NEWS RELEASES
WTO SUPPORTS CANADIAN ABILITY TO LIMIT DAIRY IMPORTS
WTO SUPPORTS CANADIAN ABILITY TO LIMIT DAIRY IMPORTS
OTTAWA, Oct. 13, 1999 - International Trade Minister Pierre Pettigrew and Agriculture and Agri-Food Minister
Lyle Vanclief today announced that the WTO Appellate Body has ruled Canada can continue limiting imports of
fluid milk, under the tariff rate quota (TRQ), to cross-border purchases by Canadian consumers.
On another issue before the Appellate Body, an earlier WTO panel ruling that Canada's dairy export pricing
practices constitutes an export subsidy on some of the milk used in products for export was upheld.
"We are pleased with today's decision regarding Canada's tariff rate quota for fluid milk," said Minister
Pettigrew. "We fought hard together with the industry and the provinces to reverse the original panel ruling."
With respect to the TRQ for fluid milk, Canada had appealed the panel's decision that the limitation on imports
of fluid milk only to consumers was inconsistent with Canada's WTO obligations. The Appellate Body decision
issued today supports Canada's position, although minor changes to the current import regime will be required.
With respect to the export issue, it is expected that some adjustments will be required to certain aspects of
Canada's dairy export pricing practices. The Appellate Body of the WTO has ruled that the Canadian dairy
industry's pricing system as it applies to milk used in some export products is an export subsidy and does not
conform with Canada's commitment under the WTO Agreement on Agriculture. However, the WTO ruling
doesn't prevent Canada from exporting dairy products.
"Canada's system of supply management remains strong under this ruling," said Minister Vanclief. "With some
minor adjustments to reflect the Appellate Body ruling, the system will continue to operate effectively on
exports."
The Canadian industry will not be required to make changes immediately to comply with the decision on export
pricing practices. In the coming weeks, the Canadian dairy industry will be discussing the best ways in which
the industry can make the necessary adjustments. The Canadian government will continue to work closely with
the industry and provincial governments as it has throughout this case.
2
The WTO panel delivered its original decision to the Government of Canada March 17. The government
launched a formal appeal of the decision July 15.
For more information please visit www.agr.ca/cb/trade/multi/dairye.html. The report is available at www.wto.org.
-30-
Two Backgrounders are attached.
For more information, media may contact:
Vern Greenshields
Mr. Vanclief's Office
Ottawa
(613) 759-1020
Suzanne Vinet
International Trade Policy Directorate
Agriculture and Agri-Food Canada
Ottawa
(613) 759-768
Sylvie Bussières
Office of the Minister for International
Trade Canada
Ottawa
(613) 992-7332
Media Relations
Department of Foreign Affairs
and International Trade Canada
Ottawa
(613) 995-1874
Backgrounder
HISTORY OF MEASURES AFFECTING THE IMPORTATION OF MILK
AND THE EXPORTATION OF DAIRY PRODUCTS IN CANADA
October 8, 1997 - The United States requests GATT Article XXII consultations. The United States alleges that
Canada operates, through the Canadian Dairy Commission, a two-priced system that provides export subsidies
in excess of Canada's commitments on export subsidies under the World Trade Organization (WTO)
Agreement on Agriculture. The United States also claims that Canada's implementation of its tariff-rate quota
on milk is inconsistent with its WTO obligations.
November 19, 1997 - GATT Article XXII consultations are held in Geneva between Canada and the United
States (with Australia and Japan joining).
December 29, 1997 - New Zealand requests GATT Article XXII consultations. New Zealand alleges that
Canada operates, through the Canadian Dairy Commission, a two-priced system that provides export subsidies
in excess of Canada's commitments on export subsidies under the World Trade Organization (WTO)
Agreement on Agriculture.
January 28, 1998 - GATT Article XXII consultations are held in Geneva between Canada and New Zealand
(with the United States, Australia and Japan joining).
February 2, 1998 - The United States requests the establishment of a WTO Dispute Settlement Panel.
March 12, 1998 - New Zealand requests the establishment of a WTO Dispute Settlement Panel.
March 25, 1998 - The WTO Dispute Settlement Body (DSB) agrees to the establishment of a Dispute
Settlement Panel to address the complaints from both the United States and New Zealand. Australia and Japan
reserve their rights to participate in the panel process as third parties.
August 12, 1998 - Canada, the United States and New Zealand agree on the composition of the Panel
members.
October 19-20, 1998 - The first Panel hearing is held in Geneva with Australia and Japan participating.
November 17-18, 1998 - The second Panel hearing is held in Geneva.
