WORLD TRADE
ORGANIZATIONWT/DS103/16
19 February 2001
(01-0843)
Original:  English
CANADA – MEASURES AFFECTING THE IMPORTATION OF MILK
AND THE EXPORTATION OF DAIRY PRODUCTS
Recourse by the United States to Article 21.5 of the DSU
Request for the Establishment of a Panel
The following communication, dated 16 February 2001, from the Permanent Mission of the
United States to the Permanent Mission of Canada and to the Chairman of the Dispute SettlementBody, is circulated pursuant to Article 21.5 of the DSU.
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On 27 October 1999, the Dispute Settlement Body (the DSB) adopted its recommendations
and rulings in the dispute "Canada - Measures Affecting the Importation of Milk and the Exportation
of Dairy Products". (WT/DS103).  The DSB found that Canada was exporting subsidized dairy
products in breach of its export subsidy reduction commitments under the Agreement on Agriculture
and recommended that Canada bring its measures into conformity with the Agreement.
On 23 December 1999, Canada and the United States concluded an agreement pursuant to
Article 21.3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the
DSU) (WT/DS/103/10) on the reasonable period of tim e available to Canada to implement the DSB's
recommendations.  By the terms of that agreement, Canada committed to complete the
implementation process by no later than 31 December 2000.  The reasonable period of time later was
extended to 31 January 2001 by the mutual agreement of the parties to the dispute (WT/DS103/13).
The United States considers that Canada has failed to comply with the DSB recommendations
and rulings by not bringing its export regime for dairy products into compliance with its export
subsidy commitments under the Agreement on Agriculture.  While Canada has eliminated the Special
Class 5(e) export subsidies that the DSB found to contribute to a violation of Canada's export subsidycommitments under Articles 3, 8 and 9 of the Agreement, Canada substituted new export subsidy
programmes in place of the Special Class 5(e) export subsidies.  In addition, Canada has retained and
continues to use the Special Class 5(d) export subsidy, which Canada acknowledges the DSB found
was an export subsidy.
The new programmes introduced by Canada as part of its attempted implementation vary
from province to province, but possess several common elements.  The provincial programmes
instituted in nine of Canada's provinces during the implementation period allow exporters to purchase
milk at prices that are below prevailing market levels in Canada for milk used in dairy products sold
into Canada's domestic market.  The low priced milk made available to these exporters (dairy
processors) can only be used to manufacture dairy products for sale to foreign markets and, thus, theWT/DS103/16
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availability of such milk is contingent on export.  Procedures exist to penalize any processor that
diverts products made from such low priced milk into Canada's domestic market.
The access given to low priced milk through these substitute programmes does not appear to
differ in any meaningful respect from that provid ed under the Special Class 5(e) system that was
found by the Dispute Settlement Body to constitute an export subsidy.  Thus, Canada is continuing to
provide export subsidies on dairy products through these provincial mechanisms, and the associated
federal regulations and orders, as well as Special Class 5(d), including pricing arrangements for milk
and its components, without regard to its export subsidy reduction commitments or Canada's
obligations with respect to export subsidies.  For example, available data show that the quantity of
Canada's subsidized exports of cheese and other dairy products (other than butter and skim milk
powder) were higher than the applicable reduction commitment levels for marketing year 1999/2000.Moreover, cheese and other dairy product exports during the 2000/2001 marketing year appear to be
occurring at monthly levels that, if continued for the remainder of the year, would result in an
additional year of subsidized export shipments inconsistent with Canada's obligations.  Processors
appear to be entitled to access to these export subsidies without any limitation on the quantity used.
Accordingly, the export subsidies also threaten to  circumvent Canada's export subsidy commitments.
These export subsidies distort markets for dairy products and adversely affect the United States.
