"To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS103/16 and by New Zealand in document WT/DS113/16, the matter referred to the DSB by the United States and New Zealand in those documents and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."
"One of the provisions that may form part of a commercial transaction involving milk for use in products destined for export […], is the confidentiality of terms of the contract, or indeed, of the entire contract itself. Confidentiality covenants along these lines are commonplace in commercial transactions. […]14
[…] Canadian producers and processors proposing to submit BCI to the Canadian litigation group in the context of these proceedings need BCI procedures to be in place before disclosure is made.15 Currently, Canada does not have access to certain BCI and will not be in a position to obtain, assess and provide such BCI to the Panel or to the other Parties unless adequate procedures are in place to govern its handling and the access thereto in the course of these proceedings."16
the panel.25 More recently, the panel in United States - DRAMS also rejected the EC's position.26 In the view of the United States, the reasoning of these prior panels is sound, and should be followed by this Panel.
If goods or services are supplied to an enterprise, or a group of enterprises, 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. Instead of receiving a monetary payment equal to the revenue foregone, the recipient is paid in the form of goods or services. But as far as the recipient is concerned, the economic value of the transfer is precisely the same.47
Any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question.
We recall that, before the original panel in Brazil – Aircraft, Brazil conceded that it had the burden of proof in demonstrating its alleged "defence" under item (k). However, in these Article 21.5 proceedings, Brazil argues that this burden of proof, under item (k), is on Canada. In our view, the fact that the measure at issue was "taken to comply" with the "recommendations and rulings" of the DSB does not alter the allocation of the burden of proving Brazil's "defence" under item (k). (emphasis added)
The Panel considers that this reasoning equally applies to the allocation of the burden of proof pursuant to Article 10.3 of the Agreement on Agriculture.
(a) Are there "payments"?
(b) If so, are such payments "financed by virtue of governmental action"?
(c) If so, are those payments made "on the export of an agricultural product"?
[i]f goods or services are supplied to an enterprise, or a group of enterprises, 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.
According to Canada, the corollary of this proposition is that where the recipient of goods or services pays market rates or market value, there can be no "payment." Since the commercial export milk market has been deregulated, processors are paying "market value" for the milk. Therefore, in Canada's view, commercial export milk in Canada is being sold at, not below, market rates, and, in line with the aforementioned Appellate Body citation, there could be no "payment."
In our view, the provision of milk at discounted prices to processors for export under Special Classes 5(d) and 5(e) constitutes "payments", in a form other than money, within the meaning of Article 9.1(c). If goods or services are supplied to an enterprise, or a group of enterprises, 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. Instead of receiving a monetary payment equal to the revenue foregone, the recipient is paid in the form of goods or services. But, as far as the recipient is concerned, the economic value of the transfer is precisely the same.98
To understand the Appellate Body's ruling [in Canada – Dairy], it is important to examine the market conditions that were prevailing in Canada at that time. The Panel determined that there was only one market for milk in Canada: a regulated market (other markets were considered not to be viable alternatives for sourcing milk for export in Canada).
As a result of Canada's implementation of the recommendations and rulings of the DSB, governments no longer set the prices for milk for export. The domestic regulated market and the commercial export market now respond to different conditions of competition.100 (emphasis added)
Thus, according to Canada, there would now be two distinct milk markets, domestic and export, and, consequently, the domestic price benchmark to determine whether export prices are discounted can no longer be relevant. Canada notes that by deregulating the export milk market, it "has not created this market," but, rather, has "given producers and processors access to an existing market."101
[…] decided to establish a basis for initiating a process of reform of trade in agriculture […],
and recalled that
their long-term objective […] "is to establish a fair and market-oriented agricultural trading system and that a reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines",
[…] "the above-mentioned long-term objective is to provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period, resulting in correcting and preventing restrictions in world agricultural markets.
We noted above that a benefit must be conferred for a payment in kind to exist in the sense of Article 9.1(a).109 In this case, the question thus arises whether the provision of milk to processors/exporters under Classes 5(d) or (e) confers a benefit to these processors/exporters. This, in turn, raises the question of what the appropriate benchmark is for determining whether the provision of a good at a certain price confers a benefit.110 Does it suffice, as the complainants argue, that milk for export use is provided to processors at a price below the domestic milk price for there to be a benefit conferred to these processors (hereafter referred to as "the first benchmark", namely the domestic milk price)? Or, does one need to establish that processors/exporters receive milk under Classes 5(d) and (e) at a price which is not only lower than the domestic milk price, but also lower than the price of milk these processors/exporters can obtain from any other source, in particular the price of milk they can source from the world market (hereafter referred to as "the second benchmark", namely the lowest milk price to be obtained from any other source)?111 (emphasis added)
We want to stress, however, that the existence of this "payment in kind" to processors does not in and of itself establish the existence of an export subsidy within the meaning of Article 9.1(a). In our view, in particular the existence of parallel markets for domestic use and for export with different prices does not necessarily constitute an export subsidy.120Whether or not the "payments-in-kind" to processors in this dispute constitute an export subsidy depends on the government's involvement in providing it.121This relates to the second condition under Article 9.1(a). (emphasis added)
The price differential may, for example, be a consequence of high – but WTO consistent - import tariffs that can cause domestic prices to be higher than the world market price. In such scenario, efficient producers may take the decision – based on their own profitability - to also produce and sell milk for export, albeit at a lower price than the domestic price. If the decision to sell in either the domestic market or the export market is one made by the individual producer and based on commercial grounds only (e.g., on an allocation of sales to the two markets with a view to obtaining a maximized total revenue, taking into account the inherently limited domestic demand for milk and the lower price for export) - not a decision by the government or its agencies taken on behalf of the producers - such scenario would, in our view, not appear to be an export subsidy in the sense of Article 9.1. (emphasis added)
It is readily apparent, in the Panel's view, that the facts of this case do not fit with this hypothetical scenario. Domestic prices are high, not simply because of high import tariffs, but as a result of government regulation setting, inter alia, price floors and marketing quotas. At the same time, it confirms that only when the decision by Canadian producers to sell for either market is based exclusively on commercial considerations, the existence of parallel markets with different prices would not necessarily constitute an export subsidy. This is precisely the analysis to which the Panel will now turn.
