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NEWS RELEASES

July 29, 1999 (9:45 a.m. EDT) No. 174

CANADA RETALIATES AGAINST THE EU

International Trade Minister Sergio Marchi and Agriculture and Agri-Food Minister Lyle Vanclief announced today that tariffs of 100 percent will be imposed on certain imports from the European Union (EU) beginning August 1. This action is in response to the EU's failure to implement trade rulings made by the World Trade Organization (WTO) on Canadian beef produced using growth hormones.

"Canada is taking this action in response to the EU's failure to abide by its international trade obligations," said Minister Marchi. "Canada is a trading country that favours and depends on trade rules. Our exporters need assurances that the government will act to defend their export interests in accordance with Canada's WTO trading rights."

"Canada has consulted closely with the cattle industry throughout this 10-year dispute, and we will continue working together until there is a satisfactory resolution," said Minister Vanclief. "Our goal is to regain access to the EU market, not retaliate. But since the EU has neither opened its market, nor offered acceptable interim compensation, we have no choice but to retaliate."

Canada's action will affect EU exports of beef, pork, cucumbers and gherkins to Canada. The retaliation on beef will prevent all EU beef from entering Canada. Last April, the Canadian government engaged in broad consultations on a proposed list of products that could be subject to retaliation. The retaliation list announced today is the result of that consultation.

In accordance with WTO rules, the retaliatory duties imposed by Canada today will remain in effect until the EU complies with its WTO obligations. Compliance with the obligations would mean either that the EU restores market access to Canadian beef, or that Canada and the EU reach a mutually satisfactory solution that includes appropriate compensation to Canada. The ministers emphasized that the EU has not offered a reasonable compensation package.

Canada has consistently opposed the EU ban on Canadian beef since it was imposed in 1989. In 1997, a WTO panel ruled that the EU ban on beef produced using growth hormones is not based on scientific evidence and is therefore inconsistent with the EU's WTO obligations. This finding was confirmed by the WTO Appellate Body in 1998, and a WTO arbitrator gave the EU until May 13, 1999, to comply with the rulings. On April 17, Canada announced a 30-day consultation period on a proposed list of products that might be subject to tariff increases if the EU did not comply. On May 13, the EU indicated that it would not lift its ban. On July 26, Canada received authority from the WTO Dispute Settlement Body to retaliate against the EU.

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The final retaliation list and a backgrounder are attached.

More information on this issue is available at: http://www.dfait-maeci.gc.ca/tna-nac/dispute-e.asp

For more information, media representatives may contact:

Leslie Swartman

Office of the Minister for International Trade

(613) 992-7332

Vern Greenshields

Minister Vanclief's Office

Ottawa

(613) 759-1020

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

Backgrounder

HISTORY OF THE DISPUTE

• In 1989, the European Union (EU) banned the use of growth-promoting hormones in livestock and imposed a ban on the importation of meat derived from cattle treated with these hormones.
• Both Canada and the United States consistently opposed the EU's import ban on the grounds that it was not based on scientific evidence and therefore created an unjustified barrier to trade.
• The import ban has effectively shut Canada out of the EU market at a time when Canada's capacity to export beef had been expanding.
• The Agreement establishing the World Trade Organization (WTO), which took effect in 1995, provided an opportunity for Canada to challenge the consistency of the EU ban under the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement).
• WTO members, including Canada and the EU, negotiated the SPS Agreement to ensure that, while countries have the right to provide the level of health protection they deem appropriate, sanitary and phytosanitary measures must be based on science and they should not be misused as disguised restrictions on trade.
• Canada conducted a review of all six growth-promoting hormones at issue and found them to be safe when used in accordance with good veterinary practices.
• Five of the six growth-promoting hormones at issue were reviewed and endorsed by the Codex Alimentarius, an international body established to set and harmonize food safety standards. It was determined that these hormones did not present a risk when used according to good veterinary practices.
• In July 1996, Canada held formal WTO consultations with the EU regarding the ban. The consultations were unsuccessful in resolving the dispute, and Canada requested the establishment of a WTO dispute settlement panel. The Panel was established in October 1996.
• The Dispute Settlement Panel released its final report in August 1997. The report concluded that there was no justification for the ban and that the EU was in violation of its WTO obligations.
• The EU exercised its right under the WTO dispute settlement procedures and appealed the panel report in September 1998.
• The Appellate Body, which released its report on January 16, 1998, also concluded that there was no scientific basis for the ban and that the EU was in violation of its WTO obligations.
• The Dispute Settlement Body of the WTO adopted the Panel and Appellate Body reports on February 13, 1998.
• Following the adoption of the reports, the EU requested four years to implement the rulings. Canada did not agree since the time requested was well in excess of the 15-month guideline given to WTO members to implement rulings, and the matter was referred to an arbitrator.
• The WTO Arbitrator concluded that there were no particular circumstances to justify giving the EU more than 15 months to implement the rulings and gave the EU until May 13, 1999, to comply with its WTO obligations.
• In the event that the EU failed to comply with the WTO rulings, the WTO provided that Canada and the EU may enter into discussions on compensation. If agreement could not be reached on compensation, Canada had the right to request the Dispute Settlement Body to authorize the imposition of retaliatory duties.
• Canada views compensation and retaliation as temporary solutions pending full compliance with WTO rulings.
• As the May 13, 1999, deadline approached, it became increasingly clear that the EU would not meet the deadline.
• The EU initiated preliminary discussions with Canada on compensation, but the two sides have remained far apart on the value of compensation owed and product coverage.

