DS: Canada — Measures Affecting Dairy Exports

back to top

Current status

 

back to top

Key facts

 

back to top

Latest document

  

back to top

Summary of the dispute to date

The summary below was up-to-date at

Consultations

Complaint by New Zealand. (See also DS103)

On 29 December 1997, New Zealand requested consultations with Canada in respect of an alleged dairy export subsidy scheme commonly referred to as the “special milk classes” scheme. New Zealand contended that the Canadian “special milk classes” scheme is inconsistent with Article XI of the GATT 1994, and Articles 3, 8, 9 and 10 of the Agreement on Agriculture.

 

Panel and Appellate Body proceedings

On 12 March 1998, New Zealand requested the establishment of a panel. At its meeting on 25 March 1998, the DSB established a single panel, pursuant to Article 9.1 of the DSU, to examine this dispute and DS103. Australia and Japan reserved their third-party rights. On 12 August 1998, the Panel was composed.

On 17 May 1999, the panel report was circulated to Members. The panel found that the measures complained against were inconsistent with Canada’s obligations under Article II:1(b) of the GATT 1994, and Articles 3.3 and 8 of the Agreement on Agriculture by providing export subsidies as listed in Article 9.1(a) and 9.1(c) of the Agreement on Agriculture.

On 15 July 1999, Canada notified the DSB of its decision to appeal certain issues of law and legal interpretations developed by the panel. On 13 October 1999, the Appellate Body report was circulated to Members. The Appellate Body:

• reversed the panel’s interpretation of Article 9.1(a) and, in consequence, reversed the panel’s finding that Canada acted inconsistently with its obligations under Article 3.3 and 8 of the Agreement on Agriculture.
   
• upheld the panel’s finding that Canada was in violation of Article 3.3 and 8 of the Agreement on Agriculture in respect of export subsidies listed in Article 9.1(c) of the Agreement on Agriculture.
   
• partly reversed the panel’s finding that Canada acted inconsistently with its obligations under Article II:1(b) of the GATT 1994.

At its meeting on 27 October 1999, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

 

Compliance proceedings

On 22 December 2000, Canada and New Zealand informed the DSB of an Understanding regarding procedures under Articles 21 and 22 of the DSU.  On 2 February 2001, New Zealand requested consultations pursuant to Article 21.5 of the DSU claiming that Canada had failed to implement the DSB recommendations and rulings by substituting its WTO-inconsistent dairy export measures by new measures which have allowed schemes to be put in place at the provincial level that are designed to provide ongoing support to Canadian dairy exports and that equally involve the provision of export subsidies within the meaning of Article 9.1 or Article 10.1 of the Agreement on Agriculture. On 16 February 2001, New Zealand requested the establishment of a compliance panel.  In parallel, New Zealand also requested the DSB authorization to suspend concessions and other obligations pursuant to Article 22.2 of the DSU (see below).  At its meeting on 1 March 2001, pursuant to Article 21.5 of the DSU, the DSB referred to the original panel the matter raised by New Zealand and the matter raised by the United States (see DS103).  Australia, the European Communities and Mexico reserved their third party rights. On 12 April 2001, the compliance panel was composed.

On 11 July 2001, the compliance panel report was circulated to Members. The compliance panel concluded that Canada, through the CEM scheme and the continued operation of Special Milk Class 5(d), had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(c) of the Agreement on Agriculture in excess of its quantity commitment levels specified in its Schedule for exports of cheese, for the marketing year 2000/2001.

On 4 September 2001, Canada notified the DSB of its decision to appeal certain issues of law covered in the compliance panel report and certain legal interpretations developed by the panel. In particular, Canada appealed the compliance panel’s finding that the Canadian measures in question constitute an export subsidy within the meaning of Article 9.1(c)of the Agreement on Agriculture. Canada considered that the compliance panel’s finding that commercial export sales constitute payments that are financed by virtue of governmental action is based on erroneous findings on issues of law and on related legal interpretations with respect to the interpretation and application of the said Article 9.1(c).

On 3 December 2001, the Appellate Body report was circulated to Members. The Appellate Body reversed the compliance panel’s findings to the effect that the supply of CEM by domestic milk producers to domestic dairy processors involves “payments” on the export of milk “that are financed by virtue of governmental action” under Article 9.1(c) of the Agreement on Agriculture. The Appellate Body concluded that, in the light of the factual findings made by the compliance panel and the uncontested facts in the compliance panel record, it was unable to complete the analysis of the claims made by New Zealand under Articles 9.1(c) or 10.1 of the Agreement on Agriculture.