(a) The regulatory distinction between the domestic milk market and the commercial export milk market, whereby the former is regulated with respect to both quantity ceilings and price floors and the latter is exempt from such regulation.
(b) The prohibition against selling over-quota or non-quota milk into the domestic market, with the exception of class 4(m) milk (animal feed).
(c) The prohibition, both on federal and provincial level, against diverting any milk committed to export into the domestic consumption market, enforced by sanctions and penalties at the federal and provincial level.
(d) The regulations granting the authority to the Canadian Dairy Commission ("CDC") to audit the books and records of producers and processors to determine whether commercial export milk has been marketed for final consumption in Canada.
(e) The requirement that commercial export milk has to be "pre-committed" for export and "first out of the tank".
(f) As regards Ontario and Quebec, the obligation to sell all commercial export milk through an exclusive, mandatory bulletin board system where processors invite offers of milk for export contracts at prices established by the processors.
(a) if the processor purchased milk from a producer without a federal license (since none is required under federal regulation for commercial export milk): the diversion of this milk would entail a violation of section 7(3), because, if the milk no longer meets the definition of "commercial export milk," then section 7(3) would apply and a federal license would be required.
(b) if the processor is not identifying the diversion of milk in his written records (in other words, the records are incorrect or incomplete): a violation of section 10 would arise because he would not be keeping accurate records.
All components of milk intended for export markets and covered by a specific commitment between an individual producer and a milk dealer must be exported. Any milk dealer who breaches this obligation is subject to the penalties stipulated in this chapter.
Pursuant to the amended paragraph 2.43 of the MMA Agreement,
When a milk dealer is unable to show that all the quantities of components of the volume of milk received have been exported or are stored, it must, upon receiving the audit report to this effect, pay to the Federation, subject to the other remedies of the parties to the contract, an amount, per kilogram of component, equal to twice the component price payable in class 3b2.
According to the United States, the penalty would equal an amount that would approximately be four times the price that the processor would have paid for milk destined for export.163 Canada has not contested this assertion.
All buyers will keep and provide to the auditor of the domestic market all records required to demonstrate that all components provided pursuant to an export contract have either been duly exported or are being held in inventory.
DFO may refuse to grant or renew or may suspend or revoke a licence […] where the applicant or licensee has failed to comply with or has contravened the Act, the Regulations, the Plan or any Order or Direction of DFO.
According to the United States, pursuant to Section 5(4) failure to export milk so committed can lead to the revocation of the licence of a milk producer in Ontario.173 Canada replies by stating that the DFO "cannot use licensing as a means to enforce the terms of private commercial agreements",174 and that "the United States is inviting the Panel to speculate that DFO will somehow use its health and safety licensing authority for extraneous and illegal purposes, namely, to somehow 'punish' for any 'breach' of the commercial export exchange."175
(a) commercial export milk is clearly defined as milk that must be exported;177
(b) milk that meets this definition of commercial export milk is exempted from domestic regulation;178
(c) milk that was contracted as commercial export milk and subsequently diverted to the domestic market becomes subject to domestic regulation, and, as a result, a processor would be obliged to pay the higher domestic price on top of the price already paid for the commercial export milk.179
The principle of judicial economy has to be applied keeping in mind the aim of the dispute settlement system. This aim is to resolve the matter at issue and "to secure a positive solution to a dispute". To provide only a partial resolution of the matter at issue would be false judicial economy. A panel has to address those claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member with those recommendations and rulings in order to ensure effective resolution of disputes to the benefit of all Members.197 (emphasis added)
The need for sufficient facts is not the only limit on our ability to complete the legal analysis in any given case. In Canada – Periodicals, we reversed the panel's conclusion that the measure at issue was inconsistent with Article III:2, first sentence, of the GATT 1994, and we then proceeded to examine the United States' claims under Article III:2, second sentence, which the panel had not examined at all. However, in embarking there on an analysis of a provision that the panel had not considered, we emphasized that "the first and second sentences of Article III:2 are closely related " and that those two sentences are "part of a logical continuum."198 (emphasis added by the Appellate Body)
[…] we observe first that this word has been defined as "remove", or "take away"208, and as "to take away what has been enjoyed; to take from."209 This definition suggests that "withdrawal" of a subsidy, under Article 4.7 of the SCM Agreement, refers to the "removal" or "taking away" of that subsidy."
In our view, to continue to make payments under an export subsidy measure found to be prohibited is not consistent with the obligation to "withdraw" prohibited export subsidies, in the sense of "removing" or "taking away".210
The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement (emphasis added),
that Article 8 of the Agreement on Agriculture provides,
Each Member undertakes not to provide export subsidies otherwise than in conformity with this Agreement and with the commitments as specified in that Member's Schedule, (emphasis added)
and that Article 3.1 of the SCM Agreement provides,
Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited […]. (emphasis added)