The United States considers that the following measures establish an export subsidy regime
that is inconsistent with Canada's obligations under the Agreement on Agriculture and the Agreement
on Subsidies and Countervailing Measures (the SCM Agreement):
(1) the Canadian Dairy Commission Act;(2) the Dairy Products Marketing Regulations, as amended, including those amendments
published in the Canada Gazette on 3 January 2001, and SOR/94-466;
(3) the Agricultural Products Marketing Act, as well as amendments to the provincial
milk delegation orders issued under the Act relating to the authority to regulate
marketing in interprovincial and export trade of milk, including those amendments
published in the Canada Gazette on January 3, 2001 and Order JUS602260;
Nova Scotia Milk Order, SOR/94-626; On tario Milk Order C.R.C., c. 215; Quebec
Milk Order SOR/94-720; New Bruswick Milk Order SOR/94-627; Manitoba Milk
Order C.R.C., c.155; Prince Edward Island Milk Order, Registration 6 October 1994;
Saskatchewan Milk Order SOR/94-721;  Alberta Milk Order SOR/94-719;
(4) the Comprehensive Agreement on Special Class Pooling, as well as Annexes,
Addenda, and Schedules thereto, including the Optional Export Programme, both asdescribed therein and as operated in the provinces exporting dairy products;
(5) the National Milk Marketing Plan, as well as Appendices and Amendments thereto;(6) the Interprovincial Comprehensive Agreement on Special Class Pooling;(7) the operations of the Canadian Milk Supply Management Committee;(8) official communications from provincial Agricultural Ministers to the Federal
Minister of Agriculture and Agri-Food outlining the new mechanisms, as perCanada’s note of 1 December 2000 "Responses to Questions posed by New Zealand
and/or the United States regarding Provincial Dairy Export Mechanisms" (hereinafter
Canadian Responses);WT/DS103/16
Page 3
(9) directions to the Canadian Dairy Commission by the Minister of Agriculture and
Agri-Food under Section 11 of the Canadian  Dairy Commission Act as published in
the Canada Gazette on 3 January 2001(JUS-602420);
(10) the provincial export mechanisms adopted  in the provinces of Prince Edward Island,
Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta
and British Columbia as identified and described in materials provided by Canada to
the United States in consultations held under the 23 December 1999 Implementation
Agreement and referenced in Canadian Responses (Answer to Question 1);
(11) all acts, statutes, regulations, orders, and rulings regarding the provincial export
mechanisms referenced above or relating to the provincial authority to regulate milkfor intraprovincial, interprovincial, or  export trade, including the following:
(a) Prince Edward Island: Contractual Comm ercial Export Activity Order, Board
Order MMBOO-02;
(b) Nova Scotia: Dairy Commission Act, Section 5(2) of Schedule "Regulations
Respecting Milk Production"; Section 3(15) of Schedule 8 "Regulations for
Specified Areas"; Schedule 13 "Regulation Respecting Contracted Exports
for Dairy Products";
(c) Quebec: Government of Quebec, Order in Council 1408-2000
(6 December 2000), as published in Gazette Officielle du Quebec on
3 January 2001;  Gazette Officielle du Quebec, 9 August 2000, no. 32;
Decision 7140, Regie des marches agricoles et alimentaire;  Decision 7111,
Regie des marches agricoles et alimentaire;
(d) Ontario: Regulation 179/00; DFO Milk General Regulation 09/00; DFO Milk
Pricing Regulation 08/00;
(e) Manitoba: Export Contract Milk Exemption Order;(f) Saskatchewan: Milk Control Regulations;(g) Alberta: Dairy Board Amendment Regulation, O.C. 260/2000; Alberta
Contracted Export Milk, Clarification of Operating Procedures; and
(h) British Columbia: British Columbia Milk Marketing Board Consolidated
Order;
These measures appear to be inconsistent with the obligations of Canada under the Agreement
on Agriculture and the SCM Agreement.  The provisions of these agreements with which these
measures appear to be inconsistent include:
(1) Agreement on Agriculture, Articles 3.3, 8, 9.1(a),  9.1(c), 10.1, 10.3 and(2) Agreement on Subsidies and Countervailing Measures, Articles 3.1(a) and 3.2 and
item (d) of Annex I.WT/DS103/16
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Accordingly, because "there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with th e recommendations and rulings" of the DSB between
the United States and Canada, within the terms of Article 21.5 of the DSU, the United States seeks
recourse to Article 21.5 of the DSU in this matter.  The United States requests that the DSB refer the
matter to the original panel, if possible, pursuant to Article 21.5 of the DSU.
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