News release
CANADA DISAPPOINTED WITH WTO DAIRY DECISION
OTTAWA, December 20, 2002 - Lyle Vanclief, Minister of Agriculture and Agri-Food and Pierre Pettigrew, International Trade Minister expressed disappointment with today's decision by the World Trade Organization (WTO) Appellate Body that Canada's approach to the export of products made from commercial export milk constitutes an export subsidy.
Given that the Appellate Body emphasized that the WTO consistency of Canada's domestic supply management system was not at issue in these proceedings, exports of dairy products produced within the supply management system, can continue but must comply with Canada's WTO exports subsidy commitment levels.
"Dairy industry stakeholders, the provinces and the Government of Canada have worked to ensure Canada's approach is consistent with our WTO obligations and it's tough for all of us to see those efforts go unrecognized by the WTO," said Mr. Vanclief. "However, we have to continue to work together to determine where we go from here, and I am committed to continue working with industry and the provinces to establish the best way to comply with this decision."
" I am disappointed with the WTO's conclusion, especially given the changes made to our dairy sector since 1999," said International Trade Minister Pierre Pettigrew. "While we believe we had removed all links to government in export activities when the market-based commercial export milk transactions were developed, we recognize the importance of clear, enforceable rules governing international trade and we fully intend to abide by this decision."
Following an initial loss before a WTO panel in 1999, the federal government and the dairy industry implemented major changes to the way exported dairy products are marketed. Not satisfied with these changes, the United States and New Zealand requested a WTO Compliance Panel to examine the issue further. The panel ruled that Canada's commercial export milk approach confers export subsidies. Canada appealed the ruling, and on December 3, 2001, the Appellate Body concluded there was insufficient evidence to determine whether Canada was violating its WTO obligations. This year, the complainants launched a third challenge against Canada leading to another WTO Compliance Panel ruling against Canada in July.
Today's Appellate Body decision is the result of an appeal which Canada filed on September 23. The Appellate Body's report will be presented to the WTO Dispute Settlement Body for adoption in January 2003. The WTO dispute settlement process provides for the possibility of compensation or retaliatory measures. Should this process proceed, such measures must be approved by an arbitrator. This process can take up to 60 days to complete.
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For further information, please consult the following backgrounders:
For more information, media may contact:
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Donald Boulanger Press Secretary Minister Vanclief's Office Ottawa (613) 759-1761 |
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Media Relations Agriculture and Agri-Food Canada Ottawa (613) 759-7972 |
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Sébastien Théberge Director of Communications Minister Pettigrew's Office Ottawa (613) 992-7332 |
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Media Relations Department of Foreign Affairs and International Trade Ottawa (613) 995-1874 |
All About Canada's Dairy Industry
- Canada's dairy sector is a significant part of the Canadian agriculture and agri-food economy.
- In 2001, total net farm cash receipts from the dairy sector stood at $4.2 billion. This puts the industry in fourth place in the Canadian agriculture sector behind grains, red meats and horticulture.
- During the same period, dairy products shipped from approximately 275 federally inspected processing plants were valued at $9.8 billion, accounting for 14.3 % 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.
- For the 2001-2002 dairy year, there were 1.137 million milk cows in Canada on 18,227 dairy farms, delivering 76 million hectolitres of milk. The average Canadian dairy farm had 61 cows and produced 4,082 hectolitres of milk.
- 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 1% of the volume of dairy products traded on international markets.
- Canadian milk and dairy products are recognized internationally for their superior quality. Canadian dairy product exports totalled more then $440 million in 2001. Canada exports easily stored products like butter, milk powders, condensed and evaporated milk to developing countries. As well, higher-value dairy products such as aged cheddar cheese, some of the finest speciality cheeses, ice cream and dairy beverages have been exported to traditional and new markets.
- Dairy product imports into Canada totalled $545 million in 2001. Cheeses had the majority with 36% of import value. The European Union is Canada's main supplier of imported dairy products, accounting for 35% of total dairy product imports. Cheese is the main dairy product imported from European Union countries. New Zealand is Canada's second leading supplier with 27%, followed by the United States with 23%.
