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Measures Affecting the Importation of Milk and the Exportation of Dairy Products

Key Facts
Short Title: Canada — Dairy
Respondent: Canada
Third Parties: Argentina; Mexico; United States; European Communities; Japan; Australia;
Complaintant(s): United States;
Dispute Number: DS103
Link to Dispute Site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds103_e.htm
Dispute Subject(s): Dairy Products;
Dispute Status: Concluded
Complaints by the United States and New Zealand.

On 8 October 1997, the US requested consultations with Canada in respect of export subsidies allegedly granted by Canada on dairy products and the administration by Canada of the tariff-rate quota on milk. The US contended that these export subsidies by Canada distort markets for dairy products and adversely affect US sales of dairy products. The US alleged violations of Article II, X and X1 of GATT 1994, Articles 3, 4, 8, 9 and 10 of the Agreement on Agriculture, Article 3 of the Subsidies Agreement, and Articles 1, 2 and 3 of the Import Licensing Agreement.

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 GATT, and Articles 3, 8, 9 and 10 of the Agreement on Agriculture.

On 2 February 1998, the US requested the establishment of a panel in respect of WT/DS103. At its meeting on 13 February 1998, the DSB deferred the establishment of a panel. On 25 March 1998, further to requests from the US and New Zealand, the DSB established, pursuant to Article 9.1 of the DSU, a single panel to examine the disputes WT/DS103 and WT/DS113. Australia and Japan reserved their third-party rights. On 12 August 1998, the Panel was composed. The report of the Panel was circulated to Members on 17 May 1999. The Panel found that the measures complained against were inconsistent with Canada's obligations under Article II:1(b) of 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 its intention to appeal certain issues of law and legal interpretations developed by the Panel. The report of the Appellate Body was circulated on 13 October 1999. The Appellate Body ruled as follows:

* it 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.

* it 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.

* it partly reversed the Panel's finding that Canada acted inconsistently with its obligations under Article II:1(b) of 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.

Appellate Body and Panel Compliance Reports (Article 21.5) Adopted

On 16 February 2001, the US and New Zealand requested the DSB to refer the problems with the implementation of the original report to the original panel pursuant to Article 21.5 DSU. At its meeting of 1 March 2001, the DSB referred the matter to the original panel. Australia, the EC and Mexico reserved their third party rights. On 12 April 2001, the compliance Panel was composed.

The compliance Panel circulated its report on 11 July 2001. It concluded that Canada, through the CEM scheme and the continued operation of Special Milk Class 5(d), has 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 appealed the compliance Panel report before the Appellate Body. In particular, Canada appealed the 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 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).

The report of the Appellate Body was circulated to Members on 3 December 2001. 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 Panel and the uncontested facts in the Panel record, it was unable to complete the analysis of the claims made by New Zealand and the United States under Articles 9.1(c) or 10.1 of the Agreement on Agriculture, or the claim made by the United States under Article 3.1 of the SCM Agreement. At its meeting on 18 December 2001, the DSB adopted the Appellate Body Report and the Panel Report, as reversed by the Appellate Body Report.

On 6 December 2001, the US submitted to the DSB a second recourse for the establishment of a panel pursuant to Article 21.5 of the DSU. The US submits that, since the Appellate Body's 21.5 Report did not make any findings on the consistency of Canada's new measures, the US continues to believe that Canada had failed to comply with the original recommendations and rulings of the DSB. On the same date, New Zealand made a similar request.

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 US. At the meeting, the EC and Australia reserved third-party rights to participate in the Panel's proceedings. On 28 December 2001, Argentina also reserved its third-party rights to participate in the Panel's proceedings.

On 18 December 2001, Canada concluded with New Zealand and the US respectively, additional understandings regarding procedures under Article 21 and 22 of the DSU. Pursuant to both understandings, Canada and the respective party agree to request that the arbitration requested by Canada under Article 22.6 of the DSU remain suspended pending the work of the compliance Panel.

