for less than full consideration. As we said in our Report in Canada
— Aircraft, a “subsidy”, within the meaning of Article 1.1 of
the SCM Agreement, arises where the grantor makes a “financial
contribution” which confers a “benefit” on the recipient, as
compared with what would have been otherwise available to the recipient
in the marketplace. …
A.1.3.2 US — FSC, para. 137
(WT/DS108/AB/R)
Therefore, in this case, we
will consider, first, whether the FSC measure involves a transfer of
economic resources by the grantor, which in this dispute is the
government of the United States, and, second, whether any transfer of
economic resources involves a benefit to the recipient.
A.1.3.3 US — FSC (Article 21.5
— EC), para. 194
(WT/DS108/AB/RW)
… We have rejected the
United States’ appeal regarding the proper characterization of the
measure under Article 3.1(a) of the SCM Agreement. The
Panel held, and we have upheld, that the measure involves the foregoing
of revenues that are otherwise due under Article 1.1(a)(ii) of the SCM Agreement. As we indicated in US — FSC, where a
government foregoes revenues that are otherwise due in relation to
agricultural products, a subsidy may arise under the Agreement on
Agriculture. The fiscal treatment of agricultural products, under
the measure, is not materially different from the fiscal treatment of
products falling within the scope of the SCM Agreement.
Accordingly, we see no reason to reach any conclusion under the Agreement
on Agriculture that differs from our conclusion under the SCM Agreement. …
A.1.3.4 EC — Export Subsidies on Sugar,
para. 269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
A.1.4 Article 1(e) — “contingent upon export
performance” back to top
A.1.4.1 US — FSC, para. 141
(WT/DS108/AB/R)
… We see no reason, and none
has been pointed out to us, to read the requirement of “contingent
upon export performance” in the Agreement on Agriculture
differently from the same requirement imposed by the SCM Agreement.
The two Agreements use precisely the same words to define “export
subsidies”. Although there are differences between the export subsidy
disciplines established under the two Agreements, those differences do
not, in our view, affect the common substantive requirement relating to
export contingency. Therefore, we think it appropriate to apply the
interpretation of export contingency that we have adopted under the SCM Agreement to the interpretation of export contingency under the Agreement
on Agriculture. …
A.1.4.2 US — Upland Cotton, para. 571
(WT/DS267/AB/R)
Although an export subsidy
granted to agricultural products must be examined, in the first place,
under the Agreement on Agriculture, we find it appropriate, as
has the Appellate Body in previous disputes, to rely on the SCM
Agreement for guidance in interpreting provisions of the Agreement
on Agriculture. Thus, we consider the export-contingency requirement
in Article 1(e) of the Agreement on Agriculture having regard to
that same requirement contained in Article 3.1(a) of the SCM
Agreement.
A.1.4.3 US — Upland Cotton, para. 582
(WT/DS267/AB/R)
In sum, we agree with the
Panel’s view that Step 2 payments are export-contingent and,
therefore, an export subsidy for purposes of Article 9 of the Agreement
on Agriculture and Article 3.1(a) of the SCM Agreement. The
statute and regulations pursuant to which Step 2 payments are granted,
on their face, condition payments to exporters on exportation. In order
to claim payment, an exporter must show proof of exportation. If an
exporter does not provide proof of exportation, the exporter will not
receive a payment. This is sufficient to establish that Step 2 payments
to exporters of United States upland cotton are “conditional upon
export performance” or “dependent for their existence on export
performance”. That domestic users may also be eligible to receive
payments under different conditions does not eliminate the fact that an
exporter will receive payment only upon proof of exportation.
A.1.4.4 US — Upland Cotton, para. 615
(WT/DS267/AB/R)
… Article 1(e) of the Agreement
on Agriculture defines “export subsidies” as “subsidies
contingent upon export performance, including the export
subsidies listed in Article 9 of this Agreement”. (emphasis added) The
use of the word “including” suggests that the term “export
subsidies” should be interpreted broadly and that the list of export
subsidies in Article 9 is not exhaustive. Even though an export credit
guarantee may not necessarily include a subsidy component, there is
nothing inherent about export credit guarantees that precludes such
measures from falling within the definition of a subsidy. An export
credit guarantee that meets the definition of an export subsidy would be
covered by Article 10.1 of the Agreement on Agriculture because
it is not an export subsidy listed in Article 9.1 of that Agreement.
A.1.4A Article 3.1 — “export subsidy
commitments” back to top
A.1.4A.1 EC — Export Subsidies on Sugar,
paras. 166-167
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
A preliminary question for our
consideration is what rules apply in interpreting export subsidy
commitments specified in a Member’s Schedule under the Agreement on
Agriculture. We observe that Article II:7 of the General
Agreement on Tariffs and Trade 1994 (the “GATT 1994”) provides
that the “Schedules annexed to this Agreement are hereby made an
integral part of Part I of this Agreement.” Furthermore, Article 3.1
of the Agreement on Agriculture provides that “export subsidy
commitments in Part IV of each Member’s Schedule … are hereby made
an integral part of [the] GATT 1994”.
The applicable rules for
interpreting the provisions of the GATT 1994 are the “customary rules
of interpretation of public international law”. The Appellate Body has
held that these rules are codified in the Vienna Convention on the
Law of Treaties (the “Vienna Convention”). As provisions
of a Member’s Schedule are “part of the terms of the treaty”, they
are subject to these same rules of treaty interpretation. …
A.1.4B Article 3.1 — “commitments limiting
subsidization” back to top
A.1.4B.1 EC — Export Subsidies on Sugar,
para. 209
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… We do not see Article 3.1
as permitting a Member to limit subsidization to whatever commitment it
chooses to specify in its Schedule without regard to Members’
obligations under the Agreement on Agriculture. Rather, with
respect to export subsidy commitments, we see Article 3.1 as requiring a
Member to limit its subsidization to the budgetary outlay and quantity
reduction commitments specified in its Schedule in accordance with the
provisions of the Agreement on Agriculture. …
A.1.5 Article 3.3 — “export subsidies”
back to top
A.1.5.1 US — FSC, para. 132
(WT/DS108/AB/R)
… A finding of inconsistency
with Article 3.3 of the Agreement on Agriculture is dependent on
the Member having provided export subsidies listed in Article 9.1.
