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S.7A.1 Article XVII of the GATT 1994
— “principles of
non-discriminatory treatment” back to top
S.7A.1.1 Canada — Wheat Exports and Grain Imports, para. 85
(WT/DS276/AB/R)
Subparagraph (a) of Article XVII:1 contains a number of different
elements, including both an acknowledgement and an obligation. It
recognizes that Members may establish or maintain State enterprises or
grant exclusive or special privileges to private enterprises, but
requires that, if they do so, such enterprises must, when they
are involved in certain types of transactions (“purchases or sales
involving either imports or exports”), comply with a specific
requirement. That requirement is to act consistently with certain
principles contained in the GATT 1994 (“general principles of
non-discriminatory treatment … for governmental measures affecting
imports or exports by private traders”). Subparagraph (a) seeks to
ensure that a Member cannot, through the creation or maintenance of a
State enterprise or the grant of exclusive or special privileges to any
enterprise, engage in or facilitate conduct that would be condemned as
discriminatory under the GATT 1994 if such conduct were undertaken
directly by the Member itself. In other words, subparagraph (a) is an
“anti-circumvention” provision.
S.7A.1.2 Canada — Wheat Exports and Grain Imports, para. 87
(WT/DS276/AB/R)
This requirement, which lies at the core of subparagraph (a), is a
requirement that STEs not engage in certain types of discriminatory
conduct. When viewed in the abstract, the concept of discrimination may
encompass both the making of distinctions between similar situations, as
well as treating dissimilar situations in a formally identical manner.
The Appellate Body has previously dealt with the concept of
discrimination and the meaning of the term “non-discriminatory”, and
acknowledged that, at least insofar as the making of distinctions
between similar situations is concerned, the ordinary meaning of
discrimination can accommodate both drawing distinctions per se,
and drawing distinctions on an improper basis. Only a full and
proper interpretation of a provision containing a prohibition on
discrimination will reveal which type of differential treatment is
prohibited. In all cases, a claimant alleging discrimination will
need to establish that differential treatment has occurred in order to
succeed in its claim.
S.7A.1.3 Canada — Wheat Exports and Grain Imports, para. 98 and
footnote 104
(WT/DS276/AB/R)
As we have seen, through its reference to the “general principles
of nondiscriminatory treatment prescribed in this Agreement for
governmental measures affecting imports or exports by private traders”,
Article XVII:1 imposes an obligation on Members not to use STEs in order
to discriminate in ways that would be prohibited if undertaken directly
by Members. Yet even if Article XVII:1 itself did not exist, this would
not imply that STEs would be subject to no disciplines under the GATT
1994. For example, the express provisions of Article II:4 of the GATT
1994 and the Ad Note to Articles XI, XII, XIII, XIV and XVIII
constrain the behaviour of STEs. Other provisions of the GATT 1994,
notably Article VI, also apply to the activities of STEs.104 We need not
identify, for purposes of this appeal, all of the provisions of the GATT
1994 that may apply to STEs, nor consider how these disciplines interact
with and reinforce each other. We do, however, believe that these other
provisions reveal that, even in 1947, the negotiators of the GATT
created a number of complementary requirements to address the different
ways in which STEs could be used by a contracting party to seek to
circumvent its obligations under the GATT. The existence of these other
provisions of the GATT 1994 also supports the view that Article XVII was
never intended to be the sole source of the disciplines imposed on STEs
under that Agreement. This is also consistent with the view that Article
XVII:1 was intended to impose disciplines on one particular type of STE
behaviour, namely discriminatory behaviour, rather than to constitute a
comprehensive code of conduct for STEs. Moreover, as the Panel observed,
since the conclusion of the Uruguay Round, a number of additional
obligations, under different covered agreements, operate to further
constrain the behaviour of STEs.
S.7A.1.4 Canada — Wheat Exports and Grain Imports, para. 145
(WT/DS276/AB/R)
… The disciplines of Article XVII:1 are aimed at preventing certain
types of discriminatory behaviour. We see no basis for interpreting that
provision as imposing comprehensive competition-law-type obligations on
STEs, as the United States would have us do.
S.7A.2 Article XVII of the GATT 1994, Ad Note
— Differential
prices for commercial reasons back to top
S.7A.2.1 Canada — Wheat Exports and Grain Imports, para. 94
(WT/DS276/AB/R)
… This Ad Note is attached to Article XVII:1 as a whole,
rather than to either subparagraph (a) or subparagraph (b) alone. This
sentence of the Ad Note confirms that at least one type of
differential treatment — price differentiation — is consistent with
Article XVII:1 provided that the reasons for such differential
prices are commercial in nature, and gives an example of such commercial
reasons (“to meet conditions of supply and demand in export markets”).
