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REPERTORY OF APPELLATE BODY REPORTS

State Trading Enterprises: Article XVII of the GATT 1994


ON THIS PAGE:

Article XVII of the GATT 1994 — “principles of non-discriminatory treatment”
Article XVII of the GATT 1994, Ad Note — Differential prices for commercial reasons
Article XVII:1 of the GATT 1994 — Relationship between subparagraphs (a) and (b)
Article XVII:1(b) of the GATT 1994 — “commercial considerations”
Article XVII:1(b) of the GATT 1994 — Afford adequate opportunity to compete for participation in purchases or sales
Article XVII:3 of the GATT 1994


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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