…
A.1.5.2 US — FSC, para. 152
(WT/DS108/AB/R)
As regards scheduled
products, when the specific reduction commitment levels have been
reached, the limited authorization to provide export subsidies as
listed in Article 9.1 is transformed, effectively, into a prohibition
against the provision of those subsidies. …
A.1.5A Article 3.3 — “budgetary outlay and
quantity commitment levels” back to top
A.1.5A.1 EC — Export Subsidies on Sugar,
paras. 193-194
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
By its terms, Article 3.3 of
the Agreement on Agriculture prohibits the granting of export
subsidies (listed in Article 9.1) in excess of the budgetary outlay and
quantity commitment levels specified in a Member’s Schedule. Article 3.3 does not, however, explicitly state that export subsidy commitments
must be specified in a Member’s Schedule in terms of both budgetary
outlay and quantity commitment levels. At the same time, Article 3.3 does not explicitly state that a Member may specify its commitment
level in terms of either of the two forms of commitments. In our view,
the use of the conjunctive “and”, and the corresponding use of the
word “levels” in the plural, suggest that the drafters of the
Agreement intended that both types of commitments must be specified in a
Member’s Schedule in respect of any export subsidy listed in Article 9.1. Had the drafters intended that a Member could specify one or the
other of the two forms of commitments, they would have chosen the
disjunctive “or” and correspondingly used the word “level” in
the singular. Given the choice, Members would choose only one or the
other type of commitment, but not both, so as to minimize their
obligations. Therefore, it appears to us that the drafters intended to
ensure that export subsidy commitments are specified in Members’
Schedules in terms of both budgetary outlay and quantity commitments, by
using the word “and” as well as the word “levels” in the text of
Article 3.3.
We find contextual support for
the above interpretation in Article 9.2(b)(iv) of the Agreement on
Agriculture, which provides:
(iv) the Member’s budgetary outlays for
export subsidies and the quantities benefiting from such subsidies, at
the conclusion of the implementation period, are no greater than 64 per
cent and 79 per cent of the 1986-1990 base period levels, respectively.
For developing country Members these percentages shall be 76 and 86 per
cent, respectively.
This provision prescribes the
export subsidy commitment levels to be reached at the conclusion of the
implementation period (and to be maintained thereafter), and those
commitment levels are expressed in terms of both budgetary outlays and
quantities. We do not see how a Member could comply with Article 9.2(b)(iv), or for that matter Article 9.2(a), without having specified
its export subsidy commitments in terms of both budgetary outlays and
quantities. We also consider it significant that both Article 9.2(b)(iii) and Article 9.2(b)(iv) use the expression “budgetary
outlays for export subsidies and the quantities benefiting from such
subsidies”. (emphasis added) This shows the drafters’
recognition of the need to address the budgetary outlays and quantities
together.
A.1.5A.2 EC — Export Subsidies on Sugar,
para. 196
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Our interpretation that
Article 3.3 (as well as Article 9.2) requires that export subsidy
commitments in a Member’s Schedule must be expressed in terms of both
budgetary outlay and quantity commitment levels is also in consonance
with the object and purpose of the Agreement on Agriculture. We
note, as did the Panel, that the third paragraph of the Preamble to the
Agreement recognizes that the “long-term objective” of WTO Members,
in initiating a reform process to deal with the distortions in the world
agricultural markets, is “to provide for substantial progressive
reductions in agricultural support and protection”. Pursuant to this
objective, the fourth paragraph of the Preamble expresses the commitment
of the WTO Members “to achieving binding commitments” in the three
specified areas, including “export competition”. An interpretation
that export subsidy commitments must be expressed in a Member’s
Schedule in terms of both budgetary outlay and quantity commitment
levels is more in harmony with the objectives stated in the Preamble to
the Agreement than an interpretation that a Member is only obliged to
fulfil “whatever commitments” it chooses to specify in its Schedule.
A.1.5A.3 EC — Export Subsidies on Sugar,
para. 197
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
We are also of the view that
if an export subsidy commitment were allowed to be specified in only one
form, budgetary outlay or quantity, as a Member may choose, and its
conformity were measured on the basis of that one commitment alone, it
would undermine the export subsidy disciplines of the Agreement on
Agriculture. As we noted above, the drafters recognized the need to
deal with budgetary outlays and quantities together in order to restrain
subsidized exports. A commitment on budgetary outlay alone provides
little predictability on export quantities, while a commitment on
quantity alone could lead to subsidized exports taking place that would
otherwise have not taken place but for the budgetary support. This is
especially so given that the Agreement on Agriculture has
initiated a reform process in an environment of high levels of export
subsidies taking the form of budgetary outlays and quantities. …
A.1.5A.4 EC — Export Subsidies on Sugar,
para. 200
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we agree with the Panel
that Article 3.3 requires a Member to schedule both budgetary outlay and
quantity commitment levels in respect of export subsidies listed in
Article 9.1 of the Agreement on Agriculture. …
A.1.6 Articles 3.3 and 10.1 — “export
subsidy commitments” back to top
A.1.6.1 US — FSC, para. 145
(WT/DS108/AB/R)
Under Article 3, Members have
undertaken two different types of “export subsidy commitments”.
Under the first clause of Article 3.3, Members have made a commitment
that they will not “provide export subsidies listed in paragraph 1 of
Article 9 in respect of the agricultural products or groups of products
specified in Section II of Part IV of its Schedule in excess of the
budgetary outlay and quantity commitments levels specified therein”.
…
A.1.6.2 US — FSC, paras. 146-147
(WT/DS108/AB/R)
Under the second clause of
Article 3.3, Members have committed not to provide any
export subsidies, listed in Article 9.1, with respect to unscheduled
agricultural products. This clause clearly also involves “export
subsidy commitments” within the meaning of Article 10.1. …
… The term “export subsidy
commitments” has a wider reach that covers commitments and obligations
relating to both scheduled and unscheduled agricultural products.