Thus, this Note also contemplates that determining the consistency or
inconsistency of an STE’s conduct with Article XVII:1 will involve an
examination of both differential treatment and of commercial
considerations.
S.7A.3 Article XVII:1 of the GATT 1994
— Relationship between
subparagraphs (a) and (b) back to top
S.7A.3.1 Canada — Wheat Exports and Grain Imports, para. 89
(WT/DS276/AB/R)
… the question we are asked to consider is how subparagraph (a)
relates to subparagraph (b) of Article XVII:1. In our view, the answer
to that inquiry is not found in the text of subparagraph (a). Rather,
the words that bear most directly on the relationship between the first
two paragraphs of Article XVII:1 are found in the opening phrase of
subparagraph (b), which states that the “provisions of subparagraph (a)
of this paragraph shall be understood to require that such
enterprises shall … ” (emphasis added). This phrase makes it
abundantly clear that the remainder of subparagraph (b) is dependent
upon the content of subparagraph (a), and operates to clarify the scope
of the requirement not to discriminate in subparagraph (a). … Thus,
the opening phrase in subparagraph (b) of Article XVII:1 supports Canada’s
view that the principal source of the relevant obligation(s) in
Article XVII:1(a) and (b) is, indeed, found in “[t]he provisions of
subparagraph (a)”.
S.7A.3.2 Canada — Wheat Exports and Grain Imports, para. 91
(WT/DS276/AB/R)
Having examined the text of subparagraphs (a) and (b) of Article
XVII:1, it is our view that subparagraph (b), by defining and clarifying
the requirement in subparagraph (a), is dependent upon, rather than
separate and independent from, subparagraph (a). …
S.7A.3.3 Canada — Wheat Exports and Grain Imports,
paras. 99-100
(WT/DS276/AB/R)
… subparagraphs (a) and (b) are necessarily related to each other.
Subparagraph (a) is the general and principal provision, and
subparagraph (b) explains it by identifying types of differential
treatment in commercial transactions. It appears to us that these types
of differential treatment would be the most likely to occur in practice
and, therefore, that most if not all cases under Article XVII:1 will
involve an analysis of both subparagraphs (a) and (b).
For all these reasons, we are of the view that subparagraph (a) of
Article XVII:1 of the GATT 1994 sets out an obligation of
non-discrimination, and that subparagraph (b) clarifies the scope of
that obligation. We therefore disagree with the United States that
subparagraph (b) establishes separate requirements that are independent
of subparagraph (a).
S.7A.3.4 Canada — Wheat Exports and Grain Imports, para. 106
and footnote 115
(WT/DS276/AB/R)
Our conclusions regarding the relationship between subparagraphs (a)
and (b) imply that a panel confronted with a claim that an STE has acted
inconsistently with Article XVII:1 will need to begin its analysis of
that claim under subparagraph (a), because it is that provision which
contains the principal obligation of Article XVII:1, namely the
requirement not to act in a manner contrary to the “general principles
of nondiscriminatory treatment prescribed in [the GATT 1994] for
governmental measures affecting imports or exports by private traders”.
At the same time, because both subparagraphs (a) and (b) define the
scope of that non-discrimination obligation, we would expect that
panels, in most if not all cases, would not be in a position to make any
finding of violation of Article XVII:1 until they have properly
interpreted and applied both provisions.115
S.7A.3.5 Canada — Wheat Exports and Grain Imports, para. 109
(WT/DS276/AB/R)
Thus, in each case it is the nature of the relationship between two
provisions that will determine whether there exists a mandatory sequence
of analysis which, if not followed, would amount to an error of law. In
some cases, this relationship is such that a failure to structure the
analysis in the proper logical sequence will have repercussions for the
substance of the analysis itself.
S.7A.3.6 Canada — Wheat Exports and Grain Imports, paras. 110-111
(WT/DS276/AB/R)
… a panel faced with a claim of inconsistency with Article
XVII:1(a) and (b) will, in most if not all cases, need to analyse and
apply both provisions in order to assess the consistency of the
measure at issue. Subparagraph (b) sets forth two specific conditions
with which an STE must comply if allegedly discriminatory conduct
falling, prima facie, within the scope of subparagraph (a) is to
be found consistent with Article XVII:1. Yet, in order to know whether
the conditions in (b) are satisfied, a panel must know what constitutes
the conduct alleged to be inconsistent with the principles of
non-discriminatory treatment in the GATT 1994. A panel will need to
identify at least the differential treatment at issue. The outcome of an
assessment under subparagraph (b) of whether the differential treatment
is consistent with commercial considerations may depend, in part, upon
whether the alleged discrimination relates to pricing, quality, or
conditions of sale, and whether it is discrimination between export
markets or some other form of discrimination.