• On April 17, 1999, the Government published a notice in the Canada Gazette to request comments on a proposal to increase tariffs on certain EU products in the event that the EU did not meet the May 13, 1999, deadline for implementation, and that it should become necessary to request authorization to retaliate.
• The Canada Gazette notice provided a preliminary list of products from which a final list of products would be selected. Tariffs of 100 percent would be imposed on products in the final list. Interested parties were given until May 17 to provide comments.

• The EU did not meet the May 13, 1999, deadline for implementation.

• On May 14, 1999, the Government announced that Canada would be requesting authorization from the WTO Dispute Settlement Body to retaliate against the EU for its continued ban. Under the rules of the Dispute Settlement Understanding, Canada had 30 days following the May 13, 1999, deadline (i.e., until June 12) to make its requests.
• At the June 3, 1999, meeting of the WTO Dispute Settlement Body, Canada requested authorization to retaliate on EU products valued at $75 million annually. The EU requested arbitration on the amount of retaliation that Canada was requesting. This precluded the Dispute Settlement Body from granting the authorization to retaliate pending completion of the arbitration process.

• On July 12, 1999, the WTO Arbitrators determined that the value of Canada's nullification or impairment suffered as a result of the EU ban was $11.3 million annually.
• On July 26, Canada resubmitted its request to the WTO Dispute Settlement Body for authorization to retaliate against the EU and its Member States in an amount of $11.3 million annually. The authorization was granted.
• On July 29, Canada announced the list of products that will be subject to a 100-percent duty beginning on August 1, 1999.
• The products affected are all in the meat sector (beef and pork), except for cucumbers and gherkins.
• The retaliation against beef will preclude the EU from exporting its subsidized beef to Canada, an issue that has concerned the Canadian beef industry for some time.
• Under the terms of a bilateral agreement with Canada concluded in 1995, the EU undertook to limit to 5 000 tonnes its subsidized beef exports to Canada. While the EU has not been able to export beef to Canada because of BSE and other sanitary issues, the EU nevertheless has the potential to resume exports should the BSE and the sanitary issues be resolved.
• As for tariff item 020329, which includes pork products such as frozen spareribs and boneless cuts, Canada is creating a tariff rate quota of 2 970 metric tonnes commencing on August 1, 1999. Products imported in excess of 2 970 metric tonnes will be subject to a 100-percent duty. Products imported within the tariff rate quota will continue to be duty-free.
• The tariff rate quota for frozen pork from the EU will be administered on a first-come, first-served basis by the Department of Foreign Affairs and International Trade. Information on the administration of the tariff rate quota is contained in a Notice to Importers available on the following Internet site: www.dfait-maeci.gc.ca~eicb
• The final retaliation list is based on comments received in response to the April 17, 1999, Canada Gazette notice and the value of retaliation established by the WTO Arbitrators.
• As indicated before, Canada's objective remains access for Canadian beef.
• The retaliatory duty will remain in effect until the EU restores access for Canadian beef or until the EU and Canada come to an agreement on satisfactory compensation.

FINAL RETALIATION LIST ⁽¹⁾

⁽¹⁾ Goods that are in transit to Canada on or before August 1, 1999, are excluded from this measure.

⁽²⁾ The tariff rate quota will be administered on a first-come, first-served basis by the Department of Foreign Affairs and International Trade. Information on the administration of the quota is contained in a Notice to Importers available on the following Internet site: www.dfait-maeci.gc.ca~eicb