A.1.6.3 EC — Export Subsidies on Sugar,
para. 211
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we examine whether the
claimed commitment in Footnote 1 “limiting” subsidization of exports
of sugar can prevail over the provisions of the Agreement on
Agriculture, despite such a commitment being inconsistent with
Articles 3.3 and 9.1 of the Agreement on Agriculture. …
A.1.6.4 EC — Export Subsidies on Sugar,
para. 222
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… Footnote 1, being part of
the European Communities’ Schedule, is an integral part of the GATT
1994 by virtue of Article 3.1 of the Agreement on Agriculture.
Therefore, pursuant to Article 21 of the Agreement on Agriculture,
the provisions of the Agreement on Agriculture prevail over
Footnote 1. …
A.1.7 Article 4 — “market access”
back to top
A.1.7.1 Chile — Price Band System, para. 200
(WT/DS207/AB/R)
… we turn now to Article 4,
which is the main provision of Part III of the Agreement on
Agriculture. As its title indicates, Article 4 deals with “Market
Access”. During the course of the Uruguay Round, negotiators
identified certain border measures which have in common that they
restrict the volume or distort the price of imports of agricultural
products. The negotiators decided that these border measures should be
converted into ordinary customs duties, with a view to ensuring enhanced
market access for such imports. Thus, they envisioned that ordinary
customs duties would, in principle, become the only form of border
protection. As ordinary customs duties are more transparent and more
easily quantifiable than non-tariff barriers, they are also more easily
compared between trading partners, and thus the maximum amount of such
duties can be more easily reduced in future multilateral trade
negotiations. The Uruguay Round negotiators agreed that market access
would be improved — both in the short term and in the long term — through bindings and reductions of tariffs and minimum access
requirements, which were to be recorded in Members’ Schedules.
A.1.8 Article 4.1 — Market access commitments
contained in Schedules. See also Tariff Quotas — Non-discriminatory Administration (T.2) back to top
A.1.8.1 EC — Bananas III, para. 156
(WT/DS27/AB/R)
Article 4.1 of the Agreement
on Agriculture provides as follows:
Market access concessions contained in
Schedules relate to bindings and reductions of tariffs, and to other
market access commitments as specified therein.
In our view, Article 4.1 does
more than merely indicate where market access concessions and
commitments for agricultural products are to be found. Article 4.1
acknowledges that significant, new market access concessions, in the
form of new bindings and reductions of tariffs as well as other market
access commitments (i.e. those made as a result of the tariffication
process), were made as a result of the Uruguay Round negotiations on
agriculture and included in Members’ GATT 1994 Schedules. These
concessions are fundamental to the agricultural reform process that is a
fundamental objective of the Agreement on Agriculture.
A.1.8.2 EC — Bananas III, para. 157
(WT/DS27/AB/R)
… we do not see anything in
Article 4.1 to suggest that market access concessions and commitments
made as a result of the Uruguay Round negotiations on agriculture can be
inconsistent with the provisions of Article XIII of the GATT 1994. There
is nothing in Articles 4.1 or 4.2, or in any other Article of the Agreement
on Agriculture, that deals specifically with the allocation of
tariff quotas on agricultural products. …
A.1.8.3 US — Upland Cotton, para. 548
(WT/DS267/AB/R)
Our approach in this case is
consistent with the Appellate Body’s approach in EC — Bananas III.
In that case, the European Communities relied on Article 4.1 of the Agreement
on Agriculture in arguing that the market access concessions it made
for agricultural products pursuant to the Agreement on Agriculture
prevailed over Article XIII of the GATT 1994. The Appellate Body,
however, found that “[t]here is nothing in Articles 4.1 or 4.2, or in
any other Article of the Agreement on Agriculture, that deals
specifically with the allocation of tariff quotas on agricultural
products”. It further explained that “[i]f the negotiators had
intended to permit Members to act inconsistently with Article XIII of
the GATT 1994, they would have said so explicitly”. The situation
before us is similar. We have found nothing in Article 6.3, paragraph 7
of Annex 3 or anywhere else in the Agreement on Agriculture that
“deals specifically” with subsidies that are contingent on the use
of domestic over imported agricultural products.
A.1.9 Article 4.2 and Footnote 1 — Conversion
of certain border measures into ordinary customs duties
back to top
A.1.9.1 Chile — Price Band System, paras. 206-207
(WT/DS207/AB/R)
… Article 4.2 of the Agreement
on Agriculture should be interpreted in a way that gives meaning to
the use of the present perfect tense in that provision — particularly in
the light of the fact that most of the other obligations in the Agreement
on Agriculture and in the other covered agreements are expressed in
the present, and not in the present perfect, tense. In general,
requirements expressed in the present perfect tense impose obligations
that came into being in the past, but may continue to apply at present.
As used in Article 4.2, this temporal connotation relates to the date by
which Members had to convert measures covered by Article 4.2 into
ordinary customs duties, as well as to the date from which
Members had to refrain from maintaining, reverting to, or resorting to,
measures prohibited by Article 4.2. The conversion into ordinary customs
duties of measures within the meaning of Article 4.2 began during
the Uruguay Round multilateral trade negotiations, because ordinary
customs duties that were to “compensate” for and replace converted
border measures were to be recorded in Members’ draft WTO Schedules by
the conclusion of those negotiations. These draft Schedules, in
turn, had to be verified before the signing of the WTO Agreement
on 15 April 1994. Thereafter, there was no longer an option to replace
measures covered by Article 4.2 with ordinary customs duties in excess
of the levels of previously bound tariff rates. Moreover, as of the date
of entry into force of the WTO Agreement on 1 January
1995, Members are required not to “maintain, revert to, or resort to”
measures covered by Article 4.2 of the Agreement on Agriculture.
If Article 4.2 were to read
“any measures of the kind which are required to be converted”,
this would imply that if a Member — for whatever reason — had failed, by
the end of the Uruguay Round negotiations, to convert a measure within
the meaning of Article 4.2, it could, even today, replace
that measure with ordinary customs duties in excess of bound tariff
rates. But, as Chile and Argentina have agreed, this is clearly not so.
It seems to us that Article 4.2 was drafted in the present perfect tense
to ensure that measures that were required to be converted as a result
of the Uruguay Round — but were not converted — could not be maintained,
by virtue of that Article , from the date of the entry into force of the WTO Agreement on 1 January 1995.