- In 2001, Canadian dairy genetics, recognized for their disease-free status and their ability to produce high quantities of milk over many lactations were exported to 50 countries. Exports of Canadian dairy genetic material are valued at more than $150 million annually. In 2001, major export markets were the United States, the United Kingdom, Spain, Japan, Germany, Mexico, Brazil, Australia, Iran and the Netherlands.
- Canada's dairy sector functions under a supply management policy framework. The federal and provincial governments authorize provincial milk marketing boards and agencies to use individual producer quotas to match overall milk production to domestic market requirements of milk and dairy products.
- Getting milk from the cow to the consumer requires a high degree of coordination and cooperation 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, and dairy processors' organizations, such as provincial dairy councils, play a key role in helping to ensure that the Canadian dairy industry remains strong and dynamic.
- There are two markets for domestic milk in Canada. In 2001, the fluid market (table milk and fresh cream) accounted for 38.6% of milk production or 28.1 million hectolitres, and the industrial market (manufactured dairy products such as butter, cheese, yogurt and ice cream) accounts for the remaining 61.4% or 44.7 million hectolitres of milk.
- The industry has excellent research and development capabilities, both at the production and processing levels. 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.
- 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.
- The responsibilities of the Minister of Agriculture and Agri-Food include supporting agricultural productivity and trade, stabilizing farm incomes, encouraging research and development, and being responsible for the inspection and regulation of animals and plant-life forms. The Minister has been assigned responsibility for coordinating rural development and enhancing the quality of rural life. Agriculture and Agri-Food Canada's mandate includes dairy policy and research, market development, rural development, and livestock improvement.
For more information please see www.dairyinfo.agr.ca
WTO Dairy Challenges
December 20, 2002
The WTO Rulings
In 1999, as a result of World Trade Organization (WTO) Panel and Appellate Body decisions regarding Canada's dairy export pricing practices, major changes were made to the marketing of Canadian dairy products destined for export. These changes involved the deregulation of milk for commercial export transactions by the federal government and the nine affected provinces.
However, in early 2001, these changes were deemed unsatisfactory by the governments of New Zealand (NZ) and the United States (U.S.). Following a request by these two nations, a Compliance Panel to further investigate Canada=s dairy export pricing practices was established. In July 2001, a Panel report confirmed that Canada=s policy remained WTO inconsistent. This ruling was then challenged by an Appellate Body Report which stated that the U.S. and NZ had not adequately proven their case. (December 3, 2001). As the panel did not make findings on some key factors, the Appellate Body was unable to find whether Canada had violated its WTO obligations. Consequently, the complainants sought and received another compliance panel. It is the report of this second Compliance Panel, which ruled against Canada (July 26, 2002), that Canada appealed.
The Appellate Body ruling of December 20, 2002 upheld the Compliance Panel findings, indicating that Canada's commercial export milk (CEM) practices constitute export subsidies. Specifically, they found that producers sell CEM at prices below their cost of production (i.e. "payments" are being provided) and that governmental actions regulating the domestic market have the effect of financing these payments.
Canada's Measures to Implement the 1999 WTO Ruling
As a result of the 1999 WTO ruling, Canada changed the way milk destined for exported dairy products is marketed. Based on the ruling, and following consultation with the provinces and industry, governments at both the federal and provincial levels have removed themselves from export activities and this milk for export is now bought and sold in accordance with market demands. Commercial export milk markets in nine provinces were operational on August 1, 2000. Despite these changes, the United States and New Zealand remained of the view that Canada is not in compliance with its WTO obligations and initiated a WTO Compliance Panel.
Arbitration process (retaliation/compensation) The WTO Dispute Settlement Body has established an Arbitration Panel in response to requests by the United States and New Zealand for authority to retaliate. The arbitration process remains suspended and can only commence once the report has been adopted. The report is expected to be adopted in early January 2003.
Consultations Since the beginning of this WTO challenge, the federal government has closely consulted with the provincial governments and dairy industry stakeholders in the preparation and presentation of Canada's defence. Provincial officials have attended all WTO hearings as observers, as part of the Canadian delegations. Dairy industry representatives were also in Geneva to provide expert advice to the delegation. In addition to several conference calls, special federal/provincial/industry consultation sessions were held in Ottawa in preparation for all of the Geneva hearings. In preparation for the Appellate Body hearing, close consultations were undertaken to ensure provincial and industry input into Canada's defence.