On 17 January 2002, the Panel was composed. On 26 July 2002, the Report was circulated to the Members. The 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 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 its intention to appeal certain issues of law and legal interpretations developed by the compliance panel. On 20 December 2002, the Appellate Body circulated its report. The Appellate Body upheld the 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 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 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 Panel's alternative finding under Article 10.1 of that Agreement.

On 17 January 2003, the DSB adopted the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report.

Implementation Status of Adopted Reports

At the DSB meeting of 19 November 1999, Canada stated its intention to comply with the recommendations and rulings of the DSB. On 23 December 1999, Canada informed the DSB that, pursuant to Article 21.3 of the DSU and after having agreed to extend the time periods set forth in Article 21.3(b) of the DSU, it has reached an understanding with the US and New Zealand on four discrete periods of time to be accorded a staged implementation process. According to the implementation agreement, Canada must complete the last stage of the implementation process no later than 31 December 2000. On 11 December 2000, Canada, the US and New Zealand informed the DSB that they had agreed to extend the reasonable period of time until 31 January 2001.

On 16 February 2001, both the US and New Zealand requested the DSB to refer the matter to the original panel pursuant to Article 21.5 DSU. At its meeting of 1 March 2001, the DSB referred the matter to the original panel, if possible. Australia, the EC and Mexico reserved their third party rights. Also on 16 February 2001, both the US and New Zealand requested 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, each covering trade in the amount of US$ 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 of 1 March 2001, the DSB referred the matter to arbitration.

For details of the Article 21.5 panel and Appellate Body proceedings, see above.

On 6 December 2001, the United States requested the establishment of a second Article 21.5 panel. The US submitted that, since the Appellate Body's Article 21.5 Report did not make any findings on the consistency of Canada's new measures, the US continued to believe that Canada had failed to comply with the original recommendations and rulings of the DSB. On the same date, New Zealand made a similar request. 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 US. At the meeting, the EC and Australia reserved third-party rights to participate in the Panel's proceedings. On 28 December 2001, Argentina also reserved its third-party rights to participate in the Panel's proceedings.

On 18 December 2001, Canada concluded with New Zealand and the US respectively, additional understandings regarding procedures under Article 21 and 22 of the DSU. Pursuant to both understandings, Canada and the respective party agree to request that the arbitration requested by Canada under Article 22.6 of the DSU remain suspended pending the work of the compliance Panel.

For details of the second Article 21.5 panel and Appellate Body proceedings, see above.

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. On 9 May 2003, Canada and the United States, and Canada and New Zealand informed the DSB that they had reached a mutually agreed solution under Article 3.6 of the DSU in the disputes WT/DS103 and WT/DS113.

Mutually Agreed Solutions notified under Article 3.6 of the DSU

On 9 May 2003, Canada and the United States, and Canada and New Zealand informed the DSB that they had reached mutually agreed solutions under Article 3.6 of the DSU in both disputes.

Recourse by the United States Under Article 21.5 of the DSU: Panel Proceedings
Brief DateBrief Description
05/25/2001Executive Summary of Statements of the United States (pdf)
05/25/2001Second Submission of the United States (pdf)
05/04/2001First Submission of the United States (pdf)

Recourse by the United States Under Article 21.5 of the DSU: Appeal Proceedings
Brief DateBrief Description
10/26/2001Oral Statement of the United States (pdf)
10/01/2001Executive Summary of the Appellee Submission of the United States (pdf)
10/01/2001Appellee Submission of the United States (pdf)

Second Recourse by the United States Under Article 21.5 of the DSU: Panel Proceedings
Brief DateBrief Description
05/06/2002Comments of the United States on canada's Responses to the First Set of Panel Questions (pdf)
04/30/2002Answers of the United States to the First Set of Panel Questions (pdf)
04/22/2002Oral Statement of the United States (pdf)
04/08/2002Second Written Submission of the United States (pdf)
03/11/2002Appellee's Submission of the United States (pdf)

Second Recourse by the United States Under Article 21.5 of the DSU: Appeal Proceedings
Brief DateBrief Description
10/31/2002Oral Statement of the United States (pdf)
10/18/2002Appellee's Submission of the United States (pdf)