A.1.10 Article 4.2 and Footnote 1 — Measures
of the kind back to top
A.1.10.1 Chile — Price Band System, para. 208
(WT/DS207/AB/R)
Thus, contrary to what Chile
argues, giving meaning and effect to the use of the present perfect
tense in the phrase “have been required” does not suggest that the
scope of the phrase “any measures of the kind which have been required
to be converted into ordinary customs duties” must be limited only to
those measures which were actually converted, or were requested
to be converted, into ordinary customs duties by the end of the Uruguay
Round. Indeed, in our view, such an interpretation would fail to give
meaning and effect to the word “any” and the phrase “of
the kind”, which are descriptive of the word “measures” in
that provision. A plain reading of these words suggests that the
drafters intended to cover a broad category of measures. We do not see
how proper meaning and effect could be accorded to the word “any”
and the phrase “of the kind” in Article 4.2 if that provision were
read to include only those specific measures that were singled out to be
converted into ordinary customs duties by negotiating partners in the
course of the Uruguay Round.
A.1.10.2 Chile — Price Band System, para. 209
(WT/DS207/AB/R)
The wording of footnote 1 to
the Agreement on Agriculture confirms our interpretation. … the
use of the word “include” in the footnote indicates that the list of
measures is illustrative, not exhaustive. And, clearly, the existence of
footnote 1 suggests that there will be “measures of the kind which
have been required to be converted” that were not specifically
identified during the Uruguay Round negotiations. …
A.1.10.3 Chile — Price Band System, para. 216
(WT/DS207/AB/R)
Article 4.2 speaks of “measures
of the kind which have been required to be converted into
ordinary customs duties”. The word “convert” means “undergo
transformation”. The word “converted” connotes “changed in their
nature”, “turned into something different”. Thus, “measures
which have been required to be converted into ordinary customs duties”
had to be transformed into something they were not — namely, ordinary
customs duties. The following example illustrates this point. The
application of a “variable import levy”, or a “minimum import
price”, as the terms are used in footnote 1, can result in the levying
of a specific duty equal to the difference between a reference price and
a target price, or minimum price. These resulting levies or specific
duties take the same form as ordinary customs duties. However,
the mere fact that a duty imposed on an import at the border is in the
same form as an ordinary customs duty, does not mean that it is not
a “variable import levy” or a “minimum import price”. Clearly,
as measures listed in footnote 1, “variable import levies” and “minimum
import prices” had to be converted into ordinary customs duties
by the end of the Uruguay Round. The mere fact that such measures result
in the payment of duties does not exonerate a Member from the
requirement not to maintain, resort to, or revert to those measures.
A.1.10.4 Chile — Price Band System, para. 278
(WT/DS207/AB/R)
… we disagree with the Panel’s
definition of “ordinary customs duties” and, therefore, we reverse
the Panel’s finding, in paragraph 7.52 of the Panel Report, that the
term “ordinary customs duty”, as used in Article 4.2 of the Agreement
on Agriculture, is to be understood as “referring to a customs
duty which is not applied to factors of an exogenous nature”.
A.1.11 Article 4.2 and Footnote 1 — Minimum
import price back to top
A.1.11.1 Chile — Price Band System, paras. 236-237
(WT/DS207/AB/R)
The term “minimum import
price” refers generally to the lowest price at which imports of a
certain product may enter a Member’s domestic market. Here, too, no
definition has been provided by the drafters of the Agreement on
Agriculture. However, the Panel described “minimum import prices”
as follows:
[these] schemes generally operate in relation
to the actual transaction value of the imports. If the price of an
individual consignment is below a specified minimum import price, an
additional charge is imposed corresponding to the difference.
The Panel also said that
minimum import prices “are generally not dissimilar from variable
import levies in many respects, including in terms of their protective
and stabilization effects, but that their mode of operation is generally
less complicated.” The main difference between minimum import prices
and variable import levies is, according to the Panel, that “variable
import levies are generally based on the difference between the governmentally
determined threshold and the lowest world market offer price for the
product concerned, while minimum import price schemes generally operate
in relation to the actual transaction value of the imports.”
(emphasis added)
A.1.12 Article 4.2 and Footnote 1 — Similar
border measures back to top
A.1.12.1 Chile — Price Band System, para. 226
(WT/DS207/AB/R)
We agree with the first part
of the Panel’s definition of the term “similar” as “having a
resemblance or likeness”, “of the same nature or kind”, and “having
characteristics in common”. … The better and appropriate approach is
to determine similarity by asking the question whether two or more
things have likeness or resemblance sufficient to be similar to each
other. In our view, the task of determining whether something is similar
to something else must be approached on an empirical basis.
A.1.13 Article 4.2 and Footnote 1
— Variable
import levies back to top
A.1.13.1 Chile — Price Band System, para. 233
(WT/DS207/AB/R)
To determine what kind
of variability makes an import levy a “variable import levy”, we
turn to the immediate context of the other words in footnote 1. The term
“variable import levies” appears after the introductory phrase “[t]hese
measures include”. Article 4.2 — to which the footnote is
attached — also speaks of “measures”. This suggests that at
least one feature of “variable import levies” is the fact that the measure
itself — as a mechanism — must impose the variability of the
duties. Variability is inherent in a measure if the measure incorporates
a scheme or formula that causes and ensures that levies change
automatically and continuously. Ordinary customs duties, by contrast,
are subject to discrete changes in applied tariff rates that occur
independently, and unrelated to such an underlying scheme or formula.
The level at which ordinary customs duties are applied can be varied
by a legislature, but such duties will not be automatically and
continuously variable. To vary the applied rate of duty in the
case of ordinary customs duties will always require separate
legislative or administrative action, whereas the ordinary meaning of
the term “variable” implies that no such action is required.