February 5, 1999 - The Panel's Interim Report is issued.
March 17, 1999 - The Panel's Final Report is released to the Parties. The Panel finds Canada's exports of dairy
products under Special Milk Classes 5(d) and (e) to be export subsidies. It concludes that the Canadian
practice of providing milk (milk components) at a lower price to processors, contingent on use in exports, is a
direct subsidy in the form of a "payment-in-kind" as provided by Article 9.1(a) of the Agriculture Agreement. It
also concludes that this practice constitutes a "payment" by virtue of government action as set out in Article
9.1(c). The Panel goes on to find that dairy exports provided through Classes 5(d) and (e) are subject to
Canada's export subsidy reduction commitments. As the quantity of exports through 5(d) and (e) exceeds
reduction commitments, Canada is found to be breaching its obligations. The Panel also finds 5 (d) and (e) to
be an export subsidy within the meaning of Article 10.1.
With regard to the U.S. complaint on the administration of Canada's tariff rate quota (TRQ), the Panel rules that
the restrictions applied on imports under the TRQ are not supported by the language in Canada's tariff
schedule relating to cross-border purchases by Canadians, consistent with WTO trading rules (GATT Article
II:1.b).
March 25, 1999 - Minister for International Trade Sergio Marchi publicly announces Canada's intention to
appeal the Panel's findings.
May 17, 1999 - The WTO Final Panel Report is circulated to all WTO Members.
July 15, 1999 - Canada files its formal notice of appeal with the WTO Appellate Body Secretariat.
July 19, 1999 - The Parties are informed by the WTO Appellate Body Secretariat which members of the WTO
Appellate Body will hear Canada's appeal.
September 6, 1999 - A hearing before the WTO Appellate Body is held in Geneva.
October 13, 1999 - The WTO Appellate Body Report is circulated to all WTO Members.
Backgrounder
ALL ABOUT CANADA'S DAIRY INDUSTRY
...at a glance
Canada's dairy sector is a significant part of the Canadian agriculture and agri-food economy. In 1998, total net
farm cash receipts from the dairy sector stood at $4 billion. This puts the industry in third place in the Canadian
agriculture sector behind grains and red meats.
During the same period, dairy products shipped from approximately 270 processing plants were valued at more
than $8 billion, accounting for 14% of all processing sales in the food and beverage industry in Canada.
Moreover, there are nearly 26,000 people working on dairy farms, and almost 20,500 other workers are
employed at the primary processing level.
About 81% of Canada's dairy farms are in Ontario and Quebec, 14% in the Western provinces, and 5% in the
Atlantic provinces. In 1998/1999, there were 1.2 million cows in Canada on 21,561 dairy farms, delivering 79.5
million hectolitres of milk containing 3.6 kilograms of butterfat per hectolitre. The primary breeds are Holstein
(comprising more than 85% of Canadian dairy herds), Ayrshire, Jersey, Brown Swiss, Canadienne, Guernsey,
and Milking Shorthorn.
Based on official records for all breeds in 1998, the average production of cows enrolled in milk recording
programs reached an impressive level of 8,738 kilograms of milk in 305 days of lactation. Protein and butterfat
levels averaged 3.24% and 3.70% respectively. Canada is among the countries having the highest average
levels of milk production, confirming that we have one of the best dairy genetics in the world.
Canada's dairy sector functions under a supply management policy framework and the dairy industry operates
on a "dairy year" basis which runs from August 1 to July 31 each year. In 1998-99, the average Canadian dairy
farm had 54 cows.
Strict quality standards at both the farm and processing levels contribute to Canada's strong reputation for
high-quality dairy products. The Canadian dairy industry is also active in technological development and in the
use of modern technologies. Canada's dairy herds have been established through strong genetic improvement
and evaluation systems, using state-of-the-art technologies and methodologies such as the Test Day Model
(TDM) for genetic evaluation.
Canada supplies more than 20% of dairy genetics to the world in the form of high-quality dairy cattle, embryos
and semen. However, Canada exports less than 2% of the volume of dairy products traded on international
markets.
...in detail
There are two markets for milk in Canada. The fluid market (table milk and fresh cream) accounts for 39% of
milk production or 30.9 million hectolitres, and the industrial market (manufactured dairy products such as
butter, cheese, yogurt and ice cream) accounts for the remaining 61% or 48.5 million hectolitres of milk.
Getting milk from the cow to the consumer requires a high degree of co-ordination and co-operation among
producers, processors, provincial and federal governments, and inspection staff. The Canadian Dairy
Commission (CDC), a Crown corporation, Agriculture and Agri-Food Canada, in partnership with producer
associations, such as the Dairy Farmers of Canada (DFC), and dairy processors' organizations, such as the
National Dairy Council of Canada (NDCC), play a key role, helping to ensure that the Canadian dairy industry
remains strong and viable.
