Canada’s dairy appeal upheld by WTO body

A World Trade Organisation (WTO) appellate body has reversed an earlier panel’s findings that the supply of commercial export milk (CEM) by Canada constitutes an export subsidy. The body claimed that “the supply of CEM by domestic milk producers to domestic dairy pro- cessors involves payments on the export of milk that are financed by virtue of governmental actions”.
The ruling is related to a dispute that began several years ago when the USA and New Zealand claimed that Canada had acted inconsistently with its obligations under the Agreement on Agriculture through its scheme of Special Milk Classes 5(d) and 5(e), by providing “export subsidies” in excess of the quantity commitment levels specified by Canada.
The original panel and appellate body upheld the complaint and set 31 December 2000 as the date by which Canada had to implement the recommendations and rulings of the dispute settlement body. This was later extended to 31 January 2001.
Among the measures implemented by Canada to comply was the elimination of Special Milk Class 5(e) and the restriction of exports of dairy products under Special Milk Class 5(d) to Canada’s export subsidy commitment levels. Canada also created a new class of domestic milk, Class 4(m), and a new category of milk for export processing known as CEM. Under pre-commitment contracts, CEM could be sold in any quantities to processors for export processing on terms and conditions freely negotiated between the producer and processor.
Sales of CEM do not require a quota and the revenues derived by the producer from sales are collected directly without government involve- ment. However, if a dairy product manufactured using CEM is sold on the domestic market the processor is liable to financial penalties for diverting the product into the domestic market.
The USA and New Zealand, however, claimed that Canada had acted inconsistently with the Agreement through the creation of a CEM market and the continued operation of Special Milk Class 5(d) and requested that the matter be referred to a panel pursuant. Canada subsequently appealed successfully.