A.1.13.2 Chile — Price Band System, para. 234
(WT/DS207/AB/R)
However, in our view, the
presence of a formula causing automatic and continuous variability of
duties is a necessary, but by no means a sufficient,
condition for a particular measure to be a “variable import levy”
within the meaning of footnote 1. “Variable import levies” have
additional features that undermine the object and purpose of Article 4,
which is to achieve improved market access conditions for imports of
agricultural products by permitting only the application of ordinary
customs duties. These additional features include a lack of transparency
and a lack of predictability in the level of duties that will result
from such measures. This lack of transparency and this lack of
predictability are liable to restrict the volume of imports. As
Argentina points out, an exporter is less likely to ship to a market if
that exporter does not know and cannot reasonably predict what the
amount of duties will be. …
A.1.13.3 Chile — Price Band System, para. 254
(WT/DS207/AB/R)
… we find nothing in Article 4.2 to suggest that a measure prohibited by that provision would be
rendered consistent with it if applied with a cap. Before the conclusion
of the Uruguay Round, a measure could be recognized as a “variable
import levy” even if the products to which the measure applied were
subject to tariff bindings. And, there is nothing in the text of Article 4.2 to indicate that a measure, which was recognized as a “variable
import levy” before the Uruguay Round, is exempt from the requirements
of Article 4.2 simply because tariffs on some, or all, of the products
to which that measure now applies were bound as a result of the
Uruguay Round.
A.1.14 Article 5 — special safeguard
back to top
A.1.14.1 EC — Poultry, para. 153
(WT/DS69/AB/R)
… we interpret the “price
at which the product concerned may enter the customs territory of the
Member granting the concession, as determined on the basis of the c.i.f.
import price” in Article 5.1(b) as the c.i.f. import price not
including ordinary customs duties. …
A.1.14.2 EC — Poultry, para. 168
(WT/DS69/AB/R)
… neither the text nor the
context of Article 5.5 of the Agreement on Agriculture permits us
to conclude that the additional duties imposed under the special
safeguard mechanism in Article 5 of the Agreement on Agriculture
may be established by any method other than a comparison of the c.i.f.
price of the shipment with the trigger price.
A.1.14.3 Chile — Price Band System, para. 217
(WT/DS207/AB/R)
Article 5, also found in Part
III of the Agreement on Agriculture on “Market Access”, lends
contextual support to our interpretation of Article 4.2. In our view,
the existence of a market access exemption in the form of a special
safeguard provision under Article 5 implies that Article 4.2 should not
be interpreted in a way that permits Members to maintain measures that a
Member would not be permitted to maintain but for Article 5, and,
much less, measures that are even more trade-distorting than special
safeguards. In particular, if Article 4.2 were interpreted in a way that
allowed Members to maintain measures that operate in a way similar to a
special safeguard within the meaning of Article 5 — but without
respecting the conditions set out in that provision for invoking such
measures — it would be difficult to see how proper meaning and effect
could be given to those conditions set forth in Article 5.
A.1.14A Article 6.3 — domestic support
commitments back to top
A.1.14A.1 US — Upland Cotton, para. 544
(WT/DS267/AB/R)
… Article 6.3 deals with
domestic support. It establishes only a quantitative limitation
on the amount of domestic support that a WTO Member can provide in a
given year. The quantitative limitation in Article 6.3 applies generally
to all domestic support measures that are included in a WTO Member’s
AMS. …
A.1.14A.2 US — Upland Cotton, para. 545
(WT/DS267/AB/R)
Article 6.3 does not authorize
subsidies that are contingent on the use of domestic over imported
goods. It only provides that a WTO Member shall be considered to be in
compliance with its domestic support reduction commitments if its
Current Total AMS does not exceed that Member’s annual or final bound
commitment level specified in its Schedule. It does not say that
compliance with Article 6.3 of the Agreement on Agriculture
insulates the subsidy from the prohibition in Article 3.1(b). …
A.1.14A.3 US — Upland Cotton, para. 546
(WT/DS267/AB/R)
… we find that paragraph 7
of Annex 3 and Article 6.3 of the Agreement on Agriculture do not
deal specifically with the same matter as Article 3.1(b) of the SCM
Agreement, that is, subsidies contingent upon the use of domestic
over imported goods.
A.1.14B Article 8 — “export competition
commitments” back to top
A.1.14B.1 EC — Export Subsidies on Sugar,
para. 216
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
It is clear from the plain
wording of Article 8 that Members are prohibited from providing export
subsidies otherwise than in conformity with the Agreement on
Agriculture and the commitments as specified in their Schedules.
Thus, compliance with both is obligatory. As compliance with the
provisions of the Agreement on Agriculture is obligatory, it is
clear that the commitments specified in a Member’s Schedule must be in
conformity with the provisions of the Agreement. …
A.1.14B.2 EC — Export Subsidies on Sugar,
para. 220
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we find no provision under
the Agreement on Agriculture that authorizes Members to depart,
in their Schedules, from their obligations under that Agreement. Indeed,
as we have noted, Article 8 requires that, in providing export
subsidies, Members must comply with the provisions of both the Agreement
on Agriculture and the export subsidy commitments specified in their
Schedules. This is possible only if the commitments in the Schedules are
in conformity with the provisions of the Agreement on Agriculture.
Thus, we see no basis for the European Communities’ assertion that it
could depart from the obligations under the Agreement on Agriculture
through the claimed commitment provided in Footnote 1.
A.1.14C Article 9.1 — “export subsidies”
back to top
A.1.14C.1 EC — Export Subsidies on Sugar,
para. 269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
Article 9.1 — Relationship with Article 10.1. See Agreement on Agriculture, Article 10.1 — Relationship with Article 9.1 (A.1.33) back to top
A.1.14D Article 9.1 — “subject to reduction
commitments” back to top
A.1.14D.1 EC — Export Subsidies on Sugar,
para. 206
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
says that the subsidies listed in that Article “are subject to
reduction commitments under this Agreement”. The export subsidies
given to ACP/India equivalent sugar, which admittedly fall within the
ambit of Article 9.1(a), are therefore subject to reduction commitments.
Furthermore, as noted by the Panel, the provisions of Article 9.2(b)(iv)
apply to Members that take advantage of the flexibility provisions of
Article 9.2(b). Article 9.2(b)(iv) specifies the reduction levels to be
achieved at the conclusion of the implementation period with respect to
both budgetary outlays and quantities. The provisions of Article 9.2(b)(iv) lend contextual support to the view that export subsidies
listed in Article 9.1 are subject to reduction commitments. We further
note that Article 9.2(a)(i) and (ii) also make it clear that both
budgetary outlay and quantity commitments specified in a Member’s
Schedule for each year of the implementation period are “reduction”
commitments. It follows that the export subsidies provided to ACP/India
equivalent sugar are subject to reduction commitments in terms of
Article 9.1 of the Agreement on Agriculture.