Canada's orderly marketing system is designed to encourage the production of sufficient volumes of industrial
milk and cream to meet domestic demand for dairy products as well as certain planned exports. The
Commission, in its facilitative role, helps build consensus within the industry, which characterizes the overall
approach to orderly marketing in Canada's dairy industry.
The Canadian Food Inspection Agency (CFIA) is responsible for establishing dairy product standards and
grades, dairy plant inspections, and regulating packaging and labelling requirements. The CFIA is also
responsible for animal health programs and the monitoring of product safety.
Agriculture and Agri-Food Canada's mandate includes dairy policy and research, market development, rural
development, and livestock improvement.
The industry has excellent research and development capabilities. Joint ventures between processors and
universities and federal and provincial research stations such as the Food Research and Development Centre
at Saint-Hyacinthe, Quebec, are common. Most of this research is directed towards product development
activities and improvement of processing techniques.
At the primary level, the Canadian dairy sector has impressive research facilities (government, universities,
private sector) that work to maintain and improve the long-term competitiveness of the sector through the
development and transfer of innovative technologies. The Dairy and Swine Research and Development Centre
in Lennoxville, Quebec, is the national research centre on dairy production.
The Canadian dairy sector has also developed a cattle population of the highest genetic calibre in the world.
This is based on strong milk recording and genetic evaluation programs, which have been in place in Canada
since 1905. Canada is also free of all major cattle diseases, mostly due to its strict standards for disease
control, which are the responsibility of the CFIA. Bovine spongiform encephalopathy (BSE) does not exist in
Canada.
In 1998, Canadian cheddar cheese production reached 127,466 tonnes. This represents a slight decline from
the previous calendar year. Quebec remains the leading producer of cheddar cheese, with 50% of Canada's
total production.
Canada's production of specialty cheeses peaked in 1997 at 207,370 tonnes, but dropped to 202,734 in 1998.
Mozzarella leads the way, accounting for 49% of total speciality cheese production.
Quebec remains the major producer of cheese in Canada, accounting for 57% of total domestic production of
cheddar and specialty cheeses.
Canadian butter production in 1998 was at its lowest level in the last three years. It totalled 85,935 tonnes,
down 4% from the previous year. Quebec accounted for 38% of butter production in 1998, followed by Ontario
with 32%.
Canadian production of ice cream and ice cream products has declined steadily in Canada over the last four
years. It fell from 524 million litres in 1994 to 470 million litres in 1998. Ontario remains the leading ice cream-producing province, with 48% of Canada's total production.
Canadian yogurt production in 1998 totalled 111 million kilograms, a 9% increase from 1997. Quebec accounts
for 48% of domestic production, followed by Ontario with 36%.
Canadian milk is recognized internationally for its superior quality. Canadian dairy product exports totalled close
to $401 million in 1998, an 8% or $27 million dollar increase from the previous year. Canada exports easily
stored products like butter, milk powders, condensed and evaporated milks to developing countries. In the last
few years, more and more value-added products such as cheese and ice cream have been exported to
traditional and new markets.
Dairy product imports into Canada totalled $313 million in 1998. Cheeses had the lion's share with 56% of
import receipts, followed by casein and whey products, each with 12%. The European Union is Canada's main
supplier of imported dairy products, accounting for 42% of total dairy product imports. The United States is
Canada's second leading supplier with 27%, followed by New Zealand with 19%.
Canadian dairy cattle, recognized for their disease-free status and their ability to produce high quantities of milk
over many lactations, are exported to over 50 countries. Exports of Canadian dairy genetic material were
valued at more than $113 million in 1998. Major export markets are the United States, the United Kingdom,
Mexico, Italy, Switzerland, Spain, Australia, Germany, Japan and Brazil.
For more detailed information, contact:
Pierre Doyle, P.Ag. Assistant Director,
Dairy Section Market and Industry Services Branch
Agriculture and Agri-Food Canada
2200 Walkley Road
Ottawa, Ontario, K1A 0C5
Telephone: (613) 759-6264
Fax: (613) 759-6313
E-mail: doylep@em.agr.ca
Monique Castonguay
Communication Officer
Strategic Planning, Policy and Communications Division Canadian Dairy Commission 1525 Carling Avenue
Ottawa, Ontario, K1A 0Z2
Telephone: (613) 792-2035
Fax: (613) 998-4492
E-mail: cdc@em.agr.ca
| 