It follows that, logically, a panel cannot assess whether particular
practices of an allegedly discriminatory nature accord with commercial
considerations without first identifying the key elements of the alleged
discrimination. We emphasize that we are not suggesting that
panels are always obliged to make specific factual and legal findings
with respect to each element of a claim of discrimination under
subparagraph (a) before undertaking any analysis under
subparagraph (b). Rather, because a panel’s analysis and application
of subparagraph (b) to the facts of the case is, like subparagraph (b)
itself, dependent on the obligation set forth in subparagraph (a),
panels must identify the differential treatment alleged to be
discriminatory under subparagraph (a) in order to ensure that they are
undertaking a proper inquiry under subparagraph (b).
S.7A.3.7 Canada — Wheat Exports and Grain Imports,
paras. 124-125
(WT/DS276/AB/R)
… although the Panel refrained from explicitly defining the
relationship between the first two subparagraphs of Article XVII:1, its
approach was consistent with our interpretation of that relationship.
In sum, we find that, in the particular circumstances of this case,
the Panel did not err in not considering the “proper” relationship
between subparagraphs (a) and (b) of Article XVII:1 of the GATT 1994, or
in proceeding to examine the consistency of the CWB Export Regime with
Article XVII:1(b) without first having found a breach of Article
XVII:1(a). …
S.7A.4 Article XVII:1(b) of the GATT 1994
— “commercial
considerations” back to top
S.7A.4.1 Canada — Wheat Exports and Grain Imports, paras. 140-141
(WT/DS276/AB/R)
… The Panel began its analysis by considering the meaning of the
term “commercial considerations” in subparagraph (b) and found that
this term should be understood as meaning “considerations pertaining
to commerce and trade, or considerations which involve regarding
purchases or sales ‘as mere matters of business’ ”. The Panel also
determined that the requirement that STEs act solely in accordance with
such considerations “must imply that they should seek to purchase or
sell on terms which are economically advantageous for themselves and/or
their owners, members, beneficiaries, etc.”. Thus, the Panel
interpreted the term “commercial considerations” as encompassing a
range of different considerations that are defined in any given case by
the type of “business” involved (purchases or sales), and by the
economic considerations that motivate actors engaged in business in the
relevant market(s).
The Panel then turned to address several arguments advanced by the
United States with respect to the interpretation of the first clause of
subparagraph (b). It was in responding to the United States’ assertion
that the requirement that STEs act “solely in accordance with
commercial considerations” is equivalent to a requirement that STEs
act like “commercial actors” that the Panel made the statement that
“the requirement in question is simply intended to prevent STEs from
behaving like ‘political’ actors”. Yet in so doing the Panel
expressly stated that it was not, as the United States now
suggests that it did, equating “non-commercial” actors with
political actors. …
S.7A.4.2 Canada — Wheat Exports and Grain Imports,
paras. 144-145
(WT/DS276/AB/R)
… it is important to observe that the Panel’s interpretation of
the term “commercial considerations” necessarily implies that the
determination of whether or not a particular STE’s conduct is
consistent with the requirements of the first clause of subparagraph (b)
of Article XVII:1 must be undertaken on a case-by-case basis, and must
involve a careful analysis of the relevant market(s). We see no error in
the Panel’s approach; only such an analysis will reveal the type and
range of considerations properly considered “commercial” as regards
purchases and sales made in those markets, as well as how those
considerations influence the actions of participants in the market(s).
At the same time, our interpretation of the relationship between
subparagraphs (a) and (b) of Article XVII:1 necessarily implies that …
a panel inquiring whether an STE has acted solely in accordance with
commercial considerations must undertake this inquiry with respect to
the market(s) in which the STE is alleged to be engaging in
discriminatory conduct. Subparagraph (b) does not give panels a mandate
to engage in a broader inquiry into whether, in the abstract, STEs are
acting “commercially”. …
S.7A.4.3 Canada — Wheat Exports and Grain Imports, para. 146
(WT/DS276/AB/R)
… For the United States, because commercial actors naturally
conduct their business on the basis of commercial considerations, the
first clause of Article XVII:1(b) necessarily must prevent an STE from
using its privileges in a way that creates serious obstacles to trade
and disadvantages such commercial actors. …
S.7A.4.4 Canada — Wheat Exports and Grain Imports, para. 149
(WT/DS276/AB/R)
… the Panel’s approach emphasizes that whether an STE is in
compliance with the disciplines in Article XVII:1 must be assessed by
means of a market-based analysis, rather than simply by determining
whether an STE has used the privileges that it has been granted. In
arguing that Article XVII:1(b) must be interpreted as prohibiting STEs
from using their exclusive or special privileges to the disadvantage of
“commercial actors”, the United States appears to construe Article
XVII:1(b) as requiring STEs to act not only as commercial actors in the
marketplace, but as virtuous commercial actors, by tying their
own hands. We do not see how such an interpretation can be reconciled
with an analysis of “commercial considerations” based on market
forces. In other words, we cannot accept that the first clause of
subparagraph (b) would, as a general rule, require STEs to refrain from
using the privileges and advantages that they enjoy because such use
might “disadvantage” private enterprises. STEs, like private
enterprises, are entitled to exploit the advantages they may enjoy to
their economic benefit. Article XVII:1(b) merely prohibits STEs from
making purchases or sales on the basis of non-commercial considerations.