A.1.15 Article 9.1(a) — “direct subsidies,
including payments-in-kind” back to top
A.1.15.1 Canada — Dairy, para. 87
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
In our view, the term “payments-in-kind”
describes one of the forms in which “direct subsidies” may be
granted. Thus, Article 9.1(a) applies to “direct subsidies”, including
“direct subsidies” granted in the form of “payments-in-kind”. We
believe that, in its ordinary meaning, the word “payments”, in the
term “payments-in-kind”, denotes a transfer of economic resources,
in a form other than money, from the grantor of the payment to the
recipient. However, the fact that a “payment-in-kind” has been made
provides no indication as to the economic value of the transfer
effected, either from the perspective of the grantor of the payment or
from that of the recipient. A “payment-in-kind” may be made in
exchange for full or partial consideration or it may be made
gratuitously. Correspondingly, a “subsidy” involves a transfer of
economic resources from the grantor to the recipient for less than full
consideration. As we said in our Report in Canada — Aircraft, a
“subsidy”, within the meaning of Article 1.1 of the SCM Agreement,
arises where the grantor makes a “financial contribution” which
confers a “benefit” on the recipient, as compared with what would
have been otherwise available to the recipient in the marketplace. Where
the recipient gives full consideration in return for a “payment-in-kind”
there can be no “subsidy”, for the recipient is paying market-rates
for what it receives. It follows, in our view, that the mere fact that a
“payment-in-kind” has been made does not, by itself, imply
that a “subsidy”, “direct” or otherwise, has been granted.
A.1.16 Article 9.1(a) — “governments or
their agencies” back to top
A.1.16.1 Canada — Dairy, para. 97
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
… According to Black’s
Law Dictionary, “government” means, inter alia, “[t]he regulation,
restraint, supervision, or control which is
exercised upon the individual members of an organized jural society by
those invested with authority”. (emphasis added) This is similar
to meanings given in other dictionaries. The essence of “government”
is, therefore, that it enjoys the effective power to “regulate”, “control”
or “supervise” individuals, or otherwise “restrain” their
conduct, through the exercise of lawful authority. This meaning is
derived, in part, from the functions performed by a government
and, in part, from the government having the powers and authority
to perform those functions. A “government agency” is, in our view,
an entity which exercises powers vested in it by a “government” for
the purpose of performing functions of a “governmental” character,
that is, to “regulate”, “restrain”, “supervise” or “control”
the conduct of private citizens. As with any agency relationship, a “government
agency” may enjoy a degree of discretion in the exercise of its
functions.
A.1.16A Article 9.1(a) — “contingent on
export performance” back to top
A.1.16A.1 US — Upland Cotton, para. 582
(WT/DS267/AB/R)
In sum, we agree with the
Panel’s view that Step 2 payments are export-contingent and,
therefore, an export subsidy for purposes of Article 9 of the Agreement
on Agriculture and Article 3.1(a) of the SCM Agreement. The
statute and regulations pursuant to which Step 2 payments are granted,
on their face, condition payments to exporters on exportation. In order
to claim payment, an exporter must show proof of exportation. If an
exporter does not provide proof of exportation, the exporter will not
receive a payment. This is sufficient to establish that Step 2 payments
to exporters of United States upland cotton are “conditional upon
export performance” or “dependent for their existence on export
performance”. That domestic users may also be eligible to receive
payments under different conditions does not eliminate the fact that an
exporter will receive payment only upon proof of exportation.
A.1.17 Article 9.1(c) — “payments”
back to top
A.1.17.1 Canada — Dairy, para. 107
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
We have found that the word
“payments”, in the term “payments-in-kind” in Article 9.1(a),
denotes a transfer of economic resources. We believe that the same holds
true for the word “payments” in Article 9.1(c). The question which
we now address is whether, under Article 9.1(c), the economic resources
that are transferred by way of a “payment” must be in the form of
money, or whether the resources transferred may take other forms. As the
Panel observed, the dictionary meaning of the word “payment” is not
limited to payments made in monetary form. In support of this, the Panel
cited the Oxford English Dictionary, which defines “payment”
as “the remuneration of a person with money or its equivalent”.
(emphasis added) Similarly, the Shorter Oxford English Dictionary
describes a “payment” as a “sum of money (or other thing)
paid”. (emphasis added) Thus, according to these meanings, a “payment”
could be made in a form, other than money, that confers value, such as
by way of goods or services. A “payment” which does not take the
form of money is commonly referred to as a “payment in kind”.
A.1.17.2 Canada — Dairy, para. 108
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
We agree with the Panel that
the ordinary meaning of the word “payments” in Article 9.1(c) is
consistent with the dictionary meaning of the word. Under Article 9.1(c), “payments” are “financed by virtue of governmental action”
and they may or may not involve “a charge on the public account”.
Neither the word “financed” nor the term “a charge” suggests
that the word “payments” should be interpreted to apply solely to
money payments. A payment made in the form of goods or services is also
“financed” in the same way as a money payment, and, likewise, “a
charge on the public account” may arise as a result of a payment, or a
legally binding commitment to make payment by way of goods or services,
or as a result of revenue foregone.
A.1.17.3 EC — Export Subsidies on Sugar,
paras. 262-265
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Article 9.1(c) does not
qualify the term “payments” by reference to the entity making, or
the entity receiving the payment. This may be contrasted with, for
instance, Articles 9.1(a) and 9.1(b) of the Agreement on Agriculture,
which specifically refer to the entities making and also, in the case of
Article 9.1(a), to the entity receiving the alleged export subsidy.
Moreover, Article 9.1(c), on its face, does not qualify the meaning of
the term “payments”, other than by requiring that the alleged “payments”
be “on the export of an agricultural product” and “financed by
virtue of governmental action”.