At its meeting on 18 December 2001, the DSB adopted the Appellate Body report and the compliance panel report, as reversed by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

On 16 February 2001, New Zealand requested, simultaneously with its request for compliance proceedings (see above), authorization from the DSB, pursuant to Article 22.2 DSU, to suspend the application to Canada of tariff concessions and related obligations under the GATT 1994, covering trade in the amount of USD 35 million on an annual basis. On 28 February 2001, Canada objected to the level of suspension and requested that the matter be referred to arbitration pursuant to Article 22.6 DSU. At its meeting on 1 March 2001, the DSB referred the matter to arbitration.

Pursuant to the Additional Understanding regarding Procedures under Articles 21 and 22 of the DSU, Canada and New Zealand agreed to request that the arbitration requested by Canada under Article 22.6 of the DSU remain suspended pending the work of the second compliance panel (see below).

On 16 January 2003, the parties informed the DSB that they had requested an extension of the suspension of the Article 22.6 DSU arbitration until 7 February 2003, in order to permit time for further consultations. On 6 February 2003, the parties informed the DSB that they had agreed that the arbitration remain suspended until 10 April 2003. On 9 April 2003, the parties informed the DSB that they had agreed to further suspend the arbitration until 9 May 2003.

 

Compliance proceedings (second recourse)

On 6 December 2001, New Zealand requested, pursuant to Article 21.5 of the DSU, the establishment of a second compliance panel. New Zealand considered that, since the Appellate Body’s compliance report did not make any findings on the consistency of Canada’s new measures, New Zealand continued to believe that Canada had failed to comply with the original recommendations and rulings of the DSB.

At its meeting on 18 December 2001, the DSB agreed, pursuant to Article 21.5 of the DSU, to refer to the original Panel, for the second time, the matter raised by New Zealand and the matter raised by the United States (see DS103). The European Communities and Australia reserved third-party rights. On 28 December 2001, Argentina reserved its third-party rights.

On 18 December 2001, Canada and New Zealand, notified the DSB of an Additional Understanding regarding procedures under Article 21 and 22 of the DSU.

On 17 January 2002, the compliance panel was composed. On 26 July 2002, the compliance panel report was circulated to Members. The compliance panel concluded that Canada, through the CEM scheme and the continued operation of Special Milk Class 5(d), had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(c) of the Agreement on Agriculture in excess of its quantity commitment levels specified in its Schedule for exports of cheese and “other dairy products”. It also concluded that Canada had acted inconsistently with its obligations under Article 10.1 of the Agreement on Agriculture and that therefore Canada had acted inconsistently with its obligations under Article 8 of the Agreement on Agriculture. Accordingly, the compliance panel recommended that the DSB request Canada to bring its dairy products marketing regime into conformity with its obligations in respect of export subsidies under the Agreement on Agriculture.

On 23 September 2002, Canada notified the DSB of its decision to appeal certain issues of law and legal interpretations developed by the compliance panel. On 20 December 2002, the Appellate Body report was circulated to Members. The Appellate Body upheld the compliance panel’s finding that the measure at issue-the supply of “commercial export milk” (“CEM”) by Canadian milk producers to Canadian dairy processors-involves export subsidies in the form of “payments” on the export of milk that are “financed by virtue of governmental action” within the meaning of Article 9.1(c) of the Agreement on Agriculture. It reversed the compliance panel’s interpretation of the rules on burden of proof in Article 10.3 of the Agreement on Agriculture. However, the Appellate Body held that this error did not affect any of the compliance panel’s other findings under the Agreement on Agriculture. In view of its conclusion under Article 9.1(c) of the Agreement on Agriculture, the Appellate Body declined to rule on the compliance panel’s alternative finding under Article 10.1 of that Agreement.

On 17 January 2003, the DSB adopted the Appellate Body report and the compliance panel report, as modified by the Appellate Body report.

 

Mutually agreed solution

On 9 May 2003, Canada and New Zealand informed the DSB that they had reached a mutually agreed solution under Article 3.6 of the DSU.