S.7A.5 Article XVII:1(b) of the GATT 1994
— Afford adequate
opportunity to compete for participation in purchases or sales back to top
S.7A.5.1 Canada — Wheat Exports and Grain Imports, para. 153
(WT/DS276/AB/R)
… The United States asserts that the Panel’s incorrect
interpretative approach led it to the erroneous conclusion that this
term [afford the enterprises of the other Member adequate opportunity
… to compete for participation in such purchases or sales] referred to
enterprises that wish to buy from an STE, but not to enterprises
that wish to sell in competition with an STE. …
S.7A.5.2 Canada — Wheat Exports and Grain Imports, paras. 156-157
(WT/DS276/AB/R)
In the abstract, competition to participate in purchases and sales
could include competition to participate as a buyer, as a seller, or
both. However, the clause under examination does not refer, in the
abstract, to any purchases and sales. Rather, it refers to “such
purchases or sales”, repeating the phrase found in the first
clause of subparagraph (b). As discussed in our analysis above, this
phrase in subparagraph (b) of Article XVII:1 refers back to the
activities identified in subparagraph (a), namely the purchases and
sales of an STE involving imports or exports.
In other words, the second clause of subparagraph (b) refers to
purchases and sales transactions where: (i) one of the parties involved
in the transaction is an STE; and (ii) the transaction involves imports
to or exports from the Member maintaining the STE. Thus, the requirement
to afford an adequate opportunity to compete for participation (i.e.,
taking part with others) in “such” purchases and sales (import or
export transactions involving an STE) must refer to the opportunity to
become the STE’s counterpart in the transaction, not to an
opportunity to replace the STE as a participant in the transaction. If
it were otherwise, the transaction would no longer be the type of
transaction described by the phrase “such purchases or sales”
in the second clause of Article XVII:1(b), because it would not involve
an STE as a party. Thus, in transactions involving two parties, one of
whom is an STE seller, the word “enterprises” in the second clause
of Article XVII:1(b) can refer only to buyers.
S.7A.5.3 Canada — Wheat Exports and Grain Imports, para. 160
(WT/DS276/AB/R)
… The Panel did not determine the full ambit of the requirement to
“afford adequate opportunity … to compete for participation” in
relevant purchases and sales. Nor do we. The Panel expressly recognized
the possibility that, in other circumstances, particular enterprises
could act both as a buyer and as a seller. The Panel also explicitly
stated that it was not asked to, and was not, ruling on the scope
of the obligation in this clause with respect to STEs that act as purchasers,
rather than as sellers.
S.7A.6 Article XVII:3 of the GATT 1994 back to top
S.7A.6.1 Canada — Wheat Exports and Grain Imports, para. 97
(WT/DS276/AB/R)
To us, [Article XVII:3] explicitly recognizes that, notwithstanding
the existence of certain disciplines on STEs in Article XVII:1,
these alone may not suffice to prevent the various ways in which STEs
might create obstacles to trade, and that additional measures to limit
or reduce such obstacles should therefore be pursued through
negotiation. Thus, this provision constitutes acknowledgement by the
GATT contracting parties of the limitations inherent in Article
XVII:1, and recognizes that Article XVII:1 cannot serve as the sole
legal basis for eliminating all potential obstacles to trade
relating to STEs. …
104. We note that different views exist as to whether, or the extent
to which, Article III of the GATT 1994 would also apply to STEs,
although we take no view on this issue for purposes of this appeal. … back to text
115. We are not asked, in this appeal, to rule on whether it might be
possible for a panel to find a violation of Article XVII:1 based solely
on an analysis undertaken under subparagraph (a) — without conducting
any analysis under subparagraph (b) — and we make no finding in this
regard. The question before us is, rather, whether it might be possible
for a panel to find a violation of Article XVII:1 based solely on an
analysis undertaken under subparagraph (b) — without conducting any
analysis under subparagraph (a). In other words, although we accept that
subparagraph (b) identifies two examples of conduct consistent with
the obligation set forth in subparagraph (a), we make no finding as to
whether subparagraph (b) also serves to define, exhaustively, the type
of conduct that is inconsistent with the obligation in
subparagraph (a). back to text
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