As we noted above, the
European Communities submits, first, that a “payment” within the
meaning of Article 9.1(c) requires, by definition, the presence of two
distinct legal entities. We agree with the European Communities that a
“payment”, within the meaning of Article 9.1(c), certainly occurs
when one entity transfers economic resources to another entity. …
This, however, does not imply
that the term “payment” necessarily requires, in each and every
case, the presence of two distinct entities. In other words, contrary to
the European Communities’ argument, we do not see, a priori,
any reason why “payments”, within the meaning of Article 9.1(c),
cannot include, in the particular circumstances of this dispute,
transfers of resources within one economic entity. The “payment” in
this case is not merely a “purely notional” one but, rather,
reflects a very concrete transfer of economic resources to C sugar
production. In the specific dispute before us, C sugar is being sold on
the world market by European Communities’ sugar producers/exporters at
a price that does not “even remotely” cover its average total cost
of production. In the light of the enormous difference between the price
of C sugar and its average total cost of production, we do not see how
the “payment” identified by the Panel was “purely notional”.
The European Communities’
approach is, in our view, too formalistic. To illustrate, one could
envisage a scenario under which the producers of C sugar are legally
distinct from the producers of A and B sugar. In this situation, the
European Communities’ approach could recognize that a “payment”
under Article 9.1(c) could exist because there would be a transfer of
economic resources between different parties. If, however, these same
producers of A, B, and C sugar were integrated producers and organized
as single legal entities, a payment under Article 9.1(c) would not
exist, because the transfer would be merely “internal”. We do not
believe that the applicability of Article 9.1(c) should depend on how an
economic entity is legally organized.
A.1.17.4 EC — Export Subsidies on Sugar,
paras. 268-269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… The European Communities
argues that, because the alleged “cross-subsidization” involves no
“transfer of resources” to the sugar producers, it confers no benefit
upon these producers and, therefore, cannot be considered to provide a
subsidy. The European Communities disagrees with the Panel’s finding
that Article 9.1(c) does not require the demonstration of a benefit for
a measure to constitute a “payment” within the meaning of that
provision.
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
A.1.18 Article 9.1(c) — Benchmark for
payments-in-kind back to top
A.1.18.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 73
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Although we did not have to
examine whether the benchmarks used by the panel in the original
proceedings were appropriate, our findings in those proceedings provide
guidance in identifying when “payments” are made under Article 9.1(c). We recall that we upheld the original panel’s finding that “the
provision of discounted milk to processors or exporters under
Special Classes 5(d) and 5(e) involves ‘payments’ within the meaning
of Article 9.1(c) of the Agreement on Agriculture.” (emphasis
added) In reaching this conclusion, we noted that, where milk is sold at
“reduced rates (that is, at below market-rates), ‘payments’
are, in effect, made to the recipient of the portion of the price that
is not charged.” (emphasis added) We noted that the producer of the
milk “foregoes” the uncharged portion of the price. In short, we
indicated that there are “payments” under Article 9.1(c) when the
price charged by the producer of the milk is less than the milk’s proper
value to the producer.
A.1.18.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 74
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Thus, the determination of
whether “payments” are involved requires a comparison between the
price actually charged by the provider of the goods or services — the
prices of CEM in this case — and some objective standard or benchmark
which reflects the proper value of the goods or services to their
provider — the milk producer in this case. We do not accept Canada’s
argument that as the producer negotiates freely the price with the
processor, and CEM prices are, therefore, market-determined, it is not
necessary to compare these prices with an objective standard.
A.1.18.3 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 75
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Article 9.1(c) of the Agreement
on Agriculture does not expressly identify any standard for
determining when a measure involves “payments” in the form of
payments-in-kind. The absence of an express standard in Article 9.1(c)
may be contrasted with several other provisions involving export
subsidies which do provide an express standard. Thus, for instance, even
within Article 9.1 itself, sub-paragraphs (b) and (e) expressly provide
that the domestic market constitutes the appropriate basis for
comparison.
A.1.18.4 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 76
(WT/DS103/AB/RW, WT/DS113/AB/RW)
We believe that it is
significant that Article 9.1(c) of the Agreement on Agriculture
does not expressly identify a standard or benchmark for determining
whether a measure involves “payments”. It is clear that the notion
of “payments” encompasses a diverse range of practices involving a
transfer of resources, either monetary or in-kind. Moreover, the “payments”
may take place in many different factual and regulatory settings.
Accordingly, we believe that it is necessary to scrutinize carefully the
facts and circumstances of a disputed measure, including the regulatory
framework surrounding that measure, to determine the appropriate basis
for comparison in assessing whether the measure involves “payments”
under Article 9.1(c).
A.1.18.5 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 81
(WT/DS103/AB/RW, WT/DS113/AB/RW)
… There can be little doubt,
however, that the administered price is a price that is favourable to
the domestic producers. Consequently, sale of CEM by the producer at
less than the administered domestic price does not, necessarily, imply
that the producer has foregone a portion of the proper value of the milk
to it. In the situation where the producer, rather than the government,
chooses to produce and sell CEM in the marketplace at a price it freely
negotiates, we do not believe it is appropriate to use, as a basis for
comparison, a domestic price that is fixed by the government.
A.1.19 Article 9.1(c) — Benchmark — world
market prices vs. domestic prices back to top
A.1.19.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 83
(WT/DS103/AB/RW, WT/DS113/AB/RW)
… If a producer wishes to
sell milk for export processing, it is obvious that the price of the
milk to the processor must be competitive with world market prices. If
it is not, the processor will not buy the milk, as it will not be able
to produce a final product that is competitive in export markets.
Accordingly, the range of world market prices determines the price which
the producer can charge for milk destined for export markets. World
market prices do, therefore, provide one possible measure of the value
of the milk to the producer.