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Chronology: Canada-United States-New Zealand WTO Dairy Dispute
March 25, 1998
A WTO dispute settlement panel is established following two separate GATT Article XXII consultations: November 19, 1997 between Canada and the United States; January 28, 1998 between Canada and New Zealand.
March 17, 1999
The Final Report of the WTO Panel is released. The Panel finds Canada's exports of dairy products under Special Milk Classes 5(d) and 5(e) to be subsidized. The Panel recommends to the Dispute Settlement Body that Canada be requested to bring its practices into conformity with its obligations.
July 15,1999
Canada files its notice of appeal.
October 13, 1999
The WTO Appellate Body Report is released. The Appellate Body upholds Canada's appeal with regards to its administration of Canada's tariff rate quota for fluid milk. It also finds that the Panel had ruled correctly when it concluded that Canada's exports of dairy products under Special Milk Classes 5(d) and 5(e) were export subsidized.
December 22, 1999
Implementation consultations conclude with an agreement outlining a timetable and implementation steps that Canada will follow to bring its dairy export and import practices into conformity with the WTO Appellate Body and Panel decisions.
During 2000
Canada provides regular Implementation reports to the WTO Dispute Settlement Body on June 8, July 13, September 14, October 12, November 6 and November 30.
Consultations are held with New Zealand and the United States on February 23, May 18, June 22/23, October 2 and December 7/8. During these consultations, Canada updates New Zealand and the United States on the implementation of the WTO Appellate Body and Panel decisions. Statistical reports are provided on Special Classes 5(d) and 5(e) permits and exports for butter, cheese, skim milk powder and other milk products. Both the United States and New Zealand indicate that there are irreconcilable differences regarding what is necessary for Canada to bring itself into compliance with its WTO obligations.
January 31, 2001
The implementation period for Canada to comply with the WTO Panel and Appellate Body decisions ends.
February 9, 2001
Consultations held with United States and New Zealand in Geneva do not resolve the dispute.
February 16, 2001
Both New Zealand and the United States submit requests to the WTO Dispute Settlement Body for a Compliance Panel and to suspend the application of tariff concessions provided to Canada (covering trade in the amount of US$35 million, total US$70 million).
February 28, 2001
Canada opposes the suspension of tariff concessions and requests that the matter be referred to an Arbitration Panel. The arbitration process is suspended pending the outcome of the Compliance Panel/Appeal process.
March 1, 2001
The WTO Dispute Settlement Body establishes a Compliance Panel to review Canada's implementation of the WTO "Dairy" decisions.
May 29-30, 2001
A WTO Compliance Panel hearing is held in Geneva.
July 11, 2001
The public report of the WTO Compliance Panel is released. The Compliance Panel finds Canada's commercial export milk to be subsidized. The Panel recommends to the Dispute Settlement Body that Canada be requested to bring its practices into conformity with its obligations.
September 4, 2001
Canada files its notice of appeal.
October 26, 2001
A WTO Appellate Body hearing is held in Geneva.
December 3, 2001
Appellate Body of the WTO submitted its report, in which it found that the United States and New Zealand failed to prove that Canada's approach to commercial export milk is WTO inconsistent. The report is then presented to the Dispute Settlement Body for adoption.
December 18, 2001
Although the Appellate Body report was adopted by the WTO, the U.S. and New Zealand continue to maintain that Canada is in breach of its WTO commitments and requested another Compliance Panel.
February 18, 2002
The WTO Dispute Settlement Body established a second Compliance Panel to review Canada's implementation of the WTO "Dairy" decisions.
April 22-23, 2002
A WTO Compliance Panel hearing is held in Geneva.
July 26, 2002
The public report of the WTO Compliance Panel is released. The Compliance Panel finds Canada's commercial export milk to be subsidized. The Panel recommends to the Dispute Settlement Body that Canada be requested to bring its practices into conformity with its obligations.
September 23, 2002
Canada files its notice of appeal.
October 31, 2002
A WTO Appellate Body hearing is held in Geneva.
December 20, 2002
The Appellate Body upholds the Compliance Panel findings, indicating that Canada's commercial export milk practices constitute export subsidies. Specifically, they found that producers sell commercial export milk at prices below their cost of production (i.e. "payments" are being provided) and that governmental actions regulating the domestic market have the effect of financing these payments.
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