A.1.19.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 84
(WT/DS103/AB/RW, WT/DS113/AB/RW)
However, world market prices
do not provide a valid basis for determining whether there are “payments”,
under Article 9.1(c) of the Agreement on Agriculture, for, it
remains possible that the reason CEM can be sold at prices competitive
with world market prices is precisely because sales of CEM involve
subsidies that make it competitive. Thus, a comparison between CEM
prices and world market prices gives no indication on the crucial
question, namely, whether Canadian export production has been given an
advantage. Furthermore, if the basis for comparison were world market
prices, it would be possible for WTO Members to subsidize domestic
inputs for export processing, while taking care to maintain the price of
these inputs to the processors at a level which equalled or marginally
exceeded world market prices. …
A.1.20 Article 9.1(c) — Benchmark — cost of
production back to top
A.1.20.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 87
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Although the proceeds from
sales at domestic or world market prices represent two possible measures
of the value of milk to the producer, we do not see these as the only
possible measures of this value. For any economic operator, the
production of goods or services involves an investment of economic
resources. In the case of a milk producer, production requires an
investment in fixed assets, such as land, cattle and milking facilities,
and an outlay to meet variable costs, such as labour, animal feed and
health-care, power and administration. These fixed and variable costs
are the total amount which the producer must spend in order to produce
the milk and the total amount it must recoup, in the long-term, to avoid
making losses. To the extent that the producer charges prices that do
not recoup the total cost of production, over time, it sustains a loss
which must be financed from some other source, possibly “by virtue of
governmental action”.
A.1.20.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 88
(WT/DS103/AB/RW, WT/DS113/AB/RW)
In our view, reliance upon the
total cost of production, in this dispute, as a basis for determining
whether there are “payments” within the meaning of Article 9.1(c),
is in harmony with the domestic support and export subsidies disciplines
of the Agreement on Agriculture. Under Article 3 of the Agreement
on Agriculture, WTO Members are entitled to provide “domestic
support” to agricultural producers within the limits of their
domestic support commitments. The same Article establishes separate
disciplines on export subsidies which prohibit WTO Members from
providing such subsidies in excess of their export subsidy commitments.
A.1.20.3 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 89
(WT/DS103/AB/RW, WT/DS113/AB/RW)
It is possible that the
economic effects of WTO-consistent domestic support in favour of
producers may “spill over” to provide certain benefits to export
production, especially as many agricultural products result from a
single line of production that does not distinguish whether the
production is destined for consumption in the domestic or export market.
A.1.20.4 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 90
(WT/DS103/AB/RW, WT/DS113/AB/RW)
We believe that it would erode
the distinction between the domestic support and export subsidies
disciplines of the Agreement on Agriculture if WTO-consistent
domestic support measures were automatically characterized as export
subsidies because they produced spill-over economic benefits for export
production. Indeed, this is another reason why we do not agree with the
Panel that sales of CEM at any price below the administered domestic
price for milk can be regarded as “payments” under Article 9.1(c) of
the Agreement on Agriculture. Such a basis for comparison would
tend to collapse the distinction between these two different
disciplines.
A.1.20.5 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 91
(WT/DS103/AB/RW, WT/DS113/AB/RW)
However, we consider that the
distinction between the domestic support and export subsidies
disciplines in the Agreement on Agriculture would also be eroded
if a WTO Member were entitled to use domestic support, without limit, to
provide support for exports of agricultural products. Broadly stated,
domestic support provisions of that Agreement, coupled with high levels
of tariff protection, allow extensive support to producers, as compared
with the limitations imposed through the export subsidies disciplines.
Consequently, if domestic support could be used, without limit, to
provide support for exports, it would undermine the benefits intended to
accrue through a WTO Member’s export subsidy commitments.
A.1.20.6 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 92
(WT/DS103/AB/RW, WT/DS113/AB/RW)
In our view, by relying upon
the total cost of production in this dispute, to determine whether there
are “payments”, the integrity of the two disciplines is best
respected. The existence of “payments” is determined by reference to
a standard that focuses upon the motivations of the independent economic
operator who is making the alleged “payments” — here the producer
— and not upon any government intervention in the marketplace. More
importantly, using this basis for comparison, the potential for WTO
Members to export their agricultural production is preserved, provided
that any export-destined sales by a producer at below the total cost of
production are not financed by virtue of governmental action. The export
subsidy disciplines of the Agreement on Agriculture will also be
maintained without erosion.
A.1.20.7 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 93
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Our approach is supported by
the standards used in items (j) and (k) of the Illustrative List of the SCM Agreement. Item (j) is concerned with export subsidies that arise
through the provision by the government of a variety of export credit
guarantee and insurance programmes. Under item (j), the provision of
such services by the government involves export subsidies when the
premium rates charged do not “cover the long-term operating costs
and losses of the programmes”. (emphasis added) Thus, the measure
of value under item (j) is the overall cost to the government, as the
service provider, of providing the service. Likewise, in item (k), where
the government provides export credits, the measure of the value of the
service provided by the government is the amount “which [governments]
actually have to pay for the funds so employed (or would have to pay if
they borrowed on international capital markets …)”. Again, the
measure of value is by reference to the cost to the government, as the
service provider, of providing the service. Therefore, items (j) and (k)
give contextual support and rationale, for using the cost of
production as a standard for determining whether there are “payments”
under Article 9.1(c) of the Agreement on Agriculture in these
proceedings.
A.1.20.8 Canada — Dairy (Article 21.5
— New
Zealand and US), paras. 94-95
(WT/DS103/AB/RW, WT/DS113/AB/RW)
A producer’s cost of
production may be measured in, at least, two ways. First, for any given
unit of production, for instance a hectolitre of milk, there is an
average total cost of production, which is the total cost of production
divided by the total number of units produced, regardless of whether the
production is destined for the domestic or export markets. The total
cost of production includes all fixed and variable costs incurred
in the production of all the units in question. Second, there is also
the marginal cost of production which includes only the additional costs
incurred by the producer in producing an extra unit of production.
Generally, the marginal cost of production does not include any amount
for the fixed costs of production. Although a producer may very well
decide to sell goods or services if the sales price covers its marginal
costs, the producer will make losses on such sales unless all of the
remaining costs associated with making these sales, essentially the
fixed costs, are financed through some other source, such as through
highly profitable sales of the product in another market.
In the ordinary course of
business, an economic operator chooses to invest, produce and sell, not
only to recover the total cost of production, but also in the hope of
making profits.
A.1.20.9 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 96
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Accordingly, in the
circumstances of these proceedings, where the alleged payment is made by
an independent economic operator and where the domestic price is
administered, we believe that the average total cost of production
represents the appropriate standard for determining whether sales of CEM
involve “payments” under Article 9.1(c) of the Agreement on
Agriculture. The average total cost of production would be
determined by dividing the fixed and variable costs of producing all
milk, whether dest | 
